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Assessing Organizational climate and leadership as a means to evaluate potential for organizational change

Dr. Tsai Chen Li, Department of Marketing Logistics Management, Chihlee Institute of Technology, Taipei, Taiwan

ABSTRACT As a typical case, The shipping company Marglobal International Logistics Company (Marglobal)'s story tells us that it is difficult for employees to work in an organization in which the rules are different for different employees and exceptions are always being made. That is to say that organizational principles and systems need to be consistent and practiced consistently by everyone. This action research study endeavored to answer three research questions regarding (a) education and training of the leadership to determine if these contribute to the improvement of team building and organizational values, (b) factors contributing to the development of quality leadership and management within a company or organization, and (c) the contribution of organization climate and culture guided by leadership on the development a quality and effective organizational climate. The problem studied centered on trying to ascertain the mechanisms for developing leadership in order to maintain trust among employees. LITERATURE REVIEW There are so many studies on literature with special emphasis on the relationships between leadership qualities, organizational climate, and creating organizational change through shared organizational principles and values. It is claimed that the source of an organization's strengths, its abilities, and its projected global organizational culture rests with the leadership, and "the key is to measurability link culture, leadership, and strategy, and then pinpoint where alignment is lacking" (Schneider, 2000, p. 29). There is a distinct need for organizational leaders to reflect a higher readiness and inclination to reflect an adaptive leadership style that is socio-emotionally supportive in leader-follower relationships (Jung & Avolio, 1999). In the quest for a better understanding of leadership effectiveness, researchers "are most often interested in how particular kinds of leadership rate to individual, group, and organizational effectiveness" (Pearce et al., p.293, 2003), thereby seeking systematic leadership style definitions as a possible framework to support the organizational development efforts. Other literature suggests that global organizations are now facing significant challenges (Andersson, 2002) amidst an environment of many rapidly changing market environments (Dostaler, 2000). Thus, finding the effective leadership practices that are conducive to addressing the diverse global cultural environment (e.g., de Vries et al., 2002; Hodgetts et al., 2006; Javidan et al., 2006; Low, & Shi, 2001; Schein, 2003; Terpsta-Tong & Ralston, (2002); Trompenaars & Woolliams, 2003) as well as adapting best practices in organizational cultures will foster follower commitment and productivity for organizational efficiency (Judge & Piccolo; 2004).

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The aim of this study was to examine the characteristics of organizational climate, leadership and teamwork as perceived by the staff of a large organization in Taiwan and explored the relationship between these three organizational characteristics. The following chapter outlines the sampling process, research procedures and the instrumentation used in this study. METHODOLOGY The study looked at how leadership relationships influence employees' to change organizational climate perceptions. Specifically, it was expected that stronger leader influence on change climate perceptions among employees sharing a high-quality relationship with their supervisor would be found. The following hypotheses were proposed and tested: H1: Employees experiencing a higher quality leadership relationship with their supervisor will perceive the climate as change-conducive. H2: Employees working with a supervisor who perceives the climate as change-conducive will also perceive the climate as change-conducive. H3: Employees experiencing a higher quality relationship with their team will perceive the climate as change-conducive. H4: Employees working with a team which perceives the climate as change-conducive will also perceive the climate as change-conducive. H5: Employees experiencing a high quality relationship with a team who perceives a change-conducive climate, will be more likely to perceive the climate as change-conducive. Sample The initial goal was to have a study sample of about 200 employees from all levels and operations of the shipping organization that was the focus of this study. Of the 200 total surveys to be collected, it was hoped that at least half will be matching pairs of surveys (i.e. both employee and supervisor responding) and available for the study analyses. Basic demographic data was also collected. Data was collected using self-administered surveys distributed and completed on-site during normal working hours by the principal researcher. The original goal of the research was to collect data from approximately 200 participants from all levels of the organization including both females and males and include line staff, executives and managers. This was a convenience study sample from all levels and operations of a major shipping organization. This company was chosen because the author works for the company has access to employees and the support of upper management. In addition, this is a large company with many employees. Since the majority of companies in Taiwan are small and family centered businesses, this company provides a unique opportunity to study a large complex organization of a type that this not that commonly found in the Taiwan culture. Of the surveys collected, it was hoped that at least half would be matching pairs of surveys (i.e. both employee and supervisor responding). The final sample was made up of 242 employees within the company who provided the data. These included individuals from twenty one work groups consisting of at least two people reporting to a single supervisor. Of the 242 employees surveyed 218 surveys or 90 per cent were returned. To have internally consistent data for all analyses, any surveys with missing data on any of the study variables were deleted. This yielded a reduced sample size of 203 since another 15 respondents were eliminated for a final return rate of 84 %. Of the final sample it was possible to pair up the responses of supervisors and employees for

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174 of the responses. Thus, responses were obtained for 32 supervisors and 142 employees supervised by them. Thus, the sample included of 32 work groups with responses from an average of 4.44 members of the team as well as the supervisor. The proposed sample sizes were therefore exceeded. In terms of demographics of the sample, the average age of the respondents was 34.2 years. Of the sample 130 or 64% were female and 73 or 36% per cent were male. Average time working for the company was 7.7 years with an average of 2.1 years in their current job. In addition, they averaged 1.8 years working under their current supervisor. The sample had fairly high education levels with 9.7 per cent with graduate degrees, 42.8 per cent had either a bachelor's degree or some graduate school, 28.7 per cent had attended some college, and 18.8 per cent had completed high school. Procedure Participants were informed about the study prior to the administration of the survey by a letter from a senior executive and they were told that the investigation involved factors affecting leadership and work unit performance. The voluntary and confidential nature of the study was stressed. Because of the importance of linking subordinates to supervisors in this research, each subordinate questionnaire was coded so that responses could be matched with the supervisor's ratings of performance and LMX quality. Respondents were informed that only average or summary information across departments would be reported back to the organization for feedback "the data would not be used for evaluative purposes and no information would be traceable to an individual employee. Data was collected by using a set of self-administered surveys distributed and completed on-site during normal working hours. Participation in the study was voluntary. A colleague of the researcher agreed to administer the tests since the primary researcher was known to a few employees. Typically employees were approached at the end of regularly scheduled meetings and asked to participate. They could complete the questionnaires (or not) and return them in postage paid envelope that was provided so that participants can return their questionnaire with a complete assurance of anonymity and confidentiality. The data collector followed specific directions for soliciting respondents (See Appendix D). These included a statement that while participation was completely voluntary and appreciated by the researcher, respondents should not feel obligated in any way and should feel free to decline to participate or if they were willing to start participating but change their mind during the completion of the questionnaire, they could stop participating at any time. In addition, all potential respondents were told that the data was being collected as part of a doctoral program by the researcher. They were also told that all responses were voluntary and that their responses would be kept confidential and know one, including the researcher, would know who the respondent was from the questionnaires. Respondents were asked to write their employee number on a separate sheet of paper that was later detached and destroyed once the data was transferred to anonymous data sheets. The reason for the use of the number was explained to potential respondents as a mechanism for matching manager and employee responses but if the respondent did not choose to or feel comfortable giving this number, they were told they could leave this page blank. The only two people who could match a number to a name were in the human resources office. To protect confidentiality further, these two individuals never did see any of the completed questionnaires. They did, however, provide lists of employee numbers for managers and the people they supervise to the researcher. Since no names were attached to the numbers in these lists, the researcher did not know whose number was whose only that a particular number was a supervisor and another number worked under that supervisor. In this way matching manager and employee was possible

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but neither the researcher nor anyone else was able to identify the respondent by name. An attempt was made to collect all data during a two week period in August, 2006 to minimize the impact of events outside of the control of the researcher. Data was kept in a locked cabinet in the primary researchers home and data was transcribed onto an excel spreadsheet on the researchers home computer. Instrumentation Participants completed an anonymous questionnaire on a completely voluntary basis. The decision to participate or not rested with the company employees and all participants were allowed the opportunity to change their mind after agreeing to participate and allowed to terminate their commitment. A postage pre- paid envelope was provided to each participant so that they could return their questionnaire with a complete assurance of anonymity and confidentiality. Participants were told that there were no right or wrong answers to questionnaire items and that since questionnaires would be collected in separate envelopes and placed in separate places in the locked cabinets in my office confidentiality and anonymity was assured for all participants. The questionnaire included several scales. The quality of the supervisor- employee relationship was assessed using the seven-item leader member exchange (LMX) instrument (Graen et al., 1982) that utilizes a five-point scale (Cronbach alpha 0.90). The LMX measure is the most frequently used measure in LMX research. Graen and UhlBien (1995) strongly recommend its use over other measures. In addition, Liden and Maslyn (1987) have reported that the scale obtains high internal consistency and test-retest reliability as well as freedom from either social desirability and acquiescence biases\ and other studies supports its concurrent and predictive validity. Sujdak (2002) found an alpha of 0.84 which is consistent with the work of former researchers. Team relational quality was assessed using an instrument developed by Schein (1969), consisting of eight items assessed on a ten-point scale from poor to good (Cronbach alpha 0.85). Employees provided their perceptions of the supervisor-employee and team-employee relationship quality. Climate was assessed using a 34-item, five-point scale instrument which was the modified Litwin and Stringer Organizational Climate Questionnaire (LSOCQ) (1974). The LSOCQ consists of nine scales, which include structure (8 items), responsibility (7 items), reward (6 items), risk (5 items), warmth (5 items), support (5 items), standard (6 items), conflict (4 items) and identity (4 items). Thus, the questionnaire items look at the conditions considered necessary for organizational change: including risk-taking and deviation from the status quo; open communication and information sharing; operational freedom; employee development; and trust. Price (2001) established the validity of this variable at 0.87. To assess the supervisor climate perceptions, supervisors also completed the organizational climate instrument. For the team climate score, climate score data was organized by work team. A team score for each member was then calculated by averaging the other team members' climate scores, but excluding the focal employee's score. Kim et al. (1996) used this test variable and found a reliability of () 0.76. Price et al. (1981b) also established the validity of this variable at 0.87. Basic demographic data was also collected. The following chapter presents the results of the data analysis including the statistical measures used and statistical significance levels where appropriate. RESULTS Once all questionnaires had been collected, data was checked to ensure that the questionnaires were fully completed. Any questionnaire with any incomplete or unclear data was eliminated from the sample.

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Only fully completed questionnaires were considered valid, and the data was then entered into a database for analysis and all identifying numbers were shredded to ensure the confidentiality and anonymity of the responses. Once the data was transferred and tabulated, several statistical measures were used to analyze the data. Data was analyzed using Microsoft Excel and the Statistical Package for the Social Sciences (SPSS). All of the data analyses are reported in this chapter. Response bias could exist within the data since it is possible that employees of supervisors returning completed questionnaires might be different in important ways from those subordinates who could not be matched to a supervisor either by not providing their supervisor's name or some other reason. To test for potential bias two MANOVAs were conducted. The first MANOVA tested demographic differences between the two groups of subjects. Here, subordinate age, gender, organizational level and tenure, and years working with the supervisor and education level served as dependent variables. The different groups of employees operated as two levels of the independent variable, labeled group. The MANOVA was not significant by Wilks's Lambda, F(6, 173) = .85, p > .O5 (two-tailed). From these results it can be concluded that the two groups did not differ in demographic background. The second MANOVA included subordinate reports of LMX, climate, and team relationships as dependent variables. Once again, the two groups of subjects served as two levels of the independent variable, labeled group. The analysis indicated that there was no statistical difference between the two groups by Wilks's Lambda, F(3, 170) = 1.28, p > .05. A combination of correlation, and multiple and moderated regression analyses were used to test the proposed hypotheses. Table 1 provides means, standard deviations, and zero-order correlations for all study variables. Data is presented for three groups of respondents. Since not all employees could be matched to a supervisor the data is presented for the employees as two groups of subjects. The first is the data for all employees and the second is the data for just those employees who could be matched to a supervisor. Since all supervisors could be matched to at least two employees in their tem, their data is presented as a single group. Table 2 provides the inter-correlational values for the three main variables investigated. Hypothesis 1 predicted a positive relationship between the existence of a climate open to change and LMX quality. As can be seen from data summarized in Table 2, the overall measure of organizational climate is positively related to the LMX quality. However, since the LSOCQ has several scales it is possible to analyze this relationship at a more specific level. Table 3 presents the data broken down for the nine scales of the LSOCQ. Table 1 Descriptive Statistics for Key Study Variables with All Employees Included Employees (All) N M SD LMX 171 29.30 6.52 Team Relationship 171 65.7 9.87 LSOCQ (Climate) 171 99.56 17.50 Employees (Matched) LMX 132 29.11 6.17 Team Relationship 132 60.6 10.54 LSOCQ (Climate) 132 95.77 16.98 Supervisor LMX 32 30.69 4.41 Team Relationship 32 69.8 8.73 LSOCQ (Climate) 32 93.1 14.01

0.90 0.85 0.83 0.88 0.86 0.84 0.89 0.85 0.81

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Table 2 Intercorrelations between the Key Variables Employees (All) LMX Team Relationship LMX Team Relationship 0.52** LSOCQ (Climate) 0.43** 0.29** Employees (Matched) LMX Team Relationship 0.48** LSOCQ (Climate) 0.37** 0.26* Supervisor LMX Team Relationship 0. 49** LSOCQ (Climate) 0.33** 0.21*

* p < .05, ** p < .01

Climate

-

-

Table 3 Correlations between the LSOCQ Scores and the LMX Scores Broken down by LSOCQ Scales LSOCQ Scale LMX (Employees) LMX (Supervisors) Structure 0.29** 0.19 Responsibility 0.34** 0.37* Reward 0.21* 0.25 Risk 0.11 0.12 Warmth 0.34** 0.37* Support 0.39** 0.29* Standard 0.31** 0.27 Conflict 0.14 0.16 Identity 0.34** 0.37*

* p < .05, ** p < .01

In reviewing the data derived from the more detailed analysis, it can be seen that although the intercorrelations were similar for both the employees and supervisors, the majority of correlations for the supervisors did nor reach a statistically significant level since this sample size was much smaller. Conflict and risk were the climate factors least related to leader quality and responsibility, warmth and identity were the most related to leadership quality. Based on these findings hypothesis one, that a positive relationship between the existence of a climate open to change and LMX quality exists, is supported. Hypotheses 2 predicted a positive relationship between the supervisor and employee's views on how the organizational climate is perceived relative to being change conducive. Table 4 includes the intercorrelations between employee and supervisor scores on the LSOCQ. Because there were several employees for each supervisor and a single matching score was required for data analysis, the scores of all employees reporting to a particular supervisor were averaged and the mean score served as the matching employee score. The results indicate that hypothesis two was supported. There is a positive relationship between the supervisor and employee's views on how the organizational climate is perceived relative to being change conducive. It is worth noting that this finding was not consistent across all of the factors measured by the LSOCQ. While the overall scale showed a positive correlation, the sub scales of structure and support did not. The possible implications of these findings will be discussed in the following chapter. Hypotheses 3 predicted a positive relationship between the employee's team relationship and how the organizational climate is perceived relative to being change conducive. The data for the relationships

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between team relationships and organizational climate is included in Table 2. A positive correlation was found to exist between the LSOCQ scores and the team relationship scores. Although these were the lowest correlations found (between 0.29 and 0.21), they were still sufficiently large to be statistically large enough to preclude chance as an explanation. Thus hypothesis three was also supported. Table 4 Correlations between the LSOCQ Scores for Employees and Supervisors Broken down by LSOCQ Scales LSOCQ Scale Intercorrelation Complete LSOCQ 0.36* Structure 0.29 Responsibility 0.42* Reward 0.36* Risk 0.43** Warmth 0.35* Support 0.29 Standard 0.33* Conflict 0.39* Identity 0.38*

* p < .05, ** p < .01

Hypotheses 4 predicted a positive relationship between the team and employee's views on how the organizational climate is perceived relative to being change conducive. To test this hypothesis a correlation between the team average and the individual team member score was computed. Once again, it was necessary to calculate a mean score for the team so a single score could be computed for comparison with individual scores. There is some potential for an inflated correlation with this procedure because the individual scores form part of the team average. For this reason, a two tail test standard was adopted for establishing a higher statistical significance level. The correlation between the team and individual views on organizational climate for all the employees was r (201) = 0. 26, p < .05. For the matched employees the correlation was r(172) = 0. 29, p < .05. Thus, the fourth hypothesis was also supported. Finally, hypotheses 5 predicted a positive relationship between the team and employees would positively impact the employee's views on how the organizational climate is perceived relative to being change conducive. A multiple regression was completed to test this hypothesis. The multiple regression results did not provide support for hypothesis 5 but did provide additional support for hypotheses 1, 2, 3 and 4. Results indicate that when the influence of employee hierarchy level, supervisor climate view, team quality, and team climate view were all taken into account, LMX was positively associated with employee perceptions of a climate for change (beta = 0.28, p > 0.01). Likewise, team relationship quality demonstrated a significant effect associated with change climate (beta = 0.31, p < 0.01) providing further support for hypothesis 3. Further, when taking into account the other study variables, the climate view of the supervisor was significantly associated with employee climate perceptions as predicted (beta = .36, p < .01), there was a relationship depicted with the team climate view (beta = 0.46, p < 0.01). Thus, additional support was found for hypotheses, one, two, three and four. Regarding the tested interaction effects, when controlling for employee's hierarchical level and main effects, a multiplicative effect for team relationship and leader climate view (Hypothesis 4) (beta = 0.15, p < 0.01), but not for the team quality-team climate view interaction (Hypothesis 5) (beta = 0.08, p < .05.). In summary, correlation analysis results provide support for hypotheses 1, 2, 3, and 4. In addition, the multiple regression provided additional support for these four hypotheses. However, the fifth

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hypothesis was not supported. As indicated, there are significant, positive relationships between LMX, team quality, team climate perceptions, and employee change climate. The following chapter discusses the implications of these findings as well as outlines some of the limitations of this study and possible areas for future research. DISCUSSION The results did not support the final hypothesis that an employee experiencing a high quality relationship there would be an interactive effect for team and leader quality and employee perceptions, however, they did indicate that employees who had the strongest positive climate perceptions also tended to have a favorable relationship with their supervisor (leader) when that person viewed the organization as having an organizational climate that is open to change. Thus, although the team's climate perceptions may influence the employee's perceptions independently of the quality of the employee-team relationship, the leader's view becomes important when the supervisor-employee relationship quality is considered. On the other hand, the link between relationship quality and team organizational climate perceptions seems to have a multiplicative effect on the supervisor-employee relationship but within teams this association tends to be additive. The differences in the two findings may have occurred because leaders have more authority and abilities to reward. As a result, they may be able or be seen to be able to provide greater support for change or change conditions than the other members of an employees' work team. In a complex, multi-factored situation, like the one studied here, it is reasonable to assume that when employees participate in a better relationship with their supervisor they would be more likely to be provided the an opportunity to participate in change opportunities. As a result, the combined effect of a good supervisor-employee relationship and a supervisor's organizational climate perceptions may have a greater impact on employee change climate perceptions. This combined effect would also result in a finding that employees who perceive the climate as least change-conducive will be those in a poor relationship with a supervisor who viewed the climate as favorable toward change. Further, if employees with a high LMX relationship receive benefits from their supervisors related to change this may, in turn, have an adverse effect on low LMX relationship team members who might not benefit from opportunities withheld by that supervisor which in turn would lower their openness to change opportunities within the organizational climate. As a result, employees may not only not see or reject the organizational environmental cues regarding an openness to change climate from their poor LMX relationship supervisor, but the poorer quality of their ongoing interactions with their supervisor may also have a bad confounding effect. This would result in the employee having lower climate of potential for change perceptions than they might have under other circumstances. Study Limitations A few limitations of the current study should be noted. First, the study used a cross-sectional design which is typical in this type of research. However, a longitudinal study would provide a better and more accurate assessment of the causal nature of the relationships identified in this study. A second possible limitation may have occurred because although the data for the study were collected from three different groups (employee, work team, supervisor or leader), data for some of the independent and dependent variables (e.g. LMX and employee change climate) were collected from the same source possibly resulting in some degree of common method variance. Finally, although the current study included employees from different functional areas, it was conducted in a single organizational setting and in a

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specific country, Taiwan. Hence, any attempt to generalize these findings to other types of organizations or cultures should be undertaken with care. Implications The results from this study have a number of potential implications for both theory and their application. From a theoretical perspective, the study attempted to integrate approaches from several different organization theoretical perspectives: organizational climate, leadership, and group dynamics. Any attempt to understand how complex organizational factors work together to impact organizations has value. Secondly, this research contributed to the field by testing hypotheses that social factors in the work place (i.e. supervisor-employee relationship, and team-employee relationship) influence employees' change-related organizational perceptions as suggested by earlier research (e.g. Porras & Robertson, 1992). The study of the influence of these social relationships in a work setting looked at both the relational quality and their organizational climate perceptions. Thirdly, the study's inclusion of interaction effects through the regression analysis provides a more complete and dynamic view of a key element of organizational change. Finally, the outcomes derived from this study indicate that a relational-focused leadership approach, such as LMX, has a direct impact on the concept of change within organizations. While the LMX approach has been found to be relevant when investigating with numerous organizationally-relevant outcomes (Graen & Uhl-Bien, 1995), few studies have specifically tested the role of the LMX approach on the organizational change process. In this study, the LMX relationship was found to account for a significant portion of incremental variance in employee change climate perceptions. This impact went beyond that which was provided by effects of team membership, closeness and perceptions. The study therefore provides additional support for the argument that LMX represents a transformational form of leadership (Graen & Uhl-Bien, 1995). However, the LMX approach emphasizes that membership in a team is a matter of choice for both the employee and the supervisor, and either party may decide not to seek or create a better relationship (Graen & Scandura, 1987). If this happens, there may be groups of employees with poor relationships with their supervisor who, as a result, do not hold have a positive view of the organization's support for change. These employees or groups of employees may be less inclined to support change. If the supervisor-employee relationship does not develop or facilitate the creation of change climate perceptions, the organization will need to find some other ways to indicate that it supports change. Consequently, the influence of the work team on employee perceptions becomes even more important. According to Porras and Robertson (1992), "Organizational members must be the key sources of energy for the change process" (p 754). If this is true, then those in leadership positions and team member members play an important role in motivating and directing employees toward change. Certainly, the quality of the team and leadership relationships shared with employees was found here to be associated with employee's perceptions that they are working in a situation or organization in which change is supported. Results of the current study indicate that the relationships between teams, leaders and employees account for almost all of the variance in employee's perception of the organizational change climate. Since organizational climate has been found to be associated with both employee motivation and behavior for change (Burke & Litwin, 1992), these findings are important in both supporting and extending previous research findings. As a result of being involved in higher quality work relationships, employees should show higher levels of openness to change behavior in the organization.

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Another implication of the findings from this study is that, in order to enhance the potential for positive change, organizations must be willing to support supervisors and teams to develop high quality interactions between the various parties. At the same time, the leaders and the organization should provide team members with working and situational conditions that are likely to result in favorable attitudes toward the work environment which, in turn, should result in more positive discussion and consensus regarding change-oriented elements within the organization (Bateman et al., 1987). Organizational managers also need to be sensitive to the fact that the way they convey their views about change in the workplace may have a significant impact on the employees' views towards change. Even casual or informal comments made a supervisor may influence employee perceptions, so care employees' exposure to negative social cues or information is should be monitored and minimized. Positive social cueing is crucial for any organizational change attempts (Schnake & Dumler, 1987, p. 237). Clearly, organizations need to be aware of both supervisor and team change organizational climate perceptions. REFERENCES

Aburdene, P., & Naisbitt, J., (1992). Megatrends for women. New York: Villard Books. Andersson, S., (2002). Suppliers' international strategies. European Journal of Marketing, 36(1/2), 86-111. Burke, W., (1993). Organization development: A process of learning and changing (2nd ed.). Reading, MA: Addison-Wesley. Burke, W. W., & Litwin, G. H., (1992). A causal model of organizational performance and change. Journal of Management, 18, 523-45. Cooperrider, D., (1995). Organizational development: .Introduction to appreciative inquiry (5th ed.). New York: Prentice Hall. Denison, D. R., (1996). What is the difference between organizational culture and organizational climate? A native's point of view on a decade of paradigm wars. Academy of Management Review 21, 619-654. Ellinor, L., & Gerard, G., (1998). Dialogue: Rediscover the transforming power of conversation. New York: John Wiley & Sons. Farh, J. L., Earley, P. C., & Lin, S.-C., (1997). Impetus for action: A cultural analysis of justice and organizational citizenship behavior in Chinese society. Administrative Science Quarterly, 42, 421-444. Graen, G.. B., (1989). Unwritten rules for your career: 15 secrets for fast track success. New York: John Wiley & Sons. Heifetz, R. A., & Donald, L. L., (2001). The work of leadership. Harvard Business Review, 79(11), 131-141.

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