Leadership styles and innovation management: What is the role of human capital?

Leadership styles and human capital are important drivers of innovation processes. The way the leader interacts with the organization members can pre-empt or leverage innovation processes as leaders influence, empower and motivate other individuals in the achievement of their goals. Human capital is an important driver of innovation and competitiveness, as it will shape the uniqueness of the company as well as the process to obtain skills, capabilities, knowledge and expertise. As such, the main objectives of the paper are to analyze the impact of leadership styles on the innovation process and also to address the moderation effect of the human capital on the previous relation. Four leadership styles - autocratic, transactional, democratic, and transformational - were considered to measure their impacts on the innovation process, considering the alternative types of innovations. The 2018 Community Innovation Survey (CIS) database was used, encompassing Portuguese data, covering the 2016-2018 period, with a sample of 13702 firms. In regard to the empirical part, first, an exploratory analysis was run to better understand the connection between the leadership styles and the innovative strategies followed by an econometric estimation encompassing 28 logit models to disentangle the specific impacts of each leader on each innovation type. Evidence proves that autocratic and transactional leadership styles have a negative impact on innovation and transformational and democratic leadership impact innovation positively. Furthermore, human capital was found to moderate the relationship between leadership styles and the innovation process; i.e., under the same leadership style, the presence of additional skills leverages innovative propensity. The paper brings relevant insights for both managers and policymakers, highlighting that innovation will be accelerated if firms implement more participatory (democratic and transformational) leadership styles and also if they invest in competences to promote knowledge internalization and share. All in all, participatory leadership combined with the internal skills is proved to be an efficient combination for innovation to take place; as such, policy instruments must promote the coexistence of these two factors.