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Article

Effect of Digital Transformation on Firm Performance in the Uncertain Environment: Transformational Leadership and Employee Self-Efficacy as Antecedents of Digital Transformation

by
Levent Gun
*,
Salih Zeki Imamoglu
,
Hulya Turkcan
and
Huseyin Ince
Faculty of Business Administration, Gebze Technical University, 41400 Kocaeli, Turkey
*
Author to whom correspondence should be addressed.
Sustainability 2024, 16(3), 1200; https://doi.org/10.3390/su16031200
Submission received: 12 December 2023 / Revised: 10 January 2024 / Accepted: 13 January 2024 / Published: 31 January 2024
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Versions Notes

Abstract

:
As the functioning of firms has been changing, the digital transformation process is becoming inevitable for all firms. Therefore, scholars and managers pay great attention to this topic. However, there are still significant gaps about its human-related antecedents, and existing studies on its effects on firm outcomes have presented contradictory findings. By addressing these gaps in the literature, this study examines the effect of transformational leadership and employee self-efficacy as human-related antecedents of digital transformation and also its impact on firm performance. Data were collected from 305 participants who are managers in the manufacturing sector. The findings indicate that both transformational leadership and employee self-efficacy are positively related to digital transformation. Results also reveal that digital transformation is associated with operational and financial performance, and that environmental uncertainty strengthens its relationship with financial performance. This research, therefore, contributes to digital transformation literature, deepens the current knowledge, and offers novel and comprehensive insight, by addressing the gaps in the literature.

1. Introduction

Nowadays, digital technologies are developing very rapidly. Digital technologies such as big data, analytics, social media, cloud, intelligent systems, and mobile platforms reshape business models and reinvest business operations [1], and they also affect the behavior of employees and customers in every industry [2,3,4]. Thus, they put pressure on firms to undertake digital transformation initiatives [5,6,7]. Digital transformation has now become a necessity for every firm to survive, develop, and be sustainable [8]. Therefore, it is crucial to know what factors affect success in digital transformation and also its impact on performance outcomes.
Acquiring new digital technologies is not enough to successfully implement digital transformation. Being able to realize the possible benefits of these technologies depends on the active participation of employees and the behavioral styles of managers in the process. Digital transformation requires radical organizational changes, which is why the human factor within the organization is not passive but plays an active role in this change [9]. In other words, the two critical elements required for digital transformation are technology and people [10]. Furthermore, Tabrizi et al. [11] indicated that in a survey conducted with managers, it was found that digital transformation is seen as the first concern as a risk. They explained the reason for this concern that 70% of digital transformation efforts fail, and the main reason for these failures is that although digital technologies provide many advantages, the success of digital transformation is not possible by just having technology. In general, the reason why the intended goal cannot be achieved in all kinds of organizational change initiatives is due to the lack of participation and support of the human factor in the organization [12]. AlNuaimi et al. [13] suggested that digital transformation requires a change in organization and transformational leadership, which has features such as creating an environment of trust and team building, may be vital for this change. Moreover, Bayraktar and Jiménez [12] indicated that employee self-efficacy is very important for successful organizational change since it enables them to support any organizational change by making them self-confident. Thus, the role of transformational leadership and employee self-efficacy may be considered two important antecedents of digital transformation. Although digital transformation is a topic that attracts a lot of attention, there are studies mostly focused on the impacts of organizational features and capabilities. The effect of the human factor on digital transformation has been ignored, and empirical studies are needed on this subject [14].
Digital transformation provides huge potential benefits to firms. It offers advantages that enable firms to reduce costs, increase efficiency, encourage innovation, and increase profitability and sustainability [15,16]. However, since it requires a significant amount of cost, firms are not sure of its business value, and existing studies are inadequate in this regard [17]. On the other hand, although digital transformation is crucial for sustainability, it is important to show that it is effective in making profits and increasing efficiency, as they are the primary aims of firms. Proving to firms that digital transformation contributes to their purpose of existence will encourage them to invest in digital transformation, and, thus, they can make improvements in their practices of sustainability. More empirical findings are, therefore, needed to understand its impact on firm performance. On the other hand, the survival of a firm is affected by the state of the environment [18]. Environmental uncertainty arises from the complexity and dynamism of the environment [19]. Thus, it impacts the outcomes of firm operations. Since one of the most important reasons why firms move towards digital transformation is to survive, be sustainable, and increase their performance by making the right moves in uncertain environmental conditions, environmental uncertainty is expected to strengthen the digital transformation–firm performance relationship. Moreover, as digital transformation enables organizations to have more resources and capabilities [20], environmental uncertainty may enhance its effect on firm performance. However, there is only scarce research in this regard, and these studies have different findings [21]. This points to a need for more empirical evidence on the role of environmental uncertainty.
This research aims to address the mentioned research gaps by examining the impacts of transformational leadership and employee self-efficacy on digital transformation and also the effects of digital transformation on operational and financial performance with the moderating role of environmental uncertainty. In this context, a questionnaire-based survey was conducted, and the hypotheses were tested with responses from 305 managers of manufacturing firms. Singh et al. [22] assert that investigating digital transformation in the manufacturing sector is important.
This study makes two important contributions to the literature. First, this study examines the impact of transformational leadership and employee self-efficacy on digital transformation. Unlike most existing empirical studies, this study draws attention to the importance and role of the human factor in digital transformation. Secondly, this study empirically reveals the relationship between digital transformation and firm performance. This finding enriches the existing literature and also contributes to the current debate about this association. Moreover, by examining the moderating role of environmental uncertainty in these relationships, a significant contribution is made to the limited knowledge on this subject.

2. Background

2.1. Digital Transformation

Digital transformation has made the business world flexible and developed adaptive skills for the constantly changing environment. Change and uncertainty are inevitable in the business environment as digital transformation poses another challenge to changing entire industries [23]—digital innovations and opportunities. Analytics, cloud computing, big data, social media, and mobile platforms have supported the building of competitive digital business strategies [1,24]. Digital transformation is a process where emerging technologies create disruptions, seeking value-creation paths to manage structural changes [25].
The digital transformation involves several changes with cutting-edge technologies [26]. It is defined as the opportunity to change organizational processes to be responsive to technological innovation challenges [27]. Thus, it involves the combination of various digital technologies and innovations affecting employees and, reshaping the organizational culture [28]. Digital transformation is an important strategic choice topic for companies across the globe [24]. Moreover, today, the concept of digital transformation is combined with sustainability-related issues. Therefore, it is a complex intra-organizational challenge, ushering in unique changes in business processes [29].
Digital technologies have led to business changes and new opportunities, such as digital innovation, triggering changes in system architectures and business process restructuring [30]. It requires companies to reconsider their value creation and transform their business models [25] as it is driven by various external factors, including new technologies, changing customer preferences, and new competitors [5,31]. Digital transformation is a broader, more comprehensive concept referring to the strategic role of new digital technologies [32].
In recent years, digital transformation practices have increased [6,33]. Digital transformation strategically affects various industries, particularly manufacturing, automotive, healthcare, banking, telecommunications, and other sectors [34]. Digital transformation is a strategic asset for all companies, whether in data, functionality, resources, or capabilities [35]. Thus, it is a company-wide process with organizational implications [36]. However, many companies need to improve with digital transformation as they begin with only technological changes without creating holistic digital plans and strategies [26]. Actually, it creates radical changes and innovations in companies through computer, information, and communication technologies [25].

2.2. Transformational Leadership

Burns first proposed the term “transformational leadership” in 1978, and then Bass [37] defined it as leaders using words and actions to make followers realize the meaning of their work. Transformational leaders inspire their followers by creating a working atmosphere with trust and cooperation through success and self-realization of the followers [38] -the current leadership literature is considered to be vast [39]. Therefore, this is considered the most effective leadership style based on the leader–follower relationship [40,41].
Transformational leadership inspires subordinates to be more enthusiastic about their organizational extra-role behaviors [42]. Leaders encourage respect and pride in their subordinates, valuing collectivity and loyalty and understanding their needs to create a collective interest in the organization [43]. They ensure a supportive culture, supporting employee empowerment [44] and contributing to the performance of their organizations with their strategic decisions and choices and their support for innovation [45].
Transformational leaders are also the main actors in the digital transformation process [8,13]. Leadership manages the digital business transformation with effective digital business strategies [46]. Transformational leaders in the context of digital transformation act as active designers of change. Digital transformational leadership designs the pace of technological developments to increase their capacity to meet new challenges and consumer demands [47].

2.3. Self-Efficacy

The self-efficacy theory was first developed by Bandura [48], and it has been applied to different research settings. Self-efficacy refers to an individual’s perceived ability to complete a task or achieve a desired goal, and it focuses on the belief in what a person can learn or do [49]. Bandura [48] suggests that self-efficacy is a significant determinant of people’s attitudes to decide how much effort they will show and how long they will sustain their effort in dealing with stressful situations.
Employee self-efficacy is critical for firms, especially when faced with obstacles and change. Only if employees have confidence in their abilities and believe that they can achieve the expected results will they make an effort to overcome these obstacles and take an active role in the change process [50]. While employees with high self-efficacy have a positive attitude toward change and take responsibility, employees with low self-efficacy avoid taking responsibility [51] and may even resist change [52].

2.4. Firm Performance

The primary aim of any firm is to achieve superior performance compared with its competitors [53]. Various factors appeared to affect firm performance in a volatile market environment [54]. As organizations strive to improve their performance, some means have been suggested, including maximizing profits, market share, and customer satisfaction.
In the business context, firms compare their own plans and expected results with the actual results. Thus, firm performance is defined as the ability of an organization to achieve its goals by efficiently and effectively exploiting resources [55]. There are different techniques of organizational performance measures such as market performance and return on investment [56]. While various measures such as investment return, sales return, and equity return are used as indicators of financial performance, some measures such as customer satisfaction are used as indicators of non-financial performance [57]. In this study, operational and financial performance are discussed for firm performance.

2.5. Environmental Uncertainty

Change is inevitable for all organizations to survive, but changes may also bring uncertainty to organizations. Uncertainty may bring undesirable consequences on the individual and organizational levels [58]. Environmental uncertainty has been linked to organizational adaptation to the perceived environmental uncertainty [59] that is connected to the amount of unpredictability, the demand for information in decision-making, and the degree of instability that are also predictors of organizational strategy and performance [60].
Environmental uncertainty has been perceived as both a challenge and an opportunity depending on access to information resources [61]. It has also been connected to opportunities and advantages in a limited number of studies [62].
Environmental uncertainty may have various sources, including technology, market conditions, and competitors with rapid changes and developments in the business world [63]. Technological uncertainty arises from changes in an organization’s technological resources. Market uncertainty reflects a lack of clarity about market dynamics. Competitive uncertainty addresses unpredictable situations in an organizational context with their major competitors’ strategies as a response to environmental changes [61].

3. Hypotheses Development

3.1. Transformational Leadership and Digital Transformation

The attitude of top management plays a decisive role in organizational changes because managers have the responsibility to decide which technologies to acquire, when to acquire them, and for what purposes they will be used [8]. Moreover, for digital transformation, leaders need to motivate employees for digitalization, encourage them to use new technologies, and also ensure coordination [64,65]. Namely, leaders must create the necessary climate for digital transformation, organize resources, and move every factor toward the goal [66]. These point to transformational leadership.
Transformational leaders cultivate trust, encourage followers to pursue goals, and motivate their followers by increasing their confidence. Thus, transformational leadership has resulted in better performance beyond expectations [67]. When considered from the perspective of organizational change, transformational leaders act proactively, increase employee motivation, and act very appropriately regarding organizational change [68]. They also encourage employees to develop innovative perspectives, not stick to the status quo, and take actions that support transformation activities [69]. In addition, transformational leaders inspire positive attitudes of employees to implement change and prevent the change process from being negatively affected by taking action immediately if employees feel stressed or reluctant in the face of change [70]. On the other hand, various problems may arise on many issues during the digital transformation process. Transformational leaders can manage crises very well, cope with them, and direct their employees to solve problems [68]. Based on these arguments, the first hypothesis is as follows:
Hypothesis 1 (H1).
Transformational leadership is positively related to digital transformation.

3.2. Self-Efficacy and Digital Transformation

Digital transformation can cause significant changes in the company’s business practices, processes, and structure. In this regard, employees need to adopt these new working styles and be able to perform the new tasks assigned to them [69]. To achieve digital transformation, employees must be involved in this transformation [69,71]. The human factor within the organization is the fundamental source for digital transformation since while behavior and thoughts towards change ensure a successful transformation, an opposite attitude or thought is the biggest barrier to success in digital transformation [52]. Although digital technologies offer many opportunities to make employees’ work easier and faster, they can also view these technologies as a threat [72]. Employees are key actors in digital transformation, but they may think that digitalization may threaten their jobs and resist change, and, as a result, the transformation effort of the organization may fail [11,14]. Furthermore, they may think that they do not have the necessary skills to perform their new duties during the digital transformation process. In this case, they may resist change [52]. In this context, Bayraktar and Jiménez [12] noted that self-efficacy is a critical resource to deal with challenges in the organizational change process.
Self-efficacy allows employees to believe in their own abilities and knowledge to achieve all the demands of change and leads to new attitudes, thoughts, and behaviors that support change [12]. If people have confidence in themselves and that they can achieve something, they will have a positive attitude toward it and get involved [73]. Namely, if employees have high self-efficacy, they can believe in dealing with every challenge in the digitalization process and being successful in their own tasks. Thus, they can play an active role in this process and support its successful implementation. Moreover, in this process, employees need to constantly learn, quickly adapt to changes and new tasks, and improve themselves digitally [9]. Employees who believe in themselves believe that they too can create change in this process and realize their own role, and they are willing to undertake challenging tasks. While employees’ self-efficacy increases their motivation, it also enables them to focus on solving problems and manage any difficulties [73]. Thus, the second hypothesis of the study is as follows:
Hypothesis 2 (H2).
Self-efficacy is positively related to digital transformation.

3.3. Digital Transformation and Firm Performance

Digital transformation constitutes overwhelming challenges for organizations [6] as it is a disruptive change caused by emerging technologies [25]. It significantly changes customers’ behavioral styles, competitors’ moves, the form of competition, and the supply system. In fact, due to its continuous development, change is becoming more widespread. Since it transforms the nature of work considerably [74], it also affects the performance outcomes and sustainable development of firms.
Digital transformation significantly improves firm’s operations since it optimizes business processes, increases employee productivity, and reduces transaction costs [17]. Digital technologies improve operational processes and increase efficiency [75,76]. Yu et al. [77] indicated that digitalization provides more resources for firms since digital technologies expand both internal and external firm ties and information resources [78]. Yu et al. [77] also remarked that since it enables the firm to keep up with the digital age, it can provide higher operational performance by enabling it to see the opportunities in this age. Thus, firm operations can be competitive [79]. According to these arguments, the third hypothesis is as follows:
Hypothesis 3 (H3).
Digital transformation is positively related to operational performance.
The main aim of firms to invest in digital technologies and start a digital transformation process is to adapt to new trends in the market, increase productivity, gain competitive advantage, have sustainable practices, and make more profit. The use of digital technologies provides many benefits to firms such as reducing costs, increasing productivity, fostering innovation, supporting sustainable operations, and improving ways to capture value [80,81]. Moreover, since they contribute to increasing organizational exploration and creativity, they can improve the capabilities of businesses at a level that makes a difference in the market [82]. Du and Jiang [83] also suggest that digital transformation increases the productivity and profitability of firms since it facilitates making technological innovations and enables them to make the right decisions. In addition, digital transformation enables the firm to increase the value it provides [82]. Thus, the fourth hypothesis is as follows:
Hypothesis 4 (H4).
Digital transformation is positively related to financial performance.

3.4. The Role of Environmental Uncertainty

Environmental uncertainty is seen as both a danger and an opportunity for firms. In a situation of uncertainty, it is difficult to make effective decisions, take the right steps, and remain competitive. However, the opposite is true when firms can adapt to change, new environmental information is available, and opportunities can be anticipated because while other firms cannot achieve this, taking the right action in case of uncertainty makes a significant difference. In this respect, digital transformation is critical for firms. As uncertainty increases, digital transformation provides more advantages for firms to maintain or increase their competitiveness and improve performance outcomes [84]. Rajala and Hautala-Kankaanpää [85] stated that digital transformation enables for the reduction of environmental risks and minimizes uncertainty for firms. Moreover, it enables firms to discover new opportunities and have a greater share of the market. Therefore, these firms have a higher performance [86]. Li [21] also stated that digital transformation is a determinant of better performance in situations of high uncertainty and change as it enables the firm to differentiate itself faster and more accurately from its competitors. Thus, the fifth and sixth hypotheses are as follows.
Hypothesis 5 (H5).
Environmental uncertainty moderates the relationship between digital transformation and operational performance.
Hypothesis 6 (H6).
Environmental uncertainty moderates the relationship between digital transformation and financial performance.
Figure 1 illustrates the proposed research model.

4. Research Methodology

4.1. Measures

A structured questionnaire was constituted to gather data, and it includes two parts. The first part is designed to collect demographic information consisting of firm age, firm size, and also the gender and education of the participants. The second part contains the scales of transformational leadership, employee self-efficacy, digital transformation, operational performance, financial performance, and environmental uncertainty, which were adapted from previous research. For self-efficacy, six items from the scale of Rigotti et al. [87] were adopted. The transformational leadership scale was adapted from AlNuaimi et al. [13], who modified previous scales in the form of digital transformational leadership. It also has six items. There are 12 expressions in the digital transformation scale adapted from Nadeem et al. [34]. For firm performance, an 11-item scale was used, which was developed by Wang et al. [88]. Firm performance has two dimensions. Of the 11 items, five are for operational performance and six are for financial performance. To measure environmental uncertainty, four items were used, which were developed by Khandwalla [89] and used by Waldman et al. [90]. For all of them, a five-point Likert scale was used (1 = strongly disagree; 5 = strongly agree).
In this study, firm size (number of employees) and firm age were used as control variables to account for confounding effects because firms with more employees may have more resources, and firms that have been operating for longer years may have more experience. These variables, therefore, may affect firm performance. Furthermore, they have also been considered as control variables in past studies [17,78,91,92,93].

4.2. Data Collection and Sample

To gather data, a questionnaire-based survey method was used. After preparing the survey, 600 people working in managerial positions in manufacturing firms located in Kocaeli and Istanbul were contacted. The purpose of the research was explained, and they were asked to contribute by participating in our survey. 375 of them agreed to participate. To mitigate response bias, at the beginning of the survey, it was stated that the survey would be used only for scientific research. In addition, only volunteers contributed to the survey as participants, and anonymity was assured before filling out the survey. 342 participants completed the questionnaire via a face-to-face survey method. When these were examined, it was seen that 37 of them were not suitable for analysis because there were too many missing answers. Moreover, to justify the sample size, we used “a priori sample size calculator for structural equation models” [94]. The results showed that the recommended minimum sample size required is 288. This implies that our sample of 305 is adequate. Therefore, the analyses were conducted with survey data collected from 305 managers from manufacturing firms.
When the sample is examined in detail, it is seen that while 8.6% of firms have been in operation for less than 10 years, 25.9% have been in operation for more than 50 years. Firms with more than 500 employees constitute 38.5% of the sample. Moreover, 71.8% of the managers participating in the research are male and 25.6% have postgraduate education.

5. Results

5.1. Validity and Reliability

Before testing the hypotheses, the reliability and validity of the measures were checked. In this context, firstly, confirmatory factor analysis (CFA) was performed. Two items from the digital transformation were discharged due to low-factor loadings. The goodness of fit measures indicate a good fit (χ2/df = 1.781, CFI = 0.942, IFI = 0.943, TLI = 0.931, RMSEA = 0.051). Results are shown in Table 1.
To assess convergent validity, average variance extracted (AVE) and composite reliability (CR) values were computed. It was found that AVE values higher than 0.50 and CR values higher than 0,70. 0.50, and 0.70 are threshold values for AVE and CR, respectively, and the values found are higher than these thresholds, indicating convergent validity [95]. For discriminant validity, as recommended by Fornell and Larcker [95], the square roots of AVEs were checked. All of them were found higher than the respective correlation coefficients, implying discriminant validity. Furthermore, reliability was assessed by using Cronbach’s alpha values. Results showed that they are all higher than 0.70, which is the threshold value recommended by Nunnally [96], indicating reliability. These results are shown in Table 2.
Before hypothesis testing, common method bias (CMB) was checked by using Harman’s single-factor test [97]. According to the results, the number of factors with eigenvalues higher than 1 is more than 1. Furthermore, the highest variance is 37.07%, indicating that CMB is not a serious concern for this study.

5.2. Hypothesis Testing

To test research hypotheses, structural equation modeling (SEM) using AMOS 24 was performed. The results for direct relationships are shown in Table 3. It also indicated a sufficient model fit (χ2/df = 2046, CFI = 0.929, IFI= 0.930, TLI = 0.914, RMSEA = 0.059). According to the results, both transformational leadership (β = 0.749, p < 0.05) and self-efficacy (β = 0.119, p < 0.05) were positively related to digital transformation. Therefore, H1 and H2 were supported. Moreover, digital transformation was found positively associated with operational (β = 0.574, p < 0.05) and financial performance (β = 0.437, p < 0.05), supporting H3 and H4.
Hierarchical moderated regression analysis was performed to test H5 and H6. For this purpose, independent and moderator variables, which are digital transformation and environmental uncertainty, were standardized, and the interaction term (DT*EU) was constituted by multiplying them. The results are shown in Table 4. According to findings, environmental uncertainty moderates the relationship between digital transformation and financial performance, supporting H6. Moreover, f2 was calculated, and it was found that the moderation effect is a small effect size (f2 ≥ 0.02) based on Cohen [98]. However, it does not moderate the relationship between digital transformation and operational performance. Therefore, H5 was not supported. The moderating impact of environmental uncertainty is plotted in Figure 2.

6. Discussion and Implications

6.1. Discussion

This research investigates the human factor-related antecedents, which are transformational leadership and employee self-efficacy of digital transformation. Furthermore, the impacts of digital transformation on firm performance with the moderating effect of environmental uncertainty are examined. Therefore, our findings contribute to digital transformation literature by increasing and deepening existing knowledge.
First, it is found that transformational leadership and digital transformation are positively related. When the literature is reviewed, it is seen that many studies emphasize the importance of leadership for digital transformation, and there is also research examining the relationship between transformational leadership and digital transformation [13,99,100]. Our finding is consistent with these results.
Second, our findings show that employee self-efficacy is positively associated with digital transformation. There are almost no empirical studies on the role of employees in digital transformation in the literature. However, digital transformation is an employee-centered process, as accepted by the change-management literature [101]. Malodia et al. [102] found digital self-efficacy affects digital transformation, but they considered the digital self-efficacy of entrepreneurs, not an employee context. Therefore, this finding empirically reveals the importance of employee self-efficacy for digital transformation firstly.
Third, we found that digital transformation is related to both operational and financial performance. This finding is in line with many studies in the literature examining the relationship between digital transformation and firm performance [22,77,81,103]. However, there is no agreed decision on this issue. On the contrary, there is still a debate, as well as opposing views, especially regarding the financial consequences of digital transformation [82]. Therefore, our finding contributes to this debate by presenting empirical evidence.
Finally, the findings reveal that environmental uncertainty positively moderates the association between digital transformation and financial performance but not with operational performance. In the management literature, environmental uncertainty has often been considered as a moderator in studies examining firm performance. However, there are scarce studies on this subject in the context of digital transformation in general [21]. Ning and Yao [84] found that environmental uncertainty moderates the relationship between digital transformation and competitive performance, which is in line with our findings.

6.2. Theoretical Implications

The contributions of the results can be considered from two basic aspects. First, in this study, transformational leadership and employee self-efficacy are discussed as the antecedents of digital transformation. Especially to the authors’ knowledge, there is no study in the literature that investigates the association between employee self-efficacy and digital transformation. Hence, this finding is novel for related literature. Moreover, our findings enrich the current literature and draw attention to the importance of the employee factor.
Second, the effect of digital transformation on firm performance, as well as moderating roles of environmental uncertainty on these relationships are examined. There still remains a debate regarding the impacts of digital transformation on firm performance. Therefore, this study contributes to the literature by presenting empirical findings to clarify this debate. Moreover, our results show that as environmental uncertainty increases, the effect of digital transformation on financial performance improves, but uncertainty has no effect on its relations with operational performance. The current literature is limited to demonstrating the moderating role of environmental uncertainty on these relationships. Therefore, our findings improve the limited knowledge about the contributions of digital transformation to the firm’s performance results, contribute to the current debate on this issue, and provide empirical evidence on how uncertainty affects this relationship.

6.3. Practical Implications

This research reveals the critical role of transformational leadership and employee self-efficacy in digital transformation. Moreover, it is demonstrated that digital transformation is important for firms to improve operational performance and increase financial performance, especially in uncertain environments. Thus, our findings provide critical knowledge for practitioners.
According to the results of this study, to succeed in the digital transformation process, leaders need to have characteristics of transformational leadership. More clearly, managers should present a clear vision for digital transformation, encourage employees to work for the firm’s goals, and motivate employees to take an active role in the digital transformation process and embrace it. Moreover, employees must be confident in their own knowledge and skills. For this reason, managers should have open communication with their employees and should not refrain from appreciating them. Additionally, special attention should be paid to this issue during recruitment processes. Self-efficacy should be one of the priority features when recruiting new employees or selecting personnel who will play a front-line role in the digital transformation process.
On the other hand, digital transformation should not be avoided. It has become a necessity for firms to be more successful and achieve sustainable development goals in today’s conditions. Managers should be aware that it is a significant advantage to benefit from digital technologies to optimize company operations and make their processes more efficient. For this reason, it should be ensured that digital technologies are acquired within the organization. An appropriate cultural structure should also be formed, and digital technologies should be utilized to the maximum extent. Moreover, although digital transformation requires a serious investment, our results show that it is of great importance for the financial development of the firms. It creates important opportunities for firms to get ahead of their competitors, especially in uncertain environments. Therefore, managers can provide the necessary resources and make facilitating arrangements for the organization to achieve digital transformation. Moreover, managers should grasp that digital transformation requires a challenging process. Just having digital technologies is not enough, and there is a need for a holistic change. This requires a great deal of effort, but our results highlight the critical importance of digital transformation for high performance.

7. Limitations and Future Directions

The current study also has some limitations. First, the generalisability is a limitation of this study. This study was conducted on a sample of manufacturing firms in Turkey, which is a developing country. This requires caution in generalizing study findings to different cultural and sectoral contexts. Future research may focus on different sectors, countries, and cultures. Second, a cross-sectional research design was used for this study. Future studies may use longitudinal study design to prove definitive associations.
This research investigates transformational leadership and employee self-efficacy as antecedents of digital transformation. Future research may add other leadership styles such as servant leadership and also employee characteristics such as employee trust to the model. Moreover, this study reveals the effect of digital transformation on financial and operational performance. The other performance outcomes such as innovation performance, market performance, competitiveness, environmental performance, social performance, and sustainability may be added to our model and tested in future studies. Also, contingency factors that may affect the relationship between digital transformation and firm performance is a generally neglected area in the current literature. Future research can investigate the moderator role of other factors such as technological turbulence.

8. Conclusions

Digital transformation has attracted considerable attention. However, the empirical research on human-related antecedents of digital transformations is still very limited. Moreover, there is a debate about how it affects firm performance, and there is scarce knowledge about the role of environmental uncertainty in this relationship. By addressing these shortcomings in the literature, this research aims to reveal the effects of transformational leadership and employee self-efficacy on digital transformation, as well as the impact of digital transformation on firm performance with the moderating role of environmental uncertainty. Findings demonstrated that both transformational leadership and employee self-efficacy are positively related to digital transformation. Furthermore, it is revealed that digital transformation affects financial and operational performance, and environmental uncertainty strengthens the association between digital transformation and financial performance. These results demonstrated that the human factor has a decisive role in digital transformation. In addition, it is clarified that digital transformation is a way to succeed and be competitive. Therefore, this study contributes to filling the research gaps in digital transformation literature by providing empirical evidence.

Author Contributions

Conceptualization, L.G. and S.Z.I.; Methodology, L.G., H.T. and H.I.; Validation, L.G., S.Z.I., H.T. and H.I.; Formal analysis, L.G. and H.I.; Investigation, L.G. and S.Z.I.; Resources, L.G.; Data curation, L.G., S.Z.I. and H.I.; Writing—original draft, L.G. and H.T.; Writing—review & editing, L.G., S.Z.I., H.T. and H.I.; Visualization, L.G. and H.I.; Supervision, S.Z.I. and H.I.; Project administration, L.G. and S.Z.I.; Funding acquisition, L.G. All authors have read and agreed to the published version of the manuscript.

Funding

This research received no external funding.

Institutional Review Board Statement

This study does not involve any ethical issues.

Informed Consent Statement

Informed consent was obtained from all subjects involved in the study.

Data Availability Statement

The data presented in this study are available on request from the corresponding author. The data are not publicly available due to privacy or ethical restrictions.

Conflicts of Interest

The authors declare no conflict of interest.

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Sustainability 16 01200 g001
Figure 1. Research Model.
Figure 1. Research Model.
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Figure 2. Moderating effect of environmental uncertainty.
Figure 2. Moderating effect of environmental uncertainty.
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Table 1. CFA Results.
Table 1. CFA Results.
Factor Loadings
FactorsItems123456
1. Transformational LeadershipTL_10.875
TL_20.860
TL_30.907
TL_40.893
TL_50.830
TL_60.843
2. Digital
Transformation		DT_1 0.741
DT_2 0.772
DT_3 0.813
DT_4 0.724
DT_5 0.707
DT_6 0.832
DT_7 0.829
DT_8 0.812
DT_9 0.756
DT_10 0.740
3. Operational
Performance		OP_1 0.724
OP_2 0.752
OP_3 0.687
OP_4 0.817
OP_5 0.785
4. Financial
Performance		FP_1 0.756
FP_2 0.843
FP_3 0.840
FP_4 0.896
FP_5 0.884
FP_6 0.805
5. Self_efficacySE_1 0.790
SE_2 0.797
SE_3 0.738
SE_4 0.747
SE_5 0.637
SE_6 0.755
6. Environmental
Uncertainty		EU_1 0.706
EU_2 0.558
EU_3 0.630
EU_4 0.913
Table 2. Correlation Coefficients, Reliability, and Validity Measures.
Table 2. Correlation Coefficients, Reliability, and Validity Measures.
MeanStd. Dev.123456
1. Environmental Uncertainty3.3930.7460.714
2. Transformational Leadership3.6130.8710.308 *0.868
3. Digital Transformation3.9060.6740.328 *0.767 *0.774
4. Operational Performance3.9870.7320.263 *0.591 *0.551 *0.754
5. Financial Performance3.8190.7490.190 *0.408 *0.415 *0.752 *0.839
6. Self-efficacy4.2590.5790.140 *0.256 *0.303 *0.420 *0.320 *0.746
AVE 0.5100.7540.5990.5690.7030.556
CR 0.8010.9480.9370.8680.9340.882
Cronbach’s α 0.7010.9510.9300.8740.9330.877
* p < 0.05. The square roots of AVEs are on the diagonals.
Table 3. The Results for Direct Relationships.
Table 3. The Results for Direct Relationships.
PathPath Coefficientt-Value
FirmSize → OP−0.040−0.748
FirmSize → FP0.0460.852
FirmAge → OP0.114 *2.135
FirmAge → FP0.174 *3.203
TL → DT0.749 *11.664
SE → DT0.119 *2.799
DT → OP0.574 *8.335
DT → FP0.437 *7.001
* p < 0.05, Transformational Leadership (TL), Employee Self-efficacy (SE), Digital transformation (DT), Operational Performance (OP), Financial Performance (FP).
Table 4. Results of moderation analyses.
Table 4. Results of moderation analyses.
VariablesDV: Operational PerformanceDV: Financial Performance
Model 1Model 2Model 3Model 1Model 2Model 3
FirmAge0.0850.118 *0.117 *0.159 *0.188 *0.180 *
FirmSize0.002−0.032−0.0310.0760.0460.055
DT 0.471*0.476 * 0.407 *0.434 *
EU 0.0790.077 0.0560.042
DT*EU 0.019 0.126 *
F1.07925.082 *20.033 *5.170 *19.965 *17.366 *
Adjusted R20.0010.2470.2450.0280.2050.218
*p < 0.05, Digital transformation (DT), Environmental uncertainty (EU).
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Gun, L.; Imamoglu, S.Z.; Turkcan, H.; Ince, H. Effect of Digital Transformation on Firm Performance in the Uncertain Environment: Transformational Leadership and Employee Self-Efficacy as Antecedents of Digital Transformation. Sustainability 2024, 16, 1200. https://doi.org/10.3390/su16031200

AMA Style

Gun L, Imamoglu SZ, Turkcan H, Ince H. Effect of Digital Transformation on Firm Performance in the Uncertain Environment: Transformational Leadership and Employee Self-Efficacy as Antecedents of Digital Transformation. Sustainability. 2024; 16(3):1200. https://doi.org/10.3390/su16031200

Chicago/Turabian Style

Gun, Levent, Salih Zeki Imamoglu, Hulya Turkcan, and Huseyin Ince. 2024. "Effect of Digital Transformation on Firm Performance in the Uncertain Environment: Transformational Leadership and Employee Self-Efficacy as Antecedents of Digital Transformation" Sustainability 16, no. 3: 1200. https://doi.org/10.3390/su16031200

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