Leadership matters in crisis-induced digital transformation: how to lead service employees effectively during the COVID-19 pandemic

Purpose The COVID-19 pandemic has, besides the health concerns, caused an unprecedented social and economic crisis that has particularly hit service industries hard. Due to extensive safety measures, many service employees have to work remotely to keep service businesses running. With limited literature on leadership and virtual work in the service context, this paper aims to report on leadership effectiveness regarding employees' work performance in virtual settings brought on by the COVID-19 pandemic. Design/methodology/approach Drawing on the input–process–outcome (IPO) framework, this research investigates the effectiveness of leadership on service employees' work performance mediated by work-related tension, autonomy, and group cohesiveness. Furthermore, this study explores moderating effects of the service provider's digital maturity. To test the derived model, the authors collected survey data from 206 service employees who, due to the COVID-19 pandemic, unexpectedly had to transform to a virtual work environment. The authors analyzed the data using partial least squares structural equation modeling (PLS-SEM). Findings The results indicated that it took task- and relation-oriented leadership behavior to maintain service employees' work performance in a virtual environment during crisis situations. Further, results indicated mediating effects of service employees' individual job autonomy and team cohesiveness; surprisingly, work-related tension did not impact employees' work performance. Results offered service businesses guidance on how to effectively lead in times of crisis when service employees predominantly work in virtual environments. Originality/value This is the first empirical study to show how leadership affects service employees' work performance in a virtual work environment during crisis times. Thus, the study contributes to the scarce literature on the impact of leadership in service firms that have to operate in such a setting.