Responsible Leadership and Organizational Agility in Enhancing Organizational Performance through Psychological Safety and Employee Engagement

Abstract

Micro, Small, and Medium Enterprises (MSMEs) are increasingly required to sustain performance in dynamic and uncertain environments; however, existing studies often emphasize structural capabilities such as leadership and organizational agility without sufficiently explaining the psychological mechanisms through which these factors translate into performance outcomes. Addressing this gap, the present study examines how Responsible Leadership and Organizational Agility influence Organizational Performance through the mediating roles of Psychological Safety and Employee Engagement within the framework of Dynamic Capabilities Theory. Using a quantitative explanatory design, data were collected from 155 MSME owners and employees in the food, creative, and manufacturing sectors in Jember Regency through a six-point Likert-scale questionnaire and analyzed using SEM-PLS with SmartPLS 4. The results indicate that Organizational Agility and Employee Engagement have significant positive effects on Organizational Performance, while Responsible Leadership does not directly affect performance but significantly enhances Psychological Safety and Employee Engagement.

Furthermore, Psychological Safety does not exhibit a significant direct effect on performance, suggesting its role as an enabling condition rather than a primary driver, whereas Employee Engagement emerges as the strongest predictor of performance. These findings extend the application of Dynamic Capabilities Theory by demonstrating that organizational capabilities and leadership practices require psychological and behavioral pathways, particularly employee engagement, to effectively generate performance outcomes.

Keywords: responsible leadership; organizational agility; psychological safety; employee engagement; organizational performance.

Introduction

In an era of global uncertainty marked by technological disruption, market volatility, geopolitical crises, and accelerating digital transformation, organizations are required to not only maintain performance, but also improve adaptability and strategic sustainability. Changes in work patterns, increasingly complex stakeholder expectations, and ethical governance demands have shifted the management paradigm from a short-term performance orientation to a more responsible, inclusive, and sustainable approach (Alhosani & Ahmad, 2024). In this context, leadership is no longer understood solely as a tool of organizational control, but as a moral, social, and strategic mechanism that is able to balance economic interests, employee welfare, and broader social impacts. Therefore, there is an urgent need to examine a leadership model that is able to create organizational value while building trust, legitimacy, and long-term resilience.

As the complexity of the business environment increases, the concept of organizational agility is becoming increasingly relevant as a strategic capability that allows organizations to respond to changes quickly, flexibly, and innovatively (Marsaditha & Nurhayati, 2025). Organizational agility is not only related to the speed of decision-making, but also involves the ability of organizations to adjust the structure, processes, culture, and competencies of human resources to remain competitive in the midst of changing dynamics. However, structural and technical agility alone is not enough to guarantee the continuous performance of the organization (Saleem et al., 2023). Superior performance increasingly depends on psychological and social factors within the organization, including psychological safety and the level of emotional and cognitive attachment of employees to work and organization (employee engagement).

The combination of responsible leadership, organizational agility, and internal psychological mechanisms is an important foundation in building adaptive, innovative, and sustainable organizational performance. Various global and national reports show that the main challenges of organizations today have to do with leadership quality, employee engagement levels, and organizational adaptability. The Gallup report (2023) reveals that only about 23% of the world's employees are classified as engaged, while about 77% are in the category of not engaged or actively disengaged, which contributes to global productivity losses of up to USD 8.8 trillion per year or equivalent to nearly 9% of global GDP (Cyfert et al., 2022). In addition, studies show that organizations with low levels of psychological safety tend to experience decreased innovation and team learning, where employees prefer to remain silent rather than pass on ideas or admit mistakes due to concerns about social and professional risks (Aslani & Bakhtiyari, 2024).

In Indonesia, similar challenges are also seen, especially in the MSME sector, public organizations, and private companies, where the national labor productivity rate is still below the average of developed ASEAN countries, and the employee turnover rate in certain sectors is reported to reach more than 20% per year. Previous research has extensively examined the relationship between leadership, organizational agility, and organizational performance in various contexts. (Nakra, 2024) Introducing the concept responsible leadership as a form of leadership that is ethical, stakeholder, and sustainability-oriented, and demonstrates that responsible leadership contributes significantly to organizational legitimacy and long-term performance. (Patil, 2023) found that psychological safety plays an important role in improving team learning, the courage to convey ideas, and the effectiveness of group performance, emphasizing that a psychologically safe work environment encourages more productive innovation and collaboration. (Ekhsan et al., 2023a) shows that employee engagement has a strong positive relationship with productivity, employee loyalty, profitability, and service quality, so that work attachment is a strategic factor in driving organizational performance.

Most previous studies have examined leadership, organizational agility, psychological safety, and employee engagement in a partial and isolated manner, focusing primarily on their direct effects rather than clarifying the mechanisms that connect them. As a result, although these relationships are individually established, there is still limited understanding of how leadership and organizational agility are translated into performance outcomes through underlying psychological processes. Integrating these constructs in a single empirical model is therefore not merely a matter of combining variables, but is intended to explain the missing linkage specifically, how psychological safety and employee engagement function as interconnected pathways that mediate and shape the effectiveness of leadership and agility in driving organizational performance. Based on prior studies, the relationship between leadership, organizational agility, and organizational performance has been widely examined; however, the findings remain fragmented and reveal several unresolved issues.

Existing research consistently shows that organizational agility has a direct effect on performance, while the role of leadership particularly responsible leadership produces mixed results, with some studies reporting significant effects and others indicating weak or indirect relationships. Moreover, although psychological factors such as psychological safety and employee engagement have been individually linked to performance, prior studies tend to examine them separately rather than as an integrated mechanism that explains how leadership and organizational capabilities are translated into behavioral outcomes. As a result, there is still limited empirical evidence that simultaneously tests whether psychological safety and employee engagement function as sequential or complementary pathways connecting responsible leadership and organizational agility to organizational performance. This gap becomes more pronounced in the context of developing MSMEs in non-metropolitan regions, where organizational structures are less formalized and leadership practices are more relational, potentially altering the way these mechanisms operate.

Therefore, this study specifically addresses the unresolved issue of how leadership and organizational agility influence performance through internal psychological processes, by testing an integrated model that clarifies the mediating roles of psychological safety and employee engagement within the MSME context in Jember, thereby offering a more precise and theory-grounded explanation of performance formation. The selection of research objects is focused on owners and employees of MSMEs in the food, creative industry, and manufacturing sectors in Jember Regency, which are currently experiencing a growth phase while facing challenges of adapting to market changes, digitalization, and increasing business competition. MSMEs in these sectors have a high dependence on the quality of business owners' leadership, organizational flexibility, and employee involvement in maintaining business productivity and innovation.

However, in practice, there are still various obstacles such as leadership that is not fully oriented to social responsibility and sustainability, low levels of psychological safety that hinder openness of ideas and learning, and employee engagement levels that are not optimal. Therefore, MSMEs developing in Jember is seen as a relevant empirical context to test the role of responsible leadership and organizational agility in improving organizational performance through psychological safety and employee engagement mechanisms, as well as producing practical recommendations that are applicable to strengthening the competitiveness of MSMEs at the local and regional levels. This study aims to empirically analyze the influence of responsible leadership and organizational agility on organizational performance through the mediating role of psychological safety and employee engagement. In particular, this study seeks to examine the direct relationship between responsible leadership and organizational agility to organizational performance, identify how psychological safety and employee engagement function as psychological mechanisms that bridge these relationships, and evaluate the power of dual mediating pathways in improving organizational performance in a sustainable manner.

In addition, this study aims to develop a conceptual model that can enrich the literature on strategic management, organizational behavior, and leadership, as well as provide practical recommendations for organizational leaders in Jember and Indonesia in building ethical leadership, an agile organization, and a work environment that is psychologically safe and able to increase employee engagement.

Methods

Research Design

This study employs a quantitative approach using an explanatory research design and a cross-sectional survey method to examine the influence of Responsible Leadership and Organizational Agility on Organizational Performance through the mediating roles of Psychological Safety and Employee Engagement in developing MSMEs within the food, creative, and manufacturing sectors in Jember Regency (Hair et al., 2021). The unit of analysis in this study is the individual organizational member, consisting of MSME owners, supervisors/managers, and employees who are actively involved in operational activities and organizational processes. These respondents were analyzed within a single SEM-PLS model because they operate within the same organizational environment and evaluate the same organizational phenomena, including leadership practices, organizational agility, psychological conditions, employee involvement, and perceived organizational performance.

Although respondents occupy different organizational roles, their perceptions are considered relevant and comparable since MSMEs generally have relatively informal and closely integrated organizational structures, where owners, managers, and employees interact directly in daily operations and share similar experiences regarding organizational dynamics. Data were collected through a structured questionnaire using a six-point Likert scale, allowing the relationships among variables to be empirically examined through a causal modeling approach based on SEM-PLS. Data Collection Timeline and Procedures Data collection in this study was conducted from October 2025 to December 2025, considering respondent readiness, MSME operational schedules, and the need to obtain representative and reliable data. The data collection process was carried out in several stages, beginning with coordination and permission requests to MSME owners, followed by the socialization of the research objectives to prospective respondents, and continued with the distribution and completion of questionnaires both directly and online.

The three-month data collection period was selected to provide respondents with adequate time to understand and respond appropriately to the research instruments while minimizing potential bias arising from time limitations and operational business pressures. This study used a six-point Likert scale to measure respondents' perception of each variable indicator, which

Data Collection Timeline and Procedures

Population, Sample, and Sampling Techniques

Data Analysis Techniques

Result and Discussion

Respondent Demographics

The characteristics of the respondents in this study are

Measurement Model Evaluation

Structural Model Evaluation

Figure 1. R Square Value Source: SmartPLS Output (2026) Based on Figure 1 and Table 8, the structural model demonstrates strong explanatory power across all endogenous variables. Psychological Safety (R² = 0.854) and Employee Engagement (R² = 0.802) are substantially explained by Responsible Leadership and Organizational Agility, indicating that leadership practices and organizational capabilities play important roles in shaping internal psychological conditions within MSMEs. Meanwhile, Organizational Performance (R² = 0.901) demonstrates a very high level of explained variance, suggesting that the combination of leadership, organizational agility, and psychological mechanisms accounts for a substantial proportion of performance outcomes. However, these relatively high R² values should be interpreted cautiously, as they may also indicate overlapping constructs or shared measurement variance, emphasizing the importance of considering model parsimony and robustness when interpreting the structural model results.

Responsible Leadership → Organizational Performance (β = −0.029; p = 0.383) (Table 9) The results indicate that Responsible Leadership does not have a significant direct effect on Organizational Performance, as reflected by the negative path coefficient and non-significant p-value. This finding suggests that, within the context of this study, responsible leadership is not directly associated with measurable performance outcomes. Rather than drawing immediate theoretical conclusions, this result should be interpreted as empirical evidence that the direct pathway is not supported. Consistent with the observation of

Effect of Responsible Leadership, Organizational Agility, Psychological Safety, and Employee Engagement on Organizational Performance

Conclusion

This study finds that organizational performance in MSMEs is more strongly associated with organizational agility and employee engagement, while responsible leadership does not show a significant direct effect on performance but relates to internal psychological conditions. Psychological safety does not directly influence performance, indicating that its role is supportive rather than determinative. These results suggest that performance in MSMEs is more closely linked to adaptive capability and active employee involvement than to leadership influence alone. The main theoretical contribution of this study is to refine the application of Dynamic Capabilities Theory by showing that organizational capabilities and leadership practices require behavioral activation particularly employee engagement to translate into performance outcomes. Implications The findings imply that MSME leaders should prioritize strengthening organizational agility and fostering employee engagement, as engagement emerges as the most influential mechanism in driving performance.

Leadership practices may be more effective when directed toward creating conditions that encourage employee involvement, rather than expecting direct performance impact. Limitations and Future Research This study is based on a cross-sectional design and perceptual data from a specific MSME context in Jember, which may limit causal interpretation and generalizability. Future research is recommended to use longitudinal designs, include objective performance measures, and expand contextual variables to provide a more comprehensive understanding of organizational performance dynamics.

Author Contributions

Author 1 led the conceptual development of the study by formulating the research framework and integrating Responsible Leadership, Organizational Agility, and employee psychological mechanisms within a Dynamic Capabilities perspective, as well as designing the methodological approach, conducting data collection, and performing SEM-PLS analysis. Author 2 contributed through critical intellectual input by refining the theoretical positioning of the study, particularly in strengthening the linkage between leadership ethics, organizational agility, and behavioral mechanisms, as well as reviewing the statistical interpretation and enhancing the discussion to better articulate the study’s theoretical contribution. Both authors collaboratively contributed to the development of the manuscript, critically reviewed its content, and approved the final version, taking full responsibility for the integrity and accuracy of the work.

Acknowledgements The authors express their sincere gratitude to the owners and employees of the MSMEs in the food, creative, and manufacturing sectors in Jember Regency who generously participated in this study and provided valuable data. Appreciation is also extended to academic colleagues and institutional representatives who provided constructive feedback during the development of the research framework and methodology. https://doi.org/10.37394/23207.2022.19.52 Mahmoud, M. A., Ahmad, S., & Poespowidjojo, D. A. L. (2021). Psychological safety and individual performance: the mediating effect of intrapreneurial behavior. International Journal of Productivity and Performance Management, 71(7), 2913–2931. https://doi.org/10.1108/IJPPM-10- 2020-0538 Marsaditha, P. H., & Nurhayati, M. (2025). The Effect of Responsible Leadership and Team Work on Workforce Agility Mediated by Work Engagement at PT Hasta Ayu Nusantara.

American Journal of Economic and Management Business, 4(3), 209–226. Motwani, J., & Katatria, A. (2024). Organization agility: a literature review and research agenda. International Journal of Productivity and Performance Management, 73(9), 2709–2754. https://doi.org/10.1108/IJPPM-07- 2023-0383 Mubarok, Sari, Wibowo, M. (2025). Comparative Study of Artificial Intelligence (AI) Utilization in Digital Marketing Strategies Between Developed and Developing Countries: A Systematic Literature Review. Ilomata International Journal of Management, 6(1), 156–173. https://doi.org/10.61194/ijjm.v6i1.1534 Na, J., & Chelliah, S. (2022a). Review of Organizational Atmosphere , Employee Engagement and Organizational Support. Global Business and Management Research: An International Journal, 14(3), 1413–1426. Na, J., & Chelliah, S. (2022b). Review of Organizational Atmosphere , Employee Engagement and Organizational Support.

Global Business and Management Research: An International Journal, 14(3), 1413–1426. Nakra, N. (2024). Responsible leadership and organizational sustainability performance : investigating the mediating role of sustainable HRM. International Journal of Productivity and Performance Management, 27(3). https://doi.org/10.1108/IJPPM-03-2023-0115 Patil, R. (2023). The Power of Psychological Safety: Investigating its Impact on Team Learning, Team Efficacy, and Team Productivity. The Open Psychology Journal, 16(1), 1–12. https://doi.org/10.2174/18743501- v16-230727-2023-36 Pless, N. M., Sengupta, A., Wheeler, M. A., Maak, T., & Wheeler, M. A. (2022). Responsible Leadership and the Reflective CEO : Resolving Stakeholder Conflict by Imagining What Could be done. Journal of Business Ethics, 180(1), 313–337. https://doi.org/10.1007/s10551-021-04865-6 Qu, Y., Zhu, J., & Goddard, R. D. (2024). Modesty brings gains : linking humble leadership to knowledge sharing via psychological safety and psychological empowerment in professional learning communities.

Educational Studies, 50(6), 1444–1465. https://doi.org/10.1080/03055698.2022.2103648 Saleem, M. S., Isha, A. S. N., & Awan, M. I. (2023). Exploring the pathways to enhanced task performance: the roles of supportive leadership, team psychological safety, and mindful organizing. Journal of Hospitality and Tourism Insights, 7(5), 2560–2581. https://doi.org/10.1108/JHTI-01- 2023-0031 Siyal, S. (2023). Inclusive leadership and work engagement : Exploring the role of psychological safety and trust in leader in multiple organizational context. Wiley, 1(2), 1–15. https://doi.org/10.1111/beer.12556 Teece, D. J. (2007). Explicating Dynamic Capabilities: The Nature and Microfoundations of (Sustainable) Enterprise Performance. Strategic Management Journal, 28, 1319–1350. https://doi.org/10.1002/smj Welch, J. (2023). Building an organizational legacy : four key principles for responsible leadership. EmeraldPublishingLimited, 1(2), 10–13. https://doi.org/10.1108/DLO-10-2023-0228 Zhang, X., Li, D., & Guo, X. (2022).

Antecedents of Responsible Leadership : Proactive and Passive Responsible Leadership Behavior. Sustainability, 7(1), 1–22. https://doi.org/10.3390/su14148694 Zhang, Y., Shen, H., Xu, J., & Qian, S. F. (2022). Antecedents of attitude and their impact on behavioral intention in the staycation context. Frontiers in Psychology, 13(September), 1–14. https://doi.org/10.3389/fpsyg.2022.996788

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Mubarok, Sari, Wibowo, M. (2025). Comparative Study of Artificial Intelligence (AI) Utilization in Digital Marketing Strategies Between Developed and Developing Countries: A Systematic Literature Review. Ilomata International Journal of Management , 6(1), 156 –173. https://doi.org/10.61194/ijjm.v6i1.1534

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Pless, N. M., Sengupta, A., Wheeler, M. A., Maak, T., & Wheeler, M. A. (2022). Responsible Leadership and the Reflective CEO : Resolving Stakeholder Conflict by Imagining What Could be done. Journal of Business Ethics , 180(1), 313–337. https://doi.org/10.1007/s10551-021-04865-6

Qu, Y., Zhu, J., & Goddard, R. D. (2024). Modesty brings gains : linking humble leadership to knowledge sharing via psychological safety and psychological empowerment in professional learning communities. Educational Studies , 50(6), 1444 –1465. https://doi.org/10.1080/03055698.2022.2103648

Saleem, M. S., Isha, A. S. N., & Awan, M. I. (2023). Exploring the pathways to enhanced task performance: the roles of supportive leadership, team psychological safety, and mindful organizing. Journal of Hospitality and Tourism Insights , 7(5), 2560 –2581. https://doi.org/10.1108/JHTI -01- 2023-0031

Siyal, S. (2023). Inclusive leadership and work engagement : Exploring the role of psychological safety and trust in leader in multiple organizational context. Wiley, 1(2), 1–15. https://doi.org/10.1111/beer.12556

Teece, D. J. (2007). Explicating Dynamic Capabilities: The Nature and Microfoundations of (Sustainable) Enterprise Performance. Strategic Management Journal, 28, 1319–1350. https://doi.org/10.1002/smj

Welch, J. (2023). Building an organizational legacy : four key principles for responsible leadership. EmeraldPublishingLimited, 1(2), 10 –13. https://doi.org/10.1108/DLO-10-2023-0228

Zhang, X., Li, D., & Guo, X. (2022). Antecedents of Responsible Leadership : Proactive and Passive Responsible Leadership Behavior. Sustainability, 7(1), 1–22. https://doi.org/10.3390/su14148694

Zhang, Y., Shen, H., Xu, J., & Qian, S. F. (2022). Antecedents of attitude and their impact on behavioral intention in the staycation context. Frontiers in Psychology, 13(September), 1 –14. https://doi.org/10.3389/fpsyg.2022.996788