Agile Transformation in Knowledge-Intensive Firms: The Mediating Role of Psychological Safety on Team Performance and Employee Turnover

Abstract

Agile transformation has become a strategic imperative for knowledge-intensive firms (KIFs) seeking to enhance responsiveness and innovation. However, the success of such transformations remains highly variable, with many initiatives failing due to overlooked human and psychological factors. This study investigates the mediating role of psychological safety in the relationship between agile transformation and two critical organizational outcomes: team performance and employee turnover intention. Drawing on socio-technical systems theory and psychological safety literature, we hypothesize that agile practices (e.g., iterative workflows, cross-functional teams, flat hierarchies) foster psychological safety, which in turn enhances team performance and reduces turnover. Using survey data from 312 knowledge workers across 47 KIFs in technology, R&D, and professional services, we employ structural equation modeling to test the proposed mediation model. Results indicate that psychological safety fully mediates the relationship between agile transformation and team performance, and partially mediates the relationship between agile transformation and employee turnover. These findings underscore that agile frameworks alone are insufficient; without cultivating psychological safety, KIFs risk suboptimal performance and persistent attrition. Theoretical and practical contributions to management and commerce are discussed.