Transformational Leadership, Knowledge Sharing, and Innovation Capability: Improving the Performance of MSME Organizations in East Nusa Tenggara Province

  • Johannes Anwar Universitas Esa Unggul, Jakarta Barat, Indonesia
  • Ferryal Abadi Universitas Esa Unggul, Jakarta Barat, Indonesia
Keywords: Transformational Leadership, Knowledge Sharing, Innovation Capability, SMEs


The competitive environment requires all organizations, including small, and medium enterprises (SMEs), to build competitive advantages to maintain and improve their performance. Transformational leadership and innovation capability are factors for organizations to improve competitiveness. This research aims to identify the influence of transformational leadership, knowledge sharing, and innovation capability on the performance of SMEs in the East Nusa Tenggara (NTT) Province. Research is using a quantitative method in the form of SEM-PLS. The data are collected using questionnaires distributed from April to July 2022 to 137 SME workers. The data are processed and analyzed using Structural Equation Model Partial Least Square (SEM-PLS) with SmartPLS 3.0 software. The results show that transformational leadership positively affects innovation capability, knowledge sharing, and organizational performance of SMEs in NTT. The second finding concludes that knowledge-sharing activities can improve SMEs’ performance indirectly through mediating innovation capabilities. Finally, innovation capability encourages the improvement of SMEs’ performance in NTT. It also serves as a partial mediator of the influence of transformational leadership on organizational performance.


Abbas, J., Hussain, I., Hussain, S., Akram, S., Shaheen, I., & Niu, B. (2019). The Impact Of Knowledge Sharing And Innovation On Sustainable Performance In Islamic Banks: A Mediation Analysis Through SEM Approach. Sustainability (Switzerland), 11(15).

Abuaddous, H. Y., & Sokkar, A. A. M. Al. (2018). The Impact of Knowledge Management on Organizational Performance. 9(4), 204–208.

Adam, J. K., Indradewa, R., Yanuar, T., & Syah, R. (2020). The Leadership Styles Impact, In Learning Organizations, And Organizational Innovation Towards Organizational Performance Over Manufacturing Companies, Indonesia. Journal of Multidisciplinary Academic 63 JoMA, 04(02), 63–69.

Al-Husseini, S., El Beltagi, I., & Moizer, J. (2021). Transformational leadership and innovation: the mediating role of knowledge sharing amongst higher education faculty. International Journal of Leadership in Education, 24(5), 670–693.

Altaweel, I. R., & Al-hawary, S. I. (2021). The Mediating Role of Innovation Capability on the Relationship between Strategic Agility and Organizational Performance. 1–14.

Anselmann, V., & Mulder, R. H. (2020). Transformational Leadership, Knowledge Sharing And Reflection, And Work Teams’ Performance: A Structural Equation Modelling Analysis. Journal of Nursing Management, 28(7), 1627–1634.

Arsawan, I. W. E., Koval, V., Rajiani, I., Rustiarini, N. W., Supartha, W. G., & Suryantini, N. P. S. (2020). Leveraging Knowledge Sharing And Innovation Culture Into Smes Sustainable Competitive Advantage. International Journal of Productivity and Performance Management.

Breznik, L. (2014). Deploying Innovation Capability and Its Relevant Sources as a Key to Success: Insights from Slovenian IT firms. Our Economy, Journal of Contemporary Issues in Economics and Business, 60(1–2), 12–25.

Breznik, L., & Lahovnik, M. (2012). Innovation Capability As A Source Of Competitive Advantage In Slovenian Information Technology Firms. Technics Technologies Education Management, 7(3).

Calantone, R. J., Cavusgil, S. T., & Zhao, Y. (2002). Learning Orientation, Firm Innovation Capability, And Firm Performance. Industrial Marketing Management, 31(6), 515–524.

Chan, S. W., Ang, S. F., Andleeb, N., Ahmad, M. F., & Zaman, I. (2019). The Influence Of Transformational Leadership On Organization Innovation In Malaysian Manufacturing Industry. International Journal of Supply Chain Management, 8(2), 971–976.

Cummings, J. (2003). Knowledge Sharing: A Review Of The Literature. In Enhancing Development Effectiveness Through Excellence And Independence In Evaluation.

Elrehail, H. (2018). The Relationship Among Leadership, Innovation And Knowledge Sharing: A Guidance For Analysis. Data in Brief, 19, 128–133.

Erin Koffel, Mark D. Kramer, P. A. A. (2017). U . S . Department of Veterans Affairs. 46(1), 209–220.

Feranita, N. V., Nugraha, A., & Sukoco, S. A. (2020). Effect Of Transformational And Transactional Leadership on SMEs in Indonesia. Problems and Perspectives in Management, 18(3), 415–425.

García-Morales, Víctor J., Lloréns-Montes, F. J., & Verdú-Jover, A. J. (2008). The Effects Of Transformational Leadership On Organizational Performance Through Knowledge And Innovation. British Journal of Management, 19(4), 299–319.

García-Morales, Víctor J., Matías-Reche, F., & Hurtado-Torres, N. (2008). Influence of Transformational Leadership On Organizational Innovation And Performance Depending On The Level Of Organizational Learning In The Pharmaceutical Sector. Journal of Organizational Change Management, 21(2), 188–212.

García-Morales, Víctor Jesús, Jiménez-Barrionuevo, M. M., & Gutiérrez-Gutiérrez, L. (2012). Transformational Leadership Influence On Organizational Performance Through Organizational Learning And Innovation. Journal of Business Research, 65(7), 1040–1050.

Gerpott, F. H., Fasbender, U., & Burmeister, A. (2020). Respectful Leadership And Followers’ Knowledge Sharing: A Social Mindfulness Lens. Human Relations, 73(6), 789–810.

Göğüş, G., Karakadılar, İ. S., & Apak, S. (2013). Innovation and Sustainable Growth Measurement in Hotel Industry: A Hierarchical Decision Making Model. Procedia - Social and Behavioral Sciences, 99.

Hair, Joe F., Ringle, C. M., & Sarstedt, M. (2011). PLS-SEM: Indeed a Silver Bullet. Journal of Marketing Theory and Practice, 19(2), 139–152.

Hair, Joseph F., Ringle, C. M., & Sarstedt, M. (2013). Partial Least Squares Structural Equation Modeling: Rigorous Applications, Better Results and Higher Acceptance. Long Range Planning, 46(1–2), 1–12.

Henseler, J., Ringle, C. M., & Sarstedt, M. (2015). A New Criterion For Assessing Discriminant Validity In Variance-Based Structural Equation Modeling. Journal of the Academy of Marketing Science, 43(1), 115–135.

Hidayat, M., Hadi, P., & Ishaq, R. M. (2020). Faktor-Faktor Yang Mempengaruhi Employee Performance Pada Pegawai Ditjen Pajak Di Jakarta. E-Jurnal Manajemen Universitas Udayana, 9(7), 2704.

Huang, S.-P. (2018). Effects of Innovative Education on Innovation Capability and Organizational Performance in High-Tech Industry. Journal of Mathematics, Science and Technology Education, 14(3), 777–784.

Islam, M. A., Jantan, A. H., Rahman, M. A., Hamid, A. B. A., Mahmud, F. B., & Hoque, A. (2018). Leadership Styles for Employee Empowerment: Malaysian Retail Industry. Journal of Management Research, 10(4), 27.

Kashari, Z. Al. (2020). The Role of Knowledge Sharing in Organizational Performance. Information and Knowledge Management, 10(2), 37–42.

Lathong, L. (2021). Transformational Leadership, Knowledge Sharing and Innovation Capability: An Empirical Study from Lao Firms. Journal of International Business and Management, 4(9), 1–10.

Le, B. P., Lei, H., Phouvong, S., Than, T. S., Nguyen, T. M. A., & Gong, J. (2018). Self-Efficacy And Optimism Mediate The Relationship Between Transformational Leadership And Knowledge Sharing. Social Behavior and Personality, 46(11).

Le, B. P., & Tran, Q. T. (2020). Leadership Practice for Building Trust of Followers: Decisive Factors of Organizational Performance. SEISENSE Journal of Management, 3(2), 45–57.

Lin, M. (2014). An Exploration on the Relationship of Transformational leadership, Innovation Atmosphere and E-Commerce Organization Innovation. Open Journal of Social Sciences, 02(09), 48–53.

Musthofa, Wahyudi, S., Farida, N., & Ngatno. (2017). Effect of Entrepreneurial Orientation On Business Performance. International Journal of Civil Engineering and Technology, 8(9), 82–90.

Nguyen, T. T. N., & Luu, T. M. N. (2019). Linking Transformational Leadership And Organizational Performance: An Empirical Investigation Of Manufacturing Firms in Vietnam. Economics and Sociology, 12(2), 170–191.

Nham, T. P., Tran, N. H., & Nguyen, H. A. (2020). Knowledge Sharing And Innovation Capability At Both Individual And Organizational Levels: An Empirical Study From Vietnam’s Telecommunication Companies. Management and Marketing, 15(2), 275–301.

Phong, L. B., & Son, T. T. (2020). The Link between Transformational Leadership and Knowledge Sharing: Mediating Role of Distributive, Procedural and Interactional Justice. Journal of Information and Knowledge Management, 19(3).

Rajapathirana, R. P. J., & Hui, Y. (2018). Relationship between Innovation Capability, Innovation Type, And Firm Performance. Journal of Innovation and Knowledge, 3(1), 44–55.

Ramalingam, T., Piaralal, S. K., Osman, Z., Arokiasamy, L., Magasi, C., Al-Shibami, A. H., Alateibi, N., Nusari, M., Ameen, A., Khalifa, G. S. A., Bhaumik, A., Louw, L., Muriithi, S. M., Radloff, S., Dionne, S. D., Yammarino, F. J., Atwater, L. E., Spangler, W. D., Muhammad, A., … Gomes, D. (2021). Transformational Leadership And Organizational Performance: The Mediating Role Of Organizational Innovation. SEISENSE Journal of Management, 1(3), 59– 75.

Rawashdeh, A. M., Almasarweh, M. S., Alhyasat-Al-Balqa, E. B., & Al-Rawashdeh, F. (2021). Examining the Effect of Transformational Leadership To Organizational Performance Through Quality Innovation: a Developing Country Perspective. International Journal for Quality Research, 15(1), 353–368.

Ritala, P., Olander, H., Michailova, S., & Husted, K. (2015). Knowledge Sharing, Knowledge Leaking And Relative Innovation Performance: An Empirical Study. Technovation, 35.

Ryu, S., Hee, S., & Han, I. (2003). Knowledge Sharing Behavior of Physicians in Hospitals.

Samad, S. (2012). The Influence of Innovation and Transformational Leadership on Organizational Performance. Procedia - Social and Behavioral Sciences, 57, 486–493.

Son, T. T., Phong, L. B., & Loan, B. T. T. (2020). Transformational Leadership and Knowledge Sharing: Determinants of Firm’s Operational and Financial Performance. SAGE Open, 10(2).

Tran, H. P. (2019). How Authentic Leadership Promotes Individual Knowledge Sharing: Viewing From The Lens Of COR Theory. Management and Marketing, 14(4), 386–401.

Wang, Z., & Wang, N. (2012). Knowledge Sharing, Innovation And Firm Performance. Expert Systems with Applications, 39(10).

Xu, J., Quaddus, M., & Gao, X. (2014). Towards a Knowledge Sharing Model for Small Businesses. The International Technology Management Review, 4(1), 12.

Yao, J., Crupi, A., Di Minin, A., & Zhang, X. (2020). Knowledge Sharing And Technological Innovation Capabilities Of Chinese Software SMEs. Journal of Knowledge Management, 24(3), 607–634.

Yeşil, S., Koska, A., & Büyükbeşe, T. (2013). Knowledge Sharing Process, Innovation Capability and Innovation Performance: An Empirical Study. Procedia - Social and Behavioral Sciences, 75.

Yıldız, S., Baştürk, F., & Boz, İ. T. (2014). The Effect of Leadership and Innovativeness on Business Performance. Procedia - Social and Behavioral Sciences, 150, 785–793.

Yu, H., Shang, Y., Wang, N., & Ma, Z. (2019). The Mediating Effect Of Decision Quality On Knowledge Management And Firm Performance For Chinese Entrepreneurs: An Empirical Study. Sustainability (Switzerland), 11(13), 1–15.

How to Cite
Anwar, J., & Abadi, F. (2023). Transformational Leadership, Knowledge Sharing, and Innovation Capability: Improving the Performance of MSME Organizations in East Nusa Tenggara Province. Indonesian Interdisciplinary Journal of Sharia Economics (IIJSE), 6(3), 1894-1920.