The Impact of Transformational Leadership on Organizational Innovation and Job Performance: The Mediating Roles of Management Control Systems and Employee Engagement

This study investigates the impact of transformational leadership (TL) on organizational innovation (OI) in resource-constrained tier-two districts, examining the mediating roles of employee engagement (EE) and management control systems (MCS). A cross-sectional quantitative design was employed, collecting survey data from managers and employees across various sectors in tier-two districts of Karnataka, India. Partial Least Squares Structural Equation Modelling (PLS-SEM) was applied using SmartPLS, with validity checks including HTMT, the Fornell–Larcker criterion, and variance inflation factors. Results reveal a significant direct relationship between TL and OI, with EE serving as a strong mediator in this linkage. Conversely, MCS did not exhibit a significant mediating effect. These findings highlight that in environments with limited resources and competitive pressures, people-centric approaches that enhance employee vigour, dedication, and absorption are more effective at fostering innovation than those relying on formal control mechanisms. The cross-sectional design limits causal inference, and the geographic focus on tier-two districts may affect generalisability. Future research should consider longitudinal approaches and explore interaction effects between EE and MCS in varied contexts. Organisations in similar settings should prioritise leadership development programmes that cultivate employee engagement and drive innovation. Emphasis should be placed on motivating and involving employees rather than depending solely on control systems. This study contributes to TL theory by demonstrating the differential effectiveness of mediating mechanisms across contexts, offering a context-sensitive perspective on innovation in underexplored geographical and economic environments.