The Relationship between Transformational Leadership, Product Innovation and Performancein SMEs

In small and medium sized enterprises (SMEs), the leadership style of the top management can have a strong impact on the innovativeness and the performance of the firm. The purpose of this study is to analyze the impact of a particular leadership style, transformational leadership, on innovations, growth, and profitability. Drawing on a sample of 300 innovative SMEs from Carinthia (Austria), we analyzed a structural equation model (SEM), in which these constructs are linked (n=97). The results indicate that transformational leadership has a positive direct impact on innovation, growth and profitability. In addition to that, innovation positively impacts on growth and profitability. Our results indicate that transformational leadership might be an appropriate approach for the management of SMEs.