Examining the Role of Transformational Leadership in Shaping Employee Behaviour: An Empirical Analysis of Pakistani SMEs ()
1. Introduction
To survive in the increasingly competitive global business world, organisations of all sizes must improve their performance. Small and medium enterprises (SMEs) power many economies, especially emerging ones. SMEs account for 40% of Pakistan’s GDP and 80% of its workforce [1]. SMEs in Pakistan struggle with low financial resources, technology access, and leadership [2]. The importance of leadership in improving SME performance has garnered attention, with transformational leadership (TL) holding promise. Burns [3] and Bass [4] define transformational leadership as inspiring and motivating employees to do better. TL employs Idealized Influence, Inspirational Motivation, Intellectual Stimulation, and Individualized Consideration. TL leaders foster trust, inspiration, and creativity in the workplace, encouraging innovation and company gain [5]. SMEs need a CEO leadership approach that can innovate and influence employee behaviour. SME leadership is essential, and the TL style can effectively motivate and engage employees in a dynamic business environment [6].
Pakistani SME leaders struggle to balance operational and strategic goals [2]. A leadership vacuum can affect morale and production in many organisations controlled by people without professional leadership experience. Transformational leadership improves employee happiness and creativity [7]-[9]. Job satisfaction affects employee behaviour and has been extensively studied in transformational leadership. Transformational leaders encourage and assist employees, increasing intrinsic motivation and job happiness [10]. A transformative leader may alter SMEs, where resources are tight and people must multitask, by establishing respect and trust. Workplace happiness increases when employees perceive their leader’s values and promote them [1] [10] [11]. Pakistani SMEs’ employee happiness depends on the leader’s motivation and direction. Transformational leadership emphasises vision and support, which can enhance employee satisfaction in an unpredictable industry with few career growth opportunities [12].
Employee motivation is affected by transformational leadership [4], transformational leaders motivate followers by making their work meaningful and challenging. Leaders can inspire people and align the company’s goals with theirs [12]. Transformational leadership motivates SMEs since employees care more about the company’s success [2] [12]. Pakistani SME workers face limited advancement and recognition [11]. Transformational leaders can address these issues by recognising individual achievements and providing professional development. A competitive and resource-constrained environment like the Pakistani SME sector requires great motivation [1] [13] [14]. Innovative work behaviour (IWB) entails purposefully inventing, introducing, and using new ideas in a job, group, or organisation [15] [16]. In competitive markets, SMEs need innovation to survive. Transformational leaders promote creativity and corporate problem-solving through intellectual stimulation and tailored consideration [17] [18].
2. Research Aim
This study aims to examine the influence of transformational leadership on employee behaviour in Pakistani SMEs. Specifically, it explores how transformational leadership affects job satisfaction, employee motivation, and innovative work behaviour (IWB) within these enterprises.
3. Research Objectives
To critically analyze the impact of transformational leadership on job satisfaction in Pakistani SMEs.
To investigate the relationship between transformational leadership and employee motivation within SMEs.
To explore the role of transformational leadership in fostering innovative work behaviour (IWB) in the SME sector.
To provide practical recommendations for SME leaders on how to implement transformational leadership practices to enhance employee behaviour and organizational performance.
4. Literature Review
Transformational leadership (TL) is defined by Burns [3] as the process of motivating followers to achieve more while raising their awareness of specific outcomes. Bass, [4] developed Burns’ approach by identifying four TL components: Idealized Influence, Inspirational Motivation, Intellectual Stimulation, and Individualized Consideration. These factors affect organizational employee behaviour [3] [4]. Transformational leadership improves employee performance, innovation, and organisational success, especially in SMEs. Inspiring, encouraging, and enabling workers help firms to compete. Transformational leadership may improve performance and innovation in Pakistani SMEs, which are essential for sustainability and competitiveness [13] [18] [19]. Transformational leadership boosts staff motivation, performance, and innovation, making it essential to organisational success [21] [22].
Transformational leadership motivates employees, improving organisational performance. Transformational CEOs inspire people and match their goals with the company’s mission via charm, personalised attention, and motivation [3]. Amad et al., [21] observed that transformative leadership motivates Pakistani healthcare workers, suggesting SMEs may follow suit. Transformational leaders inspire hard effort by making people feel valued [23]. Masood & Afsar [24] suggest that Pakistani SMEs may not have the funds for extrinsic rewards, thus leaders must empower and recognise employees to inspire them [7] [25]. Transformational leadership inspires innovation and performance. Transformational leaders encourage creativity by allowing and funding experimentation [26]. According to Ali and Anwar [27], transformational leadership enhances job happiness and innovation by creating meaningful activities and rewarding staff efforts. Abbah [28] states that transformational leadership in Pakistani SMEs engages employees, who are more likely to promote organizational success [29] [30]. Afshari [23] suggests that transformative leaders inspire employees to exceed expectations [4]. Transformational leaders promote corporate values and goals to enhance employee engagement and performance (Buil et al., 2019). In SMEs, staff have many jobs and responsibilities requiring considerable involvement and commitment [26]. Pakistani research suggests that transformative leadership increases hospital and corporate job performance [3]. According to Manzoor et al. [15], transformational leadership improves work performance and CSR in SMEs through employee motivation.
4.1. Theoretical Foundation of Transformational Leadership
Transformational leaders inspire employees to achieve personal and organizational goals. Comprehending how TL affects employee behaviour requires comprehending its four Bass [4] aspects. Leaders’ ability to lead, by example by being ethical, honest, and dedicated gains employees’ respect and trust. Afshari [23] stated that this component strengthens emotional relationships, improving staff dedication to company goals. Strong idealized influence leaders are charismatic and exemplify the behaviours they seek from their employees [5]. This increases employee loyalty, engagement, job satisfaction, and organizational commitment. A compelling vision motivates people to achieve organizational goals. Inspirational leaders can motivate their followers. Leaders who communicate clear and inspiring visions align employees’ aspirations with the organization’s, fostering long-term engagement and productivity, according to Weng et al. [32], this leadership style motivates employees by making them like their employment.
Intellectual stimulation fosters creativity and questioning. This TL component is essential in innovative, problem-solving groups. Shafi et al. [31] found that intellectually stimulating leaders promote critical thinking and innovation. Intellectual stimulation inspires people to innovate and try new things, which is essential in fast-changing companies like SMEs. Individualized Consideration indicates the leader can meet staff growth needs [33]. Individualized leaders identify employees’ skills and weaknesses and provide tailored support to help them grow. Budur and Demir [34] discovered that this tailored approach increases job satisfaction by making people feel valued and encouraged in their professions. Personal attention is crucial for talent retention and morale in diverse settings [15] [35] [36].
4.2. Transformational Leadership and Employee Motivation
Organisational success depends on employee motivation, which impacts productivity, retention, and performance. Motivated personnel are more committed to the company’s aims. Employees are inspired, valued, and connected to a larger cause by transformational leadership [28] [37]. Transformational leaders inspire employees to exceed expectations and link their goals with the company’s [28]. This leadership style is driven by personal progress, contentment, and the gratification of helping a good cause [38]. Research reveals that genuinely motivated personnel are more engaged and perform better than money-motivated ones [27] [38]. According to Ahmad et al. [22], healthcare staff motivation and satisfaction increase with transformative leadership. Their study indicated that leaders who inspire purpose and belonging improve organizational outcomes. This is especially true in high-stress situations where internal desire reduces job stress and burnout [38].
According to Ali and Anwar [27], TL affects SME employee motivation. Due to their size and limited resources, SMEs need employee motivation and engagement [39]. Transformational leadership improved job satisfaction and motivation in SMEs. Masood and Afsar [24] discovered transformative leadership boosts intrinsic motivation and inventiveness. According to Bednall et al. [40], transformational leadership boosts employee engagement and proactive behaviour, which are crucial for innovation and corporate success. The research demonstrates that TL creates a productive workplace where employees feel empowered to take the initiative and assist the firm to prosper. SMEs need proactive, multitaskers due to their tiny workforce [41].
4.3. Innovative Work Behaviour (IWB) and Transformational
Leadership
The fast-changing corporate environment requires innovative work behaviour (IWB) for organisational success. IWB creates, promotes, and executes innovative ideas to improve products, services, and processes [42]. Companies must innovate to compete. Transformational leadership fosters innovation, risk-taking, and problem-solving, promoting IWB [43]. Transformational leaders encourage critical thinking and question the status quo (56). These bosses inspire personnel to experiment and tackle organisational issues through creativity and innovation [44]. Unlike other leadership approaches such as participative leadership fosters creativity through collaboration and shared decision-making, creating a psychologically safe space for brainstorming rather than pushing for change through vision or charisma. Transactional Leadership relies on rewards and structure to maintain efficiency. While not typically linked to innovation, it can support incremental improvements through incentives and clear goals. Yet, transformational leadership inspires innovation by providing a compelling vision, encouraging risk-taking, stimulating intellectual curiosity, and mentoring employees. It drives radical innovation through vision and inspiration. For instance, Afsar and Umrani [42] observed in their TL and IWB study that intellectually stimulating executives inspire personnel to innovate. SME leaders who innovate and adapt in a dynamic business environment seem to thrive under transformational leadership [45].
Psychological empowerment links TL and IWB. Stanescu et al. [45] contended that transformational leaders inspire followers to solve organisational problems creatively. Thus, empowering workers enhances their confidence and enables organisations to succeed, which fosters creativity. According to Messmann et al. [8], leaders psychologically empower employees to innovate. Psychological safety explains TL-IWB. According to Alessa and Durugbo [46], transformational leaders who offer psychological safety foster creativity and innovation. When employees feel safe sharing new ideas and taking risks, they innovate. SMEs’ lower size may make leadership more impactful on individual behaviour [44] [45].
4.4. Job Satisfaction and Organisational Commitment
Transformational leadership study examines work satisfaction and organisational commitment. Transformational leaders create a trusting, helpful, and meaningful environment, which boosts job satisfaction and organisational commitment [47]. Transformational leadership fosters worker satisfaction by fostering trust and openness. Chen et al. [47] found that transformative leaders make employees happier in supportive and inclusive workplaces. Transformational leaders give more professional development, which enhances job happiness [14] [48]. Also known is the link between TL and organizational commitment. Hussain and Khayat [49] found in a systematic review of healthcare studies that transformational leadership boosted organizational commitment. Transformational CEOs inspire devotion and commitment to the company’s success by linking their own goals to it. Leader-supported employees are loyal, reducing turnover and improving performance [50].
Transformational leadership lowers employee tiredness and social loafing, which lowers job satisfaction and organizational commitment. Khan et al. [1] found that transformative leadership reduces burnout by managing workplace stress. By encouraging accountability and teamwork, transformational leaders diminish social loafing, improving job satisfaction and organisational commitment [51]. According to Dappa et al. [51], female employees responded best to transformational leaders who supported and acknowledged their achievements. This shows that varied workforces need individualized job happiness care. By tailoring their leadership style to each employee, transformational leaders foster workplace inclusion, job satisfaction, and organizational loyalty [8] [48] [51].
4.5. Transformational Leadership in SMEs
Due to their issues, SMEs need transformative leadership. Due to their smaller resources and personnel, SMEs are more affected by leadership [15]. In SMEs’ fast-changing environment, transformational leadership fosters innovation, employee engagement, and organizational flexibility [20]. In SMEs, transformational leadership improves job performance and organizational citizenship, according to Manzoor et al. [15]. Their study suggests that transformational CEOs in SMEs can improve employee behaviour by encouraging trust, innovation, and respect. As SMEs are smaller, leaders and employees can communicate more directly. Transformational leaders may directly influence a joyful workplace where employees feel empowered to help the firm prosper [20].
Knezović & Drkić [52] emphasise the importance of transformational leadership in SMEs, as it promotes innovative work behaviour. Transformational leadership improves organisational performance and employee innovation. Transformational leaders inspire SMEs to innovate by encouraging creativity and risk-taking. SMEs are smaller and can implement new ideas rapidly, making innovation important to competitiveness [51]. According to Purwanto [20], transformational leadership in service businesses boosts job performance through employee engagement and work environment. Transformational leadership fosters employee engagement and performance in SMEs, where workers generally have several duties. By equipping workers, transformational leaders improve job performance and organisational success [31] [53]. Therefore, transformational leadership enhances innovation, motivation, and performance in SMEs, fostering a positive environment where employees feel empowered to thrive. So, to foster long-term success in today’s competitive business environment, SMEs can greatly benefit from adopting transformative leadership practices in their daily operations [54] [55].
5. Research Method
This study used Saunders’ Research Onion to determine research philosophy, strategy, time frame, and data collection methods. This framework helped build each study component to meet study goals. This quantitative study examined how transformational leadership affects employee behaviour in Pakistani SMEs. Hypotheses based on theories were tested deductively. A systematic questionnaire was provided to Pakistani SME employees. The algorithm was utilised to calculate a sample size of 385 respondents, who were selected through convenience sampling [10]. Demographic information, transformational leadership, employee innovative work behaviour (IWB), motivation, and job satisfaction were covered in the questionnaire. Bass, [4] Multifactor Leadership Questionnaire (MLQ) assessed transformational leadership utilising Idealised Influence, Inspirational Motivation, Intellectual Stimulation, and Individualised Consideration [56]. Maslow’s Hierarchy of Needs was used to measure employee motivation, whereas De Jong and Den Hartog’s [16] scale measured IWB.
Data was analysed using SPSS 19.0 and Scale reliability was checked using Cronbach’s alpha, with values above 0.80 considered acceptable. Descriptive statistics summarised demographic data and correlation analysis analysed critical variables. Finally, multiple regression analysis examined how transformational leadership affects job satisfaction, motivation, and IWB [21]. Positive, interpretive, realist, and pragmatic research philosophies are presented for any study. Objectivity and reality are promoted by natural science positivism. This study sought actual correlations between transformative leadership and employee behaviour, making it suited for factor-based research [24] [40]. The investigation was objective, therefore positivism guided it. This technique lets the researchers organise hypothesis creation and statistical testing for dependable, generalisable outcomes [42]. Examining observable and measurable variables supported the research goals and offered a framework for analysing TL’s impact on Pakistani SME employee behaviour [18].
A total of 385 Pakistan’s SMEs members were selected as part of the sample exploring convenience sampling, which was particularly beneficial given the limited availability of detailed personnel data within these organisations. This approach allowed for a practical means of establishing a representative sampling frame, which enabled the researchers to collect data quickly [57] [58]. This study examined transformative leadership and employee behaviour using a self-administered questionnaire. The questionnaire has five parts: demographics, sections examining transformational leadership, innovative work behaviour, employee engagement, and job satisfaction. Survey item reliability and validity were tested using previous study scales [58] [59]. Transformative leadership uses Bass, [4] scale, whereas innovative work behaviour uses De Jong and Den Hartog’s [17]. Maslow’s theory of need satisfaction measured employee motivation and work satisfaction. Thus, all items were rated on a 5-point Likert scale [60] to quantify responses.
6. Results
This study’s demographics are essential to understanding how variables affect Pakistani SMEs’ transformational leadership (TL) response. Participants (See Table 1) were 53.2% women and 46.8% men (84). Equal gender representation is vital because research demonstrates that women respond better to transformative leadership, especially when leaders care about them [51]. Transformational leaders’ attention and support may inspire women. Gender inclusion and SME leadership performance are also raised by this research [57] [58]. The age spread was wide, with 35% aged 26 - 32 and 4.7% over 41. According to Pradhan and Jena [17] younger employees, especially early careerists, are more inclined to follow TL leadership styles that foster innovation, professional development, and personal growth. The study’s focus on innovative work behaviour and motivation is relevant since transformational leaders affect these behaviours and motivation in younger age groups [61].
Master’s degrees were held by 49.6% and bachelor’s by 26.5%. The study is deeper with highly educated respondents since education connects with leadership and organisational behaviour knowledge. Highly educated workers value transformative leadership for intellectual stimulation and inspiration. Higher education helps employees grasp transformative leaders’ complex organisational objectives. In their healthcare TL study, Ahmad et al. [21] discovered that alignment boosts job satisfaction and motivation. The respondents’ education validates the findings because they grasp and respond to TL complexities. Another crucial fact is that 128 of 385 respondents have 2 - 5 years of job experience. This range of experiences suggests that respondents had enough time in their businesses to learn leadership styles and how they affect behaviour and performance. Experienced employees can better assess how transformative leadership affects job satisfaction, motivation, and innovation.
Table 1. Summary of study participants.
Demographic Factor |
Categories |
Gender |
Female (53.2%), Male (46.8%) |
Age |
18 - 24 (33.2%), 26 - 32 (37.1%), 33 - 40 (24.9%), Above 41 (4.7%) |
Education Level |
Bachelor’s (26.5%), Doctorate (4.7%), High School (19.2%), Master’s (49.6%) |
Work Experience |
Less than 2 years (113), 2 - 5 years (128), 6 - 8 years (124), Above 8 years (20) |
Region |
Baluchistan (5.7%), KPK (17.7%), Punjab (51.7%), Sindh (24.9%) |
SME Category |
Agriculture/Forestry/Fishing/Hunting (70), Wholesale Trade (57), Accommodation/Food Service (48), Other Services (30), Manufacturing (21), Others (124) |
The majority (51.7%) of responders were from Punjab, followed by Sindh, KPK, and Baluchistan. Pakistan’s economic, social, and cultural difficulties may affect transformational leadership perceptions; hence the data is geographically scattered [63]. The way employees respond to motivating tactics and leadership styles can vary between locales [15]. Finally, respondents’ SMEs show which sectors benefit from transformative leadership. Agriculture had 70 respondents, followed by wholesale trade and lodging/food services. Agriculture drives Pakistan’s economy, and the enormous number of agricultural workers indicates the need for creative leadership to enhance output and sustainability.
This study’s Cronbach’s Alpha Scores table (See Table 2) demonstrates measurement instrument reliability. Cronbach’s alpha measures object similarity and internal consistency. With a reliability score of 0.98, this study’s questionnaire is very reliable. The consistent metrics of transformative leadership, job happiness, employee motivation, and innovative work behaviour were reliable. Transformational leadership’s Idealized Influence (ID) factor—how leaders role model for employees—scored 0.922, the highest alpha of all dimensions. Similar to Afshari [23], this high score shows Idealised impact is the most valued transformative leadership trait. Idealised influence CEOs with high ethics, integrity, and charisma connect with employees more. The high reliability of this dimension in the current study underscores the importance of role modelling in leadership, especially in SMEs where employees engage more with leaders than in larger companies.
Table 2. Cronbach’s alpha scores.
Items |
Cronbach’s Alpha |
Idealized Influence (ID) |
0.922 |
Inspirational Motivation (IM) |
0.851 |
Intellectual Stimulation (IS) |
0.821 |
Individualized Consideration (IC) |
0.829 |
Innovative Work Behavior (IWB) |
0.914 |
Employee Motivation (EM) |
0.860 |
Job Satisfaction (JS) |
0.844 |
Overall Reliability |
0.98 |
Inspirational Motivation (IM) has great dependability at 0.851. Visionary leaders can motivate employees to attain organisational goals. This validates Weng et al. [32], who found that employees identify leaders’ compelling visions. This study demonstrated a high dependability score for inspirational motivation in Pakistani SME employees, showing that leaders who provide ideas and direction are effective, which can enable individual employee ambitions may match company missions in SMEs. Intellectual Stimulation (IS) was 0.821, indicating that employees view leaders as inventive and critical thinkers. Intellectual stimulation drives innovation and problem-solving under transformational leadership. When CEOs urge SMEs staff to think beyond the box, Afsar and Umrani [42] found that intellectual stimulation leads to innovation. The current study’s high dependability score for this dimension suggests that transformational leaders in Pakistani SMEs generate innovation, which is important for understanding how leadership affects employee behaviour in smaller firms.
Individualized Consideration (IC) scored 0.829, indicating that employees consistently recognized leaders’ personalized support and advancement. SMEs with minimal staff development resources must mentor and support each employee individually. According to Budur & Demir [34], individualized consideration increases employee engagement and happiness in SMEs, supporting this dimension’s high dependability score. The study relies on leaders coaching and motivating in such organisations. The Innovative Work Behaviour (IWB) scale was 0.914 reliable. Stanescu et al. [45] found that leaders’ intellectual stimulation and motivation considerably affect employees’ reliable assessments of their innovative behaviour. The current study’s strong IWB reliability score suggests that Pakistani SMEs employees are aware of their innovative contributions, with the support of transformational leaders. Employee Motivation (EM) and Job Satisfaction (JS) are reliable at 0.860 and 0.844. Thus, understanding how transformational leadership influences organisations requires these factors. According to Chen et al. [47], transformational leaders motivate and satisfy employees with a common goal and Individualised support. This study’s reliable measurements support the notion that transformational leadership motivates and delights Pakistani SMEs. (See Table 3)
Table 3. Results of correlation analysis.
|
JS |
EM |
IWB |
IC |
IM |
IS |
ID |
JS |
1 |
0.867*** |
0.874** |
0.823*** |
0.804*** |
0.820*** |
0.847*** |
EM |
0.867*** |
1 |
0.922*** |
0.865*** |
0.848*** |
0.865*** |
0.885*** |
IWB |
0.874*** |
0.922*** |
1 |
0.897*** |
0.872*** |
0.884*** |
0.923*** |
IC |
0.823*** |
0.865*** |
0.897*** |
1 |
0.841*** |
0.897*** |
0.899*** |
IM |
0.804*** |
0.848*** |
0.872*** |
0.841*** |
1 |
0.880*** |
0.885*** |
IS |
0.820*** |
0.865*** |
0.884*** |
0.897*** |
0.880*** |
1 |
0.901*** |
ID |
0.847*** |
0.885*** |
0.923*** |
0.899*** |
0.885*** |
0.901*** |
1 |
***Significant at 0.01. JS* Job Satisfaction; EM* Employee Motivation; IWB* Innovative Work Behavior; IC* Individualized Consideration; IM* Inspirational Motivation; IS* Intellectual Stimulation; ID* Idealized Influence.
In this study, transformational leadership (TL) is correlated with job satisfaction, motivation, and innovative work behaviour. Idealised Influence (ID), Inspirational Motivation (IM), Intellectual Stimulation (IS), and Individualised Consideration (IC) positively affect employee outcomes. Employee Motivation (EM), given that job happiness boosts performance [14]. Transformational leaders make employees feel valued, supported, and aligned with corporate goals, increasing job happiness. When job satisfaction is high, employees are more motivated to put in effort and work hard. The positive correlation between Job Satisfaction (JS) and Innovative Work Behavior (IWB) is especially remarkable (r = 0.874). According to Bednall et al. [40], Happy workers produce more ideas, encourage creative solutions, and implement innovative methods. These results confirmed that transformational leaders boost job happiness, encouraging employees to attempt new things and take risks without fear of failure [63].
Innovative Work Behavior and Individualized Consideration (IC) were positively associated (r = 0.897). This suggests that leaders who promote and care for individual employees improve innovation. This aligns with Messmann et al. [8], assertion, who discovered that empowered, secure, and supported employees are more innovative, as transformational leaders prioritise employees’ needs to foster creativity and innovation. Job satisfaction (r = 0.804) and employee motivation (r = 0.848) are also connected with inspirational motivation (IM). These findings imply that leaders who inspire and motivate personnel through a compelling vision and clear communication improve job satisfaction and performance. Also, the study found that Intellectual stimulation (IS) was significantly linked with job satisfaction (r = 0.820) and innovative work behaviour (r = 0.884). This means organisational leaders who encourage critical and creative thinking enhance job satisfaction and employee innovation. Transformational leaders can challenge old practices in an organisation and try new things to improve employee happiness and innovation [31]. This study identified that Idealised Influence (ID) and Innovative Work Behavior are associated best (0.923). Leaders who serve as ethical role models gain the confidence and esteem of their employees, which greatly influences innovation [64].
The Transformational Leadership (TL) and Job Satisfaction (JS) regression analysis illustrates how TL characteristics affect Pakistani SMEs’ job satisfaction (See Table 4). Idealized Influence (ID), Inspirational Motivation (IM), Intellectual Stimulation (IS), and Individualized Consideration (IC) all improved job satisfaction. The idealized influence had the best regression coefficient for job satisfaction, b = 0.823. This suggests that ethical, charming executives make employees happier at work. This supports Afshari’s [23] findings, which found that ethical and trustworthy leaders boost job satisfaction. So, in Pakistani SMEs, leaders who actively engage with their employees as role models foster greater employee satisfaction. By leading by example, these leaders create a positive work environment that enhances morale and productivity. Inspirational motivation increased job satisfaction (b = 0.733). Leaders must have a compelling vision to inspire individuals to align their personal goals with the company’s objectives, as employee satisfaction increases when CEOs motivate their staff with such a vision. Intellectual stimulation boosts job satisfaction (b = 0.817), as it can help workers think critically, challenge authority, and solve issues, hence promoting innovation and work satisfaction. Given that intellectually stimulating leaders make employees happy and appreciated [42]. Finally, this argued that Individualised Consideration significantly boosted job satisfaction by 0.806. SME leaders should offer personalized support to enhance employee development, as this fosters greater job satisfaction and a happy working experience [63]. (See Table 5)
Table 4. Regression analysis for TL and job satisfaction.
Independent Variable |
Constant |
Estimate |
Std. Error |
t |
p-value |
Idealized Influence |
0.829 |
0.823 |
0.026 |
31.232 |
0.000 |
Inspirational Motivation |
10.210 |
0.733 |
0.028 |
26.502 |
0.000 |
Intellectual Stimulation |
0.855 |
0.817 |
0.029 |
27.994 |
0.000 |
Individualized Consideration |
0.906 |
0.806 |
0.028 |
28.380 |
0.000 |
Dependent Variable: Job Satisfaction.
Table 5. Regression analysis for TL and employee motivation.
Independent Variable |
Constant |
Estimate |
Std. Error |
t |
p-value |
Idealized Influence |
0.782 |
0.824 |
0.022 |
37.205 |
0.000 |
Inspirational Motivation |
10.133 |
0.741 |
0.024 |
31.360 |
0.000 |
Intellectual Stimulation |
0.772 |
0.827 |
0.025 |
33.722 |
0.000 |
Individualized Consideration |
0.840 |
0.812 |
0.024 |
33.683 |
0.000 |
Dependent Variable: Employee Motivation.
Transformational Leadership (TL) affects Pakistani SME employee motivation, according to a regression analysis. Since SMEs’ CEOs interact directly with employees, Idealised influence is more crucial. Leaders who inspire employees by modelling their actions motivate them to align their goals with the company’s vision [20]. Inspirational motivation is another significant TL trait, with a regression value of b = 0.741, indicating a positive relationship with employee motivation. An inspiring leader may set a clear, appealing goal to inspire personal and professional growth [47]. This factor stresses the need for visionary leadership in motivating staff. In Pakistani SMEs, where employees may ask leadership for help with business issues, confident and ambitious leaders are more likely to inspire and engage. Weng et al. [32] found that leaders who express a shared vision motivate and commit staff. Intellectual stimulation motivated employees with a regression coefficient of b = 0.827. Intellectual stimulation from leaders fosters creativity, encourages questioning of assumptions, and enhances problem-solving skills. By motivating employees to think critically and try new approaches, leaders promote innovation and improvement.
Individualized Consideration significantly improved employee motivation by 0.812. Leaders provide personalized support based on each employee’s needs and goals. SMEs’ smaller size and personal ties between leaders and employees can enhance employee engagement with individualized attention [8]. Managers who care about their employees’ growth and well-being motivate them to succeed. According to Dappa et al. [51], transformational leaders who coach and encourage their employees motivate them. This study’s regression analysis for TL and employee motivation demonstrates that all four transformational leadership traits increase employee engagement in Pakistani SMEs. Inspirational Motivation, Intellectual Stimulation, Idealised Influence, and Individualized Consideration excite employees, improving organisational performance and retention [31]. Transformational leadership is essential in SMEs, especially in emerging nations like Pakistan where employee motivation drives company success [24] [55].
The regression analysis of Transformational Leadership (TL) and Innovative Work Behavior (IWB) in Pakistani SMEs illustrates how TL affects employees’ innovation abilities and motivation (See Table 6). The analysis demonstrates that all four TL dimensions—Idealized Influence (ID), Inspirational Motivation (IM), Intellectual Stimulation (IS), and Individualized Consideration (IC)—positively promote innovative work behaviour, as with past employee outcomes [8]. Idealized Influence was highest (b = 0.886: regression coefficient). This supports Hypothesis 3a that ethical employers inspire innovation. According to Knezović & Drkić [52], transformative leaders who keep their beliefs create an environment of trust and respect, boosting innovation. Employees innovate and take risks when they trust and emulate leaders. SME survival and growth depend on ethical leaders who inspire innovation [18].
Inspirational Motivation improved IWB (0.786). Leaders inspire innovation with a compelling vision. Leaders in dynamic companies like Pakistani SMEs must motivate employees to overcome challenges and try new methods. This implies SMEs leaders who share the vision of an organisation inspire people to innovate which can increase IWB [31]. Intellectual stimulation boosted IWB (b = 0.871). Leaders can challenge employees to think critically, question assumptions, and innovate which encourages employees to attempt new ideas, boosting innovation. This study argues that transformational leaders who promote intellectual curiosity and problem-solving foster more innovative teams. SMEs leaders must be able to provide targeted support to help employees to develop skills and talents. Individualised consideration increases IWB, supporting, because transformative leaders that emphasize staff support boost creativity. A transformative leader’s support can stimulate innovation in SMEs without formal innovation programs [28] [42].
Table 6. Regression Analysis for TL and IWB.
Independent Variable |
Constant |
Estimate |
Std. Error |
t |
p-value |
Idealized Influence |
0.491 |
0.886 |
0.019 |
46.834 |
0.000 |
Inspirational Motivation |
0.917 |
0.786 |
0.023 |
34.855 |
0.000 |
Intellectual Stimulation |
0.555 |
0.871 |
0.024 |
36.975 |
0.000 |
Individualized Consideration |
0.573 |
0.869 |
0.022 |
39.683 |
0.000 |
Dependent Variable: Innovative Work Behavior.
7. Discussion and Implications
It examines how Transformational Leadership (TL) affects Job Satisfaction (JS), Employee Motivation (EM), and Innovative Work Behavior (IWB) in Pakistani SMEs. These findings confirm previous research and contribute to literature, especially in developing economies [23]. All four dimensions of transformational leadership—Idealized Influence (ID), Inspirational Motivation (IM), Intellectual Stimulation (IS), and Individualized Consideration (IC)—improve job satisfaction. This points out the important relationship between transformational leadership and employee happiness [35] [47]. This indicates a valuable opportunity for Pakistan SME leaders to enhance employee satisfaction through effective leadership practices. Idealised Influence had the largest impact on job satisfaction, demonstrating ethical leaders inspiring happiness. Afshari [23] states that employees prefer honest and ethical bosses. Ethical leaders serve as role models, generating trust and respect, which enhances job satisfaction. This is especially important in SMEs, where leaders interact more directly with employees.
Inspirational motivation boosted job satisfaction, demonstrating the power of visionary leadership to guide. Leaders who inspire and articulate a compelling vision motivate employees to achieve company goals, boosting job satisfaction [52]. According to Weng et al. [32] leaders who motivate employees with honest communication boost satisfaction. Visionary leadership is essential in Pakistani SMEs, as employees look to leadership for direction and inspiration [32]. Intellectual stimulation boosts job satisfaction, showing that challenging people to think critically to solve problems promotes job satisfaction. The workplace is increasingly dynamic, and job satisfaction grows when leaders promote creativity and problem-solving. Shafi et al. [31] discovered that intellectually engaged transformative leaders enhance employee happiness and organizational creativity. This TL component can play a significant role for SMEs, as embracing innovation is essential for boosting competitiveness.
Finally, Individualised Consideration greatly improves job satisfaction, so leadership that gives personalised attention enhances job satisfaction by making individuals feel appreciated. The study confirmed that transformative leadership inspires employees. This aligns with previous research, which indicated that all four features of transformational leadership significantly enhance employee motivation [7] [38]. The Idealised influence had the greatest motivational effect, showing that employees are more motivated to connect their personal goals with those of the organisation when their leaders are role models [31].
Furthermore, Weng et al. [32] contended that leaders who inspire through a shared vision raise intrinsic motivation, which increases staff motivation. Leaders of SMEs must inspire employees to overcome challenges and accomplish long-term goals. Research shows that leaders’ compelling visions energize staff [39]. Intellectual stimulation inspired workers. Staff are motivated by inventive and problem-solving leaders. This confirms Afsar & Umrani [42], who found that intellectually stimulating CEOs motivate employees. Innovation fuels SMEs’ success, thus executives who encourage intellectual engagement may excite staff [53]. According to Dappa et al. [51], individualized consideration motivates staff, demonstrating that leaders’ personalized attention can effectively inspire employees’ development. In SMEs, transformational leadership (TL) is particularly effective because the close relationship between leaders and employees allows for tailored leadership approaches [32].
The study confirmed that transformational leadership promotes innovative work behaviour. This supports innovation and TL literature [39] [40]. Idealised Influence had the largest impact on IWB, showing that honest leaders foster creativity. According to Knezović & Drkić [52], transformational leaders foster innovation by setting ethical examples. Inspirational Motivation greatly affected IWB, validating the premise that leaders who inspire their followers to pursue a common objective stimulate creativity [47]. Shafi et al. [31] say transformative leaders foster creativity and innovation. So, SMEs leaders who encourage innovation and competitiveness are likely to prosper. Intellectual Stimulation is positively associated with IWB, indicating that leaders who challenge workers to think critically boost innovation. Intellectually curious CEOs enhance staff innovation [45]. Intellectual stimulation promotes invention in SMEs and promotes innovation to survive. Individualized consideration enhanced IWB, supporting Stanescu et al. [45] that leaders who personalize attention boost innovation. Innovation in SMEs with limited resources for formal innovation programs needs transformational leaders [10] [30].
8. Theoretical Implications
This study expands the literature on transformative leadership in developing SMEs like Pakistan by supporting Bass’s (4) transformational leadership model’s four dimensions—Idealised Influence (ID), Inspirational Motivation (IM), Intellectual Stimulation (IS), and Individualised Consideration (IC). The study found that all these variables improve Job Satisfaction (JS), Employee Motivation (EM), and Innovative Work Behavior (IWB). Transformational leadership promotes positive organisational behaviour, according to research [31] [42]. The study supports transformative leadership for employee engagement and performance. The leadership literature has disregarded SMEs; therefore, this study’s focus is significant. Most transformational leadership research has been done in larger, more organised firms, where hierarchical structures and functions may alter leadership dynamics. This study addresses a gap in the literature by demonstrating that transformational leadership is equally or more effective in SMEs, as their leaders have more direct communication with employees, enhancing the effectiveness of transformational leadership. In SMEs, leaders being close to employees can make them role models and mentors, enhancing Idealised Influence and Individualised Consideration [34].
The study findings suggest adopting leadership strategies from larger organisations within SME contexts, where transformational leadership can have a more direct and personal impact on both business performance and employee satisfaction. According to this study, transformational leadership affects innovative work behavior. This study identified that leaders who challenge staff to think creatively and critically boost innovation in SMEs sectors. It is also further confirmed that innovation drives competitiveness and survival in resource-constrained SMEs in Pakistan. Other theoretical implications include the study’s contribution to developing economic leadership literature. Most leadership research has primarily focused on Western contexts. Although the transformational leadership paradigm has been validated, its applicability in developing countries is not well studied. However, this study suggests that transformational leadership can enhance job satisfaction, motivation, and creativity in Pakistan’s SMEs, demonstrating its relevance across different cultures and economies [27] [40] [47].
9. Practical Implications
This study has major consequences for SME’s leaders, managers, and policymakers, especially in developing nations like Pakistan. Transformational Leadership (TL) enhances Job Satisfaction (JS), Employee Motivation (EM), and Innovative Work Behavior (IWB). This study shows that transformational leadership can boost employee engagement and performance in SMEs, which face limited resources, strong competition, and workforce management [25]. The study stresses the importance of transformational leadership—Idealised Influence (ID), Inspirational Motivation (IM), Intellectual Stimulation (IS), and Individualized Consideration (IC)—for SMEs leaders and managers [37]. Leaders should model ethics and professionalism for their staff (ID). Leaders who model their values and behaviours gain trust, loyalty, and respect. This increases workplace satisfaction and dedication, making employees more likely to stay and contribute to company goals [64].
Therefore, this paper suggests that leaders of SMEs should motivate their employees through Inspirational Motivation and effectively communicate the company’s vision, mission, and goals, helping them understand how their work contributes. Employees who feel connected to a meaningful project tend to work harder, which benefits both individual and enterprise performance. This study concluded that regular meetings, clear objectives, and acknowledging firm supporters can help leadership achieve business growth. SME leaders need Individualized Consideration (IC) since employee-leader relationships are more direct and meaningful. Personal assistance, mentorship, and advancement improve employee happiness and motivation. Managers should learn about employees’ strengths, weaknesses, career aspirations, and personal difficulties. One-on-one coaching, recognition, and customised growth programs enhance morale and retention. SMEs need this since key staff departures might interrupt business. The paper suggests SMEs’ transformative leadership development programs may help policymakers and HR professionals. SMEs can encourage, innovate, and engage their workers with ethical leadership, visionary communication, innovation, and tailored support training.
10. Conclusion, Limitations and Directions for Future
Research
This study has provided valuable insights into the impact of transformational leadership on employee outcomes, particularly within the context of Pakistani SMEs. The findings confirm that the four dimensions of transformational leadership—idealized influence, inspirational motivation, intellectual stimulation, and individualized consideration—positively influence job satisfaction, employee motivation, and innovative work behaviour. These results align with previous research and reinforce the relevance of transformational leadership in fostering a productive and innovative work environment in smaller organizations, especially in developing economies like Pakistan. Leaders who embody transformational qualities can enhance organizational performance by motivating employees, promoting innovation, and improving overall job satisfaction. However, this study is not without its limitations. The research was conducted exclusively in SMEs in Pakistan, which limits the generalizability of the findings to other cultural or economic contexts. Therefore, results can be generalized to SMEs in other developing countries with different cultural contexts, given that cultural values and leadership expectations greatly affect the perception and implementation of transformational leadership, thus in collectivist cultures, leaders may focus on group motivation, while individualistic societies may prioritize personal development. Future research could conduct comparative studies of SMEs in developing countries, using qualitative and quantitative methods to examine how cultural and economic factors influence transformational leadership; and explore the impact of transformational leadership in different industries or regions to see if similar effects are observed. Additionally, the cross-sectional design of the study does not allow for an examination of how transformational leadership affects employee outcomes over time. Longitudinal studies could provide deeper insights into the long-term effects of transformational leadership on organizational performance and employee behaviour. Another limitation is the reliance on self-reported data, which may introduce bias. Future research could use a mixed methods approach or gather data from multiple sources to minimize potential biases. Future research could also investigate the role of organizational culture and external factors, such as economic instability, in moderating the relationship between transformational leadership and employee outcomes. Moreover, exploring how transformational leadership can be effectively developed and sustained in resource-constrained environments like SMEs would provide practical insights for leadership development programs. These directions offer avenues for expanding the understanding of transformational leadership in diverse settings.
Conflicts of Interest
The authors declare no conflicts of interest.