Exploring the effect of transformational leadership and knowledge management in enhancing innovative performance: a mediating role of innovation capability

Purpose In the highly competitive sector of state-owned enterprises in Indonesia, particularly within the electricity group, innovation is crucial for sustainability and growth. This study investigates the impact of transformational leadership and knowledge management on innovation performance, emphasizing the mediating role of innovation capability. Design/methodology/approach Employing a quantitative approach, this research focuses on the upper management of 11 companies, gathering data from 196 out of 280 surveyed individuals through structured questionnaires. Structural equation modeling (SEM) was utilized for analysis. Findings Our analysis reveals a dual role of transformational leadership; while it significantly enhances innovation capability, it unexpectedly detracts from innovation performance. Conversely, knowledge management boosts both innovation capability and performance. Significantly, innovation capability serves as a crucial mediator, amplifying the effects of both transformational leadership and knowledge management on innovation performance. These results highlight complex interdependencies within organizational leadership and knowledge frameworks. Practical implications These findings can guide organizations in refining leadership and knowledge management strategies to bolster innovation. By enhancing transformational leadership skills, implementing robust knowledge management systems and fostering innovation capabilities, companies can better navigate the complexities of the modern market. The adaptation of these strategies should consider specific organizational cultures and market dynamics to optimize performance. Originality/value This research extends the resource-based view (RBV) by detailing the interplay between key organizational variables, offering fresh insights into their collective impact on innovation within the context of state-owned enterprises in Indonesia.