Transformational leadership and Human Resource Systems in driving innovation in SMMEs

Small, Medium, and Micro Enterprises (SMMEs) play a vital role in economic development by creating jobs, driving innovation, and alleviating poverty. Despite their significance, many SMMEs experience high failure rates due to limited resources, inadequate managerial practices, and insufficient innovation capacity. This study examines the combined effect of transformational leadership and human resource systems in driving innovation within SMMEs. The study is grounded in the Resource-Based View (RBV), which emphasises the importance of internal organisational resources such as leadership capability and human capital development in achieving competitive advantage. A qualitative exploratory research design was adopted within the interpretive paradigm to understand the experiences of SMME owners and managers in the Vhembe District of South Africa. Data were collected through semi-structured interviews with 16 participants across various sectors, including information technology, construction, agriculture, manufacturing, and healthcare. Thematic analysis was used to identify patterns and insights related to leadership practices, human resource development, and innovation activities. The findings indicate that transformational leadership behaviours, particularly intellectual stimulation, inspirational motivation, and individualised consideration, play a significant role in encouraging creative thinking and problem-solving among employees. Furthermore, effective human resource systems, including training, learning orientation, and human capital development, enhance employee skills and facilitate knowledge sharing, which supports innovative practices. The study concludes that the synergy between transformational leadership and strategic human resource systems fosters an environment that promotes product, process, and organisational innovation in SMMEs. These findings provide valuable insights for entrepreneurs and policymakers seeking to strengthen innovation-driven growth and sustainability in the SMME sector. Key Words: transformational leadership, human resource systems, innovation, entrepreneurial leadership, south africa