Reconstruction of Transformational Leadership as a Strategy for Strengthening Employee Engagement to Improve MSME Performance

Moh Ali Makki (Universitas Trunodjoyo Madura)
Jefri As Syahidi (Universitas Trunodjoyo Madura)
Muh Abid Rofiqurrahman (Universitas Trunodjoyo Madura)
Imam Rohman (Universitas Trunodjoyo Madura)
Muhammad Alkirom Wildan (Universitas Trunodjoyo Madura)

Eco-Entrepreneur
Vol 12, No 1 (2026): Juni

Purpose: This study reconstructs transformational leadership as a strategic approach to strengthening employee engagement and improving the performance of Micro, Small, and Medium Enterprises (MSMEs). It addresses a theoretical gap by examining how transformational leadership should adapt to contemporary MSME environments characterized by uncertainty, digital transformation, and intensified competition.Design/Methodology/Approach: A Systematic Literature Review (SLR) was conducted following the PRISMA 2020 guidelines. Relevant studies were retrieved from the Dimensions.ai database using predefined Boolean search strategies. After screening based on PICOS criteria, seven peer-reviewed articles published between 2024 and 2026 were selected. Data were analyzed using thematic synthesis and deductive content analysis.Findings: The review indicates that transformational leadership positively affects organizational outcomes, including business growth, service performance, and sustainability, while its direct impact on individual employee performance is often insignificant. Employee engagement emerges as the primary mediating mechanism linking transformational leadership to organizational performance. The findings further suggest that contemporary MSMEs require leadership capabilities beyond traditional transformational dimensions, including organizational agility, digital responsiveness, psychological safety, adaptive decision-making, and employee empowerment. Accordingly, this study proposes a reconstructed transformational leadership framework integrating classical leadership principles with these contemporary capabilities.Practical Implications: The proposed framework provides guidance for MSME leaders in strengthening employee engagement and organizational performance through adaptive leadership, strategic human resource management, psychological empowerment, and organizational flexibility.Originality/Value: This study offers a reconstructed transformational leadership framework tailored to contemporary MSMEs, contributing a novel theoretical perspective for enhancing employee engagement and sustainable organizational performance.