The aim of this study is to empirically investigate how transformational leadership (TL) practices encourage innovation for competitive advantage within the specific context of Saudi large firms and SMEs. Despite a profusion of studies noting that innovation strongly contributes to a firm’s performance, there is a dearth of studies about how TL practically encourages organizational innovativeness. Moreover, because many leadership studies are limited in their location to Western nations, further research in a range of different cultural contexts is warranted. This study will address these issues and suggest a conceptual framework that empirically tests the path-dependent influences of: TL, structural capital, relational capital, tacit knowledge sharing and training, on innovation outcomes. This study will employ a mixed methods approach to examine the hypothesized relationships between factors. The findings of this research may emphasize the importance of utilising TL style as a process, rather than through the study of leadership alone, in facilitating innovation.