IOSR Journal of Business and Management (IOSR-JBM) e-ISSN: 2278-487X, p-ISSN: 2319-7668. Volume 20, Issue 6. Ver. V. (June. 2018), PP 06-12 www.iosrjournals.org DOI: 10.9790/487X-2006050612 www.iosrjournals.org 6 | Page The Effect Organizational Culture as a Mediation of Transformational Leadership to Smes Organization Performance in Malang City - East Java (Study on Small Food and Drink) Lusi Endang Sri Darmawati, Nazief Nirwanto, Edi Subiyantoro Doctoral Program of Economics, University of Merdeka Malang Corresponding Author: Lusi Endang Sri Darmawati Abstract: Purpose - The objective of this study to explain the organizational culture as a mediation of transformational leadership on small business enterprice performance. In addition, analyze and explain the direct influence of transformational leadership on small business enterprice performance. Methodology - There are 270 small business enterprice in Malang - East Java - Indonesia as the study sample. The method used was a survey. The leader of small business entrepreneurs as research respondents.Analysis using multivariate statistical methods SEM (Structural Equation Modeling). Research Findings - The result of statistical test of the influence of the standardized positive value 0.078 and the significance value (p) of the SMEs in the model of structural equation is not significant, with the value of the coefficient of the standardized positive value 0.078 and the significance value (p) of 0.191 is greater than 0.05. The direct influence of the transformational leadership on a positive organizational culture of 0.304 with a significance value (p) of 0.000 less than the alpha significance level of 0.05. The effect of organizational culture on the SME organization performance is positive 0,546 with a significance value (p) of 0.000 less than alpha significance level of 0.05. The result of testing of coefficient (standardized) equal to 0,078 direct influence of transformational leadership to the organization performance of SME have insignificant influence, while organizational culture is able to mediate transformational leadership role in improving organization performance of SME have coefficient (standardized) equal to 0304 X 0.546 = 0.166, not directly more important than direct influence. The more successful the transformational leadership the better the SMEs organizational performance. Keyword: Transformational leadership , organizational culture, SME performance --------------------------------------------------------------------------------------------------------------------------------------- Date of Submission: 05-06-2018 Date of acceptance: 20-06-2018 --------------------------------------------------------------------------------------------------------------------------------------- I. Introduction Human resources is an important requirement in the company especially its role in providing competitive advantage for the company, as well as in the face of technological progress in the future. The growing and growing of an organization coupled with internal and external pressures will require a change in human resource management. In line with that, human resource managers in every organization and company need to be pioneers and leaders in the transformation of corporate culture that puts the workers as members of the company and not just as production resources equivalent to other resources, such as money and machinery. Future human resource managers need to develop the ability to identify the needs of the workforce, both within and outside the organization, and to formulate appropriate strategic actions to ensure the availability of productive and competent human resources. Talented, qualified, highly motivated human resources and willing to work together in teams will be key to organizational success, therefore, the organization's leaders need to set work goals that will produce high- quality, highly motivated and productive employees. This is in line with the notion of leadership that seeks to persuade and communicate individuals and groups to understand and know what to do in achieving common goals effectively (Yukl, 2005). Meanwhile Hodge et al. , (1996) argues that leadership is a leader's ability to mobilize, encourage, to enable employees to contribute to organizational success.According to Bass and Avolio (1993), transformational leaders have the ability to improve organization performance and influence follower attitudes. Further, Bass (1990) argues that transformational leadership can work when leaders want to open themselves up and pay more attention to the desires of employees, when leaders create awareness and acceptance of group goals and missions and when leaders move the hearts of followers to see further than their own personal interests in the interest of the group. The study differs from the research conducted by Timothy C, O et al., (2011) whose results show that transformational leadership has not been able to raise performance.