In the present business world, the pace of technological change has turned digital transformation into a strategic requirement that business organizations must embrace in order to gain and maintain a competitive advantage. The role of leadership style in creating organizational preparedness to digital transformation is highly important, whereas the mechanisms by which leadership can impact the competitive outcomes are under-researched. This paper considers digital transformation capability as a mediating variable of the relationship between leadership style and competitive advantage. The study conceptually examines the formation of digital transformation capability enabled by leadership styles based on the leadership theory and the dynamic capabilities perspective, which in turn increases the competitiveness of the organization. The article relies on a systematic survey of the academic literature to point out that leadership styles with a vision, flexible, and innovative orientation are more useful in creating digital transformation capability. The results are relevant in the literature of strategic management and digital transformation as they offer an explanation based on theoretical grounds of the connection between leadership-based digital capabilities and sustainable competitive advantage.