Empowering SMEs for The Digital Era: The Role of Digital Leadership in Innovation Performance

Abstract

Background: Small and medium-sized enterprises (SMEs) play a crucial role as catalysts for economic growth and employment generation, particularly in developing nations such as Sri Lanka. Nevertheless, SMEs in the Northern Province face considerable obstacles in their efforts to adapt to digital technologies, primarily due to scarce resources, insufficient expertise, and infrastructural limitations, which hinder their capacity for innovation and competitiveness. Objective: Anchored in the Resource-Based View (RBV), which underscores the strategic significance of distinctive and valuable internal resources, this investigation delves into the direct impact of digital leadership as a pivotal intangible resource on the innovation performance of SMEs operating in the Northern Province of Sri Lanka. Digital leadership encompasses the adept utilization of digital tools by leaders, the application of data-informed decision-making, and technology facilitated collaboration to establish a competitive edge through innovation. Methodology: A cross-sectional quantitative research methodology was employed, with data collected via a structured questionnaire adapted from validated measurement scales. Employing convenience sampling, responses were collected from 51 SME proprietors and managers across various sectors, including retail, services, and manufacturing. While the sample size is modest and based on convenience sampling, it provides initial empirical insights into an under-researched regional context. Correlation analysis was performed to evaluate the hypothesized relationship(r = 0.45, p < 0.01). Key Findings: The findings demonstrate a significant positive correlation between digital leadership and innovation performance, suggesting that SME leaders who adopt digital methodologies are more effectively positioned to cultivate creativity and implement innovative products, services, and processes. These results underscore the importance of digital leadership as a fundamental internal capability that enhances innovation outcomes. Conclusion/Implication: The study makes a valuable contribution to the existing literature on digital transformation and SME development by presenting empirical evidence from a Sri Lankan context and offering practical recommendations for policymakers, SME owners, and managers to invest in leadership development initiatives aimed at fostering digital competencies, thereby ultimately bolstering competitiveness, growth, and sustainability in the digital age.