Digital Leadership and Sustainable Digital Innovation in SMEs: The Strategic Roles of Digital Capabilities, Digital Orientation, and Agility

In the digital economy, small and medium-sized enterprises (SMEs) face growing pressure to align digital transformation with sustainability-oriented value creation. Yet, it remains unclear how and through which mechanisms digital leadership is associated with sustainable digital innovation in resource-constrained and turbulent contexts. This study investigates whether digital leadership is associated with sustainable digital innovation directly and indirectly through digital capabilities and digital orientation, and whether strategic agility strengthens these relationships. Drawing on the Resource-Based View (RBV) and Dynamic Capability Theory (DCT), the study develops an integrated framework that explains sustainable digital innovation as a strategically managed outcome of digital economy transformation rather than a simple result of technology adoption. Using survey data from 423 employees in Lebanese SMEs, the hypotheses were tested through partial least squares structural equation modeling (PLS-SEM). The findings show that digital leadership is positively associated with sustainable digital innovation both directly and indirectly, with digital orientation emerging as the stronger mediating pathway compared to digital capabilities. In addition, strategic agility strengthens the association between digital orientation and sustainable digital innovation, while its moderating role on the digital capabilities path is not significant. These findings contribute to the literature by identifying dual transformation mechanisms and revealing an asymmetric boundary role of agility in sustainability-oriented digital transformation. The study also offers practical implications for SME leaders seeking to align digital strategy with long-term environmental, social, and economic value creation.