RELATIONAL RESILIENCE AND ADAPTIVE INNOVATION: A CASE STUDY OF LEADERSHIP RESPONSES TO SUSTAINABILITY CHALLENGES IN SRI LANKAN MANUFACTURING SMEs

Abstract

Sustainability is increasingly essential for small and medium-sized enterprises (SMEs), particularly in developing countries where resource constraints and institutional instability challenge formal adoption. In Sri Lanka's manufacturing sector, SMEs play a critical economic role, yet their sustainability practices are rarely explored through a leadership and relational lens. This study investigates how SME leaders navigate environmental, social, and institutional demands while coping with local crises and operational limitations. It aims to uncover how informal, trust-based leadership and adaptive behaviour foster meaningful sustainability outcomes in resource-constrained settings. The research adopts a qualitative multiple case study approach, analysing four certified SMEs in Sri Lanka's Western Province. Drawing on the Triple Bottom Line, institutional theory, and resilience leadership theory, it explores how firms combine compliance with moral commitment, and how relational resilience- leaders' ability to maintain trust and cohesion through emotional support and ethical responsibility, adaptive behaviour - leaders' flexibility in shifting roles and strategies during crises, and frugal adaptation- innovating with minimal resources by repurposing materials or redesigning processes at low cost collectively support operational continuity and innovation. Findings reveal that sustainability is enabled not primarily through formal systems but through role flexibility, emotional support, ethical responsibility, and resource-conscious practices. These informal leadership actions, particularly during crises, were key to embedding sustainability in daily practice. The originality of this study lies in its focus on relational and adaptive leadership in a Global South context, offering a model that challenges dominant Western perspectives centred on policy and technical systems. It contributes to the literature by highlighting that resilience and social legitimacy in SMEs can emerge from informal structures and culturally grounded leadership behaviours. The study also provides policy insights by suggesting that support should promote trust-based networks, incentivise frugal innovation, and strengthen local leadership capacities rather than rely only on compliance mechanisms.