HARNESSING EMPLOYEE INNOVATION FOR SUSTAINABLE ORGANISATIONAL GROWTH IN RESOURCE-CONSTRAINED SMEs

Abstract

Small and medium-sized enterprises (SMEs) in developing economies face growing pressure to meet both economic objectives and sustainability goals. While resource constraints often limit formal sustainability programs, employee-led innovation offers an overlooked pathway for embedding sustainable practices into daily operations. Drawing on the Resource-Based View (RBV), this study explores how internal employee innovation serves as a strategic asset contributing to sustainable organisational growth in Sri Lankan manufacturing SMEs. Using a qualitative case study approach, the study investigated three manufacturing SMEs in the Western Province of Sri Lanka. Semi-structured interviews with 15 employees from managerial and operational levels were conducted. Data were thematically analysed to examine how innovation behaviours align with sustainability outcomes. Findings indicate that grassroots innovations such as material reuse, low-cost energy-saving tweaks, and process streamlining emerged from employees’ contextual knowledge and problem-solving rather than formal R&D. In the absence of sustainability officers, flat hierarchies, trust-based communication, and leadership openness encouraged experimentation. Informal knowledge sharing and digital tools facilitated real-time collaboration. These practices collectively strengthened resilience and adaptive capacity. This study highlights how employee innovation, when recognised and supported, can transform internal resource limitations into sustainability opportunities. Leadership styles that foster trust, experimentation, and feedback loops play a key role. Practical KPIs—such as waste reduction percentages, process cycle times, or innovation suggestion rates—can be used to track employee-driven sustainability efforts. These findings offer actionable insights for SME leaders and policymakers aiming to build resilient and sustainable enterprises in resource-constrained settings.