Bridging digital orientation and firm performance through employee-driven digital innovation: Is technostress a red flag or a red herring?

Purpose In the digital era, there is uncertainty about whether SMEs can enhance their organizational performance through digital technologies. SMEs are characterized by limited resources for investing in these technologies and depend significantly on their employees' digital ideas to advance their digitization efforts. Paradoxically, the 80% failure rate in digital transformation projects has raised concerns that employees, including managers, may be primarily responsible for these failures, with negative attitudes towards technology emerging as a fundamental driving force. Therefore, this paper aims to examine the mediating effect of employee-driven digital innovation on the relationship between digital orientation and firm performance in the presence of technostress. Design/methodology/approach Survey data obtained from a sample of 176 SMEs were employed to examine the moderated mediation. Findings The results show that digital orientation positively impacts organizational performance, with employee-driven digital innovation partially mediating this effect. Interestingly, technostress only negatively moderates the pathway between digital orientation and employee-driven digital innovation. However, the moderating effect of technostress is relatively weak. Originality/value In SME contexts, enhancing organizational performance requires a digital strategy integrating employees' insights into digital innovation. Furthermore, it is essential to account for the negative impacts of technology on managers who are responsible for developing digital strategies. The study challenges the prevailing perception that technostress is a significant inhibitor of innovation and organizational performance, suggesting that its impact may be overestimated in sectors with medium or low digitalization. Furthermore, it highlights that its role as a barrier preventing employees from translating digital strategies into innovations is limited, offering a more balanced perspective on this phenomenon. However, this observation is specifically confined to its role as an inhibitor of employees' capacity to effectively translate digital strategy into digital innovations.