Digital Leadership, AI Integration, and Cyberloafing: Pathways to Sustainable Innovation in SMEs Within Resource-Constrained Economies

Sustainable innovation represents both a strategic priority and survival imperative for small- and medium-sized enterprises in resource-constrained economies. While digital transformation offers potential solutions, the synergistic effects of digital leadership, employee behaviors, and emerging technologies remain poorly understood. This study bridges this gap by developing and testing a behavioral-tech leadership framework grounded in the Job Demands-Resources (JD-R) model and Technology Acceptance Model. Analyzing survey data from 400 Iraqi SME employees using partial least squares structural equation modeling, we demonstrate that digital leadership directly enhances sustainable innovation while reducing counterproductive cyberloafing. Crucially, social cyberloafing, when properly managed, emerges as a positive mediator, improving employee well-being and creativity, particularly among mid-career and educated workers. Artificial Intelligence’s integration further amplifies these effects by optimizing operational efficiency and reducing human-resource strain. These findings challenge conventional perspectives by repositioning cyberloafing as a conditional resource within the JD-R framework and provide actionable insights for achieving sustainable innovation even in challenging environments. Practical implications include gender-inclusive digital leadership programs, ethical AI implementation guidelines and restorative cyberloafing policies. The study contributes to United Nations Sustainable Development Goals 8 (decent work), 9 (industry innovation) and 12 (responsible consumption) while highlighting the transformative potential of human-centric digital strategies in resource-constrained contexts.