Organizational Self-Management Practices and Employee Happiness in SMEs: A PLS-SEM Study from Peru

Employee happiness has become a central concern for the social dimension of sustainability, particularly within small and medium-sized enterprises (SMEs) operating in emerging economies. However, empirical evidence remains limited regarding how advanced organizational self-management practices—especially when integrating holacracy-inspired practices and broader self-management mechanisms that show a positive and significant association with employee happiness in SME contexts, particularly in Latin America. Addressing this gap, this study examines the relationship between organizational self-management practices and employee happiness in Peruvian SMEs, adopting a predictive approach based on Partial Least Squares Structural Equation Modeling (PLS-SEM). Organizational Self-Management Practices (OSMPs) are modeled as a higher-order construct integrating holacracy-inspired and broader self-management practices. Data were collected from 383 SME employees through a structured questionnaire. The findings indicate that organizational self-management practices exert a positive and significant association with employee happiness, operating through an underlying mechanism in which self-management-oriented practices foster greater employee autonomy, participatory decision-making, role clarity, and shared responsibility, thereby supporting fundamental psychological needs and enhancing employees affective and cognitive well-being at work. By promoting these autonomy-supportive organizational conditions, Organizational Self-Management Practices (OSMPs) strengthen employee happiness in resource-constrained SME contexts, highlighting how Organizational Self-Management Practices function as internal governance mechanisms that enhance employee well-being and contribute to social sustainability by strengthening psychologically supportive, autonomy-enhancing, and socially sustainable work environments in emerging economy SMEs. These findings demonstrate that employee happiness represents a micro-level manifestation of social sustainability, linking internal organizational governance mechanisms with broader sustainable development outcomes in emerging economy contexts.