Lean‐Green Effects and Digital Transformation: Unpacking the Role of Incremental and Radical Green Innovation in Driving Sustainable Performance

ABSTRACT In the context of an increasingly dynamic industrial landscape, manufacturers are presented with a promising opportunity to enhance their competitive edge while advancing sustainability objectives. This study explores the effects of lean management (LM) and green management (GM) as strategic drivers of sustainable performance (SP), emphasizing the mediating role of incremental (IGI) and radical green innovation (RGI). Grounded in the dynamic capabilities framework, this study examines how LM and GM foster innovation and how digital transformation (DT) moderates these relationships. Using survey data from 310 Portuguese firms and structural equation modeling (SEM), the findings show that both LM and GM significantly contribute to IGI and RGI, which, in turn, enhance economic, environmental, and social sustainability outcomes. DT further strengthens the effects of GM, whereas its interaction with LM enhances the positive effect on IGI but weakens the effect on RGI. The study contributes to innovation and sustainability literature by demonstrating that innovation capabilities are essential conduits through which operational and environmental strategies translate into measurable performance. Practical implications highlight the need for organizations to balance efficiency with strategic innovation and invest in digital tools to scale sustainability efforts.