The role of servant leadership in organizational change: dynamic capabilities and frugal innovation as sequential mediators to enhance firm performance

Abstract

Purpose The purpose of this study is to examine how servant leadership influences firm performance through the sequential mediating roles of dynamic capabilities and frugal innovation, with environmental turbulence as a moderating factor. Design/methodology/approach This study used a two-stage partial least squares structural equation modelling (PLS-SEM) approach to analyse data collected from 448 Vietnamese small and medium-sized enterprises (SMEs). Findings The results show that servant leadership significantly enhances dynamic capabilities, which in turn foster frugal innovation and lead to improved firm performance. Furthermore, dynamic capabilities partially mediate the relationship between servant leadership and frugal innovation, while frugal innovation partially mediates the link between dynamic capabilities and firm performance. The moderating effect of environmental turbulence also amplifies the impact of dynamic capabilities on performance. Research limitations/implications This study provides practical guidance for SMEs in dynamic, resource-constrained environments by emphasizing servant leadership, dynamic capabilities and frugal innovation as key drivers of adaptability and performance. It encourages leadership development and a culture of learning to enhance strategic agility and innovation under uncertainty. Originality/value This study advances theory by introducing a novel serial mediation model and examining environmental turbulence as a moderator – an approach not previously applied to Vietnamese SMEs. It extends existing research by clarifying how servant leadership fosters performance through capability-building and resource-efficient innovation.