Do Digital Technologies Enable Firms that Prioritize Sustainability Goals to Innovate? Empirical Evidence from Established UK Micro-businesses

This paper examines the importance of sustainability within firms' strategic goals and its links with innovation in the context of micro-businesses. Micro-businesses provide an appropriate context for investigating this relationship because, while they tend to prioritize social and environmental goals, they are also more likely to confront resource constraints that can restrict their capability to innovate. Building on goal-setting theory and the resource-based view (RBV) of the firm, we explore under what conditions established micro-businesses that prioritize sustainability goals are more likely to innovate. Using novel survey data on 4649 established micro-businesses in the UK, we examine the enabling role of digital technologies. Our results suggest that owner-managers who prioritize sustainability goals are significantly more likely to generate new product and process innovations. Moreover, we find that this effect is stronger when micro-businesses adopt digital technologies. Digital technologies enhance the capabilities of micro-businesses, strengthening the connection between sustainability goals and product and process innovation.