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Scholars have studied several factors that could explain the strengths and weaknesses of Open Innovation practices. Based on the resource-based view, we have designed a framework to describe how leadership interplays with the innovation culture and the firm’s absorptive capacity to enhance open innovation. A total of 252 manufacturing SMEs in Kenya participated in the survey. The collected data were statistically analysed using Partial Least Squares Structural Equation Model (PLS-SEM) to verify the postulated hypothesis. The results show that transformational leadership positively impacts the outbound open innovation and enhances a firm’s innovation culture, which encourages the inbound open innovation. Furthermore, results indicated a moderating role of absorptive capacity in the relationship between innovation culture and inbound open innovation. This study's theoretical implications contribute to advancing the discussion on the antecedent of open innovation and the significance of innovation culture and absorptive capacity by demonstrating the role of transformational leadership and absorptive capacity in creating a culture that strengthens open innovation practices in Small and Medium Enterprises (SMEs). The results add new insights into how a company adjusts its open innovation strategies and internal capacity.

Effect of transformational leadership on open innovation through innovation culture: exploring the moderating role of absorptive capacity