Digital innovation drivers in retail banking: the role of leadership, culture, and technostress inhibitors

The fast changes due to digital transformation (DT) technologies have made business operations challenging (Vial, 2021). It is easy to get lost in the available advanced technologies, but the focus must remain on achieving better business outcomes through innovations. Technology has disrupted many aspects of our personal lives and business operations. The web, personal computers, mobile phones and smartphones are examples of disruptive technologies that have impacted our lives in many positive ways (Sultan, 2015). The concept of disruptive innovation suggests that innovations do not come so often and tend to serve consumers who cannot consume them due to either price, convenience or skill. Those innovations tend to be of low quality initially but, once established, tend to improve in quality with time and eventually disrupt the leading innovations and result in the demise of their companies (Christensen, 1997).

Currently, financial institutions like banks are being disrupted by FinTech companies (Citi, 2016). If banks do not take steps to use technology to automate their services in every aspect of their operations, they could potentially lose out to FinTech companies that promise customers convenience, savings and speed. Presently, the Libyan banking sector has 20 commercial banks that have contributed remarkably to increasing lending to the private sector while improving financial intermediation. The intense rivalry in this industry makes survival very tough for ineffective banks. This has been compounded by the Libyan currency crisis that began in 2014 and has damaged public confidence and trust in the sector. To restore customer relations, banks have since accelerated digital offerings like electronic payment systems and accessible travellers’ cheques to help manage liquidity issues (Ramali, 2018). Thus, this makes questions on determinants of digital innovation (DI) in the banking sector very timely and critical.

Grand challenges are significant national or global problems that can be addressed through DI, requiring new approaches (Davidson et al., 2023). Yet banking was selected for the current study for several reasons. Firstly, there is an unprecedented rise in DI in the banking sector. Around the globe, banks offer services to align with customer demands and in tandem with the fourth industrial revolution (Schwab, 2017). Secondly, the advent of COVID-19 accelerated using digital capabilities in processes, products and assets to improve productivity, increase customer value, manage risk and manoeuvre through new income-generating activities (Satell et al., 2021). Thirdly, a remarkable increase in DT investment appears in all sectors. In 2018 alone, about US$1.3tn was invested in DT. The cornerstones of DT are disruption and innovation. Specifically, banks are making significant strides in that respect by expanding services, re-configuring delivery channels, integrating payments and using technologies like robotic process automation, blockchain, big data analytics and cloud provider outsourcing (Backbase, 2022), and people are facing more than ever before sophisticated technology innovations like high-frequency trading and algorithmic trading (Cziesla, 2014). Finally, innovative digital leadership (DL) concepts are under-studied (Gierlich-Joas et al., 2020).

For several reasons, studying the current study’s constructs is significant in the banking sector within the Libyan context. Primarily, DI represents the way for banks’ ability to rise to the occasion and assert themselves by restoring customer relations following the 2011 revolution aftermath. As a result, banks can now help customers drive value and productivity to compete at a global level.

Organisations must support their workforce to overcome digital disruptions, as the constant pressure to update technology hardware and software can sometimes backfire in the form of technostress. Organisations can counterbalance the undesirable effects of technostress by affording support mechanisms to rally the technology capabilities for digital solutions through literacy facilitation, technical support and facilitating additional involvement, thereby changing perceptions of the availability of resources (Ragu-Nathan et al., 2008; Schaufeli, 2015; Tarafdar et al., 2015).

Work engagement is a widely accepted factor with a strong positive impact on work outcomes, including innovation (Mulligan et al., 2021; Orth and Volmer, 2017). Digital leaders influence techno-work engagement (TE) through emotional contagion, role modelling and exchanging attention, favours and resources. Past research has verified the leadership engagement and the engagement-innovation associations (Garg and Dhar, 2017; Orth and Volmer, 2017). Despite the evidence for the relationship between leadership, engagement and innovation, to the researcher’s knowledge, little research examined technology-related work engagement as a mediator between DL and innovation.

Furthermore, an innovative culture (IC) encourages openness to new ideas and cultivates capabilities to embrace technologies behind product or service development. A solid, IC provides a consistent innovative orientation as a compass for members facing technological innovation challenges. An IC stimulates regular technological changes, serious precursors to leadership, stress and engagement.

In the modern world, especially in the banking sector, innovation and the inclusion of technology are crucial components. As a result, there have been studies that concentrate on DT. Still, very few have examined the interaction between the essential elements of DI, DL, IC, technological work engagement and technological stress inhibitors. Therefore, to further the literature on management in general and DT in banking in particular, the current research aims to offer a model of the impact of leadership and culture on DI. TE was theorised to play a mediating role in the relationships mentioned. This research contributes by offering new theoretical foresight to the scant research on leadership for DI in retail banking in a developing country. The study is novel in answering calls for research that explores culture, leadership and work engagement across industry sectors and in differing occupations (Bakker and Albrecht, 2018; Benitez et al., 2022; Khaola and Coldwell, 2019; Kraus et al., 2021; Li et al., 2021).

The research introduces an innovative model integrating DL, creative culture and technostress inhibitors (TI), offering a comprehensive view of their collective impact on DI. This contribution is twofold: addressing theoretical gaps and guiding practical strategies for navigating DT complexities in the banking sector. The study’s significance lies in filling a literature gap by examining DL, IC and their effects on DI in developing country banking sectors, responding to cross-sector calls for research and secondly, providing a nuanced understanding of how TI moderate the link between engagement and innovation, enhancing comprehension of factors fostering work engagement amid digital stress. Thirdly, it offers context-specific insights into post-COVID-19 DT challenges and opportunities in developing country banking, guiding strategies for enhanced competitiveness. Fourthly, it supplies actionable recommendations for managers, emphasising resource allocation for work engagement development and organisational support to mitigate digital stress, thus, proposing digital stress management as a dynamic capability for organisational effectiveness in the DT era.

In the evolution of retail banking, banks must modernise their agencies, using digital design to foster positive affective responses and establish personalised relationships with consumers (Reydet and Carsana, 2017). Technological advances, encompassing blockchain, cryptocurrencies, biometrics and AI, are poised to reshape the industry. Blockchain holds potential for transaction processing and data management revolution, while biometrics and AI promise enhanced security, streamlined authentication, improved customer service and automated banking processes (Coetzee, 2018). Simultaneously, FinTech start-ups are disrupting traditional banks’ value chains, ushering in a cashless world and increasing mobile payments, necessitating traditional institutions to adapt to competitive schemes and holistic customer understanding (Gupta and Xia, 2018). This transformative landscape prompts a complex DT in retail banking, impacting organisational outcomes and requiring knowledge of the intricate relationships between technology, culture and institutional change within regulatory frameworks (Krasonikolakis et al., 2020). The FinTech influence, meanwhile, is fundamentally altering the retail banking model, fostering disintermediation, collaboration and co-option among banks and FinTech firms, urging strategic decisions on operational simplification and product range optimisation (Ferrari, 2016). The challenge lies in successfully navigating this dynamic interplay of technology, disruption and customer experience to thrive in the digitised future of retail banking.

This study’s model is supported by the social exchange theory (SET) (Blau, 1964), organisational innovation framework (Crossan and Apaydin, 2010), DI framework (Wiesböck and Hess, 2020) and disruptive innovations theory (Christensen, 1997) and so aims to keep with suggestions to integrate theories (Schilke et al., 2018) (Figure 1).

SET suggests that people respond in kind to initiating actions, and a string of reciprocal exchanges may convert an economic exchange into a high-quality social exchange relationship. Employees become more committed to their organisations or more trusting (Cropanzano et al., 2017) when they feel a level of equity from their employers that drives them to do their very best at work and enhances organisational effectiveness. Accordingly, work engagement entails exchanging benefits with the bank that will have them devise innovative solutions.

The organisational innovation framework integrates innovation determinants into three meta-constructs: leadership, managerial levers (culture) and business processes. Leaders promote innovative efforts at the initial stages, in effective group interactions and in their proficiency to build conditions for innovation execution (Mumford and Licuanan, 2004). An IC is one of the managerial levers that enable innovation. Leaders create ICs by clarifying a vision and promoting autonomy, calculated risk-taking and motivation.

Similarly, the DI framework suggests organisations can use digital technologies for innovation categories through enablers (culture) under a dedicated governance approach (leadership). The importance of leadership in maintaining the survival and progression of their companies is articulated by Christensen (1997). According to the theory of disruptive innovations, successful leaders can fall prey to the forces of disruptive innovations. They can sometimes become the cause of the demise of their organisations by failing to act and respond to those forces in time. For example, technological innovations overthrew Camillo Pane as CEO of Coty due to the turbulent impact of social media (Instagram and YouTube) that swept most dramatically the beauty industry. Conversely, good or innovative leaders can foster a culture that recognises the importance of the dynamic nature of their companies’ capabilities in terms of resources, processes or values.

The pursuit of DT is about acquiring technology to enhance value creation by shifting towards digital solutions (Shiuma, 2021). It involves combining several DIs and bringing new actors, structures, practices and cultures that threaten the existing rules of the game (Gierlich-Joas et al., 2020). In a literature review by Crossan and Apaydin (2010), leaders were found to impact innovative efforts by having sufficient technical and professional expertise, creative skills and abilities to process complex information.

DL is “doing the right things for the strategic success of digitalisation for the enterprise and its business ecosystem” (Bresciani et al., 2021a, 2021b, p. 98). DL puts the organisation in motion early by encouraging employees to identify new practices and opportunities to advance the organisational vision. An example is L’Oreal executives sending clear messages about digital initiatives for country brands and Sainsbury staff panel for monthly feedback on critical issues (Westerman et al., 2012).

Banks find it hard to transition fast to new ways for several reasons. Firstly, they have grown into massively complex international technology firms that operate a highly sophisticated network of financial markets, credit markets and payment systems (Shaikh et al., 2017). Secondly, the challenges and rivalry in the banking sector are intensifying due to lower profits, increased regulation and FinTech competition (Cziesla, 2014). Thirdly, DT and related technology development have a 50% failure rate, costing the global economy trillions of dollars (Weisman, 2019). Therefore, the main issue that banks are now facing is developing new leadership competencies and not the lack of availability of technology (Eberl and Drews, 2021). Since leaders are vital in advancing innovation (Denti and Hemlin, 2012), the current study explores the value of DL and IC in nurturing engaged employees to foster innovation.

While there is general agreement on the impact of leadership on the deployment of DT processes (Schwarzmüller et al., 2018), strategies for DT are not very structured, typically lacking the breakdown of the effect of digitally focused leadership and mediating factors on innovation (Li et al., 2021). Using technologies must be coupled with new management, leadership and structures that help workers become more engaged and change their working practices while leaping (Larjovuori et al., 2016). Leadership has been suggested as one of the prime influences that can help employees attain high innovation (Gerlach et al., 2020). DIs can take the form of technical or concept solutions that demand the support needed to make the transition, and so it is not enough for leaders to have good digital literacy; they must have “a clear and meaningful vision for the digitalisation process and the capability to execute strategies to actualise it” (Larjovuori et al., 2016, p. 1144).

DI combines digital solutions driven by opportunities for new technologies and the needs of applications. An example is the evolutionary path realised by the first enterprise resource planning systems from relational database systems, mobile application stores from smartphones and media companies using content platforms to produce and distribute content further (Wiesböck and Hess, 2020).

Many organisations apply solutions without concepts (Khatri and Samuel, 2019), but the organisational side must also be innovated. The innovation here is viewed as an economic or social rather than a technical term (Drucker, 2014). At this point, DL most essential because it can help the firm keep its values and culture while modernising structures and processes. Therefore, digital leaders communicate their beliefs of how the future rests in leaps of faith as they are not simply content with analysing empirical data and deductive thinking. Such leaders stay well-informed of digital expertise and support processes to search, select and structure innovation capabilities. They focus on generating innovative ideas that help create value for customers, design digitally enabled services quickly using advanced technologies and build organisational capability to deliver services that meet and often exceed customer expectations (Tanniru, 2018). During DT, the role of DL to inspire and effect innovation is imperative, and numerous past studies supported the positive impact of leadership on innovation in different contexts (Gerlach et al., 2020; Khosravi et al., 2019; Magesa et al., 2021). A recent bibliometric analysis (Tigre et al., 2023) highlighted an evolving DL paradigm emphasising fostering innovation and adaptability as essential for success in a digital landscape. Based on the above logic, we propose the following hypothesis:

An IC represents members’ shared values and beliefs about creating and developing innovative solutions. It encourages openness to new ideas and cultivates capabilities to embrace complicated technologies underlying new products or service development (Ali and Park, 2016). DT requires continuous innovation, with new digital solutions quickly becoming obsolete. An IC helps determine innovative events and influences how people interpret and respond to these events. Thus, a solid, IC provides a consistent perception of innovative orientation that serves members well when facing technological innovation challenges.

ICs are shared values and beliefs facilitating innovation by leveraging internal-based competencies, leading to competitive advantage (Martín-de Castro et al., 2013). For example, Chen et al. (2012) found that a more robust IC facilitates technological innovation by continuously building norms and routines to invest in innovation efforts.

Past studies have found some support for the relationship between culture and innovation in different settings (Durcikova et al., 2011; Naveed et al., 2022; Slater et al., 2014). For example, Kohli and Melville (2019) found in their literature review that a learning culture promotes opportunities for DI. However, Santos-Vijande et al. (2021) found in a sample of 502 hotels and knowledge-intensive business service firms in Spain that IC does not ensure the exploitation of organisational skills and resources but affects the management style of service innovation. Given these arguments, this hypothesis is proposed:

The DI framework suggests that leadership is associated with organisational factors and guides IC as an enabler that facilitates DI. Scholars have asserted the role played by leadership in an understanding culture, which includes the values and assumptions of members and vice versa (Al Issa, 2019; Schein, 2004). For example, Chen et al. (2012) found in a study involving 102 senior managers and 258 employees in Taiwanese strategic business units transformational leadership behaviours stimulated technological innovation while an IC substituted leadership in enabling technological innovation. Although some past studies have been carried out to determine the effects of leadership on organisational outcomes, limited studies have paid attention to assessing DL’s influence on IC within the banking sector (Damanpour, 1991; Sattayaraksa and Boon-itt, 2016). Based on these arguments, this hypothesis is formulated:

TE refers to the level of motivation at work and typically includes vigour, dedication and absorption, as Schaufeli et al. (2002) indicated. Research showed that work engagement mediates between several job resources and employees’ outcomes, for example, between leadership and service innovation and performance (Özsungur, 2019). Work engagement includes an attitude that makes employees capable of “thinking out-of-the-box” and ready to entertain new ideas and generate innovative solutions (Eldor, 2017). High-performing organisations boost employees’ experience by adopting two digital workplace factors: TE and responsive DL. The focus on work experience is vital to delivering outstanding customer-focused DI (Mäkiniemi et al., 2020). Furthermore, DL effectively communicates an articulated vision that links innovation strategy with crucial workplace factors like technological engagement and culture.

Fostering TE in the digital workplace is critical because of its widely accepted impact on innovation (Kassa, 2021; Orth et al., 2020; Schaufeli et al., 2017). The connection of engagement with innovation can be substantiated if we analyse its dimensions. Firstly, vigour is persistently feeling energetic, which stems from an intrinsic motivation to pursue pursuits with relentless vitality. Secondly, dedication is propelled by positive feelings that expand the cognitive and behavioural range, creating a sense of pride and meaning in our actions. Thirdly, absorption generates an urge to become fully immersed in what we do by losing the sense of time, which is an essential component for the frequent failures typical of innovative undertakings. Note that all dimensions tap into intrinsic motivation, positive affect and psychological resilience (Madrid et al., 2014; Orth and Volmer, 2017). Empirical findings also support engagement’s significant positive influence on innovation (Bakker and Demerouti, 2007; Kim and Koo, 2017; Orth et al., 2020; Trabucchi et al., 2021).

The SET has found strong evidence that supports its explanation of the direct influence of leadership on engagement through the exchange of attention, favours and resources (Decuypere and Schaufeli, 2020; Garg and Dhar, 2017; Kassa et al., 2021). For example, a study by Amor et al. (2020) showed that transformational leaders foster work engagement directly and through empowerment. If the leader successfully provides job resources through social exchange or as part of the DT strategy of resource allocation, then leadership would drive work engagement (Bakker and Demerouti, 2007).

In general, culture exercises its effect by shaping the behaviour of members and is, thus, vital for improving work engagement and performance (Schein, 2004). Since culture paves the way for resources and working conditions by creating suitable work environments, different culture types can influence work engagement (Crawford et al., 2014). Furthermore, a recent study by Meng and Berger (2019) found a positive significant relationship between culture and engagement. They also found engagement to mediate the relationship between culture and overall job satisfaction.

When employees feel they have certain economic and social benefits and control over their jobs, that correlates positively with their engagement in innovative work behaviours (Parzefall et al., 2008). Furthermore, previous research found work engagement to be a viable mediator, especially in the leadership–innovation association (Agarwal et al., 2012; Mulligan et al., 2021; Özsungur, 2019). For instance, Tian and Zhang (2020) studied a sample of 318 employees and found that work engagement partially mediated the relationship between empowering leadership and innovative behaviour. In the current study, it is proposed that the effective operation of banks results from leadership qualities that echo a culture that inspires engaged employees. Given the discussion above, the following hypotheses are put forth:

TI reduce employee information and communication technology levels and job-related strain outcomes. Examples include end-user training, technical support and user participation in the planning and implementing of new ICT solutions (Fuglseth and Sørebø, 2014). Based on the DI framework, the guidance of a dedicated governance approach represented in DL must allocate resources like TIs to help employees cope with the fast and constant changes produced by DT. Leadership is vital for leveraging organisational support by allocating desperately needed resources in the DT quest (Rohwer et al., 2022).

Technostress is any toxic effect on people’s minds owing to technology usage (Nisafani et al., 2020). According to the cognitive evaluation theory (Ryan et al., 1983), people become less innovative when extrinsically oriented due to perceived externally controlled conditions, increased dependency on technology, reduced self-efficacy and changing technology culture (Ragu-Nathan et al., 2008). The dimensions of technostress tell the story in more detail. Techno-overload lessens the time to adapt to new technologies (Tarafdar et al., 2015). Techno-invasion imposes constant connectivity and diminishes feelings of being free (Brown, 2014). Techno-complexity requires time and effort to learn new technologies (Fitzgerald et al., 2014). Techno-insecurity makes employees fear losing their jobs (Sweeney, 2015). Lastly, techno-uncertainty lowers motivation as employees focus on routines to avoid endless upgrades and pressure to keep current (Chandra et al., 2019).

To counter these adverse effects, organisations extend support with TIs that sustain technology work conditions and restore the balance for a DI environment (Fuglseth and Sørebø, 2014). Firstly, TIs provide literacy facilitation which encourages sharing technology-related knowledge. Secondly, technical support provision saves employees time and effort by addressing technical problems. Thirdly, TIs facilitate involvement, enabling end users to participate in the technology introduction and implementation (Ragu-Nathan et al., 2008).

The effect of leadership on technostress has been well documented (Bauwens et al., 2021; Fieseler et al., 2014; Larjovuori et al., 2016). For example, 129 information technology managers surveyed concluded that a statistically significant relationship exists between transactional and laissez-faire leaders and technostress (Boyer-Davis, 2019). Likewise, an IC stimulates frequent technological changes, which are severe precursors to technostress; therefore, it is anticipated that TIs will strongly moderate the relationship between IC and techno work engagement.

Mixed results have been noted regarding the influence of techno stressors on job outcomes (Srivastava et al., 2015). Some research found that technostress is negatively related to various work-related outcomes (Alam, 2016; Shu et al., 2011), yet some studies showed a positive influence (Chandra et al., 2019). For example, Wang et al. (2008) found that highly innovative organisations have the highest levels of technostress. Still, past studies emphasised the importance of TIs and their likely powerful relationship with several outcomes in various contexts (Hwang et al., 2021; Li and Wang, 2021; Nisafani et al., 2020; Ragu-Nathan et al., 2008). The current study fills the gap in limited studies that explore TIs’ effect on the DT of the banking sector. From the above discussion, this study sought to put forth the following hypotheses:

A complete data list of banks was obtained from the Central Bank of Libya (2022) with an established focus on the largest five banks in Libya for data collection convenience and lower cost. The listing showed 19 banks comprising almost 600 branches across the nation.

Due to the practical challenges, time constraints and specific characteristics of the population under study, purposive sampling was chosen as a suitable method, offering flexibility and efficiency in participant selection. Firstly, the researchers encountered difficulties obtaining a list of the target population of bank managers. Secondly, the target population are notorious for having hectic schedules requiring selection participants based on specific characteristics, ensuring a more efficient data collection process. Therefore, the researchers used expert judgment to identify and choose hard-to-reach managers in closer proximity, providing ease, speed and affordability in the sampling process. As purposive sampling allows for the selection of elements that represent a cross-section of the population, the questionnaires were administered to executives and experts considered active in the decision-making and with unique knowledge of their bank’s operations and strategy (Lavrakas, 2008). Out of 700 surveys distributed between September and December 2022, 305 were returned, and 292 met the criteria for inclusion, resulting in an acceptable response rate of 41.7%, given the data collection challenges in Libya. Recognising the inherent bias among surveyed managers presents an avenue for research improvement. Future studies could explore diversifying the sampled managerial pool, implementing data triangulation and incorporating comparative analyses. These strategies serve as practical approaches to address and mitigate biases associated with sampling managers.

The measures used ( Appendix) were adapted from instruments used in previous studies using the five-point Likert-like scale from “strongly disagree” to “strongly agree.” Researchers controlled for enterprise size and age since prior studies reported their association with innovation (Cheng et al., 2012).

DL. DL comprised six items based on Zeike et al. (2019), with an internal consistency of 0.872. The DL instrument represents capabilities to communicate and inspire a transformative vision of the enterprise’s digital future, including eliciting collaboration, involvement and development of all members in digitalisation (Larjovuori et al., 2016).

DI. DI comprised six items adapted from Paladino (2007) and an internal consistency of 0.93. DI represents the enterprise’s ability to successfully adopt new ideas, products and processes.

TI. TI comprised 10 items adopted from Ragu-Nathan et al. (2008) with an internal consistency of 0.925. TI embodies the mechanisms that reduce stress by using information and communication technologies.

TE. TE comprised three items based on Schaufeli et al. (2017) and had an internal consistency value of 0.702. TE expresses “a positive experience of well-being regarding the use of technology at work” (Mäkiniemi et al., 2020, p. 1).

IC. IC comprised three items based on Chen (2012) and had an internal consistency value of 0.781. IC represents a lasting and implied set of values, beliefs and assumptions that embrace innovation, growth and new resources while valuing flexibility, adaptability, creativity, risk-taking and entrepreneurship, distinguishing an enterprise and its members (Cameron and Quinn, 2011).

Statistical procedures in the current study were handled by SPSS v20 and partial least squares structural equation modelling (PLS-SEM). The choice for structural equation modelling using PLS for hypotheses testing was made because of its robust variant analysis. PLS-SEM modelling of first- and second-order constructs is easily achieved, and latent variable scores are attained to make predictions while building higher-order constructs (Al Issa and Abdelsalam, 2021). PLS-SEM was chosen to explain variance in internal constructs and predictive models, especially for non-normal data and complex models. Despite biases, it predicts outcomes in quantitative research contexts (Sarstedt et al., 2017). The current study included data coding and cleaning, reliability assessment, missing data, outliers’ detection and assessment of normality, linearity, multicollinearity, homoscedasticity and CMV. No signs of non-response bias were identified, as evidenced by an independent sample t-test assessing the study’s variables. The t-test results revealed no significant difference between early and late responders during the two-month data collection period (Pallant, 2013), with all p-values exceeding 0.05. Descriptive statistics were analysed about the respondents’ demographic profiles (Table 1).

The initial analysis showed significant correlations between corporate frugality, entrepreneurial orientation and crisis preparedness (Table 2). The current study originated from a single source and adopted several procedural remedies to minimise the effects of common method variance (CMV) (MacKenzie and Podsakoff, 2012). Firstly, this was done by protecting the respondents’ anonymity and reducing evaluation apprehension. Secondly, an improved understanding of items was achieved by being available to explain questionnaire items further. Thirdly, Harman’s single-factor test was carried out as recommended by Podsakoff and Organ (1986). The measured variables did not load to a single factor that accounted for the variance below the cut-off value of 50%. This indicated that the data was accessible from common bias. Normality was determined for all variables using the Q–Q plot, which was very close to a straight line, and the histogram was near a bell shape. Multicollinearity was not an issue, with variance-inflated factor (VIF) below 5, showing a peak for an engagement at 4.804, while tolerance was above 0.20, the lowest for the TE at 0.208. Constructs’ correlations are displayed in Table 2, revealing the significance between variables and other descriptive statistics.

In this section, authors evaluated convergent validity through higher than 0.5 average variances extracted (AVE). Also, composite reliability thresholds were acceptable from 0.833 to 0.945. The cross-loadings were assessed for discriminant validity, demonstrating loadings more than cross-loadings. Finally, Fornell and Larcker’s (1981) criterion revealed that square roots for all AVEs were more than inter-construct correlations (Table 3). Discriminant validity is confirmed when measures assessing different constructs show a low correlation after considering measurement error. The researchers found cross-loading and the Fornell–Larcker criterion methods suitable due to sufficient indicators per construct, minimal correlations and the constructs’ distinctiveness in a sizable sample. While alternative methods like the HTMT index were deemed less effective – shown not to outperform modern CFA techniques – the researchers acknowledge the limitations of these approaches in providing a comprehensive view of discriminant validity. They emphasise the importance of considering context, theory and empirical results in the interpretation of evidence, suggesting opportunities for future research to explore recommended techniques for discriminant validity assessment like CI_CFA (sys) and χ²(sys) (Hair et al., 2017; Rönkkö and Cho, 2022).

Next, the predictive precision of the model was assessed by R² value for innovation at 0.711 while for engagement R² was 0.805, which is considered substantial if above 0.75 and moderate if above 0.5 as per Hair et al. (2017) (Table 4 and Figure 2). Then, the effect sizes (f²) were considered large, medium and small between innovation and TE, IC and DL 0.350, 0.278 and 0.014, respectively (Cohen, 1988). The Q² was medium at 0.519 (omission distance D = 7) for innovation and TE at 0.502, and small at 0.291 for IC, which means the model has predictive relevance. Last of all, relative predictive relevance from q² on innovation was 0.516 (TI), 0.445 (TE), 0.516 (DL) and 0.459 (IC), indicating a sizeable predictive relevance for all constructs.

The results show a positively significant direct impact of leadership on innovation. This supported the organisational innovation framework, which posits that leaders must have technical and professional expertise and creative skills to process complex information to influence innovation. This aligns with past studies that showed a positive and significant relationship between leadership and innovation (Benitez et al., 2022; Bresciani et al., 2021a, 2021b; Fu et al., 2018; Vaccaro et al., 2012). For example, a recent paper by Magesa and Jonathan (2021) revealed four digital leaders’ characteristics: promoting innovation by being anticipatory, digitally savvy and a risk taker.

The DI framework theorises that organisations must develop a governance style that lets them deploy digital enablers like culture and capabilities to achieve DI. In the current model, IC urges openness to new ideas and cultivates capabilities to embrace complicated technologies underlying new product or service development (Ali and Park, 2016). The H2, which proposed IC is positively related to DI, was supported. This is consistent with previous research that found a positive association between culture and innovation in different settings (Durcikova et al., 2011; Naveed et al., 2022; Slater et al., 2014). For example, Sareen and Pandey (2021) found that a culture for innovation stimulated innovation in a sample of 151 senior executives at knowledge-intensive business services firms.

The H3 found that DL is positively and significantly related to an IC. This finding aligns with the claim about the entangled nature of culture and leadership, with leaders shaping culture and then being shaped soon by culture (Schein, 2004; Bass and Avolio, 1993). However, most research favours a leader’s influence on culture (Sarros et al., 2008) because to become more transformational, leaders must articulate the changes required while their behaviour becomes symbols of the new culture (Bass and Avolio, 1994). Past research also found a strong association between leadership and culture (Sattayaraksa and Boon-itt, 2016).

The H4 was also accepted, and according to the SET, employees respond in kind to initiating actions by leaders. This work engagement response is an exchange of benefits with the organisation, which leads engaged workers to look for ways of adding value to processes, leading to innovation. Furthermore, past research found leadership associated with work engagement (Amor et al., 2020; Decuypere and Schaufeli, 2020) and work engagement with innovation (Bakker and Demerouti, 2007; Kim and Koo, 2017) and found work engagement a viable mediator in several models (Agarwal et al., 2012; Mubarak et al., 2021).

Equally, the H5 was accepted and in line with past conceptualising about how culture shapes members’ behaviour to improve work engagement. Past studies found a positive culture-engagement association (Meng and Berger, 2019), but to the researcher’s knowledge, studies examining the mediation role of engagement between culture and innovation are non-existent.

The third research objective was to evaluate the moderating effect of TI on the relationship between DL, IC and TE. The corresponding final hypotheses, H6 and H7, were accepted. As such, a moderator such as TI might modify the connection’s strength and direction. Based on the DI framework, the guidance of a dedicated governance approach represented in DL must allocate resources like TI to help cope with the fast and constant changes produced by DT. As a supporting mechanism, TI reduce the harmful effects of wasted time on continuous upgrades and routine work to keep current with constantly changing technologies, depriving employees of the time and energy needed for innovation. The present study results show that TI can moderate IC effects to render heightened techno work engagement. Consistent with previous studies, the current results revealed a strong association between TI and their moderation with stressors, strain and various organisational outcomes (Nisafani et al., 2020; Ragu-Nathan et al., 2008).

Furthermore, we can analyse the moderating effect’s slope by looking at the upper line in Figure 3, which represents a high level of the moderator construct TI with a steeper slope than the lower line, which means a low level of the moderator construct TI. Thus, this makes sense that the simple slop plot confirms the positive interaction term: Higher TI levels entail a stronger relationship between DL and work engagement, while lower levels of TI lead to a slightly weaker relationship between leadership and work engagement.

The moderation effect of TI is more pronounced in the IC–TE association. The interpretation of the interaction in the graph shown in Figure 4 is such that, for low TI moderation, there appears to be a slight and negative effect with a percentage decrease in slope from culture on work engagement. However, during high TI, IC had a more robust impact on work engagement. The logic is the bigger the difference between the two slopes (low TI and high TI), the stronger the moderator’s interaction effect on the independent and dependent variables is.

The current study examined the influence of DL, IC, TE and TI on Libyan banks’ DI in their DT endeavours. TE was proposed to mediate the relationship between DL and innovation and between IC and innovation. While the SET underpinned the research framework, several other supporting theories, namely, the organisational and DI frameworks, provided additional understanding of the theorised relationships.

As suggested by the social exchange theory, the current study found that people respond in kind to initiating behaviours that arise from the leadership process and a cultural stance. Reciprocal high-quality exchanges expressed in work engagement and innovation will most likely follow. The organisational innovation and DI frameworks also prefigured leadership, culture and business processes as determinants of innovation. A key inference from this study is that fostering organisational support will enhance DT in retail banks. The importance of this topic encourages researchers to investigate other critical predictor mechanisms of DI in banks, especially in developing countries that desperately need to keep up with organisational development for DT.

This research intended to shed light on factors in the contemporary DT reality rife with disruptive forces that quickly render new digital solutions obsolete. The study explains the association between leadership and innovation in the digital world by incorporating engagement as a viable mediating factor. DT is part of a new imperative for organisational development to survive and reap superior performance. As a source of competitive advantage, DI must be coupled with a new kind of leadership and support structures that help workers become engaged to make the leap. It turns out that adopting appropriate strategies can lead to the innovations desired.

The study’s main contribution is to the management field and DT in banking, particularly in developing countries. The research offered a model that conceptualised the impact of DL and IC on DI, and TE was theorised to play a mediating role in the relationships (Porfírio et al., 2021). The moderating role of TI was also explored as a support mechanism for work engagement to improve DI. These nascent theoretical insights also answer calls for research investigating culture, leadership and work engagement across industry sectors and in differing occupations (Kraus et al., 2021; Bakker and Albrecht, 2018). Furthermore, this study answers calls to investigate DT in the banking sector in developing countries to redesign and reengineer their lagging services from the ground up to increase their competitiveness (Tsindeliani et al., 2022), especially post-COVID-19 (Wu and Olson, 2020).

The current study contributes to the ignored matter regarding the shortage of practical implications in management research (Salminen et al., 2014). The findings guide decision makers and managers to focus their resources on developing work engagement and providing the organisational support necessary to reduce the adverse effects of digital stress, which can be a dynamic capability that improves organisational effectiveness through DT momenta. Moreover, the findings suggest that DT is a drastic formal change that disrupts culture by adopting new technological infrastructure and digital skills that strain the shift for employees and the whole organisation. Thus, leadership must not stress technology implementation without seeing the presence of the right leadership skills and attributes to make an effective change. So, in addition to digital knowledge, leadership characteristics, such as creating trust, team development, altruism and role modelling, are better suited for change towards DT.

Another practical implication is linked to industry pragmatism in the financial services industry. This explains how technostress engagement can be anticipated to promote DL efforts and IC for innovation. Technostress engagement is a manageable variable conceivable to cultivate by banking leaders and so can be tailored to develop pertinent digital influence and culture for DT pursuits. The present research also indicates that while DL and IC individually were related to DI, when combined in a complete model, IC was not found related to engagement and so not vital unless moderated by TI.

The commitment to TI as a resource is a valuable undertaking in DT. However, managerial relevance requires this to be viewed with future timing for optimal impact (Jaworski, 2011). A definite piece of advice to managers is to allocate the TI as a resource resolutely. By doing this, leaders show faith in their communication and resource allocation to employees. DT strategies can help organisations evade delays or failure if extended digital stress is wearing away silently at key factors of DI.

The present study identifies crucial concepts, theories and research gaps in the domain, paving the way for future research and enriching the empirical understanding of DL. It explores how DL tackles distinctive challenges posed by digital technologies, adeptly handling a firm’s dynamic capabilities and embracing a market orientation to thrive in the swiftly changing and intricate digital landscape (Tigre et al., 2023). The analysis of leadership’s impact on innovation contends that leadership plays a pivotal role in data governance and DT, providing valuable insights for addressing challenges associated with the adoption and utilisation of technology. This contribution can potentially enhance discussions about the broader landscape of digital advancements (Davidson et al., 2023).

A limitation in the present research is related to the smaller sample size, and future research should be carried out with a larger sample to make the study’s cross-sectional nature more generalisable. Therefore, future replication of the study should include a larger sample size in a longitudinal approach. Another suggestion for future direction is to examine other leadership styles as predictors of different configurations of innovative outcomes with other potential mediators like coping strategies that help ease the transition of concurrently increased demands from DT efforts with limited resources. Exploring the impact of digital culture and innovation on bank performance, risk-taking and lending decisions could also be worthwhile.

Digital innovation

• The quality of our digital solutions is superior compared to our competitors.

• The features of our digital solutions are superior compared to our competitors.

• The applications of our digital solutions are totally different from our competitors.

• Our digital solutions are different from our competitors in terms of product platform.

• Our new digital solutions are minor improvements of existing products.

• Some of our digital solutions are new to the market at the time of launching.

Technostress inhibitors

Literacy facilitation

• I am strategic about the way I manage my academic workload.

• I am satisfied with the progress I have made toward meeting my overall career goals.

• I regularly seek advice and help from teaching staff.

• Time spent on private study.

Technical support provision

• Our end-user help desk is well staffed by knowledgeable individuals.

• Our end-user help desk is easily accessible.

• Our end-user help desk is responsive to end-user requests.

Involvement facilitation

• Our end users are rewarded for using new technologies.

• Our end users are consulted before introduction of new technology.

• Our end users are involved in technology.

Techno-work engagement

• At my work, I feel bursting with energy (vigor).

• I am enthusiastic about my job (dedication).

• I am immersed in my work (absorption).

Innovative culture

• We are energetic about being innovative in this firm (innovativeness).

• We are encouraged to try new things and to take advantage of opportunities in this firm (rapid exploitation of advantageous circumstances).

• We will be rewarded for our risk taking in this firm (risk taking).