This research investigates how transformational leadership affects the innovative behavior of knowledge-based employees in Chinese high-tech enterprises, highlighting the mediating role of organizational innovation climate. It aims to reveal how leadership shapes innovation-supportive climates to stimulate employee innovative behavior and strengthen organizational sustainable innovation. Using a questionnaire survey of 441 knowledge workers from 10 high-tech firms across four Chinese provinces, this study applies structural equation modeling (SEM) to test both the direct effect of transformational leadership on employee innovative behavior and its indirect effect via organizational innovation climate. The transmission effect of employee innovative behavior on sustainable innovation was also analyzed. Results indicate that transformational leadership significantly promotes employee innovative behavior directly and indirectly through organizational innovation climate. By fostering a supportive climate, leadership enhances employee enthusiasm for innovation, which in turn drives sustainable innovation. These findings provide contextual evidence of leadership’s role in shaping innovative behavior and long-term organizational outcomes in emerging economies. This study builds a cross-level framework of “transformational leadership—organizational innovation climate—employee innovative behavior—organizational sustainable innovation,” integrating four theories. It extends theoretical links between employee behavior and sustainable innovation, emphasizes the overlooked mediating role of organizational climate, and offers practical guidance for knowledge-intensive enterprises seeking to enhance sustainable innovation.

Purpose: In highly dynamic technological environments, small and medium-sized enterprises (SMEs) face increasing pressure to achieve continuous innovation and sustainable growth under resource constraints. While prior research highlights the importance of organizational resources, the mechanisms through which these resources translate into innovation remain unclear. This study examines how different organizational resources drive incremental innovation through differentiated capability pathways. Methodology: This investigation develops and tests a dual-path model that connects transformational leadership and agile organizational structure with incremental innovation through seizing and reconfiguring capabilities. Guided by the resource-based view and dynamic capabilities theory, survey data from 452 SMEs in China’s software and IT industry were analyzed using PLS-SEM. Findings: The results indicate that both transformational leadership and agile organizational structure have significant positive effects on incremental innovation. Furthermore, seizing capability and reconfiguring capability serve as partial mediators, revealing distinct capability pathways through which different organizational resources influence innovation. Originality: This study clarifies the mechanism linking organizational resources and innovation by advancing a resource-capability alignment perspective in a specific context. It suggests a specific resource-contingent pattern in dynamic capabilities of Chinese software and IT SMEs, highlighting how differentiated capability pathways shape incremental innovation and contribute to economic growth in software and IT SMEs.