Influence of Organizational Factors on Circular Economy Practices, Innovation, and Sustainable Performance in Jordanian SMEs

Abstract

The necessity of implementing a circular economy (CE) is critical for developing a sustainable economic environment with minimized adverse environmental impacts. Consequently, it is essential to identify the factors influencing the adoption and effectiveness of CE practices within businesses and SMEs. This study aims to address the knowledge gap regarding the integration of CE in Jordan’s business and management sectors. The research examines the impact of skills and competencies, inter- and intra-organizational factors, and corporate social responsibility (CSR) on innovation, and subsequently, how innovation influences the adoption of CE practices, ultimately leading to sustainable performance. A survey was conducted among employees of SMEs meeting specific criteria, and the collected data were analyzed. The results indicate that all the independent factors of skills and competencies, inter- and intra-organizational factors, and CSR—positively affect innovation. This finding supports the hypothesis derived from the literature review. Furthermore, innovation has a positive effect on the implementation of CE practices, which in turn significantly enhances sustainable performance.

1. Introduction

Global economic trends indicate that, within the grey economy, environmental degradation and social inequality are on the rise. To accomplish the sustainable goals, new economic practices and policies must be created. In addition to significantly lowering environmental dangers and ecological scarcities, a green economy (GE) and sustainable development (SD) can revitalize the grey economy, promote human well-being, and promote social fairness [1]. Although the term “green economy” refers to the complete economic framework rather than just a specific portion of it, it may be more closely aligned with the concept of regenerative business practices. One can integrate a circular economy with a green one, but not the other way around. In this study, “sustainable” refers to the ability of a business or practice to deliver long-term economic success while also ensuring positive social impact and minimal environmental harm [2]. SMEs typically have lower engagement levels with sustainability management, despite the fact that large multinational corporations have begun to implement it. According to a recent British Chamber of Commerce poll, just 11% of UK SMEs assessed their carbon impact [3]. SME environmental performance can be enhanced, and their environmental compliance can be brought to the forefront with the use of Eco-Management and Audit Scheme (EMAS), a reputable and beneficial tool. Medium enterprises, where it is more likely to find this tool cost-effective, are also more likely to find it useful [4]. To effectively assist their shift towards sustainability, it is crucial to take into account their circumstances and characteristics [5]. It is important to note that SMEs will benefit from this transmission as well [6].

Research Problem

The existing literature and research reviews [7,8,9] have identified factors that impact the use and capacity of circular economy practices in businesses and SMEs. These factors include consumer and business awareness, the skills gap in managing the circular economy, senior management support, and the existence of a clear strategy to implement eco-friendly and innovative practices in business operations. Scalability and adoption among enterprises in any economy are influenced by internal characteristics found within the organization, such as innovative mentality, organizational culture, and skills and capabilities.

The primary goal of this work is to close this information gap regarding the adoption of CE in Jordan in the business and management literature. This brings us to the research issues that drive our current empirical investigation.

• RQ1: How do skills and competencies, inter-organizational and intra-organizational factors, and corporate social responsibility (CSR) within Jordanian SMEs alter the innovation capacity of the firms?
• RQ2: How does the innovation mindset within Jordanian SMEs influence the adoption of CE practices?
• RQ3: How do CE practices in Jordanian SMEs affect the sustainability practices of the firms?

The research’s contributions will aid in a better understanding of the state of CE implementation and practices among SMEs in Jordan today. This will assist government policymakers and Jordanian SMEs in developing a thorough understanding of organizational impediments, how to alleviate them, and how to enhance their financial, environmental, and social conditions.

2. Literature Review and Model Development

Due to global warming and severe weather patterns, environmental activism is becoming increasingly popular [10]. Because of these problems, businesses in developing nations have begun focusing on green practices, regardless of size [11]. The background literature on CE, sustainability, and innovation will be briefly reviewed in this section, followed by justifications derived from the background literature.

2.1. Circular Economy

Historically, economies have favored a linear “take-make-dispose” cycle. The value of goods, materials, and resources is preserved for as long as feasible in a circular economy, which also minimizes waste. For consumers, this translates into more durable goods and/or goods that are simpler to repair, upgrade, remanufacture, reuse, or recycle. It provides the opportunity for increased resource efficiency for businesses [12]. It is frequently credited to the following three guiding principles: (1) reduce resource use to eliminate waste and pollution, (2) distribute goods and supplies (at their best prices), and (3) restore nature.

The Economic Modernization Vision 2033 by the Government of Jordan acknowledges the necessity and potential that the adoption of the circular economy holds for the Kingdom. However, the commitment to embrace circular economy ideas and implement sustainable practices from all stakeholders, including the government, enterprises, and individuals, will be crucial to its success [13,14]. As a sustainable alternative to the conventional linear economic model, small and medium-sized businesses (SMEs) are becoming more and more aware of the principles of the Circular Economy (CE). It is essential to move SMEs toward CE in order to boost the economies of both developed and developing nations and lessen their impact on the environment. Environmental measures are thought to be expensive and difficult for SMEs to adopt. Due to fierce competition and a lack of support from regulators and customers, SMEs frequently prioritize economic factors over environmental and social activities to survive. Yet, a significant number of studies agree that 2050 CE is anticipated to boost GDP and employment while lowering CO₂ emissions [15].

2.2. Innovation

Innovation has been defined as the process through which businesses use creative concepts derived from knowledge resources to create new goods, technology, and services. In light of this, innovation performance can be described as the result of innovation and refers to how successfully a corporation has reached its innovation goals [16]. The main purpose of encouraging innovation is to increase a company’s internal growth and competitiveness. Innovation creates the groundwork for increased business performance, economic growth, and national prosperity. Small and medium-sized businesses’ (SMEs) ability to innovate determines how well they succeed, which raises their innovation performance [17]. An innovative culture has a crucial impact on SMEs’ ability to foster creativity, according to earlier studies. Low resistance to change and intensely entrepreneurial activity characterize SMEs with flexible, creative cultures [18]. The transition from a linear to a circular system of production and consumption must be carried out, and eco-innovation (EI) has been identified as a crucial component. Not all EI is connected to a CE, and not all CE aspects call for innovation. But there will undoubtedly be a zone of overlap [19].

2.3. Sustainability Performance

A strategy in the practice of sustainable development is sustainable performance. The idea of sustainable development was developed to satisfy current requirements without compromising the capacity of future generations to satisfy their own needs. The combination of economic, social, and environmental performance is another way to define sustainable performance. However, other academic studies claim that the failure of traditional development to combat poverty gave rise to the idea of sustainable development [20]. Processes that support enterprise sustainability are necessary to practically apply SMEs’ sustainable performance. This procedure, which mandates that every management-level decision be implemented using sustainability-related factors, is mutually beneficial. As a result, the effectiveness of an SME’s management affects the overall outcome and the SME’s capacity for innovation. Ref. [21] concluded that sustainable development, which covers all three dimensions—social, economic, and ecologic—is linked to an organization’s capacity to operate in a coordinated and comprehensive manner without losing performance capacity in the long run. Additionally, the researcher discovered a relationship between an enterprise’s sustainable performance and several variables that alter as it moves from one stage of its life cycle to another. These factors alter because of shifting objectives, strategies, organizational structures, workflows, technologies, and cultural norms.

2.4. Hypothesis Development

2.4.1. Organizational Factors and Innovation

Academic studies have looked extensively at the effect of employees’ skills on the ability of small and medium-sized enterprises (SMEs) to innovate. The skills of employees are seen as vital pillars for innovative actions and practices in businesses [22,23,24]. Ref. [22] study included a sizable sample of SMEs from different industries. They discovered that personnel with a wide range of skill sets and a high degree of subject-matter knowledge benefit SMEs. These employees play a critical role in building a culture of continuous improvement and flexibility in addition to contributing to the enterprise’s overall capacity for innovation. A supportive finding by [25] shows that businesses that lack the necessary complementary skills or absorptive capacity suffer from lower innovation benefits. The findings from a panel of manufacturing companies confirm the theories that suggest that innovation in products or processes and collaboration in research and development go hand in hand with highly technical skills. Thus, human capital is a facilitator of successful innovation.

Ref. [26] also investigated the relationship between labor skill levels and innovation in the context of Chinese SMEs. The investigation produced important findings that were unique to the Chinese corporate environment. Wang discovered that SMEs with highly trained workers were more likely to launch novel goods and procedures and were also better able to manage the dynamic and cutthroat Chinese market. This study emphasizes how important staff skills are as a competitive advantage for SMEs, especially in emerging markets.

Another research study conducted in Jordan studied the effect of employees’ market capabilities on innovation and knowledge creation. Using the assumptions as guidance, it has been determined that market sensing is necessary for active learning-positioning in SMEs. Learning-positioning and market sensing are also used to increase process and product innovation. The knowledge they obtain from customers, competitors, and the market in general influences how they investigate, pay attention to, and connect the outcome for the creative and general purpose of knowledge. Also, the research indicates that managers of SMEs should coordinate their approach to market sensing and education. An exigency’s existence was well-suited to these research paradigms, enabling firms to operate without difficulties [27].

Referring to the previous review, hypotheses H1a and H1b propose that the degree of employee competence will have a statistically significant impact on the level of innovation in Jordanian SMEs. In summary, this hypothesis emphasizes the critical role that personnel and skill development play as essential organizational determinants in Jordanian SMEs’ ability to innovate. Referring to the points discussed, we formulate the following hypothesis:

H1a: 

The skills and competencies level of employees significantly influences the level of innovation within small and medium-sized enterprises (SMEs) in Jordan.

Researchers and practitioners have shown a significant interest in inter-organizational interactions’ role in defining innovation within the SME sector. In-depth research on open innovation and how SMEs may use external partnerships and collaborations to improve their innovation processes was performed by [28]. Ref. [28] also stressed that SMEs may increase their capacity for innovation through collaborating with outside sources of information, technology, and experience. Ref. [29] also provided insightful information about the dynamics of inter-firm R&D collaborations. The work of [29] illuminated the patterns and trends in these partnerships from the 1960s. According to this study, SMEs that associate with other businesses are more likely to have access to complementary resources and skills, which can boost innovation levels. SMEs may negotiate the complicated world of technological breakthroughs and market needs by combining resources and expertise from outside partners, eventually boosting innovation.

Others studied the ability of inter-organizational capabilities in forming the path towards technology transfer and thus innovation prosperity [30,31]. This can be attributed to the necessity of working together with clients, vendors, rival businesses, academic institutions, and research groups in order to obtain fresh perspectives on markets, concepts for improving technological solutions, and access to new ideas [32].

Hypothesis H1b asserts that inter-organizational partnerships will have a statistically significant impact on the degree of innovation within SMEs operating in Jordan based on the results of the reviewed research. This hypothesis emphasizes the critical significance that cooperative ties have in improving the innovation environment in Jordanian SMEs. Based on these perspectives stemming from the review of literature, we develop the following hypothesis:

H1b: 

Inter-organizational collaborations significantly influence the level of innovation within small and medium-sized enterprises (SMEs) in Jordan.

Two types of performance are necessary for organizational practical functionality. The first is task performance, which refers to the activities that directly support the creation of finished goods or services and fall under the purview of an employee’s job description. The second is a contextual task that, although not the employee’s actual employment, contributes to their social and psychological surroundings [33]. Through organizational learning, knowledge is created from experience doing a task, changing the organization, and impacting its performance in the future. Once a focus organization has learned something and kept it, it can impart it to other organizational units or external entities.

Additionally, information from the main organization may unintentionally reach other organizations [34]. Our study will focus on intra- and inter-organizational learning factors. Intra-organizational learning is the process through which internal functions or units of a company gather, analyze, store, share, and use information to produce new knowledge and insights that affect organizational practices and performance. Intra-organizational learning develops action reliability through experience [35]. Ref. [36] investigated previous research identifying the congruence between open innovation and intra-organizational determinants. The author focused on the following:

• Structural aspects of organizations, such as size, growth stage, and legal capacity
• Functional/operational aspects include organizational support competency, human resources qualifications, and organizational capability to extract value from external knowledge
• Strategic aspects such as business model, CSR strategy, and values in collaboration

Ref. [37] discovered that a unit’s centrality in the intra-organizational network, which offers chances for shared learning, knowledge transfer, and information sharing, considerably boosts that unit’s capacity for innovation. Examining how internal social processes inside companies affect innovation at the organizational unit level is essential, according to Tsai, given that active inventive activities typically take place in organizational units. The research aims to investigate innovation processes in multiunit businesses by demonstrating how network position impacts innovation in business units. Accordingly, we formulate the following hypothesis:

H1c: 

Intra-organizational collaboration significantly influences the level of innovation within small and medium-sized enterprises (SMEs) in Jordan.

Ref. [38] discussed the three dimensions of CSR practices in organizations, which are economic, social, and environmental. They tested whether they were directly related to innovative performance or not. The author assessed companies in Spain during the period 2009–2014. It was found that the social aspect was essential for radical innovation to rise to the surface. Meanwhile, both economic and environmental dimensions are needed for incremental innovation. Participating in CSR initiatives provides businesses with a framework that enables them to innovate more risk-averse and sustainably, per the research of [39]. The same authors make the argument that businesses that disregard CSR initiatives may struggle to stay in business because they will find it hard to innovate. Sustainable innovations are useful instruments for promoting social performance and CSR initiatives. Certain channels, such as the company’s competitiveness, strategy advancements, and framework, propel the influence of CSR innovation [40]. To examine how corporate social responsibility (CSR) activities affect innovation and cooperation in the agricultural sector, a model of structural equations was presented. First, according to the model, innovation somewhat mediates the link between collaboration and performance, and second, it suggests that collaboration partially mediates the link between CSR and innovation [41]. This shows that many research studies have exposed the positive relationship between innovation and CSR.

On the other hand, some research studies indicated the presence of a negative relationship between both parties. Companies included in the Dow Jones Sustainability Index were used as a sample to test a bidirectional model, according to [42], in which one of the models they used considers CSR practices to be a function of innovation, activity sector, firm size, and risk. The model’s findings indicate a negative bidirectional link between the variables. Referring to the literature review concerning this topic, we hypothesized the following:

H1d: 

Corporate social responsibility (CSR) practices significantly influence the level of innovation within small and medium-sized enterprises (SMEs) in Jordan.

2.4.2. Innovation and Circular Economy

A business model, service, process, product, technology, and human capital are just a few examples of the various forms and dimensions that innovation may adopt [43]. Innovation and technical advancement are two more often recognized drivers of economic growth [44]. Ref. [45] studied the effects of investment, human capital, and innovation on many aspects of the circular economy, which have been evaluated through dynamic panel models. Results showed that investments and innovation greatly slow down environmental deterioration. Ref. [46] highlighted R&D and technological advancement in a number of scenarios using various perspectives on the green economy. A vital first step in many of the examples under study was achieving a particular level of technological advancement for the circular economy to prosper.

A deficiency of suitable technology emerged as a crucial element in certain instances. Innovation aims to improve the quality of products and services offered to customers, gain and maintain a sustainable competitive advantage in the dynamic business environment, and conceptualize new practices strategically aligned with business priorities to make a better, sustainable impact.

Furthermore, in order for businesses to make the shift to a circular economy, they need to practice more sustainability, as well as raise awareness of it. Companies need to reevaluate and develop their business models and the methods they provide value to their clients in order to make this shift, all the while taking social and environmental factors into account. This was discussed by [47]. We can understand the following from the previously mentioned studies:

H2: 

Innovation significantly contributes to the advancement of circular economy practices within small and medium-sized enterprises (SMEs) in Jordan.

2.4.3. Circular Economy and Sustainable Performance

As social issues are increasing day by day, SMEs are responsible for taking further steps towards sustainability. It is the time when environmental and social aspects are of equal importance as financial performance [48]. Furthermore, the linear economy (LE) is forming different challenges for SMEs, such as lacking the competitive advantage that other SMEs have, and this has led to the formation of the concept of the circular economy and adopting it [49]. Studies show that CE practices are one of the many strategies created primarily to support sustainable performance and economic development [50]. Adopting CE offers SMEs a number of advantages and prospects, including improved brand recognition, lower costs, expanded operations, increased productivity, improved environmental recovery through lower CO₂ emissions, and increased sustainability. Every benefit that has been listed has a direct bearing on how well SMEs function over the long term [51]. Learning more about how CE practices affect the many aspects of sustainable performance is crucial. Given SMEs’ aversion to risk and limited investment resources, this impact is essential to provide them with meaningful insights [52]. Therefore, we hypothesize the following:

H3: 

Circular economy practices significantly impact the sustainable performance of small and medium-sized enterprises (SMEs) in Jordan.

2.4.4. Organizational Factors, Innovation, Circular Economy, and Sustainable Performance

All societal levels must innovate in order to make the shift to a circular economy. It was demonstrated that in developing circular innovations, individuals, organizations, and system-level players play crucial roles [53]. Business models, transformations, and behavior are the three primary areas of focus for circular economy and sustainability-oriented innovation. All of the industrial sectors work to protect the environment by implementing environmentally friendly routines, methods, and strategies. These three subjects offer an opportunity to comprehend how the circular economy business model provides insight into this process. The realization of the organization’s vision, mission, and objectives, together with the involvement of all organizational components and an inventive approach, is necessary for this change. Ultimately, a behaviorally appropriate methodology is needed to transition from a linear to a circular economy. The simplest modifications begin with the various components of the organization because it is acknowledged that environmental conservation is a complicated construct [54]. According to research findings by [55], organizations that have previously exhibited Eco-Innovations skills can more readily integrate CE-related activities and apply them in novel circular business models.

Through carbon management techniques and procedures, it was discovered by [56] that both intra- and inter-organizational arrangements increase the performance of GHG emissions. Our study adds to the body of knowledge by illuminating how businesses collaborate internally across several functional areas and externally with stakeholders to execute carbon management initiatives that lower greenhouse gas emissions.

According to CSR, a study employing the dynamic capabilities theoretical approach yielded data that indicate a favorable correlation between a firm’s corporate social responsibility (CSR) and accountability, its environmental accounting procedures, and its Circular Scope (CS) [57].

3. Methodology

This research aims to understand the relationship between organizational factors (inter- and intra-) and the skills of employees and their impact on the innovation capabilities of SMEs. This is done to assist in studying how innovation and circular economy practices can facilitate achieving the sustainable performance of enterprises. We have used a primary data collection survey methodology to test and validate the proposed conceptual model, shown in Figure 1.

3.1. Population and Sample of the Study

This study follows the quantitative approach, and the population consisted of employees working in SMEs. According to the most recent 2018 business census in Jordan, there are approximately 16,300 SMEs (excluding micro-enterprises), consisting of 13,485 small and 2815 medium-sized enterprises [14]. For the purpose of this study, we have used the definition of SMEs provided by the Ministry of Industry and Trade. The following requirements were incorporated into the survey as a series of screening questions: (1) all participants had to work in SMEs; (2) all participants had to have at least more than 3 years of experience in the field; and (3) all participants had to be knowledgeable about CE practices and the sustainable business performance of the organization. Having respondents with first-hand experience and decision making ability who could provide insightful data for analysis was the goal.

3.2. Design of the Survey

Data was collected using a comprehensive survey that was derived from research literature discussed in earlier sections. To understand the links between various variables, surveys are a practical and affordable way to collect data and analyze it using statistical techniques [58]. In order to determine the constructs and scales required to formulate and test hypotheses, a thorough assessment of the literature was conducted before developing the questionnaire. Data about workforce skills and competencies, organizational characteristics, and innovation mindset were acquired in relation to the adoption and use of CE practices and the sustainable performance of SMEs. A Likert scale with five levels was used to measure the proxies (1 = completely disagree; 2 = disagree; 3 = neither agree nor disagree; 4 = agree; 5 = completely agree). The survey was pre-tested on a pilot sample of SMEs in Jordan (20 SMEs), in which responses were revised by the research team and a university professor to identify gaps and vulnerabilities of the survey. The aim of the pilot test was to (1) ensure that the measured criteria can assess CE practices and capabilities of SMEs; (2) examine whether the questions are clear and can be easily interpreted correctly; and (3) given the classification and distribution of SMEs in the nation, the inclusion criteria for the respondents and business sector made sense and had significance.

3.3. Data Collection

For data collection, both printed surveys and an online survey (Google Forms) were used. The SMEs were targeted from the pool of SMEs list available from the Jordan Chamber of Industry (JCI) and SME profiles available on online portals such as LinkedIn. We received 316 responses, and these were used to validate our hypotheses.

4. Results

The descriptive statistics of the study, including participant demographics such as frequency and percentages, are available in

Table 1. Sample demographical characteristics.

Demographics	Criteria	Frequency	Percent
Age	21–30	213	67.4%
	31–40	86	27.2%
	41–50	14	4.4%
	51–60	3	0.09%
Gender	Female	136	43.3%
	Male	179	56.8%
Position Level	Low-level Management	108	34.2%
	Medium-level Management	159	50.3%
	Upper-level Management	49	15.5
Years of Experience	1–3	103	32.6%
	4–6	105	33.2%
	7–9	56	17.7%
	10+	52	16.5%
Company Size	1–9	20	6.3%
	10–49	76	24.1%
	50–249	115	36.4%
	250+	105	33.2%
Total		316	100

.

4.1. Profile of Respondents

This survey presents demographic data from a diverse sample, encompassing gender, age, position level, and years of experience. In terms of age, a significant majority (67.4%) falls within the 21–30 age bracket. Gender distribution shows a slight male predominance, with 56.8% identifying as male and 43.3% as female. Additionally, respondents are distributed across different levels of management, with medium-level management being the most represented (50.3%), followed by low-level (34.2%) and upper-level management (15.5%). Years of experience exhibit relatively balanced proportions across different categories, with 1–3 years and 4–6 years being the most prevalent (32.6% and 33.2%, respectively). Regarding company size, respondents are associated with organizations of varying scales, with notable representation across different employee brackets, particularly in companies with 50–249 employees (36.4%). This comprehensive dataset offers valuable insights into the composition of the surveyed population across multiple demographic dimensions, as detailed in Table 1.

4.2. Measurement

In evaluating the measurement model, an assessment was conducted using Confirmatory Factor Analysis (CFA) with AMOS 26. During this analysis, the factor loadings of each item were thoroughly examined. It was noted that one item (Inno3) had a low factor loading of below 0.05, as outlined in

Table 2. Measurement model evaluation.

Construct	Item	Loadings	CR	α	AVE
Innovation	Inno1 Inno2 Inno3	0.689 0.732 Deleted	0.701	0.669	0.505
Skills and Competencies	Sk1 Sk2 Sk3 Sk4	0.618 0.761 0.843 0.816	0.848	0.844	0.586
Intra-Organizational Learning	Intraog1 Intraog2 Intraog3 Intraog4 Intraog5 Intraog6 Intraog7	0.612 0.674 0.764 0.710 0.593 0.603 0.674	0.802	0.857	0.504
Inter- Organizational Learning	InterOrgL1 InterOrgL2 InterOrgL3 InterOrgL4 InterOrgL5	0.716 0.756 0.863 0.778 0.609	0.863	0.855	0.561
Circular Economy	CircularP1 CircularP2 CircularP3 CircularP4 CircularP5 CircularP6	0.852 0.879 0.914 0.860 0.863 0.844	0.949	0.951	0.758
CSR	CSR1 CSR2 CSR3 CSR4 CSR5 CSR6	0.862 0.898 0.907 0.889 0.815 0.732	0.94	0.942	0.724
Sustainable Performance	SustPerf1 SustPerf2 SustPerf3 SustPerf4 SustPerf5 SustPerf6 SustPerf7 SustPerf8 SustPerf9	0.733 0.809 0.838 0.810 0.815 0.829 0.746 0.788 0.715	0.942	0.939	0.599

. As a result, this particular item was omitted from the analysis. Table 2 also presents the seven established measurement scales, derived from previously validated empirical studies. Respondents utilized a five-point Likert scale, ranging from 1 (Strongly Disagree) to 5 (Strongly Agree), to indicate their level of agreement with 40 items.

4.3. Construct Reliability and Validity

The reliability of the constructs was evaluated through Cronbach’s Alpha and Composite Reliability measures. The findings showed that Cronbach’s Alpha for each construct surpassed the necessary threshold of 0.70, as per [59]. The Composite Reliability values, ranging from 0.701 to 0.949, also exceeded the benchmark of 0.70 established by [60]. Consequently, the reliability of each construct in the study was validated, as illustrated in Table 2.

The convergent validity of the scale items was assessed through Average Variance Extracted (AVE), based on the methodology of [61]. Each construct’s AVE values surpassed the 0.50 threshold, confirming the convergent validity of the scales used in this research, as depicted in

Table 3. Discriminant validity analysis.

	Inno	SkillsC	IntraogL	InterOL	CE	CSR	SP
Inno	0.71
SkillsC	0.662 ***	0.766
IntraOgL	0.688 ***	0.650 ***	0.71
InterOL	0.657 ***	0.628 ***	0.861 ***	0.749
CE	0.455 ***	0.467 ***	0.424 ***	0.464 ***	0.87
CSR	0.505 ***	0.505 ***	0.461 ***	0.508 ***	0.799 ***	0.851
SP	0.609 ***	0.613 ***	0.535 ***	0.542 ***	0.846 ***	0.811 ***	0.774

Significance of Correlations: *** p < 0.001.

.

4.4. Discriminant Validity

Discriminant validity was evaluated using both the Fornell–Larcker criterion and the Heterotrait–Monotrait (HTMT) ratio. According to the Fornell–Larcker criterion, discriminant validity is confirmed if the square root of the AVE of each construct is greater than its correlations with other constructs, as shown in Table 3. However, due to some criticisms of the Fornell–Larcker criterion, the HTMT ratio has gained popularity for assessing discriminant validity. This study verified discriminant validity using both approaches. The Fornell–Larcker criterion indicated discriminant validity, and the HTMT ratios were below the 0.85 threshold recommended by [62], as displayed in

Table 4. HTMT analysis.

	Inno	SkillsC	IntraOgL	CE	CSR	SP
Inno
SkillsC	-
IntraOgL	0.641	-
InterOL	0.648	0.865	-
CE	0.485	0.409	0.492	-
CSR	0.536	0.466	0.56	0.794	-
SP	0.626	0.515	0.572	0.835	0.825	-

.

The structural equation model was developed using AMOS to investigate the relationships. The model was deemed a good fit if the following criteria were met: CMIN/df, Goodness-of-Fit Index (GFI), Tucker–Lewis Index (TLI), and Confirmatory Fit Index (CFI) all had values greater than or equal to 0.90. Additionally, an acceptable fit was indicated if the standardized root mean square residual (SRMR) was less than 0.05 and the root mean square error of approximation (RMSEA) fell between 0.05 and 0.08. The model’s fit indices, as shown in

Table 5. Measurement model.

Fit Indices	Recommended Value	Source(s)	Obtained Value
P	insignificant	[63]	0.000
CMIN/df	3–5	<2 according to [64] to 5 according to [65]	2.422
GFI	>0.90	[60]	0.920
CFI	>0.90	[66]	0.914
TLI	>0.90	[66]	0.905
SRMR	<0.08	[67]	0.054
RMSEA	<0.08	[67]	0.067

, fell within these acceptable ranges: CMIN/df = 2.422, GFI = 0.920, TLI = 0.905, CFI = 0.914, SRMR = 0.054, and RMSEA = 0.067.

4.5. Hypothesis Testing

The squared multiple correlation was 0.74% for innovation; this shows that 26% variance in circular economy is accounted for by 26% and 0.71 for sustainable performance.

The study assessed the impact of skills and competencies on innovation. The impact on creativity was positive and significant (b = 0.310, t = 8.576, p < 0.001), supporting H1 as presented in

Table 6. Hypothesis testing.

Hypothesized Direct Relationship	Beta	SE	t-Value	R2	p-Value	Decision
H1: Skills and Competencies -> Innovation	0.310	0.036	8.576		0.001	Accepted
H2: Inter-organizational Learning -> Innovation	0.172	0.049	3.55		0.001	Accepted
H3: Intra-organizational Learning -> Innovation	0.200	0.057	3.491		0.001	Accepted
H4: CSR -> Innovation	0.076	0.019	4.058	0.74	0.001	Accepted
H5: Innovation -> Circular Economy	0.508	0.109	10.491	0.26	0.001	Accepted
H6: Circular Economy -> Sustainable Performance	0.643	0.023	28.153	0.71	0.001	Accepted

. The impact of inter-organizational learning on innovation was positive and significant (b = 172, t = 3.55, p < 0.001), supporting H2. The impact of intra-organizational learning was positive and significant (b = 0.200, t = 3.491, p < 0.001), supporting H3. The impact of corporate social responsibility on innovation was positive and significant (b = 0.076, t = 4.058, p < 0.001), supporting H4.

The impact of innovation on circular economy was positive and significant (b = 0.508, t = 10.491.058, p < 0.001), supporting H5. The impact of circular economy on sustainable performance was positive and significant (b = 0.643, t = 28.153, p < 0.001), supporting H6.

An evaluation of the indirect effects is presented in

Table 7. Indirect effects evaluation.

Indirect Effects
Indirect Path	Beta	Lower	Upper	p-Value
Skills and Competencies --> Innovation --> Circular Economy	0.355	0.272	0.442	0.001
Skills and Competencies --> Innovation --> Circular Economy --> Sustainable Performance	0.228	0.172	0.294	0.001
Inter-organizational Learning --> Innovation --> Circular	0.197	0.087	0.316	0.004
Inter-organizational Learning --> Innovation --> Circular Economy --> Sustainable Performance	0.127	0.055	0.206	0.004
Intra-organizational Learning --> Innovation --> Circular Economy	0.229	0.107	0.387	0.003
Intra-organizational Learning --> Innovation --> Circular Economy --> Sustainable Performance	0.147	0.07	0.254	0.002
CSR --> Innovation --> Circular Economy	0.087	0.043	0.145	0.001
CSR --> Innovation --> Circular Economy --> Sustainable Performance	0.056	0.027	0.097	0.001
Innovation --> Circular Economy --> Sustainable Performance	0.736	0.565	0.893	0.001

. In particular, skills and competencies, inter-organizational learning, intra-organizational learning, and corporate social responsibility (CSR) indirectly influenced circular economy through innovation, suggesting that particular skills and competencies, inter-organizational learning, intra-organizational learning, and corporate social responsibility (CSR) positively influence circular economy by strengthening innovation (β = 0.355, β = 0.228, β = 0.197, β = 0.127, β = 0.229, β = 0.147, β = 0.087, β = 0.056), respectively. Additionally, the previously mentioned factors indirectly influenced sustainable performance, strengthening both circular economy and sustainable performance. Finally, innovation was found to positively influence sustainable performance indirectly by strengthening circular economy (β = 0.736, p < 0.001), indicating the indirect effect of innovation on the relationship between circular economy and sustainable performance.

5. Dissections

This study examined how organizational factors, innovation, and circular economy (CE) practices contribute to sustainable performance in Jordanian SMEs. The findings offer strong empirical support for the proposed model and build upon earlier sustainability, innovation, and organizational learning research. The data show that employee skills and competencies, both inter- and intra-organizational learning, and corporate social responsibility (CSR) all play a meaningful role in enhancing innovation within SMEs. These results echo existing literature that highlights the critical importance of human capital [25,26] and collaboration [28,37] in fostering innovation. This is especially important for SMEs in emerging economies like Jordan, where firms often need to make the most of limited internal resources and external partnerships to stay competitive and grow sustainably. Innovation was also found to be a key driver of circular economy adoption. This reinforces the idea that CE is not just about applying new technical tools, but about rethinking how value is created and delivered—something that demands innovation at every level of the organization [19,45]. The fact that Jordanian SMEs use innovation to navigate environmental and institutional challenges shows how adaptive and forward-thinking they can be, even in resource-constrained settings. Moreover, the findings confirm that CE practices significantly positively affect sustainable performance, supporting earlier work by [50,51]. By embracing CE, SMEs are not just meeting regulatory expectations; they are seeing real business benefits, such as lower costs, better brand reputation, and more efficient operations. Interestingly, the study also uncovered two important mediating relationships. First, innovation acts as a bridge between organizational factors and CE practices. Second, CE practices, in turn, strengthen the link between innovation and sustainable performance. Adopting CE is not a standalone change; it requires a mix of the right skills, culture, strategies, and relationships, both inside the organization and with external stakeholders. In summary, this research sheds light on how internal capabilities can drive real progress in sustainability for SMEs. It provides practical insights that can help business leaders and policymakers create more effective, innovation-led sustainability strategies in Jordan and the wider MENA region.

6. Conclusions and Future Work

The review of the literature revealed that, because the topic is new to the Jordanian market, there has not been as much research done on SMEs’ business activities (which negatively impact the environment rather than individuals), the maturity of adoption in emerging economies, and internal organizational factors that affect the adoption of CE. There is still a lack of empirical evidence regarding the impact of internal organizational factors in SMEs on the adoption of CE and achieving sustainable business performance, despite the interest of academics and practitioners, as well as government initiatives worldwide. This information would aid in the development of appropriate evidence-based initiatives and strategies that will assist in overcoming organizational barriers by government policymakers and SMEs’ decisionmakers [51].

We have put out a theoretical model, drawing from the body of research on corporate sustainability, innovation, and CE that has already been published in the literature. By developing a survey instrument and conducting primary research with employees of SMEs in Jordan, the model was validated. It shows that companies can enhance their capacity to adopt CE practices within the industry through skills and competencies, inter- and intra-organizational factors, and CSR, which will enable them to realize gains in sustainability and business productivity. To investigate and analyze the antecedents impacting CE adoption in practice and produce outcomes that are valued by the organization, our work thus offers academics a first step toward understanding how internal organizational elements might be merged.

According to the findings, SMEs’ sustainable performance is positively impacted by both direct and indirect partnerships. Innovation, compliance with the circular economy, and sustainability are all influenced by organizational characteristics, CSR initiatives, and skill development. Despite the fact that every result is trustworthy and validated to a precise degree, certain research gaps exist.

As survey-based primary research has limitations related to common method bias and endogeneity, we took steps to mitigate these effects by using appropriate methods during data sampling, collection, and analysis. However, we contend that future research can design longitudinal studies that draw samples from more industries, nations, and informants with more diverse backgrounds in order to address the effects of CMB and endogeneity [8]. We propose employing case-based research to evaluate and validate theoretical outcomes once a model has been validated using quantitative data. This will allow us to examine CE uptake and implementation through ethnographic studies, which will yield more thorough insights. In conclusion, our research offers a way forward for further investigations into the relationship between internal organizational characteristics and the adoption of CE, which will assist SMEs in enhancing their innovative practices and, consequently, their sustainable performance. While this study employed well-established and validated perceptual measures to assess constructs such as innovation, circular economy (CE) practices, and sustainable performance, in particular, variables like innovation and CE practices can also be assessed through objective indicators, such as the number of patents, participation in innovation fairs, the use of secondary raw materials, or documented recycling rates. However, due to the nature of Jordanian SMEs, many of which operate in the low-tech or informal sector, much objective data was either unavailable or not applicable across the whole sample. As a result, we opted for survey-based measures that capture respondents’ perceptions and internal practices, which are commonly used in empirical research on SMEs in emerging markets. Future research could enhance the robustness of these findings by integrating objective performance metrics and firm-level sustainability data where possible.