Thesis submitted in fulfilment of the requirements for the degree Doctor of Technology: Mechanical Engineering in the Faculty of Engineering at the Cape Peninsula University of Technology, 2012 / Over the years, many organisations are constantly under extreme pressure for their survival and sustainability due to globalization, rapid pace of technological innovation and growing knowledge of their customers. Leaders within the Small and Medium Enterprises (SMEs) struggle in dealing with these pressures due to lack of management skills, market know-how, education and training, entrepreneurial drive, technological orientation, product distribution and networking, particularly when compared with large companies. Innovative culture becomes a major problem among these SMEs. This forces leaders to establish a sound environment where employees can be creative and innovative. However, innovative culture is relatively at a slow pace in South Africa compared with other countries. In an attempt to create an innovative environment for employees, many leaders introduced international based policies such as organisational restructuring and reengineering. Instead of these policies to ease the prevailing conditions, the stress levels within the workplaces elevated and crushed the little creativity left in them. Therefore, this study is undertaken to investigate the appropriate leadership style capable to spearhead the SMEs in instilling local based innovation culture for sustainability in the Western Cape, South Africa. A group of participants including both employees (n1=336) and leaders (n2=130) took part in the research survey within 50 SMEs in the Western Cape. Nevertheless, different sample sizes were utilised in various stages through different case studies. This study has adopted the survey research method for its reliability and being quantitative in nature originated from positivism paradigm. An innovative leadership model covered the key characteristics of leadership was developed to achieve the research objectives. All the characteristics as variables were formulated into propositions and hypotheses to determine the state of innovative culture in these SMEs. Cronbach's-Alpha coefficient was used for reliability test of all the characteristics. In addition, descriptive statistical results such as means, standard deviations, correlations, and Chi-Square were generated. The study results revealed that all leadership characteristics variables were found to have p values below (0.01) which suggested on the rejection of null hypotheses. From employees’ point of view, the results showed that the leaders lack inspirational and motivational and high gain risk-taking characters. Thus, employees were not satisfied with their management styles toward innovation. However, leaders rated themselves highly based on the responses. In essence, a mathematical model was also used to analyse the impact of innovative leadership on productivity and profitability. The research findings have confirmed that leadership has the ability to stimulate both productivity and profitability. The study results further indicated that innovative leadership contributed to low production costs that resulted in the increase of productivity and profitability. This study concluded that innovative leadership was vital to the innovative culture within SMEs. The proposed leadership model can be used as a guideline for SMEs to create innovative culture. Moreover, the mathematical model can be utilised for any SMEs to predict their productivity and profitability. ii The rest of the thesis is organized as follows: Chapter one emphasises on the research problems pointing out factors that affected leadership in South African SMEs. The importance of the SMEs in the economy of the country as well as their descriptions and definition of SMEs were discussed. The problem statement, research objectives, leadership definitions, research propositions were highlighted. A description of the proposed model was detailed, and finally, the significance of the study and ethical issues were addressed. Chapter two focused on improving new product development (NPD) through innovative leadership qualities. In this regard, the key factors bearing the impact on NPD such as lack of understanding customer needs, business skills and understanding of innovation in NPD. Chapter three discussed the impact of innovative leadership on organisational culture within SMEs in the Western Cape, South Africa. It outlined the key leadership characters such as visionary, passionate, charismatic, inspirational and motivational, immersed in progressive change, high gain risk taking, ability to network and fast and action oriented leadership, and how these characteristics influence leadership to create an innovative culture within SMEs. Chapter four highlighted how passionate and charismatic leadership impacted creativity and innovation within the SMEs. The leaders in these SMEs were passionate and charismatic. However, it is not sufficient to instill an innovative culture. Chapter five presents an approach on how to create an innovation culture through visionary leadership in the SMEs. The results revealed that employees were very satisfied with their leaders. However, the leaders needed to make more efforts in making employees to embrace their organisational vision in order to be competitive. Chapter six alluded on the developed mathematical model to analyse the impact of innovative leadership on organisational sustainability in terms of productivity and profitability. The mathematical model predicts how changes of innovative leaders influence the increase of profits while production costs decreasing. Chapter seven concluded the importance of innovation culture within the SMEs. This chapter also indicated that there is a tremendous lack of innovation drive within the leaders in the SMEs; such that employees are not motivated enough to bring new ideas that can add organisational values. The further study areas were highlighted as well. Keywords: Innovation, leadership, culture, new product development, sustainability and SMEs