Chinese small and medium-sized enterprises (SMEs) are an important force in the development of the national economy and society. Therefore, adjusting the management concept and improving the management level through innovative management mode has become an important task for the survival and development of contemporary Chinese SMEs. This paper is divided into three parts; the first part introduces the theory related to management innovation, the role of management innovation and the driving factors of management innovation. The second part introduces the concepts and theories related to the transformation and upgrading of SMEs. The third part combines the content of the first two parts and summarizes three paths for Chinese SMEs to realize transformation and upgrading under the perspective of management innovation, which are the transformation and upgrading of processing trade to independent research and development, the transformation and upgrading of providing products to providing services, and the transformation and upgrading of product sales to brand marketing, which are the three specific directions. This study explores management innovation in SMEs, aiming to address their transformation and growth challenges by providing practical solutions. The research intends to contribute significantly to the development and success of SMEs within the national context.