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Firms must enhance innovation performance to stay competitive in evolving industries. This study investigates the direct and indirect relationships between digital transformation, dual innovation, dynamic capabilities, slack resources, and their combined impact on innovation performance. Using the PLS-SEM method in SmartPLS (4.0), this study analysed 295 responses from small and medium-sized enterprises (SMEs) in China. The model's validity and reliability were rigorously confirmed using statistical tests to ensure robust results. The results demonstrate that digital transformation significantly and positively influences dual innovation and innovation performance. Moreover, dual innovation positively and significantly mediated the relationship between digital transformation and innovation performance. Also, dynamic capabilities and slack resources serve as significant moderators, enhancing the relationships between digital transformation, exploitative/explorative innovation, and innovation performance. This study’s novelty lies in addressing the research gaps by extending the literature on digital transformation in SMEs through empirical evidence. The study contributes to SME digitalisation literature by clarifying how different innovation mechanisms and organisational enablers interact under digital transformation. Practical implications include guiding SME managers to strategically leverage digital tools and organisational capabilities to optimise innovation outcomes. Limitations and directions for future cross-sectoral research are also discussed.
Akhtar et al. (Wed,) studied this question.