Digital transformation and dynamic capabilities for sustainable sme advantage: Business model innovation mediation

SMEs increasingly adopt digital technologies, yet adoption alone does not ensure sustainable competitive advantage. Drawing on dynamic capabilities theory, the resource-based view, and business model innovation literature, this study examines how digital transformation and dynamic capabilities relate to perceived sustainable competitive advantage through business model innovation. Using survey data from 400 SMEs in West Sumatra, Indonesia, the model was tested with PLS-SEM and robustness controls for firm age and size. The results show that digital transformation and dynamic capabilities positively relate to business model innovation and competitive advantage. Business model innovation is the strongest predictor, while dynamic capabilities have a larger total effect than digital transformation. Business model innovation partially mediates both relationships, and the results remain stable after controls. These findings show that SME competitiveness is capability-enabled and business-model-mediated, implying that support programs should extend beyond technology adoption toward capability development, business model renewal, and measurable competitive outcomes.