How digital transformation enhances sustainable performance through dynamic capabilities and open innovation practices in small and medium enterprises

Digitalization has emerged as a key driver of growth for small and medium-sized enterprises (SMEs), enabling process improvement, innovation, and enhanced sustainable performance across economic, social, and environmental dimensions. This study investigates the influence of digitalization on SMEs’ sustainable performance by considering the mediating role of dynamic capabilities and the moderating role of open innovation practices. A quantitative survey was conducted with 325 SMEs owners operating in the food, fishing, and tourism sectors. Data were analyzed using structural equation modeling (PLS-SEM). The findings reveal a positive and significant relationship between digitalization and dynamic capabilities, which subsequently enhance sustainable performance. Furthermore, digitalization fosters SMEs’ openness by facilitating external collaborations that reinforce sustainability outcomes. However, sustainable performance does not derive solely from adopting digital technologies. It largely depends on the capacity of SMEs to transform digital resources into organizational capabilities and value-creating collaborations. This study contributes to the resource-based view and dynamic capabilities theory while offering practical guidance for SME managers on implementing digitalization within a sustainable development framework.