Driving SME Performance: Innovation, Digital Capability, Resilience, and Leadership

The important role of small and medium-sized enterprises (SMEs) is well recognized, yet many struggle to sustain their operations. This study aims to identify factors influencing SMEs’ performance by combining the resource-based view (RBV), resilience theory, and dynamic capability. A quantitative study involving 251 SMEs in Indonesia was conducted. Smart-PLS was used to analyze the measurement model of constructs and the structural model. This study revealed that digital capability, innovation capability, and organizational resilience strongly influence SMEs’ performance in Indonesia. Meanwhile, transformational leadership strongly and positively influences digital and innovation capabilities, as well as organizational resilience. This study also supports the positive influence of digital and innovation capabilities on organizational resilience. Furthermore, it reveals that digital capability has a positive association with innovation capability. However, this study fails to confirm a significant relationship between transformational leadership and firm performance. This study brings theoretical significance through the integration of RBV, particularly dynamic capability and resilience theory, providing insights into the complex factors affecting SMEs’ performance. It expands the existing literature by clarifying the interrelationships among digital capability, innovation capability, organizational resilience, and transformational leadership. From a practical standpoint, the study offers valuable guidance for SMEs, policymakers, and practitioners. Policymakers can develop targeted strategies to assist SMEs in cultivating digital and innovation capabilities, while practitioners can capitalize on the positive impact of transformational leadership in bolstering digital capability, innovation capability, and organizational resilience.