Linking digital capability to small business performance: the mediating role of digital business transformation

Abstract

This study investigates the impact of digital capability (DC) on digital business transformation (DBT), and its effect on small business performance (BP). This study adopts a quantitative approach. The theoretical framework uses knowledge-based view (KBV) and dynamic capability theories. This study empirically examines the direct relationship between DT and DBT in small business performance (financial, flexibility, and quality performance). This study involved 330 small businesses in East Java, Indonesia, using a convenience sampling technique. This hypothesis was tested using structural equation modeling. The findings showed a significant effect of DC on DBT and BP, DBT, and BP. Thus, the results provide evidence that DBT plays a mediating role between DC and BP. This study makes three contributions to the literature. First, empirical evidence supports the KBV and dynamic capability theories that knowledge is the most valuable asset in the digital age. Second, this study significantly extends the relevant literature by highlighting the relationship between DC, DBT, and BP. Finally, this study proposes a multiple-dimension small business performance model that uses three dimensions (financial, flexibility, and quality) as the determinant factors of DC and DBT in the SMEs sector.

Keywords:

• Digital Capability (DC)
• Digital Business Transformation (DBT)
• Small Business Performance (BP)
• Knowledge-BasedView (KBV)
• Structural Equation Modeling (SEM)

Reviewing Editor:

• Jeffrey Muldoon, Emporia State University, United States

Subjects:

• Entrepreneurship and Small Business Management
• Small Business Management
• E-Business
• Organisational Behavior

Author contributions

Yudha Prakasa developed the research design and collected, analyzed, and interpreted the data. Zulfiqar Ali Jumani verified the analytical methods and supervised the findings of this study. All authors drafted and discussed the results and contributed to the final manuscript.

Disclosure statement

No potential conflict of interest was reported by the author(s).

Data availability statement

Data sharing is not applicable to this article as no new data were created or analyzed in this study.

Additional information

Funding

The research was supported by the Faculty of Administrative Science, Universitas Brawijaya, Indonesia.

Notes on contributors

Yudha Prakasa

Yudha Prakasa is a lecturer at Business Administration, Universitas Brawijaya, Indonesia. Currently, he is PhD student at Khon Kaen Business School in Khon Kaen, Thailand. His research interests include entrepreneurship, human resources, and organizational development.

Zulfiqar Ali Jumani

Zulfiqar Ali Jumani obtained his PhD from Prince of Songkla University, Hat Yai campus, between January 11, 2017, and March 2020. He is currently working as a lecturer at Khon Kaen Business School in Khon Kaen, Thailand. His research interests include consumer behavior, digital marketing, Islamic branding, and halal branding.