Enhancing SMEs sustainable innovation and performance through digital transformation: Insights from strategic technology, organizational dynamics, and environmental adaptation

With the advent of the digital wave, understanding the impact of Digital Transformation on sustainable development in firms is increasingly important. Drawing from the Technology-Organization-Environment (TOE) framework and the Dynamic capability view, this study investigates the determinants of Digital Transformation and its impact on Sustainable Innovation Capability and Sustainable Organizational Performance. Data from 261 firms were collected via surveys and analyzed using partial least squares structural equation modeling (PLS-SEM) and fuzzy-set qualitative comparative analysis (fsQCA). The results demonstrate that Technology, Organization, and Environment are critical factors driving Digital Transformation. Digital Transformation can enhance Sustainable Organizational Performance by improving a firm's Sustainable Innovation Capability. Environmental Dynamism positively moderates the effect of Digital Transformation on Sustainable Innovation Capability and Sustainable Organizational Performance. Importance-performance map analysis (IPMA) confirms Digital Transformation as the most significant predictor of Sustainable Organizational Performance. fsQCA identifies three configurations leading to highly Sustainable Organizational Performance. These findings provide new theoretical evidence for understanding the relationships among Digital Transformation, Sustainable Innovation Capability, and Sustainable Organizational Performance and the moderating role of Environmental Dynamism in these relationships. This study offers a new perspective on the relationship between Digital Transformation and sustainable development and supports applying TOE framework, and Dynamic capability view. The results are significant for understanding the drivers of Digital Transformation and its impact on sustainable development in firms.