Empowering sustainability through digital transformation: the bridging power of digital capabilities and innovation

PurposeThe present study investigates the role digital transformation (DT) plays, both directly and indirectly, in digital capability (DC) and digital innovation (DI) in the context of small and medium-sized enterprises (SMEs) in Saudi Arabia.Design/methodology/approachThe resource-based view (RBV) theory underpins the study's theoretical framework. Using a convenience sampling method, the researchers employed a quantitative approach to gather cross-sectional data from top managers. The study utilized 390 valid samples to conclude the investigation.FindingsWe used structural equation modeling (SEM) using AMOS version 27.0 to test the hypothesized relationships. The results demonstrate that DT significantly and positively impacts DC, DI and sustainability. The DI factor emerges as a strong positive predictor of sustainability. Conversely, DC is a negative predictor of sustainability. Besides, DI mediates the connection between DT and sustainability. On the other hand, the DC factor negatively mediates the relationship between DT and sustainability.Practical implicationsThe findings would assist policymakers and planners in catalysing a digital revolution within companies by fostering the development of digital capabilities, promoting DI and encouraging innovative ideas. The study helps update business practices and make industry standards sustainable and resilient.Originality/valueFinally, the study's findings contribute to the literature by providing an integrated theatrical framework that simultaneously offers both direct and indirect effects of DT on sustainability in the presence of two robust mediators.