Abstract

Purpose: This study critically investigates the role of innovation capabilities in driving business model transformation within small and medium-sized enterprises (SMEs). While SMEs are widely recognized as engines of economic growth, many struggle to adapt their business models to rapidly evolving technological and market environments. Understanding how specific innovation capabilities enable SMEs to reconfigure resources and practices is central to bridging this knowledge gap.

Design/Methodology: A quantitative approach was adopted, using a structured survey administered to 210 SMEs across diverse industrial sectors. Innovation capabilities were operationalized through dimensions of product, process, and organizational innovation, while business model transformation was measured via changes in value proposition, value creation, and value capture mechanisms. Statistical analyses, including multiple regression and structural equation modeling (SEM), were employed to assess the mediating and moderating relationships between innovation capabilities and business model transformation.

Findings: Results indicate that SMEs possessing higher levels of dynamic innovation capabilities are significantly more likely to engage in business model transformation. Product and organizational innovations exert the strongest influence, while process innovation mediates the relationship between digital adoption and strategic realignment. The study also identifies sectoral and resource-based heterogeneities that modulate these effects.

Originality/Value: This research provides a critical contribution by quantitatively linking multidimensional innovation capabilities to the mechanics of business model transformation in SMEs, a relatively underexplored domain. It offers a theoretically grounded and empirically validated framework that can guide both scholars and practitioners in fostering adaptive, resilient, and innovation-driven SME growth.