Digital Capabilities, Firm Performance, and Innovation Capabilities: A Combined Approach of PLS-Sem and Ann

Abstract

This study, rooted in the dynamic capabilities view, examines the influence of digital capabilities on the performance and innovation capabilities of manufacturing small and medium-sized enterprises (SMEs) in an emerging market. Surveying 297 manufacturing SMEs in Vietnam, the research employed partial least squares-structural equation modelling (PLS-SEM) and artificial neural network (ANN) to test hypotheses. The results show a positive effect of digital capabilities on process and product innovation capabilities. Despite an insignificant direct impact of digital capabilities on firm performance, technological uncertainty moderates this relationship positively. Notably, process innovation capability has no direct impact on firm performance, while product innovation capability’s impact on it is negatively significant. The study explored the roles of digital culture and digital leadership, offering novel contributions to understanding a firm’s digital and innovation capabilities. It provides practical implications for managers aiming to enhance firm performance by leveraging digital capabilities for innovation.