Digital Capability and Green Innovation as Drivers of Sustainable SME Performance

Abstract

This study aimed to better understand how SMEs may enhance their sustainability performance with the use of smart digital capacity, green innovation and related concepts. Data from SMEs in West Java was analyzed using Partial Least Square Structural Equation Modeling. We adopted a quantitative method. The evidence indicates that smart digital capacity has a direct impact on Green Innovation and Sustainable Performance. Green Innovation mediates the relationship between Smart Digital Capability and Sustainable Performance and has a beneficial effect on sustainability performance. These findings suggest that the two key drivers for sustainability growth in SMEs are the adoption of digital technologies and the potential to transform digital capabilities into environmentally oriented innovation and operational efficiency. This paper extends the literature on digital entrepreneurship and sustainability by detailing the processes of translating digital skills into good sustainability outcomes. Managers of small and medium-sized businesses (SMEs) may improve their companies’ long-term performance and resource efficiency by integrating their digital capability development with green innovation plans. Future research might also extend the model applicability in other industries and include the contextual factors such as environmental restrictions and organizational learning to increase the model generalizability.