Digitalization Impact on Sustainable Firm Performance of Small, Medium, and Large Businesses

Indra Revata Hermanto; Lydia Ari Widyarini; Dio Caisar Darma

doi:10.34021/ve.2024.07.01(1)

Authors

Indra Revata Hermanto Department of Management, Faculty of Business, Universitas Katolik Widya Mandala, Surabaya, Indonesia https://orcid.org/0009-0002-4531-8875
Lydia Ari Widyarini Department of Management, Faculty of Business, Universitas Katolik Widya Mandala, Surabaya, Indonesia https://orcid.org/0000-0003-2264-1581
Dio Caisar Darma Department of Economics, Faculty of Economics and Business, Universitas Mulawarman, Samarinda, Indonesia https://orcid.org/0000-0002-3287-7670

DOI:

https://doi.org/10.34021/ve.2024.07.01(1)

Keywords:

digital technology usage; digital transformation strategy; organizational agility; firm performance; PLS-SEM.

Abstract

Currently, the world is presented with sophistication in the field of technology, including company management. A superior company is an organization that can optimize all aspects. Speaking of existence, one of the essential pillars that support company sustainability is technology adoption. Referring to this premise, this study is structured to elaborate on the elements that determine firm performance (FP). These elements are designed into three factors: (1) digital technology usage/DTU, (2) digital transformation strategy/DTS, and (3) organizational agility/OA. This study concentrated on 159 samples compiled from small, medium, and large-scale businesses. Nonprobability sampling and purposive sampling data were extracted via PLS-SEM. Quantitative findings revealed that DTU has positive implications for DTS, OA, and FP. Empirical studies prove that DTS and OA also have a positive impact on FP. The current empirical research concludes that the increase in digital technology usage further develops digital transformation strategy, organizational agility, and firm performance. Improvements in digital transformation strategy or organizational agility can improve firm performance. Policy implications open up space for managerial actors to prioritize more complex ideas, solutions, and alternatives in strengthening mastery of the technology.

Downloads

Download data is not yet available.

References

International Monetary Fund. (2020). World economic outlook. https://www.imf.org/en/Publications/WEO/Issues/2020/09/30/world-economic-outlook-october-2020

Ratnasari, S. L., Rahmawati, R., Ramadania, R., Darma, D. C., & Sutjahjo, G. (2021). Ethical work climate in motivation and moral awareness perspective: The dilemma by the Covid-19 crisis? Journal Public Policy and Administration, 20(4), 398-409. https://doi.org/10.13165/VPA-21-20-4-04

BPS. (2021). e-Commerce statistics. https://www.bps.go.id/publication/2021/12/17/667821e67421afd2c81c574b/statistik-e-commerce-2021.html

Tseng, S.-M., & Lee, P. S. (2014). The effect of knowledge management capability and dynamic capability on organizational performance. Journal of Enterprise Information Management, 27(2), 158–179. https://doi.org/10.1108/JEIM-05-2012-0025

Agyabeng-Mensah, Y., Ahenkorah, E., Afum, E., & Owusu, D. (2020). The influence of lean management and environmental practices on relative competitive quality advantage and performance. Journal of Manufacturing Technology Management, 31(7), 1351–1372. https://doi.org/10.1108/JMTM-12-2019-0443

Teece, D. J. (2007). Explicating dynamic capabilities: The nature and micro foundations of (sustainable) enterprise performance. Strategic Management Journal, 28(13), 1319–1350. https://doi.org/10.1002/smj.640

Bleady, A., Hasaballah, A. H. A., & Ibrahim, S. B. (2018). Dynamic capabilities theory: Pinning down a shifting concept. Academy of Accounting and Financial Studies Journal, 22(2), 1–16.

Samsudin, Z. binti, & Ismail, M. D. (2019). The concept of theory of dynamic capabilities in changing environment. International Journal of Academic Research in Business and Social Sciences, 9(6), 1071–1078. http://dx.doi.org/10.6007/IJARBSS/v9-i6/6068

Teece, D. J. (2023). The evolution of the dynamic capabilities framework. In: Adams, R., Grichnik, D., Pundziene, A., Volkmann, C. (eds) Artificiality and Sustainability in Entrepreneurship. FGF Studies in Small Business and Entrepreneurship. Springer, Cham. https://doi.org/10.1007/978-3-031-11371-0_6

Teece, D., Peteraf, M., & Leih, S. (2016). Dynamic capabilities and organizational agility: Risk, uncertainty, and strategy in the innovation economy. California Management Review, 58(4), 13–35. https://doi.org/10.1525/cmr.2016.58.4.13

Ghosh, S., Hughes, M., Hodgkinson, I., & Hughes, P. (2022). Digital transformation of industrial businesses: A dynamic capability approach. Technovation, 113, 102414. https://doi.org/10.1016/j.technovation.2021.102414

Ellström, D., Holtström, J., Berg, E., & Josefsson, C. (2022). Dynamic capabilities for digital transformation. Journal of Strategy and Management, 15(2), 272–286. https://doi.org/10.1108/JSMA-04-2021-0089

Li, L., Tong, Y., Wei, L., & Yang, S. (2022). Digital technology-enabled dynamic capabilities and their impacts on firm performance: Evidence from the COVID-19 pandemic. Information & Management, 59(8), 103689. https://doi.org/10.1016/j.im.2022.103689

Akkaya, B., & Iqbal, Q. (2021). Linking dynamic capabilities and market performance of SMEs: The moderating role of organizational agility. Istanbul Business Research, 50(2), 197–214. https://doi.org/10.26650/ibr.2021.50.961237

Awwad, A. S., Ababneh, O. M. A., & Karasneh, M. (2022). The mediating impact of IT capabilities on the association between dynamic capabilities and organizational agility: The case of the Jordanian IT sector. Global Journal of Flexible Systems Management, 23(6), 315–330. https://doi.org/10.1007/s40171-022-00303-2

Baškarada, S., & Koronios, A. (2018). The 5S organizational agility framework: A dynamic capabilities perspective. International Journal of Organizational Analysis, 26(2), 331–342. https://doi.org/10.1108/IJOA-05-2017-1163

Gyemang, M. D., & Emeagwali, O. L. (2020). The roles of dynamic capabilities, innovation, organizational agility and knowledge management on competitive performance in telecommunication industry. Management Science Letters, 10(7), 1533–1542. https://doi.org/10.5267/j.msl.2019.12.013

Thomran, M., Alshallaqi, M., Al-Mamary, Y. H., & Abdulrab, M. (2022). The key enablers of competitive advantage formation in small and medium enterprises: The case of the Ha'il region. Frontiers in Psychology, 13, 1030405. https://doi.org/10.3389/fpsyg.2022.1030405

McLaughlin, S. A. (2017). Dynamic capabilities: Taking an emerging technology perspective. International Journal Manufacturing Technology and Management, 31(1/2/3), 62–81. https://doi.org/10.1504/IJMTM.2017.082014

Thomran, M., Alshallaqi, M., Al-Mamary, Y. H., & Abdulrab, M. (2022). The key enablers of competitive advantage formation in small and medium enterprises: The case of the Ha'il region. Frontiers in Psychology, 13, 1030405. https://doi.org/10.3389/fpsyg.2022.1030405

Verhoef, P. C., Broekhuizen, T., Bart, Y., Bhattacharya, A., Dong, J. Q., Fabian, N., & Haenlein, M. (2021). Digital transformation: A multidisciplinary reflection and research agenda. Journal of Business Research, 122, 889–901. https://doi.org/10.1016/j.jbusres.2019.09.022

Sommarberg, M., & Mäkinen, S. J. (2019). A method for anticipating the disruptive nature of digitalization in the machine-building industry. Technological Forecasting and Social Change, 146, 808–819. https://doi.org/10.1016/j.techfore.2018.07.044

Moreau, F. (2013). The disruptive nature of digitization: The case of the recorded music industry. International Journal of Arts Management, 15(2), 18–31.

Nambisan, S., Wright, M., & Feldman, M. (2019). The digital transformation of innovation and entrepreneurship: Progress, challenges and key themes. Research Policy, 48(8), 103773. https://doi.org/10.1016/j.respol.2019.03.018

Katadata. (2022). This is the MSME sector that makes a lot of use of digital technology. https://databoks.katadata.co.id/datapublish/2022/11/14/ini-sektor-umkm-yang-banyak-manfaatkan-teknologi-digital

Baker, H., Kaddumi, T. A., Nassar, M. D., & Muqattash, R. S. (2023). Impact of financial technology on improvement of banks’ financial performance. Journal of Risk and Financial Management, 16(4), 230. https://doi.org/10.3390/jrfm16040230

Gillani, F., Chatha, K. A., Sadiq Jajja, M. S., & Farooq, S. (2020). Implementation of digital manufacturing technologies: Antecedents and consequences. International Journal of Production Economics, 229, 107748. https://doi.org/10.1016/j.ijpe.2020.107748

Heredia, J., Castillo-Vergara, M., Geldes, C., Gamarra, F. M. C., Flores, A., & Heredia, W. (2022). How do digital capabilities affect firm performance? The mediating role of technological capabilities in the “new normal”. Journal of Innovation & Knowledge, 7(2), 100171. https://doi.org/10.1016/j.jik.2022.100171

Masoud, R., & Basahel, S. (2023). The effects of digital transformation on firm performance: The role of customer experience and IT innovation. Digital, 3(2), 109–126. https://doi.org/10.3390/digital3020008

Respati, A. R. (2022). Daftar 14 perusahaan teknologi yang lakukan PHK massal pada 2022 [In English: List of 14 tech companies to undertake mass layoffs by 2022]. https://money.kompas.com/read/2022/11/21/114201626/daftar-14-perusahaan-teknologi-yang-lakukan-phk-massal-pada-2022?page=all

Sadigov, R. (2022). Impact of digitalization on entrepreneurship development in the context of business innovation management. Marketing and Management of Innovations, 1(1), 167–175. https://doi.org/10.21272/mmi.2022.1-12

Tatli, H. S., Yavuz, M. S., & Ongel, G. (2023). The mediator role of task performance in the effect of digital literacy on firm performance. Marketing and Management of Innovations, 14(2), 75–86. https://doi.org/10.21272/mmi.2023.2-08

Kusuma, G. A. T., Sapta, I. K. S., Wijana, I. M. D., Tahu, G. P., & Indiani, N. L. P. (2022). Building SMEs’ passion for utilising digital media: A study of SMEs during the COVID-19 pandemic. Forum Scientiae Oeconomia, 10(3), 151–168. https://doi.org/10.23762/FSO_VOL10_NO3_8

Zhghenti, T., & Chkareuli, V. (2021). Enhancing online business sector: Digital trust formation process. Marketing and Management of Innovations, 12(2), 87–93. https://doi.org/10.21272/mmi.2021.2-07

Matt, C., Hess, T., & Benlian, A. (2015). Digital transformation strategies. Business & Information Systems Engineering, 57(5), 339–343. https://doi.org/10.1007/s12599-015-0401-5

Slavković, M., Pavlović, K., Mamula Nikolić, T., Vučenović, T., & Bugarčić, M. (2023). Impact of digital capabilities on digital transformation: The mediating role of digital citizenship. Systems, 11(4), 172. https://doi.org/10.3390/systems11040172

Rachinger, M., Rauter, R., Müller, C., Vorraber, W., & Schirgi, E. (2019). Digitalization and its influence on business model innovation. Journal of Manufacturing Technology Management, 30(8), 1143–1160. https://doi.org/10.1108/JMTM-01-2018-0020

Tsou, H-T., & Chen, J-S. (2021). How does digital technology usage benefit firm performance? Digital transformation strategy and organisational innovation as mediators. Technology Analysis and Strategic Management, 35(9), 1114–1127. https://doi.org/10.1080/09537325.2021.1991575

Martínez-Caro, E., Cegarra-Navarro, J. G., & Alfonso-Ruiz, F. J. (2020). Digital technologies and firm performance: The role of digital organisational culture. Technological Forecasting and Social Change, 154, 119962. https://doi.org/10.1016/j.techfore.2020.119962

Shahadat, M. M. H., Chowdhury, A. H. M. Y., Nathan, R. J., & Fekete-Farkas, M. (2023). Digital technologies for firms’ competitive advantage and improved supply chain performance. Journal of Risk and Financial Management, 16(2), 94. https://doi.org/10.3390/jrfm16020094

Ridwandono, D., & Subriadi, A. P. (2019). IT and organizational agility: A critical literature review. Procedia Computer Science 161, 151–159. https://doi.org/10.1016/j.procs.2019.11.110

Oliveira-Dias, D., Maqueira-Marín, J. M., & Moyano-Fuentes, J. (2022). The link between information and digital technology of industry 4.0 and agile supply chain: Mapping current research and establishing new research avenues. Computer and Industrial Engineering, 167, 108000. https://doi.org/10.1016/j.cie.2022.108000

Saputra, N., Sasanti, N., Alamsjah, F., & Sadeli, F. (2022). Strategic role of digital capability on business agility during COVID-19 era. Procedia Computer Science, 197, 326–335. https://doi.org/10.1016/j.procs.2021.12.147

Zhang, H., Ding, H., & Xiao, J. (2023). How organizational agility promotes digital transformation: An empirical study. Sustainability, 15(14), 11304. https://doi.org/10.3390/su151411304

Zhu, K., & Kraemer, K. L. (2005). Post-adoption variations in usage and value of e-business by organizations: Cross-country evidence from the retail industry. Information Systems Research, 16(1), 61–84. https://doi.org/10.1287/isre.1050.0045

Caputo, A., Pizzi, S., Pellegrini, M. M., & Dabić, M. (2021). Digitalization and business models: Where are we going? A science map of the field. Journal of Business Research, 123, 489–501. https://doi.org/10.1016/j.jbusres.2020.09.053

Li, F. (2020). The digital transformation of business models in the creative industries: A holistic framework and emerging trends. Technovation, 92–93, 102012. https://doi.org/10.1016/j.technovation.2017.12.004

Vial, G. (2019). Understanding digital transformation: A review and a research agenda. The Journal of Strategic Information Systems, 28(2), 118–144. https://doi.org/10.1016/j.jsis.2019.01.003

Warner, K. S. R., & Wäger, M. (2018). Building dynamic capabilities for digital transformation: An ongoing process of strategic renewal. Long Range Planning, 52(3), 326–349. https://doi.org/10.1016/j.lrp.2018.12.001

Troise, C., Vincenzo C., Abby G., & Nicholas O. (2022). How can SMEs successfully navigate VUCA environment: The role of agility in the digital transformation era. Technological Forecasting and Social Change, 174, 121227. https://doi.org/10.1016/j.techfore.2021.121227

Liu, H. M., & Yang, H.F. (2019). Managing network resource and organizational capabilities to create competitive advantage for SMEs in a volatile environment. Journal of Small Business and Entrepreneurship, 57(S2), 155–171. https://doi.org/10.1111/jsbm.12449

Ravichandran, T. (2018). Exploring the relationships between IT competence, innovation capacity and organizational agility. Journal of Strategic Information Systems, 27(1), 22. https://doi.org/10.1016/j.jsis.2017.07.002

Çakmak, Z. (2023). Adapting to environmental change: The importance of organizational agility in the business landscape. Florya Chronicles of Political Economy, 9(1), 42-53.

Chen, Y., Xu, S., Lyulyov, O., & Pimonenko, T. (2023). China’s digital economy development: Incentives and challenges. Technological and Economic Development of Economy, 29(2), 518–538. https://doi.org/10.3846/tede.2022.18018

Kwilinski, A. (2023). E-Commerce and sustainable development in the European Union: A comprehensive analysis of SDG2, SDG12, and SDG13. Forum Scientiae Oeconomia, 11(3), 87–107. https://doi.org/10.23762/FSO_VOL11_NO3_5

Kwilinski, A., Lyulyov, O., & Pimonenko, T. (2023). Unlocking sustainable value through digital transformation: An examination of ESG performance. Information, 14(8), 444. https://doi.org/10.3390/info14080444

Lyulyov, O., Pimonenko, T., Saura, J. R., & Barbosa, B. (2024). How do e-governance and e-business drive sustainable development goals? Technological Forecasting and Social Change, 199, 123082. https://doi.org/10.1016/j.techfore.2023.123082

Shpak, N., Karpyak, A., Rybytska, O., Gvozd, M., & Sroka, W. (2023). Assessing the business models of Ukrainian IT companies. Forum Scientiae Oeconomia, 11(1), 13–48. https://doi.org/10.23762/FSO_VOL11_NO1_2

Topcuoglu, E., Oktaysoy, O., Uygungil-Erdogan, S., Kaygin, E., & Karafakioglu, E (2023). The mediating role of job security in the impact of digital leadership on job satisfaction and life satisfaction. Marketing and Management of Innovations, 14(1), 122–132. https://doi.org/10.21272/mmi.2023.1-11

Trofymenko, M., Bulatova, O., Trofymenko, A., & Vyshniakov, O. (2023). Digital development and technological innovations: Inequality and asymmetry. Marketing and Management of Innovations, 14(3), 215–229. https://doi.org/10.21272/mmi.2023.3-19

Hair, J. F., Black, W. C., Babin, B. J., & Anderson, R. E. (2010). Multivariate data analysis, Seventh Ed. New Jersey: Prentice Hall.

Hair, J. F., Hult, G. T. M., Ringle, C., & Sarstedt, M. (2017). A primer on partial least squares structural equation modelling (PLS-SEM), 2nd Ed. Washington D.C: SAGE Publications.

Ramadania, R., Ratnawati, R., Juniwati, J., Afifah, N., Heriyadi, H., & Darma, D. C. (2022). Impulse buying and hedonic behaviour: A mediation effect of positive emotions. Virtual Economics, 5(1), 43–64. https://doi.org/10.34021/ve.2022.05.01(3)

Hair, J. F., Hult, G. T. M., Ringle, C., & Sarstedt, M. (2014). A primer on partial least squares structural equation modelling (PLS-SEM). London: SAGE Publications.

Audretsch, D. B., & Belitski, M., (2021). Knowledge complexity and firm performance: Evidence from the European SMEs. Journal of Knowledge Management, 25(4), 693–713. https://doi.org/10.1108/JKM-03-2020-0178

Fichman, R., Santos, B., & Zheng, E. (2014). Digital innovation as a fundamental and powerful concept in the information systems curriculum. MIS Quarterly, 38(2), 329–353. https://doi.org/10.25300/MISQ/2014/38.2.01

Teece, D. J., Pisano, G., & Shuen, A. (1997). Dynamic capabilities and strategic management. Strategic Management Journal, 18(7), 509–533. https://doi.org/10.1002/(SICI)1097-0266(199708)18:7<509::AID-SMJ882>3.0.CO;2-Z

Abubakre, M., Zhou, Y., & Zhou, Z. (2022). The impact of information technology culture and personal innovativeness in information technology on digital entrepreneurship success. Information Technology & People, 35(1), 204–231. https://doi.org/10.1108/ITP-01-2020-0002

Berisha-Shaqiri, A., & Berisha-Namani, M. (2015). Information technology and the digital economy. Mediterranean Journal of Social Sciences, 6(6), 78–83. https://doi.org/10.5901/mjss.2015.v6n6p78

Pérez-Aróstegui, M. N., Bustinza-Sánchez, F., & Barrales-Molina, V. (2015). Exploring the relationship between information technology competence and quality management. BRQ Business Research Quarterly, 18(1), 4–17. https://doi.org/10.1016/j.brq.2013.11.003

Riedl, R., Benlian, A., Hess, T., Stelzer, D., & Sikora, H. (2017). On the Relationship Between Information Management and Digitalization. Business and Information Systems Engineering, 59(6), 475–482. https://doi.org/10.1007/s12599-017-0498-9

Guo, X., Li, M., Wang, Y., & Mardani, A. (2023). Does digital transformation improve the firm’s performance? From the perspective of digitalization paradox and managerial myopia. Journal of Business Research, 163, 113868. https://doi.org/10.1016/j.jbusres.2023.113868

Wang, H., Cao, W., & Wang, F. (2022). Digital transformation and manufacturing firm performance: Evidence from China. Sustainability, 14(16), 10212. https://doi.org/10.3390/su141610212

Kristensson, P. (2019). Future service technologies and value creation. Journal of Services Marketing, 33(4), 502–506. https://doi.org/10.1108/JSM-01-2019-0031

Zhang, P., Zhou, E., Lei, Y., & Bian, J. (2021). Technological innovation and value creation of enterprise innovation ecosystem based on system dynamics modelling. Mathematical Problems in Engineering, 2021, 5510346. https://doi.org/10.1155/2021/5510346

Mulyono, H., & Syamsuri, A. R. (2023). Organizational agility, open innovation, and business competitive advantage: Evidence from culinary SMEs in Indonesia. International Journal of Social Science and Business, 7(2), 268–275. https://doi.org/10.23887/ijssb.v7i2.54083

Audretsch, D. B., & Belitski, M. (2021). Towards an entrepreneurial ecosystem typology for regional economic development: The role of creative class and entrepreneurship. Regional Studies, 55(4), 735–756. https://doi.org/10.1080/00343404.2020.1854711

AlNuaimi, B. K., Singh, S. K., Ren, S., Budhwar, P., & Vorobyev, D. (2022). Mastering digital transformation: The nexus between leadership, agility, and digital strategy. Journal of Business Research, 145, 636–648. https://doi.org/10.1016/j.jbusres.2022.03.038

D’Oliveira Andrade, C. R., Gonçalo, C. R., & Santos, A. M. (2022). Digital transformation with agility: The emerging dynamic capability of complementary services. Revista de Administração Mackenzie, 23(6), 1–47. https://doi.org/10.1590/1678-6971/eRAMD220063.en