Exploring the Mediating Role of Operational Capabilities inthe Relationship Between Digital Transformationand Firm Performance in SMEs

Abstract

This study investigates the impact of digital transformation on firm performance in small and
medium enterprises (SMEs), with the mediating role of operational capabilities. Data is collected
through a structured questionnaire from managers and employees of SMEs in Islamabad and
Rawalpindi. The hypothesised relationship among the variables is validated through PLS-SEM
using SmartPLS. The findings revealed that digital transformation has a significant effect on firm
performance. Further, it is also revealed that operational capabilities significantly mediate the
relationship between digital transformation and firm performance. These findings highlight the
importance of operational capabilities and digital transformation for enhancing firm
performance, providing valuable insights for managers, leaders, and SMEs. This research
advances the existing literature by integrating digital transformation and operational capabilities,
offering a novel perspective on their combined effects on SME performance.