The Impact of Strategy Flexibility on Business Model Innovation, Competitive Advantage, and Company Performance: A Study on the Sustainable Growth of the Small and Medium-Sized Enterprises in Iran

Abstract

This study examines the role of strategic flexibility (SF) in supporting sustainable growth among small and medium-sized enterprises (SMEs) operating in an emerging economy context. Specifically, it investigates the relationships between SF, business model innovation (BMI), competitive advantage (CA), and firm performance (FP) in Iranian SMEs. Drawing on the Resource-Based View (RBV) and Dynamic Capabilities Theory (DCT), the study empirically examines a capability–innovation–performance model and contributes by extending existing theoretical relationships to the context of SMEs in an emerging economy. Using structural equation modeling (SEM), data were collected through 391 validated questionnaires from SMEs across different sectors in Iran. The findings reveal that SF has a direct and significant effect on both BMI and CA, while BMI positively influences CA and FP. However, CA does not show a significant direct effect on FP, suggesting that competitive positioning alone may be insufficient to generate performance outcomes in uncertain and resource-constrained environments. The results indicate that adaptive and innovation-oriented capabilities play a central role in enhancing long-term organizational resilience and sustainable performance among SMEs operating under institutional and market volatility.