Digital Innovation as A Strategic Capability for Transforming Social and Intellectual Capital into Sustainable Performance: Evidence From Indonesian Ultra-Micro (Umi)

Abstract

Ultra-micro enterprises represent the backbone of Indonesia's entrepreneurial ecosystem by generating employment opportunities, stimulating local economic activities, and supporting inclusive economic development. Despite their considerable contribution to national growth, many of these enterprises continue to struggle with organizational sustainability because of limited managerial capability, inadequate knowledge resources, weak collaborative networks, and uneven adoption of digital technologies. While previous studies have separately examined the influence of social capital, intellectual capital, or innovation on business outcomes, limited empirical attention has been devoted to understanding how these strategic resources interact through digital innovation to enhance sustainable performance among ultra-micro enterprises. This study develops an integrated structural model explaining the mechanism through which social and intellectual capital contribute to sustainable business performance by strengthening digital innovation capability. The proposed framework combines the Resource-Based View, Knowledge-Based View, and Dynamic Capability Theory to explain how internal organizational resources and external relational assets jointly generate long-term competitive advantage. Empirical evidence was obtained from 204 owners of ultra-micro culinary enterprises in Bekasi City, Indonesia. Respondents were selected using purposive sampling based on predetermined operational criteria. The proposed hypotheses were examined using Partial Least Squares Structural Equation Modeling (PLS-SEM) implemented in Smart PLS 4. The analysis demonstrates that both social capital and intellectual capital positively influence digital innovation while simultaneously exerting significant direct effects on sustainable performance. Digital innovation also contributes positively to organizational sustainability and partially mediates the relationships between organizational resources and business performance. Among all explanatory variables, intellectual capital exhibits the strongest influence on sustainable performance, highlighting the strategic importance of entrepreneurial knowledge, managerial competence, and organizational learning. These findings suggest that sustainable competitiveness among ultra-micro enterprises depends not only on access to strategic resources but also on the capability to transform those resources into continuous digital innovation. The study extends contemporary strategic management literature by integrating three complementary theoretical perspectives into a unified explanatory framework and provides practical guidance for policymakers and entrepreneurship development institutions seeking to strengthen digital transformation within the ultra-micro sector.