Accelerating Digital Transformation in MSMEs: The Role of Digital Transformational Leadership, Agility, and Digital Literacy in DIY

Abstract

The study explores how Digital Transformational Leadership (DTL) influences the Digital Transformation (DT) of micro, small, and medium-sized enterprises (MSMEs), using dynamic capabilities theory and examining how Digital Literacy (DL) and Organizational Agility (OA) mediate these relationships. The research uses data from 241 MSMEs in the DIY region and applies a quantitative SEM-PLS methodology. Results show that DTL significantly and consistently influences DT both directly and indirectly through DL-OA. A mediation analysis indicates that both factors partially moderate the link between DTL and DT, with DL exerting a more pronounced mediating effect. The findings demonstrate that effective digital transformation in MSMEs hinges not only on exemplary leadership but also on employees' digital proficiency and the organization’s capacity for rapid adaptation. This study contributes to the growing body of scholarship by providing a cohesive theory that establishes a correlation between leadership behavior and transformational outcomes, grounded in dynamic capabilities and microfoundations. MSMEs should adopt a proactive strategy to develop digital competencies within their workforce and implement a more adaptable organizational structure to remain relevant and competitive in the rapidly changing digital environment.