Digital Transformation is Not Enough: The Enabling Role of Technology Orientation in SMEs Performance

Abstract

Digital transformation has become increasingly important for Small and Medium-sized Enterprises (SMEs) seeking to improve performance, yet prior research shows that the performance benefits derived from digitalisation are not uniform across firms, a phenomenon commonly discussed as the digitalisation paradox. This variation highlights the conditions that may influence the effectiveness of digital transformation in generating performance outcomes. This study examines the effect of digital transformation on SME performance and tests the moderating role of technology orientation in the relationship between digital transformation and SMEs performance. Using data from 450 SMEs in Padang, Indonesia, the study employs Partial Least Squares Structural Equation Modelling (PLS-SEM). Digital transformation is operationalised as a higher-order construct comprising digital platform utilisation, digital content management, and system integration. The results show that digital transformation positively affects SMEs performance (β = .359, p = .000). Technology orientation positively moderates this relationship (β = .173, p = .000), indicating that the effect of digital transformation on SMEs performance becomes stronger as technology orientation increases. These findings indicate that the performance effect of digital transformation partly depends on firms’ strategic orientation towards technology. Theoretically, this study extends Dynamic Capability Theory by identifying technology orientation as a boundary condition in the digital transformation–performance relationship. Practically, the findings suggest that technology orientation should be considered in efforts to realise performance benefits from digital transformation.