Kontigensi: Jurnal Ilmiah Manajemen Vol.
No.
June 2025, pp.
651 - 659
ISSN 2088-4877
Digital.
Dynamic, and Entrepreneurial: A Structural Model of Business Model Innovation in Indonesian SMEs 1*Addini Zainuba Ulhaq, 2Siti Nursyamsiah Universitas Islam Indonesia.
Yogyakarta.
Indonesia 21311189@students.
nursyamsiah@uii.
DOI: https://doi.
org/10.
56457/jimk.
Received: June 08, 2024
Accepted: June 13, 2025
Published: June 30, 2025
ABSTRACT
This study investigates the impact of internal organizational factors on innovation and performance outcomes among small and medium-sized enterprises (SME.
in Indonesia.
Adopting a quantitative approach, data were collected from 156 SMEs across diverse sectors using structured questionnaires.
The data were analysed through Structural Equation Modelling with the Partial Least Squares (SEMPLS) technique.
The findings demonstrate that digital capabilities, dynamic capabilities, and strategic entrepreneurial behaviour positively and significantly influence business model innovation, which subsequently has a substantial impact on business performance.
Furthermore, business model innovation serves as a mediating variable that bridges the influence of these three organizational capabilities on overall performance.
The results offer valuable practical implications for SME stakeholders to prioritize digital transformation and innovation strategies, while also contributing theoretically to the literature on strategic management and business model innovation.
Keywords: Digital Capabilities.
Dynamic Capabilities.
Strategic Entrepreneurial Behavior.
Business Model Innovation.
Business Performance constrain their ability to adopt and integrate INTRODUCTION digital solutions effectively (Saputra et al.
The rapid advancement of digital These challenges highlight the critical technologies has fundamentally transformed importance of developing internal capabilities the global business landscape across that allow SMEs to strategically adapt to Innovations such as cloud technological and market changes.
computing, artificial intelligence (AI), big data Among the key organizational mechanisms analytics, and the Internet of Things (IoT) have that link internal capabilities to performance reshaped how organizations operate, compete, outcomes is business model innovation (BMI).
and deliver value to customers (MerynBMI refers to the systematic reconfiguration of Rodrigyyez et al.
, 2024.
Wang et al.
, 2.
how firms create, deliver, and capture value in this context, digitalization is no longer a response to dynamic environments (Amit & Zott, complementary initiative but a central driver of A growing body of research has identified business innovation, particularly through the digital capabilities, dynamic capabilities, and transformation of business models.
strategic entrepreneurial behavior as important For small and medium-sized enterprises antecedents of BMI (Ramadan et al.
, 2024.
(SME.
, digital transformation presents both Wang et al.
, 2.
However, existing studies significant opportunities and pressing often examine these factors in isolation, lacking On one hand, digital technologies an integrated framework that explains how offer scalable, cost-effective solutions to these capabilities interact to drive BMI and, in improve operational efficiency, access new turn, enhance business performance.
markets, and enhance customer experiences.
Moreover, while prior studies recognize the On the other hand, many SMEs especially those relevance of BMI, it is often positioned merely in emerging economies struggle with limited as an outcome variable rather than as a resources and technical expertise, which Kontigensi: Jurnal Ilmiah Manajemen Management Science Doctoral Program.
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Kontigensi: Jurnal Ilmiah Manajemen Vol.
No.
June 2025, pp.
651 - 659
ISSN 2088-4877
mediating mechanism.
In reality.
BMI may function as a strategic channel through which internal capabilities are transformed into measurable improvements in business performance (Amit & Zott, 2012.
Saputra et al.
Nonetheless, empirical investigations that examine this mediating role, particularly in the SME context remain limited, especially given that innovation processes in small firms tend to be informal, incremental, and resourceconstrained.
In addition, much of the empirical evidence in this field is derived from research conducted in infrastructure, institutional support, and innovation ecosystems are well-established.
Indonesian SMEs operate within an environment characterized by low digital maturity, constrained access to capital, and persistent structural challenges.
These contextual factors offer a unique opportunity to explore how internal capabilities influence innovation and performance under real-world constraints providing insights into the applicability of capability-based theories in emerging markets.
Taken together, these gaps reveal a compelling need for an integrated model that captures the interaction among digital capabilities, dynamic capabilities, and strategic entrepreneurial behavior.
This study addresses that need by examining how these capabilities collectively shape business model innovation and, ultimately, firm performance particularly in the under-researched context of SMEs in Indonesia.
LITERATUR REVIEW
Digital Capabilities and Business Model Innovation Digital capabilities refer to a firmAos ability to leverage digital technologies in ways that enhance operational efficiency, strategic flexibility, customer engagement, and ultimately innovation (Wang et al.
, 2.
These capabilities encompass sensing digital opportunities, transforming processes, and responding effectively to technological changes (Freitas Junior, 2.
For SMEs, digital capabilities are especially valuable because they enable resourceconstrained firms to achieve scalability, automate operations, and explore new revenue As noted by Wang et al.
, digital capabilities are directly associated with a firm's ability to initiate business model innovation particularly in turbulent and fast-changing market environments.
Business model innovation involves fundamental changes to how a firm creates, delivers, and captures value (Amit & Zott, 2.
Firms with advanced digital capabilities can experiment with new configurations of resources, reengineer value propositions, and reach underserved customer segments through digital channels.
Therefore, digital capabilities are expected to have a significant positive impact on the ability of SMEs to innovate their business models.
H1: Digital capabilities have a positive effect on business model innovation.
Dynamic Capabilities and Business Model Innovation Dynamic capabilities are defined as a firm's capacity to purposefully create, extend, or modify its resource base in response to changing environments (Teece et al.
They are categorized into three main components: .
sensing opportunities and threats, .
seizing opportunities through resource mobilization, and .
reconfiguring resources and organizational structures.
For SMEs, dynamic capabilities are essential in enabling rapid adaptation and strategic renewal.
Unlike large firms with established systems and buffers.
SMEs must rely on their agility and flexibility to respond to external shocks.
As such, dynamic capabilities are strongly linked to the firmAos ability to modify its business model as a response to environmental changes (Amaya et al.
, 2.
In the current era of digital disruption and heightened competition, the ability to sense and respond to market shifts and to reconfigure value chains accordingly is crucial.
Firms that successfully deploy dynamic capabilities can redesign their business models to improve fit Kontigensi: Jurnal Ilmiah Manajemen Management Science Doctoral Program.
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Kontigensi: Jurnal Ilmiah Manajemen Vol.
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June 2025, pp.
651 - 659
ISSN 2088-4877
with market demands and enhance strategic H2: Dynamic capabilities have a positive effect on business model innovation.
Strategic Entrepreneurial Behaviour and Business Model Innovation Strategic represents the combination of strategic management and entrepreneurial posture, innovativeness, and calculated risk-taking in the pursuit of new market opportunities (Covin & Slevin, 1991.
Amankwah-Amoah et al.
This behaviour enables firms to challenge existing business logics and explore alternative pathways to value creation.
In SMEs, where leadership is often centralized and decision-making cycles are shorter, strategic entrepreneurial behaviour is a vital capability that drives innovation and strategic renewal.
Entrepreneurs who act strategically and proactively are more likely to experiment with new business models, respond quickly to market needs, and integrate novel technologies into their operations (Ramadan et This behaviour supports not only the initiation but also the successful implementation of business model innovation.
Entrepreneurs who are willing to take strategic risks and embrace uncertainty can disrupt traditional market assumptions and design value propositions that are more relevant to evolving customer preferences.
H3: Strategic entrepreneurial behaviour has a positive effect on business model innovation.
Business Model Innovation and Business Performance Business model innovation (BMI) is defined as the deliberate and systemic transformation of the value logic of a firm, encompassing changes in customer engagement, cost and revenue structures, partner networks, and channels to market (Amit & Zott, 2.
Unlike product or process innovation.
BMI addresses the overall architecture of value creation and delivery.
Several studies have demonstrated a positive relationship between business model innovation and firm performance (Wang et al.
Liu et al.
, 2.
By adopting innovative business models.
SMEs can overcome limitations in resources, reach new customer segments, and differentiate themselves from Furthermore, in rapidly changing environments, traditional business models may become obsolete, necessitating continuous experimentation and renewal.
In the context of Indonesian SMEs, business model innovation is expected to be a strategic mechanism that translates internal capabilities into measurable performance outcomes, such as profitability, market share, and customer satisfaction.
H4: Business model innovation has a positive effect on business performance.
The Mediating Role of Business Model Innovation While previous studies have confirmed the direct effects of digital, dynamic, and performance, emerging evidence suggests that these relationships are often indirect and mediated by innovation mechanisms, particularly business model innovation (Ramadan et al.
, 2024.
Saputra et al.
, 2.
Business model innovation serves as a transformational conduit through which internal capabilities are converted into external value and financial outcomes.
For instance.
SMEs with high digital capabilities may not automatically achieve superior performance unless they use those capabilities to redesign their business models.
Similarly, entrepreneurial behaviour require a concrete mechanism such as innovation to yield tangible business benefits.
Thus, this study proposes that business model innovation mediates the relationship between organizational capabilities and performance, acting as a critical link that integrates internal strategic assets with external value creation.
H5a: Business model innovation mediates the relationship between digital capabilities and business performance.
H5b: Business model innovation mediates the relationship between dynamic capabilities and business performance.
Kontigensi: Jurnal Ilmiah Manajemen Management Science Doctoral Program.
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Kontigensi: Jurnal Ilmiah Manajemen Vol.
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June 2025, pp.
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ISSN 2088-4877
H5c: Business model innovation mediates the relationship between strategic entrepreneurial behaviour and business Research Model Figure 1.
Conceptual model constructs and indicators, as supported by METHOD recommendations from (Hair et al.
, 2.
This study employs a quantitative Data were collected using a structured explanatory research design to investigate the questionnaire, which was distributed both online relationships among digital capabilities, and offline.
The questionnaire consisted of dynamic capabilities, strategic entrepreneurial items measuring the five main research behaviour, business model innovation, and Each construct was operationalized business performance in Indonesian SMEs.
based on previous validated scales.
Digital Rooted in the positivist paradigm, the research capability was measured using five indicators emphasizes objectivity and hypothesis testing adapted from Freitas Junior .
, while using statistical methods.
The purpose of this dynamic capability was assessed with eight design is not only to describe phenomena but items based on the framework of Teece et al.
also to explain causal relationships among .
Strategic entrepreneurial behaviour constructs derived from theory and supported included six indicators drawn from, as well as by empirical evidence.
more recent work by Amankwah-Amoah et al.
The target population in this study consists .
Business model innovation was of small and medium-sized enterprises (SME.
measured using six items developed from the operating in various sectors throughout conceptualization of Amit & Zott .
, and Indonesia.
Considering the wide dispersion and business performance was assessed through heterogeneity of SMEs in Indonesia, the six indicators reflecting both financial and nonsampling technique used was purposive financial dimensions, adapted from Barney The selection criteria required that .
and other relevant studies.
All items were participating SMEs had been operating for at measured using a five-point Likert scale, least three years and had begun implementing ranging from 1 .
trongly disagre.
to 5 .
trongly digital technologies either in operations, marketing, or management.
This criterion was Prior to the main data collection, a pilot test adopted to ensure that the respondents had involving 20 SME representatives was relevant experience with digital adoption and conducted to examine the clarity, readability, innovation processes.
In total, 156 valid and reliability of the questionnaire items.
Minor responses were collected and analyzed.
This adjustments in wording were made based on number is deemed sufficient for Partial Least the feedback obtained during this pilot phase.
Squares Structural Equation Modelling (PLSensuring linguistic precision and conceptual SEM), particularly in models with multiple Kontigensi: Jurnal Ilmiah Manajemen Management Science Doctoral Program.
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Kontigensi: Jurnal Ilmiah Manajemen Vol.
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Table 1.
Summary of Variable Operationalization Number Variable Description of Items The organization's ability to utilize Digital Capability digital technologies to enhance performance and innovation.
The organization's ability to respond Dynamic and adapt to environmental changes Capability Strategic A proactive, innovative, and riskEntrepreneurial taking orientation in pursuing Behavior business opportunities.
The firm's capability to redesign how Business Model value is created, delivered, and Innovation The overall achievements of the Business business, including both financial and Performance non-financial outcomes.
For data analysis, this study utilized Partial Least Squares Structural Equation Modelling (PLS-SEM), implemented through the Smart PLS 4.
0 software.
The choice of PLS-SEM was motivated by its ability to handle complex models with multiple constructs and indicators, its robustness in dealing with non-normal data, and its suitability for predictive and exploratory purposes (Hair et al.
, 2.
The analysis proceeded in two stages.
The first stage involved testing the measurement model .
uter mode.
, which evaluates the validity and reliability of the indicators.
This includes assessments of convergent validity .
ia outer loadings and Average Variance Extracted/AVE), discriminant validity .
sing cross-loadings and the Fornell-Larcker criterio.
, and internal consistency reliability .
sing CronbachAos Alpha and Composite Reliabilit.
Indicators with loading values below 70 threshold were evaluated for retention based on conceptual relevance and AVE The second stage addressed the structural model .
nner mode.
to assess the significance and strength of the hypothesized relationships among constructs.
This stage included analysis of path coefficients, tested through the 5,000 Reference Freitas Junior Teece et al.
Covin .
Amankwah-Amoah et al.
Amit & Zott .
Barney .
Additionally, the model's explanatory power was evaluated using RA and Adjusted RA values, while predictive relevance (QA) was examined using the blindfolding To assess potential multicollinearity among predictor variables.
Variance Inflation Factor (VIF) values were also analysed, with a threshold of less than 5 considered acceptable.
All statistical inferences were made at a 95% confidence level ( = 0.
, and the results were interpreted in accordance with established guidelines in PLS-SEM literature RESULT and DICUSSION The measurement model was evaluated to assess the validity and reliability of each The results confirm that all constructs meet the requirements for convergent validity, indicated by Average Variance Extracted (AVE) values exceeding 0.
50 for all variables.
This suggests that each set of indicators sufficiently explains the variance of their respective latent Discriminant validity was also confirmed using the cross-loading matrix and the Fornelarcker criterion, where the square root of the AVE for each construct was greater than its correlations with other constructs.
This supports the conclusion that each construct is conceptually distinct and well-defined.
In terms of internal consistency reliability, both Kontigensi: Jurnal Ilmiah Manajemen Management Science Doctoral Program.
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Kontigensi: Jurnal Ilmiah Manajemen Vol.
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ISSN 2088-4877
CronbachAos Alpha and Composite Reliability findings demonstrate that the measurement values for all constructs exceeded 0.
84 and 0.
model is both valid and reliable, and suitable for respectively, surpassing the threshold of 0.
70 as further structural model analysis.
recommended by Hair et al.
, .
These Table 1.
Construct reliability and validity Construct Cronbach's Composite AVE Alpha Reliability Business Model Innovation Digital Capability Dynamic Capability Business Performance Strategic Entrepreneurial Behavior Table 2.
Fornell-Larcker Criterion Business Digital Dynamic Business Strategic Model Capabilities Capabilities Performance Entrepreneurial Innovation Behavior Business Model Innovation Digital Capabilities Dynamic Capabilities Business Performance Strategic Entrepreneurial Behavior The structural model was assessed to evaluate the relationships between latent The RA value for business model innovation was 0.
619, indicating that digital capabilities, dynamic capabilities, and strategic entrepreneurial behaviour collectively explain 9% of the variance in business model Meanwhile, the RA value for business performance was 0.
380, showing a moderate level of explanatory power.
Further, the predictive relevance (QA) of the model was tested using the blindfolding The QA values for business model innovation .
and business performance .
indicate good predictive relevance, as values greater than zero suggest that the model has acceptable predictive accuracy.
No significant issues with multicollinearity were detected, as all variance inflation factor (VIF) values were below the commonly accepted threshold of 5.
This supports the robustness of the model in estimating causal Figure 2 illustrates the path estimation results derived from the PLS-SEM analysis.
Table 4 presents the path coefficients obtained from the bootstrapping procedure, along with the corresponding p-values used to assess the proposed hypotheses.
All t-statistics exceed the critical value of 1.
96, and all p-values are below 05 threshold, indicating that each Hypotheses 1, 2, 3, and 4 which examine the direct effects of digital capabilities, dynamic capabilities, and strategic entrepreneurial behavior on business model innovationare confirmed to be significant, with path coefficients of 0.
< 0.
, 0.
= .
, and 0.
= 0.
These findings are consistent with prior research suggesting that technological, adaptive, and behavioural capacities are essential drivers of innovation within SMEs (Wang et al.
, 2023.
Teece et al.
, 1997.
Covin & Slevin, 1.
In addition, business model innovation was found to have a strong direct effect on business performance ( = 0.
603, p < Kontigensi: Jurnal Ilmiah Manajemen Management Science Doctoral Program.
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This supports the argument that reconfiguring a firmAos value creation, delivery, and capture mechanisms significantly to its financial and market outcomes Figure 2.
Bootstrapping Test Results Furthermore, the results of the mediation The significant impact of digital capability analysis confirm that business model innovation on business model innovation suggests that significantly mediates the relationships digital adoption not only enhances operational proposed in Hypotheses 5a, 5b, and 5c.
All efficiency but also stimulates new ways of three indirect pathways linking digital capability delivering value to customers.
Meanwhile, the ( = 0.
206, p = 0.
, dynamic capability ( = contribution of dynamic capability highlights the 146, p = 0.
, and strategic entrepreneurial importance of organizational agility in behaviour ( = 0.
187, p = 0.
to business responding to market shifts.
The influence of performance via business model innovation strategic entrepreneurial behaviour underlines were statistically significant.
This implies that the behavioural dimension of innovation, where internal capabilities must be channelled through a proactive and opportunity-seeking mindset innovation processes to produce optimal enables firms to adapt their business models performance outcomes, which is in line with the mediating perspective of Amit & Zott, .
The mediating role of business model The findings of this study reinforce innovation provides additional insight: it is not theoretical assumptions from the Resourcemerely the presence of internal capabilities that Based View (RBV) and Dynamic Capabilities determines success, but how those capabilities Theory, both of which emphasize that internal are transformed into innovative business firm capabilities, when effectively developed This mediation underscores the and integrated can become a source of central role of innovation as a mechanism that sustained competitive advantage.
In the context of SMEs in emerging markets such as Collectively, these results offer both theoretical Indonesia, where digital maturity and enrichment and practical guidance for SME institutional support may be limited, the effective stakeholders aiming to navigate digital mobilization of internal capabilities becomes transformation through a capabilities-based and even more critical.
innovation-driven approach Table 4.
Hypothesis Testing Summary Coefficient Hypothesis Path Type t-Statistic p-Value Results () Kontigensi: Jurnal Ilmiah Manajemen Management Science Doctoral Program.
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Digital Capabilities Ie Business Model Innovation Dynamic Capabilities Ie Business Model Innovation Strategic Entrepreneurial Behavior Ie Business Model Innovation Business Model Innovation Ie Business Performance Digital Capabilities Ie BMI Ie Business Performance Dynamic Capabilities Ie BMI Ie Business Performance Strategic Entrepreneurial Behavior Ie BMI Ie Business Performance Direct Significant Direct Significant Direct Significant Direct Significant Indirect Significant Indirect Significant Indirect Significant This study examined the influence of digital capability, dynamic capability, and strategic entrepreneurial behaviour on business model innovation and business performance in Indonesian SMEs.
The findings demonstrate that all three internal capabilities significantly contribute to business model innovation, which in turn has a substantial impact on business Business model innovation was found to play a mediating role in the relationship between organizational capabilities and This suggests that the presence of capabilities alone is insufficient.
firms must effectively transform them into innovative business models to achieve superior These results highlight the strategic importance of integrating technological, adaptive, and behavioural capabilities in driving The study reinforces the theoretical relevance of RBV and dynamic capabilities in emerging market contexts and offers practical guidance for SME actors to improve development and innovation-led strategies This study offers several important contributions to the literature on strategic management and innovation in SMEs.
First, it extends the Resource-Based View (RBV) and Dynamic Capabilities Theory by empirically validating the roles of digital capabilities, entrepreneurial behaviour as integrated antecedents of business model innovation.
While previous studies have often analysed these variables separately, this study provides a holistic framework that captures their combined influence on innovation and performance.
Second, the research positions business model innovation (BMI) not only as an outcome but also as a mediating mechanism that channels internal capabilities into firm This finding advances theoretical understanding of the transformation process by which intangible resources are converted into tangible results, aligning with and strengthening prior conceptual work by Amit r zott c.
Third, by focusing on Indonesian SMEs, this study adds empirical evidence from an emerging market context, where digital transformation is rapidly evolving but remains This contributes to the generalizability of capability-based theories beyond developed economies and highlights the contextual nuances of innovation behaviour in resourceconstrained settings.
Finally, business model innovation should be viewed as a strategic process, not a one-time Firms must continuously assess, test, and redesign their value logic to stay relevant in dynamic markets.
Policymakers and SME support institutions can facilitate this by offering training, mentoring, and incentives that strengthen internal capabilities and innovation Amankwah-Amoah.
Boso.
Adomako.
& Danso.
Editorial to the special
AuInternational behaviors of African firms: Emerging CONCLUSION
REFERENCES