Unlocking digital innovation: a moderated-mediation approach exploring the knowledge creation processes, IT-enabled capabilities and absorptive capacity in software SMEs

Purpose This study aims to determine whether knowledge creation processes (KCPs) – knowledge exchange and knowledge integration affect digital innovation (DI), including information technology (IT)-enabled capabilities (ITECs) as a mediator and absorptive capacity (AC) as a moderator. Design/methodology/approach With a survey data set of 390 employees from Pakistani software small- and medium-sized enterprises (SMEs), the current study employed Structural Equation Modeling (SEM) using Smart Partial Least Squares to estimate the structural relationships in the conceptual model. Findings The results confirm that KCPs – knowledge exchange and knowledge integration positively enhance software SME's DI; ITECs play a partial mediating role in the linkage between KCPs and DI; AC positively moderates the relationship between knowledge integration and ITECs, and ITECs and DI, while AC doesn’t moderate the relationship between knowledge exchange and ITECs. The AC positively moderates the mediating role of ITECs amongst KCPs (knowledge exchange and knowledge integration) and DI, respectively. Originality/value This research uniquely integrates the knowledge-based view and dynamic capability theory to present a comprehensive framework that explains the interdependencies between knowledge process, ITECs and AC in driving DI. This approach advances the understanding of how software SMEs can strengthen internal knowledge and IT resources to achieve superior innovation outcomes.