Unleashing Innovation Potential: The Role of Human Capital and Digital Capability to Increase Firm Performance for Sustainable Development Goals (SDGS) in Lombok Island

Objective: The objective of this research is to examine how the human capital and digital capability of SMEs contribute to enhancing firm performance, with a particular focus on exploring the intervening role of innovation to achieve Sustainable Development goals (SDGs). Theoretical Framework: The research utilizes the Resource-Based View (RBV) theory and integrates human capital and internal capabilities (digital capabilities) resources to drive innovation and enhance firm performance within the SMEs context. Method: This research conducted by using a quantitative approach. A sample of 271 SMEs within the creative industry sector was utilized. The survey employed Likert scale. The model was assessed using Smart PLS 3.2.9 software. Results and Discussion: Variables of human capital and digital capability have an impact on innovation. Interestingly, digital capability alone does not directly impact firm’s performance. Instead, the presence of innovation serves as a mediator in the relationship between human capital, digital capability, and firm performance. This discovery indicates that digital capability can enhance firm performance when coupled with innovation initiatives. Research Implications: This study develops a theoretical framework related to firm resources, and SMEs can develop their human capital and digital capabilities to improve innovation and performance. Originality/Value: The theoretical framework of this study significantly influences the evolution of the Resource-Based View (RBV) theory, especially on the influence of human capital resources, and the RBV framework is developed to elucidate the determinants of competitive advantage within the digital transformation landscape.