Digital innovation in software SMEs: the synergy of digital entrepreneurship opportunities, knowledge generation and market-sensing capabilities via moderated–mediation approach

Purpose This study drawing upon opportunity-ability-motivation (OAM) theory focuses on digital entrepreneurship opportunities (DEOs), knowledge generation capabilities (EKGCs) and enterprise market-sensing capabilities (EMSC) affecting digital innovation in terms of exploitative and exploratory DIs. Design/methodology/approach Employing quantitative methodology on a sample of 352 software SMEs' managers, the study employed a hierarchical regression analysis to investigate whether and how digital entrepreneurship opportunities and knowledge generation capabilities support and nurture both DIs. Additionally, the moderated–mediation effect of market-sensing capabilities on the relationships among digital entrepreneurship opportunities, enterprise knowledge generation capabilities and DIs are considered. Findings The study findings reveal that digital entrepreneurship opportunities influence exploitative and exploratory DIs. Knowledge generation capabilities partially mediate the relationship between digital entrepreneurship opportunities and exploitative and exploratory DIs, respectively. Moreover, market-sensing capabilities strengthen not only the effect of digital entrepreneurship opportunities on knowledge generation capabilities but also the effects of knowledge generation capabilities on exploratory DI. The moderated–mediation outcomes reveal that the mediating role of knowledge generation capabilities on the relationship between digital entrepreneurship opportunities and both DIs is stronger when EMSC are high. Originality/value This research integrates the opportunity-ability-motivation perspective to present a comprehensive framework that reveals the intricate interdependencies among digital entrepreneurship opportunity, knowledge generation and market-sensing capabilities in driving both exploratory and exploitative digital innovation in software SMEs. This approach significantly enhances our understanding of how software SMEs can strategically strengthen their internal skills and resources, ultimately leading to superior digital innovation outcomes.