The Mediating Role of Knowledge Management Processes in the Relationship Between Digital Transformation and Intellectual Capital in the Service Sector

Service companies in Palestine face a challenging technological landscape and intense global competition, which can be addressed through digital transformation. Guided by dynamic capability theory, this study explores how employees’ abilities to manage knowledge influence intellectual capital, enabling innovation and enhancing competitiveness. The primary objective is to examine the mediating role of knowledge management processes in the relationship between digital transformation and intellectual capital in Palestinian service firms. Using a survey methodology, 300 companies were randomly selected, with 195 valid responses analysed using SPSS and AMOS. The results reveal significant positive relationships among digital transformation, knowledge management processes, and intellectual capital. Additionally, knowledge management processes significantly mediate the relationship between digital transformation and intellectual capital components - human, structural, and relational capital. The study contributes to the literature on strategic human resource and knowledge management by presenting a model that links digital transformation, knowledge processes, and intellectual capital. As intellectual capital is central to innovation, the model offers practical insights for enhancing innovative performance in the service sector through effective digital transformation strategies and knowledge management practices.