Linking Innovation Capability, Strategic Orientation, and Strategic Renewal to Sustainable Performance: A Dynamic Capabilities Perspective in Saudi Small and Medium Enterprises

ABSTRACT The Kingdom of Saudi Arabia seeks to achieve Vision 2030, which aims to transform the country's economy through fostering a vibrant business environment and reducing the dependency on oil exports. In this context, small and medium enterprises (SMEs) are at the forefront of this transition. Vision 2030, in particular with SMEs, aims to increase SMEs' contribution to the GDP to 35%. However, it is not possible without equipping SMEs with innovation, strategic thinking, and sustainability. To address these concerns, the objective of this study is to investigate the influence of innovation capability (IC), strategic orientation (SO) mediated by strategic renewal (SR). Driven by dynamic capability theory (DCT), the study also examined how internal resources (IC, SO) enable small firms to renew their strategies to achieve sustainable business performance (SP). To achieve the objective, a quantitative, three‐wave time‐lagged research strategy was deemed appropriate. The study employed purposive sampling, and data were collected from 211 SMEs located in Riyadh, Makkah, and Eastern Province of KSA through structured questionnaires in three intervals. The data was analyzed through structured equation modeling (SEM) through Smart PLS 4. The findings show that antecedents SO and IC significantly influence SR within SMEs, which in turn positively influence SP. In addition, it was found that SR mediates the relationship between IC and SO and SB. The study offers novel insights to theory through the extension of DCT to KSA‐based SMEs and outlines practical steps that SMEs and authorities need to integrate to achieve within SMEs to achieve Saudi Vision 2030.