Entrepreneurial Orientation and Firm Performance: A Digital Innovation Opportunity Transformation Framework in Emerging Markets

Micro and small enterprises (MSEs) in emerging markets often face resource and capability constraints, highlighting the need to leverage digital innovation for improved performance. Although entrepreneurial orientation (EO) is widely recognized as a driver of firm performance (FP), the capability-based mechanisms linking EO to performance through digital innovation remain underexplored. To address this gap, this study develops and empirically validates a Digital Innovation Opportunity Transformation (DIOT) framework, which explains how EO enhances FP through sequential capability mechanisms—digital opportunity recognition and digital opportunity exploitation—and how IT-environmental support (ITES) strengthens these effects. Using survey data from 286 Ethiopian MSEs and structural equation modeling, the findings reveal that EO has a significant positive impact on FP (β = 0.14, p < 0.05) and generates indirect benefits through internal digital innovation capabilities. Additionally, ITES amplifies these indirect pathways, suggesting that supportive digital infrastructures enhance the outcomes of EO-driven innovation efforts. The study advances theoretical understanding by validating the DIOT framework and elucidating the internal mechanisms linking EO to FP. It also offers practical insights for managers, technology providers, and policymakers seeking to promote EO-led digital innovation in resource-constrained emerging economies.