Building competitive advantage through digital transformation: How market turbulence shapes performance outcomes in Indonesian SMEs

This study examines competitive advantage's mediating role in digital transformation-firm performance relationships while investigating market turbulence's moderating effect, addressing gaps in understanding environmental volatility's influence on transformation effectiveness in emerging markets. Survey data from 350 Indonesian SMEs were analyzed using PLS-SEM and Necessary Condition Analysis. Results reveal competitive advantage partially mediates digital transformation-performance relationships, transmitting 30% of total effects through indirect pathways. Market turbulence significantly moderates transformation processes with progressive effect intensification across turbulence levels. NCA demonstrates that competitive advantage, digital transformation, and market turbulence constitute necessary conditions creating performance ceilings rather than merely additive contributors. Organizations must simultaneously develop competitive positioning, transformation capabilities, and appropriate environmental contexts, as deficiency in any factor generates insurmountable performance ceilings. This research reconciles contradictory literature by demonstrating digital transformation operates through dual pathways with contingent effectiveness, providing empirically validated framework explaining when and how digital transformation creates value through moderated mediation and necessary condition logic.