The impact of digital transformation on employee performance: the mediating role of organizational agility in Islamic banks in Saudi Arabia: a partial least squares structural equation modeling approach

Digital transformation is reshaping banking operations globally, yet its impact on employee performance in Islamic banks remains underexplored, particularly concerning the role of organizational agility as a mediating mechanism. This study investigates how digital transformation affects employee performance in Islamic banks in Saudi Arabia, with a specific focus on the mediating role of organizational agility. Using partial least squares structural equation modeling with a two-stage hierarchical component approach, we analyzed data from 490 employees across four major Islamic banks: Al-Rajhi Bank, Alinma Bank, Al-Bilad Bank, and Bank Aljazira. The findings reveal that digital transformation significantly enhances employee performance both directly and indirectly through organizational agility. Digital transformation demonstrates the strongest positive relationship with organizational agility, explaining 74.1% of its variance, which in turn significantly influences employee performance. Organizational agility partially mediates this relationship, accounting for 48.7% of the total effect, indicating that digital transformation operates through dual pathways: direct technological enhancement of employee capabilities and indirect improvement via organizational adaptability. The model explains 70.7% of the variance in employee performance. This research contributes to Saudi Arabia’s Vision 2030 by demonstrating how digital transformation can enhance workforce effectiveness in Islamic banking while maintaining Sharia compliance. The findings provide evidence-based guidance for Islamic banking leaders seeking to optimize digital transformation strategies by simultaneously developing organizational agility capabilities.