Digital capabilities relate to sustainable performance in Saudi SMEs through technological capabilities and eco innovation

Abstract Digital transformation offers Small and Medium-Sized Enterprises (SMEs) opportunities to improve sustainability, although individual technologies may show different patterns of association with organizational capability development. Drawing on the Resource-Based View and Dynamic Capabilities Theory, this study examined two capability-formation pathways in Saudi SMEs. The first connected technology-specific resources comprising Internet of Things, Blockchain, Artificial Intelligence, and Big Data Analytical Capabilities with Technological Capabilities. The second connected Digital, Innovativeness, and Management Capabilities with Eco-Innovation. Survey data from 280 SME respondents with knowledge of their firms’ operations were analysed using Partial Least Squares Structural Equation Modeling. Artificial Intelligence and Big Data Analytical Capabilities were positively associated with Technological Capabilities, whereas Internet of Things and Blockchain Capabilities showed no significant independent relationships. Digital, Innovativeness, and Management Capabilities were positively associated with Eco-Innovation. Technological Capabilities and Eco-Innovation were both positively associated with SMEs’ Sustainable Performance, with Technological Capabilities demonstrating the stronger relationship. The indirect-effects analysis further showed that Artificial Intelligence and Big Data Analytical Capabilities were associated with Sustainable Performance through Technological Capabilities, while Innovativeness and Management Capabilities were associated with Sustainable Performance through Eco-Innovation. The study clarifies the distinct associations of technological integration and sustainability-oriented innovation with Sustainable Performance among Saudi SMEs.