DIGITAL TRANSFORMATION AND STRATEGIC BUSINESS MANAGEMENT: EXAMINING INNOVATION CAPABILITY, AND SUSTAINABLE COMPETITIVE ADVANTAGE

Digital transformation has become a critical strategic capability in contemporary business management, shaping how firms coordinate resources, strengthen innovation capability, and pursue sustainable competitive advantage in technology-intensive environments. This study examines the relationships among digital transformation, innovation capability, and sustainable competitive advantage from a strategic business management perspective, using firm performance as an empirical proxy for competitive outcomes. A quantitative cross-sectional design was applied to 2,000 firm-level observations. Innovation capability was operationalized through standardized R&D intensity and technology ratio, while firm performance combined standardized growth, return on assets, and Tobin's Q. Descriptive statistics, Pearson correlation analysis, one-way ANOVA, hierarchical ordinary least-squares regression with HC3 robust standard errors, and bootstrap indirect-effect analysis were employed. The findings show that digital transformation is positively and significantly associated with innovation capability and overall firm performance. Firms with higher levels of digital transformation also demonstrated significantly stronger growth and profitability outcomes. However, digital transformation was not significantly associated with Tobin's Q. Regression results confirmed that digital transformation remained a significant predictor of performance after controlling for firm age, size, leverage, ownership, and industry concentration. Innovation capability did not positively mediate the digital transformation-performance relationship. The study concludes that digital transformation strengthens innovation potential and strategic performance, while converting innovation capability into sustainable competitive advantage may require complementary managerial and organizational mechanisms. These findings position digital transformation as an important component of strategic business management.