The Influence of Business Strategy on SME Performance with Digital Technology as a Mediator

Abstract

Research Aim: This study aims to investigate the influence of business strategy on the performance of SMEs, with digital technology acting as a mediator. It explores the role of digital technology in enhancing the impact of business strategy on SME performance, providing empirical insights for SMEs operating in diverse sectors.

Design/Method/Approach: A quantitative approach is adopted using Structural Equation Modeling (SEM) to test the hypothesized relationships between business strategy, digital technology, and SME performance. Data was collected through surveys from 200 SME owners and managers across the manufacturing, retail, and services sectors. SEM was used to analyze the direct and indirect effects of business strategy on SME performance, mediated by digital technology.

Research Findings: The findings suggest that business strategy, specifically strategies focused on innovation and market orientation, has a positive and significant effect on SME performance. Furthermore, digital technology was found to mediate the relationship between business strategy and SME performance. This indicates that the effective use of digital tools enhances the implementation of business strategies and boosts SME performance.

Theoretical Contribution/Originality: This study contributes to the existing literature by empirically testing the mediating role of digital technology in the relationship between business strategy and SME performance. While previous studies have explored the separate impacts of strategy and technology, this research uniquely integrates them and highlights the synergistic effects of combining business strategy with digital technology for improved performance outcomes.

Practical/Policy Implications: For practitioners, this study provides insights into the importance of aligning business strategy with digital transformation initiatives. SME owners should invest in digital tools and platforms to support their strategic objectives, particularly in marketing and customer engagement. Policymakers can encourage the digital transformation of SMEs through subsidies, training programs, and infrastructure support to improve competitiveness and sustainability in the digital economy.

Research Limitations: This study is limited by its cross-sectional nature, which only captures the relationships at one point in time. Additionally, the research sample is confined to SMEs from specific sectors in one region, limiting the generalizability of the findings to other geographical areas or industries. Future studies could adopt a longitudinal approach and include a broader range of industries and regions.