From Bits to Benefits: How Digital Transformation Channels Sustainable Business Model Innovation in SMEs

ABSTRACT

Sustainable business model innovation (SBMI) has garnered increasing attention in sustainability and management research; however, its role in small and medium‐sized enterprises (SMEs) remains underexplored, particularly in emerging‐economy contexts. Drawing on the resource‐based view, this study examines how digital transformation (DT) influences corporate sustainability performance (CSP) through SBMI in innovative SMEs. Specifically, SBMI is conceptualized as the pathway through which digital transformation supports environmental, social, and financial sustainability outcomes. Based on survey data from 401 innovative SMEs in Pakistan, the study applies a two‐stage SEM–ANN approach: PLS–SEM for RBV‐based hypothesis testing and ANN for complementary predictive assessment and relative predictor‐importance evaluation. The findings show that DT significantly enhances SBMI and directly improves financial sustainability performance, whereas its effects on environmental and social sustainability performance are primarily realized through SBMI. The results further confirm that SBMI mediates the relationship between DT and all three dimensions of CSP. These results advance DT–SBMI research by showing that digital tools generate sustainability benefits when firms incorporate them into business model redesign, particularly through sustainable value proposition, value creation and delivery, and value capture mechanisms. The findings also suggest that SME managers should connect digital investment decisions with SBMI practices to strengthen sustainability outcomes.