From Digital Transformation to Sustained Competitive Advantage: How Strategic Orientation, Technology Sophistication, and Adaptive Capability Drive Operational Efficiency

Small and medium-sized enterprises (SMEs) in emerging markets face a critical challenge: how to leverage digital transformation to improve efficiency and sustain competitive advantage despite constrained financial and human resources. This study addresses this problem by examining how distinct dimensions of digital transformation affect SME operational efficiency and, in turn, sustained competitive advantage. Grounded in the Resource-Based View (RBV) and Industrial Organization-Based Strategy (IO), the present study conceptualizes digital transformation through three theoretically distinct sub-dimensions, digital strategic orientation (DSO), digital adaptive capability (DAC), and digital technology sophistication (DTS), and model operational efficiency as a mediating pathway to sustained competitive advantage. Data collected via a structured survey administered to 216 Turkish manufacturing and service SMEs operating in Istanbul were analyzed using variance-based structural equation modeling (PLS-SEM) with SmartPLS 4. The findings reveal that all three digital transformation sub-dimensions positively and significantly influence operational efficiency, which in turn strongly predicts sustained competitive advantage. A formal mediation analysis confirms that operational efficiency mediates the effects of all three digital transformation dimensions on sustained competitive advantage, with partial mediation for digital strategic orientation and indirect-only mediation for digital adaptive capability and digital technology sophistication. These results advance theoretical understanding by demonstrating that digital transformation operates as a capability-building process consistent with RBV logic, and that strategic digital orientation, rather than technological sophistication, is the dominant driver of efficiency gains. Practically, the findings indicate that SMEs should prioritize embedding digital strategy into corporate planning, developing structured digital upskilling programs for managers and employees, and investing in scalable cloud-based and AI-enabled infrastructure to achieve cost efficiency and competitive positioning.