Abstract
BACKGROUND: Knowledge serves as the foundation for SMEs to enhance capabilities in navigating turbulent environments. This study highlights that SMEs capability is a determinant in adopting innovations and business performance. OBJECTIVE: This study aims to uncover the capabilities of SMEs in relation to innovation adoption and business performance, with environmental turbulence acting as a moderating variable between innovation adoption and business performance. METHODS: This study employed an explanatory approach that established quantitative foundations. PLS-SEM was utilized as the statistical analysis approach to test the developed hypotheses. An offline survey was conducted using data collected from 159 SMEs in the creative economy sectors. RESULTS: The results reveal that knowledge management capability and dynamic capability significantly influence on innovation adoption. However, innovation capability has an insignificant effect on innovation adoption. Additionally, innovation adoption has a significant effect on business performance. Environmental turbulence, as a moderating variable between innovation adoption and business performance, demonstrates a weakening effect. Furthermore, this study also examines the mediating role of innovation adoption. CONCLUSIONS: The interplay of knowledge management capability, innovation adoption, and business performance enhances the optimal capabilities of SMEs to achieve competitive advantage. On the basis of the KBV, knowledge fortifies the potential capacities, thereby fostering unique capabilities.
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