Customer-Anchored Capability Conversion in MSMEs: Business Model Innovation

Abstract

Digital technology adoption does not necessarily lead to immediate improvements in the financial performance of micro, small, and medium-sized enterprises (MSMEs). Its benefits become evident only when business owners are able to align technological opportunities with customer knowledge and translate them into relevant and economically viable business models. This study examines the effects of digital leadership and customer orientation on the relative financial performance of digitally active MSMEs in Kendari City. Business model innovation is positioned as a mediating variable, while technological turbulence is examined as a moderating variable. Data were collected through a survey of 392 owners or managers, each representing one MSME, and analysed using partial least squares structural equation modelling (PLS-SEM). The findings show that customer orientation is the strongest driver of business model innovation and influences performance both directly and indirectly through business model innovation. Digital leadership also promotes business model innovation, but its effect on performance occurs only through this mechanism. Business model innovation significantly enhances relative financial performance, whereas technological turbulence has neither a direct effect nor a moderating effect. This research contributes to building a customer-anchored capability-conversion model in which customer orientation functions as a market-sensing capability, digital leadership serves as a managerial enabler, and business model innovation acts as the mechanism that converts these capabilities into financial outcomes.