Digital literacy as a resource: driving SME performance through digital technology and digital transformation

Purpose Small- and medium-sized enterprises (SMEs) are increasingly adopting technologies and transforming businesses in the digital landscape. Hence, understanding the roles of digital literacy and technology adoption in digital transformation and SME performance is essential for sustainable growth and competitiveness; however, this study explores and presents insights into this matter, particularly for SMEs. Henceforth, grounding resource-based view theory, this study aims to examine the interaction among digital literacy, technologies, transformation and SME performance, including mediating roles of digital technology usage and digital transformation. Design/methodology/approach This study collects data from managers or owners of SMEs using a structured questionnaire. To examine the complex interaction between digital literacy, digital technologies, digital transformation and SME performance, this study used structural equation modeling approaches using the PLS-SEM software. Findings The results reveal that while digital transformation positively impacts SME performance, the mere use of digital technologies does not have a significant direct effect. Furthermore, digital literacy significantly drives both digital technology use and digital transformation, despite having no direct impact on SME performance. Mediation analyses indicate that digital technology use bridges the gap between digital literacy and digital transformation. However, it does not independently mediate the link between digital literacy and firm performance. Instead, digital transformation acts as a crucial mediator, positively linking digital literacy and technology use to SME outcomes. Finally, this study confirms a significant serial mediation pathway in which digital literacy sequentially enhances SME performance, first through the adoption of digital technologies, which subsequently drives comprehensive digital transformation. Practical implications This study has significant implications for SMEs that want to develop competitive capabilities with businesses by performing digital transformation, so that business activities develop in accordance with changes in the existing environment, thus increasing SME performance. Originality/value This study contributes to the literature by expanding our understanding of how digital literacy, technology utilization and digital transformation collectively influence SME performance. In a rapidly evolving business environment, comprehensive digital transformation is imperative for SMEs. However, successful transformation relies on robust digital literacy to effectively leverage these technologies and drive positive outcomes. Consequently, this study advances current knowledge by empirically validating the sequential pathway from foundational digital skills to tangible firm performance.