Role of digitalisation and digital capabilities in the non-financial performance of SMEs: a multi-method SEM-fsQCA-ANNs approach

Purpose: In today’s fast-evolving business environment, digitalisation offers SMEs opportunities for growth and innovation. This study aims to analyse the impact of digitalisation and digital capabilities on SMEs’ non-financial performance. Design/Methodology/Approach: The study adopts a deductive approach, gathering data from 396 respondents through questionnaires and employs structural equation modeling (SEM), fuzzy set qualitative comparative analysis (fsQCA), and artificial neural networks (ANNs) analysis to empirically assess the model. This combination provides a more comprehensive understanding by capturing both linear relationships and non-linear patterns within the data. Findings: The SEM analysis reveals positive relationships between digital transformation, digital innovation, human capabilities, innovation capabilities, and collaboration capabilities in driving non-financial performance. fsQCA identifies digital transformation, digital innovation, and innovation capabilities as core drivers of non-financial performance, with Solution 1 providing the highest explanatory power. ANNs ranked human capabilities as the top predictor of non-financial performance, emphasising the critical role of human capital. Recommendation: The study recommends targeted training in digital literacy, data analytics, and e-commerce for SMEs, alongside tailored digital strategies. It advocates for an ecosystem supporting digital transformation through grants, tech hubs, and university partnerships, aiming to boost SMEs’ non-financial performance and strengthen their role in Pakistan’s economic growth and innovation.