Strategic flexibility and business sustainability as drivers of SME performance: A dynamic capabilities perspective

This study investigates the impact of strategic flexibility (SF) on the performance (PF) of small and medium-sized enterprises (SMEs) in Iraq, emphasizing the moderating role of business sustainability (BS) strategy. Grounded in the dynamic capabilities perspective, data collected from 619 SMEs were analyzed using partial least squares structural equation modeling (PLS-SEM). The findings reveal that SF has a significant positive effect on SME PF, and this relationship is further strengthened when firms adopt BS-oriented strategies. Multigroup analysis indicates that the effects are more pronounced in the Kurdistan region than in Central and Southern Iraq, underscoring the role of institutional conditions. The study extends dynamic capabilities theory to fragile-state contexts and demonstrates that BS functions as a strategic enabler rather than merely a compliance mechanism. These findings provide actionable insights for SME managers and policymakers seeking to enhance resilience, competitiveness, and long-term growth through sustainability-driven strategic flexibility.