Digital transformation and Indonesian bank branch performance: The sequential mediating roles of strategic capabilities and strategy execution

Digital transformation has become a critical strategic priority in the banking sector; however, its effectiveness in improving branch-level performance depends not only on technology adoption but also on organizational readiness, leadership capability, and ecosystem support. Despite increasing investments in digital banking infrastructure, limited empirical research explains how these strategic factors collectively influence branch performance through internal capability development mechanisms, particularly in emerging banking contexts such as Indonesia. Addressing this gap, this study examines the effects of digital transformation, digital banking risk, leadership capability, and the digital banking ecosystem on strategic capabilities, strategy execution, and branch performance. Using a quantitative approach, Partial Least Squares Structural Equation Modeling (PLS-SEM) was applied to data from 204 bank branch respondents implementing digital services. The findings indicate that digital transformation, leadership capability, and the digital banking ecosystem significantly strengthen strategic capabilities and strategy execution, while digital banking risk demonstrates a comparatively moderate influence. Strategic capabilities and strategy execution also serve as key mediating mechanisms translating digital initiatives into improved branch performance. This study extends the Dynamic Capabilities perspective and provides practical insights for banking institutions seeking to optimize branch performance through leadership strengthening, ecosystem collaboration, and effective strategy execution alignment.