Assessing the Impact of Digital Transformation on Organizational Culture and Employee Performance in SMEs: A Longitudinal Study Incorporating the Mediating Role of Innovation and the Moderating Effects of Leadership Styles.
Ali Ahlam Nawaz, W.M.W.W. Kandegama, H.L.Neel Wasantha
Volume 12 Issue 4 2024
Abstract:
Digital transformation has emerged as a key strategic imperative for Small and Medium-sized
Enterprises (SMEs) seeking to adapt to the fast-paced digital economy and enhance organizational performance. This
longitudinal study investigates the impact of digital transformation on organizational culture, leadership styles,
innovation climate, and employee performance outcomes within SMEs, incorporating the mediating role of
innovation and the moderating effects of leadership styles. The research employs a mixed-methods approach,
combining quantitative surveys and qualitative interviews to gather data from a sample of SMEs across diverse
industry sectors.
The findings reveal positive associations between digital transformation initiatives and various organizational
dynamics within SMEs. Digital transformation is found to be positively associated with innovation climate,
organizational culture dimensions (clan, adhocracy, market, and hierarchy), leadership styles (transformational,
transactional, charismatic, and servant), and employee performance outcomes (job satisfaction, engagement, and
productivity). Furthermore, innovation climate is identified as a significant mediator in the relationship between
digital transformation and employee performance outcomes, highlighting the importance of fostering a conducive
climate for creativity and experimentation to leverage the benefits of digital technologies.
Moreover, the study uncovers the moderating effects of leadership styles on the relationship between digital
transformation and employee performance outcomes. Transformational and servant leadership styles are found to
strengthen the positive effects of digital transformation on performance outcomes, while transactional and
charismatic leadership styles demonstrate weaker or mixed effects. These findings underscore the critical role of
leadership behaviors in shaping organizational responses to digital transformation challenges and opportunities.
Theoretical implications include advancing understanding of the mechanisms underlying digital transformation
processes, organizational dynamics, and performance outcomes, while practical implications offer actionable
insights for SME leaders, policymakers, and practitioners seeking to navigate digital disruptions and drive
organizational change. Future research directions are outlined to further explore the complexities of digital
transformation within SMEs and inform evidence-based strategies for sustainable growth and success in today's
digital economy
