Digital Transformation as A Catalyst for Business Model Innovation: Balancing Challenges and Opportunities
Digital transformation (DT) is fundamentally changing the way businesses work by using new technologies like artificial intelligence (AI), cloud computing, Internet of Things (IoT), and big data analytics in the organizations' systems. While it offers efficiency, innovation, and new value propositions, the traditional firms which are still stuck with the old ways of doing things, have to face cultural resistance, the hardness of the old system, and lack of necessary skills that make the implementation process complex. This paper empirically studies how digital transformation affects business model innovation (BMI) and firm performance (FP) of 312 Indian firms from different sectors such as manufacturing, retail, and services. The research, grounded in the Dynamic Capabilities Theory and the Business Model Innovation framework assesses how the implementation of technology, the flexibility of the organization, the support from the leadership, and the digital competence of the employees can help the organization to achieve the transformation outcomes. The research tools used for data analysis were SPSS 28 and AMOS 26. The evidence obtained through confirmatory factor analysis and structural equation modelling shows that the different aspects of DT have a significantly strong positive impact on BMI, which in turn, is the mediator in the relationship between DT and FP. The organizational flexibility or agility is one of the mediators that only partially mediates these connections, while the obstinacy of the legacy system negatively affects DT’s influence on FP. The results indicate that the digital transformation success is not only a matter of technological integration, but it also requires the organization to be agile and have human capabilities. The research accomplishes the theory goal of linking dynamic capabilities with business model reconfiguration and supplies the actionable insights to the managers and community leaders. In the case of the traditional firms, the way to digital victory is by changing the structures, retraining the workforce, and rejuvenating the strategic intent.