Determinants of SMEs' strategic entrepreneurial innovative digitalization: examining the mediation role of human capital

Abstract

Purpose

This study was inspired by research of strategists on strategic innovation (SI), aiming to provide a unique model to enhance the digitization of small and medium-sized enterprises (SMEs) in Bangladesh to fill the gap toward a digital economy.

Design/methodology/approach

A survey was used to collect data from 180 SMEs in the manufacturing industry for this research. The results indicate that strategic innovativeness (SI), human capital (HC), infrastructure and technology and resistance to change significantly influence the digitalization in Bangladesh SMEs.

Findings

The link between SI and SMEs' digitalization in Bangladesh is mediated by HC. The results show that HC plays a big role in the connection between SI and the digitalization of SMEs. This study may be valuable for SMEs managers, researchers and policymakers in Bangladesh and other developing nations, who want to learn more about SI in adopting digitalization.

Originality/value

The specialized knowledge and abilities of strategists allow them to establish parallels between the past and present, enabling them to make a sustained forecast about the digital economy. This study encourages small and medium-sized businesses to develop their SI and advance their HC, which could further deject resistance to change toward enhancing and adopting digitalization in SMEs sectors.

Citation

Hossain, M.B., Rahman, M.U., Čater, T. and Vasa, L. (2024), "Determinants of SMEs' strategic entrepreneurial innovative digitalization: examining the mediation role of human capital", European Journal of Innovation Management, Vol. ahead-of-print No. ahead-of-print. https://doi.org/10.1108/EJIM-02-2024-0176

1. Introduction

At the inception of the fourth industrial revolution, it is difficult to depict a world without digital technology (Carvalho et al., 2018). Technological breakthroughs cause massive disruptions across the board for humans. The world is changing so quickly that we must be quick, agile and flexible in responding to new conditions. Everyone needs a primer on digitalization to get up to speed before going forward (Rahman et al., 2016; Graafland and Smid, 2017). Differentiating this from digitizing services or installing new hardware or software in businesses is crucial. Researchers rarely account for the fact that the term “digitization” might have a variety of meanings depending on the particular context in which it is used before establishing policy (Bhatti et al., 2021). Digitalization refers to the integration of digital technologies into all aspects of a business. It includes a variety of technology from cloud computing to social media marketing through artificial intelligence (AI) (Liu et al., 2024). This is because there are several scenarios in which this phrase might be utilized (Pathak and Ahmed, 2016; Giaoutzi et al., 2016). Enterprises should make an effort to reconsider their existing approach to doing business. A clear strategy is needed. Therefore, enterprises should carefully map out their aims and priorities. The plans should be methodical, with access to sufficient resources and tools. The level of digital readiness and business sector assistance should be a primary focus for researchers (Abdin, 2018; Trivedi et al., 2024). The digital age has redefined entrepreneurship. In that case, the role of startup business has become increasingly important in driving innovation, growth and change. Entrepreneurship has redefined the new dynamics of ecosystem by increasing connectivity, reshaping innovative business models. In that case, to understand the new dynamics of success for entrepreneurs has become important for policymakers as well.

The global economy has been in a sustained financial crisis since the start of the so-called “digital era.” This problem has persisted for quite some time. Over the last decade, the world’s poor and small enterprises have borne the brunt of economic uncertainty. There was a “break of increased expectations,” but a new crisis had emerged by the beginning of 2020 (Bhatti et al., 2021). The health sector felt the effects of this catastrophe, but the commercial life of the world civilization was severely impacted as well (Cox and Stoddard, 2018). A “break of increased expectations” occurred, but it was fleeting. The extent to which the COVID-19 virus epidemic has slowed the rise of the global economy is yet unknown. However, it has already substantially impacted many facets of contemporary life (Masoomzadeh et al., 2020). This indicates that most small firms are fighting for their existence while facing uncertainty in today’s more globalized and competitive market. This occurs when global economic growth and technological development have never been faster. No one should be surprised to learn that “digitalization” is top of mind for today’s small and medium-sized enterprises (SMEs). It is also generally accepted that better equipment, human capital (HC) and infrastructure might help drive more economic development. There may soon be a shift in how SMEs conduct operations due to technological developments (Iskandar and Ariffin, 2019). The business and financial environment in which these changes will occur is only sometimes optimal for the success of all stakeholders. Some people’s goals will take more work to accomplish in this setting. Adopting even the most fundamental uses of emerging digital technology presents significant obstacles for SMEs and tiny businesses (Yusliza et al., 2020). The results of many studies and polls conducted in recent years lend credence to this theory. As the size of an organization grows, the rate of diffusion and adoption of digital technologies increases, leading to a higher adoption rate at the enterprise level, which is happening all across the world simultaneously (Bayraktar et al., 2017).

Moreover, the degree to which a firm can sustain its digital advantages over time depends on the degree to which it can innovate strategically (Lee and Olson, 2016). A profitable challenge occurs when a firm confronts the dominant player in its industry. Bangladesh’s economy relies on micro, small and medium-sized companies (MSMEs) for one-fourth of its output. Unfortunately, it has failed to adapt to the digital age, preferring to stick to tried-and-true business methods. There is an obvious issue with innovation in Bangladesh. The success of Bangladesh's SMEs rests on the cultivation of a culture of innovation and entrepreneurship. Experts recommend investigating why local businesses are not digitalizing their operations to take advantage of breakthroughs and increase efficiency through strategic innovativeness (SI) and entrepreneurship (Yang et al., 2012). Hence, this research study addresses the case of SMEs in Bangladesh.

Strategic innovation (SI) has been essential to the growth of the global economy over the past few decades (Attaran, 2011). People have identified how the economy may be improved while lowering the many dangers involved due to the data collected and utilized to guide SI (Keen, 2011). Innovative strategic thinking is now more feasible than ever due to advancements in information technology (IT) (Brancheau and Buckland, 2016). Nowadays, businesses in the same sector have equal access to information that will give them a competitive edge (Abdin, 2018). The company’s IT division is essential to the achievement of this goal. However, many technical applications are constantly changing; therefore, companies must ensure they can stay up with these modifications if they want to maintain growth and progress (Keen, 2011). Advancement in information technology has made the adoption of strategic entrepreneurial innovation easier. It has never been easier than before. With more and more people connected to the Internet, businesses must include digital processes in their routines. Over time, Internet platforms, including social networking and e-commerce sites, have become the industry’s mainstays (Brancheau and Buckland, 2016). The Internet is the lifeblood of the contemporary information technology industry. The rise of the Internet for SMEs has further revolutionized strategic entrepreneurial innovation. The Internet has accelerated communication among people all over the globe and reduced the distance they must travel to reach one another. SMEs have a significant advantage in this situation. Companies of all sizes, especially SMEs in the 21st century, willing to invest in and use information technology through strategic entrepreneurial innovation have a significant leg up on their less tech-savvy rival. One tool that may be used to sidestep some of the biggest challenges associated with starting a company is the Internet. Information readily accessible online enables in-depth analysis of the niche market for a certain product or service, providing many entry points to enterprises interested in penetrating that market. This procedure is especially beneficial to SMEs because of its low cost (Aghaei and Sokhanvar, 2019).

More and more data show that organizations can gain a competitive edge through entrepreneurial innovation by investing in their employees (Alkhateeb et al., 2016; Delery and Roumpi, 2017; Prajogo and Oke, 2016). In the previous decades, there has been a cognitive recognition of how the HC has fueled strategic entrepreneurial innovation among the SMEs (Taie, 2014). Management needs help not only in keeping track of the actual assets at its disposal but also in the intangible HC. Knowledge, information, new ideas and experience are all examples of intangible assets that make up HC. Using these methods, one may gain considerable wealth (Chahal and Bakshi, 2015). HC is the total of an individual’s assets, including but not limited to intelligence, creativity, adaptability, adaptability, experience and training. HC is the total of a country’s human resources (Hsu and Sabherwal, 2012). Workers' knowledge, both tacit and explicit, lives only in their heads rather than on paper or in a database (Bontis, 1998). Since this information is the product of genetic inheritance and learning-friendly environments, it may be borrowed or rented (Bontis, 1998; Chen et al., 2009).

In today’s global market, the demand is that Bangladeshi SMEs should prioritize the investment in HC to boost strategic entrepreneurial innovation. Existing research suggests that the landscape of Bangladeshi SMEs is primarily unknown. Therefore, there needs to be more communication between the two concepts. To the extent that HC is not an independent variable associated with the success of SMEs, it is instead a “mediator” variable associated with other independent factors as well as dependent variables “not with strategic innovation and digitalization of SMEs.” Strategic entrepreneurial innovation is not limited to creating and implementing new ideas but strategically implementing the new ideas for a significant competitive advantage in the long term. It needs a solid understanding of customers’ need, current trends and market strategies (Allui and Rawshdeh, 2024). The theoretical underpinnings of this research set it up as a mediator between other elements and digitally engaged SMEs. Theoretically, this investigation has the potential to expand our understanding on the subject as Bangladesh is falling further and further behind compared to SMEs in China or other developing countries, as well as companies like Alibaba and Amazon, with our efforts to participate in the global economy in the same ways that they do, even though Bangladesh is losing out on uncountable billions of dollars in potential gains from the worldwide market. Many owners of SMEs lack the knowledge and skills required to fully capitalize on possibilities given by the global market and digitalization. Investigation of the compatibility of digitalization with other processes and the components involved in digitalization may yield ambiguities and uncertainties. However, these studies may provide enough information to grasp the numerous challenges in the specific method and help to facilitate comprehension of the relatedness between the many components of the process. Most research of this kind doesn’t find the perfect empirical analysis and robust foundation needed to direct organizations effectively. The vast majority of studies examining the suitability or readiness of digitalization provide no advice on how to best use the possibilities it brings for the global economy (McConnell, 2010). This research aims to address the gap through identification of new challenges to the Bangladeshi SMEs that can leverage the HC to attain its fullest potential of digitization and strategic entrepreneurial innovation for global success.

All businesses must incorporate digital practices into their operations because of the increasing availability of the Internet. More and more people are becoming aware of the potential economic benefits and reductions in risk that might result from the collection and use of digital information. The digitalization of SMEs can potentially significantly affect economic development in a nation like Bangladesh because the responsibility of SMEs is the company’s venture and performance that is the major focus of this study. This research looked into the factors that have led to Bangladeshi SMEs adopting digital technologies so rapidly. In this article, we seek to address the following questions:

• (1)

  How does SI impact the digitalization of SMEs?

• (2)

  To what extent does human capital act as a mediator between strategic entrepreneurial innovation and the digitalization of SMEs?

• (3)

  What is the compatibility level of the digitalization of Bangladeshi SMEs?

This research is aimed at what influences the level of technical preparedness among SMEs in Bangladesh. The research provides the framework for a model that might help SMEs comprehend the strategic economy, increasing their chances of success.

These findings provide their authorities or policymakers with a framework and some pointers for reliably implementing strategic entrepreneurial innovation, which is essential for ensuring sustainable performance in the digitalization of SMEs in Bangladesh. The SMEs have benefited agricultural methods and the economy (Bhatti et al., 2021). This study thus suggests plan-based proposals to aid SMEs and protect the sustainability in the digitalization of SMEs of its expansion via the cooperation of both governmental and non-governmental organizations. The basic idea behind this notion is to use one’s strengths in a way appropriate for globalization and modernization.

2. Human capital theory in the context of digitalization

The concept of HC is generally agreed upon to have emerged between the middle and late 20th centuries. HC, on the other hand, has its roots in the works of some of the most influential economists in history (Alkhateeb et al., 2016). William Petty was the first to use a mathematical approach to valuing people to offer a complete evaluation of national worth. The initiative was started so that a more accurate image of a country’s wealth could be presented. The renowned economist said, “Work is the parent of riches,” in his treatise on taxes (Bontis, 1998). Wealth of Nations, by Adam Smith, was out in 1776. As a result of his research, he came to two main conclusions: first, that “acquired and useful abilities of all the inhabitants or members of the society” affect labor costs and second, that “the acquisition of such talents, by the maintenance of the acquirer during his education, study or apprenticeship, always costs a real expense, which is a capital fixed and realized, as it were, in the future” (Chen et al., 2009). According to the economist’s notion, HC comprises an individual’s knowledge, experience and qualifications and strategic entrepreneurial innovation thrives on the skilled workforce (Chen et al., 2009). Jean-Baptiste Say suggested that one should treat one’s talents and abilities like monetary capital, as both can be bought and, in general, boost production. Production by the working class for the sake of reproduction, improvement and progress was classified by Karl Marx as the second phase of social production (McGee et al., 1995). In the current research, HC is the central theme, as SI and digitalization of SMEs are possible only through these values.

2.1 Theoretical background

SI introduces a new strategy in an established market (Lee and Olson, 2016; Zhou et al., 2024a, b). Several studies link creative endeavors with financial investments in individuals (Debrah et al., 2018; Cinnirella and Streb, 2017). This aligns perfectly with strategic entrepreneurial innovation, where human resources are the engine of fresh ideas (Dzisah and Etzkowitz, 2008). HC reflects employees' ideas, knowledge, skills, competencies and capabilities (Danquah and Amankwah-Amoah, 2017). “Competence” indicates a person’s knowledge and talents in their area, “attitude” represents their approach to the job and “intellectual agility” reflects their ability to think laterally and come up with creative solutions to work difficulties (Bornay-Barrachina et al., 2017). Despite recent studies suggesting the opposite, Subramaniam and Youndt (2005) found that innovative capacity is negatively associated with HC (De Winne and Sels, 2010). According to researchers, investing in human resources is helpful (Bartelsman et al., 2014; D'Este et al., 2014; Sun et al., 2020). They view this as a way for firms to preserve long-term growth and innovation. Today’s markets are fluid and unpredictable because manufacturing and production technology have grown faster than customer demand (Veerendrakumar and Narasalagi, 2015; Glisson, 2015). Farace and Mazzotta (2015) found that HC may boost innovation in SMEs. For academics, lifelong learning may assist incremental innovation. Shakil et al. (2024), in their study, researched HC and innovation efficiency. They stated that human capital was vital to improving products and services. Innovation includes all operational and functional actions that reduce manufacturing costs, improve product quality and delivery, grow market share and boost performance (AlQershi et al., 2018).

2.1.1 Research hypothesis

In 2023, the World Bank concluded that Bangladesh’s educational system produced a low-quality workforce due to insufficient education and training. 61% of the working population lacks the necessary skills; hence, it can cause resistance to changes; therefore, this study also considered this matter, its risks being to influence the digitalization of SMEs' success via SI as effectively (Elias, 2024). Given the above reasons for the digitalization of SMEs through SI and evidence from the World Bank’s report (Mohammad and Inaba 2020) on the value of HC in Bangladesh, the following hypothesis is proposed:

H1.

SI is significantly affected by HC.

SI literature reviews may include academic fields, economic sectors and forms of innovation. Yang (2014) notes that after identifying strategic types of innovation in the 1990s, corporations saw innovation as a way to enhance performance and maintain a competitive advantage. Businesses prioritized innovation to maintain their long-term edge. Despite research (Lilly and Juma, 2014; Omar, 2019) establishing a clear correlation between SI and performance, the significance of SI in achieving genuine economic advantages and/or performance developments via digitalization has been questioned (Derrick and Soren, 2007; Valdez-Juárez et al., 2024). Most research supports the premise that innovation helps businesses digitalize, notwithstanding failed ideas (McGee et al., 1995; Lafuente et al., 2024). A corporate innovation study has shown a strong link between innovation and digitalization. Innovation and success are linked in factories and other industrial enterprises, but digitalization is less common (Abdin, 2018; Bayraktar et al., 2017; Hasan, 2019). SI is the key to a company’s caliber to stay competitive and digitalize its operations (Kalay and Lynn, 2015; McCausland, 2024). Businesses must have unique, well-executed concepts to compete in today’s ever-changing markets (Gonzalez-Benito et al., 2015; Janes et al., 2017). Lewin and Stuart (2016), McMurry (2013) and Hobday (2005) believe that developing nations like Bangladesh require innovation to prosper in the global economy. Cox and Stoddard (2018) found that innovation had minimal impact on digitalization. Academics feel innovation is key to a company’s survival and success (Masoomzadeh et al., 2020). Bangladesh’s manufacturing enterprises are performing well, which may be attributable to the extensive usage of digital technology (Mohammad and Inaba, 2020; Iskandar and Ariffin, 2019). Previous research has found a relationship between SI and SMEs (Kalay and Lynn, 2015; Yusliza et al., 2020), and this study will follow suit with the Global Innovation Index. However, previous research in Bangladesh has not explored the impact of SI on digitalization, so the following hypotheses will be tested:

H2.

The digitalization of SMEs is significantly influenced by SI.

The core personnel are the lifeblood of every business. Without sufficient personnel, a business cannot perform any of its functions. This is also why the people who make up an organization’s staff are a valuable resource in their own right. There’s room for new bets to be made using this fund’s available funds, too. Therefore, it is essential to consider the staff’s capabilities to get a competitive advantage (Bontis et al., 2018). During digitalization, employees in the IT sector make up the volume of a company’s workforce since most SMEs rely on freelancers and contract employees for their operations. People working in IT need to have a solid grounding in Internet navigation and usage since this knowledge is crucial to digitization. After digitalization is implemented, almost all business processes will revolve around technology and networking, making it crucial for the rest of the staff to acquire relevant skills. Since it can maintain a stable supply of reliable, skillful workers, the firm must prioritize investing in its professional development (Blanco-Alcantara et al., 2018). A company’s chances of successfully adopting digital technology improve if its employees have more training and experience in digital and IT-related disciplines (Dedy et al., 2016; Habidin et al., 2013; Zainuddin et al., 2019). Companies with more advanced levels of digital adoption also tend to invest more in their employees and provide them with more opportunities to expand their skill sets (Kweh et al., 2019). In light of these discussions, the hypothesis presented below is derived:

H3.

HC has an important influence on the digitalization of SMEs.

The Internet is the principal support mechanism for the global systems underlying technological infrastructure. Only the Internet can bridge the gap between the many communications protocols used today in the digital world. Therefore, to build a digital infrastructure, each company needs to have a firm grasp of the Internet’s many applications and advantages (Khan et al., 2020). To build a digital infrastructure, it is essential to know all there is to know about the subject. Business owners who want to succeed in today’s global economy must build their Internet commerce infrastructure. Knowledgeable use of the Internet is crucial to the success of this endeavor (McConnell, 2010; Rothauer, 2018).

In order to make the transition to digital operations, businesses need ready access to cutting-edge technology and employees who have been given the proper training to use it (Alves et al., 2020). Any digital enterprise must have a reliable networking infrastructure and all its parts to be effective (Massaro et al., 2019). The many software and hardware programs that provide networking make up the components (Zainuddin et al., 2019). When properly used, a company’s IT infrastructure may be a significant asset that helps it stand out from the competition (Keen, 2011). The biggest challenge that SMEs in Bangladesh have when trying to digitalize their operations is a lack of access to information infrastructure. This is why SMEs do not get sufficient access to the international market (Hamdan, 2018; Xu et al., 2017). Most SMEs lack the capital required to establish the fundamental framework their operations need (Betz, 2016; Dillon et al., 2020). Their research showed that bigger businesses had fewer obstacles than smaller ones when adopting digital technology and establishing a solid information infrastructure (Aydogan et al., 2018). Despite this, their research shows that SMEs lack the capital to invest effectively in strengthening their information infrastructure, limiting their access to worldwide markets (Hasan, 2019; Neubert, 2018; Brandy, 2023). An examination of Bangladesh’s technological and physical infrastructure is required to ascertain whether the country’s SMEs are suitable candidates for digital transformation (DT). Hence, the hypothesis is formulated as follows:

H4.

Infrastructure and technology have significant effects on the digitalization of SMEs.

Every kind of firm has the phenomenon of employees being resistant to organizational change at some point (Nambisan et al., 2019). We investigate the factors that lead individuals to fight against change using concepts from human and organizational behavior theories. The reluctance of workers and management to organizational change is often recognized as one of the most significant obstacles to the development of industrial technology (McMurry, 2013). This occurs due to the conventional management system’s perception of the organizational transformation as threatening the status quo (Gallaher et al., 2021; Almatrodi et al., 2023). Therefore, if there is a technological revolution, such as the implementation of digitalization in business, smaller businesses would be confronted with several significant obstacles, including establishing new routines and acquiring information (Moşteanu et al., 2020). These challenges cannot be described as simple by any stretch of the imagination. The Internet, on the other hand, has the potential to play a large part in assisting small enterprises in overcoming the obstacles stated above (Lei et al., 2021). A robust e-commerce network has to be built where the company’s digitization will take place to overcome opposition and uncertainty around organizational changes (Overdevest and Zeitlin 2018). The several areas of the globe each have unique cultures, which present another obstacle to implementing change (Waddell and Sohal, 2011). Because of this, it will be essential, once the organization is digitized, to grasp the cultural variations that exist among the consumers and personnel. This is because the rising digitalization of business will result in a more globalized market. The reason for this is as follows: It is possible that having continual access to the Internet for communication and networking might prove to be extremely helpful in this circumstance (Chania et al., 2019; Liu and Zhang, 2021). Because of this, the following hypothesis has been advanced.

H5.

Resistance to change significantly influences the digitalization of SMEs.

Intangible assets like workers' knowledge, skills and competencies are examples of what is referred to as HC (Barth and Bandyopadhyay, 2005). One way to think about it is the total of the workers' knowledge, attitudes and behaviors that, when put to work for the firm, give a competitive advantage and provide value to the organization. This is employee intellectual capital (F-Jardon and Martos, 2009; Fait et al., 2023). To restate this, it is the level of skill, knowledge and track record that the company’s personnel bring to the table (Van den Berk, 2013; St-Pierre and Audet, 2011). The traits and assets that make up a person, such as aptitude, education and experience, make up what is referred to as their “human capital” (Khan et al., 2015; Syakdiyah et al., 2019). Using human resources is equally essential to properly transform inputs, such as innovation, into results, such as digitalization performance (De Winne and Sels, 2010; Schmid, 2019). According to Guan and Ma (2003), having access to innovation does not ensure long-term development, excellent performance or an advantage over the competition. As a result, innovation’s influence on a company’s productivity might be directly or indirectly felt. The organization communicates this influence through its in-house procedures and practices, collectively referred to as its HC. Strategic entrepreneurial innovation rests on a strong foundation of HC. Coined in the 1980s, the HC is an asset for an organization as an intangible that is closely associated with people’s knowledge, skills and capabilities (Nieves and Quintana, 2018). According to the research, it has been shown that investments in HC greatly influence the performance of organizations (Rahim et al., 2017). This sum is known as employee knowledge, attitude and behavior (F-Jardon and Martos, 2009; Peres et al., 2019). In economies that are competitive and dependent on information, there is a widespread belief that HC generates value and boosts performance (Bollen et al., 2005).

Nevertheless, multiple studies have shown that various HC characteristics affect a company’s overall productivity (Asiaei and Jusoh, 2015; Zhu et al., 2024). Some research (Khalique et al., 2018; McDermott et al., 2013; Murdoch and Fichter, 2017) has identified a favorable correlation between HC and company performance; other studies have discovered either a weak or negative association between the two (Vishnu and Kumar Gupta, 2014). Additionally, there was evidence that SMEs' HC assets favored their creative performance (Agostini et al., 2017). As evidenced by the results of studies done by Cabello-Medina et al. (2011) and Delgado‐Verde et al. (2011), which support this conclusion, HC significantly influences inventive performance in various areas. The studies show that in their analysis of one hundred different Serbian businesses, Janosevic et al. (2013) discovered a correlation that was both positive and statistically really significant among return on equity (ROE) and capital efficiency (CE), as well as between ROE and HC with regards to Serbia. Subramaniam and Youndt (2005) proved that there is no apparent connection between HC and a company’s capacity to promote or expand innovations (either radical or incremental). Hess and Rothaermel (2011) conducted an investigation on 108 different multinational pharmaceutical companies all over the globe over three decades, beginning in 1974 and ending in 2003. They concluded that the ability to form strategic alliances amongst leading scientists and the capacity to recruit and keep leading scientists (HC) are essential resources for successful innovation. This realization came about as a result of determining when two distinct groups of assets are complementary. In the context of strategic entrepreneurial innovation, the role of HC is pivotal. According to Tseng and James Goo's (2005) research, HC also favors organizational innovation. Research carried out by Sharabati et al. (2010) indicates that HC has a straight and authentic visible effect on the outcomes of a company’s operations (Duignan, 2020). The findings of Cabrita and Bontis’s (2008) investigation lend credence to the conclusions presented here. Taking into account the findings of the previously conducted research, the current investigation makes the following hypotheses:

H6.

SI and the digitalization of SMEs are strongly mediated by HC.

After conducting an extensive review of the literature, the following theoretical framework was developed to back up the study’s main hypothesis and place the findings in context. The conceptual framework developed via literature review and scenario development is shown in Figure 1.

3. Methodology

3.1 Data collection procedures and sampling size

The quantitative and cross-sectional research design was used to verify the hypotheses, and a sampling strategy was implemented to collect data from which population-level inferences could be drawn. A cross-sectional study collects observational data from a group at a single point in time. This research has collected data at a single point. There was no manipulation involved with variables. Here, we analyze data from Bangladesh’s smaller and medium-sized factories. The most up-to-date version of the Directory of Small and Medium-Sized Manufacturing Companies was used to track down these establishments. Primary information was acquired through a survey sent out to manufacturing business CEOs.

Krejcie and Morgan’s (1970) technique was used to visualize the appropriate sample size for the investigation, which was split evenly between two geographical areas. It’s important to remember that sample sizes grow at a pace opposite to the rate at which populations grow. In this research, 220 different SMEs were selected at random using a statistical approach called simple random sampling. The company serves as the analysis’s research unit when investigating top-level management. Although 220 surveys were sent, only 180 were returned for study.

Researchers also used a questionnaire distributed to the top executives of Bangladesh’s most miniature and medium-sized factories to collect primary data. As methods of data collection go, this was only one of several that had been proposed. The questionnaire must be efficiently administered to impact the percentage of people who complete it (Dillman, 1991). A self-administered questionnaire based on numerical scales was used to collect the quantitative data needed for this study. Research progress necessitates the transformation of data from a questionnaire survey into relevant conclusions, and here is where a quantitative study may help, as argued by MB Hossain et al. (2022). For this purpose, a statistical analysis is appropriate. Respondents were given hard copies of the questionnaire, which they filled out by hand; the researcher then collected these responses.

3.2 Sampling procedure

Proportionate stratified sampling is used in this study to count the number of SME operations (Chaudhary et al., 2019; Mehdi et al., 2024). In the stratified sampling technique, the advantage is that every member of the population has an equal and independent probability of being selected (Saha et al., 2021). Therefore, proportional stratified sampling was used in this study to choose a representative sample of SMEs from each of the four categories.

The study population consists of the community’s administrative workers. At the time of this research, the questionnaires were distributed among members of the target group, and the sample size collected a total of 180 questionnaires. The questionnaires were sent to 220 participants, while 180 returned. Therefore, the sample size is 180, as determined by Cochran’s formula:

Sample size=N.Z2∞/2.∙pqe2.(N−1)+Z∞2∙pq

N is the size of the population being researched; p and q are often set to 0.5 of the population size; e is typically less than 10% and the quantity of z under the assumption of 0.05 is acquired from the standard distribution table. Both p and q are common denominators in statistical analysis (z 1.96).

3.3 Measurement of variables

3.3.1 Digitalization of SMEs

A holistic view of the literature on the DT of the company’s internal processes is especially important for SMEs (Schuh et al., 2017). This study examined the development of information technology and business intelligence systems across SMEs in Bangladesh to determine their degree of digitalization. Therefore, in this study, we evaluated and applied SMEs criteria and used six items as the scale of digital technology readiness, e-commerce preparation and online business readiness to measure the digitalization of SMEs (Ives and Olson, 1984). Five Likert-scale factors investigated are respondents' level and attitude about their readiness for digital technology.

3.3.2 Strategic innovativeness

In order to adopt the technological changes for creativity toward a stable market, this study examines the conception of strategic entrepreneurial innovation with a strategy of organizational culture, more turbulent marketplaces and thorough quality management. This is compatible with the findings of the study carried out by Hurley and Hult (1998). They used the notion of innovativeness in addition to the concept of innovation potential in their ground-breaking work on market orientation. In this context, “innovativeness” refers to an organization’s propensity to foster new ideas. At the same time, “innovation competency” refers to the concrete results achieved under this propensity. Furthermore, the organization’s innovativeness was assessed in light of how the many abilities and processes contributed to developing new technologies (Hadjimanolis, 2000; Avlonitis et al., 1994). This study used and verified a Likert-scale questionnaire to measure SI through four items, namely innovation leadership, technical innovation barriers and stated SI goals inside SMEs (Hadjimanolis, 2000; Avlonitis et al., 1994).

3.3.3 Human capital

HC is used throughout this investigation to refer to workers' education, experience and skills in a company’s tendency toward technological innovation (Barth and Bandyopadhyay, 2005). This research explores the elements, such as employee beliefs, values and abilities, that contribute to an organization’s capacity to gain a competitive edge in the market and produce value for its stakeholders (F-Jardon and Martos, 2009). In light of this, HC played a role in this research as an independent variable and mediator. Therefore, in order to validate HC, this study used a Likert-type questionnaire for the idea, made use of four items from experience, the expertise of managers and the skill of employees in response to changes and innovativeness within the organization (St-Pierre and Audet, 2011; Khan et al., 2015).

3.3.4 Infrastructure and technology

Participation in the networked economy in the present digital world is complex for small and medium-sized businesses that do not use the necessary infrastructure technology(IT) (SMEs) (Mehrtens et al., 2001). Many SMEs were operating in Bangladesh. In this experiment, IT is used as the independent variable. As a direct result of this, this study used four items extracted from online networking systems and the security of the SMEs; a validated Likert-type questionnaire presents complete infrastructure business models of the SMEs (McConnell, 2010).

3.3.5 Resistance to change

As SMEs in Bangladesh move from the traditional to the digitalized system, their organizational structures undergo internal and external transformations. In the many businesses that fall under the category of “small and medium-sized companies” (SMEs) in Bangladesh, senior management has several critical obligations, one of which is to ensure that their staff remains as productive with innovativeness as is humanly feasible. This study investigated the perspectives and intents of employees about adopting electronic wallets and other types of digitalization within the workplace as a measure of resistance to change. Additionally, a Likert-scale questionnaire was validated in order to evaluate this construct.

3.4 Demographic information

According to the statistics from the demographic survey, there were only 25 replies to the questions provided by females, while men provided 155 responses. In addition, respondents aged 31 to 40 made up the largest demographic, accounting for 70 of the total responses. Regarding the amount of experience, the persons with the most significant number of answers were those with between 5 and 10 years of experience, with 76, while those with less than five years of experience had 80 respondents (see Figure 2).

Survey responses were rated on a five-point Likert scale to evaluate the study’s three variables: SI, HC and the digitalization of SMEs. This allowed for an efficient method of gauging the responses of the study’s subjects (Hasan, 2019). Brancheau and Buckland (2016) each suggested one of the eight parts of the performance metrics. The six components of the SI measure were obtained from Abdin (2018), while the eight components of the HC measure were taken from DeLone et al. (2018).

3.5 Data analysis and its validation

This study uses partial least squares-structural equation modeling (PLS-SEM) for both its data analysis and its validation. In particular, SmartPLS software (Ringle et al., 2005) was used to develop PLS route modeling (Henseler and Chin, 2010) as the best method for checking the theoretical model. This was done because PLS route modeling was deemed the superior strategy. Similar to conventional regression, PLS path modeling estimates both the structural model (the relationship between constructs) and the measurement model (the link between indicators and constructs) concurrently (Duarte and Raposo, 2010). The SmartPLS software was perfect because of its intuitive graphical user interface. It allowed us to easily create route models of the constructs' link effects through moderating and mediating variables (Rahman et al., 2018).

4. Results

4.1 Measurement model

Items with loadings between 0.40 and 0.70, as stated in a rule of thumb for reliability published by Hair et al. (2016), are considered reliable; the item loadings in our study ranged from 0.70 and above Table 2. A value of 0.70 or higher is generally accepted, as determined by a rule of thumb developed by Bagozzi and Yi (1988) and Hair et al. (2016). Table 1 displays the overall construct reliability coefficients calculated for this study. The outstanding reliability of the measurements is shown by these results, which range from 0.866 to 0.917. According to Hair et al. (2016), enough convergent validity has been attained if the value of average variance extracted (AVE) is 0.50 or higher for each of the constructs; therefore, the conclusion data in Table 1 support it.

The discriminant validity of the scale is observed through heterotrait-monotrait ratio (HTMT). The results show that lower HTMT values show less collinearity, while higher values show collinearity. In the table above, most values are below 0.5, which suggests a weak correlation between independent variables. The second column of variance inflation factor (VIF) shows values are close to 1, which shows no collinearity, but the closeness to 1 is further aligned with HTMT values.

4.2 Structural model and hypotheses testing

We employed the bootstrapping method with the sample data to test the significance of the path coefficients (Hair et al., 2016; Henseler and Chin, 2010). Table 2 and Figure 3 provide tabular and graphical representations of the structural model estimates, respectively.

According to the results of the experiment conducted to examine H₁, SI does not have a positive effect on HC (B = 0.0530, t = 3.023, p < 0.000). The results showed that digitalization and SI were significantly connected (B = 0.432, p < 0.01, t = 3.479). This evidence supports the second hypothesis. Thus, the third hypothesis was also supported. HC was shown to positively affect digitalization (B = 0.683, p < 0.000, t = 4.65). This result also supports hypothesis 3. Hypothesis 4 indicated that infrastructure and technology are positively linked with digitalization results (B = 0.470, p < 0.000, t = 3.89). Similarly, hypothesis 5 revealed a significant but negative influence of resistance to change influence on digitalization. These results are shown in Table 2 and Figure 3.

Table 3 presents the values of the R-square coefficients that pertain to the endogenous variables. The model used in the research effectively explained 45% of the variance in HC and 60.3% of the variation in the digitalization of SMEs (see Table 4).

4.3 Mediation effect

The mediation test was developed to ascertain whether the criteria put forward by Baron and Kenny (1986) were met. In addition to the MedGraph software, a slightly modified version of the Sobel test was applied to evaluate the significance of the mediating role that SI plays in the connection between HC and the digitalization of SMEs. This was figured out by using the z-value. The only method for mediation research is the PLS path analysis. It does the same for direct and indirect effects (Hair et al., 2016; Zhao et al., 2010) (see Figure 4).

According to the results, there is a statistically significant and mediating effect of HC (B = 0.354; t = 5.730, p < 0.000); the formula for this effect is as follows: Because it shows complementary mediation, this evaluation follows the method that Zhao et al. (2010) suggested for testing mediation. This shows how much a calming effect helps H6 (see Table 5).

In addition, within the scope of this investigation, an analysis of the direct and indirect impact sizes was carried out with the assistance of variance accounted for (VAF) using the formula below:

VAF (SN)=(0.53 x 0.683) / (0.53 x 0.683+0.564)=0.392

Based on the findings, it seems that the indirect impact of HC may account for 39.2% of the variance in SI’s effect on the digitalization of SMEs (partial mediation) (see Table 6).

Mode fit indices show the values of standardized root mean square residual (SRMR), which measures the average difference between the observed and predicted variables. In our case, both models have lower values, which further suggests that model is fit to the data. However, estimated model is slightly worse fit because of higher SRMR value. The normed fit index (NFI) shows both models are relatively fit.

5. Discussion and conclusion

5.1 Discussion

This research aimed to perceive whether or not there was a connection between strategic entrepreneurial innovation and digitalization in Bangladesh and whether or not HC was a mediator of that connection. Based on the findings of the PLS-SEM analysis, it would seem that SI and HC in Bangladesh are associated with one another in a way that is both beneficial and statistically significant. The results of the investigations offer support to the perspective being presented here. Our findings, which align with previous studies, indicate that SI positively correlates with HC (Lilly and Juma, 2014; Kalay and Lynn, 2015). It was discovered that there is a favorable correlation between SI and digitalization. The alternative idea has greater weight now that we have this proof. Our findings provide more evidence to support the findings of D'Este et al. (2014) and Sun et al. (2020), who concluded that innovation programs that do not include an effective organizational learning mechanism are doomed to fail.

Accordingly, these findings also supported the third hypothesis. B = 0.683, t = 4.65, p < 0.000) indicates that HC positively affects the degree to which SMEs in Bangladesh use digital technologies. This result also lends credence to the third theory. Considering that a company’s people resources are its most valuable asset, it may have the edge over rivals owing to its unique composition.

Hypothesis 4 was tested, and the data showed a positive correlation between Infrastructure and technology and the result of digitalization (B = 0.470, t = 3.89, p < 0.000). Given the current state of affairs in the digital realm, it is crucial to identify the economic and commercial success indicators. As technologies evolve, they create new demands on how organizations handle their data, allowing those firms to adapt their methods and procedures accordingly. Digital organizations need to learn new skills to foresee and accommodate evolving developments inside their business ecosystems because technological breakthroughs have made it easier for firms to adapt to them. The following phrases illustrate these enhanced capabilities (Hai et al., 2021). One of the aims of the ubiquitous computing movement is to establish a world where resources like infrastructure, computers, sensing technologies and digital communication technologies are available at all times and in any location. This trend is an example of a revolutionary change in information technology. In addition, digitization ushers in a brand-new era of interconnected technological devices. In this kind of interconnected electronics, cutting-edge systems automatically track and run things like satellite tech, mobile devices and intelligent machinery. In addition, a new kind of connected electronics emerges from this one (Wu et al., 2021).

Similarly, hypothesis 5 found that resistance to change had a significant but unfavorable influence on the digitalization of SMEs in Bangladesh. DT may be understood as an iterative process that depends on the internal and external circumstances of the organization when seen as a change in organizational structure. In contrast to the latter (external) context, which is in a constant state of fast development, the former (internal) context of the organization is the legacy DT, which is seen as an input for the subsequent transformation (Chania et al., 2019). This scenario, therefore, causes an ongoing internal shift in reaction to environmental influences. Contingency theories provide a detailed description of this phenomenon, suggesting that a good match between the external situation and the organizational structure is necessary for optimal performance (Crișan and Stanca, 2021; Donaldson, 2006).

An investigation and analysis of HCs function as a bridge between SI and the digitalization of Bangladesh’s SMEs. Bangladesh was the location where the actual research was carried out. The data points to a close connection between the different architectural styles of buildings. To begin, the PLS-SEM findings support the hypothesis that the degree to which SMEs in Bangladesh have embraced digitalization is connected with the degree to which SI exists in those businesses. The findings provide credibility to the overall notion. According to the findings of recent studies, there is a positive association between SI and the digitalization of SMEs in Bangladesh (see, for instance, Lilly and Juma, 2014; Kalay and Lynn, 2015). The outcomes of this research do provide more supports for the conclusions drawn from various investigations.

Strategic entrepreneurial innovation appears as a significant driver for the SMEs in Bangladesh as it affects the digitization of SMEs. However, the HC mediates between the two, as observed in a study (Baron and Kenny, 1986). This supports to the study’s hypothesis that SMEs in Bangladesh are becoming more digital due to SI (SMEs). These findings support the findings of D'Este et al. (2014) and Sun et al. (2020), who found innovation initiatives that do not have a robust organizational learning mechanism are doomed to fail. Consistent with the authors' results, we may infer that HC investments in people make businesses more able to innovate in response to changing conditions. This fits with what these writers have found. SMEs in Bangladesh may make varying degrees of digital advancement based on variables, including their level of SI and HC. This lends credence to the idea that HC mediates the relationship between SI and the digitization of SMEs in Bangladesh (Baron and Kenny, 1986).

Strategic entrepreneurial innovation has a correlation with adoption that extends beyond the impacts of the mediated interactions, as shown by the fact that the digitalization of SMEs in Bangladesh has a direct, substantial relationship with all of the variables of SI. While the aforementioned mediating impact is present, this finding nonetheless illustrates that SI is linked to adoption in ways beyond the consequences of the mediated interactions. A company’s human resources are its most valuable asset, and a significant competitive edge may arise from its staff characteristics compared to rival businesses. The magnitude of this correlation supports the view that HC in Bangladesh mediates the connection between SI and the digitization of SMEs. HC’s role in Bangladesh’s effort to digitalize its SMEs is unclear. This connection has been studied less in countries where different cultural practices are standard, including in Asia; as a consequence, it has become an intriguing topic worthy of more investigation. HC has emerged as a critical factor in determining a company’s performance, yet the connection between SI practices and the digitalization of SMEs in Bangladesh remains little recognized. This is because HC is crucial to every business’s ultimate success. An in-depth analysis of the relevant research suggests that the preexisting level of HC in culture-driven countries like Bangladesh may significantly affect the connection above. This study adds to the current literature by examining HC’s role in the correlation between SI and the digitalization of SMEs in Bangladesh.

The discussions have also shown theoretical differences and practical issues associated with this study. The country’s SMEs are still having trouble gaining a foothold in the market. HC as a mediator between SI and the digitalization of SMEs in Bangladesh has not been the focus of any previous research. In addition, this research fills a significant knowledge gap by examining the little literature on innovative activities in Bangladesh’s industrial sectors. Therefore, this research effectively addressed the interaction between SI and the digitalization of SMEs in Bangladesh, with the impact of HC functioning as a mediator, on the basis of these theoretical and practical shortcomings. The study’s final goal is to contribute appropriately to the body of knowledge already available about the SI and digitalization of SMEs in Bangladesh, making it valuable for academics and practitioners in the field. HC serves as the vehicle through which we achieve our goals. The significance of the research resides in the fact that it provides concrete proof of the importance of HC and the implementation of SI in promoting the growth of national economies by utilizing the betterment of product quality and filling vacancies in domestic markets. In the history of economics, this is a significant advance. Both of these are crucial to realize the full economic growth potential.

Similarly, it stresses the need to build solid connections with customers to increase sales for regional businesses and win their confidence in the quality of their products. Managers in Bangladesh’s SMBs will notice improved results after adopting a HC and SI plan due to digitalization. Therefore, SMEs in Bangladesh would benefit more throughout their operations if firms prioritized HC’s role as a mediator between SI and digitalization.

5.2 Conclusion

Overall, this study can benefit practitioners, academics and policymakers by enchancing their understanding about the value of strategic entrepreneurial innovation in the digital age, shed light on the multifaceted ways HC drives SMEs digitalization and instruct businesses on the best routes to high performance through digitalization. In addition, this study can benefit businesses. Moreover, it is crystal clear that the company’s HC plays a significant part in enhancing its capabilities in several ways. This study reinforces a significant role in the company’s HC to enhance its capabilities for strategic entrepreneurial innovation. In addition, businesses may be able to make greater use of SI and HC if they prioritize training their staff and concentrate on acquiring information rather than developing a specific body of knowledge and moving quickly.

5.3 Limitations and future research

There are a number of problems with this study that need to be fixed. There was a modest sample size to begin with; as a result, the results cannot be extended to more prominent manufacturers. In order to circumvent this issue in a future study, it is recommended that a probabilistic sampling approach be used. Second, considering that HC was just a partial mediator of this connection between SI and the digitalization of SMEs in Bangladesh, additional factors may have the ability to play a role in mediating the correlation between these two concepts. It is also possible that further study will explore the mediating influence that other types of intellectual capital, such as innovation capital, have on this link.

In conclusion, this study used a quantitative methodology; nevertheless, to offer a more in-depth understanding of the concerns, future research may analyze the breadth of the researched variables through qualitative research approaches. This will assist in shedding light on how SMEs in Bangladesh may employ innovation to digitally alter their operations. This is a fascinating field for doing the further research required to expand on these discoveries and enhance our grasp of this vital area of study; moreover, this topic lends itself well to accomplishing just that. Despite the results, a microscopic study has been done on this link in countries that have cultural practices that are unique to themselves, such as those in Asia. Because of this, the relationship that was brought up before has been ignored in the past.

5.4 Managerial implications

• (1)

  SMEs should move beyond their basic digital adoption by developing a clear digitization strategy.

• (2)

  Digitization strategy should be goal-specific, target markets to achieve a competitive advantage.

• (3)

  To effectively use the digital tools, there is a need to provide skills and knowledge to the employees.

• (4)

  Managers should invest their effort in training programs. It can be completed over a specific software or data analysis software.

• (5)

  Managers can create an environment of learning by empowering employees. Managers can provide them opportunities for creative problem-solving.

• (6)

  SMEs should revise their scale of recruitment to mitigate strategic challenges to attract and retain digital talent. One option is to offer facilitates, better salary packages and professional development opportunities in digital fields.

• (7)

  There is a need to bridge the gap between digital literacy and employees’ time. Managers can address this issue by allotting a specific time for learning activities within the organization.

• (8)

  Consider partnering with external consultants or educational institutions to access expertise and resources for DT.

• (9)

  Digital strategy should be addressed regularly. There is a need to track key performance indicators (KPIs) to ensure the right track.

Figures

Figure 1

Research framework

Figure 2

Demographic information

Figure 3

Structural model: PLS algorithm

Figure 4

Structural model based on bootstrapping

Table 1

Factor loading, convergent validity and internal consistency reliability

Indicators and latent construct	Standardized loading	Composite reliability	Cronbach’s Alpha	Average variance extracted (AVE)
Digitalization		0.886	0.905	0.681
DGT1	0.723
DGT2	0.775
DGT3	0.785
DGT4	0.809
Strategic innovation		0.893	0.920	0.653
SI1	0.725
SI2	0.761
SI3	0.790
SI4	0.783
Human capital		0.884	0.870	0.694
HC	0.785
HC	0.809
HC	0.776
HC	0.778
Infrastructure and technology		0.864	0.900	0.630
IT	0.764
IT	0.790
IT	0.789
IT	0.875
Resistance to change		0.866	0.934	0.683
RC	0.790
RC	0.824
RC	0.854
RC	0.805

Table 2

Discriminant validity (HTMT)

Variables	HTMT	VIF
Human capital ↔ Digitization of SMEs	0.221	1.16
Infrastructure and technology ↔ Digitization of SMEs	0.441	1.033
Infrastructure and technology ↔ Human capital	0.191
Resistance to change ↔ Digitization of SMEs	0.364	1.034
Resistance to change ↔ Human capital	0.13
Resistance to change ↔ Infrastructure and technology	0.14	1
Strategic innovation ↔ Digitization of SMEs	0.273	1.157
Strategic innovation ↔ Human capital	0.327
Strategic innovation ↔ Infrastructure and technology	0.252
Strategic innovation ↔ Resistance to change	0.191

Table 3

Assessment of structural model

Hypothesis	Associations	β	t-stat	p-value
H1	Strategic innovation → Human capital	0.530	3.023	0.005
H2	Strategic innovation → Digitalization	0.432	3.479	0.001
H3	Human capital → Digitalization	0.683	4.65	0.003
H4	Infrastructure and technology → Digitalization	0.470	3.89	0.023
H5	Resistance to change → Digitalization	−0.384	−4.45	0.000

Table 4

Endogenous latent variables explained variance

Latent variables	Variance explained (R2)	Adjusted R2
Human capital	0.453	0.432
Digitalization	0.603	0.590
Infrastructure and technology	0.448	0.423
Resistance to change	0.535	0.503

Table 5

Mediation effects

Hypothesis	Association	β	S.E.	t-stat	p-value	Decision
H6	SI → HC → Digitalization	0.354	0.063	5.730	0.000	Supported

Table 6

Model fit indices

	Saturated model	Estimated model
SRMR	0.095	0.1
d_ULS	1.912	2.11
d_G	0.541	0.547
Chi-square	295.851	297.974
NFI	0.639	0.636

Author contributions: Conceptualization, Md Billal Hossain and László Vasa; methodology, Md Billal Hossain, Tomaž Čater; software, Md Billal Hossain, and Mujib Ur Rahman; validation, Md Billal Hossain, László Vasa and Tomaž Čater; formal analysis, Md Billal Hossain; investigation, Mujib Ur Rahman, Md Billal Hossain, and Tomaž Čater; resources, Mujib Ur Rahman, Md Billal Hossain and László Vasa; data curation, Mujib Ur Rahman, and Md Billal Hossain; writing original draft—Md Billal Hossain; writing—review and editing, Tomaž Čater, and Md Billal Hossain; visualization, Md Billal Hossain and László Vasa; supervision, Md Billal Hossain and László Vasa; project administration, Md Billal Hossain; funding acquisition, László Vasa All authors have read and agreed to the published version of the manuscript.

Funding: This research received no external funding.

Availability of data and materials: Data will be available on request.

Competing interests: The authors have no conflicts of interest to declare. All co-authors have seen and agree with the contents of the manuscript and there is no financial interest to report. We certify that the submission is original work and is not under review at any other publication.

Ethical approval: The authors approved that this study has not involved any human participants, their data or biological material.

Informed consent: Other than authors, present study does not need any consent from elsewhere.