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VOLUME 22 ISSUE 1 MARCH 2024
JURNAL APLIKASI MANAJEMEN
253
JAM
J u r n a l A p l i k a s i M a n a j e m e n
J o u r n a l o f A p p l i e d M a n a g e m e n t
V o l u m e 2 2 I s s u e 1
M a r c h 2 0 2 4
2 2 | 1 | 2024
R ec ei ve d S ep te mb er ‘23
R ev is ed S ep te mb er ‘ 23
Nov em be r ’23
A cc ep te d M ar ch ’2 4
HOW DIGITAL TRANSFORMATION CAN
AFFECT PRODUCT INNOVATION
PERFORMANCE MSMEs: EVIDENCE
FROM WEST JAVA
Vigory Gloriman Manalu
Fauziyah Adzimatinur
Universitas Kuningan, Indonesia
Abstract
: This study aims to examine the relationship of foresight capability
to the innovation performance of SMEs by using digital transformation as a
mediating variable. This study uses a quantitative research method. Data col-
lection was carried out through a structured offline questionnaire. The tech-
nique of determining the sampling is done by using purposive sampling. The
population in this study were SMEs originating from the West Java region,
with a total of 187 questionnaires collected. This research uses structural equa-
tion modeling (SEM) to test the hypothesis. This study proposes ten hypothe-
ses, of which seven direct effect hypotheses and three hypotheses test the me-
diating effect. The study's results found that foresight capability can affect
product innovation performance. The effect of foresight capability (network
and analysis) can affect digital transformation, but the time horizon cannot
affect digital transformation. Digital transformation can affect the perfor-
mance of MSMEs product innovation. This study found that digital transfor-
mation can partially mediate network relationships and analysis on product
innovation performance and cannot mediate time horizon relationships on
product innovation performance. The findings of this study enrich the fore-
sight literature, digital transformation, and innovation performance of MSMEs
products.
Keywords: Foresight, Digital Transformation, Product Innovation Perfor-
mance, MSMEs, West Java
CITATION
Manalu, V. G. and Adzimatinur, F. 2023. How Digital Transformation Can Affect Product Innova-
tion Performance MSMEs: Evidence from West Java. Jurnal Aplikasi Manajemen, Volume 22, Is-
sue 1, Pages 253–266. Malang: Universitas Brawijaya. DOI: http://dx.doi.org/10.21776/ub.jam.
2024.022.01.19.
I ND EX ED I N
D OA J - D ir ec t or y o f Op en
A cc es s J ou rn a ls
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I nd ex
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G oo gl e S ch ol a r
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I nd ex
I nd on es i an O N ES ea r ch
C OR RE SP ON DI NG A UT HO R
V ig or y G lo ri m an M an al u
F ak ul t as E ko n om i d an B is n is ,
U ni ve rs i ta s K un in g an ,
I nd on es i a
EM AI L
v i g or y g l o @ u ni k u . a c . i d
OPEN ACCESS
e I SS N 23 02 -6332
p I SS N 16 93 -5241
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INTRODUCTION
MSMEs are a research topic that is often in-
vestigated in various countries today. MSMEs can-
not be separated from the vital role of MSMEs in
providing economic growth in a country. MSMEs
face competition in a dynamic business environ-
ment (Cenamor et al., 2019). Besides that, compa-
nies also face a business environment that contains
volatility, uncertainty, complexity, ambiguity, and
hyper-competition (Kaivo-Oja and Lauraeus,
2018; Semke and Tiberius, 2020). This high level
of competition requires organizations owned by
MSMEs to continue to be able to compete in the
dynamics of an uncertain business environment.
Based on the Resource Based View (RBV)
theory, to achieve sustainable competitive advan-
tage, MSMEs must focus on intangible and tangi-
ble resources (Xin et al., 2023). Innovation will be
the key for MSMEs facing competition in the tech-
nological era (Kontić and Vidicki, 2018). Innova-
tion carried out by MSMEs cannot be separated
from the strategies that have been and will be im-
plemented. Innovation is essential for organizatio-
nal stakeholders to understand to create strategies
to help achieve positive business growth (Wu et
al., 2015). Foresight capability provides a view of
business situations that continue to fluctuate and
may impact their superior position and cause a de-
crease in their competitive advantage (Kononiuk
and Sacio-Szymańska, 2015). Good foresight ca-
pability will improve SMEs' innovation perform-
ance (Manalu et al., 2023). In line with AlMujaini
et al. (2021), the company's corporate foresight
can influence innovation performance. So, the fo-
resight capability possessed by MSMEs will be
the correct antecedent factor to improve the inno-
vation performance of MSMEs.
Currently, MSMEs in Indonesia have sev-
eral dominant factors that are sources of vulnera-
bility, including the use of technology, which has
a 37% influence on business continuity (BI, 2022).
Digitalization can be an effective strategy for the
MSMEs to reduce costs (Phiri, 2020). MSMEs can
achive business sustainability by adopting digital
technology through creative transformation and
innovation (Matt and Rauch, 2020). MSMEs orig-
inating from West Java are classified as potential;
when the acceleration of digitalization in business
processes was implemented, the economic contri-
bution reached 28.27% (Susanto, 2020). Husniyah
et al. (2023) found that the digital literacy level of
MSMEs in West Java is at a high level.
Cultural and organizational aspects of the
MSMEs often find it challenging to consider the
knowledge related to digital transformation when
implementing digital technology (Riesener et al.,
2019; Stich et al., 2020). The limited resources
owned by MSMEs can be a stumbling block in
facing uncertain competition. Besides that, finan-
cial strength and resources are essential factors for
MSMEs to face competition in the digital era of
technology (Peillon and Dubruc, 2019). The dis-
continuity between organizational innovation and
digitalization makes it difficult for MSMEs to
compete in a dynamic business environment. Eve-
ry MSMEs needs digital transformation to com-
pete (Costa-Melo et al., 2023).
On the other hand, digital transformation re-
quires considerable resources, which may be dif-
ficult for every MSMEs. However, digital trans-
formation is a change from traditional to digital,
so that the right strategy will be the primary key
(Stalmachova et al., 2022). However, according to
Appio et al. (2021), digital transformation can im-
pact the stages of the innovation process in com-
plex and ambiguous ways through supporting tech-
nology to improve product performance innovati-
on (Iansiti and Lakhani, 2019). Thus, digital trans-
formation is a potential variable in bridging the
foresight relationship on product innovation per-
formance.
There needs to be more investigations into
the influence of foresight capability on the product
innovation performance of MSMEs in West Java.
Furthermore, the measurements used for foresight
capability have not come to light and have caused
confusion among researchers. On the other hand,
digital developments have required business ac-
tors to be able to implement digitalization, includ-
ing at the MSMEs level. This research is presented
to provide novelty regarding foresight capability
testing on MSMEs product innovation performan-
ce and the impact of the mediating effects of digi-
tal transformation.
LITERATURE REVIEW
Theoretical Background
By embracing the theory of Resource-Ba-
sed View (RBV) and Dynamic Capability View
(DCV), we review relevant literature to understand
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better our assumptions about the foresight capabil-
ity, digital transformation, and innovation perfor-
mance of MSMEs.
RBV shows two types of resources owned
by a company, namely intangible and tangible
(Barney, 1991). For companies with a lot of capi-
tal, tangible resources will be fine. On the other
hand, small companies such as MSMEs often face
this problem due to limited financial and human
resources. Thus, strengthening tangible resources
will be the key for them to achieve Sustainable
Competitive Advantage (SCA).
High competition and the dynamic business
environment require MSME owners to have dy-
namic capabilities (França and Rua, 2018). Good
dynamic capabilities will enable MSMEs to com-
pete in a cruel business environment. The better
MSMEs are at implementing dynamic capabilities,
the better they will be able to improve their achie-
vements to achieve a good competitive advantage
(Teng et al., 2022). MSMEs' unique and rare ca-
pabilities compared to their competitors can be the
primary key for them to survive in uncertain busi-
ness competition.
Foresight Capability
Foresight analyzes current conditions based
on the past and present and predicts possible future
events (Slaughter, 1996). Foresight can be done by
assuming the absence of luck and randomness
(Ahuja et al., 2005). Kayser and Blind (2017) de-
fine foresight as current decisions and actions to
study the possible future of an organization. So,
foresight cannot be predicted by itself but is form-
ed based on current events. According to Heiko et
al. (2010), the concept of foresight significantly
contributes to the development of new products
and the innovation path of a company. Foresight
can be seen as two sides of a process, on the other
hand, as an organizational capability (Rohrbeck
and Gemünden, 2011).
Practices and techniques have been sug-
gested as essential from foresight, including sce-
nario planning, environmental scanning, and trend
analysis (Vecchiato, 2012). Thus, foresight allows
companies to reduce uncertainty and increase the
ability to understand changes and challenges for a
reasonable future throughout the industry (Pali-
okaitė et al., 2014; Amer et al., 2013; Chermack,
2005). Previous researchers have acknowledged
the many conceptualizations of foresight with dif-
ferences or contradictions that add to the difficulty
of measuring the impact of this concept on firm
performance (Paliokaitė et al., 2014). Thus, there
is hope that foresight proposals can help reduce
uncertainty, analyze future scenarios, and facili-
tate the strategy formulation process to support de-
cision-making and strategic planning.
Digital Transformation
Digital transformation is a phenomenon re-
shaping industry, business, and society as a whole,
where a holistic and strategic approach is needed
beyond just technology adoption to evaluate busi-
ness models (Bharadwaj et al., 2013). According
to Fitzgerald et al. (2014), digital transformation
uses new digital technologies such as social me-
dia, mobile technology, analytics, or embedded
devices to enable major business improvements,
including improved customer experience, simpli-
fied operations, or streamlined business models.
Gong and Ribiere (2021) define digital transform-
ation as a process of fundamental change enabled
by the innovative use of digital technology accom-
panied by strategic leverage of key resources and
capabilities to improve the entity and redefine the
value proposition for stakeholders. An entity can
be expressed as an organization, business network,
industry, or society.
Digital transformation is considered a driver
of change in all contexts, especially in the business
context, and influences all aspects of human life
based on the use of technology (Kraus et al., 2021).
Digital transformation and digitalization are con-
sidered to have differences. However, some stud-
ies often describe it as "digitalization" (Hess et al.,
2016). Digital transformation is a change that aris-
es from digital technology, while digitalization re-
fers to converting information from analog to dig-
ital form and automating processes through tech-
nology (Hess et al., 2016). Thus, this research will
consider digital transformation as a synonym for
"digitalization," "digital innovation," and "digital
transition" in line with (Costa-Melo et al., 2023).
Product Innovation Performance
Innovation can be interpreted as a compa-
ny's good implementation of a creative idea (Gu-
musluoğlu and Ilsev, 2009). Innovation can result
from raw ideas created by the company or from
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adapting new knowledge discovered within the
company (Chen et al., 2015). Innovation is gener-
ally referred to as one of the key ingredients for
competitive companies and the ability to survive
in a dynamic business environment (Gumusluoğlu
and Ilsev, 2009).
Product innovation plays a crucial role as
one of the key aspects of overall innovation throu-
gh the company's ability to learn abnormal profits
and provide channels for companies to enter new
markets and industries (Nambisan, 2003). Further-
more, product innovation is the introduction of a
novelty or product significantly developed in the
study of its characteristics or intended use (Alegre
et al., 2006; Muñoz-Pascual et al., 2019).
HYPOTHESIS DEVELOPMENT
Foresight Capability, Digital Transformation
and MSMEs Product Innovation Performance
SMEs can overcome the demands and chal-
lenges of a hypercompetitive business environm-
ent by improving innovation performance (Parida
et al., 2012). In line with Milshina and Vishnev-
skiy (2018), innovation issues are a topic that is
often associated with MSMEs. Innovation is the
key for MSMEs to survive and compete because
MSMEs often have difficulty creating a strategic
vision (Van de Vrande et al., 2009).
Previous research supports leveraging fore-
sight capabilities to strategically benefit MSMEs
innovation performance (AlMujaini et al., 2021;
Manalu et al., 2023). Slaughter (1996) explains
that foresight is a strategy for predicting future
events based on data sources they have currently
and in the past. Several studies have linked fore-
sight with organizational learning, innovation, am-
bidexterity, and business performance (Paliokaité,
2010). Without a clear theoretical basis, foresight
is sometimes viewed as a collection of various me-
thods (Baškarada et al., 2016; Piirainen and Gon-
zalez, 2015). However, business organizations that
cannot implement foresight well are usually low
in innovation and tend to have stagnant growth
(AlMujaini et al., 2021). So, by having good fore-
sight skills, they will be able to increase their in-
novation in developing new products.
Companies can gain operational efficiency
through digital technology. Digital technology that
is appropriately utilized can reduce workload or
automate business activities. Companies can break
away from traditional sales methods by having
better foresight skills, such as digitizing sales.
H1 : Network has a positive effect on MSMEs
product innovation performance.
H2 : Time Horizon has a positive effect on MSME
product innovation performance.
H3 : Analysis has a positive effect on the product
innovation performance of MSMEs.
H4 : Network has a positive effect on digital trans-
formation.
H5 : Time Horizon has a positive effect on digital
transformation.
H6 : Analysis has a positive effect on digital trans-
formation.
The Influence of Digital Transformation on
MSMEs Product Innovation Performance
Digital transformation refers to a business
transformation strategy that focuses on consumers
and equally requires organizational and cultural
changes in line with the implementation of digital
technology (Stalmachova et al., 2022). The rapid-
ly growing use of the internet encourages ease in
disseminating knowledge and information, there-
by reducing company costs in the information se-
arch, tracking, and verification process, ultimately
conducive to encouraging company innovation
(Fang et al., 2022; Li et al., 2023). Furthermore,
digital communication technology, including soci-
al media, positively influences innovation (Gaglio
et al., 2022). Several studies indicate that digital
technology companies will potentially be more in-
novative (Li et al., 2023).
Research on digital transformation on the
product innovation performance of MSMEs is still
lacking. MSMEs are often faced with technology
investments that are quite high in terms of costs.
However, on the other hand, digital usage can be
used via other digital platforms that are considered
more cost-effective, such as social media. Based
on the description above, we propose the follow-
ing hypothesis:
H7 : Digital transformation positively influences
MSME product innovation performance.
Mediation Role of Digital Transformation
Digital transformation refers to triggering an
organization to respond to strategies through digi-
tal technology, including information, computeri-
zation, communication, changing structures, boun-
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daries, and even value-generating paths, and then
realizing the corporate entity's evolution process
(Vial, 2019). Other studies believe that corporate
digital transformation triggers major changes in
the reconstruction and characteristics of corporate
organization, behavior, and system operation thro-
ugh applications of information technology (IT),
computerization, communications, and connection
technology (Zhang et al., 2021). Therefore, in the
digital transformation process, companies need a
clear strategy, appropriate methods, and appropri-
ate behavior to accelerate the progress of continu-
ous innovation and development stages (Teng et
al., 2022). Thus, good innovation to compete in a
business environment that requires accelerated use
of technology will be influenced by good transfor-
mation, and digital transformation will be influ-
enced by the ability of foresight to obtain valuable
information in determining future strategies for
MSMEs.
H8 : Digital transformation can mediate network
relationships and MSME product innova-
tion performance.
H9 : Digital transformation can mediate the rela-
tionship between time horizon and MSME
product innovation performance.
H10 : Digital transformation can mediate the rela-
tionship between analysis and MSME prod-
uct innovation performance.
METHOD
This research will use a quantitative strat-
egy using a questionnaire's primary data. This re-
search will target MSMEs from the fashion, craft,
food, and beverage sectors from West Java who
have implemented digitalization in their business
activities. These MSMEs were chosen because
they are in a competitive and dynamic business en-
vironment where innovation capabilities are need-
ed to continue to survive (Cenamor et al., 2019).
Figure 1. Research Framework
Table 1. Constructs Measurement
Variable
Measures
Source
Networking
I always work closely with suppliers and customers to develop
solutions.
Manalu et al.
(2023), Paliokaitė
I always ask the experts for their opinion.
et al. (2014).
I always participate in trade shows.
Time Horizon
I clearly define a timescale for investigating a new technology.
I conduct continuous scanning of the business environment.
I plan activities that optimize progress.
I Develop a consensus about the organization's vision.
Analyzing
I use scenario thinking.
I consistently Predict competitors' maneuvers.
I Use scenarios to explore potential futures.
Digital
I operate systematic technology.
Teng et al. (2022),
Transformation
I've always been data-driven and business-centric
Bley et al. (2016).
I use technology to help with decision-making.
Product Innovation
Performance
I am introducing a new generation of products.
Agostini et al. (2017).
Foresight Capability
Networking
Time Horizon
Analysis
Digital
Transformation
Product Innovation
Performance
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Data was collected through a structured qu-
estionnaire using purposive sampling. The criteria
used to collect data are MSMEs owners or manag-
ers who have carried out business activities for at
least one year. We used a 7-point Likert scale (1-
strongly disagree to 7- strongly agree).
This research employs three variables: fore-
sight capability, digital transformation, and pro-
duct innovation performance. The measurements
used to explain foresight capability use multidi-
mensionality consisting of networking, time hori-
zon, and analysis. Digital transformation and inno-
vation performance using unidimensionality. Each
dimension will be explained into indicators where
foresight capability consists of ten indicators: three
networking, four-time horizon, and three analyz-
ing indicators. Foresight capability indicator items
refer to (Manalu et al., 2023; Nyuur et al., 2015;
Paliokaitė et al., 2014); three digital transforma-
tion indicators refer to (Bley et al., 2016; Teng et
al., 2022) and three innovation performance indi-
cators (Agostini et al., 2017). The structural equa-
tion modeling (SEM) approach used in this rese-
arch is a method for establishing, estimating, and
testing causal relationship models. Two stages will
be carried out: confirmatory factor analysis (CFA)
and path analysis. CFA is tested by looking at the
average variance extracted (AVE) value of more
than 0.5 and composite reliability (CR) of more
than 0.7 (Bagozzi and Yi, 1988).
RESULTS
Respondent Characteristics
Table 1 shows the questionnaire collected
187 respondents who had filled it in and could pro-
ceed to the testing stage. Based on the characteris-
tics of respondents, it was found that the average
age of MSME owners was 32 years to 39 years,
namely 72 (38.5%) respondents. Characteristics
based on gender: The average number of MSME
owners who filled out the questionnaire was 142
men (75.93%). Furthermore, from the characteris-
tics of educational level, it was found that, on aver-
age, 143 (76.47%) respondents had a high school
education. Finally, the average operated business
for MSMEs to carry out their business activities
was 1 to 3 years for 82 (43.85%) respondents.
Convergent Validity
Table 2 shows that validation confirmatory
factor analysis (CFA) was carried out to test the
measurement model. Overall, CFA obtained satis-
factory measurements for measuring the variables
of foresight capability, digital transformation, and
product innovation performance of MSMEs. Ba-
sed on model testing, it was found that the meas-
urement parameters were χ2 = 351.724 df = 97,
χ2/df = 3.626 p = 0.000, Gfi = 0.817, Agfi = 0.744,
Tli = 0.776, Nfi = 0.770, Cfi = 0.819, Ifi = 0.822,
Rmsea = 0.126. next, AVE and CR testing. Based
on table 2 shows that the factor loading value for
each indicator is > 0.50, the value for each variable
is > 0.5, and the CR value for each variable is >
0.7. These results are overall appropriate and ade-
quate (Bagozzi and Yi, 1988).
Table 1. Respondent Demography
Category
Total
%
Age
18-25 years
24
12.83
25-32 years
54
28.87
32-39 years
72
38.50
> 39 years
37
19.78
Gender
Male
142
75.93
Female
45
24.06
Education
Senior high school
143
76.47
Undergraduate
41
21.93
Postgraduate
3
1.6
Operated
MSMEs
1-3 years
82
43.85
3-5 years
65
34.75
> 5 years
40
21.39
Source: Processed data, 2023
Direct effect testing
Testing will be carried out using SEM. Two
tests will be conducted, namely testing the direct
effect and using mediation effects Variance Ac-
counted For (VAF). The first hypothesis testing
the influence of networks on MSME product inno-
vation performance was found to have a positive
effect (β = 0.215, p = 0.008 < 0.05). The second
hypothesis of the influence of the time horizon on
the MSMEs product innovation performance was
found to have a positive effect (β = 0.752, p =
0.001 > 0.05). The third hypothesis of the influen-
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ce of analysis on MSME product innovation per-
formance was found to have a positive effect (β =
0.164, p = 0.027 < 0.05). The fourth hypothesis
found that networks can influence digital transfor-
mation positively (β = 0.164, p = 0.027 < 0.05).
The fifth hypothesis of the influence of time hori-
zon on digital transformation was found to have no
effect (β= -0.095, p= 0.265>0.05). The sixth hypo-
thesis of the influence of analysis on digital trans-
formation was found to have a positive effect (β=
0.249, p= 0.006<0.05). The seventh hypothesis of
the influence of digital transformation on product
innovation performance was found to have a pos-
itive effect (β = 0.423, p = 0.001 < 0.05) (Table 3).
Table 3. Confirmatory Factor Analysis
Indicator
Loading Factor
AVE
CR
Mean
SD
Nt1
0,717
0,555
0,789
3,729
1,229
Nt2
0,769
Nt3
0,749
Th1
0,768
0,625
0,870
3,955
1,308
Th2
0,810
Th3
0,786
Th4
0,798
An1
0,751
0,585
0,809
3,992
1,312
An2
0,781
An3
0,762
Dt1
0,807
0,628
0,835
3,493
1,193
Dt2
0,79
Dt3
0,781
Pip1
0,751
0,627
0,834
4,681
1,298
Pip2
0,810
Pip3
0,813
Source: Processed data, 2023
Note: Nt: networking, Th: time horizon, An: Analysis, Dt: Digital transformation, Pip: Product innovation
performance
Table 2. Hypothesis Testing
Hypothesis
Path
T-value
β
p
Result
H1
Nt
→
Pip
2.633
0.215
0.008
Supported
H2
Th
→
Pip
7.547
0.752
0.001
Supported
H3
An
→
Pip
2.211
0.164
0.027
Supported
H4
Nt
→
Dt
3.786
0.364
0.001
Supported
H5
Th
→
Dt
-1.115
-0.095
0.265
Not Supported
H6
An
→
Dt
2.749
0.249
0.006
Supported
H7
Dt
→
Pip
4.682
0.423
0.001
Supported
Source: Processed data, 2023
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Table 5. Mediation Testing
Hypothesis
Path
VAF value
Result
H8
Nt
→
Dt
→
Pip
0,417
Supported
H9
Th
→
Dt
→
Pip
-
Not Supported
H10
An
→
Dt
→
Pip
0,391
Supported
Source: Processed data, 2023
Testing Mediation Effects
Testing the mediation effect will use the
VAF technique by (Preacher and Hayes, 2008) to
determine full or partial mediation. Based on the
VAF calculation, it was found that digital transfor-
mation can partially mediate networking relation-
ships and MSMEs product innovation performan-
ce with a VAF value of 0.417, so the hypothesis is
accepted. Furthermore, the mediating effect of di-
gital transformation on the relationship between
time horizon and product innovation performance
was found not to be mediated because the indirect
relationship had no effect, so the ninth hypothesis
was rejected. Finally, the mediating effect of digit-
al transformation on the relationship between ana-
lysis and innovation performance of MSMEs was
found to partially mediate with a VAF value of
0.391, so the tenth hypothesis was accepted. (Ta-
ble 4).
DISCUSSION
This research uses multidimensional meas-
urements on the concept of foresight capability.
This research shows that foresight capability (net-
work, time horizon, and analysis) can positively
influence product innovation performance. Fur-
thermore, foresight capability found that the three
dimensions used to measure foresight capability
were only network and analysis that could impro-
ve digital transformation, and time horizon could
not influence digital transformation. Digital trans-
formation as a mediating variable can partially me-
diate network relationships and MSME product
innovation performance analysis. However, digi-
tal transformation cannot mediate the relationship
between time horizon and product innovation per-
formance.
This research contributes to a better under-
standing of the factors influencing product innova-
tion performance in the relationship between fore-
sight capability and digital transformation, especi-
aly for MSMEs from West Java. On the other hand,
this research strengthens the views of the RBV
theory regarding the digital transformation. Many
West Java MSMEs use digital technology to carry
out business activities (Husniyah et al., 2023).
Furthermore, SMEs from West Java have used Fo-
resight capability to improve their product innova-
tion performance to survive in an uncertain busi-
ness environment (Manalu et al., 2023).
Foresight Capability, Digital Transformation
and MSMEs Product Innovation Performance
The influence of foresight capability on the
product innovation performance was influential.
This research results align with previous research,
which states that foresight can influence a compa-
ny's innovation performance (Manalu et al., 2023;
Yoon et al., 2018). Yoon et al. (2018) used the bas-
ic theory of RBV and DCV by connecting corpo-
rate foresight to innovation performance moderat-
ed by organizational learning. This research shows
that the more MSMEs apply foresight capability
in their business activities, the more they can im-
prove product innovation performance. Manalu et
al. (2023) found that good foresight capabilities
possessed by MSMEs will help them accelerate
product innovation. Changes that occur in the bu-
siness environment will impact their innovation
performance. Having foresight capability will ma-
ke it easier for MSMEs, especially in West Java,
to predict changes in consumer desires, ultimately
moving innovation.
The influence of networks and analysis was
found to influence digital transformation positiv-
ely. However, time horizons cannot affect digital
transformation. MSMEs that can expand their net-
works in the business world will help them accel-
erate digital transformation. Previous research put
forward the view that digital transformation can be
influenced by their ability to collect and process
information using digitalization. The networks
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owned by MSMEs in the foresight concept are fo-
und to be efforts by MSMEs to obtain information
sourced from their competitors or consumers.
Furthermore, analysis in the foresight con-
cept refers to their analytical capabilities using
good analytical techniques to improve their digital
transformation process. This research found that
the time horizon cannot influence the digital trans-
formation of MSMEs in West Java. The time hori-
zon in the concept of foresight capability shows
that MSMEs must determine the time scale to use
digitalization. Using a time scale in determining
digital transformation will cause MSMEs to expe-
rience confusion due to the rapid changes occur-
ring in the technological environment. Based on
RBV theory, it strengthens the results of this re-
search that using foresight capability will impact
digital transformation decisions that MSMEs will
carry out. The better SMEs have foresight capabil-
ities, the greater their awareness of the importance
of speed and accuracy in predicting digital chang-
es in their business environment.
Digital Transformation and Product Innova-
tion Performance of MSMEs
Digital transformation was found to influen-
ce the product innovation performance of MSMEs
positively. The results of this research align with
previous research, which states that innovation can
be done by changing traditional habits to more di-
gital use (Gaglio et al., 2022). The use of digital is
carried out to reduce workload by dividing work
tasks on digital platforms. Thus, using and imple-
menting an excellent digital transformation pro-
cess will give MSMEs more ability to innovate
products faster and with more products.
These results are consistent with the RBV
theory that digital transformation must be profo-
undly integrated with innovation in the business to
form dynamic capabilities (Vial, 2019). These re-
sults show that many MSMEs in West Java are in-
vesting in digitalization. However, MSMEs must
understand that product innovation performance
tends to be dynamic and always tied to trends. Dig-
ital transformation is related to the ease of MSMEs
in carrying out their business activities, which will
have impact on product innovation performance.
Mediation Role of Digital Transformation
The results of this research align with the
RBV theory, which explains that intangible assets
will benefit business organizations that do not have
enough capital to achieve sustainable competitive
advantage. Investment in digitalization to carry out
MSME business activities will positively impact
their innovation. The mediating effect of digital
transformation can mediate the relationship be-
tween networks and analysis on the product inno-
vation performance of MSMEs. A network is a
network that is needed to be able to collect import-
ant current and past information for future decisi-
on-making. Previous research suggests that search-
ing for information by having a good network will
increase a company's level of innovation with the
help of easy digital access (Teng et al., 2022).
When MSMEs carry out digital transformation re-
lated to collection, it can help link foresight capa-
bility to product innovation performance. Good
analytical power can be an antecedent of innova-
tion performance. Good analytical skills using in-
formation from the past and present are a reference
for determining the best techniques that can be
used. Digital transformation can be used as medi-
ation by assuming that changing traditional behav-
ior with more use of the digital sector will make it
easier to analyze events that occur and impact in-
creasing MSMEs product innovation.
On the other hand, digital transformation
cannot mediate the relationship between time hori-
zon and MSMEs product innovation performance.
The time horizon is determined when searching for
current and future information. Digital transfor-
mation must be carried out continuously and tends
to be faster. So, selecting the time horizon for im-
proving performance cannot be mediated by digi-
tal transformation because the use of timing in ga-
thering information and speed in the digital trans-
formation process is not met.
IMPLICATIONS
This research contributes to the theory by
proposing a foresight capability model as an ante-
cedent and impact. This research supports the RBV
theoretical framework in perceiving innovation as
an intangible asset for MSMEs. Another signifi-
cant theoretical contribution is the argument link-
ing foresight capability and MSME product inno-
vation performance in a business environment that
is difficult to predict. Digital transformation is us-
ed to answer several previous research arguments
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262
that link innovation with the use of technology.
The digitalization that has been carried out
by MSMEs, which has resulted in improved prod-
uct innovation that MSMEs have carried out, pro-
vides insight into theoretical phenomena and their
implications. Despite the uncertainty of the busi-
ness environment, which is difficult to predict, and
the rapid changes in technology, it provides empir-
ical facts that MSMEs originating from West Java
can use the concept of foresight capability by con-
necting digital transformation, which results in bet-
ter innovation. This research strengthens the idea
that small companies such as MSMEs must be ab-
le to emphasize their capabilities, especially on in-
tangible assets, in line with the RBV theory. Digi-
tal transformation is a mediating effect based on
the DCV idea, which views that every company
must have dynamic capabilities to face today's un-
certain business environment. Foresight capability
provides insight to MSMEs owners that the ability
to review the future can be done with simple things
such as exchanging ideas between employees and
desk review, where these activities tend not to re-
quire high costs. MSMEs actors, especially the
managers or owners, can use the concept of fore-
sight capability well using their networks, deter-
mining measurable and structured timing and car-
rying out. A good understanding of foresight will
provide new views on the future, impacting their
performance in innovation.
RECOMMENDATIONS
Future research is expected to deepen and
examine the concept of foresight capability, which
may have yet to be used in this research. Further-
more, future research can explain new terms in
digital concepts, including digital transformation.
Finally, research development is still needed in
testing in other areas.
This research is not free from various limi-
tations. First, research uses the concept of fore-
sight capability, which has yet to find a consensus
regarding accurate measurement. Second, the con-
cept of digital transformation has yet to come to
light because it still has similarities with the con-
cept of digitalization. Third, this research focuses
on MSMEs in the West Java region.
CONCLUSIONS
This research has several conclusions. First,
it was found that foresight capability represented
by the network, time horizon, and analysis dimen-
sions can improve the innovation performance of
MSMEs. Second, network and analysis can impro-
ve the digital transformation process, but the time
horizon cannot influence the product innovation
performance of MSMEs. Third, digital transform-
ation carried out by MSMEs will be able to impro-
ve product innovation performance. Fourth, it was
found that digital transformation carried out by
MSMEs could partially mediate the relationship
between network and analysis on product innova-
tion performance but could not mediate the rela-
tionship between time horizon and innovation per-
formance.
Based on the findings from this research, it
shows that MSMEs originating from West Java al-
ready use foresight capability in carrying out their
business activities. Foresight capability is used
through desk reviews and brainstorming among
employees and MSMEs owners. The digital litera-
cy of MSMEs in West Java is at a high level, mak-
ing it easier for them to carry out transformations,
which will impact the ease of obtaining consumer
information, ultimately influencing product inno-
vation performance.
ACKNOWLEDGEMENT
This research was funded by Kementerian
Pendidikan, Kebudayaan, Riset, dan Teknologi
Republik Indonesia. Based on Surat Keputusan
0536/E5/PG.02.00/2023 dan perjanjian/kontrak
Nomor 180/E5/PG.02.00.PL/2023; 037/SP2H/RT-
MONO/LL4/2023; 107.14/UNIKU-KNG/PP/2023
through the Penelitian Dosen Pemula Grant Sche-
me.
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