The Impact of Knowledge Management on Digital Innovation in Time
of Covid-19 Pandemic: The Role of Digital Capability and Digital
Orientation
SYARIFAH HUDAYAHa, MELDA AULIA RAMADHANIb, SUGENG RAHARJOc,
NITA PRISKA AMBARITAd, HIDAYANI HIDAYANIe, RIZKY YUDARUDDINf
Department of Management,
Mulawarman University,
Samarinda,
INDONESIA
aORCiD: https://orcid.org/0000-0003-0691-8595
bORCiD: https://orcid.org/0000-0002-2203-9470
cORCiD: https://orcid.org/0000-0003-1822-3096
dORCiD: https://orcid.org/0000-0002-6294-8898
eORCiD: https://orcid.org/0000-0002-2507-4888
fORCiD: https://orcid.org/0000-0002-0850-9747
Abstract: - This study examines the relationship between knowledge management, digital capabilities, digital
orientation, and digital innovation by focusing on small and medium enterprises (SMEs) in Indonesia during
the COVID-19 pandemic. Data collection used survey data from SME managers during the period July to
December 2021. Data analysis used Structural Equation Modeling with the Partial Least Square method by
focusing on 247 managers. The findings in this study are that knowledge management has a positive effect on
digital capability and digital orientation. Meanwhile, digital competence and digital orientation mediate the
impact of knowledge management on digital innovation. These findings underline the importance of
digitalization during periods of crisis for SMEs.
Key-Words: - SME, Knowledge management, crisis, digital capability, COVID-19, digital innovation, digital
orientation.
Received: August 11, 2023. Revised: March 13, 2024. Accepted: May 3, 2024. Published: May 17, 2024.
1 Introduction
Knowledge Management (KM) is crucial for
promoting digital innovation, particularly in the
difficult circumstances of the Covid-19 pandemic.
In the face of disruptions and the requirement for
remote collaboration, organizations must prioritize
effective knowledge management to make the most
of existing expertise and cultivate a culture of
ongoing learning KM facilitates agile adaptation,
opportunity identification, and challenge resolution
in the digital realm by systematically organizing,
sharing, and applying knowledge, [1].
During the pandemic, small and medium
enterprises (SMEs) need to have the ability and
focus on increasing digital capabilities. This is
because SMEs with strong digital capabilities will
be in a better position to use technology to share so
they can collaborate on various knowledge. Digital
orientation focuses on the deliberate
synchronization of organizational processes with
digital technology, allowing for the integration of
knowledge management activities into daily
operational activities. During the pandemic with
social distancing, work from home and virtual
collaboration has become more common, so the
effective use of digital tools will improve
communication, enable real-time information
sharing, and encourage innovation by creating a
dynamic and flexible work environment, [2].
The symbiotic relationship between Knowledge
Management, Digital Capability, and Digital
Orientation is evident in their collective impact on
digital innovation. KM acts as the fundamental
basis, while digital capability and orientation serve
as the essential infrastructure and mindset for
innovation to thrive. This collaboration allows
WSEAS TRANSACTIONS on BUSINESS and ECONOMICS
DOI: 10.37394/23207.2024.21.104
Syarifah Hudayah, Melda Aulia Ramadhani,
Sugeng Raharjo, Nita Priska Ambarita,
Hidayani Hidayani, Rizky Yudaruddin
E-ISSN: 2224-2899
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Volume 21, 2024
organizations to adjust to the swiftly evolving
digital environment amidst the pandemic,
cultivating a culture of ingenuity that is crucial for
enduring resilience and achievement in the digital
era. Overall, the combination of Knowledge
Management, Digital Capability, and Digital
Orientation forms a robust framework that facilitates
digital innovation, allowing organizations to
effectively address the difficulties presented by the
COVID-19 pandemic and beyond.
Undoubtedly, the COVID-19 pandemic has
caused a multitude of adverse consequences on
global economies and businesses. The COVID-19
pandemic has caused significant disruptions in
multiple economic sectors, [3]. Reports were
indicating a Russian incursion into Ukraine, [4].
From an economic perspective, the crisis has caused
a substantial decline, resulting in recessions and
contractions in multiple sectors. Businesses,
particularly small and medium enterprises (SMEs),
have faced significant challenges, including
disrupted supply chains, decreased consumer
demand, and closures caused by lockdown
measures. These difficulties have resulted in a
decrease in income, declining profits, and, in certain
instances, bankruptcy. The travel, hospitality, and
retail sectors have been especially vulnerable,
experiencing unprecedented decreases in income
and a significant drop in customer traffic.
Furthermore, the presence of market uncertainty,
fluctuating financial markets, and unpredictable
consumer behavior has resulted in an atmosphere of
increased risk and diminished investor confidence.
Referring to data from the Ministry of Cooperatives
and SMEs in 2019, the Indonesian government
needs to focus on SMEs because they have a big
impact on supporting the Indonesian economy. In
terms of presentation, this amount dominates around
60.51% or around IDR 9.58 trillion of gross
domestic product (GDP). Apart from that, small and
medium businesses also have a significant impact
on employment, by employing around 119.56
million people or 96.92% of the total workforce in
Indonesia. The Indonesian government through the
Ministry of Cooperatives and Small and Medium
Enterprises has targeted 30 million SMEs to go
digital by 2024, a quite fantastic figure. If you look
at the data until June 2022, the latest developments
show that 19.5 million SMEs, or 30.4% of the total,
use e-commerce. Even though these figures have
been relatively stable over the years, this gives an
idea of how resilient SME businesses are in facing
fluctuations in the country's economy, including
during times of crisis.
However, the health crisis, namely the Covid-19
pandemic, has had a surprising impact, including on
Micro, Small and Medium Enterprises (MSMEs).
During the pandemic, mobility restrictions forced
many MSMEs to close their businesses so that the
virus could be prevented from spreading. Small
business growth also fell by 17.63 percent during
the COVID-19 period. This negative growth trend
has never occurred in previous times of crisis. Many
SMEs continue to struggle with this decline in
performance to survive the onslaught of the virus.
This is made worse by the implementation of Large-
Scale Social Restrictions (PSBB). Based on the
results of the Mandiri Institute Survey, many
MSMEs experienced business closures (19.3
percent) due to policies during the COVID-19
pandemic. Not only that, operational restrictions
were also implemented which reduced MSME
income by 72.04 percent.
Empirical studies show that there is hope for the
sustainability of SME businesses while facing
COVID-19, [5]. Digital innovation is part of the
strategy for SMEs to maintain the survival of SMEs
so that business growth can be maintained by using
a new business model approach through
involvement in digital activities. Although this
change is not easy with several obstacles faced, the
shift in consumer preferences forces SMEs to adapt
to adapt their operations to online platforms. Not
only that, digital innovation opens up opportunities
for SMEs during the pandemic to continue serving
customers, opening up opportunities to add new
customers and maintaining revenue stability.
Furthermore, digital innovation allows SMEs to
simplify business activities by moving manual work
to be more efficient. Geographical limitations are
also eliminated to reach a wider business area
without worrying about increasing costs.
This study aims to analyze the impact of KM on
digital innovation in SMEs in Indonesia during the
COVID-19 pandemic. Not only that, this study also
examines how digital capabilities and digital
orientation can play a mediating role in the impact
of KM on digital innovation. It is important to see
how the simultaneous knowledge management,
digital capabilities, and digital orientation of SMEs
in Indonesia influence digital innovation. Therefore,
overall, the focus of this study highlights the
importance of knowledge management and
digitalization in helping SMEs in Indonesia face the
major shocks caused by the COVID-19 pandemic.
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Syarifah Hudayah, Melda Aulia Ramadhani,
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Hidayani Hidayani, Rizky Yudaruddin
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2 Literature Review and Hypothesis
Development
2.1 Knowledge Management
An important factor that is one of the competitive
advantages that an organization can have is KM.
KM can bring organizations efficient, innovative,
and stable growth, [6]. Various strategic approaches
can be implemented by companies, especially in the
digital era. The application of KM in the context of
digitalization supported by the company's digital
capabilities will lead companies to more efficient
technology management, including the development
of innovative products, [7]. Organizations need to
collaborate between knowledge assets and human
resources so that the company's technological
capabilities and potential to innovate are always
there, [8]. This will foster dynamic skills so that
digital disruption can be faced, [9], [10], while
increasing competitive advantage, [11], [12], [13]
and success in the digital era, [14], [15]. Therefore,
KM's strategic priorities need to be built in a
dynamic business landscape, [16]. To encourage
digital capabilities that enable rapid digital
transformation for companies, [15]. Organizations
with strong Digital capability understand and utilize
digital technologies effectively, transforming
customer experiences, operational processes, and
business models, [7], [17]. Knowledge Management
also shapes a company's strategic position in
leveraging digital technology, a key aspect of
Digital capability, [16]. Proper KM practices enable
companies to identify solutions, develop dynamic
training programs, and make effective decisions,
[18]. Empirical studies consistently demonstrate the
significant influence of Knowledge Management on
Digital capability, [14], [19]. Effective KM
practices positively correlate with improved Digital
capability, enhancing a company's ability to manage
digital technology for new product development,
[6].
Hypothesis 1 (H1): During the COVID-19
pandemic, knowledge management improved SMEs'
digital capabilities.
Digital orientation, driven by Knowledge
Management, is pivotal in shaping a company's
strategic position towards digital technology
adoption, [20]. Integrating internal and external
elements, organizations align technology with
processes to drive digital innovation and market
insight generation, [21]. Such a proactive attitude
towards digital technology is essential to thrive in
the digital landscape and maintain a competitive
edge, [13]. Knowledge Management's positive
relationship with Digital orientation is evident in
various studies, [16], [18], [20]. By fostering a
digital-oriented strategic position, KM practices
facilitate the integration of digital technology and
drive digital innovation, [14]. Knowledge
Management's impact on innovation is supported by
studies emphasizing the role of knowledge
acquisition, sharing, and application in promoting
innovative activities, [19], [22], [23], [24], [25].
Effective KM practices stimulate idea generation
and transformation of knowledge into innovative
outcomes, [12].
Hypothesis 2 (H2): During the COVID-19
pandemic, knowledge management has a beneficial
impact on SMEs' digital orientation.
2.2 Digital Capability
Digital innovation is a critical factor in modern
organizations' success, and two key variables, digital
capability and digital orientation, play pivotal roles
in driving this innovation. Many economic sectors
have benefited from digitization. Digital capability
empowers organizations with the necessary skills
and resources to effectively manage digital
technology, while digital orientation shapes an
organization's strategic position towards embracing
digital innovation, [14], [20], when combined, these
variables create a powerful synergy that fosters
continuous digital innovation, enabling
organizations to thrive in the dynamic and rapidly
changing digital landscape. Companies need to
encourage increased digital capabilities and digital
orientation so that a culture of creativity and
innovation can be realized so that the digital
transformation expected by companies in this digital
era, [14], [18]. However, companies need to
understand that creating this is not easy. Companies
need to provide digital skills and knowledge to
employees, [7], [13], to create a culture that changes
employee mindsets with innovative ideas, [20], that
provide customer satisfaction, [14], [21]. Therefore,
the collaboration of digital capabilities and digital
orientation creates a digital strategy that leads
companies to strong digital innovation, [16], [18].
Digital capabilities and digital orientation need to
be collaborated to accelerate digital innovation in
companies. Companies with digital capabilities and
high digital orientation will be able to produce
innovative products and services One of the
characteristics of strong digital capability can be
seen from digital capability which includes the skills
possessed by employees in managing technology
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Syarifah Hudayah, Melda Aulia Ramadhani,
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Hidayani Hidayani, Rizky Yudaruddin
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efficiently, [16], while digital orientation is
characterized by openness to digital information and
courage in taking risks, [18], a competitive
advantage in the digital world, [14]. In contrast to
digital capabilities which are oriented towards
processes and transformation supported by digital
capabilities, knowledge, and talent, [7], [16]. Strong
capabilities will lead to improvements in customer
experience, [20] and the creation of digital
innovations, [6], [14]. Therefore, digital capabilities
will increase the company's capabilities to the point
where a digital culture and sustainable learning are
created [14], [26].
Hypothesis 3 (H3): Digital innovation was
positively influenced by their digital capabilities
during the COVID-19 pandemic.
2.3 Digital Orientation
The company's strategy to dedicate to digital
innovation is part of the company's digital
orientation in its corporate strategy, [14], [15]. It
encompasses the organization's willingness to
embrace and actively pursue technological
advancements and digital transformation.
Organizations that have a favorable digital
orientation prioritize the investigation of novel
digital possibilities, promote taking risks, and
cultivate a culture of innovation, [13], [14]. An
innovative digital approach allows companies to
better meet customer needs and market demands,
leading to the creation of new and improved
products and services, [18]. Furthermore, a robust
emphasis on digital technology enables
organizations to be flexible and responsive,
allowing them to succeed in the ever evolving and
swiftly changing digital environment, [20].
Hypothesis 4 (H4): SMEs' digital innovation is
positively influenced by their digital orientation
during the COVID-19 pandemic.
2.4 The Role of Digital Capability in
Mediating the Effect of Knowledge
Management on Digital Innovation
KM plays a pivotal role in driving digital innovation
within organizations by facilitating knowledge
creation, sharing, and application, [6], [24].
However, the relationship between KM and digital
innovation is further influenced by the mediating
effect of Digital Capability. Digital Capability refers
to a firm's capacity to effectively manage digital
technologies for new product development and
innovative processes, [7], [27]. Organizations with
strong Digital capabilities are better equipped to
leverage knowledge assets acquired through KM to
drive digital innovation, [28]. Therefore, Digital
Capability acts as a mediator, amplifying the impact
of Knowledge Management on digital innovation
outcomes.
Hypothesis 5 (H5): During the COVID-19
pandemic, SMEs' digital capabilities mediated the
effect of knowledge management on digital
innovation.
2.5 The Role of Digital Orientation in
Mediating the Effect of Knowledge
Management on Digital Innovation
The positive relationship between Knowledge
Management and digital innovation highlights the
role of Digital orientation in driving innovation and
product development, [14]. A digitally oriented
company, with a broader vision and commitment to
new technology, is more likely to produce
innovative outcomes, [14]. By harnessing
knowledge resources and implementing dynamic
capabilities, Knowledge Management practices
contribute to driving digital innovation and
achieving competitive advantage, [14], [19], [29],
[30]. Integrating KM practices leads to a more
proactive attitude, fostering a positive relationship
between KM and innovation, [13].
Hypothesis 6 (H6): During the COVID-19
pandemic, SMEs' digital orientation mediated the
effect of knowledge management on digital
innovation.
3 Method
The study focuses on examining the relationship
between various variables in the context of small
and medium-sized enterprises (SMEs) in Indonesia.
The independent variable under investigation is
knowledge management (KMN), while the
dependent variable is digital innovation (DII). To
measure the knowledge management (KMN)
variable, the study adapted question items from
instruments developed by various researchers,
including, [19], [22], [23], [24], [29], [30]. For the
variable digital innovation (DII), the study
employed a five-item scale developed by [14], [29],
[31], [32], [33]. The study also considers digital
capability (DIC) and digital orientation (DIO)
mediating variables. The digital capability (DIC)
variable was measured using a seven-item scale
developed by [14], [33], [34], [35].
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Syarifah Hudayah, Melda Aulia Ramadhani,
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Table 1. Measurement Item
Variables
Item
References
Knowledge
Management
(KMN)
I believe that I have easy access to
relevant knowledge and information
(KMN1)
[19], [22],
[23], [24],
[29], [30]
Working together with business
partners or other pertinent stakeholders
to share knowledge and experiences is
something I think works well (KMN2).
My business operations have benefited
from the incorporation of new
knowledge and innovations (KMN3).
I make use of platforms or systems that
enable knowledge-sharing cooperation
with business partners (KMN4)
To increase my knowledge, I actively
participate in training or self-
improvement projects (KMN5)
I believe that I have easy access to
relevant knowledge and information
(KMN6)
Digital
capability
(DIC)
I think I have enough experience and
understanding to use digital technology
to grow my company (DIC1)
[14], [29],
[31], [32],
[33]
I actively incorporate digital
technologies into my business
operations, such as social media,
websites, e-commerce, and business
software (DIC2)
I possess adequate hardware and
internet connectivity, as well as digital
infrastructure, to enable the use of
digital technology (DIC3)
I consistently participate in digital
training and development programs to
enhance my abilities and understanding
of digital technology (DIC4)
I can adapt to emerging market trends
and technological advancements with
ease (DIC5)
Either I engage in electronic commerce
or I manage a digital platform for the
promotion of goods and services
(DIC6).
My clientele engages in active
interaction and participation via digital
platforms, including social media and
websites (DIG7).
Digital
orientation
(DIO)
I acknowledge that adopting digital
technology has the potential to enhance
the efficiency and competitiveness of
my organization (DIO1).
[14], [33],
[34], [35]
I conscientiously pursue opportunities
to implement digital technology in
various aspects of my enterprise
(DIO2).
I proactively integrate developments in
digital technology into my products,
services, and business operations
(DIO3).
I have adequate resources and
strategies to overcome challenges
encountered during the digitalization
process of my organization (DIO4).
I am prepared to adapt to the changes
that will occur as a result of the
incorporation of digital technology into
our organization (DIO5).
Digital
Innovation
(DII)
I support my business operations by
utilizing limited digital resources
creatively and innovatively (DII1).
[14], [12],
[15]
I implement cost-effective and
pertinent digital technologies to
facilitate my business operations
Item
References
(DII2).
I establish partnerships or collaborate
with others to obtain digital resources
at reasonable prices (DII3).
I leverage open-source solutions or
freely available software to exploit the
potential of digital technologies while
minimizing financial outlays (DII4).
I effectively synchronize my business
strategies with digital trends while
avoiding substantial financial outlays
(DII5)
Meanwhile, the digital orientation (DIO)
variable, which also serves as the mediating
variable, was measured using a five-item scale
developed by [14], [35], [36], [37]. A 5-point Likert
scale, ranging from strongly disagree to agree
strongly, was employed to measure each variable
(Table 1). All these variables were measured using
item scales developed by previous scholars from
existing literature, with necessary modifications to
suit the specific context of SMEs in Indonesia.
This study collected data using a questionnaire
that was distributed to managers of small and
medium enterprises (SMEs) in Indonesia. The
distribution period is 6 months from July to
December 2021 by distributing keosiner using
Google Forms. The selection of respondents as
samples used purposive random sampling. 247
respondents provided valid responses. The
questionnaire is divided into 2 pieces of
information. First, respondent characteristics include
demographic information such as age and education
level. The second part contains information on the
condition of SMEs. Other information includes
responses related to research variables. The
collected data was analyzed using Structural
Equation Modeling (SEM) Partial Least Squares
(PLS). First, look at the inner model, to ensure the
model is valid and reliable, validity and reliability
testing is carried out by paying attention to the
cross-loading, composite reliability and average
variance extracted (AVE) values. Second is, outer
model. In this section, the magnitude of the
influence of the dependent variable on the
independent will be assessed. Apart from that, the
direction of the variables and their significance are
also looked at to determine whether the results
support or reject the hypothesis.
4 Result
The research methodology encompassed the
distribution of a survey among managers of Small
and Medium Enterprises (SMEs) in Indonesia
within the timeframe of July to December 2021.
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Syarifah Hudayah, Melda Aulia Ramadhani,
Sugeng Raharjo, Nita Priska Ambarita,
Hidayani Hidayani, Rizky Yudaruddin
E-ISSN: 2224-2899
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This survey employed purposive random sampling
to ensure a representative sample.
A total of 247 responses were collected and
subsequently subjected to preliminary processing to
ascertain data accuracy and adequacy. The survey
was structured into two parts: the initial section
focused on collecting participant profile
information, encompassing gender, age, education
level, length of business operation, and the number
of employees within the organization. The
subsequent section contained data pertinent to the
study variables. Table 2 encapsulates a concise
summary of the demographic composition of the
sample.
It underscores how respondents were distributed
based on specific characteristics. The table
highlights that 52.2% of participants identified as
male, while 48.8% were female. Moreover, the
majority of respondents (51.4%) fell within the age
bracket of 25 to below 50 years. This was followed
by 35.2% in the 18 to below 25 range and 13.4%
aged above 50. Education-wise, 60.3% of
respondents held university or college degrees,
35.2% completed senior high school, and 4.5%
attended junior high school. Furthermore, the table
delineates the distribution of respondents based on
the duration of their business operations and the
number of employees in their respective companies.
These comprehensive demographic insights
significantly contextualize the participant
characteristics within the study, thereby providing
valuable implications for interpreting the research
outcomes.
Table 2. Sample demographic (n = 247).
Source: Author Calculation (2023)
Table 3. Validity and Reliability Result
Construct
Item
Item
Loadings
Cronbach’
s Alpha
Comp.
Reliabilit
y
AVE
Digital
capability
(DIC)
DIC1
0.920
0.977
0.981
0.881
DIC2
0.940
DIC3
0.942
DIC4
0.947
DIC5
0.946
DIC6
0.956
DIC7
0.917
Digital
orientation
(DIO)
DIO1
0.935
0.954
0.964
0.844
DIO2
0.938
DIO3
0.932
DIO4
0.934
DIO5
0.852
Digital
Innovation
(DII)
DII1
0.961
0.968
0.975
0.887
DII2
0.969
DII3
0.968
DII4
0.943
DII5
0.862
Knowledge
Manageme
nt (KMN)
KMN1
0.922
0.905
0.928
0.724
KMN2
0.939
KMN3
0.926
KMN4
0.707
KMN5
0.730
Beginning with the outer model (Table 3), the
focus was on evaluating the reliability and validity
of the variables. This assessment involved several
criteria, including convergent and discriminant
validity, as well as composite reliability. Each
construct's factor loadings were critically examined
to ensure that they surpassed the recommended
threshold of 0.70, indicating a strong association
between the latent variable and its corresponding
observed indicators. Apart from that, the value of
the average variance extracted (AVE) is more than
0.50, which shows that the variable indicator is
valid. The reliability of each indicator for all
variables shows reliability. For example, Digital
Capability (DIC) has a Cronbach's Alpha coefficient
of 0.977 which shows the reliability of this variable.
The same thing is also shown in the Knowledge
Management (KMN), Digital orientation (DIO), and
Digital Innovation (DII) orientation variables as in
Table 3.
Table 4 displays the R-square results, which
quantify the degree to which the substantial
variability in the constructs can be explained by the
variables in the model. The aforementioned
estimates demonstrate the extent to which the model
accounts for the variability observed in DIC, DIO,
and DII. In particular, DIC, DIO, and DII have
respective R-square values of 0.128 (12.8%), 0.068
(6.8%), and 0.274 (27.4%). Other extant external
factors account for the remaining variance of 87.2%
for DII, 95.2% for DIO, and 72.2 percent for DIC,
respectively, as reported in the present study. These
results indicate that DIC, DIO, and KMN have a
significant impact on the construct DII.
Characteristics
Group
Frequency
Percentage
Gender
Male
129
52.2
Female
118
48.8
Age
18 - <25
87
35.2
25 - <50
127
51.4
>50
33
13.4
Education
University/Collage
149
60.3
Senior high school
87
35.2
Junior high school
11
4.5
Length of business
operation
3 – <5 Years
82
33.2
5 – 10 Years
108
43.7
> 10 Years
57
23.1
Employee
<10
153
61.9
10 - <25
61
24.7
25 - <50
24
9.7
> 50
9
3.6
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Syarifah Hudayah, Melda Aulia Ramadhani,
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Table 4. The Results of the R-square.
Structural Model
Dependent Variable
R Square
1
Digital capability (DIC)
0.128
2
Digital orientation (DIO)
0.068
3
Digital Innovation (DII)
0.274
The assessment of the inner model was
additionally informed by the Q-square test size, the
magnitude of the structural path coefficients, and the
R-square values of the dependent variables. A
crucial indicator in Partial Least Squares (PLS)
analyses is the Q-square test size. In the current
study, Q-Square was calculated as 1 - (1 - 0.128) *
(1 - 0.068) * (1 - 0.274) = 0.409. This value
indicates that the model explains around 40.9% of
the variance in the constructs DIO, DIC, and KMN
with precision. The variance of 59.1% is ascribed to
additional factors that were not accounted for in the
model. Through the utilization of R-square and Q-
square as supplementary metrics, the research
guarantees a thorough evaluation of the model's
explanatory capability and offers valuable insights
into the interconnections among the constructs being
examined.
Fig. 1: Result of conceptual framework
Table 5. Summary of Path Coefficient
Hypothesis
Path
coefficient
T Statistic
P-Value
Result
H1: KMN ->
DIC
0.358
6.252
0.000
Supported
H2: KMN ->
DIO
0.261
4.353
0.000
Supported
H3: DIC -> DII
0.149
2.544
0.011
Supported
H4: DIO -> DII
0.450
7.494
0.000
Supported
The utilization of structural equation modeling to
evaluate hypotheses is succinctly summarized in
Figure 1 and Table 5, which provides an exhaustive
synopsis of the results. The results illuminate the
connections among the variables, offering an
understanding of the degree to which empirical data
supports each hypothesis. The findings support the
initial hypothesis (H1) that KMN has an effect on
DIC. The path coefficient is recorded as 0.358, and
its corresponding T statistic is 6.252, with a p-value
below 0.000. The compelling evidence highlights
the significant and favorable influence of KMN on
DIC, thus indicating the validation of H1. The
following hypothesis, denoted as H2, posits that
KMN has a beneficial impact on DIO. The obtained
path coefficient of 0.261, in conjunction with the T
statistic of 4.353 and a p-value below 0.000,
provides additional evidence in favor of H2. This
result strengthens the positive correlation between
KMN and DIO, providing evidence for their
interconnectedness. Subsequently, the examination
advances to hypothesis H3, which delves into the
correlation between DII and DIC. The acceptance of
H3 is supported by the path coefficient of 0.149, the
T statistic of 2.544, and the p-value of 0.011. These
values collectively establish the impact of DIC on
DII. This discovery highlights the beneficial
influence of DIC in promoting DII. Finally,
hypothesis H4 is accepted. This is shown by the
coefficient value of 0.450 the calculated p-value of
less than 0.000 and the T statistic of 7.494. This
means that there is an influence of DIO on DII.
Table 6. Summary of Mediation Effects
Path
coefficient
T
Statistic
P-
Value
Result
0.053
2.216
0.027
Supported
0.117
3.578
0.000
Supported
Table 6 shows the mediating role of the DII and
DIC variables. The analysis results show that DIC
functions as a mediator between DII and KMN is
0.053. The t-statistic value obtained is 2.216 which
exceeds the critical value of 1.96, combined with a
P value of 0.027, Hypothesis 5 (H5) is accepted.
Furthermore, the DII variable shows a value of
0.117 with a t-statistic of 3.578 and a P value of less
than 0.001, which means Hypothesis 6 is accepted.
5 Discussion and Implications
This study shows that knowledge management has
had a positive and significant impact on the digital
capacity and digital orientation of small and
medium enterprises in Indonesia during the
COVID-19 pandemic. Apart from that, knowledge
management also has a positive influence on two
mediating variables, namely digital competence
and digital orientation. These results show support
for hypotheses 1 and 2. This indicates that
knowledge management plays an important role in
encouraging increased digital competence and
digital orientation of SMEs in Indonesia. These
WSEAS TRANSACTIONS on BUSINESS and ECONOMICS
DOI: 10.37394/23207.2024.21.104
Syarifah Hudayah, Melda Aulia Ramadhani,
Sugeng Raharjo, Nita Priska Ambarita,
Hidayani Hidayani, Rizky Yudaruddin
E-ISSN: 2224-2899
1282
Volume 21, 2024
results support previous empirical studies, [14],
[19], [22], [23], [24], [25], which show that
knowledge management boosts the digitalization
of SMEs in terms of digital capabilities and
orientation. Therefore, knowledge management
has helped SMEs amidst the negative impacts of
the COVID-19 pandemic.
Apart from examining the impact of knowledge
management, this study also investigates the
impact of digital capabilities and digital orientation
on SME digital innovation during the COVID-19
pandemic. The results show that there is a positive
and significant impact of digital capabilities and
digital orientation on digital innovation. These
results support hypotheses 3 and 4. These results
underline the role of digital capabilities in
encouraging digital innovation of SMEs in
Indonesia during the COVID-19 pandemic period,
including the role of digital orientation. Therefore,
digital capabilities and digital orientation during
the pandemic period can be considered an
important part of increasing digital innovation for
SMEs.
The results of the analysis above provide an
idea of whether the results support the proposed
hypothesis. Based on the analysis results,
hypotheses 1 and 2 are supported. The same thing
applies to hypotheses 3 and 4. The support for this
hypothesis is in line with empirical studies
conducted by [14], [16], [18], [20]. The same thing
was also found by [7], [13] which showed that
there was a role for digital capabilities during the
crisis period. Meanwhile, for the mediation
variable, it was found that there was an impact that
was in line with the hypothesis regarding the
existence of mediation played by the digital
capability and digital orientation variables on the
influence of knowledge management and digital
innovation for SMEs during the COVID-19
pandemic period. This shows that hypotheses 5
and 6 are supported.
This means that these findings support previous
empirical studies that underline digital innovation,
[6], [12]. Apart from that, these results are also
consistent with previous studies which show that
knowledge management will be effective in
increasing digital innovation through increasing
digital capabilities and orientation, [7], [27], [28].
including the incorporation of digital technology
[14] for SMEs during the COVID-19 pandemic.
6 Conclusion and Recommendations
This research aims to examine the impact of
knowledge management on digital innovation with
digital capability and digital orientation as
mediating variables. Focusing the study on SMEs
during the COVID-19 pandemic period, the survey
was conducted during the period July to December
2021 involving 247 SME respondents. The research
results found that knowledge management has a
positive and significant impact on digital
capabilities and digital orientation. The same thing
was also found in the digital capability and digital
orientation variables towards digital innovation. In
addition, digital capabilities and digital orientation
act as mediating variables between knowledge
management and digital innovation.
This study has provided a comprehensive picture
of the impact of knowledge management and
digitalization on SMEs in the COVID-19 period.
These findings have a big impact on policy
formulation, especially regarding how digitalization
plays an important role for SMEs in facing the
crisis. However, this study still has limitations,
namely the focus on quantitative approaches rather
than qualitative or mixed methods. In addition, the
area is limited to only one country for a short period
providing opportunities for further research to
explore different approaches.
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WSEAS TRANSACTIONS on BUSINESS and ECONOMICS
DOI: 10.37394/23207.2024.21.104
Syarifah Hudayah, Melda Aulia Ramadhani,
Sugeng Raharjo, Nita Priska Ambarita,
Hidayani Hidayani, Rizky Yudaruddin
E-ISSN: 2224-2899
1285
Volume 21, 2024