Strategic resources alignment for sustainability: The impact of innovation capability and intellectual capital on SME's performance. Moderating role of external environment

Small and medium-sized enterprises (SMEs) are vital to the growth and development of a country. This study examined how innovation capability, intellectual capital and SME performance are related. Cross-sectional questionnaires were given to 379 Pakistani textile SMEs. Only 318 surveys were considered reliable enough to proceed with the investigation. To test each hypothesis and assess the validity and reliability of the measurement model, this study used the PLS-SEM (Smart-PLS 4.0) technique. The findings indicate that the performance of SMEs is significantly impacted by their innovation capability and intellectual capital. Based on the results of this study, it can be concluded that the innovation capability and intellectual capital of an organization are significantly impacted by the external environment. The analysis indicates that intangible resources, specifically innovation capability and intellectual capital, are crucial determinants of sustainable growth and are considered internal capabilities of the firm. This study provides valuable insights and knowledge for both governmental entities and SMEs. In order to boost Pakistani SMEs' performance and build a sustainable economy, these insights can be incorporated into government programs and guidelines. This study contributed to the body of knowledge by assessing internal capacities (innovation capability and intellectual capital) in the setting of SMEs with the moderating influence of the external environment, as the majority of studies on these variables focused on large enterprises. [Display omitted] •Small and medium-sized growth is vital.•How innovation capability, intellectual capital, and SME performance relate.•Partial least squares structural equation modelling was used to test each hypothesis.•Innovation and intellectual capital significantly impact SME performance.•Innovation capability and intellectual capital are the key to sustainable growth.