Digital Transformation and Firm Performance: Mediating Role of Organizational Agility and Moderating Role of Leadership Capability

Abstract

Digital transformation has emerged as a critical driver of organizational competitiveness in today’s rapidly evolving business environment. However, empirical evidence suggests that the relationship between digital transformation and firm performance is complex and influenced by organizational factors. This study investigates the impact of digital transformation on firm performance, examining organizational agility as a mediating variable and leadership capability as a moderating variable. Using a quantitative research approach, data were collected from 250 managerial-level respondents working in digitally active firms. Structural Equation Modeling (SEM) using SmartPLS was employed to test the proposed relationships. The results indicate that digital transformation has a significant positive effect on firm performance. Organizational agility partially mediates this relationship, demonstrating that firms achieve better performance when digital initiatives enhance flexibility, responsiveness, and adaptability. Furthermore, leadership capability significantly moderates the relationship between digital transformation and organizational agility, suggesting that capable leadership strengthens the effective implementation of digital initiatives. The findings contribute to the dynamic capability literature by highlighting the importance of organizational and leadership factors in realizing digital value. Practically, the study offers insights for managers and policymakers to prioritize leadership development and agile practices alongside digital investments. The research concludes that digital transformation alone is insufficient unless supported by agile structures and competent leadership.