Distinctive capabilities system in MSME’s business model adaptation: evidence of the moderating and mediating effect of adaptive capability

Purpose - This study aims to enhance the understanding of adaptive capability (ADC) as a moderating and mediating factor in the relationship between a distinctive capabilities system (DCS) and the nonfinancial and financial performance of Portuguese micro-, small- and medium-sized enterprises (MSMEs) within the context of business model adaptation in response to exogenous shocks. Design/methodology/approach - In this study, I utilized an exploratory and quantitative methodology. Moreover, I administered a structured questionnaire to collect data from 223 Portuguese MSME respondents. To ensure the variables’ validity and reliability, I conducted a confirmatory factor analysis and employed structural equation modeling to test the proposed hypotheses. Findings - The results demonstrate a significant direct impact of DCS on both nonfinancial and financial performance, with the former mediated by ADC. These findings suggest that MSME management practices during an exogenous shock have the potential to generate superior performance by reconfiguring DCS with ADC support. This enables MSMEs to leverage existing resources and capabilities to continuously improve and adapt their business models, defend their market share and adjust their exploitation and exploration strategies in response to exogenous shocks. Moreover, the development of proactive managerial capabilities can contribute to this combination of factors and potentially lead to superior MSME performance. Originality/value - Literature lacks studies on strategy and management regarding the role of DCS as a predictor of MSME’s business model adaptation and the mediating effect of ADC in this relationship. The current study sought to address this deficiency by investigating the crucial role of ADC in facilitating the reconfiguration, renewal or creation of resources, capabilities, processes and routines that foster adaptation while confirming DCS’s role as a critical component of the business model. My research extends and builds on earlier findings by demonstrating how these capabilities enable MSMEs to respond effectively to exogenous shocks while maintaining their superior performance.