A STUDY OF MSME INNOVATION PERFORMANCE IN THE DIGITAL TRANSFORMATION ERA

Objective: This research was conducted to examine the role of organizational factors (decentralization and absorptive capacity) and network factors (relational and cognitive) on the MSMEs' innovation performance which is measured by the institutionalization of knowledge transfer in the digital transformation era.   Method:  To investigate the issue, this study use a quantitative approach involved 213 MSMEs, data were collected through a survey, and samples were selected based on purposive sampling. The hypothesis testing is conducted using multiple regression analysis.   Result: The study found that absorptive capacity, relational networks, and cognitive networks influence the MSMEs' innovation performance, while decentralization is not. Considering that the majority of MSMEs involved in this study are micro and small businesses, statements related to the implementation of company decentralization where each unit within a company has its authority in deciding the creation and development of knowledge are irrelevant.   Implication: Knowledge transfer activities from universities to MSMEs are needed to improve MSMEs innovation in the digital transformation era which triggered MSMEs in Indonesia to transform businesses and adopt digital technology, while at the same time MSMEs digital literacy is still quite low, meanwhile, the propriety of resources is limited.   Originality/Value: This study is expected to provide a significant contribution to explaining factors influencing the MSMEs' innovation performance.