This study examines the combined effect of digital innovation, psychological empowerment, and human resource capability on the performance of Small and Medium-sized Enterprises (SMEs) in South-western Nigeria. Digital innovation, characterized by the adoption of technologies such as artificial intelligence, cloud computing, and e-commerce platforms, has become a critical driver of operational efficiency, customer engagement, and competitive advantage. However, SMEs in Nigeria face persistent challenges including limited infrastructure, high implementation costs, and inadequate digital skills, which constrain effective adoption. In parallel, psychological empowerment—defined by employees’ sense of autonomy, competence, meaning, and impact—plays a vital role in enhancing motivation, job satisfaction, and productivity. Human resource capability further strengthens organizational performance through the development of employees’ skills, knowledge, and competencies.

A quantitative survey research design was adopted, with data collected from 500 SME operators across six South-western states using a multi-stage sampling technique. Data were analyzed using multiple regression analysis. The findings reveal that psychological empowerment significantly influences SME performance, explaining a substantial proportion of performance variation. Moreover, digital innovation and human resource capability were found to complement empowerment in driving organizational outcomes. Importantly, the study establishes a strong synergistic relationship among the three variables, indicating that their combined effect is greater than their individual contributions. The study concludes that SMEs that integrate digital technologies while fostering employee empowerment and developing human resource capabilities achieve superior performance. It recommends that SME managers adopt a holistic socio-technical approach to enhance sustainability and competitiveness.

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