Abstract

Abstract
Purpose: The Internet of Things (IoT) is currently acting as a critical component of the digitalization process by connecting physical devices to the digital world. It is assumed that IoT serves as both a driver and enabler of digitalization. Accordingly, this study investigates the significance of digitalization in enhancing small and medium-sized enterprises (SMEs) firm performance using IoT as a mediator. Design/methodology/approach: Relying on a sample of 393 SMEs in Portugal, the study used a survey method and questionnaire to gather data, while utilizing the structured equations model to explore the relationship between the constructs of the research model. Findings: The findings show that digital infrastructure and value chains are central to digitalization. Technology, data analytics, digital skills and transformation strategies directly and jointly enhance firm performance. The study also highlights the mediating role of IoT in this relationship and stresses the need to consider industry dynamics, digital readiness and strategic goals when assessing IoT’s impact on SME performance. Originality/value: This study provides valuable insights into the core of digitalization, emphasizing the need for SMEs to effectively integrate digital infrastructure, digital value chains and IoT-driven technologies to drive performance and long-term success. © 2025, Fernando Almeida and Edet Okon.