Abstract
In the digital era, Islamic banks increasingly rely on digital transformation to develop unique products and services. This study examines the influence of Leadership (LDR) and Organizational Culture (OCL) on Digital Transformation (DTF) and Competitive Advantage (CTA), emphasizing the mediating role of DTF. Using a quantitative approach, data were collected from 143 middle managers and senior leaders of Islamic banks and analyzed using SEM-PLS with SmartPLS 3.0. The findings indicate that LDR significantly affects DTF (Coefficient 0.198) and CTA (Coefficient 0.171). OCL significantly affects DTF (Coefficient 0.660) but has no significant direct effect on CTA (Coefficient 0.195). DTF significantly influences CTA (Coefficient 0.495). Furthermore, DTF mediates the effects of LDR on CTA (Coefficient 0.098) and OCL on CTA (Coefficient 0.326). The analysis demonstrates that digital transformation functions as a key mediating factor in organizational culture for creating a competitive advantage in Islamic banks. The current organizational culture has not yet fully enabled stronger industry positioning, highlighting the need for improved communication of its unique values. The novelty of this study lies in demonstrating that digital transformation is essential for building a competitive advantage in the Islamic banking sector and in providing a clearer overview of its implementation.