Small and medium enterprises (SMEs) have been recognized as engines for innovation, which is critical for economic growth. Limited studies have examined the impact of information and communication technologies (ICTs) on innovation in SMEs despite the critical importance of making sound ICT investment decisions to transform innovation in the digital economy. This paper examines how technological capabilities can be shaped to achieve organizational innovation outcomes. It uncovers important drivers including innovation orientation, applications that can enhance a firm’s capability to be flexible in its innovation endeavors which in turn can influence innovation impact though innovation process performance and service innovation quality.