This study explores the role of innovation in business management and its impact on achieving competitive advantage, particularly for Micro, Small, and Medium Enterprises (MSMEs) in Indonesia. Using Structural Equation Modeling (SEM) with SmartPLS, data from 150 respondents across four sectors—fashion, furniture, home decoration, and services—reveals that innovation significantly influences business strategy, organizational operations, and marketing. The research highlights the importance of leader support, organizational culture, and risk management in implementing innovation. It also identifies key factors influencing innovation success, including business strategy, marketing effectiveness, human resource management, and organizational culture. The findings indicate that organizations with effective innovation strategies can achieve sustainable competitive advantages. The study underscores the significance of innovation in enhancing performance and competitiveness in dynamic markets. Hypotheses tested include the positive relationships between business strategy and marketing success, organizational innovation and human resource management, marketing strategies and innovation levels, and organizational culture and innovation success. Results show strong internal consistency and convergent validity among constructs, with high R-square values indicating the model's explanatory power. The study contributes to understanding how innovation functions as a strategic tool for organizations, particularly small enterprises in Indonesia. It provides valuable insights for practitioners and stakeholders in enhancing the role of innovation in business management.This study explores the role of innovation in business management and its impact on achieving competitive advantage, particularly for Micro, Small, and Medium Enterprises (MSMEs) in Indonesia. Using Structural Equation Modeling (SEM) with SmartPLS, data from 150 respondents across four sectors—fashion, furniture, home decoration, and services—reveals that innovation significantly influences business strategy, organizational operations, and marketing. The research highlights the importance of leader support, organizational culture, and risk management in implementing innovation. It also identifies key factors influencing innovation success, including business strategy, marketing effectiveness, human resource management, and organizational culture. The findings indicate that organizations with effective innovation strategies can achieve sustainable competitive advantages. The study underscores the significance of innovation in enhancing performance and competitiveness in dynamic markets. Hypotheses tested include the positive relationships between business strategy and marketing success, organizational innovation and human resource management, marketing strategies and innovation levels, and organizational culture and innovation success. Results show strong internal consistency and convergent validity among constructs, with high R-square values indicating the model's explanatory power. The study contributes to understanding how innovation functions as a strategic tool for organizations, particularly small enterprises in Indonesia. It provides valuable insights for practitioners and stakeholders in enhancing the role of innovation in business management.