The field of strategic innovation (SI) has been garnering increasing research interest, with studies adopting and employing varying definitions and creating different methods for its measurement. Despite the innumerable studies, few have addressed manufacturing and small and medium-sized enterprises (SMEs), particularly those focused on Middle East countries, in light of the relationship between structural capital (SC) and SI. Hence, the present work is primarily aimed at examining the role of SC in SI and the performance of manufacturing SMEs. It employed the survey method to gather data from the study sample of 284 Yemeni manufacturing SMEs and the hypotheses were tested using Partial Least Squares-Structural Equation Modelling (PLS-SEM). On the basis of the results, there is a significant influence of SI on performance; SC also has a moderating role of on this relationship. The present study is expected to contribute to the creation of a measurement system for SI in SMEs, stressing each component of SI in enhancing the performance of such enterprises.