With the rapid advancement of digital technologies, urban management faces multiple challenges in delivering efficient services, enhancing citizens’ quality of life, and promoting sustainable development. In this context, the smart city strategy has emerged as a key approach in urban governance; however, its successful implementation requires identifying the factors that influence its effectiveness. This study aims to assess the role of innovation and economic factors in realizing the smart city strategy in Iranian cities. The research is applied in nature and adopts a survey-based methodology. The study population comprised urban experts, practitioners, and university faculty across the country, from which a sample of 386 participants was selected through cluster sampling. Data were collected via a structured questionnaire and analyzed using Structural Equation Modeling (SEM) with the Partial Least Squares (PLS) approach in SmartPLS software. The findings indicate that both innovation and economic factors play a significant role in the successful implementation of the smart city strategy, and their alignment with municipal needs and the business ecosystem facilitates the execution of urban initiatives. Furthermore, the results suggest that the presence of a coherent smart city strategy can enhance value creation, improve public services, and foster urban profitability, thereby contributing substantially to the sustainability of the urban economy. These findings can provide a robust basis for policymakers in designing and evaluating smart city initiatives at both local and national levels.