This has changed in the digital age, where social media is no longer seen as a tool of communication, but rather it has become a transformation factor that is transforming how organisations innovate and redesign their business processes. The review paper discusses the complex influence of social media on digital innovation and transformation of business processes based on the strategic importance of social media in facilitating agile, data-driven and customer-centric organisational ecosystems. Based on an integrative review of the existing research, the research paper summarises the ways social media platforms enable open innovation, promote collaboration, spread knowledge faster and democratise the generation of ideas via digital communities. The paper explains how social media analytics, artificial intelligence, and big data help in enhancing innovation potentials through providing real-time insights, predictive intelligence, and evidence-based decision-making. The review further examines how the business processes, especially marketing, customer relationship management, human resources and supply chain operations, are undergoing reengineering with the integration of social media, which is facilitating the firms to respond with personalised digital experiences. Although these opportunities exist, the review marks various challenges, such as privacy concerns, overload of information, skills gaps, organisational resistance and reliance on a particular platform that could lead to barriers to beneficial transformation. The paper ends with future research directions highlighting the use of social media and emerging technologies, including AI, IoT, blockchain, and the metaverse, to provide future directions for further digital transformation. On balance, the study offers a detailed insight into the role of social media as an agent of digital innovation and the transformation of the business process that allows organisations to be competitive in a constantly evolving technological environment.