Digital data, dynamic capability and financial performance: an empirical investigation in the era of Big Data

Abstract

Firms automatically and continuously capture a high amount of digital data through social media, RFID tags, clickstreams, smart meters, manufacturing sensors, equipment logs, and vehicle tracking systems. However, empirical evidence on the effects of the generation of these digital data on firm performance remains scarce in the Information Systems and Management literature. Therefore, from a dynamic capability perspective, this paper examines whether companies' ability to leverage digital data, which we call their Digital Data dynamic capability, leads to better financial performance, and whether there are moderating effects on this relationship. In order to achieve these goals, the following research questions are addressed: 1) To what extent do firms that develop Digital Data dynamic capabilities achieve better financial performance? 2) To what extent do organisational and industry-related environmental conditions moderate the relationship between a firm's Digital Data dynamic capability and financial performance? We empirically test our hypotheses through partial least square modelling using a financial database and a survey of sales managers from 125 firms. We find that the development of Digital Data dynamic capability provides value in terms of firm financial performance and that the moderating effects are influential: under high levels of dynamism and munificence in younger firms, the relationship is stronger. Overall, this study evaluates the potential business value of firm digital data use and addresses a lack of empirical evidence on this issue in the Information Systems literature. We discuss two managerial implications. First, managers should pay more attention to digital data phenomena and to ways of leveraging value creation opportunities. Second, managers must evaluate their environmental and organisational characteristics when business opportunities from digital data are taken into account.