Unraveling the mystery of the link between digital orientation and innovation performance: The interplay of digital business capability and environmental dynamism

Although there is contradictory evidence that digital orientation (DO) is strategically significant for obtaining superior innovation performance (IP), extant literature lacks a holistic mechanism through which DO influences IP and fails to explore the boundary conditions that constrain or improve the DO-IP relationship. This study, guided by the Resource-based view and its dynamic capability extension, intends to develop a moderated moderation model that incorporates digital business capability (DBC) as a moderator of the relationship between DO and IP and examines how much of this moderation is affected by the instability of the environment, i.e., environmental dynamism (ED), in which firm operates. The findings from an email-based survey of 324 high-tech small and medium-sized enterprises functioning in India confirm the positive link between DO and IP, and indicate that DBC positively moderates the aforementioned relationship. More interestingly, ED strengthens the positive moderating effect of DBC on the DO-IP link. Overall, these findings contribute to the extant literature by articulating how DBC and ED jointly determine the influence of DO on IP. This research also has practical implications for enterprises looking to change their orientations in order to succeed in the digital transformation.