Testing the impact of digital capability on innovation performance: Empirical evidence from Chinese SME's digital transformation

Digital technologies represented by big data, cloud computing, and artificial intelligence not only expand the behavioral scope of firms and promote the interconnection of market entities, but also give digital transformation the key to strengthening the core competitiveness of firms. At the firm level, digital technologies play the role of strategic resources, and digitalization is not only a tool for operational efficiency and entrepreneurship, but also a critical asset for driving innovation. Based on Dynamic Capability Theory and Organizational Learning Theory, this study aims to investigate how digital capability enhances innovation performance of SMEs from the perspective of open innovation. For this purpose, we proposed a conceptual framework of “Digital Capability- Organizational Learning-Innovation Performance”. The results confirmed that both digital capability and organizational learning are conducive to firm innovation performance, and organizational learning plays a mediating role between digital capability and innovation performance. This study further discovered that open innovation positively moderates the relationship between organizational learning and innovation performance. In order to empirically verify the research hypotheses proposed for this study, we conducted online survey on 350 SMEs located in Beijing, Zhengzhou, and Shanghai to collect data. The study result provides strategic directions for SMEs to break through behavioral inertia, nurture digital capability, and increase open innovation, in order to maximize the innovation performance. In terms of theoretical implications, this study is expected to expand the current understanding on the mechanism involving the impact of digital capability and organizational learning on innovation performance. Furthermore, the study reveals new insights on the moderating role of open innovation performance.