The Effects Of Firm Digital Transformation On Firm Innovation

As digital transformation continues to take hold,digital technologies are impacting all areas of production and life in a whole new way,with a wide range of organizational and policy implications.Faced with the historical opportunities and significant challenges brought by the digital revolution,the transformation of enterprises to digitalization has become an unstoppable process.However,will the transformation to digitalization help companies achieve better innovation performance? What role does a company’s competitive strategy play in this process? In addressing these two questions,studies have mainly understood the "digital transformation-innovation" relationship in terms of linear relationships.However,many relationships in strategic management tend to follow an inverted U-shaped pattern,where digital transformation may have a more pronounced impact on innovation at some levels or stages than at others.Therefore,an in-depth analysis of the impact of corporate digital transformation on corporate innovation is important for companies to achieve high-quality development.Based on the search and recombination perspective in innovation theory and the attentionbased view in strategy theory,this paper constructs a theoretical framework in which digital transformation and innovation performance show an inverted U-shaped relationship,and incorporates competitive strategy theory into the framework.Based on the panel data of 1591 manufacturing listed companies from 2009–2019,this paper obtains the following three conclusions with the help of the textual analysis and fixed-effects model:(1)digital transformation and innovation performance of enterprises have an inverted U-shaped curve relationship;(2)differentiated competitive strategy can produce a significant positive(2)Differentiated competitive strategy has a significant positive moderating effect on the relationship between digital transformation and innovation,resulting in a smoother curve,a leftward shift in the inflection point,and a lower overall level of innovation;(3)Cost leadership strategy has a significant negative moderating effect on the relationship between digital transformation and innovation,resulting in a steeper curve,a leftward shift in the inflection point,and a higher overall level of innovation.Based on the findings of this paper,when firms pursue innovation performance,they should both value the importance of digital transformation but not exaggerate the role of digital transformation.In addition,digital transformation should be integrated with a company’s overall competitive strategy so that innovation performance can be enhanced to the greatest extent.The above findings remain robust after a series of robustness tests,including instrumental variables approach,inverted Ushaped relationship test,and indicator validity test.The marginal contributions of this paper are mainly in three areas.First,this paper explains the nonlinear impact of digital transformation on corporate innovation at both theoretical and empirical levels.Based on the search and restructuring perspective and the attentional basis view in innovation theory,this paper reveals the specific mechanisms by which digital transformation affects innovation.Second,the paper enriches the existing research on the relationship between digitalization,innovation,and strategy by incorporating the competitive strategies of firms into the existing theoretical framework.Third,the paper provides lessons for companies that are committed to digital transformation and innovation.