Digital technology, digital capability and organizational performance

Purpose Despite the growing importance of digital innovation conceptualized as innovative digital solutions that enable digital transformation of businesses across industries, empirical study of factors related to digital innovation is still scant, creating a knowledge gap. To fill this gap, this paper aims to examine the effect of digital orientation and digital capability on digital innovation, and also the mediating effect of digital innovation on the link between organizational performance and digital orientation as well as digital capability. Design/methodology/approach This study tests a new conceptual framework using a survey data of 105 small to medium-sized IT firms in Malaysia and employing structural equation model (SEM) analysis from partial least square (PLS) approach. Findings The results show that digital orientation and digital capability have positive effect on digital innovation and also that digital innovation mediates the effect of technology orientation and digital capability on financial and non-financial performance. Practical implications The findings encourage the firms to take the opportunity of emerging digital technologies and digitalization trend in industries by being committed toward embracing new digital technologies and upgrading their digital capabilities to become innovation leaders and also to boost firms’ performance. Originality/value This study is one of the first studies that explain how emerging digital technologies can be leveraged to create innovative digital products and services and subsequently boost their business performance. It also fills the literature gaps related to driving factors of digital innovation and mediating role of digital innovation on the link between its driving factors and performance.