Go Green or Go Digital? A Set‐Theoretic Perspective of Incumbents' Paths to Success

ABSTRACT In response to growing pressures for environmental sustainability and technological advancement, this study examines how firms can effectively integrate green and digital innovations within ambidextrous strategies to enhance performance. Using fuzzy‐set Qualitative Comparative Analysis (fsQCA) on a sample of 175 German manufacturing and service firms, the study identifies configurations that balance exploration and exploitation with digital and green innovation initiatives in different operational contexts. The findings emphasize that success hinges not on isolated elements but on their strategic integration into a coherent innovation framework. High‐performing firms in dynamic environments emphasize digital innovation, while those in stable settings prioritize green innovation, and both require alignment with the firm's underlying innovation strategy. However, success depends on firm‐specific factors: Smaller firms benefit from specialized innovation strategies, while large firms, particularly manufacturing firms, achieve resilience by combining green and digital innovation. Service firms gain competitive advantage by adapting their innovation focus to environmental shifts. The study demonstrates that innovation effectiveness results from context‐specific, integrated approaches rather than one‐size‐fits‐all strategies.