Digital Disruptive Innovation and Firm Performance Nexus: Role of Dynamic Managerial Competence, Innovative Work Practices and COVID-19

This study investigates, with a particular focus on understanding how digital change shapes firm performance in an emerging economy context, first, the impact of digital disruptive innovation, conceptualized as an external condition characterized by technological, market, and competitive turbulence on firm performance within tech-intensive service sector companies, and second, the mediating influence of management skills, proxied by dynamic core managerial competence, and the moderating influence of modern management practices, proxied by innovative work practices, on this relationship. It also examines the moderating effect of innovative work practices on the relationship between digital disruptive innovation and dynamic core management competence, and the impact of COVID-19 on the link between dynamic core management competence and firm performance. This study applies structural equation modelling (SEM) (AMOS 26.0 software) to explore several hypotheses testing for target relationships. The sample was collected via a Qualtrics online survey from 730 senior executives working in digital telecom and banking firms in Pakistan. The study findings show that digital disruptive innovation has a negative effect on service sector performance, and this negative impact is also mediated by dynamic core management competence, as heightened digital disruption tends to weaken managerial competence, which subsequently affects firm performance. While innovative work practices exhibit a positive association with performance, they also positively moderate the negative effect of digital disruptive innovation on performance and mitigate the negative impact of dynamic core management competence on performance. The analysis also reveals that the COVID-19 pandemic positively moderates the effect of dynamic core management competence on performance, indicating that managerial adaptability becomes particularly important when firms operate under crisis conditions. Overall, this study highlights the significance of these phenomena on firm performance in an emerging economy context and provides practical insights for managers and policymakers operating in digitally disrupted service sectors.