The Digital Path to Profitability: How Supply Chain Digitalization Drives Financial Performance Through Sustainable Integration

ABSTRACT Although it is a well‐known fact that digital technologies have the potential of changing the way supply chain operations are run, there is one important question that cannot be answered: How does digitalization translate into real financial benefits? Although the connections between supply chain digitalization and their integration and the firm performance are becoming more and more recorded, the mediating impact of sustainable integration, either internal or external, is not studied properly. The paper fills this gap by exploring the impact of supply chain digitalization on the financial performance via the two channels of sustainable internal integration and sustainable external integration based on the dynamic capabilities theory. Based on a three‐wave, time‐lagged survey design of 461 employees working in manufacturing companies in Xi'an, Shenzhen, and Guangzhou, China, and analyzed through PLS‐SEM, we found that the overall effect of supply chain digitalization on the financial performance of a firm is mainly through the initial transformation of the internal processes of a firm to become sustainable, which in turn boosts the external collaboration powerfully forming a strong two‐way pathway to profitability. Namely, digitalization is the enabling core of the so‐called sensing capacity that will create the internal sustainability alignment, which will in turn be the driver of the financial performance and a precondition of successful external sustainability alliances. Theoretically, the research operationalizes the dynamic capabilities theory in a digital‐sustainability framework, and it proves that sustainable internal integration and sustainable external integration serve as the so‐called reconfiguring and seizing mechanisms whereby digital investments can be transformed into competitive and financial advantage.