Understanding digital capabilities and their relationship in digital transformation

Purpose Enterprises face barriers in digital transformation due to an unclear way to build digital capability. However, existing research on digital capability lacks a unified theoretical framework. This study aims to establish a theoretical framework to explain the formation mechanism for digital capability, identify digital sub-capabilities, and reveal their interrelationships. Design/methodology/approach This study develops a theoretical framework and classification of digital capability through systematic theoretical research. It uses structural equation modeling (SEM) with a partial least squares (PLS) approach to analyze survey data from 222 Chinese firms, validating the relationships among digital sub-capabilities. Findings This study builds a theoretical framework for digital capability based on resource-based view and service-dominant logic, explaining the formation mechanism of digital capability. It categorizes digital capability into four sub-capabilities: data collection, integration, analysis, and application, and reveals a hierarchical relationship of digital sub-capabilities from basic to advanced and their positive association with firm performance. Research limitations/implications This study is based on 2020 cross-sectional survey data from Chinese firms, which may affect the robustness and generalizability of the findings. The sample is dominated by large, established enterprises, limiting applicability to smaller firms and startups. Common-method bias may be present as data for both capabilities and performance were collected from the same respondents. Practical implications Based on a sample dominated by large, established enterprises, the findings provide strategic guidance for digital transformation and digital capability construction. By identifying classification and hierarchical relationships of digital sub-capabilities, enterprises can focus on developing capabilities tailored to their needs, driving comprehensive organizational transformation. Originality/value This study proposes a synthesizing framework for digital capability, providing a systematic classification and uncovering hierarchical relationships among digital sub-capabilities and their association with firm performance, thereby addressing knowledge gaps in the existing literature.