Digitalization efforts and firm performance: decomposing the mediation effect of dynamic capabilities in supply chain management

Abstract Digital transformation is inevitable, but some adaptation efforts remain resultless. Previous literature suggests that dynamic capabilities (DCs) are essential for adapting to digitalization challenges while maintaining business performance. In this complex research field, this paper aims to add to prior knowledge by analyzing two research questions in a supply chain management context. Firstly, by identifying general modernization and supply chain process development as observable organizational manifestations of DC development, we examine their mediating roles in the relationship between digitalization efforts and firm performance. Secondly, by comparing two mediation models, we aim to explore whether the mediation effects of differently combining the sensing, seizing and reconfiguration DC components differ. We argue that when sensing the business opportunities resulting from digitalization, general modernization in supply chain management only represents the seizing DC component, as opposed to supply chain process development, which is considered to be an outcome including the effects of both the seizing and resource reconfiguration. The empirical analysis is based on data of 335 Hungarian medium-sized and large firms. Structural equation modeling results suggest that only the findings about supply chain process development are consistent with positive mediation, the results about general modernization are not consistent with mediation between digitalization efforts and firm performance. By highlighting the prominence of the reconfiguration DC component in achieving competitive advantage, these findings provide novel insights into DC effects on firm performance. In addition to this, the results also point out the importance of comprehensive digital transformation, as opposed to rather isolated modernization investments.