From Digital Readiness to Circular Performance: The Roles of Dynamic Capabilities, Ambidexterity, and Organizational Agility

ABSTRACT This study examines how organizational readiness (OR), dynamic capabilities (DCs), and organizational ambidexterity (OAM) influence organizational agility (OA) and drive circular economy performance (CEP) in manufacturing firms. Using a conceptual framework grounded in resource‐based and institutional theories, the research empirically explores how internal capabilities and strategic enablers facilitate effective circular economy adoption. The study surveyed 207 respondents from Japanese manufacturing firms engaged in CE and sustainability practices and analyzed the data using validated theoretical constructs with covariance‐based structural equation model (SEM). The study found a positive association between DR, DC, and CEI. CEI was strongly associated with OA, which in turn enhanced CEP. CEI also significantly mediated the impacts of DC and DR on OA, whereas the moderating effect of OAM between CEI and OA was not supported. The research scope is limited to one area in the Japanese context, and applying a cross‐sectional methodology lacks the possibility of understanding. Further research is recommended to apply longitudinal techniques and to examine the framework's applicability across different economic and geographical settings. The research suggests practical perceptions for policymakers and business owners to develop proper circular economy initiatives, build capabilities, and improve their CEP. This study contributes by examining the underexplored link between OA and CEP in Japanese manufacturing firms. It proposes a validated framework highlighting DR and DCs as drivers of CEI, their effects on agility and performance, and the moderating effect of OAM.