What is the impact of digital competence on firm performance?

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Impact of Digital Competence on Firm Performance

Introduction to Digital Competence and Firm Performance

In the digital economy, firms must undergo comprehensive digital transformations to remain competitive. Digital competence, encompassing digital infrastructure, integration, and management, plays a crucial role in this transformation and significantly impacts firm performance.

Digital Competence and Organizational Performance

Research indicates a positive relationship between digital strategic orientation, digital competence, and organizational performance. Digital competence reshapes corporate resources, enabling firms to navigate turbulent digital environments and ultimately improve organizational performance. This competence is essential for firms undergoing or having completed digital transformation, highlighting its importance in achieving value delivery and enhancing performance.

Digital Business Capability and Firm Performance

Digital business capability (DBC) is another critical factor that drives firm performance. Studies show that DBC contributes to performance beyond established constructs, particularly after reaching a critical level of internal dynamism. This capability is more valuable for business-to-consumer firms than for business-to-business firms, emphasizing the need for firms to develop robust digital business capabilities to enhance performance.

Role of Smart Technologies in Digital Transformation

While digital transformation alone may not directly impact firm performance, smart technologies play a mediating role in linking digital transformation to improved performance. This is particularly evident in small and medium-sized enterprises (SMEs), where smart technologies are crucial for leveraging digital transformation to enhance firm performance.

Digital Transformation Capability and Operational Performance

Digital transformation capability, which includes sensing, organizing, and restructuring, positively impacts operational performance. This capability mediates the relationship between strategic orientation and operational performance, underscoring the need for firms to build digital transformation capabilities to create new enterprise value and achieve competitive advantage.

Digital Capability in SMEs

In SMEs, digital capability is positively related to firm performance and growth. Smaller firms often have less digital capability and struggle with performance indicators compared to larger SMEs. However, digital capability can boost opportunity creation and aid in survival amidst competition, making it a vital resource for sustaining business models and achieving competitive advantage.

Digitalization and Firm Performance

Digitalization transforms business activities and forms new data resources, helping firms achieve lean management through data integration and analysis. Empirical studies confirm that digitalization boosts corporate performance, particularly by enhancing corporate innovation. This positive impact is more pronounced in non-state-owned enterprises and those with executives having an information technology background.

Digital Competencies in Partnership Programs

For SMEs, digital competencies significantly impact performance, especially when combined with experience and partnership programs. These competencies are crucial for improving performance, although their direct impact may be limited without the support of partnership programs and relevant experience.

Digital Expertise on Corporate Boards

The presence of digital experts on corporate boards is significantly and positively related to firm performance. Firms with digital experts on their boards experience increased performance, growth, liquidity, and reduced business risk. This underscores the importance of digital expertise in enhancing firm performance through improved corporate governance and information asymmetry reduction.

Digital Technologies and Innovation Performance

Contrary to popular belief, the increased use of digital technologies does not necessarily improve innovation performance. Innovation is more closely linked to creativity and R&D efforts rather than the mere adoption of digital technologies. Excessive reliance on digital technologies may even deplete long-term innovation capabilities by affecting relational capital.

Conclusion

Digital competence and related capabilities are critical for enhancing firm performance. While digital transformation and smart technologies play significant roles, the presence of digital expertise and a strategic approach to digital capabilities are essential for achieving competitive advantage and sustained growth. Firms must focus on building robust digital competencies and leveraging them effectively to navigate the digital economy and improve performance.