Digital transformation’s impact on substantive innovation: a life-cycle perspective

Abstract

Purpose: Based on the theory of the firm life cycle, this study investigates the effect of digital transformation on substantive innovation and the moderating role of a firm’s life cycle in this relationship. Design/methodology/approach: The effect of digital transformation on substantive innovation and the moderating effect of a firm’s life cycle were tested using panel data from A-share-listed Chinese manufacturing firms spanning 2013 to 2022, using an ordinary least squares regression model with fixed effects. Findings: The findings indicate that digital transformation significantly boosts substantive innovation. A firm’s life cycle moderates this effect. Specifically, digital transformation significantly promotes substantive innovation during the mature stage, while its significance is not evident during the growth or decline stages. Research limitations/implications: Theoretically, this study contributes to the digital transformation and innovation literature by providing a nuanced and dynamic perspective on their relationship from a firm’s life cycle perspective. Practically, the findings offer insights for managers in manufacturing firms into developing stage-specific digital strategies to optimize innovation outcomes. Originality/value: This study enhances the understanding of digital transformation’s role in substantive innovation by revealing its dynamic effects across a firm’s life cycle. Our findings highlight that digital transformation’s effect on substantive innovation varies across different life cycle stages of a firm, offering insights for academics and practitioners seeking to optimize digital strategies based on a firm’s life cycle stages.