Digital transformation capabilities and firm performance: role of operational strategy alignment

Abstract

With the advent of Industry 4.0, digital transformation has been accelerating, driving significant changes in the business environment. Technical challenges and the distinct characteristics of individual firms present obstacles to their successful digital transformation. Moreover, a firm’s operational focus may shape the relationship between digital transformation and firm performance. This study examines the impact of key digital transformation capabilities on firms’ financial performance. Using regression analysis on survey data from 2,038 South Korean companies, it empirically validates the effect of digital transformation capabilities on firm revenue. The study also investigates whether this effect differs according to the firm’s operational strategy, categorized as productivity-oriented, quality-oriented or diversified. The findings confirm that managerial and technological capabilities positively influence financial performance. However, their effects vary depending on the direction of operational strategy. This study highlights the challenges faced by SMEs, especially how resource constraints and technological complexity can hinder successful digital transformation. Given these challenges, aligning digital transformation capabilities with operational strategy emerges as essential for maximizing benefits. The study underscores the importance of operational strategy alignment and provides guidance on digital transformation capabilities that firms should prioritize based on their goals. These insights carry valuable implications for practitioners and policymakers seeking a roadmap for effective digital transformation.