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Abstract: The COVID-19 pandemic relentlessly reveals missed opportunities for firms to invest in their digital infrastructure. Despite recent calls and its transformational nature, the question of how digitalization affects firm success has not been fully explored in the innovation and management literature. The primary purpose of this paper is to examine the impact of firm-level innovativeness on firm-level performance. More precisely, we assess inventors' patent-based productivity, hence innovativeness, and their use of digital technologies on firm-level sales growth and profitability. In doing so, we propose a new objective patent-based measure of firm-level digitalization. More importantly, we identify an opposite moderation effect and show how digitalization can improve and harm firm performance at the same time. Moreover, we raise awareness for the necessity to manage the digital divide.
Keywords: digitalization; digital transformation; firm performance; profitability; sales growth; inventor productivity; patents; organizational ambidexterity; digital divide.
1 Introduction
The "4th Industrial Revolution" is evolving at an exponential pace and disrupts almost every industry worldwide, causing changes in entire systems of production, management, and governance. Emerging new technologies blur the lines between the digital, physical, and biological spheres (Lanzolla et al. 2021; Schwab 2015). As an example of the interest in digitalization, Figure 1 shows the evolution of academic articles published on digitalization or digital transformation within management-related domains based on a web of science topic-search. Notably, the number of articles almost doubled every year since 2016. More recently, the global COVID-19 pandemic brought digitalization into the spotlight. A record of 669 articles got published in 2020, and the cumulated body of research has been cited over 7,500 times in the same year. Even before the pandemic, digitalization increasingly gained research attention in the first decade of the 21st century, as documented by the increase in citations per article. With typically lagged publications, this exponentially growing trend will probably continue due to the pandemic and expose potentially hidden dynamics leading to digitalization failures (Almeida et al. 2020; Faraj et al. 2021). "To be or not to be digital" is not even a question any longer (Ferreira et al. 2019). The question has become how to manage the digital transformation successfully?
Across all industries, there is undeniable evidence that new digital technologies underpinning the 4th Industrial Revolution have an...