Unraveling the Performance Puzzle of Digitalization: Evidence from Manufacturing Firms

The pandemic has boosted firm investments in digital technologies and Digitalization is booming among firms. However, on the one hand, whether digitalization may lead to superior performance remain unclear.To fill the above gaps, we develop a moderated moderation model from the knowledge management perspective to investigate the combined effects of digitalization, knowledge inertia, and organizational integration mechanisms on firm performance. Based on the survey data of 192 Chinese manufacturing firms with different degrees of digitalization, we find that although digitalization shows a positive relationship with firm performance, such a positive relationship is negatively moderated by knowledge inertia. More interestingly, formal organizational integration mechanism, rather than informal organizational integration mechanism, can mitigate the negative moderator effect of knowledge inertia. We contribute to the current digitalization literature by articulating the possible moderated moderating mechanisms through which knowledge inertia and organizational integration mechanisms jointly determine the effectiveness of digitalization on firm performance.