Digital manufacturing ecosystem: the effects of dynamic capabilities on firm performance in response to the digital transformation of the manufacturing sector

The Digital Transformation of the manufacturing sector (also known as “Industry 4.0” or “Smart Manufacturing”) has attracted a growing interest among practitioners and academic scholars. While the existing literature is dominated by consultancy reports and practitioners’ reviews, academic studies have examined this phenomenon mainly from technical and engineering viewpoints. Managerial aspects, including organizational capabilities required to adopt and foster digital transformation of manufacturing and also factors impacting performance contributions of such transformation, are still unclear. To address this gap, our study applies a dynamic capability approach to identify and examine the organizational dynamic capabilities needed to successfully implement digital transformation and translate it to a competitive advantage. Dynamic capabilities, firm’s ability to purposefully and systematically alter its resource base, are an appropriate lens to examine this phenomenon, given the rapid rate of change in business and manufacturing environment characterized by digital disruption. Accordingly, this study empirically investigates the factors (i.e., antecedents) that drive the development of digital manufacturing capabilities and the extent to which such capabilities affect organizational performance (i.e., outcome). We first conduct a systematic review of the relevant literature in resource-based view and its extension dynamic capabilities view, as well as disruptive innovation theory, to develop a theoretical framework. Then, using a sample of primary data collected through an online survey, we empirically examine the theoretical predictions. Our analysis using Partial-Least-Squares (PLS) approach reveals that higher-order dynamic capabilities are strongly associated with firm performance, and their effect is partially mediated by digital manufacturing capabilities, which supports the theoretical framework.