A digital–intelligent production workshop at an electrical equipment company in Yongnian District, Handan City, Hebei Province, Jan. 21, 2026. Photo: IC PHOTO

With the rapid development of China’s digital economy, enterprises have increasingly engaged in efforts to build digital capabilities. Traditional firms have actively embraced digital technologies to enhance digital operational capabilities and digital dynamic capabilities, thereby advancing digital transformation. Digitally native enterprises, by contrast, are built on digital technologies and use them as core tools for developing digital capabilities, enabling them to quickly secure competitive advantages. Against this backdrop—where both traditional and born-digital firms are investing heavily in digital capabilities—the relationship between digital capabilities and firm performance has become an increasingly pressing issue.

Although most existing studies report a positive correlation between digital capabilities and firm performance, their conclusions vary considerably. Overall, due to limitations in research design, these findings remain fragmented and lack generalizability. To address this gap, the present study conducts a meta-analysis of 74 independent studies examining the relationship between digital capabilities and firm performance. It further tests the moderating effects of eleven variables across two broad categories—subjective and objective factors—in order to clarify the direction and magnitude of this relationship, as well as the boundary conditions under which it operates.

Concept of digital capabilities

As an emerging concept in the era of the digital economy, digital capabilities have yet to be defined in a uniform manner. Some scholars adopt a strategic perspective, conceptualizing digital capabilities as a form of dynamic capability—namely, a firm’s ability to leverage digital technologies to rapidly identify opportunities embedded in institutional and market environments, efficiently allocate resources to seize those opportunities, and ultimately enhance firm performance by gaining competitive advantages.

Other scholars focus on the operational level, viewing digital capabilities as operational capabilities that involve the digitalization of support functions such as procurement and marketing, thereby improving firm performance through cost reduction and efficiency gains. Synthesizing existing research, digital capabilities can be understood as a meta-capability encompassing both digital dynamic capabilities and digital operational capabilities. Through digital technologies, firms integrate and reconfigure digital and traditional resources in response to a changing environment, improve operational efficiency in areas such as procurement, manufacturing, and marketing, and ultimately obtain and sustain competitive advantage.

Although the impact of digital capabilities on firm performance may exhibit both positive and negative effects, existing research suggests that the revenues generated and costs saved through digital capabilities outweigh the additional expenditures they entail. In aggregate, therefore, the positive effects dominate. Moreover, firm capabilities constitute a key source of firm performance, implying that digital capabilities should contribute positively to performance outcomes. Practical evidence further shows that both traditional and digitally native enterprises have achieved cost reductions and efficiency gains by developing digital capabilities, leading to enhanced overall performance. Accordingly, it can be inferred that the overall effect of digital capabilities on firm performance is positive.

Relationship between digital capabilities and firm performance

Because small, medium-sized, and large firms differ in resource endowments, organizational structures, and levels of employee specialization, the effects of digital capabilities on firm performance also vary by firm size. From a resource availability perspective, smaller firms lack sufficient internal resources to compete directly with larger firms, making digital capabilities particularly important for leveraging external resources. As a result, digital capabilities play a critical role in helping smaller firms gain competitive advantages and improve performance.

From an organizational structure perspective, smaller firms typically have simpler and more flexible structures, with smoother communication across hierarchical and lateral levels. This facilitates the diffusion and implementation of digital initiatives, allowing digital capabilities to exert stronger effects. In addition, employees in smaller firms generally have lower levels of specialization and are responsible for a wider range of tasks. Digitalization helps coordinate these tasks more effectively and improve efficiency. By contrast, larger firms tend to have more rigid hierarchies and higher levels of employee specialization, which constrains their ability to fully exploit digital capabilities, increases resistance to digital initiatives, and ultimately reduces their effectiveness.

New ventures face challenges such as insufficient market legitimacy and a lack of established routines, conditions that allow digital capabilities to play a more prominent role. Digital capabilities can strengthen connections between new ventures and stakeholders such as customers and partners, thereby enhancing legitimacy and improving firm performance. They also facilitate process standardization, increasing operational reliability and efficiency. Mature firms, by comparison, benefit from accumulated customer bases and established routines that may reduce motivation to exploit digital capabilities and even hinder the adoption of new practices, leaving digital capabilities with relatively less room to exert influence.

From an opportunity perspective, emerging economies—compared with developed economies—are characterized by less sound institutional environments, higher environmental dynamism, and greater uncertainty in customer demand, all of which imply more entrepreneurial opportunities. Under such conditions, digital capabilities are more likely to generate value for firms in emerging economies. From a resource-based perspective, resources in emerging economies are relatively scarce, making digital capabilities rarer and more valuable, and thus more likely to generate competitive advantages and enhance firm performance. Firms in these contexts are also more inclined to fully leverage the resources and capabilities they possess, including digital capabilities. In developed economies, by contrast, both digital and traditional resources are more abundant, reducing the scarcity and marginal contribution of digital capabilities to firm performance. Firms can rely more heavily on existing resources and capabilities, which diminishes the relative effectiveness of digital capabilities. From the standpoint of international competition, firms in emerging economies are often at a disadvantage, making the effective deployment of digital capabilities an important means of competing with—and potentially catching up to—firms in developed economies.

National culture also shapes the effectiveness of digital capabilities. Drawing on Hofstede’s framework, national culture can be analyzed along dimensions such as power distance, individualism–collectivism, masculinity–femininity, uncertainty avoidance, and long-term versus short-term orientation. Power distance refers to the emotional distance between superiors and subordinates. In high power-distance cultures, managers possess greater authority and encounter less resistance when promoting digital transformation, making it easier for digital capabilities to translate into performance gains. Individualism–collectivism reflects the degree to which individuals are independent of the group. In individualistic cultures, employees are more likely to resist digitalization due to concerns about privacy and personal rights, weakening the performance-enhancing effects of digital capabilities. Masculinity is associated with the pursuit of achievement and challenge, whereas femininity emphasizes job security. In cultures characterized by higher masculinity, employees are more willing to step out of their comfort zones and acquire new digital skills, allowing digital capabilities to exert stronger effects. In more feminine cultures, concerns about job security may increase resistance to digital transformation. Uncertainty avoidance refers to the extent to which members of a culture feel threatened by uncertain or unknown situations. In high uncertainty-avoidance cultures, firms tend to exhibit lower trust in digital technologies and adopt them more slowly, limiting their ability to leverage digital capabilities to improve performance. Employees in such cultures are also more likely to resist digitalization due to concerns about skill obsolescence, changes in work routines, or risks such as pay cuts or unemployment. Conversely, lower uncertainty avoidance is associated with greater openness to opportunity and faster acceptance of digital technologies. Finally, long-term orientation emphasizes the cultivation of virtues oriented toward future rewards, whereas short-term orientation emphasizes values related to the past and present. Firms influenced by a long-term orientation tend to be more proactive and flexible, face less resistance to digitalization, and are therefore better positioned to realize the positive effects of digital capabilities on performance.

Research conclusions and practical implications

This study yields the following main conclusions. First, on average, digital capabilities are moderately and positively correlated with firm performance. Second, firm performance is a multidimensional construct that can be measured using financial indicators (e.g., revenue and profit) and non-financial indicators (e.g., customer satisfaction and new product development). The positive effect of digital capabilities on firm performance is stronger when performance is measured using non-financial indicators, although this difference becomes insignificant after controlling for the source of performance data. Third, digital capabilities have a stronger positive effect on the performance of small firms than on large firms, and a stronger effect on new ventures than on mature firms. Fourth, in some contexts, the positive effect of digital capabilities is stronger for firms in emerging economies than for those in developed economies. Fifth, the performance-enhancing effects of digital capabilities are stronger in national cultures characterized by high power distance, low individualism, high masculinity, and strong long-term orientation.

From a practical perspective, these findings support managerial decisions to enhance firm performance through the development of digital capabilities. Building digital capabilities can improve both non-financial and financial performance, with effects evident at both the strategic and operational levels. Developing digital capabilities also represents an important pathway for new ventures to compete with and even gain advantages over mature firms, and for small firms to compensate for resource constraints and achieve growth. For firms in emerging economies, leveraging digital capabilities provides a potential route for narrowing performance gaps with firms in developed economies. Finally, firms operating in national cultures characterized by high power distance, low individualism, high masculinity, and strong long-term orientation should capitalize on these contextual advantages by actively developing digital capabilities to enhance performance, whereas firms in low power-distance, highly individualistic, low-masculinity, and short-term-oriented cultures can mitigate the constraining effects of national culture on digital capability effectiveness through strategic management practices.

Ma Hongjia (professor) and Wang Chunlei are from the School of Business and Management at Jilin University. This article has been edited and excerpted from Nankai Business Review, Issue 6, 2025.