Untangling the Nonlinear Impact of Digital Innovation on Operational Efficiency

In the digital era, digital innovation incorporating emerging digital technologies has profoundly revolutionized firms’ operations management. While digital innovation helps firms optimize operational processes and thus improves their operational efficiency, it also impairs operational efficiency by disrupting existing operating practices and routines. To disentangle this dilemma, this study combines the disruptive innovation literature and dynamic capability theory to explore the nonlinear impact of digital innovation on operational efficiency. Employing a dataset of 1527 Chinese listed firms from 2008 to 2019, we find that there is a U-shaped relationship between digital innovation and operational efficiency. Furthermore, different types of functional experiences in top management teams (TMTs) exert varying effects on this U-shaped relationship. Interestingly, throughput functional experience (i.e., production and manufacturing experience) in TMTs flattens the U-shaped digital innovation–operational efficiency linkage, whereas output functional experience (i.e., R&D, marketing, and sales experience) in TMTs steepens this curvilinear linkage. This research extends the growing literature on digital innovation by providing novel insights into the comprehension of the U-shaped digital innovation–operational efficiency relationship. Moreover, this study uncovers the distinct moderating roles of different types of functional experiences in TMTs, guiding firms to overcome the hurdle of digital innovation and harness more benefits from it.