Digital Transformation and Its Impact on Firms Performance: An Organizational Change Perspective

Despite the growing global emphasis on digital transformation as a strategic orientation, firms often struggle to realize its anticipated benefits. This study explores the intricate relationship between digital transformation orientation (DTO) and firm performance, highlighting the pivotal role of organizational changes in shaping the nature of this relationship. Using a longitudinal dataset from 2,766 Chinese public firms in 2010–2022, we find that DTO, on average, negatively affects firm performance as measured by return on assets. However, this performance impact of DTO is moderated by specific organizational changes that are asset-centric (e.g., asset divestiture and expansion) and human-centric (e.g., executive and employee turnovers). Asset divestiture and expansion can mitigate the negative impact of DTO by optimizing resource allocation. Similarly, employee turnover introduces new skills, alleviating the adverse performance impact of DTO. However, frequent IT executive turnover exacerbates the negative performance impact of DTO by disrupting strategic persistence and leadership stability. Taken together, this study contributes to the literature by addressing the mixed findings on performance implications of DTO and highlighting the contingencies steaming from organizational changes. Overall, our findings underscore the importance of aligning organizational change initiatives with DTO and offer actionable recommendations for firms navigating complexities in digital transformation journeys.