Does Investment in Digital Technologies Foster Exploitative and Exploratory Innovation? The Moderating Role of Strategic Flexibility

To address the controversy on whether investing in digital technologies (DTs) could foster innovation, we integrate absorptive capacity and organizational inertia perspectives and examine the unique effects of DT investment on different types of innovation, as well as the moderating role of strategic flexibility. Evidence from 171 Chinese manufacturing companies reveals that DT investment poses a linear effect on exploitative innovation but an inverted U-shaped effect on exploratory innovation. More interestingly, resource flexibility (RF), rather than coordination flexibility (CF), reveals a substituting effect on DT investment because it weakens the positive association between DT investment and exploitative innovation. In contrast, the inverted U-shaped association between DT investment and exploratory innovation is increased by both RF and CF, suggesting reinforcing effects on DT investment. Our proposed moderated mechanisms contribute to the extant digital innovation research by providing new understandings for the DT investment-innovation association. Our findings also guide for companies to clarify the direction of DT investment.