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Purpose Digital business model innovation (BMI) is increasingly pivotal for sustaining competitive advantage in the digital economy, yet scholars know little about how traditional manufacturing firms discard obsolete beliefs and routines to seize digital opportunities. Grounded in dynamic capability and institutional theories, this study examines how unlearning enables digital BMI through dynamic capability and how institutional forces condition this mechanism. Design/methodology/approach The study employed a two-wave survey of 207 Chinese manufacturing firms to mitigate common method bias and strengthen causal inference. The model was tested using partial least squares structural equation modeling (PLS-SEM). Findings Our findings reveal that organizational unlearning exerts a positive direct effect on digital BMI. Moreover, dynamic capability mediates this relationship, indicating that unlearning drives digital BMI by renewing firms' capacity to sense and seize digital opportunities. Additionally, institutional forces moderate the unlearning–capability pathway: dysfunctional competition dampens, whereas government financial support amplifies the path. Originality/value Our study advances digital BMI research by pinpointing unlearning as a critical antecedent and by clarifying when its advantages are effective in the digital economy. These insights offer practical guidance for managers to dismantle legacy routines, invest in capability development and leverage public finance to counteract institutional voids. For policymakers, the findings underscore the importance of providing targeted financial support and strengthening intellectual property regimes to foster a positive environment for innovation.
Zhang et al. (Mon,) studied this question.