Digitalization and digital innovation in developing the capability of a digital economy

Purpose Digital technology (DT) is a massive and robust tool for organizational success. This paper aims to examine the roles of digitalization and digital innovation (DI) in developing the capability of a digital economy. Design/methodology/approach The authors used a cross-sectional study to collect the data from the managers of Egyptian SME manufacturing firms. This study utilized 322 samples. Findings From applying the structural equation model (SEM), this study’s findings show that digital capability (DC) and digital orientation (DO) exert a positive effect on the firm’s digital economy capability (DEC). In addition, DC has a positive impact on DI. In contrast, digital technology self-efficacy (DTSE) negatively predicts DEC. This study’s results also confirm DO’s negative effect on DI. The DTSE is a positive enabler of DI that has also positively affected the DEC. The mediating results demonstrate that DI reinforces the positive connection between DO and DEC. On the other hand, DI does not mediate the connection between DO and DEC and between DTSE and DEC. Practical implications This study’s outcomes support policymakers and manufacturing organizations in employing DT to improve DEC and, thereby, develop firm performance and success. The study’s findings also encourage organizations to invest in bringing about a digital culture within them. Finally, by developing DT and DI, firms can nurture a conducive culture of creativity and forward-thinking. Originality/value This study directly overcomes the need for an integrated framework of all DI, DTSE, DO, DC and DEC. Furthermore, DI’s mediating contribution between DC and DEC, between DO and DEC and between DTSE and DEC adds fresh insights to the existing literature.