When does digital transformation pay off? A contingent knowledge-combination logic of digital breadth and depth in SME innovation

Digital transformation expands firms’ access to knowledge while increasing the work needed to integrate it. Drawing on the knowledge-based view, we examine when digital breadth and depth complement or substitute for one another in SME innovation. We combine panel regressions with static and dynamic fsQCA using 3,170 firm-year observations of Chinese GEM-listed SMEs from 2013 to 2023. Breadth and depth are each positively associated with innovation, but their average interaction is negative. Six high-innovation configurations combine these dimensions with digital incentives, the digital environment, state ownership, and political connections. Their annual consistency varies, with several configurations receiving sustained support. We develop a contingent knowledge-combination logic in which the value of combining broader search with deeper integration depends on the resources needed to connect them. Institutional and digital conditions matter because they can help firms meet these demands.