The Dynamics of Digital Transformation: Why Similar Efforts Diverge

Firms that invest similar amounts in digital transformation often end up with very different results: some achieve steady improvement, some remain at a low level, and others experience repeated rises and declines in performance. This study explains why these differences occur by examining technological innovation intensity, absorptive capacity, and operational performance as a connected process over time. Using a nonlinear dynamic model, we show that increasing technological innovation intensity does not guarantee better operational performance. Instead, outcomes depend on whether innovation activities are converted into absorptive capacity. When experience from innovation projects is absorbed and retained, absorptive capacity increases, and operational performance improves and remains stable. When this process is weak, firms may continue increasing innovation intensity, but absorptive capacity does not accumulate, and operational performance remains at a low level. We also find that as technological innovation intensity increases, more innovation activities take place at the same time, which raises coordination pressure. When coordination and management do not improve accordingly, the positive effect of absorptive capacity on operational performance becomes weaker, and performance may begin to rise and fall instead of improving steadily. In addition, the results show that firms need to reach a certain level of absorptive capacity before sustained improvement in operational performance can occur. Below this level, increasing technological innovation intensity alone does not change outcomes. At higher levels of absorptive capacity, operational performance may not always stabilize, but may instead fluctuate over time. These findings show that differences in digital transformation outcomes are not determined by technological innovation intensity alone, but by the joint dynamics of resource reconfiguration, learning accumulation, and coordination complexity, which shape absorptive capacity and operational performance over time.