The role of digital technology and digital innovation towards firm performance in a digital economy

PurposeIn this study, the researchers explored the roles played by digital technologies and digital innovation (DI) in Pakistan's Information, Communication and Technology (ICT) companies' firm performance (FP).Design/methodology/approachThe researchers used a quantitative study to gather cross-sectional data from employees working in Pakistan's ICT companies. The authors based this study's findings on 396 valid samples.FindingsThe structural equation modeling (SEM) findings underline that digital capability (DC), digital orientation (DO) and digital transformation (DT) have positive and significant effects on DI and FP. Moreover, there is a positive and significant relationship between DI and FP. Finally, DI mediates DC's, DO's and DT's associations with FP.Practical implicationsBy committing to embracing new digital technologies and updating existing DCs to become innovation leaders and to improve FP, the findings will help sectors to take advantage of developing digital technologies and the trend toward digitalization. The results are also valuable for policymakers when considering if SMEs should be provided with more money for the digital up-skilling of their employees. Finally, this study's findings enrich the depth of literature about companies' use of digital technologies.Originality/valueThis study's empirical findings confirm the roles played by DC, DO and DT in improving DI and FP in a developing country such as Pakistan.