A relational digital capability cascade: how sensing, agility, and innovation drive B2B performance

Abstract

Digital transformation reshapes how B2B firms sense market changes, respond to disruptions, and innovate with partners, yet many organizations struggle to convert digital investments into performance gains. This study develops and tests a relational digital capability cascade explaining how Information Technology Capability (ITC) enables Digital Market Orientation (DMO), how DMO drives Digital Agility (DA) and Supply Chain Innovation (SCI), and how these interdependent capabilities influence performance. Using survey data from 248 Canadian B2B firms and Structural Equation Modeling, the results show that ITC strongly enhances DMO, which significantly improves agility and collaborative innovation. Agility boosts both SCI and performance, while SCI emerges as the most powerful predictor of performance. A feedback learning mechanism is also validated, demonstrating that agility enhances subsequent sensing by refining how firms interpret digital signals. The findings position digital transformation as a cyclical capability system rather than a linear sequence, showing that sensing, acting, and innovating reinforce one another. This research offers a holistic framework for how B2B firms can integrate digital infrastructure, agile decision routines, and cross-partner innovation practices to achieve
superior performance.