Digital innovation as strategic response: How CEO with informal power deal with inconsistent performance feedback

Digital innovation has emerged as a crucial organizational strategy. Existing research on the antecedents of digital innovation often overlooks its inherent attributes as strategic response. According to the behavior theory of firm (BTOF), managers perceive and assessment from performance feedback and thereby critically shape organizational responses. This subjectivity means that managerial cognition fundamentally influences how performance feedback is understood and acted upon. Thus, this study explores how CEO informal power—to interpret inconsistent feedback—influences the impact of inconsistent feedback (that is, negative feedback and positive prospects) on digital innovation. Using Chinese manufacturing firms during 2015–2020, this study revealed that firms engage in less digital innovation as a response to inconsistent feedback when the firm's CEO has more prestige power or expert power. Further, the negative impact of the CEO prestige power on the relationship between inconsistent feedback and digital innovation is greater when CEO expert power is high. This study highlights the significance of individual-level mechanisms within the BTOF framework. It also advances BTOF in backward-and forward-looking reference points research and heterogeneity in performance feedback. Besides, it contributes to the literature on digital innovation as strategic response behavior by identifying the driving mechanism of organizational adaptation.