How IoT drives business innovation via supply chain agility

The findings show that perceived business force, the combined effect of market competition, policy changes, and customer expectations, intensifies the relationship between IoT capability and supply chain integration. When firms face stricter compliance standards or fiercer competition, they are more likely to use IoT to improve coordination and transparency throughout their value chains.

A new study provides fresh insights into how the Internet of Things (IoT) reshapes innovation performance in modern enterprises. The research demonstrates that IoT capability fuels innovation not directly, but through supply chain integration and agility, creating a powerful chain of digital transformation across industries.

Published in the journal Systems, the study “From IoT Adoption to Innovation: Unpacking the Mediating Mechanisms of Supply Chain Integration and Agility,” the study analyses how IoT investments translate into tangible innovation outcomes. The authors analyze data from 385 Chinese firms and reveal that organizational structure and environmental conditions play a critical role in determining whether IoT delivers meaningful business value.

How IoT capability transforms supply chains into engines of innovation

The study is based on dynamic capabilities theory, which views technology as a source of competitive advantage only when firms can adapt and reconfigure internal processes around it. In this framework, IoT capability, the ability to collect, process, and act on real-time data, serves as the foundation for smarter supply chain operations.

The authors find that IoT capability has three major effects on corporate performance:

• It directly enhances innovation performance, leading to more efficient product development and process improvement.
• It strengthens supply chain integration, ensuring seamless coordination among suppliers, manufacturers, and customers.
• It increases supply chain agility, enabling firms to respond faster to market changes, disruptions, and customer demands.

Together, these effects show that IoT acts as a catalyst for organizational transformation rather than a stand-alone innovation tool. The technology’s real potential lies in its ability to unify networks and generate actionable insights across entire supply chains.

The research also identifies two key mediators, supply chain integration and agility, that explain how IoT adoption leads to innovation. In other words, companies do not become more innovative simply because they use IoT; they succeed when IoT enables them to connect data, synchronize operations, and adapt rapidly to change.

External pressures amplify the impact of IoT on business innovation

The study examines how external business forces and environmental uncertainty influence the effectiveness of IoT adoption. These contextual factors determine whether firms capitalize on digital transformation or struggle under regulatory and competitive pressures.

The findings show that perceived business force, the combined effect of market competition, policy changes, and customer expectations, intensifies the relationship between IoT capability and supply chain integration. When firms face stricter compliance standards or fiercer competition, they are more likely to use IoT to improve coordination and transparency throughout their value chains.

Meanwhile, environmental uncertainty, such as fluctuating demand, economic volatility, or rapid technological change, strengthens the connection between IoT capability and innovation performance. In unpredictable markets, firms that harness IoT data for forecasting, risk assessment, and resource allocation gain a distinct advantage. The study highlights that these firms use IoT not only to streamline existing operations but also to create new products, services, and business models.

This dual moderating effect underscores the reality that IoT delivers its greatest benefits under pressure, when firms must adapt swiftly to survive. The technology’s predictive and analytical capabilities transform uncertainty from a threat into an opportunity for proactive innovation.

A roadmap for businesses pursuing digital and innovation maturity

The study provides a strategic roadmap for organizations seeking to move beyond basic IoT implementation and achieve long-term innovation maturity. The authors recommend a focus on three key areas:

1. Deep supply chain integration: Firms should prioritize connected systems that enable real-time data exchange among all supply chain partners. This level of integration ensures transparency, minimizes delays, and enables predictive decision-making based on shared insights.
2. Agility as a core competence: Companies must cultivate the ability to respond swiftly to disruptions, market shifts, or new regulations. IoT-driven agility helps firms reconfigure resources, adjust production schedules, and pivot to emerging opportunities without losing efficiency.
3. Leveraging environmental and competitive pressures: Rather than viewing external challenges as obstacles, businesses should use them as catalysts for digital transformation. High-pressure environments often drive the most meaningful innovation outcomes when IoT systems are properly embedded into strategic planning.

By aligning these strategic levers, firms can transform IoT adoption from a technological upgrade into a sustainable innovation engine. The study suggests that success depends on how well companies integrate data-driven technologies into their organizational DNA.