Many firms engage in crowdsourcing in an effort to open up their innovation process and generate a large volume of diverse ideas to address innovation challenges. At the same time, however, crowdsourcing often overwhelms firms in identifying and transforming the most valuable contributions into new products. In this paper, we investigate how digital capabilities influence the relationship between crowdsourcing and innovation performance. While digital tools like big data analytics, artificial intelligence, digital platforms, and knowledge management systems have transformed how firms source and manage external knowledge, their role in converting crowdsourced ideas into tangible innovation outcomes remains underexplored. Using data from 1,203 German firms collected in two waves of the Mannheim Innovation Panel, we examine the direct effect of crowdsourcing on innovation performance and the moderating effect of digital capabilities. The findings show that crowdsourcing is positively and significantly associated with innovation performance, resulting in a 1.359-fold increase in sales revenue from product innovations. Additionally, the interaction between digital capabilities and crowdsourcing reveals a positive and significant moderation effect, enhancing innovation performance by 1.519 times when firms build digital capabilities by introducing novel methods of information processing. These results suggest that firms with advanced digital capabilities can better process and integrate crowdsourced ideas, thereby realizing greater innovation performance benefits. The paper contributes to the literature on organizational learning, distant search, and open innovation by providing empirical evidence of the positive performance effects of crowdsourcing on internal innovation processes. It also advances understanding in innovation management, crowdsourcing, and information systems by clarifying the role of digital capabilities in moderating the effectiveness of crowdsourcing. For practitioners, the study underscores the importance of developing robust digital strategies to fully harness the potential of crowdsourcing for innovation, aligning digital tools with broader innovation goals to maximize returns from these efforts.
