Enabling Circular Economy Performance Through Organizational Capabilities: The Mediating Role of Circular Business Model Innovation

ABSTRACT

The transition to a circular economy requires firms to mobilize organizational capabilities that redesign how value is created, delivered, and captured. Although Circular Business Model Innovation (CBMI) has emerged as the central operational mechanism for circular transformation, the capability stack that triggers CBMI and the multidimensional performance outcomes it produces remain undertheorized. This study develops and tests an integrated model in which Responsible Data Governance Capability (RDGC), Sustainable Digital Infrastructure Capability (SDIC), and Organizational Agility Capability (OAC) shape CBMI, which in turn drives Circular Economy Performance (CEP), Sustainable Value Creation Performance (SVCP), and Financial Resilience Performance (FRP). The model is anchored in Dynamic Capabilities Theory, with each antecedent capability mapped onto the sensing, seizing, and reconfiguring microfoundations, and supplemented by the Natural Resource‐Based View for the sustainability outcomes. Using survey data from 305 firms engaged in circular transitions and analyzed through structural equation modeling with bootstrapped mediation, the findings show that all three capabilities significantly drive CBMI, with SDIC emerging as the strongest predictor. CBMI in turn produces robust effects on CEP and SVCP and a markedly weaker effect on FRP. Mediation analysis confirms that CBMI channels capability inputs into circular and value‐creating outcomes, but only marginally into financial resilience. The study refines the dynamic capabilities framework as applied to circular transitions, disciplines emerging optimism about the financial benefits of circularity, and offers managers and policymakers a granular vocabulary for prioritizing capability investments in pursuit of multidimensional sustainability performance.