With this study’s main purpose of addressing the relationship between IT and innovation, a CE framework has been applied to investigate how IT contributes to firms’ product innovation. By proposing and verifying the mediating role of CE in IT-enabled innovation, this study enhances our understanding about IT and the business value of IT. Based on a matched survey sample from 138 manufacturing firms in Northern China, we find evidence that supports our hypotheses that CE fully mediates the relationship between IT capabilities and product innovation performance and that competitive intensity positively moderates the relationship between IT capabilities and CE; that is, under conditions of intensively competitive environments, firms tend to rely more on IT capabilities to support their CE activities. These findings contribute to the literature on business value of IT and the foundational literature of CE. Below, we elaborate on the implications of these findings.