Building dynamic capabilities for digital transformation: An ongoing process of strategic renewal

Abstract In this qualitative study, we explore how incumbent firms in traditional industries build dynamic capabilities for digital transformation. Digital transformation has been defined as the use of new digital technologies, such as mobile, artificial intelligence, cloud, blockchain, and the Internet of things (IoT) technologies, to enable major business improvements to augment customer experience, streamline operations, or create new business models. In making sense of digital transformation, we discovered that leaders in various industry circles use the term inconsistently to describe various strategizing and organizing activities; in addition, the term has gained limited scholarly attention as a context for study of strategic change. Drawing on senior executives' experiences with leading digitalization projects at incumbent firms, we propose a process model comprising of nine microfoundations to reveal the generic contingency factors that trigger, enable, and hinder the building of dynamic capabilities for digital transformation. Our findings reveal that digital transformation is an ongoing process of using new digital technologies in everyday organizational life, which recognizes agility as the core mechanism for the strategic renewal of an organization's (1) business model, (2) collaborative approach, and eventually the (3) culture.

[1]  Lars Mathiassen,et al.  Embracing Digital Innovation in Incumbent Firms: How Volvo Cars Managed Competing Concerns , 2017, MIS Q..

[2]  Alex Pentland,et al.  Big Data and Management , 2014 .

[3]  Mark Weiser.  The computer for the 21st century , 1991 .

[4]  Kalle Lyytinen,et al.  Research Commentary - Digital Infrastructures: The Missing IS Research Agenda , 2010, Inf. Syst. Res..

[5]  Patrick Regnér,et al.  Strategy-as-practice and dynamic capabilities: Steps towards a dynamic view of strategy , 2008 .

[6]  John P. Ulhøi,et al.  Business Model Dynamics and Innovation: (Re)establishing the Missing Linkages , 2011 .

[7]  J. Holmström,et al.  Digital innovation strategy: A framework for diagnosing and improving digital product and service innovation , 2017 .

[8]  Xavier Lecocq,et al.  Business Model Evolution: In Search of Dynamic Consistency , 2010 .

[9]  Véronique Ambrosini,et al.  What are Dynamic Capabilities and are They a Useful Construct in Strategic Management? , 2009 .

[10]  P. Weill,et al.  Thriving in an increasingly digital ecosystem , 2015 .

[11]  J. Birkinshaw,et al.  The external knowledge sourcing process in multinational corporations , 2017 .

[12]  Tzu-Chuan Chou,et al.  Resource fit in digital transformation , 2011 .

[13]  Jeanne W. Ross,et al.  How Big Old Companies Navigate Digital Transformation , 2020, MIS Q. Executive.

[14]  Sungwook Min,et al.  Business Model Innovation Performance: When does Adding a New Business Model Benefit an Incumbent? , 2015 .

[15]  David J. Teece,et al.  Business models and dynamic capabilities , 2017 .

[16]  Kevin G. Corley,et al.  Seeking Qualitative Rigor in Inductive Research , 2013 .

[17]  Paul A. Pavlou,et al.  The 'Third Hand': IT-Enabled Competitive Advantage in Turbulence Through Improvisational Capabilities , 2009, Inf. Syst. Res..

[18]  Youngjin Yoo,et al.  The Liminality of Trajectory Shifts in Institutional Entrepreneurship , 2014, Organ. Sci..

[19]  Chander K. Velu,et al.  Exploring the Journey to Services , 2017, Handbook of Service Science, Volume II.

[20]  A. Giudici,et al.  Open-System Orchestration as a Relational Source of Sensing Capabilities: Evidence from a Venture Association , 2017, Academy of Management Journal.

[21]  N. Foss,et al.  Fifteen Years of Research on Business Model Innovation , 2017 .

[22]  Matthew B. Miles,et al.  Qualitative Data Analysis: An Expanded Sourcebook , 1994 .

[23]  Robert Chia,et al.  Post-processual challenges for the emerging strategy-as-practice perspective: Discovering strategy in the logic of practice , 2007 .

[24]  Constance E. Helfat,et al.  Untangling dynamic and operational capabilities: strategy for the (n)ever-changing world , 2011 .

[25]  H. Chesbrough.  Business Model Innovation: Opportunities and Barriers , 2010 .

[26]  Eric Overby,et al.  Enterprise agility and the enabling role of information technology , 2006, Eur. J. Inf. Syst..

[27]  Daniel A. Levinthal,et al.  Looking Forward and Looking Backward: Cognitive and Experiential Search , 2000 .

[28]  D. Teece.  Business Models, Business Strategy and Innovation , 2010 .

[29]  Stefan Haefliger,et al.  Building a Winning Business Model Portfolio , 2017 .

[30]  Yaakov Weber,et al.  Strategic Agility: A State of the Art Introduction to the Special Section on Strategic Agility , 2014 .

[31]  Arnold Picot,et al.  Reflections on societal and business model transformation arising from digitization and big data analytics: A research agenda , 2015, J. Strateg. Inf. Syst..

[32]  Omar El Sawy,et al.  How LEGO Built the Foundations and Enterprise Capabilities for Digital Leadership , 2016, MIS Q. Executive.

[33]  Jahangir Karimi,et al.  The Role of Dynamic Capabilities in Responding to Digital Disruption: A Factor-Based Study of the Newspaper Industry , 2015, J. Manag. Inf. Syst..

[34]  Raphael Amit,et al.  Business Model Design: An Activity System Perspective , 2010 .

[35]  David L. Rogers,et al.  The Digital Transformation Playbook: Rethink Your Business for the Digital Age , 2016 .

[36]  Constance E. Helfat,et al.  Strategic Renewal of Organizations , 2009, Organ. Sci..

[37]  S. Nambisan,et al.  Entrepreneurship and strategic thinking in business ecosystems , 2012 .

[38]  Frans van den Bosch,et al.  Reinventing Business Models: How Firms Cope with Disruption , 2017 .

[39]  Rita Gunther McGrath.  Business Models: A Discovery Driven Approach , 2010 .

[40]  Marc Day,et al.  Building Dynamic Capabilities of Adaptation and Innovation: A Study of Micro-Foundations in a Transition Economy , 2014 .

[41]  Paul Timmers,et al.  Business Models for Electronic Markets , 1998, Electron. Mark..

[42]  Henry Mintzberg,et al.  The Fall and Rise of Strategic Planning , 1994 .

[43]  J. Karimi,et al.  Corporate Entrepreneurship, Disruptive Business Model Innovation Adoption, and Its Performance: The Case of the Newspaper Industry , 2016 .

[44]  Peter Weill,et al.  Optimizing your digital business model , 2015, IEEE Engineering Management Review.

[45]  Juha-Antti Lamberg,et al.  Corporate Business Model Transformation and Inter-Organizational Cognition : The Case of Nokia , 2013 .

[46]  L. Melin,et al.  Dynamics of business models - strategizing, critical capabilities and activities for sustained value creation , 2013 .

[47]  S. Nambisan.  Digital Entrepreneurship: Toward a Digital Technology Perspective of Entrepreneurship , 2017 .

[48]  Oliver Alexy,et al.  Maneuvering in poor visibility : How firms play the ecosystem game when uncertainty is high , 2017 .

[49]  Constance E. Helfat,et al.  Dynamic capabilities : understanding strategic change in organizations , 2007 .

[50]  Clayton M. Christensen,et al.  Reinventing Your Business Model , 2008 .

[51]  Vikas Kumar,et al.  Towards digital transformation: Lessons learned from traditional organizations , 2018 .

[52]  Y. Doz,et al.  Embedding Strategic Agility A Leadership Agenda for Accelerating Business Model Renewal , 2010 .

[53]  Feng Li.  The digital transformation of business models in the creative industries: A holistic framework and emerging trends , 2018, Technovation.

[54]  Thomas Hess,et al.  Digital Transformation Strategies , 2015, Business & Information Systems Engineering.

[55]  Chander K. Velu,et al.  Managing decision-making and cannibalization for parallel business models , 2013 .

[56]  Kathleen M. Eisenhardt,et al.  DYNAMIC CAPABILITIES, WHAT ARE THEY? , 2000 .

[57]  Malte Brettel,et al.  On micro-foundations of dynamic capabilities: A multi-level perspective based on CEO personality and knowledge-based capital , 2017, Long Range Planning.

[58]  George S. Day,et al.  Adapting to Fast-Changing Markets and Technologies , 2016 .

[59]  Rita Gunther McGrath.  The End of Competitive Advantage: How to Keep Your Strategy Moving as Fast as Your Business , 2013 .

[60]  Wendy K. Smith,et al.  Complex Business Models: Managing Strategic Paradoxes Simultaneously , 2010 .

[61]  M. Alvesson.  Beyond Neopositivists, Romantics, and Localists: A Reflexive Approach to Interviews in Organizational Research , 2003 .

[62]  Kalle Lyytinen,et al.  Organizing for Innovation in the Digitized World , 2012, Organ. Sci..

[63]  Aldo Musacchio,et al.  Mapping frontier economies. (cover story) , 2016 .

[64]  M. Schreier,et al.  Qualitative Content Analysis , 2014 .

[65]  M. Sosna,et al.  Business Model Innovation through Trial-and-Error Learning , 2010 .

[66]  P. Klarner,et al.  Disentangling the Effects of Team Competences, Team Adaptability, and Client Communication on the Performance of Management Consulting Teams , 2013 .

[67]  Sia Siew Kien,et al.  Hummel's Digital Transformation Toward Omnichannel Retailing: Key Lessons Learned , 2015, MIS Q. Executive.

[68]  Esther Tippmann,et al.  Becoming a multinational enterprise: Using industry recipes to achieve rapid multinationalization , 2018 .

[69]  P. Jarzabkowski.  Strategy as Practice: Recursiveness, Adaptation, and Practices-in-Use , 2004 .

[70]  Julian Birkinshaw,et al.  How Do Firms Adapt to Discontinuous Change? Bridging the Dynamic Capabilities and Ambidexterity Perspectives , 2016 .

[71]  Christopher Lettl,et al.  The Wider Implications of Business-model Research , 2017 .

[72]  Kalle Lyytinen,et al.  Research Commentary: The Next Wave of Nomadic Computing , 2002, Inf. Syst. Res..

[73]  D. Teece,et al.  Business models, value capture, and the digital enterprise , 2017, Journal of Organization Design.

[74]  Nicolai Juul Foss,et al.  Business models and business model innovation: Between wicked and paradigmatic problems , 2017 .

[75]  Kalle Lyytinen,et al.  Research Commentary - The New Organizing Logic of Digital Innovation: An Agenda for Information Systems Research , 2010, Inf. Syst. Res..

[76]  O. A. Sawy,et al.  Digital business strategy: toward a next generation of insights , 2013 .

[77]  R. Amit,et al.  Value creation in E‐business , 2001 .

[78]  Sven M. Laudien,et al.  The Influence of the Industrial Internet of Things on Business Model Design: A Qualitative-Empirical Analysis , 2016, Digital Disruptive Innovation.

[79]  J. Magretta.  Why business models matter. , 2002, Harvard business review.

[80]  Youngjin Yoo,et al.  Computing in Everyday Life: A Call for Research on Experiential Computing , 2010, MIS Q..

[81]  Sue Newell,et al.  Growing on Steroids: Rapidly Scaling the User Base of Digital Ventures Through Digital Innovation , 2017, MIS Q..

[82]  Paul A. Pavlou,et al.  From IT Leveraging Competence to Competitive Advantage in Turbulent Environments: The Case of New Product Development , 2006, Inf. Syst. Res..

[83]  G. Westerman,et al.  Revamping your business through digital transformation , 2015 .

[84]  S. Zahra,et al.  Entrepreneurship and Dynamic Capabilities: A Review, Model and Research Agenda , 2006 .

[85]  Paul A. Pavlou,et al.  Understanding the Elusive Black Box of Dynamic Capabilities , 2011, Decis. Sci..

[86]  Llewellyn D. W. Thomas,et al.  Digital Affordances, Spatial Affordances, and the Genesis of Entrepreneurial Ecosystems , 2017 .

[87]  Oliver Schilke,et al.  Strategic development of business models: Implications of the web 2.0 for creating value on the internet , 2010 .

[88]  Christiane Prange,et al.  Investigating the Transformation and Transition Processes Between Dynamic Capabilities: Evidence from DHL , 2018 .

[89]  Chander K. Velu,et al.  A Systems Perspective on Business Model Evolution: The Case of an Agricultural Information Service Provider in India , 2017 .

[90]  Hsiu-Fang Hsieh,et al.  Three Approaches to Qualitative Content Analysis , 2005, Qualitative health research.

[91]  D. Teece.  Explicating dynamic capabilities: the nature and microfoundations of (sustainable) enterprise performance , 2007 .

[92]  Robert Chia,et al.  On Organizational Becoming: Rethinking Organizational Change , 2002, Organ. Sci..

[93]  C. Baden‐Fuller,et al.  Business models as models , 2010 .

[94]  P. Trkman,et al.  Business Model: What it is and What it is Not , 2014 .

[95]  R. Whittington.  Completing the Practice Turn in Strategy Research , 2006 .

[96]  R. Amit,et al.  The Business Model: Recent Developments and Future Research , 2011 .

[97]  A. Pettigrew.  Context and Action in the Transformation of the Firm , 1987 .

[98]  C. Baden‐Fuller,et al.  Business Models and Technological Innovation , 2013 .

[99]  Thomas Hess,et al.  Options for Formulating a Digital Transformation Strategy , 2020, MIS Q. Executive.

[100]  Ian Palmer,et al.  Business model replication for early and rapid internationalisation: the ING Direct experience , 2010 .

[101]  Constance E. Helfat,et al.  Managerial cognitive capabilities and the microfoundations of dynamic capabilities , 2015 .

[102]  I. Barreto.  Dynamic Capabilities: A Review of Past Research and an Agenda for the Future , 2010 .

[103]  D. Teece,et al.  DYNAMIC CAPABILITIES AND STRATEGIC MANAGEMENT , 1997 .

[104]  Ramon Casadesus-Masanell,et al.  From Strategy to Business Models and onto Tactics , 2010 .

[105]  Omar El Sawy,et al.  Realizing Strategic Value Through Center-Edge Digital Transformation in Consumer-Centric Industries , 2015, MIS Q. Executive.

[106]  D. Teece.  The Foundations of Enterprise Performance: Dynamic and Ordinary Capabilities in an (Economic) Theory of Firms , 2014 .

[107]  Varun Grover,et al.  Shaping Agility through Digital Options: Reconceptualizing the Role of Information Technology in Contemporary Firms , 2003, MIS Q..

[108]  D. Lovallo,et al.  Generative Sensing: A Design Perspective on the Microfoundations of Sensing Capabilities , 2016 .

[109]  Margaret A. Peteraf,et al.  Dynamic Capabilities and Organizational Agility: Risk, Uncertainty, and Strategy in the Innovation Economy , 2016 .

[110]  Mutaz M. Al-Debei,et al.  Developing a unified framework of the business model concept , 2010, Eur. J. Inf. Syst..

[111]  Gianmario Verona,et al.  The Organizational Drivetrain: A Road To Integration of Dynamic Capabilities Research , 2014 .

[112]  Margaret A. Peteraf,et al.  The elephant in the room of Dynamic Capabilities: Bringing two diverging conversations together , 2012 .

[113]  Saul J. Berman.  Digital transformation: opportunities to create new business models , 2012 .

[114]  Constance E. Helfat,et al.  Quo Vadis, Dynamic Capabilities? A Content-Analytic Review of the Current State of Knowledge and Recommendations for Future Research , 2018 .

[115]  V. Mangematin,et al.  Problem solving in MNCs: How local and global solutions are (and are not) created , 2012 .

[116]  J. Kimberly,et al.  Escaping the Identity Trap , 2003 .

[117]  M. Iansiti,et al.  The Truth about Blockchain , 2017 .

[118]  Lars Mathiassen,et al.  Managing technological change in the digital age: the role of architectural frames , 2014, J. Inf. Technol..

[119]  Rogério Cerávolo Calia,et al.  Innovation networks: From technological development to business model reconfiguration , 2007 .

[120]  Omar A. El Sawy,et al.  Business Modelling in the Dynamic Digital Space: An Ecosystem Approach , 2012 .

[121]  C. Markides.  Disruptive Innovation: In Need of Better Theory* , 2006 .

[122]  Thomas Hess,et al.  How Chief Digital Officers Promote the Digital Transformation of their Companies , 2020, MIS Q. Executive.

[123]  Constance E. Helfat,et al.  Dynamic and integrative capabilities for profiting from innovation in digital platform-based ecosystems , 2018, Research Policy.

[124]  Kathleen M. Eisenhardt,et al.  Theory Building From Cases: Opportunities And Challenges , 2007 .

[125]  Kalle Lyytinen,et al.  Digital Innovation Management: Reinventing Innovation Management Research in a Digital World , 2017, MIS Q..

[126]  D. Teece,et al.  Uncertainty, Innovation, and Dynamic Capabilities: An Introduction , 2016 .

[127]  Julian Birkinshaw,et al.  What to expect from agile , 2017 .

[128]  H. Itami,et al.  Killing Two Birds with One Stone: Profit for Now and Learning for the Future , 2010 .

[129]  Ilan Oshri,et al.  Business Model Renewal and Ambidexterity: Structural Alteration and Strategy Formation Process During Transition to a Cloud Business Model , 2014 .