AI-Wiki

Building Dynamic Capabilities for Digital Transformation: An Ongoing Process of Strategic Renewal

4 min read

Warner & Wäger — Building Dynamic Capabilities for Digital Transformation

TL;DR

Qualitative interpretive study of seven incumbent German MNCs undergoing digital transformation, plus 18 in-depth interviews with senior strategy consultants. Develops a process model with nine microfoundations organized under Teece’s (2007) sense / seize / transform clusters of dynamic capabilities, contextualized for the digital age.

Core thesis: digital transformation is not a one-off project but an ongoing process of strategic renewal along three axes — (1) business model, (2) collaborative approach, (3) culture — driven by digital sensing/seizing/transforming capabilities.

Key claims

Definition of digital transformation (operationalized)

“Digital transformations are 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.”

Process model — nine digital microfoundations

ClusterMicrofoundationSubcapabilities
Digital SensingDigital scoutingScanning for tech trends; screening digital competitors; sensing customer-centric trends
Digital scenario planningAnalyzing scouted signals; interpreting digital future scenarios; formulating digital strategies
Digital mindset craftingEstablishing long-term digital vision; enabling entrepreneurial mindset; promoting digital mindset
Digital SeizingRapid prototypingMVPs; lean-startup methodology; digital innovation lab
Balancing digital portfoliosInternal/external option balance; scaling innovative business models; appropriate execution speed
Strategic agilityRapid resource reallocation; accepting redirection; pacing strategic responses
Digital TransformingNavigating innovation ecosystemsJoining digital ecosystem; multi-partner interaction; new eco-system capabilities
Redesigning internal structuresHiring CDO; business-model digitalization; team-based structures
Improving digital maturityIdentifying workforce maturity; recruiting digital natives; leveraging internal digital knowledge

Contextual factors

External triggersInternal enablersInternal barriers
Disruptive digital competitorsCross-functional teamsRigid strategic planning
Changing consumer behaviorsFast decision makingChange resistances
Disruptive digital technologiesExecutive supportHigh level of hierarchy

Three forms of strategic renewal (per case)

For each of the seven incumbents (pseudonyms), strategic renewal happens along three layers — examples from Table 3:

FirmIndustryBusiness model renewalCollaborative approachCulture
Motion AGAutomotiveMobility services + AI/IoT/cloudEnterprise social network removing silos”Technology leader and pioneering software company”
Powerhouse AGIndustrialIndustry 4.0 with digital servicesCross-functional “working out loud”Innovation-driven ownership culture
Balance AGBankingDigital bankingExternal fintech ecosystem partnershipsRefreshed “family bankers” identity
Voice AGTelecomCloud/IoT/big data servicesOpen innovation across whole companyDigital-innovation subsidiary
Energy AGEnergy”Prosumer” logicJoint venture with prosumersDigital innovation culture via JV
Drive AGAutomotiveDigitalization services + cloudCo-creation with ecosystemNew digital innovations woven into corporate culture
Media AGMediaMass-media data analyticsEcosystem-wide co-creationReinvented as mass-media data firm

Teece dynamic capabilities — the underlying framework

  • Ordinary capabilities = doing things right; replicable; outsourceable to the cloud → no longer durable competitive advantage.
  • Dynamic capabilities = doing the right things; harder to replicate; govern the rate of change of ordinary capabilities.
  • For digital transformation, dynamic capabilities specifically address how ML/IoT/cloud/blockchain change what is sensed, seized, and transformed.

Contributions

  • Conceptual: empirically grounded definition of digital transformation as ongoing strategic renewal (vs. discrete project).
  • Empirical: identifies subcapabilities that in isolation might be considered “ordinary,” but as a system constitute digital-based dynamic capabilities.
  • Notes: business model adaptation alone is “nondigital-based strategic change”; the system of nine microfoundations is what makes it digital dynamic capability.

Methodology notes

  • 21-month data collection (Oct 2016 – Aug 2017 fieldwork).
  • Multiple-case study + cross-case analysis (Eisenhardt & Graebner 2007).
  • Sources: 18 in-depth interviews + 17 strategy consultancy reports + 105 company news reports + 80 published reports + participant observation (Digitize Ltd. internship).
  • Data analysis using NVivo, Gioia methodology (first-order concepts → second-order themes → aggregate dimensions).
  • Cases pseudonymized: Motion AG, Powerhouse AG, Balance AG, Voice AG, Energy AG, Drive AG, Media AG.

Quotes worth saving

“Dynamic capabilities are about doing the right things, whereas ordinary capabilities are about doing things right.” — Teece & Leih (2016)

“Digital transformation describes a journey of a company trying to be equipped for the digital age […] Building and deploying these capabilities means digital transformation for me.” (Seize-Q-1)

“Firms can spend millions of dollars in their digital transformation, but if they don’t have a digital vision, then nothing will actually change.” (Connect-Q-2)

“It is really about thinking how do we get people to think about the same stuff with a different lens instead of thinking with the same lens about different things. Culture is also important in digital transformation.” (Redesign-Q-3)

Graph View

Backlinks