3.2.1 Effects of Digital-related Capabilities on Market Offerings
Digital transformation in companies and contemporary digital solutions can reduce the development time needed for generating innovations and launching them on the market (Marion et al.
2015). As such, most recent digital solutions and digital technologies have been integrated into companies’ product and service development, thereby affecting their market offerings (Nylen and Holmström
2015; Yoo et al.
2012). Although digital transformation provides possibilities for automatizing products and making services smarter, human senses and capabilities still form an important part of successful digital innovation. Nylen and Holmström (
2015) argued that digital services and solutions must not only be efficient to learn and easy to use but must also consider user experience. To comprehend the usability and user experience of digital innovation, companies must understand their customers’ needs as well as the possibilities entailed by the utilization of developed products and services. The gathering of feedback and the understanding of customers’ needs require human senses and digital-related human capabilities. Hoe (
2017) claimed that the main argument for these thinking skills in digital business environments is putting end users’ and customers’ wishes and needs first and developing digital innovations to fulfill them. In other words, employees need to understand the interplay between the possibilities created by digital transformation and the wishes of digital innovation users.
According to Porter and Heppelmann (
2015), making products and services smarter widens opportunities for companies’ capabilities to, for example, monitor products and services and personalize product functioning. Human capabilities are needed to integrate organizations’ core competitive advantages and knowledge with these widened opportunities to generate successful digital innovations that can leverage market offerings. As Fuchs and Sevignani (
2013) suggested, the creation of new products in the digital work context also requires human brains and human experiences. According to Nylen and Holmströn (
2015), the realization of digital innovation requires new skills, and companies must develop their mechanisms for supporting the advancement of digital-related human capabilities and continuous learning in digitalizing operating environments. As such, companies must ensure that their employees are trained in the use and acceptance of digital solutions. Based on these arguments, the following hypothesis was proposed:
The idea of creating innovative products and services via collaboration has gained significant scholarly attention and has become the main focus of many companies (Luo et al.
2010; Santoro et al.
2018). For instance, a joint venture between IBM, Sony, and Toshiba facilitated the development of advanced chips for consumer electronics, culminating in a cell processor that supplied power for Sony’s PlayStation 3 video game console. Masashi Muromachi, chief executive officer (CEO) of Toshiba, called this “a winning combination” (Luo et al.
2010, p. 245). Furthermore, many different researchers have considered collaborative activities as a way to stimulate digital innovation (Fichman et al.
2014; Maravilhas and Martins
2019). Fichman and colleagues (
2014) used the term “network effects” as a label for capturing the tendencies of digital innovation and for addressing the relative ability to communicate or share digital assets among users. Furthermore, Lyytinen and colleagues (
2016) referred to networks as a catalyst for the faster expansion of digital product innovation via borderless access to digital tools. In their research, they mentioned that, in the current digital era, there is a need for networks to collect knowledge flows around new products and services alongside digital tools for the further development of these products and services in order to successfully pursue radical innovations (Lyytinen et al.
2016). Hence, product innovation can be achieved via both internal development activities and external collaboration (Hull and Covin
2010; Luo et al.
2010; Lyytinen et al.
2016).
Because of the complex nature of market offerings in the digital era, providing successful market offerings with a single actor does not work (Canhoto et al.
2016; Kohli and Mekville
2019; Lyytinen et al.
2016; Pagani and Pardo
2017). Therefore, adopting collaboration perspective has been mentioned as a practical option for companies involved with digitalized supply chains (Pagani and Pardo
2017; Peppard and Rylander
2006). According to Maravilhas and Martins (
2019), the exchange and sharing of knowledge, information, and experiences among users via digital channels stimulate innovation, and this is called collaborative innovation. Digital channels provide an opportunity for aggregating product demands, resulting in an increase in the diversity of the developed market as well as more diverse product and service offerings (Brynjolfsson et al.
2010). Moreover, shaping the nature of digital innovation as collective actions requires different collaboration capabilities among partners, which are enabled by digitalization (Lyytinen et al.
2016; Nambisan et al.
2017; Yoo et al.
2012). Therefore, building on the literature discussed above, the following hypothesis was proposed:
Technical capabilities are presented as main enablers of organizational capabilities toward digital innovation (Banker et al.
2006; Mithas et al.
2011; Setia et al.
2013; Tanriverdi
2005) because digital technology creates a bond between the physical and digital characteristics of products and services (El Sawy et al.
2016). At present, digital technology is more affordable and ubiquitous than ever before, which has in turn facilitated more engagement with digital innovation, thereby allowing new configurations of actors to develop, generate, and invest in new digital products and services (Nylén and Holmström
2015; Yoo et al.
2010). Digital technology has made it technically possible to upgrade the functionality of products and services due to the reprogrammable nature of these capabilities. Thus, the technical capabilities concerning digital technologies are related to value propositions of digital products and services, addressing how value is generated and captured in each digital product and service (Nylén and Holmström
2015).
The technical capabilities of digitalization has permitted activities to cross the boundaries of time, place, and function (Parida et al.
2015; Yoo
2010; Yoo et al.
2012; Nylén and Holmström
2015) demonstrated that digital technology provides the potential for a reinvention of sales and distribution channels. Furthermore, they noted that firms are now able to carefully place and integrate their products and services with an abundance of mobile operating systems, social media sites, and app stores. In sum, this paper suggests that by keeping up to date with technical capabilities (e.g., analyzing the progress of digital technology and associated usage patterns; Nylén and Holmström
2015), firms can develop their digital market offerings in terms of novel digital products and services. In line with the considerations above, the following hypothesis was proposed:
Advancing innovation potential among companies is crucial for digital innovation (Sia et al.
2016; Sousa and Rocha
2019) studied digital innovation in terms of disruptive technological phenomena, such as mobile technologies, artificial intelligence, big data, and robotics, and they found that the exploitation of such phenomena requires various innovation skills. These skills include the capability for creativity, the recognition of novel business openings, and the arrangement of indispensable resources corresponding to these openings. Similarly, Fichman et al. (
2014) stated that digital innovation requires an understanding of what has become possible due to advances in technology, as well as the exploitation of this understanding to create something valuable for the company or for society. The development of digital innovation also depends on the relative capability to balance between present and necessary capabilities (Svahn et al.
2017). Nylen and Holmström (
2015) believed that this was due to the unique features of the processes related to digital innovation. They also suggested that companies should question their existing product and service portfolios, digital surroundings, and traits used to promote digital innovation. Exploiting novel opportunities for innovation is key to generating a compiled value by creating digital products and services (Nylen and Holmström
2015), thereby casting innovation capabilities as crucial proficiencies for developing digital market offerings.
Concerning digital market offerings, an advantage may be a company’s capability to generate and select productive ideas but also to have the requisite processes in place to advance novel products and services, coupled with a willingness to develop new solutions. Such a digital-related innovation capability may be difficult for competitors to imitate, potentially providing an initiation to digital market offerings. Thus, the following hypothesis was formulated:
3.2.2 Effects of Digital-related Capabilities On the Business Process
The increased digitalization of companies’ operating environments provides possibilities for digital innovation to occur. As related to business processes, real-time activities and automated production processes (Fichman et al.
2014), for example, continuously affect the approach to development and innovation. New types of digital solutions provide broadened opportunities for data gathering, and different types of artificial intelligence solutions can assist companies and their employees and managers in decision making (Jarrahi
2018). This development of digital solutions creates circumstances in and by which different groups of people have increased options for generating digital innovations and affecting the business processes of companies. However, although developed digital solutions can provide enhanced data and support for development, analysis, and decision making, humans remain solely responsible for making decisions and generating digital innovations. As such, the capacity to effectively apply digital solutions and take advantage of the opportunities these solutions permit for developing business processes depends on companies possessing the requisite digital-related human capabilities. For this reason, companies must develop a culture and atmosphere that supports and promotes the development and utilization of their employees’ digital skills.
Richter et al. (
2018) further highlighted that, in the context of digital work design, companies must cultivate the understanding of which work practices allow work to be more autonomous while at the same time allowing employees to learn and collaborate with each other. Digital-related human capabilities ensure that the increased digitalization within companies can be easily accepted by employees. If the adopted digital solutions cannot be properly used and, for example, the collected data are not properly understood, then digital innovations cannot be generated. While real-time activities, artificial intelligence solutions, and automated production processes assist and support companies, they cannot effectively respond to common-sense situations (Guszcza et al.
2017; Jarrahi et al.
2018) or to the entire structure of the digital business process. Different types of digital solutions can assist in different aspects of the business process, but the combination of information derived from these aspects requires a common understanding of the digital business process, especially under uncertain conditions. As such, human capabilities and senses are still needed to correctly interpret the work generated by digital solutions (Brynjolfsson and McAfee
2012) and to convert such interpretations into digital innovations, and companies must therefore ensure that their employees are well trained in using digital solutions. Based on these arguments, the following hypothesis was developed:
Digital-related capabilities, in terms of collaborations like knowledge sharing, social media, digital makerspaces, and relationships in virtual worlds, have enabled digital innovations in business processes (Nambisan et al.
2017). In addition, due to the changes that digitalization has catalyzed in the implementation of business processes, it is necessary to reconsider cooperation among companies (Pagani and Pardo
2017). For instance, using three-dimensional constructs as digital tools in the construction process has created many different, unexpected collaborations and interactions between different partners, designers, and trades, which has in turn expanded innovation (Boland et al.
2007) while underscoring the need for collaboration capabilities. Therefore, advanced digital channels are required to encourage collaborative activities in the business process. Furthermore, different researchers have reconsidered digital tools as a facilitator of collaboration among business partners, which can be a challenging pursuit, one that often requires adaptations and new business models (Foltean et al.
2019; Nath et al.
2010).
Despite the potential that social media, as digital channels, have for transforming business processes (Foltean et al.
2019), most marketers have not fully distinguished them as either opportunities or threats with respect to the creation of new business (Cortez and Johnston
2017). For instance, Kietzmann and colleagues (
2011) identified a lack of knowledge and/or skills with regard to the adoption of social media and the integration of related strategies in the business process (Kietzmann et al.
2011). As mentioned by Luo and colleagues (
2010), despite the appeal of sharing knowledge, capabilities, and resources among partners, including external partners in the product development process often leads to greater coordination costs and integration difficulties. Thus, a successful digital business strategy requires effective cooperation among companies in terms of the product, process, and service domains, thereby rendering the enhancement of the exploitation of digital innovation more complex (Iansiti and Lakhani
2014). In addition to these issues, it is worth mentioning that the results achieved from cooperation in innovation strategies are not always positive due to involuntary knowledge spillovers, different learning speeds, divergent attitudes concerning the ultimate goal, and lack of flexibility and adaptability (Faems et al.
2005). Therefore, based on the abovementioned literature, the following hypothesis was formulated:
It has been suggested that digital ecosystems include artifacts and operations that increasingly derive utility from the functional relations they maintain (Kallinikos et al.
2013), as demonstrated by the growing prospects of combining software and software constituents and mixing content across platforms, infrastructures, and production systems (Kallinikos et al.
2013; Langlois
2003; Merrifield et al.
2008; Yoo et al.
2010). All of this is possible via digital technologies that enable physical products to be programmable, addressable, sensible, communicable, memorable, traceable, and associable (Yoo
2010). These advances in digital technologies, in turn, permit developments in digital infrastructures toward the support of innovations in terms of figurative flexibility, semantic coherence, temporal and spatial traceability, knowledge brokering, and linguistic calibration. (Lyytinen et al.
2016). These types of technical capabilities allow the successful generation of novel information technology (IT)-enabled products, services, and processes, whereby the process innovation outcomes refer to process redesign and simplification (productivity; Kohli and Melville
2019). Embedding digital technologies in the operations and productions of companies also allows online activities, both within the company and with the company’s customers (Chen et al.
2015; Yoo et al.
2012).
Digital technologies are increasingly appearing in the industrial manufacturing context (Nylén and Holmström
2015). Instead of scheduled servicing, embedded digital capabilities allow the utilization of service forecasting and real-time monitoring (Nylén and Holmström
2015; Westergren and Holmström
2012). For example, with direct digital manufacturing (an interconnection between modern ICT and additive manufacturing equipment), it is possible to reconcile supply capacities and consumer demands in real time (Chen et al.
2015). Furthermore, the different forms of direct digital manufacturing include the potential for modifying material efficiency in product business models and process chains, and even in the product–user relationship (Chen et al.
2015). In sum, the current research suggests that the technical capabilities of digital technologies affect digital business processes in terms of, for instance, online activities and advanced manufacturing efficiency (Chen et al.
2015; Nylén and Holmström
2015; Yoo et al.
2012). In line with these considerations, the following hypothesis was proposed:
Responding to both the threats and opportunities posed by digitalization by initiating digital business processes also requires new capabilities in the area of innovation (Henfridsson and Yoo
2014; Sia et al.
2016). Since rapid changes in the business environment make innovation with digital technologies more demanding, various areas of business must be more organized (Lokuge et al.
2019) called this engaging in an innovation-savvy culture that contributes to digital innovation. Thus, this type of innovation capability, which assists companies in sharing information (Lokuge et al.
2019) that corresponds to the opportunities and threats caused by digitalization (Sia et al.
2016) and in applying digital technologies most relevant for their business (Nylen and Holmström
2015), becomes crucial. Further, digital innovation requires a culture that permits improvisational efforts throughout the company while simultaneously recognizing novel opportunities for innovation (Nylen and Holmström
2015).
With regard to digital business processes, innovation capabilities are also a key mechanism by which companies can exploit digital innovation. Digital business processes usually require companies to modify their current production or general business processes to enhance their functional efficiency. Therefore, it was expected that a company’s innovation capability, i.e., its capability to generate and select ideas, advance novel products and services, and develop new solutions, is a crucial means by which it can exploit digital innovation. Thus, the following hypothesis was formulated: