Developing digital transformative capabilities of industrial businesses by leveraging the industrial internet of things

Abstract

Industrial businesses are going through a period of digital disruption and firms are under severe pressure to undertake Digital Transformation and leverage the Industrial Internet of Things (IIoT). Yet, there is next to no scholarly guidance for such an endeavour. Most industrial firms are developing their Digital Transformation strategies, however, they are not sure what kind of capabilities they should develop for such transformation. Though there is limited academic literature about Digital Transformation and how firms are developing digital transformative capabilities, a systematic literature review was performed to disentangle capability transformation processes and how firms are developing dynamic capabilities to remain competitive in a high-velocity environment. The current study extended dynamic capability theory and proposed digital transformative capabilities (DTCs) for Digital Transformation. To understand the IIoT landscape and how it influences Digital Transformation, an industry review was performed. The research was conducted in two phases. Based on the literature review and industry review, in the first phase, two qualitative exploratory studies were performed. The preliminary exploratory study was conducted to get an understanding of the IIoT landscape and how firms were developing capabilities for transformation. Based on the insights from preliminary exploratory study, a detailed exploratory study was performed which revealed critical themes for Digital Transformation and, based on these themes, a conceptual framework for Digital Transformation was derived. The conceptual framework was divided into two models. The front-end model viii identified three DTCs (Business Model Transformation, Operating Model Transformation and Cultural Transformation), three inputs (Digital Twin, Digital Thread and Digital Mindset) and the factors influencing the DTCs. The back-end model examined the influence of DTCs on dynamic capabilities, which may be indicative of digital transformation in a company. In the second phase, these two models were tested through a quantitative analysis, utilizing data generated from 107 respondents from 87 industrial companies via a self-reported online questionnaire and the application of multiple linear regression analysis. The Digital Twin is widely touted as an important input for DTC but the result did not support that. Digital Thread as an input for DTC was supported and Digital Mindset as an input for DTC was partially supported. Using moderator analysis, important insights were identified. The moderators, Technology Turbulence, Market Turbulence, Competitor Turbulence and Path Dependency had some positive moderation effects. The positive influence of ‘DTC – Business Model Transformation’ on dynamic capabilities which may be indicative of digital transformation in a company was not supported. However, the positive influence of ‘DTC – Operating Model Transformation’ was supported and ‘DTC – Cultural Transformation’ was partially supported. The moderation effects of ecosystem partnership and resource scarcity and constraints were partially supported, and the moderation effects of customer and market demands and digital commitment were not supported or refuted.