Digitalization of Complex Manufacturing - A Disruptive or Sustaining Innovation

Abstract

How to approach digital technology, or digitalize, is a question that executives in most industrial manufacturing companies are struggling with. Past evidence from sectors such as newspapers or video rental suggests that digital technology is disruptive for the incumbent companies, calling for the creation of a standalone digital business instead of a gradual digitalization the existing business. Our study provides evidence to the contrary. From experiences of four successful and one unsuccessful industrial incumbent, we isolate the processes of digitalization that lead to success versus failure. Based on this evidence, we argue that industrial incumbents, who approach digitalization as a sustaining innovation succeed, whereas the ones that approach it as a disruptive innovation fail. More specifically, we find that the process of digitalization in manufacturing resides on two distinct phases with diverging organizational setups. First, trial-and -error process is used within the existing product and service units and in collaboration with early adopter clients and external digital tech experts to develop pilots of digital solution. This “incubation phase” where the aim is to reach digital problem-solution fit, relies heavily on the knowledge of the client needs, physical as well as digital technology, deployed in internal and low risk context. This “scaling phase”, where the aim is to develop a business model and product- market fit, relies on the structural independence but also maintenance of strong relationships with the existing product and service units. In the article, we examine the contingency factors that determine the sustaining nature of the transformation and then elaborate on the process where digitalization is treated as sustaining, as opposed to disruptive innovation.