Experimentation, Learning and Stress: The Role of Digital Technologies in Strategy Change

Abstract

With the increasing availability of digital technologies, many firms are planning to develop digitally-enabled business models. Digital technologies can give an impulse to realign strategies through two channels: Initial use of digital technologies may help firms spot their potential and encourage firms to develop digitally-supported business models, or emerging digital technologies may present a threat to firms, who then initiate a process of strategic renewal to relieve the pressure. We study how the adoption of new digital technologies is associated with changes to the strategy of the firm, and how both are shaped by a firm’s perception of the competitive stress created by new technological developments. Using two detailed survey-based datasets on firms’ expectations, adoption and strategy renewal for a wide range of AI and digital technologies, we find a strong positive association between the degree of strategy change and the adoption of advanced digital technologies. This relationship does not seem mediated by the level of competitive stress from digital technology, which is itself strongly associated with strategy change. Our results suggest a tight coupling between (technological) structure and strategy.