Organizational Status as a Promoter and an Inhibitor of Transition to Digital Platform Business

Abstract

While prior research considerably expanded our understandings of the platform business and its success factors, scant attention has been paid to the cases of incumbents’ strategic change from the product-based business model to the platform-based business model. Such a strategic shift may innovate value both beneficial for the firm and its stakeholders, yet it also poses a significant number of uncertainties for their constituents. Facing uncertainties, constituents are expected to find signals such as status and reputation. Thus, we examined the effect of a firm’s status on the important strategic change of adding a digital platform, and the potential contingency of the effect. Exploiting a sample from the Fortune list of Top 500 companies in China, we found that high-status incumbents are more likely to add a digital platform than their low-status counterparts, thus indicating status can be seen as a promoter. After the digital platform addition, however, low-status firms are more likely to increase in performance than their high-status counterparts, thus suggesting that status can meanwhile be seen as an inhibitor. This research has contributed to our understandings of the social contingency of strategic change, digital platform business model and illuminated the need for revisiting the boundary condition of organizational status as an advantage and a constraint. Keywords: Digital Transformation, Organizational Status, Platform Business Model