Case - MFG session-Orientation-CMR747-PDF-ENG

Strategies for
California Management Review

2020, Vol. 62(4) 17–36
© The Regents of the
University of California 2020
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DOI: 10.1177/0008125620920349
https://doi.org/10.1177/0008125620920349
Manufacturing Firms journals.sagepub.com/home/cmr
CMR747
Joakim Björkdahl1
SUMMARY
This article discusses the digitalization efforts of 26 leading manufacturing firms, the
difficulties encountered, and how they can be handled. It shows that many firms are
far from ready to benefit from digitalization and are mainly focused on achieving
greater efficiency through digitalization rather than pursuing a growth agenda. This
imbalance is because of the difficulties related to identifying profitable configurations
of competencies, assets, and data generated from digital technologies, orchestrating
them, and exploiting them in an agile organization. Practical implications of
digitalization are highlighted, specifically in terms of strategies for supporting the
current business and embracing long-term digital transformation.
KEYWORDS: agility, business model innovation, digitalization, digital transformation,

dynamic capabilities, ecosystems, services, strategy, value capture, value creation
H
ow should established manufacturing firms embrace digitaliza-
tion? Rather than trying to reduce the question to the advances of
digital technologies, business leaders need to focus on developing
new practices, capabilities, and strategies that will allow the cre-
ation and capture of value from digitalization.
Currently, most chief executive officers (CEOs) are preoccupied with
attempting to understand how the digital revolution is affecting and will continue
to affect their firms, in light of the ongoing paradigm shift from an industrial to a
more digital economy. In some industries such as retail, the profits of large domi-
nant firms are declining, despite attempts to stem this decline. For example, H&M,
the world’s second largest clothing retail firm, only sensed the changes and seized
the opportunities of digitalization much later than its main competitors such as
1Chalmers University of Technology, Gothenburg, Sweden
17
This document is authorized for use only in Prof. Rakesh Raut's PGP Batch 22-24, Orientation Session 3 - 07.06.2022 at NITIE - National Institute of Industrial Engineering from Jun 2022 to
Dec 2022.
18 CALIFORNIA MANAGEMENT REVIEW 62(4)
Inditex, and currently, its brick-and-mortar business model is under threat.

Despite major investment in digital channels and strategic reformulation, many
investors are wondering whether it will be possible to regain the company’s previ-
ous growth-machine status.
So far, the dominance of leading manufacturing firms has not been threat-
ened to the same extent. These firms are highly vertically integrated and generally
compete based on their technologies (including products) and production func-
tions and costly complementary assets down the value chain.1 Appropriate man-
agement of digitalization should provide them with opportunities to improve
their creation and capture of value related to the digital revolution. But what do
established manufacturing firms and their CEOs need to do to reap the benefits of
digital technologies and data? This study aims to shed light on large established
manufacturing firms’ digitalization efforts, the challenges involved, and how they
can be managed.
Observations from this study show that it is not technological issues that
worry business leaders engaged in digitalization efforts. The development and use
of new digital technologies are prerequisites for digital transformation, but are not
sufficient for success. Successful efforts require re-optimization to allow effective
use of digital technologies and data, and creation and capture of value in new
ways. This may require new forms of organizing and new work practices to build
the capacity for sensing, shaping, and seizing opportunities.2 In other words, digi-
talization includes more than digital technologies and data. If manufacturing firms
do not comprehensively take control of their digitalization efforts in terms of
developing and transforming their practices, strategies, and organization, they
will risk losing profit-generating opportunities and being outcompeted by others.
Understanding Digitalization
Digitalization involves the increased use of digital technologies3 and their
integration and cross-fertilization in the firm’s products and inbound and out-
bound activities.4 This can result in fundamental changes, especially to how firms
create and capture value.5 In simple terms, digitalization can be seen as increased
generation, analysis, and use of data in order, on one hand, to increase the firm’s
internal efficiency, and on the other hand to grow the firm by adding value for
customers through the change from analog to digital formats.6
The challenges, opportunities, and effects of digitalization have had a major
effect on both business leaders and politicians. Digitalization has come to be seen
as the fourth industrial revolution (after the steam engine and mechanization,
electricity and mass production, and computerization and automation).7 The
German government has defined the challenges, opportunities, and effect of digi-
talization for manufacturing firms as “Industry 4.0.”8 This has inspired efforts in
several other countries described as “Smart Manufacturing” in the United States,
“Industrie du Futur” in France, “Fabrica Intelligente” in Italy, and “Smart Industry”
in the Netherlands. However, Industry 4.0 and similar initiatives are limited
Dec 2022.
Strategies for Digitalization in Manufacturing Firms 19
mainly to manufacturing process improvements enabled by smart manufacturing,

whereas digitalization has the potential to affect many other functions beyond the
manufacturing process.
About the Research

This article adopts a multiple case-study approach9 to analyze the specific
patterns of using data generated by digital technologies in leading multinational
manufacturing firms and their products. The aim is to explore how manufactur-
ing firms create and capture value from digital technologies, the increased vol-
umes of data involved, and related problems. While case-study research suffers
from limited generalizability, the intention is not to try to extrapolate from the
findings but to address the under-researched question about how manufacturing
firms create and capture value by means of digitalization. The limited generaliz-
ability of case studies is, to some extent, mitigated by the use of many case firms,
not focused on a specific sector or technology.
The 26 sample firms belong to a range of sectors including automotive,
steel, telecommunications, pulp and paper, and defense and security. They include
ABB, Volvo Trucks, Autoliv, Husqvarna, Scania, Volvo Cars, Ericsson, Atlas Copco,
SKF, Assa Abloy, Saab, Sandvik, SSAB, and Stora Enso. The data are from multi-
ple sources, including interviews, site visits, and archival records. A total of 102
in-depth semi-structured interviews were conducted with managers at different
hierarchical levels and in different functional positions, including CEOs, chief
technology officers (CTOs), production managers, chief digital officers (CDOs),
information technology (IT) directors, business development directors, sales direc-
tors and sales staff, research managers, production operators, board members,
product owners, and data analysts. The interviews focused on the constructs and
perceived related challenges of value creation and value capture through digitali-
zation efforts in relation to the different value chain activities.
What Do Manufacturing Firms Currently Do?

Observations of the manufacturing firms in this study show that obtaining
advantages from new technologies and becoming digitally more mature involve
several aspects. The effects of digitalization for firms can be categorized as more
efficient product development, more efficient manufacturing, more sophisticated
products and services, and more integrated value chains (Figure 1 exemplifies
the different efforts along the value chain of leading manufacturing firms).
Product Development
Digitalization has the potential to make manufacturing firms’ product
development more efficient. Digitalization of product development reduces the
need for physical artifacts and prototypes; computer-based design and visualiza-
tion as well as numerical computation programs are increasingly sophisticated
and interactive, making product design much easier.
Dec 2022.
FIGURE 1. Examples of digitalization efforts in relation to the different manufacturing

firm value chain activities.
At the same time, integration of digital technologies is making products

more complex. The study firms use software with both internal and external
interfaces, which requires testing using models in computer-aided environments
to check product performance and functionality. These testing procedures can be
accomplished quickly and can check various outcomes. Testing is an important
part of a firm’s product development activities as demand for shorter development
times increases. Volvo Cars, like many other automotive firms, simulates and runs
different engine tests digitally before the decision to take a specific engine into
production. In the past, an engine had to be built and then tested at different tem-
peratures and altitudes and under different environmental conditions. Based on
the results of these tests, engines were adapted, which involved high costs and
long lead times before full-scale production. For many manufacturing firms, digi-
talization has put an end to these ways of working.
The trend toward more effective product development based on digitaliza-
tion has been ongoing among manufacturing firms for more than a decade. A
noticeable change that has occurred since 2017 among leading manufacturers is
the adoption of artificial intelligence (AI) in their product development process.
For example, AI (machine learning) is allowing more effective, faster, and cheaper
(mainly bug) testing of software. AI is also being used to design products. For
example, the telecommunications firm Ericsson uses AI (deep learning processes)
to tune the complex filters used in its 5G network, which previously required an
individual to undergo a six-month specialist training.
Manufacturing
Most manufacturing firms are engaged in extensive work to make their
production more competitive by means of digitalization.10 They can increase
Dec 2022.
throughput and quality, decrease variance, and minimize the number of break-
downs and stoppages by making the manufacturing process more intelligent
through the use of digital technologies and more and better data. However, the
breadth and depth of these efforts differ substantially among firms.
In some cases (i.e., pulp and paper and steel sector firms), these activities
are limited to the possibility of obtaining new data and linking different data
sources to improve decision making and achieve integration among machines.
The firms identify the reasons for production disturbances that result in reduced
operational efficiency by identifying abnormalities and logging breakdowns to
identify root causes.
The leading firms also perform many other activities allowed by digitaliza-
tion. For example, computer visualization systems that use machine learning
algorithms to identify defects in the manufacturing process reduce the need to
take products or materials out of the production line and check them manually.
In addition, although the end products used by customers are not connected to
the cloud, manufacturing firms often employ “digital twins” or models of a built
product that reflect the complete manufacturing process and can allow improve-
ments based on the performance of the product in a live setting. AI-enhanced
predictive maintenance is taking over from preventive maintenance. The use of
accelerometers, digital sensors, and advanced software algorithms allows report-
ing of the machines’ real-time conditions. This translates into savings on time and
resources, fewer expensive stops to production, and lower maintenance and
inspection costs.
One of the most recent developments is the construction of completely
digital factories. For instance, the commercial vehicle manufacturer Scania has
invested $220 million in a new heavy truck cab factory to produce cabins for its
European market. The only remaining manual activities are related to the provi-
sion of materials for production and surveillance and servicing of production.
Scania’s production capacity has doubled, and the number of breakdowns and
production stops has reduced. Another company, SKF, the world’s largest bearing
manufacturer, also has digital factories. Based on their experience from a test fac-
tory that they built in Sweden, SKF is constructing another new factory in
Germany. Similar to Scania’s experience, SKF has improved its production plan-
ning because the manufacturing process can be changed without causing disrup-
tion and errors. The observations show that firms are investing in digital factories
because they believe they will make them more competitive and produce better
quality goods at lower production costs. Another important implication of digital
factories that has yet to materialize is that since fewer individuals are required for
production, the activity can be positioned strategically with less consideration of
salary costs. It could be beneficial to relocate production facilities to somewhere
with an existing digitally competent workforce, especially for firms such as SKF
with production facilities in 103 locations around the world. Although SKF’s first
digital factory was a test factory, the firm reduced the number of employees work-
ing in and with the factory by 77%; it expects even higher staff reductions in rela-
tion to future digital factories.
Dec 2022.
Sophisticated Products and Services

Digital technologies are embedded not only in the value chain but also
in the products themselves. Increasingly manufacturing firms are integrating
technologies in established products to make them more “intelligent.” The data
generated from products in use may increase performance or give rise to new
functionalities. Hence, the integration of digital technologies allows the firm
and its customers to collect valuable data on the product and applications that
depend on that product. These data allow products to be monitored, optimized,
controlled, and sometimes operate autonomously.11
Making traditional manufacturing products intelligent allows the firm to
move downstream and provide new operational and complementary services;
most of the firms in the sample are on this trajectory. This is in line with manufac-
turing firm trends and reduces the distance between the firm and the end user
while increasing business revenue streams,12 which have been shown to increase
overall firm profitability.13
ABB, a global leader in power and automation technologies, creates value
for its customers through digitalization based on the Internet of Things (IoT) and
AI (reinforcement learning neural networks). For example, its robots are con-
nected to the cloud, which allows predictive maintenance and production simula-
tions that are sold as services to its customers. Automotive firms are connecting
their vehicles to the cloud to enable new complementary downstream services.
For example, Scania has 500,000 cloud-connected vehicles on the road. They
enable optimization of routes, predictive maintenance, and more efficient staffing
for trucks. Several firms also use digitalization and connected products to allow
direct links to end users. Husqvarna, a leading producer of outdoor power prod-
ucts, previously marketed and sold its products mainly through distributors.
However, digitalization has triggered a new strategy and allowed the development
of innovative services based on direct sales to end users.
Integrated Value Chains

Digitalization allows more integrated value chains, which increases
the efficiency of various firm functions, reduces lead times, and enables bet-
ter control over the operations. The sharing of information among systems and
functions, such as production and enterprise resources planning, improves coor-
dination, visualization, and planning of important processes.
Manufacturing firms share data not only within the firm but also across firm
boundaries with suppliers and customers. Recently, leading firms are adapting
their supplier interface and limiting it to a single digital procurement channel
through the use of machine learning algorithms. This change allows firms and
their suppliers to have better control over materials and components and reduces
inventories. Some firms are integrated with their customers’ production systems.
One of the sample firms highlighted the amount of time saved in communicating
with customers about supply by integration with its customers’ production and
inventory management systems. Digitalization also provides easier traceability
Dec 2022.
throughout the firm’s value chain activities, for example, by tracking the position
in the supply chain of a specific customer order, using machine learning, or linking
end products to data from the manufacturing process and the input materials used.
From Effciency to Growth

Observations show that the effects of digitalization can be traced primar-
ily to more efficient firm operations and manufacturing processes and to better
performing products with new functionality. Improved production throughput,
fewer breakdowns, more efficient maintenance, more effective integration across
activities in the internal value chain, and new product development methods
provide many cost advantages.
However, these are not the areas that present the greatest difficulty for
firms and their ability to exploit the potential offered by digitalization. It is activi-
ties and processes to grow the firms that pose the greatest challenge, while also
offering opportunities that have yet to be exploited. More than half of the sample
firms consider that digitalization offers equal opportunities or better possibilities
to increase revenue than to lower costs. However, only a quarter of the observed
firms consider that they pay more attention to increasing revenue than to lower-
ing costs.
Nobel Laureate Oliver Williamson argues that strategy starts at home, and
that in the long run, the best strategy is to operate and organize efficiently,14
which he describes as economizing.15 This might suggest that firms should start
with upstream digitalization activities, which is the strategy adopted by most of
the observed firms, at the expense of focusing on activities to create new income
streams and to reinvent the business model, or with strategizing activities to cre-
ate defensible positions against competitive forces.16 Economizing is an important
source of profitability because it affects relative cost positions and underpins com-
petitive advantage.17 Digitalization is defining a new standard for operational effi-
ciency in upstream activities for the observed firms and has raised the best practice
bar even for the most advanced firms.18
However, the current rapid digital advances not only provide greater effi-
ciency for manufacturing firms but also promote a growth agenda from new com-
binations (innovation).19 They are not mutually exclusive, and both are essential
for long-run superior performance. Few firms can compete successfully over the
long term on the basis of operational efficiency alone.20 Many of the firms in this
study are very ambitious and are attempting to build growth and transform their
business models to create and capture more value from the use of digital technol-
ogy and data.21 However, with few exceptions, the effects on firm performance
have been small. There is a trend among the firms in this study toward becoming
more service-oriented to realize value from digitalization. Several are selling oper-
ational and complementary services based on the new functionality of their prod-
ucts, but the effects, scope, and scale of these efforts are limited. The resulting firm
revenue has been negligible, and most firms are disappointed that the results do
Dec 2022.
not match expectations. At the same time, several manufacturing firms are trying
to change their business model from selling products to selling services. However,
the results of most of these changes have yet to materialize. For example, some
automotive firms have ambitions to switch from selling vehicles to selling vehicles
as a service and have been working on this for some time, but so far without
much implementation. In sum, business leaders have focused mainly on cutting
costs based on greater efficiency, and these initiatives have proven more success-
ful than the few initiatives aimed at growth.22 Business leaders believe that major
competitive and market effects will not emerge without changes to their business
offers to customers.23 However, a growth agenda will require these manufacturing
firms to shift from greater efficiency in established ways of working to working
differently.
Driving growth is a different game than using digitalization to achieve
greater efficiency and is also experienced as more difficult (see Table 1 for a sum-
mary). For the firms in this study, operational efficiency based on digitalization
has been confined primarily to achieving excellence in individual functions.
Compared to achieving growth, elimination of waste, for instance, has been rela-
tively straightforward and generic across firms and sectors.24 It is relatively easy
also to evaluate returns on investments aimed at cost-cutting via operational effi-
ciency. However, digitalization aimed at driving growth involves combining func-
tions that require a good fit among internal activities across functions. Firms also
need to create customer value in a more uncertain external environment. This is
a challenge in the earliest stages of development. As described by Day and
Schoemaker in the case of emerging technologies, customer usage patterns and
behaviors are exploratory and formative and are accompanied by scarcity of mar-
ket knowledge and embryonic competition among new solutions.25 Hence, invest-
ment in digitalization is considered uncertain for innovation and growth.
According to the case firms, processes are inadequate, governance is weak, and
there is no relevant and appropriate growth strategy that explains the asymmetric
gains between cost-cutting and growth efforts.
Digital technologies combined with the manufacturing firm’s inherited
resources and capabilities can produce fundamental changes to how the firm cre-
ates and captures value,26 which makes the nature of future competition difficult
to predict.27 In turn, this adds to the importance of innovation and growth to
achieve long-run competitive advantage. Work in the area of dynamic capabilities
has taught us that such circumstances demand the honing of internal technologi-
cal, organizational, and managerial processes to sense and seize opportunities.28
If manufacturing firms do not seize opportunities and do not transform
themselves to embrace the growth opportunities offered by digitalization, they are
likely to be outcompeted by firms able to solve customer problems in more creative
ways. In the present climate of Schumpeterian competition, this threat comes from
both incumbent firms and firms outside the industry29 because on many occasions,
new technologies can produce disruptions to an established technical advance-
ment trajectory.30 Digitalization has changed the game for incumbents in many
Dec 2022.
TABLE 1. Factors Explaining the Differences between Digitalization Aimed at

Cost-Cutting versus Growth.
Cost-Cutting/Operational
Efficiency Growth/Innovation
Asset redeployment Well-established mechanisms (e.g., No established mechanisms to

taxes from the business divisions) allocate capital needed by several
for money-saving alternatives, to functions to build a growth agenda.
improve lead times, quality, and
throughput.
Culture Well-established culture to reduce Collective ability across functions to

waste through better methods. transform output markets. There is
no established culture to develop
and sell services or to use data to
build new businesses.
Coordination Dependent on excellence in Dependent on several functions.

between functions individual functions.
Data management Data are generated internally and Data are generated from customer
usually fewer variables need to be applications and many variables
considered to identify efficiency need to be considered to identify
improvements. growth options.
Demand Internal demand and firm’s Uncertain market demand.

responsibility to decide if it would
be productive.
External cooperation Well-established partners and Partnerships are context dependent

suppliers for implementing efficiency and there is strong dependence
improvements. on the complementors in the
ecosystem to create value.
Investments Relatively easy to estimate. Difficult to estimate.
Managerial processes Established managerial processes are Dependent on new managerial

working. processes to become flexible.
Return on Easy to estimate. Very uncertain.

investments
Strategy Well-established procedures to invest No established strategy. Need to

in solutions that are critical for make trade-offs among many
competitiveness and that have high uncertain alternatives.
rates of return on investment.
Time to Relatively easy to estimate. Difficult to estimate.

implementation
Transferability High between firms. Low between firms.
industries by introducing competition from firms outside the industry and compe-
tition with more asset-light business models.31
Teece, Peteraf, and Leih note that in environments characterized by uncer-
tainty, firms must grasp opportunities for growth before their logic becomes
Dec 2022.
apparent to all market players.32 However, this does not assume first-mover
advantages (or disadvantages) and we have to be very careful with such assumptions.33
Digital transformation is equally important for the ability to follow, to have options
related to growth, and to achieve learning advantages over firms that have yet to
undergo digital transformation. Moreover, the digital transformation of manufac-
turing firms does not necessarily involve a radical business model, a new product
category, or response to a competing technology; it can take many shapes. In the
context of the firms in the sample, until markets stabilize, it is too early to claim
that digital transformation pioneers have achieved first-mover advantages or dis-
advantages.34 What can be said is that many firms’ attempts to achieve growth
and to obtain economic returns from innovation have failed, but this cannot be
attributed only to second-mover advantages. Nevertheless, business leaders from
the observed firms believe that without some transformation, their companies’
prospects are poor, and they do not consider it to be a waiting game.35 Some of the
case firms would be suffering had they not sensed and seized opportunities and
embarked on a digital transformation.36 One of the most successful examples of a
digital transformation among the case firms is Assa Abloy. The firm dominated the
world market in mechanical door locks. Assa Abloy had no experience of using
digital technologies or working with data but recognized that it needed to trans-
form itself to exploit the opportunities related to various types of digital door
locks. The market emerged in Southeast Asia with contributions from several
firms from other sectors (e.g., Samsung). After a major transformation, Assa Abloy
has become the market leader in digital door locks and is collaborating success-
fully with complementors such as Apple and Google to drive the market forward.
Assa Abloy appears in the Forbes list of the world’s 100 most innovative compa-
nies, and 57% of its top line comes from electromechanical products and digital
solutions. It now also enjoys recurring revenue based on subscriptions and
upgrade services.
Unresolved Strategic Challenges to Growth

Firms have several issues that require resolution for investments in
growth to bear fruit. The challenges related to increasing the top line through
implementation of digital technologies and exploitation of data generated inter-
nally and by customers are that firms generally do not have in place appropriate
processes to develop and test new customer offerings. Most firms apply the same
processes to develop new business and to achieve incremental development.
They include the waterfall model, which is suited to incremental development
when both the customer and offering are known. However, manufacturing firms
typically do not have previous experience with the concepts and solutions they
want to develop, and they involve product features and customer segments that
are uncertain. Most firms believe that they need to change their processes and
become more agile.37 This will be increasingly important to allow utilization of
the data generated by digital technologies and identification of viable business.
Some firms argued that their service developments had failed because of their
Dec 2022.
ad-hoc nature and lack of strategy and their being based on ideas the firm con-
sidered feasible with no consultation with customers.
In addition, very few firms have central control of data, which tends to be
spread throughout the organization (across different functions and market seg-
ments, and geographically). If these different firm functions do not routinely coop-
erate and share data, it can be difficult for the firm to organize digitalization
efforts.38 This lack of control over the data also means that in most cases, firms are
unable to share data outside the firm boundaries.39 Many firms also lack the capa-
bilities for rigorous analysis of available data to decide how they should be exploited.
A potential solution to facilitate the better use of data is setting up data science
groups. Volvo Cars and Scania have established such groups to work on data-
driven innovations. For Scania, data science is viewed as necessary for firm sur-
vival and provides a way to adapt to the new reality. Volvo Cars and Scania believe
that data science has the potential to identify previously unrecognized patterns
that would allow the firm to leverage its new knowledge to improve existing or
create new business. These firms have created so-called data lakes that allow their
firm members to access and analyze data. A data lake is a single storage for all the
firm’s data (structured, semi-structured, unstructured, and binary data).40
As firms find better processes for working with data and as their businesses
develop, more problems arise. They need to establish governance structures and
mechanisms to allow good coordination of their internal organizational and man-
agerial processes. The observations conducted as part of this study show that firms
find the organization of and responsibility for digitalization extremely difficult.
The importance of digitalization is exemplified by the fact that most of the firms
analyzed have created the post of CDO, although responsibilities and the position
in the hierarchy vary among firms. For example, in Atlas Copco, Saab, Volvo Cars,
and most steel manufacturing firms, promoting digitalization is the responsibility
of the IT department. However, many IT department members lack experience in
building new business and are more appropriately cast in the support function. At
the same time, if they have the required experience, they may not have budgetary
authority and may be dependent on another firm function. For example, in
Husqvarna, Autoliv, and Inwido, this responsibility belongs to the R&D depart-
ment. Although this can result in digitalization efforts organized to develop new
customer solutions, problems arise in relation to coordination with sales and mar-
keting functions to launch new products and services. Thus, problems can arise in
the hand over and coordination of digitalization efforts across firm functions.
Appointing a CDO but retaining the existing organizational structure may not
solve organizational problems related to promotion of growth by means of digita-
lization. Many functions and firms are stuck in old ways of organizing, which
results in silos. Not all firms have a CDO to promote growth. Several firms (e.g.,
Bombardier, SKF, Volvo Penta) consider that digitalization should not be driven
by one specific function but rather is an organization-wide responsibility. However,
they may risk a lack of focus in their digitalization efforts and are trapped in an old
way of organizing. Moreover, the lack of an appropriate culture to support digital
Dec 2022.
transformation and strategy can result in stagnation. It seems clear that digitaliza-
tion will entail ongoing complex organizational and managerial challenges. Its
design is important because it has been shown to be a crucial enabler of dynamic
capabilities and the capacity to sense changes, seize opportunities, and to trans-
form the firm.41
Many business leaders want their firms to become more agile and see the
need for more flexible working as a result of digitalization. However, most have
not come to grips with working with data, organizing for digitalization, or achiev-
ing better cooperation among different functions. Development and maintenance
of agility is costly, but trying to exploit the opportunities and benefits from digita-
lization without an agile organization may be even more costly.42 Looking for-
ward, many large firms will need to coordinate their functions in new ways and
find easier, faster, and more efficient ways of working to achieve full digitalization
and drive a growth agenda. However, there is no “one-size-fits-all solution,” and
firms need to have dynamic capabilities to achieve agility and address the business
environment changes caused by digitalization.43
Scania, one of the case firms, has reorganized more appropriately and
changed its organizational dynamics, which allows it to benefit from the new
growth opportunities brought by digitalization. Scania established “Digital” as a
new business function responsible for coordinating, developing, and driving the
firm’s digital transformation. It has undertaken other efforts to improve organi-
zational dynamics and to better govern how it integrates, builds, and reconfig-
ures competences to address digitalization. It has reallocated the IT department’s
responsibilities among various firm functions, and every department in the firm
includes data scientists. The result of these changes to the organizational struc-
ture is that all the firm functions are involved in the digital transformation and
are less dependent on input from software developers and data scientists from
other functions in their efforts to explore and develop new customer solutions. A
data lake allows all firm functions easy access to internally generated and cus-
tomer data. Each firm function includes digitalization champions who are respon-
sible for driving the digital transformation and keep digitalization high on the
firm’s agenda. The different functions focus on sharing information to achieve
greater coordination and unity. All these efforts are supported by the CEO who
believes and communicates clearly that digital transformation is necessary for the
firm’s survival.
Another consideration is what firms should do themselves and how much
they need to cooperate with or acquire other firms. Many of the observed firms
cooperate outside the firms’ traditional boundaries for the development of tech-
nological solutions, and several firms have made acquisitions to obtain access to
technological competencies for immediate use or that they view as real options.
The present manufacturing firm value system is based largely on the ecosystem,44
and because digitalization increases system dependence among technologies,
products, and services to form a system of systems, firms need to be better pre-
pared to work according to an open paradigm to create and capture value.45
Dec 2022.
Crafting an ecosystem strategy in which a firm approaches the alignment of part-

ners can be a way to seize new growth opportunities.46 However, this means that
firms increasingly need to be involved in more dynamic value constellations
where different actors from multiple industries contribute to firms’ value creation,
and where parts of the firms’ value chain activities shift to new actors.47 Hence, it
can be a clever strategy (as the example of Assa Abloy demonstrates) to partner
with firms that possess critical complementary assets, reducing the need to build
them in-house, or to be outcompeted by these partner firms.48 Business leaders
consider that orchestration of ecosystems and cooperation is paramount, but most
have yet to begin work on this. It will be difficult, especially since several of the
case firms have ambitions to become “leading firms” by catalyzing ecosystem
developments to enhance their competitive advantage.49
All the firms in the study stated that they would be giving more importance
to digitalization in the coming years. Undoubtedly, digitalization is changing the
competition conditions for manufacturing firms and presents both challenges and
opportunities.
Implications
How can business leaders develop management practices, capabilities, and
strategies that will allow better creation and capture of value from digitalization?
The implications of this study are as follows.50
Supporting Current Business and Corporate Strategies

In the near-term, firms, their CEOs, and their business leaders need to
focus on how digital technologies and data can drive and enable the achievement
of their existing overall business and corporate strategies. Given the increasing
pressure on many manufacturing firms to deliver tangible, concrete, and action-
able results, digitalization offers major opportunities to improve operational effi-
ciency to achieve lower costs. This study shows that there are various ways to
achieve these outcomes. Many do not require new organizational and manage-
rial processes, but depend on individual functions. Because these opportunities
are relatively predictable in terms of returns on investment, they fit within cur-
rent strategies as they have the potential to provide short-term results.
Assuming that digitalization will drive profitable growth can be misleading,
as many firms have achieved poor results.51 In the near-term, the aim should be
changes that enhance and are complementary to the core business and are consis-
tent with the firm’s overall business strategy to solve discrete business problems
related to the customer experience. This requires ensuring that the firm’s core
products are cross-fertilized with digital technologies to support connectivity and
collection of data from products in use. Investment in the existing business also
provides better protection against market risk than variability per se.52 However,
what is best for the firm will depend on the stability of the market, which will
indicate whether there is a need for a larger transformation for the firm to remain
Dec 2022.
competitive. In a stable market, digitalization aimed at achieving operational effi-

ciency might be better than a larger transformation because the growth prospects
may be too small to justify sacrificing current efficiency and profits.53 If firms
decide on a larger digital transformation, they must get it right from the start.
Supporting Long-Term Digital Transformation

Digital transformation should be triggered by an awareness that existing
internal processes depend on a stable market environment. These processes may
have been important for past success, but may not allow the firm to be competi-
tive in the future.54 In that case, parallel to the existing near-term strategy, firms
must undertake a wider digital transformation in order to continue in business
over the long term. To identify the right path and achieve successful digital trans-
formation, business leaders must address the questions of why, where, what, and
how (see Table 2). If they do not, then the chances of remaining competitive will
reduce dramatically.
Why? The first question to be addressed is why digitalization is important for

the firm, that is, why digitalization might allow the firm to create and capture
more value. Successful firms are starting by asking why digital technologies and
data will help them to solve their main challenges in obtaining value for the firm
and its customers (e.g., customer experience, employee experience, and business
decisions).
Where? Having established why (or if) digitalization is important, business lead-
ers need to explore where digitalization would create most value, and its feasibil-
ity and urgency. A digital transformation needs a focus, and because it requires
capital, resources, and commitment, there must also be trade-offs. Business leaders
must formulate possible acceleration initiatives based on whether the digital trans-
formation evolution is related to operational efficiency and/or growth along the
vectors of product development, manufacturing, supply chain, product innovation,
service innovation, and business model transformation (e.g., selling their products
as services or catalyzing the development of ecosystems). Business leaders then
have to decide what they should and should not do, based on the value creation
and capture potential, effort (cost, speed, resources) and feasibility, and prioritiza-
tion of the initiatives. Porter emphasized that strategy renders choices about what
not to do, which are as important as what to do.55 Therefore, business leaders play
a critical role in deciding where resources should be allocated to realize the most
valuable opportunities. If they make the wrong decisions, the firm will fail.
Successful firms are selective about what they do, try not to do too many
things at the same time, and have a clear view of what they want to achieve.
Many unsuccessful firms suffered from false starts and misguided efforts, espe-
cially in relation to their growth agendas. Many business leaders do not under-
stand the need to make choices. They sometimes believe they can work on several
value dimensions simultaneously, leading to piecemeal initiatives with poor
results because there is no clear understanding of objectives.
Dec 2022.
TABLE 2. Questions That Need to Be Addressed for Digital Transformation.
Digital Transformation
Why Why could digital technologies and data help the firm to resolve its problems and promote
value for the firm and its customers?
Where Where do digitalization efforts create the most value, and how feasible and urgent are they?
What What enablers and capabilities are needed to support digitalization efforts?
How How is the firm approaching identification of an operating model, including culture, and
organizational and managerial processes, to drive the transformation?
A mistake commonly made by business leaders is investing in searching for

growth in adjacent areas that have little overlap with the current business, rather
than using digitalization to improve existing business to achieve growth. Successful
firms start from customers’ needs and what will provide customer advantage. A
sound digital transformation strengthens the core business, making it costly and
difficult for other firms to compete. However, many business leaders focus on easy
growth based on the provision of additional products and services, often based on
completely new activities and customer segments that are not connected to the
core business. For example, Volvo Cars’ strategy is based on identifying time-sav-
ing services for customers (one week a year), such as delivery of online purchases
directly to customers’ cars, refueling owners’ cars, and collecting them for servic-
ing. These activities have little in common with Volvo Cars’ core business and
require the establishment of local partnerships (which are difficult to scale into
new geographical markets). The services it currently offers and wants to offer in
the future are easily imitated and offer little uniqueness. Some firms have estab-
lished new divisions with their independent management and tailored activities.
Ericsson established a “Digital Services” division to serve many new customer seg-
ments with weak connections to its core business.56 The losses suffered by Digital
Services have been substantial ($3.4 billion in 2017 and $1.5 billion in 2018) and
have had a major negative effect on Ericsson’s results for several years. In 2017,
none of its product areas in Digital Services were profitable, forcing the firm to
terminate many of its product and service offerings as part of a turnaround plan.
What? Successful manufacturing firms use enablers, which allows them to

develop capabilities to support their digitalization accelerator initiatives. These
have been shown to be critical for the transformation of manufacturing firms.
For example, Scania uses data management (e.g., structuring and pooling of data
to make it easily accessible across the organization and outside the firm bound-
ary when relevant), new working methods (e.g., design thinking and agile pro-
cesses to develop new services and internal processes), business automation
(e.g., replacing manual processes with software robots), and advanced analytics
and business intelligence to work with data to identify what is possible and to
develop new solutions. Hence, business leaders need to define the enablers they
need to successfully drive their digital transformation. This will allow identification
Dec 2022.
of competence gaps and the need for new talent, but will also show the extent
to which firms need complementary assets from other firms to succeed with
their digital transformation (because they are too costly or difficult to acquire or
develop in-house).
How? Based on why digitalization is important, where digitalization efforts

should be directed, what enablers and competencies are needed, firms need an
operating model with organizational and managerial processes to make things
happen and achieve successful digital transformation.
It is important that digital transformation is supported by business leaders
who foster a culture of consistent, coherent, and comprehensive presence of val-
ues and norms that promote the implementation and use of digital technologies
and data to facilitate long-term firm success. Business leaders must promote the
need for digital transformation and ensure that everyone works toward this com-
mon goal. Firm organization is aimed at facilitating coordination and collective
effort from firm members.57 However, digitalization makes additional demands on
business leaders to act entrepreneurially and professionally and to think strategi-
cally in a more uncertain market environment.58
The most successful firms have decentralized their digital transformation,
have flexible internal processes, and learn from their mistakes. Although firms
should have the long-run objective of line businesses being responsible for their
own activities, successful firms have coordinated cross-organization teams with a
clear agenda on where the firm is heading. They motivate organizational members
by communicating examples of what can be done and demonstrating successful
and unsuccessful investments in other parts of the organization to promote insti-
tutional learning.59 The teams highlight where investments are necessary, com-
municate goals, and follow-up on whether investments have been made and how
implementation is progressing. The teams challenge organizational members about
their assumptions related to their chosen implementation methods. In the early
stages of digital transformation, it is important that firms do not underestimate the
value of “simple things” that give fast results. To promote institutional learning, it
is also critical that individuals in similar functional positions, and different func-
tions, exchange information and knowledge. Hence, digital transformation for
firms is about collective ability, and the implementation of more complex processes
and tasks throughout the transformation. These are critical aspects for large multi-
national manufacturing firms with thousands of employees.
What do less successful firms do? Many firms remain isolated, implement
only cross-functional programs with no identifiable ownership, and lack support
from senior management in line businesses in the form of allocating money and
resources. Others work on the basis that a digital transformation can be managed
by one function (often coordinated by a CDO), which generally creates friction
among functions.
Clarity about why digitalization is important, where it is important, what
enablers are needed, and how the organizational and managerial processes should
Dec 2022.
be governed is fundamental. In addition, the firm should be clear about what it

wants to achieve, have flexible internal processes, and be open to continuous
learning. This will accelerate its digital transformation and result in a more com-
petitive firm.
Author Biography
Joakim Björkdahl is a Professor of Strategic Management and Innovation at the
Department of Technology Management and Economics at Chalmers University
of Technology (email: joakim.bjorkdahl@chalmers.se).
Acknowledgments
I would like to express my gratitude to the editors of California Management
Review, the four anonymous reviewers, and Marcus Holgersson for constructive
comments and guidance throughout the review process.
Notes
1. D. J. Teece, “Profiting from Technological Innovation: Implications for Integration,
Collaboration, Licensing and Public Policy Research Policy,” Research Policy, 15/6 (December
1986): 285-305.
2. V. S. Katkalo, C. N. Pitelis, and D. J. Teece, “Introduction: On the Nature and Scope of
Dynamic Capabilities,” Industrial and Corporate Change, 19/4 (August 2010): 1175-1186;
P. J. H. Schoemaker, S. Heaton, and D. J. Teece, “Innovation, Dynamic Capabilities, and
Leadership,” California Management Review, 61/1 (Fall 2018): 15-42; D. J. Teece, “Explicating
Dynamic Capabilities: The Nature and Microfoundations of (Sustainable) Enterprise
Performance,” Strategic Management Journal, 28/13 (December 2007): 1319-1350; D. J. Teece,
“Dynamic Capabilities: A Guide for Managers,” Ivey Business Journal, 75/2 (March/April
2011): 29-32; D. J. Teece, G. Pisano, and A. Shuen, “Dynamic Capabilities and Strategic
Management,” Strategic Management Journal, 18/7 (August 1997): 509-533.
3. Digital technologies can be classified as general-purpose technologies (GPTs) because they
can be combined with a multitude of other technologies. On GPTs, see T. F. Bresnahan and
M. Trajtenberg, “General Purpose Technologies: ‘Engines of Growth’?” Journal of Econometrics,
65/1 (January 1995): 83-108.
4. J. Björkdahl and M. Holmén, “Exploiting the Control Revolution by Means of Digitalization:
Value Creation, Value Capture, and Downstream Movements,” Industrial and Corporate
Change, 28/3 (June 2019): 423-436.
5. J. Björkdahl, “Technology Cross-Fertilization and the Business Model: The Case of
Integrating ICTs in Mechanical Engineering Products,” Research Policy, 38/9 (November
2009): 1468-1477.
6. Gartner IT Glossary defines digitalization as the process of changing from analog to digital form.
7. K. Schwab, The Fourth Industrial Revolution (New York, NY: Crown Business, 2017).
8. Industry 4.0 was initiated by the German Federal Ministry of Education and Research.
9. K. M. Eisenhardt and M. E. Graebner, “Theory Building from Cases: Opportunities and
Challenges,” Academy of Management Journal, 50/1 (February 2007): 25-32.
10. Note that not all efforts are related to quality and throughput. The metal firm Boliden is
digitalizing several of its mines (based on advanced positioning technology and monitor-
ing systems) to improve health and safety and energy efficiency as mine depths increase.
Nevertheless, the longer term goal is round-the-clock production based on machinery that
does not require a human operator—Boliden expects productivity increases of between 40%
and 80% after full implementation.
11. See also, M. E. Porter and J. E. Heppelmann, “How Smart, Connected Products Are
Transforming Competition,” Harvard Business Review, 92/11 (November 2014): 64-88.
Dec 2022.
12. T. Baines, A. Ziaee Bigdeli, O. F. Bustinza, V. Gang Shi, J. Baldwin, and K. Ridgway,
“Servitization: Revisiting the State-of-the-Art and Research Priorities,” International Journal
of Operations and Production Management, 37/2 (January 2017): 256-278; H. Lightfoot, T.
Baines, and P. Smart, “The Servitization of Manufacturing: A Systematic Literature Review of
Interdependent Trends,” International Journal of Operations and Production Management, 33/11-
12 (November 2013): 1408-1434.
13. R. Wise and P. Baumgartner, “Go Downstream: The New Profit Imperative in Manufacturing,”
Harvard Business Review, 77/5 (September/October 1999): 133-141.
14. Michael Porter would argue that operational effectiveness (including efficiency) is not strat-
egy. Cf. M. E. Porter, “What Is Strategy,” Harvard Business Review, 57/2 (November/December
1996): 61-78.
15. O. E. Willamson, “Strategizing, Economizing, and Economic Organization,” Strategic
Management Journal, 12/S2 (Winter 1991): 75-94.
16. Oliver Williamson makes the distinction between economizing and strategizing to describe
strategy. Strategizing is described as deterring or defeating competitors with clever ploys and
positioning. Cf. Williamson (1991), op. cit.
17. Porter (1996), op. cit.; Teece et al. (1997), op. cit.; Williamson (1991), op. cit.
18. For some manufacturing firms, economizing (combined with quality improvements) is the
most important outcome. This is true especially for firms that compete mainly on their man-
ufacturing and not downstream (e.g., firms producing and selling steel sheet, metal powder,
and paperboard). Several of the firms in the study considered innovation and growth to be
less important than operational efficiency. Economizing is also important for systems integra-
tors that manufacture and sell bundles of products and services (e.g., firms producing and
selling trucks, telecommunication networks, compressors, and industrial robots); however,
for these firms, economizing weaknesses can be hidden in great business models, technolo-
gies, and products and services, especially for companies with strong market power.
19. Björkdahl (2009), op. cit.; Porter and Heppelmann (2014), op. cit.; D. J. Teece, “Profiting
from Innovation in the Digital Economy: Enabling Technologies, Standards, and Licensing
Models in the Wireless World,” Research Policy, 47/8 (October 2018): 1367-1387; World
Economic Forum, “Digital Transformation of Industries,” Report, 2016, https://www.wefo-
rum.org/reports/digital-transformation-of-industries.
20. Porter (1996), op. cit.
21. On business models, see for example, Björkdahl (2009), op. cit.; H. Chesbrough and R.
S. Rosenbloom, “The Role of the Business Model in Capturing Value from Innovation:
Evidence from Xerox Corporation’s Technology Spin-Off Companies,” Industrial and Corporate
Change, 11/3 (June 2002): 529-555; M. W. Johnson, C. M. Christensen, and H. Kagermann,
“Reinventing Your Business Model,” Harvard Business Review, 86/12 (December 2008): 50-59.
22. See also, for example, L. Caldwell, “How Digitalization Is Driving New Business Models
for Manufacturers,” Forbes, November 27, 2018, https://www.forbes.com/sites/lisa-
caldwell/2018/11/27/how-digitization-is-driving-new-business-models-for-manu-
facturers/#87d70df6aa66; O. Aguilar and J. Girzadas, “Save-to-Transform as a Catalyst for
Embracing Digital Disruption,” Deloitte, April 2019, https://www2.deloitte.com/content/dam/
Deloitte/us/Documents/process-and-operations/us-global-cost-survey-2019.pdf; Porter and
Heppelmann (2014), op. cit.
23. See also, for example, Forbes Insights, “How to Win at Digital Transformation: Insights from
a Global Survey of Top Executives,” Forbes, November 2016, https://images.forbes.com/for-
besinsights/hds_digital_maturity/HowToWinAtDigitalTransformation.pdf.
24. Some adaptations are more difficult than others. For example, improving product develop-
ment is considered more difficult and more firm-specific than integration of different systems
along the value chain or replacing production machinery, which often involves external
suppliers.
25. G. S. Day and P. J. H. Schoemaker, “Avoiding the Pitfalls of Emerging Technologies,”
California Management Review, 42/2 (Winter 2000): 8-33.
26. Björkdahl (2009), op. cit.
27. Teece (2018), op. cit.
28. See, for example, G. S. Day and P. J. H. Schoemaker, “Adapting to Fast-Changing Markets
and Technologies,” California Management Review, 58/4 (Summer 2016): 59-77; Schoemaker
et al. (2018), op. cit.; Teece et al. (1997), op. cit.
Dec 2022.
29. C. M. Christensen and M. E. Raynor, The Innovator’s Solution: Creating and Sustaining Successful
Growth (Boston, MA: Harvard Business School Press, 2003).
30. Day and Schoemaker (2000), op. cit.
31. For example, Uber is the world’s largest taxi company but owns no vehicles; Facebook is
the world’s most popular media owner but creates no content; Alibaba is the second
most valuable retailer but has no inventories; and Airbnb is the world’s largest accom-
modation provider but owns no real estate. See, T. Goodwin, “The Battle Is for the
Customer Interface,” Techcrunch.com, March 4, 2015, https://techcrunch.com/2015/03/03/
in-the-age-of-disintermediation-the-battle-is-all-for-the-customer-interface/.
32. D. J. Teece, M. Peteraf, and S. Leih, “Dynamic Capabilities and Organizational Agility: Risk,
Uncertainty, and Strategy in the Innovation Economy,” California Management Review, 58/4
(Summer 2016): 13-35.
33. M. B. Lieberman and D. B. Montgomery, “First-Mover Advantages,” Strategic Management
Journal, 9/51 (Summer 1988): 41-58; F. Suarez and G. Lanzolla, “The Half-Truth of First-
Mover Advantages,” Harvard Business Review, 83/4 (April 2005): 121-127.
34. C. Markides and L. Sosa, “Pioneering and First Mover Advantages: The Importance of
Business Models,” Long Range Planning, 46/4-5 (August-October 2013): 325-334.
35. H. Hoppe, “Second-Mover Advantages in the Strategic Adoption of New Technology under
Uncertainty,” International Journal of Industrial Organization, 18/2 (February 2000): 315-338.
36. Delayed participation is one of the pitfalls of emerging technologies. Cf. Day and Schoemaker
(2000), op. cit.
37. S. Blank, “Why the Lean Start-Up Changes Everything,” Harvard Business Review, 91/5 (May
2013): 63-72; E. Ries, The Lean Startup: How Today’s Entrepreneurs Use Continuous Innovation to
Create Radically Successful Businesses (New York, NY: Crown Business, 2011).
38. See also, for example, L. DalleMule and T. H. Davenport, “What’s Your Data Strategy,” Harvard
Business Review, 95/3 (May-June 2017): 112-125; S. Gandhi, B. Thota, R. Kuchembuck, and
J. Swartz, “Demystifying Data Monetization,” MIT Sloan Management Review, November 27,
2018, https://sloanreview.mit.edu/article/demystifying-data-monetization/.
39. This can be considered a closed rather than an open paradigm. Cf. H. Chesbrough, Open
Innovation: The New Imperative for Creating and Profiting from Technology (Boston, MA: Harvard
Business Press, 2003).
40. N. Miloslavskaya and A. Tolstoy, “Big Data, Fast Data and Data Lake Concepts,” Procedia
Computer Science, 88 (2016): 300-305.
41. T. Felin and T. C. Powell, “Designing Organizations for Dynamic Capabilities,” California
Management Review, 58/4 (Summer 2016): 78-96.
42. Teece et al. (2016), op. cit.
43. Ibid.
44. R. Adner, “Ecosystem as Structure: An Actionable Construct for Strategy,” Journal of
Management, 43/1 (January 2017): 39-58; R. Adner, The Wide Lens: A New Strategy for
Innovation (London, UK: Penguin, 2012).
45. H. Chesbrough, “The Future of Open Innovation,” Research Technology Management, 60/1
(January 2017): 35-38; M. Holgersson, O. Granstrand, and M. Bogers, “The Evolution of
Intellectual Property Strategies in Innovation Ecosystems: Uncovering Complementary and
Substitute Appropriability Regimes,” Long Range Planning, 51/2 (April 2018): 303-319.
46. R. Adner (2017), op. cit.; D. Fasnacht, Open Innovation Ecosystems: Creating New Value
Constellations in the Financial Services (Cham, Switzerland: Springer, 2018).
47. Fasnacht (2018), op. cit.
48. J. H. Dyer and H. Singh, “Using Alliance to Build Competitive Advantage in Emerging
Technologies,” in Wharton on Managing Emerging Technologies, ed. G. S. Day, P. J. H.
Schoemaker, and R. E. Gunther (New York, NY: John Wiley, 2000); O. Granstrand and
M. Holgersson, “Innovation Ecosystems: A Conceptual Review and a New Definition,”
Technovation, 90-91 (2020): 102098.
49. P. J. Williamson and A. De Meyer, “Ecosystem Advantage: How to Successfully Harness the
Power of Partners,” California Management Review, 55/1 (Fall 2012): 24-46.
50. Given the sample firms in this study, the implications set out here are particularly for large,
well-established manufacturing firms in competitive markets.
51. See also, T. H. Davenport and A. Spanyi, “Digital Transformation Should Start with
Customers,” MIT Sloan Management Review, October 8, 2019, https://sloanreview.mit.edu/
article/digital-transformation-should-start-with-customers/.
Dec 2022.
52. See R. Rumelt, Strategy, Structure, and Economic Performance (Cambridge, MA: Harvard
University Press, 1974).
53. Teece et al. (2016), op. cit.
54. See also, Schoemaker et al. (2018), op. cit.
55. Porter (1996), op. cit.
56. See also, F. Hacklin, J. Björkdahl, and M. Wallin, “Strategies for Business Model Innovation:
How Firms Reel in Migrating Value,” Long Range Planning, 51/1 (February 2018): 82-110.
57. M. Augier and D. J. Teece, “Dynamic Capabilities and the Role of Managers in Business
Strategy and Economic Performance,” Organization Science, 20/2 (March-April 2009):
410-421.
58. On leadership skills to navigate in uncertain market environments, see especially, P. J. H.
Schoemaker, S. Kupp, and S. Howland, “Strategic Leadership: The Essential Skills,” Harvard
Business Review, 91/1-2 (January-February 2013): 131-134.
59. See also, Schoemaker et al. (2013), op. cit.
Dec 2022.

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Strategies for

California Management Review

Digitalization in Article reuse guidelines:

Manufacturing Firms journals.sagepub.com/home/cmr

KEYWORDS: agility, business model innovation, digitalization, digital transformation,

1Chalmers University of Technology, Gothenburg, Sweden

Inditex, and currently, its brick-and-mortar business model is under threat.

mainly to manufacturing process improvements enabled by smart manufacturing,

About the Research

What Do Manufacturing Firms Currently Do?

FIGURE 1. Examples of digitalization efforts in relation to the different manufacturing

At the same time, integration of digital technologies is making products

Sophisticated Products and Services

Integrated Value Chains

From Effciency to Growth

TABLE 1. Factors Explaining the Differences between Digitalization Aimed at

Asset redeployment Well-established mechanisms (e.g., No established mechanisms to

Culture Well-established culture to reduce Collective ability across functions to

Coordination Dependent on excellence in Dependent on several functions.

Demand Internal demand and firm’s Uncertain market demand.

External cooperation Well-established partners and Partnerships are context dependent

Investments Relatively easy to estimate. Difficult to estimate.

Managerial processes Established managerial processes are Dependent on new managerial

Return on Easy to estimate. Very uncertain.

Strategy Well-established procedures to invest No established strategy. Need to

Time to Relatively easy to estimate. Difficult to estimate.

Transferability High between firms. Low between firms.

Unresolved Strategic Challenges to Growth

Crafting an ecosystem strategy in which a firm approaches the alignment of part-

Supporting Current Business and Corporate Strategies

competitive. In a stable market, digitalization aimed at achieving operational effi-

Supporting Long-Term Digital Transformation

Why? The first question to be addressed is why digitalization is important for

TABLE 2. Questions That Need to Be Addressed for Digital Transformation.

A mistake commonly made by business leaders is investing in searching for

What? Successful manufacturing firms use enablers, which allows them to

How? Based on why digitalization is important, where digitalization efforts

be governed is fundamental. In addition, the firm should be clear about what it

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