While most companies have embarked on some sort of digital transformation, many leaders still feel overwhelmed by the challenges of doing digital right.
The new Research Handbook on Digital Strategy not only takes stock of current digital strategies, but looks forward to where digital is heading, providing firms with a wide variety of strategic solutions.
The book was coedited by Feng Zhu, the MBA Class of 1958 Professor of Business Administration at Harvard Business School, along with Carmelo Cennamo of Copenhagen Business School and Giovanni Battista Dagnino of the University of Rome.
In this introduction to the book, the three coeditors say we need new methods to better understand “the moving target of the digital world.”
Introduction: Digital Strategy—Linear Evolution or Paradigm Shift
Digital has become a pervasive aspect of the economy, with digital transformation occurring in an ever-increasing number of sectors, to the point that the digital-based economy will soon become the new normal (Adner et al., 2019; Cennamo et al., 2020; Dagnino & Resciniti, 2021). Concepts such as big data, artificial intelligence (AI), blockchain, platforms, or digital ecosystems, to name a few of the recent emerging trends that digital has brought along, have entered the business vocabulary, captivated the attention of scholars and practitioners alike, and are now at the center of every company’s strategic thinking. It is no wonder that in recent years we have witnessed the rising excitement and the growing enthusiasm, at times even the frenzy, about these new phenomena, on the grounds of the pressing demands on managers to deal with the new reality and on academics to understand these phenomena.
“Existing strategy frameworks developed for traditional markets are not applicable to the new digital context. ”
Enthusiasts and advocates of the digital revolution would submit that digital transformation changes everything, from product design to how value is built and captured in the market. In some cases, particularly when a product’s value is derived from connecting it with and integrating it into other products that form an integral part of ecosystems or when it is delivered through platform marketplaces (Cusumano et al., 2019a), the product’s relevant market and the logic of competition themselves change drastically. So does the required strategy to effectively create and capture value in this new context (Adner & Lieberman, 2021; Cennamo, 2021). Accordingly, existing strategy frameworks developed for traditional markets are not applicable to the new digital context. Digital strategy thus involves a sufficiently substantive break with the economics and the competitive and cooperative logics (see Cennamo, 2021; Cozzolino et al., 2021) that have characterized the (traditional) economy so far, to represent a paradigm shift. Thus, it requires formulating the new (departing) assumptions, logics, and mechanisms of this new digital strategy research field. As Volberda et al. (2021) put it: “with these advances in digital technology, the very nature of strategy is changing”.
Others might argue that there is “nothing new under the sun” about digital strategy. It is just “dressing up” the competitive context in which firms operate, but operating effectively in such a context and gaining competitive advantage would “not require a radically new approach to business. It requires building on the proven principles of effective strategy” (Porter, 2001, p. 64). In this sense, digital strategy represents just a linear evolution along the existing knowledge paradigm(s) of the strategy field.
“We believe that with the rapid intensification and the inescapable consolidation of the key issues of the digital transformation of organizations, markets, and sectors, the time has come to produce a wide-ranging book about current research on digital strategy. ”
To help shed light on how digital strategy relates to or differs from traditional strategy, we embarked on this Handbook project. We believe that with the rapid intensification and the inescapable consolidation of the key issues of the digital transformation of organizations, markets, and sectors, the time has come to produce a wide-ranging book about current research on digital strategy. Simultaneously, the inception of the digital age, with all its multiple remarkable fallouts, contributes to making the received body of strategy theories and tools (Andrews, 1971; Porter, 1985) progressively less adequate. It also makes it increasingly less enlightening to interpret the expanded and fast-changing digitally grounded realities in a helpful manner. For this reason, we feel the urgent need to take stock of the advancements made in the last three to four years to develop novel and extended knowledge that is in turn capable of explaining the new digital realities by leveraging existing strategy theories and tools and cultivating new ones. As such, our endeavor turns into a wonderful opportunity to encapsulate in one comprehensive volume the state of the art of a rapidly emerging research field and ruminate on its most important current and future developments.
In this chapter, we start by explaining the reasons why the current digital age has triggered the inception of novel business settings and organizations that are extremely different from those that have previously characterized the industrial age (Birkinshaw, 2018). Second, we define what digital strategy is and explain how it matters to competition. Third, we highlight a few themes from this book’s chapters that illustrate how digital strategy is different from traditional strategy. Finally, we outline the structure of this Handbook.
What Is New in the Digital Age?
We know that we live in the digital age. Although the term is frequently used, there is little or no real consensus on its ultimate meaning. Therefore, we ask, what is the digital age? How can we define it? The digital age is a period in history that is clearly epitomized by the advent and affirmation of the electronic processing and sharing of data at a magnitude and speed that in no way we have seen before. The digital age is enabled by the emergence and adoption of four key technologies (Menz et al., 2021): computer hardware, software applications, internet and mobile communications, and AI, especially when tied to machine learning and deep learning.
“One of the major effects of big data on businesses is that their dependence on the internet will increase; so will the amount of the data generated by the rapid development and evolution of technology. ”
The relentless adoption of these technologies, which in the last couple of years has been vastly accelerated by the global outbreak of COVID-19 and its related lockdowns in several regions of the world, has led to a massive shift in how we, as individuals, interact with one another and live our everyday life (Autio et al., 2021). In fact, the combined effects of these four key technologies have driven an unexpected dramatic compression in the cost of producing, searching, amassing, storing, analyzing, and sharing data. This condition occurs, at least for a good portion, because the use of the forceful technologies indicated above makes the fixed costs of producing, storing, and using data exponentially lower than they were in the past. Concurrently, the marginal costs of sharing data become infinitesimally low. This condition, which can be described as the one stemming from replicator dynamics or economies,1 transcends even what Shapiro and Varian (1999) call the “economic principles of information”. Shapiro and Varian suggest that, while the fixed costs of producing data may be high, the costs of using them may be much smaller. The marginal costs of sharing information may be low and declining (Menz et al., 2021). Accordingly, in the digital age, firms and organizations of all kinds face an extremely strong incentive to increase their market shares, especially by means of developing and exploiting network effects (Afuah, 2013; Boudreau et al., 2021; Katz & Shapiro, 1994) and big data effects.
One of the major effects of big data on businesses is that their dependence on the internet will increase; so will the amount of the data generated by the rapid development and evolution of technology. Big data enable firms and organizations to make smarter and faster decisions. Big data analytics also allow businesses to improve their operations and efficiency, explore other new waves of big data use opportunities, and eventually exploit new sources of competitive advantage, including superior learning about the business environment and customer needs, as well as the ability to act faster on it and seize opportunities through new complementarities (Alaimo & Aaltonen; Aversa & Hueller; Ritala & Karhu; Kazemargi et al.; Thomas et al., all in this volume).
These new possibilities of developing and exploiting network effects and data-driven learn- ing and organizing bear the potential to generate new ways of creating and capturing value, and of stretching and redefining the traditional boundaries of the (single) firm that are leaning toward more decentralized models of value creation (albeit generally tightly coordinated under the governance of a hub firm), such as digital platforms (Cennamo, 2021) and ecosystems (Adner, 2017; Jacobides et al., 2018).
Digitally born (or sometimes digitally transformed) firms usually reach an efficient scale and size that are comparatively and impressively much larger vis-à-vis industrial-age firms operating in a traditional physical infrastructure. For instance, the China-based firm Alibaba has spawned a massive shift from wholesale to consumer markets, as well as in financial services by operating its gigantic financial arm, called the Ant Group. For this reason, the traditional way of strategizing and the extant strategy tools appear today as increasingly not exhibiting a great fit to the new environments of the digital age as they are inexorably misaligned with the fast-changing new needs and requirements. By activating strong network effects and data-learning effects, the digitally driven, low-variable cost structures of digital firms and organizations, platforms (Cennamo, 2021), and ecosystems (Adner, 2017; Jacobides et al., 2018) become capable of driving a change in the nature of competition and, consequently, in the cooperative and competitive logics and strategies that firms employ to gain an edge over competitors. In turn, this requires dramatic changes in the received paraphernalia of strategic thinking, theories and approaches, methods, and tools (see Leiblein & Reuer, 2020). In a nutshell, we need new methods, tools, and conceptualizations to interpret properly and understand better the moving target of the digital world. This is a more polarized view vis-à-vis the pre-pandemic one of Adner et al. (2019, p. 254), who earlier deemed that while digitalization “does not require us to abandon the basic conceptualizations of the economic phenomena we are familiar with” (i.e., transaction cost, bounded rationality, and industry analysis), it is concurrently essential to acknowledge the necessity of forging “new additional tools and conceptualizations.”
This excerpt from the introduction of Research Handbook on Digital Strategy edited by Carmelo Cennamo, Giovanni Battista Dagnino, and Feng Zhu (2023) is reprinted with permission from Edward Elgar Publishing. For any future requests for reuse, please contact the Publisher.
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