New technologies and a permanently changing environment constantly confront companies with the challenge of adapting to new customer needs, disruptive innovation, and new competitors to survive on the market in the long term. For this purpose, the literature proposes the use of a digital business strategy (DBS) as an independent business strategy for the digital age, uniting IT strategy and business-level strategy, which have been considered separately until the advent of DBS.
By using the method of a systematic literature review, this paper has analyzed 33 relevant publications and identified critical internal and external factors to be considered in the process of development of a company’s DBS to ensure a successful digital transformation of the company. Furthermore, the findings were embedded in a conceptual model. In doing so, this paper contributes to the further development of previous research on the digital transformation of companies and places the development of DBS in its context.
2.1 Traditional view on business-level strategy
2.3 The emergence of digital business strategy
4. Findings
4.1 Internal factors influencing DBS
4.2 External factors influencing DBS
5. Discussion
References
Appendix
List of Abbreviations
B2C
cf.
CDO
DBS
DT
DTS
e.g.
et al.
LSE
IT
SME
Business-to-Consumer
confer
Chief Digital Officer
Digital Business Strategy
Digital Transformation
Digital Transformation Strategy
exempli gratia
et alia
Large Scale Enterprise
Information Technology
Small and Medium-Sized Enterprise
List of Figures
Figure 1. Illustration of the methodological procedure (based on Annarelli et al., 2021)
Figure 2. Representation of publications on digital business strategy over time
Figure 3. Internal factors influencing the development of DBS
Figure 4. External factors influencing the development of DBS
List of Appendices
Appendix 1. Excel sheet: 20220121_Literature_review_analysis_V1.0
Appendix 2. Excel sheet: 20220121_Overview_relevant_articles_V1.0
Abstract
New technologies and a permanently changing environment constantly confront companies with the challenge of adapting to new customer needs, disruptive innovation, and new competitors to survive on the market in the long term. For this purpose, the literature proposes the use of a digital business strategy (DBS) as an independent business strategy for the digital age, uniting IT strategy and business-level strategy, which have been considered separately until the advent of DBS. By using the method of a systematic literature review, this paper has analyzed 33 relevant publications and identified critical internal and external factors to be considered in the process of development of a company’s DBS to ensure a successful digital transformation of the company. Furthermore, the findings were embedded in a conceptual model. In doing so, this paper contributes to the further development of previous research on the digital transformation of companies and places the development of DBS in its context.
1. Introduction
In the age of digitalization, companies are regularly confronted with new technologies such as mobile data analytics, cloud computing, or social media that challenge existing business models. Depending on their ability to position themselves strategically in this new competitive landscape, companies can rise or disappear (Volberda, Khanagha, Baden-Fuller, Mihalache, & Birkinshaw, 2021). Digitalization thus presents new market opportunities, but also existential risks for companies and their employees (Ritala, Baiyere, Hughes, & Kraus, 2021). Business model innovations resulting from digital transformation have changed consumer behavior and expectations at their core. These changes are putting strong pressure on more traditional companies (Verhoef et al., 2021), as their business models are still based on non-digital value creation. In order to fully exploit their value creation potential in times of digitalization, companies need a clearly defined strategic direction to implement future (digital) business models and must align their entire business infrastructure with the requirements and new technologies of the digital age (Becker & Schmid, 2020; Bharadwaj, El Sawy, Pavlou, & Venkatraman, 2013). The existing literature has already discussed how IT strategy shapes business strategy (Bharadwaj et al., 2013; Drnevich & Croson, 2013; Henderson & Venkatraman, 1993; Mithas, Tafti, & Mitchell, 2013; Prahalad & Krishnan, 2002; Segars, Grover, & Kettinger, 1994; Yeow, Soh, & Hansen, 2018). The transformation of entire industries by IT is now leading to the call for a new logic of competitive strategy that recognizes the fused nature of IT and business strategy in product development and service delivery (Woodard, Ramasubbu, Tschang, & Sambamurthy, 2013). Recent publications therefore focus on digital business strategy (DBS), which removes the separation of IT and business strategy and treats it as a stand-alone corporate strategy for the digital age (Bharadwaj et al., 2013). To date, despite the presence and visible changes brought about by digital transformation and the resulting new digital business models, academic literature has paid sporadic attention to these developments and has only recently addressed the issues of digital business strategy, digitization, digitalization, and digital transformation (Verhoef et al., 2021). In particular, there are currently few publications that address the synthesis of previously researched factors that drive the development and implementation of DBS required to implement digital innovation initiatives and enterprise-wide transformations. This is where we would like to contribute with our work to highlight the current state of research. To provide guidance to management in the context of digital transformation, we need to better understand which factors influence the development of the still young construct of DBS. To contribute to this, we analyze these factors for a development of a successful DBS identified in previous research as part of a systematic literature review and integrate them in a new conceptual model of DBS. From this, we describe future research topics that can contribute to a fully comprehensive view of the optimal handling of DBS. For a general understanding on the topic, we start in chapter 2 with the theoretical foundation that shows the development and importance of DBS. We then explain the applied method of systematic literature review, based on which the internal and external factors presented in chapter 4 were identified. In the following chapter 5, we discuss the results, present the conceptual model, and derive theoretical as well as practical implications before we end with the conclusion.
2. Theoretical Basis
The development of the term DBS can be traced back to well-known established concepts, namely the business-level strategy of a company and its IT strategy. To create a clear demarcation between those constructs and to show their differences, the underlying theories are shortly examined in the following section.
2.1 Traditional view on business-level strategy
Beginning with the business-level strategy, which is traditionally the superior strategy of an enterprise, there are several definitions to be found in existing literature, that cannot be clearly separated from the general term of strategy. Strategy can be described as “a pattern of important decisions” (Hambrick, 1980: 567) affecting important variables of a company, such as performance, strategically as well as operationally (Hambrick, 1980). While Watkins (2007: 1) understanding of a business-level strategy as “a set of guiding principles that, when communicated and adopted in the organization, generates a desired pattern of decision making“ is very close to this description, there are more specific definitions for the term. According to Hambrick (1980) business-level strategy, defines the way of competition a company chooses in their business. Above all, this includes decisions about the investment in products and markets as well as the idea of how to generate a sustainable competitive advantage (Aaker, 1984). Furthermore, it is an essential channel of external interaction (Trompenaars, 1996) to adapt to changes and react to threads and opportunities in the competitive environment. Therefore, a business-level strategy is required to be a dynamic construct to a large extent (Hambrick, 1980).
However, in this context, it is important to mention, that traditionally, business-level strategy as an organizational strategy, was strictly separated from functional-level strategies, such as the IT strategy (Mithas et al., 2013; Segars et al., 1994).
2.2 The role of IT strategy
According to Goldsmith (1991: 67) the “IT strategy is simply business strategy with an information hat on”. Holland and Lockett (1992) take a similar view, modifying the general definition for strategy as described earlier, by including only decisions affecting IT. This also contains the strategic use of digital technologies, which may have an influence on potential competitive advantage. But it also extends to the operational management of IT infrastructure and application systems, whereas the strategic component of business-centric orientation is hardly considered (Hess, Matt, Benlian, & Wiesböck, 2016). Therefore, IT strategy, as a functional-level strategy, traditionally had to be aligned with business-level strategy (Mithas et al., 2013; Yeow et al., 2018). Though an IT strategy is not limited to functional-level (Drnevich & Croson, 2013). Over time, it has evolved from a supporting into a proactive capability (Segars et al., 1994), with the potential to make companies more cost efficient and flexible (Prahalad & Krishnan, 2002). That is a very important change in thinking because the traditional view led to rigidity and low efficiency as a consequence of the lacking ability “to adapt to changing competitive conditions” (Prahalad & Krishnan, 2002: 29), caused by a poor fit between organizational structures and processes and the IT infrastructure owned by a company (Henderson & Venkatraman, 1993; Prahalad & Krishnan, 2002).
However, this shift meant that IT activities contained in the IT strategy should above all be fully integrated into the business-level strategy, to be able to exploit their full potential in terms of corporate objectives and their effectiveness. Although they remain an integral supporting component in the functional-level strategy anyway (Drnevich & Croson, 2013; Segars et al., 1994). Properly applied in the business-level strategy, IT activities have a huge impact, for example by optimizing capabilities and value-creation as well as value-capturing, but also to react faster on environmental changes and enhance the flexibility (Drnevich & Croson, 2013).
2.3 The emergence of digital business strategy
Due to the changing view of IT strategy, the more recent literature focuses on the discussion if the alignment of IT to business-level strategy is still appropriate, and whether IT should have more influence on the development of the strategy, to take advantage of new digital technologies. Prahalad and Krishnan (2002: 29) refer to “a continuous and dynamic synchronization of the capabilities inherent in the information infrastructure and the demands of strategy”. Segars et al. (1994: 262) describe the successful implementation of this as “strategic validity”, under the condition of long-term maintenance. This is to be equated with the term DBS. Specifically, this means the merging of business-level strategy and IT strategy in order to strive for competitive advantage (Mithas et al., 2013; Yeow et al., 2018) and thus, to achieve increased embedding of IT in a company’s strategic intents (Bharadwaj et al., 2013). This is the definition used in the further course of this work because there is no consistent definition. For example, Mithas et al. (2013: 514) define DBS as “a set of strategic responses to the collective choices of industry competitors that is shaped by industry conditions”. Since industry conditions are in constant change in the digital age (Prahalad & Krishnan, 2002), DBS is becoming increasingly relevant for companies from almost every industry (Yeow et al., 2018). Hence, it is not sufficient to integrate the existing IT of a company in the formulation of DBS. Rather new technologies and IT activities must be considered at the attempt to simplify the necessary processes (Prahalad & Krishnan, 2002). Further definitions of DBS address this necessity. For example, Mithas et al. (2013: 512) expand their definition by adding, that DBS “is the extent to which a firm engages in any category of IT activity”. Thus, the digital strategic posture reflects the “current digital investment relative to the industry norm” (Mithas et al., 2013: 513). DBS draws various advantages from this in today’s dynamic markets. First, due to the integration of both, IT strategy and business-level strategy, DBS is a transfunctional strategy and more adaptable than traditional business-level strategy, caused by the influence of IT and evolving digital capabilities. Therefore, DBS is an ongoing and iterative process (Bharadwaj et al., 2013). Second, as a result, the DBS affects the likelihood to gain and improve the overall goal of competitive advantage (Grover & Kohli, 2013). However, the synchronization of IT strategy and business strategy to gain a solid DBS is a challenge because the mentioned positive outcomes are influenced by many different factors (Yeow et al., 2018).
Because the boundaries are often blurred in existing literature, in this paper we try to attempt a clear separation between the concepts of DBS and digital transformation strategy (DTS), although they are closely related. While DBS is much more strategic, including a vision of the future business, such as new digital business models, DTS is more operational. Therefore, it is the concrete plan for the implementation containing a clear guideline to achieve the strategic vision of a company by taking advantage of the benefits resulting from the use of digital technologies (Hess et al., 2016). As a part of this study this is the distinction we adhere to, and it must be kept in mind for the present work.
3. Review Methodology
We conduct a systematic review as the methodology for the study. This is an appropriate approach to provide an overview of findings of existing literature on a particular field of research, to link independently examined results and possibly put them together in a new context. The review will provide a solid foundation for knowledge advancement and theory development, as well as specific recommendations for practice in this context by gathering and synthesizing the present findings of existing DBS research. Furthermore, it can serve as a basis for further research in this the field, which can be updated by other researchers in the future (Watson, Wilson, Smart, & Macdonald, 2018). Therefore, this approach is appropriate to meet the objectives by answering the following research question:
RQ: Which factors influence the development of a company’s digital business strategy for a successful digital transformation?
We proceed in four steps, as suggested by Snyder (2019): (1) designing the review, (2) conducting the review, (3) analyzing and (4) writing the review.
In the first step, the research area of DBS was examined to capture relevant content. After establishing the above stated aim of the study, the aforementioned research question has been derived from the sighted articles. The next step was to develop a search strategy to identify the relevant literature. This included the selection of relevant databases and search terms, as well as the definition of inclusion and exclusion criteria.
Second was to perform a keyword search. The literature research was conducted in the period from 08/11/2021 to 01/12/2021. To align the review of the literature with the digital age, relevant keywords and appropriate search terms where defined, guided by existing reviews from various disciplines that address digitization (e.g., Hanelt, Bohnsack, Marz, & Antunes Marante, 2021). Two keywords related to the digital age that are relevant to the approach where identified: ‘digital transformation’, ‘digital strategy’ and ‘digital business strategy’. Each of the search strings was formed as a combination of the above keywords and an additional term based on the research question (factors, internal and external influence, implementation). To ensure adequate coverage, the keywords were also used in abbreviated variants (see Appendix 1. - e.g., ‘digital business strateg*’).
The databases Web of Science and Google Scholar were used for the research, because they offer the opportunity to filter for the most cited and recently published articles. Besides that, a combined keywords search was possible, that helped to find the most relevant articles and often provided direct access to them. Additionally, the online library of Johannes Gutenberg University of Mainz was used.
The search was first restricted by the limitation to scientific literature published by peer-reviewed journals (Watson et al., 2018). Furthermore, selection criteria for the search included that the articles were published in English and that at least one of the search terms could be found in the title, abstract, or the keywords. Broad criteria were initially chosen in the beginning to obtain an overview of the entire population of available literature and to get an intentionally overview of the topic. For this reason, the search was not limited to a specific period of publications. This first search resulted in a sample of 130 articles. Subsequently a backward-forward search was performed by examining promising references of the articles of the first sample. This led to a further 21 articles and therefore a total of 151 articles (see Appendix 1). In the next step, the number was reduced by applying another selection criterion. Only those articles which were published in journals ranked by VHB journal ranking (VHB, 2022) from A+ to B and C paper with an impact factor higher than three, checked via the InCites Journal Citation Reports, were included (Clarivate, 2022). This criterion was chosen to ensure high quality for the literature review and provided a sample of 89 articles. To conduct the review as suggested by Snyder (2019), the abstracts were read to get a better idea of the articles’ content and to find potentially relevant paper. The articles were sorted out by the relevance and fit of abstract to the research question. After reading the abstracts, 63 articles were left, which then were read in their entirety. Since access was denied, two articles had to be excluded. Eventually, 33 articles remained after applying the mentioned selection criteria, which represents the final sample this literature review is based on. This sample does not contain articles that were used exclusively for the theoretical basis.
In the third step, following the example of Watson et al. (2018), the relevant information from these articles was arranged in a table (see Appendix 2. Overview of relevant articles). This table served as the data basis for step four, writing the review. For visualization, better understanding and to ensure a high level of transparency, the entire process of the methodological approach just described, is shown in Figure 1.
Figure 1. Illustration of the methodological procedure (based on Annarelli et al., 2021)
- Quote paper
- Anonymous,, 2022, Which Factors Influence the Development of a Companies’ Digital Business Strategy for a Successful Digital Transformation? A Systematic Literature Review, Munich, GRIN Verlag, https://www.grin.com/document/1276245
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