Responding to disruptive digital innovation
Topics: Organizational agility IT and innovation Digital transformation Digital leadership By Leif Jarle Gressgård
Digital innovations challenge the existence of traditional organizations and cause severe systemic effects in industries and markets [1]. Building capabilities to respond to such digital disruptions is a central concern for many organizations.
Digital innovation refers to the use of digital technology during the process of innovating and can also be used to describe the outcome of innovation [2]. The research literature describes digital technologies as inherently disruptive [3,4] and digital innovation is therefore critical to every industry and every organizational unit – not only technology companies and IT departments [5,6]. Porter and Heppelmann [7] state, for example, that traditional incumbent organizations building physical products are now faced with the pressing need to incorporate services and software as part their core offerings.
Digital disruption refers to the effect of digital technologies and business models on a company’s current value proposition and its resulting market position [8]. Based on a review of extant research, Skog et al. [1] propose that the concept can be defined as “the rapidly unfolding processes through which digital innovation comes to fundamentally alter historically sustainable logics for value creation and capture by unbundling and recombining linkages among resources or generating new ones”, and argue that digital disruption has three fundamental characteristics: “First, digital disruption processes originate from digital innovations and quickly erode competitive positions. Second, they impact systems of value-creating actors by breaking and recombining linkages among resources, often facilitating more direct interactions and transactions. Third, the originating digital innovation processes are orchestrated by one or multiple firms, but effects on value creation and capture are systemic” (p. 432).
In summarizing current knowledge on digital transformation, Vial [3] describes three types of disruptions: Altering consumer behavior and expectations, disrupting the competitive landscape, and increasing the availability of data. A central question, then, is how organizations can respond to such disruptions. 
- Research suggests that agility is an important capability for organizations to successfully respond to digital disruption.
- The Kodak case [9] illustrates how the core capabilities of an organization can become core rigidities that prevent the radical transformation afforded by digital technologies. Warner and Wäger [10] find that agility is the core mechanism for strategic renewal of an organization’s business model, collaborative approach, and culture. To achieve this, organizations should emphasize boundary openness, organizational adaptability and balancing the tension of organizational ambidexterity. This involves staying up-to-date with the latest market trends and industry developments, and identifying and establishing partnerships with organizations holding complementary expertise and skills [11].
- Organizations should seek to strengthen their ability to achieve both exploitative innovation and explorative innovation concurrently [11].
- Related to this, managers should emphasize building capabilities to achieve both IT efficiency (i.e. reducing operational IT costs and expenditures) and IT innovation (i.e. enabling IT-based business opportunities) [12]. They should a) identify and resolve conflict between short-term IT efficiency targets and long-term innovation needs, b) place strategic focus on combining IT efficiency with IT-driven business innovation, and c) invest in IT to meet longer-term innovation and shorter-term IT efficiency goals. Balancing new opportunities and established innovation practices is central, and organizations should emphasize development of capabilities for digital innovation management. See also topic: IT and innovation.
References / sources
- Digital disruption.
Skog, D.A., Wimelius, H. & Sandberg, J. (2018). Business & Information Systems Engineering, 60. - Digital innovation management: Reinventing innovation management in a digital world.
Nambisan, S., Lyytinen, K., Majchrzak, A. & Song, M. (2017). Management Information Systems Quarterly, 41(1). - Understanding digital transformation: A review and a research agenda.
Vial, G. (2019). The Journal of Strategic Information Systems, 28(2). - The role of dynamic capabilities in responding to digital disruption: A factor-based study of the newspaper industry.
Karimi, J. & Walter, Z. (2015). Journal of Management Information Systems, 32(1). - Digital innovation and institutional entrepreneurship: Chief Digital Officer perspectives of their emerging role.
Tumbas, S., Berente, N. & vom Brocke, J. (2018). Journal of Information Technology, 33(3). - The industries that are being disrupted the most by digital.
Grossman, R. (2016). Harvard Business Review. - How smart, connected products are transforming competition.
Porter, M.E & Heppelmann, J.E. (2014). Harvard Business Review, - Strategies for responding to digital disruption.
Wade, M.R. (2016). IMD – International Institute for Management Development. - Disruptive technology: How Kodak missed the digital photography revolution.
Lucas Jr., H.C. & Goh, J.M. (2009). The Journal of Strategic Information Systems, 18(1). - Building dynamic capabilities for digital transformation: An ongoing process of strategic renewal.
Warner, K.S.R. & Wäger, M. (2019). Long Range Planning, 52(3). - Agility in responding to disruptive digital innovation: Case study of an SME.
Chan, C.M.L., Teoh, S.Y., Yeow, A. & Pan, G. (2018). Information Systems Journal, 29(2). - Paradoxes and the nature of ambidexterity in IT transformation programs.
Gregory, R.W., Keil, M., Muntermann, J. & Mähring, M. (2015). Information Systems Research, 26(1).
Image credits:
Antique phones: Photo by Nicole De Khors from Burst.
Camera and tablet: Photo by Dmitry Bayer on Unsplash.
Other relevant external content:
Disruption starts with unhappy customers, not technology (Harvard Business Review).