Strategy and Digital Transformation: Exploring the Relationship Between Strategy and Digital Transformation in Established Firms

Abstract

The purpose of this thesis is to investigate how strategy and digital transformation work together to enhance firms' ability to compete in a digital landscape. Digital technology has fundamentally altered market dynamics and product/service offerings, making a firm’s ability to drive digital transformation a critical source of competitive advantage. However, not all established firms have successfully capitalized on these opportunities. While some studies emphasize the challenges of using strategy to drive digital transformation within established firms, others point to the obstacles of effectively leveraging new digital resources resulting from digital transformation to form strategies for growth and competitiveness. These questions are still not settled, and more research is needed. This thesis addresses these gaps with one conceptual and two empirical papers. The first empirical paper examines the heterogeneity in firms’ digital strategy by introducing digital orientation as a new antecedent and contrasting it with market orientation and entrepreneurial orientation. Using textual analysis of annual reports from 73 Norwegian publicly traded companies over ten years to operationalize the concepts, their relationships are analyzed through a longitudinal structural equation model. In the short term, we find a circular relationship whereby entrepreneurial orientation increases digital orientation, digital increases market orientation, and market orientation increases entrepreneurial orientation. No long-term relationship between the variables is observed. The second empirical paper hypothesizes that incentives for digitalization vary by stage of digitalization. Using survey responses from 823 Norwegian firms during COVID-19, analyzed with ordered probit and multivariate probit regression models, we find that digital leaders accelerated their digitalization efforts during the pandemic, indicating a polarizing effect between leaders and laggards. The third, sole-authored, conceptual paper addresses the paradox in optimal growth strategies for digital firms, contrasting focus strategies through digital scaling with diversification through platform envelopment and bundling. A new conceptual model suggests that optimal strategies are contextual and determined by a firm’s relative level of digital transformation against competitors. In sum, this thesis contributes to strategic management literature, which is informed by IS literature, providing new conceptual and empirical insights into how strategy and digital transformation work together. It explains why some firms are more proactive in building strategies for digital transformation, why some accelerate their digitalization faster than others, and how they may optimize their digital growth strategies as a result.