Business Horizons (2020) 63, 825e839

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Digital transformation: Five

recommendations for the digitally
conscious firm
Ted Saarikko, Ulrika H. Westergren*, Tomas Blomquist

Umeå University, 90187, Umeå, Sweden

KEYWORDS Abstract Digital transformation is one of the key challenges facing contemporary
Digital transformation; businesses. The need to leverage digital technology to develop and implement new
Digitization; business models forces firms to reevaluate existing capabilities, structures, and cul-
Digitalization; ture in order to identify what technologies are relevant and how they will be en-
Internet of Things; acted in organizational processes and business offerings. More often than not,
Digital consciousness these profound changes require firms to revisit old truths as they develop strategies
that thread the needle between beneficial innovation and harmful disruption. This
article uses the Internet of Things (IoT) as a backdrop to demonstrate the concerns
associated with transformative technologies and offers five recommendations as to
how firms can develop the strategies needed for digital transformation and become
digitally conscious: (1) Start small and build on firsthand benefits; (2) team up and
create competitive advantage from brand recognition; (3) engage in standardiza-
tion efforts; (4) take responsibility for data ownership and ethics; and (5) own
the change and ensure organization-wide commitment. As such, this article shows
that digital transformation should be a top management priority and a defining trait
of corporate business strategy, and that by becoming digitally conscious, firms may
get a head start on their transformation journey.
ª 2020 Kelley School of Business, Indiana University. Published by Elsevier Inc. This
is an open access article under the CC BY-NC-ND license (http://creativecommons.
org/licenses/by-nc-nd/4.0/).

1. The challenge of digital

transformation

Digital transformation is one of the key challenges

facing businesses today. Miniaturization and the
* Corresponding author
E-mail addresses: ted.saarikko@umu.se (T. Saarikko),
commercialization of mobile computing have
ulrika.westergren@umu.se (U.H. Westergren), made the essential building blocks smaller,
tomas.blomquist@umu.se (T. Blomquist) cheaper, and more capable than ever (Saarikko,

https://doi.org/10.1016/j.bushor.2020.07.005
0007-6813/ª 2020 Kelley School of Business, Indiana University. Published by Elsevier Inc. This is an open access article under the CC
BY-NC-ND license (http://creativecommons.org/licenses/by-nc-nd/4.0/).
826 T. Saarikko et al.

Westergren, & Blomquist, 2017). Indeed, one of technological development thus requires digitally
the salient aspects of digital transformation is that conscious business strategies that thread the
access to the technology itself is rarely a problem. needle between purposeful development and
Instead, it is the ability to rapidly develop and tumultuous disruption.
implement viable digital business models that is at This article builds on findings from three distinct
the heart of the issue (Hess, Matt, Benlian, & types of firmsdproduct-oriented, service-
Wiesböck, 2016). In the words of Kane, Palmer, oriented, and technology-oriented firmsdregard-
Phillips, Kiron, and Buckley (2015): “Strategy, not ing their outlook on and experiences with the
technology, drives digital transformation.” This Internet of Things (IoT) and how it can be used to
indicates that firms need to develop competencies digitally transform their businesses. The IoT, with
in leveraging digital technology for business pur- its ability to connect products, people, and places,
poses. Developing such digital consciousness is the is predicted to have a deep and profound impact
focus of this article. on organizations. With the evolution of the IoT
The rate at which digital technology is able to through the development of cloud computing,
spawn new “smart” products and services is miniaturization, smart sensors, and mobile tech-
matched only by its ability to extend the reach and nology, objects can not only be identified and
range of social interactions via ubiquitous infra- located but can collect, process, and transmit
structure and malleable platforms (Nambisan, context-aware data through time and space
Wright, & Feldman, 2019). Firms are feeling the (Greengard, 2015; Kortuem, Kawsar, Fitton, &
pressure not just to alter their existing business Sundramoorthy, 2010; Lee & Lee, 2015). This in
models but also to operate a portfolio of different turn creates new opportunities for firms. A deeper
business models in order to cope with increasingly understanding of a product in use can prevent
fickle customers who demand both flexibility and costly unplanned stops and product failure, and it
personalization of products and services (Li, 2018). can enable the service organization to adapt its
But radically altering one’s business model(s) and business model to the benefit of both the supplier
organization to leverage new technology is neither and customer. With a connected product, a sup-
simple nor straightforward. It involves stepping out plier can maintain regular contact with the
of one’s comfort zone and possibly eliminating customer without relying on extra time-consuming
practices that employees and customers have manual work, and the enhanced information may
come to expect or even take for granted. ultimately lead the firm to sell its product as a
Previous research has shown that digital trans- service or function rather than a piece of hard-
formation causes enterprises to rethink the very ware. The IoT offers a wealth of new opportunities
foundation of who and what they are. For for the development of both products and services
instance, recent layoffs at General Motors were based on greater insight into individual customer
described as “existential,” as the century-old needs and preferences (Brody & Pureswaran, 2015;
Fortune 500 company was not merely responding Porter & Heppelmann, 2014) and can be used to
to a periodic slump in sales but rather refocusing improve both process efficiency and human pro-
its whole organization to offer new digitized ductivity (Balakrishna, 2012). As such, we find it a
products and digitalized business models. This current, relevant, and engaging technological
came with the realization that in the past 15 years paradigm that provides a context for exploring the
there had been a consistent drop in the need for digital transformation of firms.
mechanical skills such as machine operating and Even though technical barriers have eroded away
tool grinding, while the demand for computer and the digital landscape has expanded with new
network-support specialists had skyrocketed (Muro possibilities, technology does not automatically
& Maxim, 2018). Reassessing existing skills and bring added convenience or value unless firms
capabilities and how they are combined is one way carefully consider the context into which it is
to transition from functional silos to cross- introduced and how to derive any practical or
functional teams that can accommodate the monetary benefits. Indeed, some refer to digitized
interdisciplinary nature of innovative products and products and services as “socio-cyber-physical of-
services (Porter & Heppelmann, 2015; Vial, 2019). ferings,” highlighting that value is only extracted
But firms must also consider how new technology through a judicious intertwining of physical, tech-
can create whole new value propositions and nical, and social systems (Ng & Wakenshaw, 2017).
business models, and how it can transform not only Many organizations are still slow to embrace new
how business is done but also what business is possibilities, and those that do are faced with a new
(Krotov, 2017). The ability to stay relevant and set of challenges in handling this complex land-
competitive in the wake of massive and rapid scape defined by both rapid technological
Digital transformation 827

development and slower organizational processes The rapid pace of digital innovation is particu-
(Matt, Hess, & Benlian, 2015). But the risks associ- larly challenging as firms design hybrid or smart
ated with inaction may be even higher, as history products that incorporate digital components.
has shown that digital technologies in particular can Products equipped with smart sensors form
topple industry giants who fail to change with the interconnected systems that collect, store, and
times (Nylén & Holmström, 2015). Previous research transmit data about the products and their envi-
suggests that managers are often unaware of the ronment to cloud servers or back-office systems
different options and elements that they should (Baines & Lightfoot, 2013). Although some of the
take into consideration before diving headfirst into underlying technologies have been in use for a
digital transformation (Hess et al., 2016). We pro- long time, with radio-frequency identification
pose that by becoming digitally consciousdthat is, (RFID) tags being attached to everything from
by developing an understanding of the opportu- clothing and cars to animals and pharmaceuticals,
nities, implications, and limitations in moving from their main purpose to date has been in identifying
a generic technological paradigm to a specific and tracking specific objects. Today, digital
application, and by understanding how they are infrastructure extends all the way from back-
contingent upon concurrent social, cultural, and office servers to frontline activities thanks to the
judicial systemsdfirms can become better equip- development of cloud computing, mobile tech-
ped to take on new and transformative technolo- nology, middleware, miniaturization, and smart
gies. Set against the backdrop of the emerging IoT, sensors. With the expanding IoT, objects can not
this article provides an empirically grounded study only be identified and located but can collect,
of digital transformation and offers five recom- process, and transmit context-aware data through
mendations for aspiring digitally conscious firms to time and space, enabling new possibilities for
consider as they embark on their digital trans- product and service development (Lee & Lee,
formation journeys. 2015). Virtually any occurrence can be digitized,
analyzed, and monetized. Data collected from
products in use make it possible for suppliers to
2. Why digital technologies prompt efficiently monitor products and offer services
transformation after the sale. Suppliers can thus gain insight into
where products are located, how they are used,
It is widely recognized that as information is and whether they are working optimally or in need
increasingly digitized and mobile devices accel- of maintenance. If data from several connected
erate in pervasiveness and processing power, an products are combined, flows and processes can
arena for innovation is opened updone in which be analyzed to find patterns and behaviors. With
physical and digital components are combined developed algorithms, decisions can be made
(Porter & Heppelmann, 2014). Recent research about how services should be performed or how
(e.g., Henfridsson; Nandhakumar; Scarbrough, & processes should be optimized. The IoT thus en-
Panourgias, 2018; Nambisan, 2017) has high- ables the creation of situational, smart, attrac-
lighted how the unique properties of digital tech- tive, and efficient goods and services.
nology enable new types of innovation and Digital technology can be either transformative
entrepreneurship that are different from the or disruptive depending on one’s perspective and,
analog processes of the industrial era. Two dis- more importantly, one’s ability to harness its po-
tinctions are worth highlighting. First, digital tential. It can either dislodge a firm from a
technologies permit loose couplings between competitive market position or serve to improve
components, meaning that innovation is less operational efficiency, empower frontline em-
restricted by existing architectural hierarchies and ployees, inspire new market offerings, or indeed
dependencies. Hence, any given technological create entirely new industry niches. But this po-
baseline (e.g., a digitized product or digital sys- tential will not come to pass without a thorough
tem) can rapidly spawn several distinct offshoots understanding of digital technology in itself and
of different types and purposes. Second, digital just how it is relevant to a firm’s own specific
technologies are imbued with low barriers to circumstances. Any firm seeking to make hay of
entry, meaning that even small entrepreneurs digital technology must be willing to adapt its
have few restrictions to transforming innovative strategies and capabilities to accommodate new
ideas to viable market offerings. These digital ways of perceiving and creating value. As an initial
entrepreneurs can in some cases be disruptive to step, firms must better understand digital trans-
incumbents (e.g., the way ride-sharing services, formation and recognize that it is not a homoge-
such as Uber, have challenged the taxi industry). neous concept.
828 T. Saarikko et al.

3. Digital domains: Digitization, and convey location, velocity, temperature, hu-

digitalization, and digital transformation midity, vibrations, and other measurements as
digitized data. When coupled with powerful algo-
As digital technology diffuses into industry, the rithms, these data are essential to today’s smart
economy, and society, it becomes increasingly products that operate autonomously or with
necessary to distinguish between the different remote supervision (Porter & Heppelmann, 2014).
phenomena that emerge where the physical and While the task of digitization is a complicated
virtual worlds intersect. At a bare minimum, one process that requires technical expertise, it can
needs to differentiate between digitization, digi- largely be outsourced or managed by a relatively
talization, and digital transformation, as well as small group of experts, and it is thus insulated
what they signify in terms of scale and scope. from other aspects of an organization.
Figure 1 shows how the three domains relate to Digitalization is the sociotechnical process of
one another, with digitization as a component of leveraging digitized products or systems to
digitalizationdwhich, in turn, is subsumed under develop new organizational procedures, business
digital transformation. models, or commercial offerings (Brynjolfsson &
Digitization is the technical process of convert- McAfee, 2014). While the words “digitization”
ing analogue signals to digital signals (Tilson, and “digitalization” are often used interchange-
Lyytinen, & Sørensen, 2010). This process permits ably, there are important conceptual differences.
the decoupling of form, function, and access, and Whereas digitization describes a technologydor
it is a fundamental precondition for everything system of technologiesdin terms of what it is and
from smartphones to artificial intelligence. The its capabilities, digitalization answers why this
way we access music provides us with a simple yet technology is relevant to a specific process or or-
illustrative example of the power of digitization. ganization. Returning to music as an example, the
As long as music is stored in an analog format (e.g., separation of content and medium has enabled
on a vinyl record), there are tight couplings be- iTunes and Spotify to redefine how we access and
tween form, function, and access. That is, one consume audio entertainment. Moreover, stream-
cannot easily separate the data (the music) from ing audio services have redefined the underlying
the medium (the record), and it can only be business model by changing the manner in which
accessed using a specific technology (a record performers, producers, and distributors are
player). But when music is digitized, it may be compensated. Digitalization also affects how we
distributed in different formats (e.g., MP3, FLAC) use physical productsdfor instance, in the so-
using different media (e.g., physical disc, online called sharing economy, multiple users can ac-
streaming), and it may be accessed via multiple cess and use the same product, thus shifting the
devices (e.g., CD player, computer, smartphone). nature of business from product retail to product
While the aforementioned example of music de- access (Kathan, Matzler, & Veider, 2016). Indus-
scribes the transition from analogue to digital in- trial machinery is undergoing a similar transition,
formation, digitization also encompasses how one with suppliers keen to offer all-inclusive service
captures physical activities and converts them into contracts so that customers pay per product use
virtual representations. This form of digitization rather than product purchase. Digitized machinery
affords products and devices the ability to capture makes this digitalized business model more
appealing to suppliers, who can easily supervise
their products in the field, reducing the risk
Figure 1. Digital domains entailed by their responsibility for continuous
performance. Furthermore, they can monitor ma-
chine conditions and dispatch technicians to
perform predictive maintenance before costly
breakdowns occur (Saarikko et al., 2017). Digita-
lization is difficult to insulate from the enterprise
at large, as it directly, and often profoundly, af-
fects organizational processes and business
models. New contracts based on service provision
rather than product retail may also harm customer
relations. The effects can, however, be mitigated
so as not to affect or displace core competencies.
A car manufacturer will still need to know how to
Digital transformation 829

Table 1. Study participants

Type of firm Name of firm Industry Role of respondent
Product-oriented P01 Heavy machinery Responsible for IoT solutions
Responsible for service development
Division manager, IT
P02 Heavy machinery After-sales manager
Division manager, IT
P03 Professional appliances Division manager
After-sales manager
P04 Professional appliances Responsible for IoT solutions
Service-oriented S01 Facility management Innovation manager
S02 Payment solutions CTO
S03 Transportation Manager IoT solutions
S04 Resort management CIO
S05 Facility management IoT strategist
S06 Facility management Systems technician
Technology-oriented T01 Telecommunications IoT business developer
T02 Connectivity and cloud solutions CEO
CTO
T03 Connectivity and cloud solutions CEO
T04 Connectivity and cloud solutions CEO
T05 Smart sensors CTO
T06 Smart sensors CTO
T07 Smart sensors CTO
T08 Interface design CEO

build cars regardless of whether they are sold, hallmark of maturing companies” (Kane et al.,
leased, or shared in a pool. 2015, p. 9). The different ways in which digital
Digital transformation is the sociocultural pro- technology is perceived to create value resonate
cess of adapting firms to the new organizational deeply with previous research that showed how
forms and skill sets needed to remain viable and the value of IT is realized in economic gains, pro-
relevant in a digital landscape. It goes beyond cess improvements, and enhancements to the
earlier conceptions such as change enabled brand name that tie customers more closely to the
through information technology (IT) (Benjamin & firm (Kohli & Grover, 2008). That is, much of the
Levinson, 1993) or through business-process reen- focus has been on how the customer-provider dyad
gineering (Grover, Jeong, Kettinger, & Teng, 1995), can be developed and strengthened. But recent
which seek to improve upon existing processes. research has also demonstrated that cutting-edge
Rather, digital transformation may be described as amalgams of physical products and digital re-
a “process that aims to improve an entity by trig- sources, such as the IoT (Saarikko et al., 2017),
gering significant changes to its properties through artificial intelligence (Kaplan & Haenlein, 2019),
combinations of information, computing, commu- and machine learning (McAfee & Brynjolfsson,
nication, and connectivity technologies” (Vial, 2017), are complex phenomena requiring new in-
2019, p. 121). The use of the word “culture” is tellectual resources that are often beyond the
by no means hyperbolic. A survey of digital matu- capabilities of any one firm. Hence, in addition to
rity including some 4,800 business executives significant changes to the internal workings of
found attitude rather than access to technology to firms, digital transformation also pushes innova-
be the decisive factor, highlighting that “[a] cul- tion beyond organizational boundaries into
ture conducive to digital transformation is a external innovation networks (Prince, Barrett, &
830 T. Saarikko et al.

Oborn, 2014; Westergren, Holmström, & avoided settling for initial impressions and were
Mathiassen, 2019) or ecosystems (Jacobides, able to stay close to the data. Our conclusions are
Cennamo, & Gawer, 2018; Rong, Hu, Lin, Shi, & drawn from the synthesis of the data analysis and
Guo, 2015). the literature. Some specific quotes from the in-
The three digital domains may seem straight- terviews are used to highlight certain details, and
forward at first glance, but they all hide layers of all company names have been anonymized in order
complexity amid their implications for value cre- to protect privacy.
ation, technology management, business strategy,
and organizational culture. This article builds on
an empirical study of firms and their attempts to 5. Voices from the field
make sense of digital transformation as new
technology investments bring their digital con- The IoT is a suitable empirical context in which to
cerns from back-office IT departments to execu- study digital transformation, as it marks a new
tive boardrooms as well as frontline operations. technological paradigm that disrupts organizations
and markets (Krotov, 2017; Porter & Heppelmann,
2015), forcing firms to revisit old truths and ac-
4. Interviews quire new capabilities. IoT solutions require
several distinct skill sets that, at a minimum,
The authors performed interviews with firms in pertain to product design and manufacturing,
various stages of digital transformation as they service development, and connectivity and IT
implemented IoT devices into their business infrastructure (Saarikko et al., 2017). The firms in
models. We conducted semistructured interviews our study belong to one of three categories:
with 23 representatives from 18 firms that differed product-oriented firms, whose main business has
in size, industry, and market offering. The re- been delivering specific products for either a
spondents were all involved in their respective business or consumer market; service-oriented
firms’ IoT adoption and implementation processes, firms, whose main business has been service pro-
and were either C-level management themselves, vision to other business and to consumers; and
or reported directly to CIOs or CTOs. Table 1 gives technology-oriented firms, which create con-
an overview of our data set. The interviews lasted nected devices, sensors, and other technology that
from 30 minutes to 90 minutes and averaged 45 enable connectivity and collection of data. All of
minutes. All interviews were recorded and then the firms had implemented various IoT solutions
transcribed. Furthermore, six firms demonstrated into their business practices and were busy work-
their IoT-based systems, which gave us a deeper ing on their strategies for digital transformation in
understanding of how different technologies and order to fully take advantage of the opportunities
data sources interact to create smart solutions and afforded by new technological developments.
machine learning that provide benefits for pro-
viders as well as customers. Finally, company 5.1. Product-oriented firms
websites and documentation provided by re-
spondents provided additional contextual informa- The product-oriented firms included in this study
tion pertaining to each enterprise and its domain. are all large, firmly established enterprises that
We performed the data analysis in two stages dwell within a single industry or a limited number
using ATLAS.ti software. First, we performed an in- of industries. Their long-standing history within
case analysis for each firm (Eisenhardt, 1989), in said industries is reflected in their respective skill
which we searched for patterns and repeated sets: They are exceedingly adept at what they
statements in the data to gain insights into the have been doing for decades. Furthermore, they
specific firms. Previous research has shown that have had little incentive to do anything else, as
there are three basic types of firms within IoT they have operated in industries and markets that
ecosystems: product-, service-, and technology- have been reluctant to embrace major change.
oriented firms (Burkitt, 2014; Saarikko et al., The advent of disruptive technologies such as
2017). At this stage of the analysis, we therefore IoT has disturbed this rather comfortable status
categorized each firm into one of these three quo. Third-party providers that are wholly unaf-
types. In the second stage, we searched for com- filiated with manufacturing firms have started
mon patterns and divergent stances between and retrofitting products with remote connectivity in
within the three different types of firms. By order to enable services that range from basic GPS
applying multiple lenses and moving back and positioning and fuel-efficiency algorithms to
forth from specific firms to collective insights, we advanced systems that combine multiple data
Digital transformation 831

sources, such as position, weather, time, and departments to handle product R&D and similar
temperature. This is particularly salient for P1, P2, critical activities. Activities less related to brand
and P4, who have seen this phenomenon gain identity but important to production and retail are
momentum for several years. The result of this managed through long value chains populated by
development is twofold. First, it has transferred trusted suppliers and contractors. While this
some of the market influence away from the operational necessity can be a potent barrier to
product provider and into the hands of the entry for direct competitors, the same value
customer. As third-party solutions are brand- chains can also shackle firms to a particular
agnostic, customers are able to apply the same mindset that is focused on streamlining rather
solutions and services across their entire inventory than innovation. The legacy of closed systems and
of equipment or fleet of vehicles irrespective of in-house development that once was a source of
manufacturer. Second, the appearance and pro- leverage can suddenly become a drawback as
liferation of third-party solutions clearly indicate a customers start demanding something different.
change in the business climate for which the
manufacturers themselves are ill prepared. There It’s typical of old companies built by engi-
are evidently opportunities for new business neers that you think your way is the right
modelsdand thus for profits to go into someone way. But at the same time, our products do
else’s pockets. We were able to discern two contain an assortment of components built by
distinct attitudes toward this phenomenon. P1 and other suppliers. So it’s really not in our na-
P2 were quite restrictive and exhibited a posses- ture to do everything by ourselves. By the
sive attitude toward the data generated by their typical approach, as you’ve seen if you study
products, whereas P4 was considerably more open different manufacturers, is to try do it your-
to including other parties. self at first. [P4, responsible for IoT solutions]
There is, however, one significant point on which
We don’t want people tinkering with our
all product-oriented firms agree: They are all
products, and it would be better if third-
sanguine about furnishing their products with
party firms found different niches . It could
remote connectivity, as hard data helps to justify
be that they focus on a particular market
high retail prices. If they can show that their
segment and build systems for that type of
products are more dependable thanks in part to
users, and utilize the APIs that we provide
smart services, then they will have an easier time
and pay a license fee to us. [P1, responsible
justifying their higher retail price relative to
for IoT solutions]
cheaper alternatives. The idea of backing up
qualitative claims with quantitative data feeds
It’s entirely possible that service-oriented
into the idea of strengthening the brand and
firms can access data and monopolize
forming a closer relationship with the customer.
product-related service development. We as
Furthermore, if a firm’s product leaves the factory
product-providers consider that scenario as
with remote connectivity already installed, it can
well. So we’re looking at competition or
eliminate or severely limit the appeal of retro-
cooperation. I think that the only way to
fitted solutions, as they become effectively
success here is cooperation between product
redundant. But while all the firms included in our
manufacturers and suppliers of service and
study have begun incorporating the appropriate
support. We simply have to realize that we
hardware for remote supervision, they have yet to
have to let everyone get a piece of the pie. If
match the more advanced services offered by the
not, we’re going to get in each other’s way
aforementioned third-party solutions. Thus far,
and that’s not the way forward. [P4,
their core service offerings amount to detection of
responsible for IoT solutions]
anomaliesdfor example, cases of product break-
In essence, mature product-oriented firms down, misuse, or theft.
consider themselves at risk of getting demoted
from trusted partners to mere providers of hard- We gather a whole lot of data, really. We
ware. The prospect is not at all appealing, as all don’t actually use it anywhere near as much
the product-oriented firms featured in our study as we could. But we’re trying to become
are premium brands that strive to compete smarter and smarter. So just like you said, we
through quality and reliability rather than mere try to see if the driver’s doing something
retail price. Moreover, they have all developed strange, or if the machinery is somehow
extensive in-house capabilities and dedicated acting up. [P2, division manager, IT]
832 T. Saarikko et al.

One issue that has yet to be resolved pertains to benefits from using smart technology in service
the ownership of said data. On this particular provision. The service industry is labor-intensive,
issue, P1, P2, and P3 hold a somewhat possessive with service staff performing all manner of tasks
stance, either claiming data ownership or explic- that cannot be automated. While a personalized
itly asserting the right to access product data touch is part of service provision, firms spend a
whenever customers enter into service contracts. significant amount of time and effort checking
P4 maintains that data ownership per se should not whether service is actually needed. Leveraging
be a priority; rather, the priority should be to advanced algorithms and learning systems to
ensure that information is accessible to multiple analyze sensor data would permit these firms to
actors so that the product is compatible with maintain or even improve upon current service
different business models (e.g., leasing and direct levels at lower costs. For instance, S1 and S6, who
retail) and different types of customers (e.g., are both within facility management, see signifi-
business-to-business or business-to-consumer). cant potential for process improvement if they can
perform service tasks when and where they are
actually needed, as opposed to scheduling tasks
5.2. Service-oriented firms
based on their best guesses. S5 describes how a
single sensor installed on the roof of a building can
The service-oriented firms included in our study
provide automated updates regarding external
were more positive toward the IoT as a general
conditions, enabling a wealth of useful insights:
trend because they have no vested interests in any
particular products. But all six firms agreed
What we’re doing now is installing snow-
regarding the main barrier to widespread adop-
sensors onto rooftops. Sending an engineer
tion: the overall lack of common standards and
with a five-year college degree up to check
interoperable systems. S2 and S4 face the most
the amount of snow on the rooftop is going to
severe restrictions: S2 wrestles with a patchwork
be pretty expensive, so we thought that
of legacy banking systems, while S4 faces safety
‘we’ll install an automated sensor instead,
regulations and certifications that prohibit even
and it will gauge the snow depth’ . You can
the most basic integration between systems at
also look at development over time, for
their resorts. The remaining firms are less confined
instance ‘hold on e if it’s three degrees
by their business contexts but must still contend
below freezing and I had three feet of snow
with significant technical hurdles. The lack of
on my roof, and now two days later it’s only
common standards or application programming
two feet of snow. What’s going on?’ Well, it’s
interfaces often requires case-by-case integration
likely that your roof is poorly insulated and is
between different systems and technologies,
venting heat. Following that, you can imme-
which can entail high risk and first-mover costs.
diately ask yourself ‘where did the snow that
Several of the service-oriented firms included in
melted go? Are there pools of water sitting on
our study, most notably S1 and S3, operate in
my roof, or do I need to worry about icicles
market segments that offer low profit margins.
hanging off the sides?’ So, just by measuring
Hence, these firms seldom undertake any invest-
snow depth, you can find out all kinds of
ment (IoT-related or otherwise) unless they can be
things that you didn’t know. [S5, IoT
certain that it will yield tangible returns in the
strategist]
form of reduced operating costs or a competitive
edge. Although recent technical advances have ignited
much interest in connecting products to the
We see an incredible range of possibilities internet or outfitting buildings with smart sensors,
with IoT. The current limitation is basically to the service industry has been using some of the
get a hold of a horizontal platform [that can technologies associated with the IoT (e.g., RFID
handle multiple systems]. Alternatively, tags) for many years. But the proliferation of smart
there are a lot of different systems in the sensors necessitates a different approach, as it
market these days, but individually they do would be unethical to deploy sensors that contin-
not provide the overall benefit needed to uously gather data on the activities of specific in-
outweigh the costs of managing and sup- dividuals without their consent. Furthermore, the
porting multiple systems. [S1, innovation legal frameworks that govern these types of sur-
manager] veillance are not yet mature and are subject to
change based on political discourse or public
Due to the nature of their businesses, service-
concern. The service providers included in our
oriented firms are keen to derive operational
Digital transformation 833

Table 2. Summary of results

Digital domain Digital concerns Empirical findings
Digitization Incremental Minor digital features are introduced in new offerings in order to give the
changes appearance of novelty.
Data as persistent Extracted data can be used for multiple purposes and on multiple
resource occasions.
Necessity of Cutting-edge capabilities can be acquired more quickly and easily through
partnerships partnerships with external organizations.
Lack of standards The lack of agreed-upon standards serves to inhibit uptake of new
technologies, as each actor has to spend time and resources solving basic
interoperability issues.
Data hoarding Large quantities of data are gathered and stored without a clear
understanding of their purpose or value.
Digitalization Business-model The influx of new technologies provokes shallow or profound adjustments to
modification the firm’s business model.
Business myopia An inability to develop new business models and revenue streams based on
data.
Digital Stable market structures are disrupted by new entrants who leverage
newcomers digital technology to appropriate unexplored business opportunities.
Spectrum of Digital technology offers many distinct opportunities, ranging from minor
improvements improvements to major reengineering, benefitting frontline employees or
centralized management.
Value-chain Mature firms accustomed to working with linear value chains have difficulty
inertia adapting to ecosystems and cocreation often found in digital economies.
Digital Lack of clear New technology is introduced on a case-by-case basis without a long-term
transformation vision strategy.
Customer New technology is introduced because of external pressure rather than
expectations internal strategy.
Outcome Actors are reluctant to enact transformative change, as it is perceived to be
ambiguity a gargantuan, long-term project with uncertain outcomes.
Familiarity over Significant innovations and departures from the status quo are easier to
innovation accept from mature, established actors than from niche firms, even though
the latter often offer more advanced solutions.
Sociotechnical Technological development far outpaces other aspects of society, leading
misalignment to a fundamental mismatch between what technology permits us to do and
our ability to grasp its consequences.
Cultural inertia Mature firms are often reluctant to engage in partnerships or look outside
their own circles for new capabilities.

study were all very clear that they did not want to would like to leverage said data. S1 and S6 are
bear the risk of violating current or future laws by relatively homogeneous enterprises where similar,
recording personal datadnor do they want to often-routine tasks are performed by different
shoulder the responsibility for warding off unau- staff in different locations. Consequently, these
thorized access to sensors for illicit surveillance. enterprises see the value of a “dashboard” of sorts
Their response to this issue is to use sensors that that can provide a quick overview and status up-
are deliberately unspecific; for example, a sensor dates from a central office. In time, machine
may be able to register movement but not a per- learning and automated responses may reduce the
son’s height, weight, or other distinguishing fea- need to manually assess and respond to routine
tures. Even when user data is anonymized and operations. On the other hand, S4 is a considerably
reduced to numbers in a system, service providers more heterogeneous organization that considers
offer quite different perspectives on how they IoT and smart sensors a way to empower frontline
834 T. Saarikko et al.

employees in their respective tasks. When coupled companies that had actually produced
with algorithms that can identify clusters and something tangible. [T4, CEO]
bottlenecks, sensor data may be useful for S4’s
Even though most of these technology-oriented
long-term planningdfor example, by ensuring that
firms can be described as mature (all but T4 have
the most heavily trafficked areas are equipped
been around for 10 years or more), very few of
with adequate restrooms and similar essential
them have attained any significant brand recogni-
facilities.
tion. The exception is T1, which is a large enter-
prise with a familiar brand. The disconnect
5.3. Technology-oriented firms
between technical proficiency and brand recogni-
tion is a significant factor for many tech-savvy
All the technology-oriented firms featured in this
small and medium enterprises. Prospective cus-
studydwith the notable exception of T1dare
tomers are hesitant to adopt a technology that
small or medium enterprises. They differ signifi-
they do not fully comprehend, and they are even
cantly in orientation and occupy different niches
less inclined to accept an offer from an unfamiliar
that collectively make up the requisite technolo-
firm. As such, technology-oriented firms are keen
gies to enact digitized products and digitalized
to engage in partnerships or participate in eco-
business models. T1 provides the information
systems backed by larger, more familiar firms.
infrastructure (e.g., 4G communications networks)
Unlike the product and service providers we
that is needed to transmit data from remote lo-
studied, the technology-oriented firms expressed
cations. T2, T3, and T4 design cloud solutions that
no real interest in owning or accessing customer
can accommodate robust connectivity and handle
data. While they acknowledge that it is well within
the massive quantities of data generated by con-
their capability to store data generated by cus-
nected devices. T5, T6, and T7 design sensors for
tomers, they generally prefer to position them-
deployment in an array of environments, from
selves as impartial and as sources of customer
modern office spaces to mine shafts. Finally, T8
empowerment, not exploitation. As such, tech-
aggregates data and produces interfaces that suit
nology firms make an explicit distinction between
the needs of different user groups.
the act of gathering and forwarding data in real
While the recent surge in interest surrounding
time, and the process of analyzing data to discern
the IoT has forced product and service providers to
patterns or long-term trends, even though both
stop and consider their options, the technology-
activities are enabled by the same technology. A
oriented firms featured in our study are cautiously
couple of the firms we studied, T2 and T5, went so
optimistic. One recurring theme among all these
far as to claim that they absolutely do not want to
firms was the emergence of new opportunities to
be responsible for storing or managing customer
apply existing skill sets in new industries and
data. Their role is only to process and forward data
market spaces. T4 provides an illustrative
in a manner specified by the customer.
example. The firm used to develop and manage
systems for online gambling, and in doing so, it
learned to build scalable back-office systems, 5.4. Summary of case findings
handle payment systems that can accommodate
multiple currencies, and develop intuitive user As our study includes firms that differ in orienta-
interfaces. Today, the very same skills are invalu- tion as well as in size and scope, it naturally fol-
able in building a platform that can collect and lows that they represent a wide range of
analyze data from a steadily rising number of conditions, perspectives, interests, and ambitions.
connected units without causing system instability The empirical findings can for analytical purposes
or requiring a proportional increase in support be separated and attributed to the domains of
staff. digitization, digitalization and digital trans-
formation. A summary of the results is provided in
We learned a lot about designing systems Table 2.
that are scalable and secure, the ability to Our study reveals a number of challenges
process different currencies, and to design related to business strategy (e.g., changing busi-
user interfaces . Almost by accident, we ness models and threats from newcomers) and
ended up consulting for [a product manu- technical issues (e.g., standardization and aimless
facturer] as they were designing an online- data hoarding), as well as distinctly “soft” issues
feature of their own. [ . ]IoT wasn’t really stemming from industry norms and corporate cul-
the widely used expression back then, and ture. The common theme is the general perception
we realized that we were one of few of digital technology as a disruptive force that
Digital transformation 835

some perceive as a catalyst for opportunity, while The transformative aspect is not expressed in
others see risks stemming from the scope and un- the technical artifact itself but rather in the
certainty associated with transformative change. insight needed to identify the benefits that can be
Both perspectives derive from the peculiar nature derived from using a digital tool to solve a business
of digitized data as an ephemeral yet reusable and problem. Moreover, a defining characteristic of
infinitely renewable resource that has change- digital technology is the ability to increase the
ddand continues to changedhow we conduct density of information and the knowledge re-
business. The effects range from minor tweaks and sources that may be brought to bear on any single
improvements to existing processes to profound set of data (Lusch & Nambisan, 2015). That is, any
changes to the very essence of business mod- phenomenon that may be represented by bits and
elsdfor example, changing market offerings from bytes can instantaneously be transported across
retail products to providing a service or function. vast distances and analyzed by someone with an
entirely different perspective and set of experi-
ences. An additional transformative property of
6. Five recommendations for becoming the digitally conscious firm is the ability to realize
digitally conscious this potential and to treat data as an interdisci-
plinary resource that is not consumed upon use but
Digital transformation often pushes enterprises out that can be leveraged to extract multiple benefits
of their comfort zones by forcing long-term stra- depending on context. Hence, the name of the
tegic choices about an unpredictable future (Nylén game is not to indiscriminately gather big data but
& Holmström, 2015). On the basis of our empirical rather to carefully gather the right data for the
findings and a review of extant research, we pre- firm’s needs and to build on the benefits that they
sent five recommendations for developing digital bring.
consciousness within firms that are engaged in
digital transformation. 6.2. Team up and create competitive
advantage from brand recognition

6.1. Start small and build on firsthand The digitization of the physical world holds much
benefits untapped business potential (Brynjolfsson &
McAfee, 2014). Even so, its practical implementa-
Digital transformation is a comprehensive term tions are in many regards still considered a relative
that describes the ability of an organization to novelty within many market segments and in-
leverage digital technology to improve the effi- dustries. Even if the underlying technology is
ciency and efficacy of its internal operations and mature and robust, it still carries with it a
external market offerings (Vial, 2019). As such, perceived risk within established firms, as the
digital transformation is prone to being associated more innovative solutions often come from small
with paradigm-shifting technologies such as artifi- tech firms and entrepreneurs, which are more
cial intelligence, machine learning, or big data, all agile. While extant research has highlighted how
of which require significant up-front investments judicious use of IT can enhance a company’s brand
in time, money, and staff before any significant name (Kohli & Grover, 2008), our study suggests
benefits can be realized (Lee, 2017; McAfee & that a strong brand name is a prerequisite for
Brynjolfsson, 2017). engaging customers in transformative efforts,
In this article, we describe digital trans- innovative business models, and new market of-
formation as a sociocultural process rather than as ferings. That is, firms that already have a strong
a technical feat. That is not to say that technology brand name have a head start when it comes to
is unimportant, but rather that the drivers of incorporating connected products or machine
transformation are organizational culture and learning into their business, thanks to their
ideas rather than technological savviness. The installed customer bases and high credibility in
service-oriented firm that installed sensors on their fields. Participation in an ecosystem may
rooftops to measure snow depth speaks to our serve to mitigate risk and to create a win-win sit-
point in that the technical solution is often simple. uation, whereby established firms get fast access
Aggregating the data from a handful of sensors to technological know-how and new business
across different buildings does not require models, while small tech firms with less familiar
advanced databases or analytical support; it can brands may make use of their partners’ strength to
quite easily be monitored by either a local building establish a foothold from which to gradually build
manager or a facility management office. their own credibility and to scale up their
836 T. Saarikko et al.

offerings. An established brand is indeed a additions and improvements by independent stake-

powerful resource in the face of the risks and un- holders into the global network that we see today.
certainties that come with new technologies and Given the pervasive and enduring influence of
market offerings. But there are limits to how far standards, the digitally conscious firm should ensure
you can stretch customer loyalty and patience. that their interests are reflected in standards’
Product-oriented firms are especially vulnerable to development and enactment. Otherwise, they may
inaction and failure to move with the times. find themselves out of the loop and working in a
Impatient customers may start looking for work- technological landscape that runs counter to their
arounds and third-party options if brand- strategic interests, as when customers began ret-
sanctioned, first-party solutions fail to materi- rofitting vehicles with third-party solutions over
alize within an acceptable time frame. In the end, which the vehicle providers had no influence or
failure to move with the times may serve to control. Hence, standardization is not merely a
devalue the brand and to pave the way for new, IT- matter for the engineering department; it also has a
literate competitors, just as the conservative significant strategic component that should attract
automotive industry did for Tesla. the attention of corporate management.

6.3. Engage in standardization efforts 6.4. Take responsibility for data ownership
and ethics
Digital innovation is based on the ability to combine
a large number of digitized technologies that are, While the wholesale creation of data is not the key
when viewed in isolation, relatively mature and easy defining feature of digital transformation, it is an
to deploy. But in practice, things are rarely so sim- inescapable consequence of working with digitized
ple. Digital transformation relies on an organiza- products and digitalized business models. With
tion’s capability to acquire, deploy, and maintain thousands or millions of connected products, firms
several distinct technologies in parallel without have a golden opportunity not only to provide
becoming overwhelmed. The IoT illustrates the connectivity solutions but also to capture a bigger
point, in that a hierarchy of technologies need to part of a market, one that increasingly derives its
work together, from the smallest sensor or RFID tag revenues from services based on collected data.
to large cloud servers and back-office systems Because digitized products and services can be used
(Borgia, 2014). Connecting a wide variety of tech- for business and consumer purposes simultaneously,
nologies may bring about a patchwork wherein in- firms have every opportunity to create win-win so-
dividual integrations are sound and sensible, but lutions that cater to both sides and generate mul-
they can be difficult to oversee or stress-test due to tiple types of value. One of the unanswered
the sheer size of the system and the scope of its questions of digital transformation is where to draw
implementations. Moreover, technical in- the line. Smart products and connected environ-
frastructures and new market offerings are ments are capable of gathering a significant amount
increasingly developed through partnerships or in of data on individuals. While single data points may
ecosystems, further stressing the sociocultural na- be harmless, the routine gathering of data from
ture of digital transformation. This gives rise to multiple sources and the compiling of detailed
diverging and often conflicting strategic interests of digital profiles on people, whether customers or
different firm types (Saarikko et al., 2017). employees, have troubling implications (Weinberg,
Technology-oriented firms want their offerings to be Milne, Andonova, & Hajjat, 2015).
applicable to a range of different firms and in- The ethical quandary is twofold. First, while
dustries. Product-oriented firms, on the other hand, individuals may consent to sharing individual
are more interested in distributing IoT solutions as scraps of information about themselves with or-
part of their own line of products in hopes of ganizations with which they interact, this does not
enticing customers to opt for multiple, technically entitle any one actor to combine data from various
compatible products from the same supplier. If firms or to compile a comprehensive image of
different enterprises pool their intellectual and consumers’ activities. Second, such information
material resources, they can begin to develop has considerable destructive potential should it
standards and interfaces that may become wide- fall into the wrong hands. An increased awareness
spread within an industry or market. In time, stan- of the responsibilities of data management is a
dards can disseminate into other contexts as well, watershed with regard to a firm’s digital maturity.
accumulating legitimacy and strength along the While some actors are eager to gather as much
way. We may draw comparisons to the internet, data as they can, we note that the more
which gradually grew through small, incremental technology-savvy firms are notably less keen to
Digital transformation 837

assume ownership and responsibility for user data. transformation, value is only extracted through a
While they identify real-time data capture and conscious and deliberate entanglement of phys-
long-term data analysis as two separate values ical, technical, and social systems (Ng &
enabled by the same technology, they are hesitant Wakenshaw, 2017). As the survey by Kane et al.
to embrace the latter. They do not want to get (2015) demonstrates, corporate culture is a sig-
embroiled in the legal hassles and responsibilities nificant component in embracing and exploiting
that come with data ownership, preferring to digital technology in transformative efforts. The
transfer accountability to someone else. Ng and firms in our study perceived digital transformation
Wakenshaw (2017) used the term “socio-cyber- as a significant departure from current practices
physical offerings” to describe digitized offerings and were very aware of the risk of cultural inertia
and digitalized business models. Our study sug- and sociotechnical misalignment stemming from
gests that successful digital transformation re- misconceptions of what the technology could and
quires recognition of the legal dimension, leaving would do. They stressed the importance of
us with the cumbersome label of socio-cyber- ensuring organization-wide commitment and of
physical-juridical offerings. Hence, digital trans- making sure technological development is groun-
formation entails careful consideration of the legal ded in both strategy and practice. By implement-
and practical implications of data ownership and ing IoT solutions, they came to see the possibility
management. of breaking with tradition and of moving from
linear value chains to value networks. Such a
6.5. Own the change and ensure move, however, entails having a clear vision and
organization-wide commitment taking into consideration the idiosyncratic nature
of each firm, including current corporate prac-
Previous research has shown that digital technol- tices, norms, and business values. Furthermore, it
ogy creates both tangible and intangible value requires leadership and endorsement from top
(Nambisan, 2013). But in the context of digital management. Ultimately, we have seen that

Figure 2. Digital domains and becoming digitally conscious

838 T. Saarikko et al.

digital changes to the organization, its business In so doing, we have shown that developing digital
practices, or its products and services cannot be consciousness and embracing digital trans-
ends unto themselves but must be means to an formation requires taking into account social,
end. To reduce outcome ambiguity, digital- technical, and organizational factors and firmly
transformation efforts must be established by top grounding them in both strategy and practice.
management, firmly entrenched in middle and These five recommendations are inclusive but not
lower management, and allowed to permeate all exhaustive. Future research should therefore
aspects of organizational life. Raising the level of elaborate on the opportunities and challenges of
digital consciousness can thereby produce sub- digital transformation across different firm types
stantial improvement in the firm’s ability to and within different technological paradigms.
leverage digital technology and own the change.

6.6. The five recommendations Acknowledgments

Digital transformation is a complex phenomenon This study was made possible through a grant
encompassing different types of technologies, from VINNOVA.
firms, and management strategies. Our five rec-
ommendations for becoming digitally conscious
are inextricably linked in practice. As such, they
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