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Research Articles

The key to scaling in the digital era: Simultaneous automation, individualization and interdisciplinarity

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ABSTRACT

In this paper, we develop a theoretical framework that explains how digital technologies can help small businesses generate competitive advantages for scaling. To gain and sustain competitive advantages, small businesses traditionally had to choose between cost leadership and differentiation strategies. Digital technologies enable small businesses to reduce their costs and at the same time enhance the value of their market offerings through differentiation. The aim of this paper is to explain the role of digital technologies in such hybrid strategies for small businesses. We first identify automation, individualization and interdisciplinarity as the three dimensions of digital technologies that together enable technology-driven firms to gain and sustain competitive advantages and to scale rapidly. Second, we integrate these three dimensions into a theoretical framework. Third, we test and confirm the theoretical framework in an explanatory case study and discuss the results.

Introduction

In this paper, we explore how digital technologies can help small businesses generate competitive advantages that allow for scaling. Scaling has received considerable attention by practitioners and policymakers, but only limited attention in academia (Shepherd & Patzelt, Citation2020). It describes rapid growth through replication (Reuber et al., Citation2021), that is, through providing a similar market offering with limited adaptations in different markets (Szulanski & Jensen, Citation2008; Winter & Szulanski, Citation2001), which is of particular interest for small businesses with limited resources (Proksch et al., Citation2021). We argue that rapid growth through replication requires the replication of those elements of the business model that made small businesses gain and sustain competitive advantages in the first place (Argote & Ingram, Citation2000; Rivkin, Citation2000; Szulanski & Jensen, Citation2008). To gain and sustain competitive advantages, small businesses traditionally had to choose between two competitive strategies: cost leadership and differentiation (for example, Campbell-Hunt, Citation2000; D’Amboise, Citation1993; Hill, Citation1988; Porter, Citation1985, Citation1980). Digital technologies can enable small businesses to simultaneously implement both competitive strategies (Kim et al., Citation2004; Zahra et al., Citation2022). By taking advantage of the technology harbingers of industry 4.0 such as cloud technologies, Software-as-a-Service (SaaS), virtualization and algorithms, small businesses can reduce their costs and at the same time provide unique products or services through differentiation. They can thus achieve a low-cost position and differentiation without being “stuck in the middle” (Porter, Citation1985, p. 17), which can enable scaling despite low resources and small organizations. Nevertheless, little is known about the question how digital technologies contribute to generate competitive advantages and how they facilitate scaling among small businesses.

The aim of this paper is to address this gap by identifying the relevant dimensions of digital technologies that are the source of a small business' competitive advantage and facilitate scaling. We use a theoretical perspective that integrates earlier research on strategic management and innovation management in small businesses into a novel framework. We identify three key dimensions of digital technologies, that is, automation, individualization and interdisciplinarity. These three dimensions enable technology-driven small businesses to simultaneously implement cost leadership and differentiation strategies by providing individualized market offerings that are based on automated processes and interdisciplinary knowledge. This combined strategy allows small businesses to gain considerable competitive advantages and to scale rapidly by replicating their market offerings. To empirically test this framework, we draw on an explanatory case study of a small business that has scaled exorbitantly.

Our research adds to theory and practice in multiple ways. First, by revisiting competitive strategies in the digital era, we contribute to the scholarly debate on the combination of cost leadership and differentiation strategies in small businesses (Ebben & Johnson, Citation2005; Gabrielsson et al., Citation2016; Leitner & Güldenberg, Citation2009; Spanos et al., Citation2004) by introducing digital technologies as enabling factors for combination strategies. We identify the key roles of the interplay of automation, individualization and interdisciplinarity inherent in digital technologies and draw up an integrative theoretical framework that explains how the interplay of these three dimensions of digital technologies provide a unique competitive advantage and can help small businesses scale their operations. Second, we add to the literature on scaling (Argote et al., Citation2000; Jensen & Szulanski, Citation2007; Kostova, Citation1999; Rivkin, Citation2000; Szulanski & Jensen, Citation2006; Teece et al., Citation1997; Winter, Citation1995; Winter & Szulanski, Citation2001). We show that digital technologies are an essential ingredient for scaling in small businesses because they allow them to offer easily adaptable market offerings in different markets. Third, our research informs practitioners and policymakers about the challenges arising from the interdisciplinary nature of digital technologies underlying market offerings such as digital sales support. It highlights that the complexity of using digital technologies to generate competitive advantages and to scale a small business has been widely underestimated (Li, Citation2020; Matt et al., Citation2015).

Theoretical background

Human progress builds on existing knowledge, experience and ideas that are combined with new findings (Smith et al., Citation2005). The resulting growing body of knowledge drives technological and social change (Parayil, Citation1991). Technologies have evolved from the use of simple manual tools to the use of mechanical/electrical devices and later to analog and digital electronics (Mahoney, Citation1988). Digital electronics, such as the Internet of Things (IoT), are viewed as a combination of electronic devices, microprocessors, and memory systems that are increasingly able to sense their surroundings with sensors and communicate via networks. When linked with and controlled by software, digital electronics create powerful digital technologies such as complex computer or cloud systems (Tardieu et al., Citation2020).

Digital technologies can cause profound and potentially disruptive developments, which can entail significant economic and societal shifts (Christensen et al., Citation2015). At the firm level, they can provide significant opportunities due to their pervasiveness and accessibility (Akhtar et al., Citation2018; Troise et al., Citation2022). Digital technologies can fundamentally transform “business strategies, business processes, firm capabilities, products and services, and key interfirm relationships in extended business networks” (Bharadwaj et al., Citation2013, p. 471). For small businesses, digital technologies can be particularly useful because they can increase competitiveness, productivity, and performance (Bruque & Moyano, Citation2007; Dibrell et al., Citation2008). However, traditionally small businesses base their strategy for the acquisition and implementation of digital technologies on their overall strategy, not least because their managers are still uncomfortable about digital technologies playing a central role in the development of the firm’s competitive strategies (Christensen et al., Citation2015). Consequently, the acquisition of new digital technologies is often treated like the acquisition of a new software or machine. Digital technologies thus often play only a minor role when designing new competitive strategies for the digital era (Yeo & Marquardt, Citation2015).

We argue that the logic of employing digital technologies should not be seen as a simple acquisition process, but as a fundamental challenge that is comparable to entering a new and often alien industry. Indeed, the success of small businesses in the digital era heavily depends on learning, understanding, adopting, implementing, accepting, and creatively using digital technologies (Lanzolla & Suarez, Citation2012; Linton & Walsh, Citation2004; Yeo & Marquardt, Citation2015). Competitive strategies are then needed to seize the competitive advantage conveyed by digital technologies and to scale. However, while traditionally the management chose the right technology to implement a specific competitive strategy and reach a predefined goal (Bharadwaj et al., Citation2013), in the digital era the creative use of digital technologies opens new opportunities that can be seized with tailor-made competitive strategies. Consequently, the boundaries between implementing a competitive strategy and using digital technologies become blurred.

Competitive strategies are based on the idea that firms can gain and sustain a competitive advantage if they achieve either cost leadership or differentiation (Porter, Citation1980; Teece & Linden, Citation2017). In the case of a cost leadership strategy, a firm offers its products or services at competitive prices but produces them at lower costs (Barth, Citation2003; Salavou, Citation2015). In production, lower costs can be achieved by drawing on economies of scale or proprietary technologies (Gabrielsson et al., Citation2016). The differentiation strategy requires a firm to create products or services which consumers perceive as unique, and which therefore allow the firm to charge premium prices. The question if cost leadership and differentiation are mutually exclusive strategies has raised considerable scholarly debate (for example, Hill, Citation1988; Leitner & Güldenberg, Citation2009; Murray, Citation1988; Pertusa-Ortega et al., Citation2009; Thornhill & White, Citation2007). Porter (Citation1980) argues that the two strategies require different investments in resources, control procedures, organizational structures, and incentive systems. Consequently, firms that fail to choose between cost leadership and differentiation become stuck in the middle and experience inferior performance. This view has also been adopted for small businesses (D’Amboise, Citation1993). However, empirical evidence suggests that a combination of the two strategies, also referred to as hybrid, mixed, integrated, or combined strategies, can lead to success (Campbell-Hunt, Citation2000; Gabrielsson et al., Citation2016; Leitner & Güldenberg, Citation2009; Li & Li, Citation2008; Pertusa-Ortega et al., Citation2009; Spanos et al., Citation2004). Yet, little is known about the factors that enable the successful combination of the two strategies in small firms. Both external structural factors such as the level of market homogeneousness (Murray, Citation1988) and market concentration (Li & Li, Citation2008), and internal factors such as new management practices and new technologies (Leitner & Güldenberg, Citation2009), were suggested to influence the success of these strategies.

We argue that one factor that enables the successful combination of cost leadership and differentiation is the use of digital technologies because the unique dimensions of digital technologies facilitate new ways of scaling for small businesses. The dichotomous understanding of competitive strategies to gain competitive advantages and to scale by focusing either on high-volume and low-cost automated production and processes or on low-volume and high-value individualized market offerings has its roots in the traditional division of machine work and manual craftsmanship (similarly Lei et al., Citation1996). Digital technologies, however, can help to overcome this dichotomization (Kim et al., Citation2004). Interestingly, although the aim of digital technologies was initially to provide differentiated products and services, many firms that heavily rely on digital technologies deliver market offerings that outperform traditional technologies regarding costs and consumer benefits (Goldfarb & Tucker, Citation2017; Teece & Linden, Citation2017). Digital technologies thus allow for the simultaneous combination of cost leadership and differentiation strategies. To seize digital technologies’ full potential, small businesses need to cut across different technological disciplines (Alves et al., Citation2007; Markides, Citation2013). Typically, at least two technology disciplines are involved when developing successful competitive strategies in the digital era: the technology prevailing in the respective industry and the digital technology. Successful competitive strategies integrate the knowledgebase of these different disciplines with industry competence (Walsh & Linton, Citation2001) in the small business' market offering to gain first mover advantages (Markides & Sosa, Citation2013; Tierney et al., Citation2013). However, the question remains how the use of digital technologies in small businesses can generate competitive advantages that allow for scaling. In the following, we argue that three specific dimensions of digital technologies make this possible.

Theoretical framework

Automation is often seen as the main reason for the use of technologies in firms (for example, Porter, Citation1980, Citation1981, Citation1985). However, digital technologies do not only allow for automation, but at the same time also for flexibility and complexity (Fischer & Reuber, Citation2011, Citation2014; Nambisan, Citation2017; Scuotto et al., Citation2021). Flexibility implies that market offerings and/or production processes can easily be adapted. Taken to the extreme, a fully flexible market offering would mean that it is fully individualized according to the customer’s needs and wishes. The same is true for production processes: a fully flexible production process allows firms to change their process as needed, hence, to individualize their production. Complexity reflects the use of different disciplines to develop market offerings and/or design production processes. A high level of complexity implies a high level of interdisciplinarity. Together, automation, individualization and interdisciplinarity hence form the basis for a firm’s market offering. The combination of these three dimensions allows small businesses using digital technologies to design competitive strategies for scaling by relying on a combination of cost leadership and differentiation strategies.

The first dimension: Automation

Automation is a well-known characteristic and a primary aim of technologies (Noble, Citation2017). It is either derived from real technology-driven process automation (for example, algorithms) or from outsourcing specific tasks via self-service technologies (for example, self-check-out at libraries) to external crowds such as customers or users (Baldwin et al., Citation2006; Baldwin & Von Hippel, Citation2011). Automation is traditionally based on specialization and creates economies of scale to achieve maximum efficiency. At the same time, automation often requires significant investments in machinery and the standardization of processes, and it offers only limited flexibility to make changes once everything is set up. For example, automated mass-manufacturing technologies such as injection molding permit the time- and cost-efficient production of similar high-quality products in bulk. However, the fixed molds prohibit changes to the product or process as soon as the production process has been started (Achillas et al., Citation2017; Deradjat & Minshall, Citation2017; Eyers & Dotchev, Citation2010). In connection with digital technologies automation “refers to cases when a firm uses digital technologies to automate or enhance existing activities and processes, such as displaying information or supporting communications” (Li, Citation2020).

In our framework, automation is illustrated on the x-axis (see ). In contrast to Groover (Citation2001), who defines automation as a technology by which a process is accomplished without human input, we conceptualize automation as a blend of human and machine input by the firm in delivering market offerings (Parasuraman et al., Citation2000). The x–intercept reflects a market offering that relies solely on human input. The further down the x-axis, the higher the percentage of machine input that is needed for a specific market offering.

Figure 1. Theoretical framework.

Figure 1. Theoretical framework.

Automation is typically related to a cost leadership strategy. With the focus on lowering costs to be able to offer competitive prices while generating above-average returns, automation helps to achieve economies of scale through standardized, large-volume market offerings. Digital technologies, however, do not only allow for automation but also for (a certain and constantly increasing level of) flexibility, which is a core source of competitive advantage typically ascribed to small businesses (Fuller-Love, Citation2000). Semi-flexible technologies such as robot-driven production lines in automotive industries can realize some levels of preplanned individualization but still require heavy tooling and set-up costs. Similarly, app stores do not only recommend and sell apps using intelligent algorithms as an advanced form of automation, but also open the opportunity for customers to find and choose the applications they prefer. Such flexibility can make it possible for firms to also compete through differentiation. We will explore this aspect in more detail in the second dimension, individualization.

The second dimension: Individualization

In contrast to automation, craftsmanship fosters the production of highly individualized and often artfully created high-quality products using individual tools. Craftsmanship is historically based on manual labor conducted in small businesses. It has less potential to tap into economies of scale, has inherently high marginal costs and suffers from productivity constraints. Thus, highly individualized processes usually result in high production costs (Noble, Citation2017). Digital technologies, however, typically allow firms to provide individualized products and services without incurring the challenges described above. They offer users new degrees of freedoms (for example, to choose or use a specific product or service irrespective of place and time) or additional customer benefits (for example, because products are tailored to the needs of the single individual). We illustrate individualization on the y-axis of our theoretical framework and operationalize it with the level of individualization of a specific market offering. The y-intercept reflects a market offering that does not provide any options for individualization. The further down the y-axis, the more options for individualization the respective market offering provides.

Individualization is usually associated with a differentiation strategy (Koelling et al., Citation2010). Offering new degrees of freedom or additional benefits to customers helps firms create a unique market offering. The additional costs incurred are compensated by the price premium charged for the individualization, leaving firms following this strategy with above average returns despite low volumes. Digital technologies open the possibility to not only individualize market offerings, but to automate the underlying processes. Individual medical products, such as in-ear shells for hearing aids or the Invisalign® dental brace, can be produced in an automated, standardized process using additive manufacturing. The additional costs arising for the individualization are marginal, which allows for a low-volume, low-cost automated production that is also referred to as “mass customization” and “mass individualization” (Gu & Koren, Citation2018; Koren et al., Citation2015; Tseng et al., Citation2001). However, to realize the benefits of automated individualization firms need to combine knowledge from diverse disciplines using an interdisciplinary approach. We will investigate the third dimension, interdisciplinarity, in the following section.

The third dimension: Interdisciplinarity

Interdisciplinarity allows for creating something new by combining existing knowledge from different disciplines (D’Este et al., Citation2019; Fleming, Citation2001). By integrating multiple disciplinary lenses, interdisciplinarity fosters the emergence of completely new market offerings that can help firms create a competitive advantage (Kerin et al., Citation1992). In contrast to specialization, which can result in the creation of knowledge silos in a particular discipline that lack practical relevance (Maresch & Gartner, Citation2020), interdisciplinarity aims at integrating knowledge by bringing together insights from knowledge silos from different disciplines (for example, Linton & Walsh, Citation2004; Prahalad, Citation1993). To bring together insights from knowledge silos, small businesses need to foster and facilitate research expertise in diverse disciplines and manage the integration of knowledge from these disciplines (Collier et al., Citation2011). The integration of knowledge can be especially attractive for small businesses because it requires cognitive and social skills such as mutual understanding and the ability to align diverse perspectives, which is easier in small rather than in large businesses. The benefits of knowledge integration in small businesses should outweigh the coordination costs (D’Este et al., Citation2019).

Regarding digital technologies earlier research suggests that small business' ability to use digital technologies results from their digital experience and technological knowledge (Arkhipova & Bozzoli, Citation2018). This technological knowledge manifests itself in the form of digital IT capabilities (Proksch et al., Citation2021), and adds to the traditional skills and capabilities needed to provide market offerings such as marketing knowledge. The knowledge needed to create benefits from using digital technologies is, therefore, highly interdisciplinary. To realize the benefits of automated individualization conveyed by digital technologies, small businesses thus need interdisciplinary knowledge of both the respective digital technology and the other disciplines involved. The automated manufacturing of individual medical products using additive manufacturing, for example, requires knowledge of disciplines such as medicine, design, material science and mechatronics.

We operationalize interdisciplinarity with the profound knowledge and combination of different disciplines required for a specific market offering and show this dimension on the z-axis of the theoretical framework. The z-intercept illustrates a market offering that is based on knowledge from a single discipline. The further down the z-axis, the more disciplines are needed for the respective market offering. When compared to traditional products and services, digital market offerings typically score higher on this dimension, because the discipline of digitalization is added to the other disciplines involved (Alves et al., Citation2007).

Competitive strategies for scaling in the digital era

Our theoretical framework aims at illustrating how small businesses can gain competitive advantages that allow them to scale their operations by using digital technologies. Scaling implies replicability, that is, the possibility to provide a similar market offering with limited adaptations in different markets (Reuber et al., Citation2021). Traditionally, scaling requires effort and takes time as the business model must first be created and refined before it can be leveraged at large scale (Winter & Szulanski, Citation2001). However, once the model has been implemented, scaling can provide a substantial competitive advantage on a global scale (Argote et al., Citation2000; Jensen & Szulanski, Citation2007; Kostova, Citation1999; Rivkin, Citation2000; Szulanski & Jensen, Citation2006; Teece et al., Citation1997; Winter, Citation1995; Winter & Szulanski, Citation2001). For small businesses, digital technologies are an essential ingredient for scaling. Digital technologies can increase small firms’ speed in developing and launching new products, their flexibility and internationalization, their customer satisfaction and loyalty, as well as their ability to save tangible and intangible resources (Autio, Citation2017; Bharadwaj et al., Citation2013; Moreno-Moya & Munuera-Aleman, Citation2016; Nambisan, Citation2017; Pergelova et al., Citation2019; Rachinger et al., Citation2018). They provide small businesses with a non-location bound firm-specific advantage that allows them to offer adapted market offerings in different markets. We argue that the advantages that digital technologies convey stem from the possibility to simultaneously combine the three dimensions – automation, individualization, and interdisciplinarity.

The automation dimension inherent to digital technologies makes it possible for firms to expand to other markets rapidly and at low cost. For example, in the case of the Apple app store, automation is ensured by an intelligent algorithm that recommends and sells apps to the customers and manages the process of purchasing, distributing (in this case the download), installing and licensing. This allows Apple to replicate its market offering in different markets at marginal additional costs. However, automation as such does not distinguish digital technologies from analog technologies. Digital technologies allow firms to provide highly automated and highly individualized market offerings. Thus, firms can easily adapt their market offering to the preferences of a specific customer in a specific market without incurring additional costs. Returning to our earlier example of the Apple app store, individualization is provided through individualized recommendations, the possibility to choose between thousands of applications to customize one’s smartphone, and a peer-to-peer recommendation and rating system. Hence, adding the individualization dimension provided by digital technologies enables firms the possibility to gain and sustain competitive advantage over competitors that use analogue technologies. However, to create highly automated, highly individualized market offerings, small businesses need highly interdisciplinary knowledge of both the respective digital technology and the other disciplines involved. The Apple app store, for example, relies on the profound knowledge and combination of disciplines such as software development, cloud technologies, online payment systems and marketing. This combination of knowledge from diverse disciplines helps Apple gain and sustain a considerable competitive advantage in the market.

Anyone using our theoretical framework can easily identify any given firm’s potential to scale its operations by analyzing the digital technology used for delivering the services and products. A firm that uses a digital technology, which allows providing highly automated, highly individual market offerings that rely on an interdisciplinary approach, finds itself in the front upper right corner. This position indicates a competitive advantage to scale. Based on these arguments we propose the following hypothesis:

In the digital era, firms scale better if their strategy simultaneously addresses the following three dimensions: (1) automated processes, (2) individualized market offerings, and (3) interdisciplinary knowledge base.

Empirical study design

Methods

Competitive strategies for scaling in the digital era remain an under-researched phenomenon. Hence, to better understand the phenomenon within its context and broaden the knowledge qualitative methods are needed. Qualitative case studies allow to reconstruct the historical trajectory and the meaning of a phenomenon in a specific real-life context (Lang & Fink, Citation2019).

The explanatory case study methodology is particularly well suited for investigating the phenomenon at hand because we apply a predefined theoretical framework to a new real-world case, testing causalities and explanatory value (Yin, Citation2014). The use of case studies as an explanatory method requires a systematic, three-step approach that is comparable to other deductive research methods (Bitekine, Citation2008). First, researchers formulate a theory-based hypothesis regarding the evolution of a mechanism. Second, a systematic research design needs to be followed, which is guided by the research hypotheses. Third, the researchers implement evaluation criteria to assess potential biases and ensure the methodological rigor of the case studies (Herriott & Firestone, Citation1983; Yin, Citation2014). We have already established a testable hypothesis derived from theoretical considerations in the previous chapter. Hence, we will now focus on the data collection and analysis as well as the case selection and description.

We use diverse methods of data collection to build rich and comprehensive data and to offer a holistic perspective (Canhoto, Citation2021; Creswell, Citation2003). First, we conducted semi-structured interviews with three key informants who hold a distinct position in the case firm that ensures access to relevant information: the CEO, who is also the founder and owner of the firm, the director of new business and consulting, and the senior strategist. The aim of these interviews was to reveal how specific dimensions of digital technologies influenced the firm’s competitive strategies and how they contributed to scaling the firm’s operations. After a general part, in which we covered their use of digital technologies and their understanding of scaling, we specifically addressed the three dimensions – automation, individualization, and interdisciplinarity – identified in our theoretical framework. We asked the interviewees to provide concrete examples to illustrate the information they gave us wherever possible. Second, we collected secondary data such as newspaper articles, reports, and media broadcasts (see ) to avoid being trapped in the case (Johnston et al., Citation1999). By using multiple types of data, creating a database of materials, and following our case study protocol we were able to ensure triangulation, reliability, and quality control.

To connect theory and reality and examine causal relationships to derive compelling insights, our first choice for analyzing the data was to employ pattern matching (Bouncken et al., Citation2021; Sinkovics, Citation2018; Trochim, Citation1989; Yin, Citation2014). Pattern matching is a technique that compares expected patterns derived from theory to observed patterns in empirical data. Pattern matching is widely applied in explanatory case studies (Sinkovics, Citation2018) and requires “a theoretical pattern of expected outcomes, an observed pattern of effects, and an attempt to match the two” (Trochim, Citation1989, p. 360). This technique allows for evaluating outcomes on multiple dimensions even when only one observation is available for a given dimension (Bitekine, Citation2008; Yin, Citation1981). If the pattern of outcomes derived from the empirical data matches the expected pattern derived from theory, the theory is supported by the empirical data (Trochim, Citation1989). Alternatively – that is, if the pattern of outcomes derived from the empirical data does not match the expected pattern – the hypothesis might be modified (Yin, Citation2014). After transcribing and coding the data collected from the selected case, we thus compared the observed pattern arising from the data to the predicted pattern, that is, the theoretical framework. provides an overview of the analytical categories and representative evidence.

Table 2. Analytical categories and representative evidence.

Case selection and description

Because of the deductive nature of our study, we use theory-based case sampling (Bitekine, Citation2008; Patton, Citation2001). Two criteria guided the selection of the case firm: that (i) the firm offers digital products or services or uses digital infrastructures or platforms, and (ii) the firm has been able to rapidly scale its operations in recent years.

Netural GmbH (www.netural.com), established in 1998, is a digital service provider that offers solutions for digital sales support and frontstages, advice bots, and intranet platforms. It is a comparatively small business with approximately 80 employees and the owners are also its two chief executive officers. Between 2016 and 2020 the firm managed to considerably scale its operations. While its total assets almost doubled from 1.44 million USD in 2016 to 2.86 million USD in 2020, the firm’s equity more than tripled in the same time period, increasing from 0.36 million USD in 2016 to 1.21 million USD in 2020. Interestingly, the number of employees remained stable in this time period. The firm’s headquarters are located in Linz, Austria, with another office in Vienna, Austria. The focus of the firm’s activities is to offer bespoke digital services. The starting point in a new project is to study the customer’s business in order to understand its requirements before selecting appropriate technologies to create unique user experiences. The firm compares itself to “batch size one” factories, indicating that their approach to working on projects is comparable to craftsmanship. The projects are typically undertaken by interdisciplinary teams consisting of experts in the fields of, for example, user experience and user interface, engineering, strategy as well as augmented and virtual reality.

To scale its operations, Netural not only offers services based on digital technologies, but it also founds spin-offs. These spin-offs include Roomle, a VR software for planning and setting up rooms, VIVELLIO, a blockchain-based application for managing health data, and Storyblok, a headless content management system (CMS). The VR based planner Roomle allows the virtual furnishing of rooms and forms the background technology of numerous furnishing and furniture stores in Austria, Germany, and Sweden. With over six million installations, it is one of the most widely used products in this sector (P15). Roomle had 20 employees in 2021. Between 2016 and 2020 the firm scaled considerably with its total assets more than doubling from 0.38 million USD in 2016 to 0.80 million USD in 2020. The firm has received several awards and achieved one of the most successful exits in Austrian history (P16). The health manager VIVELLIO is based on big data, blockchain technology and artificial intelligence and allows the secure management of medical documents, health data, medication, allergy and vaccination records, emergency data, a directory of experts and individual prevention. Specific functions support not only the patient, but also the treating physician (P8).

The most successful product, however, is Storyblok, which became a spin-off in 2017. Storyblok is a novel content management system (CMS) that adopts a unique component-based approach, also referred to as “headless CMS.” The user-friendly and powerful IT solution makes content accessible via an application programming interface (API) for display on any device and channel. It allows users to publish and repurpose their content across multiple channels to deliver content on any platform, such as corporate websites, e-commerce sites, mobile apps, and screen displays (P1). Within only a few years, the firm succeeded in scaling its operations considerably. Just two and a half years after it was founded, three investors invested €2.3 million (approx. 2.5 million USD) in the young firm, resulting in a valuation of €10 million (P13). This led to an increase in equity from 0.02 million USD in 2017 to 2.18 million USD in 2020 and in total assets from 0.24 million USD in 2017 to 2.82 million USD in 2020. A short time later, the firm managed to raise another 8.5 million USD (P5) to fund the expansion to Germany and Ireland (P1). “Growth in Ireland and Germany is going very well – in fact, across all our markets, we see a real boom in interest in our solution – especially among enterprises. We have opened up an office in Hamburg, have hired our three first Germany-based employees, and have been able to onboard new enterprise customers such as Unzer, McMakler, or Marley Spoon. In addition, we are in the process of opening our office in Ireland very soon.” (P1). Aside from these examples, the firm serves many other well-known customers such as Adidas eyewear, BMW, Pizza Hut, Cineplexx, and Swarovski (P4; P12; P13) and the technology has been used in 79,000 projects across 131 countries (P5; P12; P13). Storyboard’s replication strategy across industries and countries was a tremendous success, and the firm was able to scale significantly even during the COVID-19 crisis. Although it only had 25 employees in January 2020, it already employed 45 employees by July 2021 (P12). In addition, their software recorded a 600% growth of enterprise clients. “We are currently seeing the highest increases in accesses and new registrations in the USA, Northern Europe, Australia and China. Our customers also include brands such as We.org, Ingenico, Adjust, Panini, Tribal Worldwide and Imagination,” said Storyblok co-founder and CEO Dominik Angerer (P13). One of the firm’s competitive advantages is its strategic focus on customer needs; “We focus entirely on the benefits, not the features. (P1). This focus is well received by investors; “In a vast but relatively homogeneous market, Storyblok has impressed us with a truly differentiated product that resonates with small and large enterprises. The organic traction is proof of the customer love from both developers and marketers.” says Fatou Bintou Sagnang, Director at Mubadala Capital Ventures and board member of Storyblok (P5).

Findings

Cost-leadership by automation

Netural’s cost strategy is based on removing inefficiencies through automation, which requires a high level of standardization; “Eight to ten years ago we had a much broader offering, which made it quite difficult to standardize our consulting and implementation process. That often led to quite serious inefficiencies. Today we are much clearer on our focus, which helps us develop and implement standards for our processes” (I2). The resulting automation helped the small business to scale without the need to expand resources; “Because we were able to automate a lot, we didn’t have to increase our human resources for a long time” (P13). In addition, process optimizations led to significantly greater flexibility; “We optimize processes so we can offer costumers flexible and individual packages. If we are too expensive, there is the possibility to say, ok, let’s reduce the scope, let’s start with agile development and see how far we come with your budget. In agile development, time and budget can be fixed as long as the scope is flexible.” (I3). This flexibility allows for the realization of cost-leadership. The automation and standardization in Netural’s development and implementation process do not only provide a cost advantage but also the flexibility to serve different customer segments.

Differentiation by individualization

However, Netural’s strategy not only led to greater flexibility and positive cost effects, but also allowed the firm to differentiate its market offerings at the same time. Differentiation is hereby predominantly based on individualization; “The market offerings for our customers are highly individualized. We analyze business cases and conceptualize and implement digital services with a high degree of individualization.” (I2). To achieve differentiation, the company pursues a strong, user-centered philosophy; “Our solutions are always user-centric. The applications therefore have to be individualized in any project. So, we provide mostly highly individualized services” (I3). Like automation, individualization is made possible by the intelligent use of digital technologies; “Our strategy here is that we deliver products which can be individualized by our clients based on a strong API-architecture and based on a standardized product” (I1). Thus, Netural’s differentiation strategy is based on individualized market offerings, which are facilitated by digital technologies.

Interdisciplinarity

The simultaneous implementation of cost-leadership and differentiation strategies can already provide firms with a unique competitive advantage. However, only by additionally relying on interdisciplinarity, Netural is able to provide truly unique market offerings that enable it to scale. “Being best in class can only be achieved with passion, research spirit, and plenty of experience in communication, user experience design and technology” (P4). Another interviewee reinforces this point: “We rely on knowledge from various disciplines” (I2). Interdisciplinarity can be achieved by combining traditional business knowledge with the knowledge of digital technologies. “Today, even the carpenter uses digital technologies, and Amazon has opened supermarkets. The entire economy is digital and non-digital at the same time” (I3). “We need process knowledge - experience from earlier projects that has been translated into procedural standards for developing our services, and we need the ability to quickly gain a basic understanding of our customer’s business” (I2). Netural’s core knowledge includes (1) methodical knowledge in business case and user journey analyses; (2) an overview of digital business development and trends (e.g., which platforms are growing and why); (3) technical knowledge: system architecture and knowledge of system providers; (4) developing skills for different frameworks; (5) UX and design skills; and (6) project management knowledge” (I3). Since individuals typically do not possess such a wide range of interdisciplinary knowledge, interdisciplinarity requires new forms of (personnel) management. “[Working remotely] means that everyone brings different ideas and experiences to the table. As a result, we don’t (…) constantly challenge what we do and if it provides the best experience to our customers.” (P1). “Storyblok has more than 40 employees with 18 different nationalities. Remote work works. We can hire people based on their talent and skills – no matter where they are. We have built a more diverse team than we ever could if we had physical offices (P1). “The benefits of getting talented people from across the world are massive. You get the very best people, a plurality of experiences and backgrounds, and insights into different markets” (P1). Interdisciplinarity is thus necessary to understand the individual customer requirements and markets, and to develop technologically complex and interdisciplinary products.

Interestingly, the interdisciplinarity dimension not only challenges the small businesses’ internal organization, but also the acceptance of its market offerings by the customers. One of the interviewees describes this challenge as follows; “I would assume that interdisciplinarity is the toughest change challenge that incumbent firms currently face. For our customers it is often very hard to let different disciplines interact and to cooperate across defined organizational borders (administrative and cultural). The 'shortcut' between various disciplines is hardly recognized due to a lack of internal ties. Sometimes, the shortcut is simply not pursued by those who control and/or profit from the established organizational (i.e., hierarchical, or informational) structure and they often use standardized processes as “killer argument” to keep things as they are.” (I2) Clearly, Netural succeeds in meeting the challenge of interdisciplinarity with its market offerings.

Competitive strategies for scaling in the digital era

Digital technologies simultaneously combine automation and individualization; “Individualized market offerings and standardized processes are different sides of the same coin. Today, it is much easier to offer individualized services through standardized processes. Individualization does not only refer to the way in which things are done, but also to the decision what is done and the long-term strategy” (I3). “The products we deliver to our customers are highly individualized. The process of how to get there gets more and more standardized. We call this a 'Batch-Size ONE Factory'” (I2). One interviewee describes how the progress in digital technologies has supported them in combining cost leadership and differentiation strategies; “Some years ago, having an individual solution meant programming it from scratch and for a single firm. Today, no-code platforms allow for developing individual solutions.” (I3). However, Netural’s market offerings also need to be based on an interdisciplinary approach to ensure a competitive advantage. Typically, this implies using digital technologies in addition to incumbent technologies; “How can we enhance a business to deliver value? That is the main question. The answer is increasingly digitalization. Around 1900, the answer was industrialization, using machines etc.” (I3).

By simultaneously combining automation and individualization with profound interdisciplinary knowledge, Netural’s business model can be replicated in new markets “We replicate our business model across markets by providing country-specific language and buying options based on the same product” (I1). This replication strategy allows the firm to decrease its costs; “there is a bigger market for the same product with lower marginal costs” (I1). Moreover, it also leads to increased customer benefits due to individualization; “we can excel in delivering highly individualized solutions for unique and complex business cases in a very reasonable timeframe (e.g., 6–12 months compared to 2–3 years with a conventional software development approach” (I2). The possibility to simultaneously combine automation and individualization ultimately allows the firm to gain new customer segments; “we begin to get more and more customers who set the technology and systems they want us to use to implement a solution” (I3).

In our explanatory case study, we find the pattern that Netural’s approach to simultaneously (1) rely on automated processes, (2) provide individualized market offerings, and (3) use an interdisciplinary knowledge base within the digital era leads to better scaling performance. Comparing this empirical pattern to the theoretical pattern formulated in the hypothesis shows a strong match. Thus, the results of the explanatory case study confirm our hypothesis.

Discussion

The case of Netural shows that the strategic use of digital technologies can result in a highly scalable business model when automated processes, individualized market offerings and interdisciplinary knowledge are combined. Traditionally, firms had to choose between the two competitive strategies, cost leadership and differentiation, when positioning their market offerings (Porter, Citation1985, Citation1980). Market dominance, economies of scale, ingenious production methods, and patents sometimes enabled firms to realize both competitive advantages over time despite an initial focus on one of them (Karnani, Citation1984; Murray, Citation1988). In the case of Netural the use of digital technologies to automate processes and simultaneously provide individualized products allows the combination of the two strategies from the very beginning without getting “stuck in the middle” (Porter, Citation1985, p. 17). Carving out additional customer benefits due to individualized market offerings and cleverly implementing one’s market offerings with a customer-friendly and widely automated digital technology can even result in disruptive products and services (Gartner & Fink, Citation2018) and lead to significant economic and societal shifts (Christensen et al., Citation2015). This is especially true when firms can additionally seize network and platform effects that digital technologies enable.

In developing such market offerings, the traditional division between technological applications and business strategy has become blurry because digital business models and digital systems are closely entwined. As a result, digital technologies provide significant opportunities due to their pervasiveness and accessibility (Akhtar et al., Citation2018; Troise et al., Citation2022) and should become an integral part of corporate strategy (Bharadwaj et al., Citation2013). To successfully integrate digital technologies into corporate strategies a new interdisciplinary mindset is needed (D’Este et al., Citation2019; Fleming, Citation2001) that allows for rethinking the entire value chain by bridging different silos of knowledge to achieve competitive advantage (Kerin et al., Citation1992). This need for an interdisciplinary mindset is clearly evident in the case of Netural. The case shows that incorporating all three dimensions in the strategic orientation requires deep knowledge of more than one discipline (that is, industry, technology and management knowledge) and the ability to combine it. However, the interdisciplinarity dimension seems to be a significant challenge for a small business' internal organization and for the customers’ acceptance of the small business' market offerings. Because interdisciplinarity requires the reconfiguration of knowledge from various disciplines, tensions can arise within firms and result in firm incommensurability at worst. Thus, when bridging different silos of knowledge, managers need to employ an ambidextrous approach to business model innovation (Markides, Citation2013). This approach allows them to address the tensions between the respective disciplines (Forsten-Astikainen et al., Citation2017; Goh, Citation2002; Krylova et al., Citation2016; Schneckenberg, Citation2015).

The presented theoretical framework helps to understand the competitive advantage that small businesses can derive from cleverly implementing digital technologies (Bruque & Moyano, Citation2007; Dibrell et al., Citation2008; Kim et al., Citation2004; Zahra et al., Citation2022). The front upper right corner provides a categorization space for market offerings that are based on a high level of automatic individualization and call for a sophisticated interplay of more than one discipline (D’Este et al., Citation2019; Fleming, Citation2001). Such market offerings can outperform traditional market offerings, because they enable firms to simultaneously achieve cost-leadership and differentiation. Once developed, these market offerings can easily be replicated in other markets or locations and thus enable even small businesses to scale (Argote & Ingram, Citation2000; Reuber et al., Citation2021; Rivkin, Citation2000; Szulanski & Jensen, Citation2008; Winter & Szulanski, Citation2001). Overall, the dynamic applicability of the theoretical framework provides an excellent basis to develop and evaluate specific market offerings in the digital era, such as additive manufacturing, mobile payment, and digital health care services.

The practical value of the theoretical framework is the guidance it provides to managers to assess the competitive advantage they can gain from using digital technologies. Small businesses competing in the digital era no longer risk underestimating the strategic importance of digital technologies. They can no longer simply relegate technological advances to technology substitution (Yeo & Marquardt, Citation2015). Instead, the theoretical framework allows managers to consider the potential that digital technologies offer for a radical redesign of the firm’s competitive strategies (Lanzolla & Suarez, Citation2012; Yeo & Marquardt, Citation2015) to simultaneously address cost leadership and differentiation. It also allows them to assess any new features digital technologies allow to add to existing market offerings and the corresponding competitive advantage. Such additional features might even offset higher costs of production if cost advantages cannot be realized through automation (Maresch et al., Citation2016).

The findings of this research must be interpreted with the limitations in mind that arise from the theoretical perspective, the data and method used. However, those same limitations indicate attractive avenues for future research. Taking a theoretical perspective that blends elements of innovation management and strategic management highlights specific aspects of the phenomenon. At the same time, other potentially important aspects cannot be captured with the chosen theoretical lens. Thus, future studies assessing the proposed framework should take alternative theoretical perspectives such as a historical perspective to better capture the temporal trajectories leading to different levels of competitiveness. Alternatively, taking a resource-based view could uncover additional conditions for scaling based on digital technologies from a capability perspective. This perspective would put the human factor more center stage in future studies.

The main limitation stemming from the data is the potential bias caused by interview partners due to ex post rationalization of past developments and behaviors reported from their memories. We reduced this threat by relying on narrative interview techniques and tested the interview data using triangulation between the interviews and with other data sources such as media reports and hard facts. However, because such bias cannot be ruled out completely, we advise researchers in future studies to follow their case for a longer time period that covers the adoption of digital technologies, the emergence of competitive advantages and the subsequent scaling of the firm. This would also add a dynamic perspective to the proposed theoretical framework. Moreover, the collection of data from one firm helped to reduce complexity of the explanatory case study and, thus, enabled us to extract the empirical pattern. However, replicating this research in other firms would help to identify boundary conditions of our theoretical framework. The study was focused on the context of an entrepreneurial digital service firm in Austria. Investigating other types of organizations of different sizes in different locations would add additional nuances to our findings. This is a study on small businesses. However, the key insights seem to be relevant for larger firms as well. To understand the boundaries of a transfer of our findings in the context of larger firms, future research should replicate our study in larger firm contexts.

Finally, digital technologies develop rapidly, and it is most likely that from these future developments new dimensions will arise that are to be integrated into the theoretical framework. Our method was focused on past data rather than projections of the future. However, accounting for future developments is relevant for the topic at hand. For example, artificial intelligence and new forms of human-machine interaction will open new doors for competitive advantages besides the three dimensions we include in our theoretical framework. We hope that our peers with their future studies will support us in keeping the framework up-to-date.

Conclusion

In this paper, we have developed a theoretical framework that illustrates how small businesses can gain a competitive advantage by using digital technologies. The framework shows that by simultaneously combining three different dimensions of digital technologies, that is, automation, individualization, and interdisciplinarity, small businesses no longer have to choose between cost-leadership and differentiation strategies, but are able to implement both at the same time. To do so, small businesses should see digital technologies as a fundamental challenge that they can only master with a profound understanding, a clear acceptance of the limits of the technologies and a creative use of these technologies.

We contribute to theory and practice in multiple ways. By revisiting competitive strategies in the digital era, we stress the need for a scholarly update and extension. We highlight that the complexity of using digital technologies to generate competitive advantages and to scale a business has been widely underestimated (Li, Citation2020; Matt et al., Citation2015). We also illustrate the opportunities for gaining and sustaining competitive advantages and scaling small businesses that result from digital technologies in a theoretical framework. This framework explains how the interplay of the three dimensions automation, individualization, and interdisciplinarity of digital technologies provides a unique competitive advantage and can help to understand how successful small businesses in the digital era can scale their operations. The framework can guide both researchers and practitioners seeking to identify the strategic potential of digital technologies. Moreover, it informs policymakers about the challenges arising from the interdisciplinary nature of digital technologies underlying market offerings such as digital sales support.

Overall, this paper introduces and tests a theoretical framework that helps understand the strategic potential of digital technologies for scaling businesses. It shows that the established wisdom of strategic management and innovation management need to be extended for remaining relevant in the digital era. Besides providing a useful framework, this manuscript provided insights that should inform and motivate follow-up studies.

Disclosure statement

No potential conflict of interest was reported by the authors.

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