Digital transformation in family-owned Mittelstand firms: A dynamic capabilities perspective

ABSTRACT

Digital technologies are increasingly affecting industries worldwide in many ways. Although the adoption of digital technologies by firms has been studied extensively from a technical point of view, previous research lacks insight into the managerial aspects of digital transformation, which, given the transformation’s interdisciplinarity, might have substantial implications for information systems research. In particular, it is unclear how small and medium-sized family-controlled firms (known as family-owned Mittelstand firms) with resource constraints handle digital transformation. This paper addresses this gap by drawing on rich data from 127 semi-structured interviews in a multiple case study of 15 family-owned Mittelstand firms from Germany, Austria, and Switzerland. All of these firms are active in the manufacturing industry but vary in terms of their digital transformation progress. Based on within-case and cross-case pattern analysis, we propose that the digital transformation of Mittelstand firms is a process consisting of three stages, namely, process digitalisation, product and service digitalisation, and business model digitalisation, and we reveal triggers for each stage and the dynamic capabilities needed throughout this process. Moreover, we identify three combinations of enablers and barriers that support or hinder the development of dynamic capabilities and thus accelerate or impede the advancement of the digital transformation process.

ACCEPTING EDITOR:

• Pär Ågerfalk

ASSOCIATE EDITOR:

• Ryad Titah

KEYWORDS:

• Digital transformation
• digital innovation
• dynamic capabilities
• technology adoption
• family business
• SMEs
• Mittelstand firms

Acknowledgment

We gratefully acknowledge helpful comments on earlier versions of this manuscript by Alexandra Bertschi, Francesco Chirico, Franz Kellermanns, Henri Schildt, and Heiko von der Gracht. Additionally, we are very thankful for the valuable input provided by participants of following research seminars and conferences: Aalto University workshop on digital data and virtual representation in organizing and management 2017 in Helsinki, Finland; joint research seminar between WHU – Otto Beisheim School of Management and Technical University of Munich 2017 in Munich, Germany; European Academy of Management (EURAM) annual meeting 2018 in Reykjavík, Iceland; Academy of Management (AOM) annual meeting 2018 in Chicago, United States; 22nd Annual Interdisciplinary Conference on Entrepreneurship, Innovation and SMEs (G-Forum) 2018 in Stuttgart, Germany; and International Family Enterprise Research Academy (IFERA) annual meeting 2019 in Bergamo, Italy. We also express our appreciation to editor-in-chief Pär J. Ågerfalk, one anonymous associate editor, and two anonymous reviewers for their valuable suggestions.

Disclosure statement

No potential conflict of interest was reported by the authors.

Correction Statement

This article has been republished with minor changes. These changes do not impact the academic content of the article.

Notes

1. We used the following combination of keywords: (“digital*” OR “digitization” OR “industry 4.0” OR “industrie 4.0” OR “internet of things” OR “iot” OR “information technolog*” OR “information system*”) AND (“family business*” OR “family compan*” OR “family firm*” OR “family enterprise*” OR “family-manag*” OR “family-control*” OR “family-owne*” OR “founding-family” OR “privately held firm*” OR “privately held compan*” OR “privately held business*” OR “family influence*” OR “family-influence*” OR “family-govern*” OR “family-led*” OR “mittelstand” OR “SME” OR “small and medium-sized enterprise*” OR “small and medium-sized business*” OR “small and medium-sized compan*” OR “medium-sized enterprise*” OR “medium-sized business*” OR “medium-sized compan*”). To ensure the high quality of the identified articles, we focused our research on articles included in the “ERIM Journal List” as either Star, Primary, or Secondary set of academic peer-reviewed outlets (84 out of 764 articles).

2. We relied on two criteria for determining relevance: 1) the depth and breadth to which the adoption, use, and/or utilisation of digital technologies in the organisation are explained, and 2) the depth and breadth to which SME or family-firm specific characteristics are addressed. Articles in which digital technologies and SMEs or family firms were not the essential constituent and very core of the research agenda were not included. This task was carried out by the first author and a trained research assistant.

3. These operational capabilities are comparable to what Zahra et al. (2006, p. 917) and Schilke (2014, p. 368) refer to as “substantive capabilities” and Teece (2014, p. 330) call “ordinary capabilities.” However, we use “operational capabilities” because this term best reflects the differentiation of dynamic capabilities from the functional abilities needed in everyday business routines. This denotation is in line with general remarks on dynamic capabilities by Cepeda and Vera (2007), Easterby-Smith et al. (2009, p. S5), and Helfat and Winter (2011) and with an examination of dynamic capabilities in the context of digital transformation by Karimi and Walter (2015, p. 43).

4. We use the term “stage” instead of other frequently used terms such as “level” or “phase” due to the following reasons. First, while Langley (1999, p. 692) described phases as a “linear sequence,” our data does not allow any conclusions on sequentiality. Second, in contrast to the levels described by Venkatraman (1994), for instance, our data indicate a more process-like character, as our findings suggest that the capabilities developed in one stage were required in order to enter the next stage and no stage could be skipped. In addition, our interviews focused on understanding a process (i.e., stages) rather than a status quo (i.e., levels).

5. Case firm Omicron exemplifies this linkage, having processed new information on the combination of digital sensors with mechanical transmissions. The step to enter new markets with the resulting digital product was an important strategic decision for the company, which in turn enabled the firm to transfer the learning from this strategic decision-making process to other occasions.

6. To a lower degree, paternalistic decision making also impedes the development of further dynamic capabilities such as the reorganisation of routines and brand management. The continuous renewal of the firm, the ability of employees to learn quickly, and the ability to form strategic partnerships, however, were only lightly impeded by paternalistic decision making.

7. Cash opportunities also foster the development of further dynamic capabilities (reorganisation of routines, brand management), but to a somewhat lower degree, while the ability to continuously renew the firm, the ability of employees to learn quickly, and the ability to form strategic partnerships were only partly boosted through cash opportunities.

8. An inconsistent understanding also affects other dynamic capabilities, such as effective strategic decision making and the ability to recognise, assimilate, and commercialise new information, albeit to a lesser extent, and it has a slightly impeding effect on the reorganisation of routines and brand management in the context of digital transformation.