Managing digitalization with Dynamic Capabilities - A case study on how incumbent firms are building dynamic capabilities to address digitalization

Abstract: Digitalization has a strong impact on all industries. The emergence of new technologies, also influences both society and the economy. For product developing firms this infer a need to respond to market change and innovation in product development. Digitalization influence uncertainty and pace of change, and puts pressure on incumbent firms to adept the organization for the rapid changing market to stay competitive. Adjusting against the new market logic, require firms to develop dynamic capabilities to address new technologies and market needs, in order for quick renewal of their capabilities. Incumbents have to find ways to manage uncertainty in the evolution of technologies, path dependency and switching costs, by new ways of viewing their investments in technology. Option theory is a valuation tool for strategy and investments, used to balance investments in technology and uncertainty. The study has for that reason applied option theory as a theoretical lens to display the firm’s resources and capabilities and employ uncertainty as part of the approach. The purpose for this thesis has therefore been to increase the body of knowledge on how product developing firms are creating new capabilities, to manage new market logic, technology and rapid changing markets. This thesis has used qualitative content analysis and secondary data from four global Swedish product developing firms with a prominent market position to study how incumbents respond to digitalization by building new capabilities. The case firms Assa Abloy, SKF. IKEA and Electrolux and their capability development in response to digital technology were analyzed. The main result from this thesis are that product developing firms are building dynamic capabilities to integrate knowledge of customer and market close to the production process for digital products and technologies. To meet expectations from the market considering new ways to experience and consume products, capabilities to manage innovation effectively are being created. Digital technology requires firms to build capabilities to acquire and share knowledge on technology and markets to leverage the logic in the digital economy.