Information Systems Frontiers (2023) 25:1063–1080

https://doi.org/10.1007/s10796-020-10089-2

Shaping Digital Innovation Via Digital-related Capabilities

Mina Nasiri 1 & Minna Saunila 1 & Juhani Ukko 1 & Tero Rantala 1 & Hannu Rantanen 1

Accepted: 3 November 2020 / Published online: 12 November 2020

# The Author(s) 2020

Abstract
The aim of this research was to explore the conditions under which digital innovation opportunities emerge in small and medium-
sized enterprises (SMEs). The research answered the question of what capabilities are required to shape the exploitation of digital
innovation, namely market offerings and the digital business process. To address the research question with a quantitative
research method, data were collected through survey questionnaires distributed among 280 SMEs operating in the service and
manufacturing industries in Finland. The results revealed that among four digital-related capabilities—namely human, collabo-
ration, technical, and innovation capabilities—human, technical, and innovation capabilities contribute to market offerings, while
human, collaboration, and technical capabilities contribute to the business process.

Keywords Digital innovation . Digital-related capabilities . Digital transformation . Market offerings . Digital business process

1 Introduction driven insight, as well as develop capabilities to implement

these recognized possibilities. In other words, companies need
As digital transformation is shaping the business environ- to find ways to exploit digital innovation. Therefore, the dom-
ments of contemporary companies, companies need the adjust inant role of digital innovation is being increasingly observed
their operations and find ways to respond to the changes. To in the business environment due to new opportunities that
operate in increasingly digitalized business environments, and offer firms the potential to broaden into new and special ex-
as a part of the digital ecosystems (Delgosha et al. 2020; periences (Jahanmir and Cavadas 2018; Kolloch and
Pappas et al. 2018), companies need to not only find innova- Dellermann 2018; Nylén and Holmström 2015), leading to
tions and innovative ways to change their businesses but also high profit potential and customer satisfaction (Bednar and
develop capabilities to exploit innovation in changing sur- Welch 2019; Parida et al. 2015). The origins of digital inno-
roundings. Further, Mikalef et al. (2020), argued that to derive vation can be traced to digitalization (Chan et al. 2019), which
value from the growing opportunities of digitalization, such as acts as an enabler of and creates essential conditions for
big data, companies need to develop the organizational capac- exploiting digital innovation (Yoo et al. 2010). Such exploi-
ity to recognize how their businesses can benefit from data- tation requires capabilities, relevant to digitalization, that re-
spond appropriately to market opportunities and digital tran-
sitions. Further, in responding to digital transitions, align-
* Mina Nasiri ments between organizational capabilities and market de-
[email protected] mands must be created, as misalignments in this dynamic
can lead to business failure (Chan et al. 2019).
Minna Saunila
[email protected] Pappas et al. (2018) argued that to reach digital transfor-
mation and the creation of sustainable societies, none of the
Juhani Ukko
operators in society should be seen in isolation; instead, there
[email protected]
is a need to improve the understanding of how their interac-
Tero Rantala tions lead to knowledge, innovation, and value creation.
[email protected]
Digitalization provides many ideal opportunities, particularly
Hannu Rantanen for small- and medium-sized enterprises (SMEs), and the in-
[email protected] terplay between companies’ different types of capabilities and
1 innovation in digitalizing business is of growing interest to
School of Engineering Science, Department of Industrial
Engineering and Management, LUT University, Mukkulankatu 19, both academics and practitioners (Bednar and Welch 2019;
15210 Lahti, Finland Mikalef et al. 2018). For example, Mikalef et al. (2019)
1064 Inf Syst Front (2023) 25:1063–1080

examined the indirect relationship between a Big Data analyt- lacking. This is referred to as the process perspective on digital
ics capability and two types of innovation capabilities— innovation, and it includes the actions and outcomes of digital
incremental and radical. As a part of the companies’ innova- innovation (Kohli and Melville 2019). Traditionally, the main
tion activities in digitalizing business environments, such as focus of innovation management research has been on either
those related to Big Data analytics or business ecosystem ac- innovation development actions or innovation outcomes (i.e.,
tivities, it is important to develop theory and conduct practical Ahmad et al. 2013; Sivasubramaniam et al. 2012). Digital
research that will incorporate the phenomenon called digital innovation involves both actions and outcomes, as suggested
innovation (Nambisan et al. 2017). In the big picture, digital previously (i.e., Lee and Berente 2012; Nambisan et al. 2017).
transformation requires companies of all sizes to rethink Few studies have concentrated on the firm-level capabilities
and innovate their businesses, yet SMEs may have little needed to identify, assimilate, and apply valuable knowledge
time and few resources for experimenting with their busi- from both inside and outside the firm with regard to opportu-
nesses or for implementing new strategies (Bouwman nities for digital innovation, known as initiate activity (Kohli
et al. 2019). Recent research has investigated how SMEs and Melville 2019). Therefore, the scope of this study was
with inadequate capabilities and limited resources drive formed on the following basis: innovation is considered to
digital transformation (Li et al. 2018) and has further cover both the digital-related capabilities that comprise the
demonstrated the lack of understanding of the capabilities basis of the initiate activity and digital innovation as an
of SMEs with respect to different aspects of digital trans- outcome.
formation. As such, the topic has gained interest among To address the abovementioned research gap, this study
academics. For example, Cenamor et al. (2019) examined utilizes a quantitative research method. The aim of the study
the effect of digital platform capability and network is to explore the conditions under which digital innovation
capability on the financial performance of opportunities emerge in SMEs. The following research ques-
entrepreneurial SMEs, while Neirotti et al. (2018) ex- tion was addressed: What capabilities are required to shape the
plored how SMEs develop ICT-based capabilities in re- exploitation of digital innovation? To answer this research
sponse to their environment. Overall, few studies have question, a structured survey questionnaire was administered
concentrated on the firm-level capabilities needed for dig- to 280 SMEs operating in the service and manufacturing in-
ital innovation (Kohli and Melville 2019). This study dustries in Finland. First, this research contributes to the pro-
sheds light on exploiting digital innovation by identifying cess perspective of digital innovation, considering digital in-
the required capabilities in digital transformation and un- novation as an outcome and the capabilities needed to create
derstanding the way of utilizing those capabilities. In this it. Further, by incorporating the effects of digital-related capa-
study, digital-related capabilities were defined as organi- bilities based on the digital innovation type, the research ex-
zational capabilities in terms of multidimensional con- tends the digital innovation literature. The research focused on
structs, such as human (Chan et al. 2019; El Sawy et al. SMEs because, despite the perception that SMEs are frequent-
2016; Kane et al. 2015; Legner et al. 2017), collaboration ly hampered by a lack of resources and capabilities, the prob-
(Amit and Han 2017; Chuang and Lin 2015; El Sawy ability of successfully exploiting digital innovation was higher
et al. 2016; Pagani and Pardo 2017; Sjödin et al. 2016), for SMEs than it was for large and well-established companies
technical (El Sawy et al. 2016; Parida et al. 2015; Sjödin (Street et al. 2017). This may be because SMEs have the
et al. 2016; Yoo et al. 2010), and innovation (Parida et al. capability to move quickly and easily, whereas large compa-
2015; Sjödin et al. 2016; Sousa and Rocha 2019; Xue nies are frequently unwilling to adopt digital innovations be-
2014) capabilities. These capabilities enable companies cause of the risk of losing their current competitive advan-
to respond quickly to digital transformation and to thereby tages. Moreover, organizations that are mature and well-
exploit digital innovation (Fichman et al. 2014; Kohli and developed are marked by institutionalized processes, capabil-
Mekville 2019; Nambisan et al. 2017; Nylén and ities, and cultures that, in this case, may hinder their ability to
Holmström 2015; Urueña et al. 2016). Successful digital respond to digital transitions (Chan et al. 2019).
innovation greatly depends on how capabilities are under- The rest of the paper is structured as follows. Next, the
stood and, subsequently, how such capabilities are theoretical framework for the study, including its theoretical
adapted with regard to innovation outcomes, processes, underpinnings and key concepts, is presented. After this, the
and related markets (Nambisan et al. 2017; Nylén and research model used in the study is described, including a
Holmström 2015). Moreover, digital innovation is incor- discussion of the research hypotheses. Afterward, the research
porated into the continuous matching of digital-related methodology is presented, followed by a discussion of the
capabilities with traditional market offerings (Nambisan research results. Lastly, the conclusions of the study are
et al. 2017). summarized.
However, research on the types of capabilities required to
shape the evolution of the digital innovation phenomenon is
Inf Syst Front (2023) 25:1063–1080 1065

2 Theoretical Framework capabilities based on dynamic and fluid perspectives

(Lyytinen et al. 2016; Yoo et al. 2010). This means that capa-
2.1 Dynamic Capabilities and Digital Innovation bilities once considered practical may now be impractical or
even damaging for the new, emerging condition (Chan et al.
Innovation is the creation and adoption of a practice or object 2019). As a result, there are demands for developed and com-
considered novel (Rogers 1983). Creating innovation is bined capabilities that will permit companies to offer modern
achieved through distinct resources. Resources can be either service offerings. These combined capabilities include service
tangible, such as humans and technology, or intangible, such development capabilities (i.e., developing new offerings and
as knowledge (Davila et al. 2012). These resources ensure the solutions), network management capabilities (i.e., knowledge
efficient execution of innovative routines within firms. As one sharing with the right partners), and digitalization capabilities
of the driving forces of innovation creation, digital transfor- in terms of technical abilities (i.e., integrated and smart sys-
mation not only provides novel opportunities for companies tems), which play a key role in the provision of advanced
but also necessitates an understanding of what capabilities are market offerings (El-Haddadeh 2020; Sjödin et al. 2016).
required and how those capabilities should be adapted with Thus, in this study, digital-related capabilities were defined
regard to innovation outcomes, processes, and related markets as organizational capabilities in terms of multidimensional
(Kohli and Melvill 2019; Nambisan et al. 2017). Current re- constructs, such as human, collaboration, technical, and inno-
search has stated that firms use dynamic capabilities to adapt, vation capabilities, for moving toward digitalization. These
integrate, or reconfigure existing resources and skills to read- digital-related capabilities help companies to respond quickly
just to environmental change (Teece et al. 1997). The dynamic to digital transformation and to exploit digital innovations
capabilities theory deals with the unique, difficult-to-replicate (Kohli and Mekville 2019; Sjödin et al. 2016; Urueña et al.
capabilities that allow rapid adaptability to changes in the 2016).
external environment (Teece 2014; Teece et al. 1997). Thus, Referring to human capabilities, as the source of digital
this theory is well-suited to examine changes caused by digital innovation, digitalization requires employee support, readi-
transformation. Dynamic capabilities reside in “interrelated ness, and digital know-how (Chan et al. 2019; El Sawy et al.
routines within firms for performing specific tasks” (Ngo 2016; Kane et al. 2015; Legner et al. 2017). Companies that
and O’Cass 2013, p. 1135). To classify exisiting capabilities, lack digitally skilled employees and/or staff skilled at problem
research on the routines and operations used by firms for de- solving suffer from deficient capabilities because of the com-
veloping digital innovation is needed. Thus, the following plexity typifying the current digital era (Kache and Seuring
sections review the characteristics of digital innovation as well 2017; Lerch and Gotsch 2015). Thus, in this study, digital-
as the related capabilities presented in prior research. related human capabilities can be defined as the set of capa-
Digital innovation has radically altered the structure of new bilities, knowledge, and skills that employees need in order to
products, services, and business processes, leading to novel move toward digitalization.
value creation and competitive advantages for companies Because of the complex nature of digitalization, achieving
(Fichman et al. 2014; Nambisan et al. 2017). Greater exploi- competitive advantages through single actors is not possible
tation of digital innovation requires bundles of new and com- (Canhoto et al. 2016; Kohli and Mekville 2019; Pagani and
plementary capabilities (Fichman et al. 2014; Lusch and Pardo 2017). Therefore, it is necessary to acquire collabora-
Nambisan 2015; Nambisan et al. 2017; Nylén and tion capabilities in order to sustain a viable alliance and build
Holmström 2015). Digital innovation can be explained as value networks with the right partners (Amit and Han 2017; El
the creation of market offerings and business processes as an Sawy et al. 2016; Pagani and Pardo 2017; Sjödin et al. 2016).
outcome of using digital technologies (Nambisan et al. 2017). Since digitalization has changed the structure of social rela-
Consequently, the definition of digital innovation includes tionships, in both internal and external company spaces
two noteworthy and concurrent phenomena—namely, (Pagani and Pardo 2017), SMEs must seek opportunities for
products/services and business processes (i.e., the way of do- collaborating with partners, thereby complementing their cur-
ing things in an organizational setting)—both of which are rent capabilities with partners’ capabilities (Chan et al. 2019).
enabled by digitalization (Fichman et al. 2014; Nambisan Collaboration capabilities enable learning via the exchange
et al. 2017; Nylén and Holmström 2015). and sharing of knowledge and experience through digital
channels, which are facilitated by digitalization (Chuang and
2.2 Digital-related Capabilities Lin 2015; Legner et al. 2017; Maravilhas and Martins 2019).
Therefore, in this study, digital-related collaboration capabil-
In the current digital era, digitalization is blurring all industry ities are among the capabilities necessary to move toward
boundaries, and yet fixed and bounded strategies continue to digitalization.
be applied, consequently limiting the full exploitation of dig- In the current digital era, the utilization of both internal and
ital innovations. Thus, it is necessary to develop strategies and external organizational cooperation requires technical
1066 Inf Syst Front (2023) 25:1063–1080

capabilities as a complementary channel for ensuring the pro- hypotheses were developed and will be discussed in the fol-
vision of advance market offerings (Legner et al. 2017; Sjödin lowing section. In addition, to understand the mechanisms
et al. 2016). Thus, these capabilities play a critical role in the behind the eight direct hypotheses, this paper examined
use of digitalization for integrating products and services (El whether digital-related capabilities indirectly affect digital in-
Sawy et al. 2016) and for accessing updated and borderless novation. This analysis provides a basis for further research
services and activities (Parida et al. 2015; Sjödin et al. 2016; related to hypothesizing and testing mediation and moderation
Yoo et al. 2010). Hence, in this study, digital-related technical effects.
capabilities refer to the bundle of technical capabilities that
facilitate the implementation of digitalization in companies. 3.2 Hypotheses
Disruptive digital business, which emerges from digitaliza-
tion, requires innovation capabilities to be managed success- 3.2.1 Effects of Digital-related Capabilities on Market
fully (Sousa and Rocha 2019). The capacities to innovate, Offerings
identify, and exploit business opportunities, as well as to di-
versify the business area, are among the innovation skills Digital transformation in companies and contemporary digital
needed for disruptive digital business (Sousa and Rocha solutions can reduce the development time needed for gener-
2019). Moreover, the ability to develop new ideas, solutions, ating innovations and launching them on the market (Marion
and novel offerings are among the most important capabilities et al. 2015). As such, most recent digital solutions and digital
for companies to possess in the current digital era (Parida et al. technologies have been integrated into companies’ product
2015; Sjödin et al. 2016; Xue 2014). Thus, digital-related and service development, thereby affecting their market offer-
innovation capabilities are required for companies to advance ings (Nylen and Holmström 2015; Yoo et al. 2012). Although
toward digitalization. digital transformation provides possibilities for automatizing
In sum, in responding to the exploitation of digital innova- products and making services smarter, human senses and
tion, organizations frequently require development capabili- capabilities still form an important part of successful digital
ties, which correspond closely to new situations and dynamic innovation. Nylen and Holmström (2015) argued that digital
changes. In addition, organizations simultaneously require the services and solutions must not only be efficient to learn and
mitigation of inflexibility in order to better equip themselves easy to use but must also consider user experience. To com-
in the face of transformations (Chan et al. 2019; Kohli and prehend the usability and user experience of digital innova-
Melville 2019; Parida et al. 2015; Sjödin et al. 2016). Thus, tion, companies must understand their customers’ needs as
with regard to digital-related capabilities, human, collabora- well as the possibilities entailed by the utilization of developed
tion, technical, and innovation capabilities are all recommend- products and services. The gathering of feedback and the un-
ed for companies to increase their odds of survival in the derstanding of customers’ needs require human senses and
current competitive environment. digital-related human capabilities. Hoe (2017) claimed that
the main argument for these thinking skills in digital business
environments is putting end users’ and customers’ wishes and
3 Research Model and Hypothesis needs first and developing digital innovations to fulfill them.
Development In other words, employees need to understand the interplay
between the possibilities created by digital transformation and
3.1 Research Model the wishes of digital innovation users.
According to Porter and Heppelmann (2015), making
This study aimed to explore the conditions under which digital products and services smarter widens opportunities for com-
innovation opportunities emerge in SMEs. Further, this re- panies’ capabilities to, for example, monitor products and ser-
search sought to contribute to the process perspective of dig- vices and personalize product functioning. Human capabilities
ital innovation, considering digital innovation as an outcome are needed to integrate organizations’ core competitive
and the capabilities needed to create it. Figure 1 depicts the advantages and knowledge with these widened opportunities
proposed research model, which postulates a number of direct to generate successful digital innovations that can leverage
linkages between digital-related capabilities (namely human, market offerings. As Fuchs and Sevignani (2013) suggested,
collaboration, technical, and innovation capabilities) and dig- the creation of new products in the digital work context also
ital innovation (namely market offerings and the business requires human brains and human experiences. According to
process). Nylen and Holmströn (2015), the realization of digital inno-
vation requires new skills, and companies must develop their
To better understand the effects of digital-related capabili- mechanisms for supporting the advancement of digital-related
ties on the exploitation of digital innovation, specifically in human capabilities and continuous learning in digitalizing op-
market offerings and business processes, eight direct erating environments. As such, companies must ensure that
Inf Syst Front (2023) 25:1063–1080 1067

Fig. 1 Research model and

Digital-related capabilities Digital innovation
hypotheses
H1 & H5
Human capabilities
Market offerings
H2 & H6
Collaboration capabilities

H3 & H7
Technical capabilities
Business process
H4 & H8
Innovation capabilities

their employees are trained in the use and acceptance of digital Pardo 2017; Peppard and Rylander 2006). According to
solutions. Based on these arguments, the following hypothesis Maravilhas and Martins (2019), the exchange and sharing
was proposed: of knowledge, information, and experiences among users
H1: Human capabilities relate positively to digital via digital channels stimulate innovation, and this is
market offerings. called collaborative innovation. Digital channels provide
an opportunity for aggregating product demands, resulting
The idea of creating innovative products and services via in an increase in the diversity of the developed market as
collaboration has gained significant scholarly attention and well as more diverse product and service offerings
has become the main focus of many companies (Luo et al. (Brynjolfsson et al. 2010). Moreover, shaping the nature
2010; Santoro et al. 2018). For instance, a joint venture be- of digital innovation as collective actions requires differ-
tween IBM, Sony, and Toshiba facilitated the development of ent collaboration capabilities among partners, which are
advanced chips for consumer electronics, culminating in a cell enabled by digitalization (Lyytinen et al. 2016; Nambisan
processor that supplied power for Sony’s PlayStation 3 video et al. 2017; Yoo et al. 2012). Therefore, building on the
game console. Masashi Muromachi, chief executive officer literature discussed above, the following hypothesis was
(CEO) of Toshiba, called this “a winning combination” (Luo proposed:
et al. 2010, p. 245). Furthermore, many different researchers H2: Collaboration capabilities relate positively to dig-
have considered collaborative activities as a way to stimulate ital market offerings.
digital innovation (Fichman et al. 2014; Maravilhas and
Martins 2019). Fichman and colleagues (2014) used the term Technical capabilities are presented as main enablers of
“network effects” as a label for capturing the tendencies of organizational capabilities toward digital innovation (Banker
digital innovation and for addressing the relative ability to et al. 2006; Mithas et al. 2011; Setia et al. 2013; Tanriverdi
communicate or share digital assets among users. 2005) because digital technology creates a bond between the
Furthermore, Lyytinen and colleagues (2016) referred to net- physical and digital characteristics of products and services
works as a catalyst for the faster expansion of digital product (El Sawy et al. 2016). At present, digital technology is more
innovation via borderless access to digital tools. In their re- affordable and ubiquitous than ever before, which has in turn
search, they mentioned that, in the current digital era, there is a facilitated more engagement with digital innovation, thereby
need for networks to collect knowledge flows around new allowing new configurations of actors to develop, generate,
products and services alongside digital tools for the further and invest in new digital products and services (Nylén and
development of these products and services in order to suc- Holmström 2015; Yoo et al. 2010). Digital technology has
cessfully pursue radical innovations (Lyytinen et al. 2016). made it technically possible to upgrade the functionality of
Hence, product innovation can be achieved via both internal products and services due to the reprogrammable nature of
development activities and external collaboration (Hull and these capabilities. Thus, the technical capabilities concerning
Covin 2010; Luo et al. 2010; Lyytinen et al. 2016). digital technologies are related to value propositions of digital
Because of the complex nature of market offerings in products and services, addressing how value is generated and
the digital era, providing successful market offerings with captured in each digital product and service (Nylén and
a single actor does not work (Canhoto et al. 2016; Kohli Holmström 2015).
and Mekville 2019; Lyytinen et al. 2016; Pagani and The technical capabilities of digitalization has permit-
Pardo 2017). Therefore, adopting collaboration perspec- ted activities to cross the boundaries of time, place, and
tive has been mentioned as a practical option for compa- function (Parida et al. 2015; Yoo 2010; Yoo et al. 2012;
nies involved with digitalized supply chains (Pagani and Nylén and Holmström 2015) demonstrated that digital
1068 Inf Syst Front (2023) 25:1063–1080

technology provides the potential for a reinvention of 3.2.2 Effects of Digital-related Capabilities On the Business
sales and distribution channels. Furthermore, they noted Process
that firms are now able to carefully place and integrate
their products and services with an abundance of mobile The increased digitalization of companies’ operating environ-
operating systems, social media sites, and app stores. In ments provides possibilities for digital innovation to occur. As
sum, this paper suggests that by keeping up to date with related to business processes, real-time activities and automat-
technical capabilities (e.g., analyzing the progress of ed production processes (Fichman et al. 2014), for example,
digital technology and associated usage patterns; Nylén continuously affect the approach to development and innova-
and Holmström 2015), firms can develop their digital tion. New types of digital solutions provide broadened oppor-
market offerings in terms of novel digital products and tunities for data gathering, and different types of artificial in-
services. In line with the considerations above, the follow- telligence solutions can assist companies and their employees
ing hypothesis was proposed: and managers in decision making (Jarrahi 2018). This devel-
H3: Technical capabilities relate positively to digital opment of digital solutions creates circumstances in and by
market offerings. which different groups of people have increased options for
generating digital innovations and affecting the business pro-
Advancing innovation potential among companies is cesses of companies. However, although developed digital
crucial for digital innovation (Sia et al. 2016; Sousa and solutions can provide enhanced data and support for develop-
Rocha 2019) studied digital innovation in terms of disrup- ment, analysis, and decision making, humans remain solely
tive technological phenomena, such as mobile technolo- responsible for making decisions and generating digital inno-
gies, artificial intelligence, big data, and robotics, and vations. As such, the capacity to effectively apply digital so-
they found that the exploitation of such phenomena lutions and take advantage of the opportunities these solutions
requires various innovation skills. These skills include permit for developing business processes depends on compa-
the capability for creativity, the recognition of novel nies possessing the requisite digital-related human capabili-
business openings, and the arrangement of indispensable ties. For this reason, companies must develop a culture and
resources corresponding to these openings. Similarly, atmosphere that supports and promotes the development and
Fichman et al. (2014) stated that digital innovation re- utilization of their employees’ digital skills.
quires an understanding of what has become possible Richter et al. (2018) further highlighted that, in the context
due to advances in technology, as well as the exploitation of digital work design, companies must cultivate the under-
of this understanding to create something valuable for the standing of which work practices allow work to be more au-
company or for society. The development of digital inno- tonomous while at the same time allowing employees to learn
vation also depends on the relative capability to balance and collaborate with each other. Digital-related human capa-
between present and necessary capabilities (Svahn et al. bilities ensure that the increased digitalization within compa-
2017). Nylen and Holmström (2015) believed that this nies can be easily accepted by employees. If the adopted dig-
was due to the unique features of the processes related ital solutions cannot be properly used and, for example, the
to digital innovation. They also suggested that companies collected data are not properly understood, then digital inno-
should question their existing product and service portfo- vations cannot be generated. While real-time activities, artifi-
lios, digital surroundings, and traits used to promote dig- cial intelligence solutions, and automated production process-
ital innovation. Exploiting novel opportunities for innova- es assist and support companies, they cannot effectively re-
tion is key to generating a compiled value by creating spond to common-sense situations (Guszcza et al. 2017;
digital products and services (Nylen and Holmström Jarrahi et al. 2018) or to the entire structure of the digital
2015), thereby casting innovation capabilities as crucial business process. Different types of digital solutions can assist
proficiencies for developing digital market offerings. in different aspects of the business process, but the combina-
Concerning digital market offerings, an advantage may tion of information derived from these aspects requires a com-
be a company’s capability to generate and select produc- mon understanding of the digital business process, especially
tive ideas but also to have the requisite processes in place under uncertain conditions. As such, human capabilities and
to advance novel products and services, coupled with a senses are still needed to correctly interpret the work generat-
willingness to develop new solutions. Such a digital- ed by digital solutions (Brynjolfsson and McAfee 2012) and
related innovation capability may be difficult for compet- to convert such interpretations into digital innovations, and
itors to imitate, potentially providing an initiation to dig- companies must therefore ensure that their employees are well
ital market offerings. Thus, the following hypothesis was trained in using digital solutions. Based on these arguments,
formulated: the following hypothesis was developed:
H4: Innovation capabilities relate positively to digital H5: Human capabilities relate positively to the digital
market offerings. business process.
Inf Syst Front (2023) 25:1063–1080 1069

Digital-related capabilities, in terms of collaborations like (Kallinikos et al. 2013; Langlois 2003; Merrifield et al.
knowledge sharing, social media, digital makerspaces, and 2008; Yoo et al. 2010). All of this is possible via digital tech-
relationships in virtual worlds, have enabled digital innova- nologies that enable physical products to be programmable,
tions in business processes (Nambisan et al. 2017). In addi- addressable, sensible, communicable, memorable, traceable,
tion, due to the changes that digitalization has catalyzed in the and associable (Yoo 2010). These advances in digital technol-
implementation of business processes, it is necessary to recon- ogies, in turn, permit developments in digital infrastructures
sider cooperation among companies (Pagani and Pardo 2017). toward the support of innovations in terms of figurative flex-
For instance, using three-dimensional constructs as digital ibility, semantic coherence, temporal and spatial traceability,
tools in the construction process has created many different, knowledge brokering, and linguistic calibration. (Lyytinen
unexpected collaborations and interactions between different et al. 2016). These types of technical capabilities allow the
partners, designers, and trades, which has in turn expanded successful generation of novel information technology (IT)-
innovation (Boland et al. 2007) while underscoring the need enabled products, services, and processes, whereby the pro-
for collaboration capabilities. Therefore, advanced digital cess innovation outcomes refer to process redesign and sim-
channels are required to encourage collaborative activities in plification (productivity; Kohli and Melville 2019).
the business process. Furthermore, different researchers have Embedding digital technologies in the operations and produc-
reconsidered digital tools as a facilitator of collaboration tions of companies also allows online activities, both within
among business partners, which can be a challenging pursuit, the company and with the company’s customers (Chen et al.
one that often requires adaptations and new business models 2015; Yoo et al. 2012).
(Foltean et al. 2019; Nath et al. 2010). Digital technologies are increasingly appearing in the in-
Despite the potential that social media, as digital channels, dustrial manufacturing context (Nylén and Holmström 2015).
have for transforming business processes (Foltean et al. 2019), Instead of scheduled servicing, embedded digital capabilities
most marketers have not fully distinguished them as either allow the utilization of service forecasting and real-time mon-
opportunities or threats with respect to the creation of new itoring (Nylén and Holmström 2015; Westergren and
business (Cortez and Johnston 2017). For instance, Holmström 2012). For example, with direct digital
Kietzmann and colleagues (2011) identified a lack of knowl- manufacturing (an interconnection between modern ICT and
edge and/or skills with regard to the adoption of social media additive manufacturing equipment), it is possible to reconcile
and the integration of related strategies in the business process supply capacities and consumer demands in real time (Chen
(Kietzmann et al. 2011). As mentioned by Luo and colleagues et al. 2015). Furthermore, the different forms of direct digital
(2010), despite the appeal of sharing knowledge, capabilities, manufacturing include the potential for modifying material
and resources among partners, including external partners in efficiency in product business models and process chains,
the product development process often leads to greater coor- and even in the product–user relationship (Chen et al. 2015).
dination costs and integration difficulties. Thus, a successful In sum, the current research suggests that the technical capa-
digital business strategy requires effective cooperation among bilities of digital technologies affect digital business processes
companies in terms of the product, process, and service do- in terms of, for instance, online activities and advanced
mains, thereby rendering the enhancement of the exploitation manufacturing efficiency (Chen et al. 2015; Nylén and
of digital innovation more complex (Iansiti and Lakhani Holmström 2015; Yoo et al. 2012). In line with these consid-
2014). In addition to these issues, it is worth mentioning that erations, the following hypothesis was proposed:
the results achieved from cooperation in innovation strategies H7: Technical capabilities relate positively to the dig-
are not always positive due to involuntary knowledge spill- ital business process.
overs, different learning speeds, divergent attitudes
concerning the ultimate goal, and lack of flexibility and adapt- Responding to both the threats and opportunities posed by
ability (Faems et al. 2005). Therefore, based on the digitalization by initiating digital business processes also re-
abovementioned literature, the following hypothesis was quires new capabilities in the area of innovation (Henfridsson
formulated: and Yoo 2014; Sia et al. 2016). Since rapid changes in the
H6: Collaboration capabilities relate positively to the business environment make innovation with digital technolo-
digital business process. gies more demanding, various areas of business must be more
organized (Lokuge et al. 2019) called this engaging in an
It has been suggested that digital ecosystems include arti- innovation-savvy culture that contributes to digital innova-
facts and operations that increasingly derive utility from the tion. Thus, this type of innovation capability, which assists
functional relations they maintain (Kallinikos et al. 2013), as companies in sharing information (Lokuge et al. 2019) that
demonstrated by the growing prospects of combining soft- corresponds to the opportunities and threats caused by digita-
ware and software constituents and mixing content across lization (Sia et al. 2016) and in applying digital technologies
platforms, infrastructures, and production systems most relevant for their business (Nylen and Holmström 2015),
1070 Inf Syst Front (2023) 25:1063–1080

becomes crucial. Further, digital innovation requires a cul- Table 1 Demographic information of the respondents (N = 280)
ture that permits improvisational efforts throughout the com- Characteristics Number of enterprises Percentage (%)
pany while simultaneously recognizing novel opportunities
for innovation (Nylen and Holmström 2015). Age (years since established) 138 49.29
With regard to digital business processes, innovation ca- fewer than 29 142 50.71
more than 30
pabilities are also a key mechanism by which companies can Number of employees 197 70.35
exploit digital innovation. Digital business processes usually Small (fewer than 49) 78 27.85
require companies to modify their current production or gen- Medium (49–250) 5 0.8
eral business processes to enhance their functional efficien- No response
Sector 160 57.14
cy. Therefore, it was expected that a company’s innovation Service 118 42.15
capability, i.e., its capability to generate and select ideas, Manufacturing 2 0.71
advance novel products and services, and develop new so- No response
lutions, is a crucial means by which it can exploit digital
innovation. Thus, the following hypothesis was formulated:
H8: Innovation capabilities positively relate to the dig- point Likert type scale using multiple items, where a response
ital business process. of 1 indicated “strongly disagree” and 7 indicated “strongly
agree.” Due to the lack of empirical research on digital-related
capabilities and digital innovation, specific scales had to be
created based on previous literature, and new items were de-
4 Methodology veloped to measure both digital-related capabilities and digital
innovation. To assess digital-related capabilities, four different
4.1 Sample and Data Collection digital-related capabilities, including human (El Sawy et al.
2016; Lerch and Gotsch 2015), collaboration (Amit and Han
This study used managers’ perceptions as reported in data 2017; Chuang and Lin 2015; El Sawy et al. 2016), technical
collected via a survey questionnaire of 280 SMEs operating (El Sawy et al. 2016; Parida et al. 2015; Xue 2014), and
in the service and manufacturing industries in Finland. As a innovation (Parida et al. 2015; Xue 2014) capabilities were
sampling frame, the list from the random sampling of 6,816 developed as independent variables. Digital-related human
Finnish SMEs was used; in 986 cases, the contact information capabilities consisted of three items addressing questions re-
was invalid, and thus the survey was ultimately conducted lated to companies’ supportive and encouraging attitude to-
with 5,830 SMEs—30% of the 20,0000 SMEs in Finland. ward the development of digital skills, as well as to em-
Then, an invitation letter containing a direct link to the survey ployees’ level of training in digital tool usage and readiness
and a cover letter that described the purpose of the survey was in the digitalization of the operating environment (El Sawy
sent by email to the managers of the Finnish SMEs, asking et al. 2016; Lerch and Gotsch 2015). To measure digital-
them to participate in the survey questionnaire. Four re- related collaboration capabilities, three items were defined to
minders were sent during the one-month data collection pro- resolve questions related to the existence of digital coopera-
cedure, and ultimately a total of 280 valid responses was ob- tion with other companies, the utilization of digital channels to
tained, which is more than the minimum sample size sug- share information with other companies, and the extent to
gested by Barlett et al. for certain populations (2001). which digitalization has transformed the shape of social rela-
In terms of the respondents’ characteristics, firm experi- tionships in their business (Amit and Han 2017; Chuang and
ence ranged from 2 to 123 years, with an average of 35.85 Lin 2015; El Sawy et al. 2016). For measuring digital-related
years, demonstrating that most of the companies were relative- technical capabilities, four items were included; in each case,
ly mature in their fields. Approximately 70% of the companies digital technology was considered as an enabler, enhancing
in the sample were small enterprises with fewer than 49 em- the value of both products and services; integrating products
ployees, while the rest were medium-size enterprises. As men- and services; working across boundaries of time, places, or
tioned above, all the sampled companies operate in the service activities; and providing up-to-date and borderless services
(about 57%) or manufacturing (about 42%) industries. Table 1 (El Sawy et al. 2016; Parida et al. 2015; Xue 2014). To assess
outlines the demographic information of the respondents. digital-related innovation capabilities, three items were devel-
oped, each addressing how digitalization enables innovations
and new ideas, the development of new solutions, and the
4.2 Construct Operationalization production of new products and services (Parida et al. 2015;
Sia et al. 2016; Xue 2014). For measuring digital innovation,
The constructs were conceptualized as reflective measures. two noteworthy and concurrent phenomena, market offerings
Those involved in the research model were measured on a 7- and business processes, were developed as dependent
Inf Syst Front (2023) 25:1063–1080 1071

variables. Market offerings included two items addressing not at risk of common-method bias, late-respondent bias, or
questions about whether digitalization can be defined as dig- lack of validity and reliability.
ital services and digital products (Nambisan et al. 2017; Nylén Prior to the hypothesis tests, the reliability and conver-
and Holmström 2015). To measure the business process, two gent and discriminant validity of the constructs were test-
items were developed, each posing questions about whether ed with confirmatory factor analysis (CFA) and different
digitalization should be defined as automating production pro- indices, including loadings, Cronbach’ alpha, average var-
cesses and real-time activities (Fichman et al. 2014). A com- iance extracted (AVE), and composite reliability (CR), as
plete list of items is presented in Appendix. shown in Table 2. First, Cronbach’s alpha was used to
Three control variables were used to reduce the likeli- assess the items’ reliability. Although a value of 0.7 or
hood of confounded results occurring due to differences 0.6 is recommended as the acceptable cutoff for
in company age and size, as well as in the type of industry Cronbach’s alpha (Taber 2018) in both exploratory re-
(Bstieler 2005). In this research, firm size was measured search (Boyer and Pagell 2000) and in the development
by the number of employees, firm age was determined of new constructs (Flynn et al. 1990; Nunnally 1978)
according to when the company was established, and type mentioned that a smaller value is permissible if the scales
of industry was measured by asking respondents if their are new and contain a small number of items. As shown
companies operated in either service or manufacturing. in Table 2, all the constructs except market offerings had
values greater than 0.6, illustrating the reliability of the
4.3 Data Analysis, Validity, and Reliability constructs. Principal component analysis (PCA) is loaded
in one factor with an eigenvalue greater than 1; this sug-
To confirm the reliability and validity of the data, and to re- gested for items representing a single unidimensional con-
duce both common method bias and non-respondent bias, struct, and if the constructs have the factor loadings great-
different approaches and statistical tests were used at each step er than 0.4, they are shown to be valid (Carmines and
of data collection and analysis, as the necessity of these ap- Zeller 1979). Convergent validity was verified by the val-
proaches and tests has been suggested by Flynn et al. (1990). ue of the factor loadings, AVE and CR. As suggested by
Regarding pre-tests, in an initial step, iterative sessions with Fornell and Larcker (1981), the convergent validity of the
expert researchers were held while designing the survey ques- construct is still adequate for an AVE less than 0.5 if the
tionnaire, and the measured items were determined based on CR is higher than 0.6. As shown in Table 2, each loading
the theoretical foundation provided by previous research. had a value of more than 0.4, and the value of the AVE
Moreover, the items were constructed in such a way that the for all the constructs except business process (AVE =
risk of recognition of a cause-and-effect relationship between 0.482) and market offerings (AVE = 0.428) was more than
the dependent and independent variables by the respondents 0.5, which, in this case, because the CR values were more
was extremely low. In addition, the survey respondents were than 0.6, the convergent validity of the constructs was
ensured anonymity, which encouraged them to respond more confirmed. Discriminant validity was supported by collat-
honestly and to resist the pressure to reply in a socially desir- ing the AVE and maximum shared variance (MSV)
able way. Thus, in the initial phase, the probability of common values, which showed that all the values of MSV were
method bias was minimized via these justifications. smaller than those of the AVE.
Furthermore, as suggested by MacKenzie and Podsakoff A correlation matrix was used to assess the validity of the
(2012), selecting respondents with the necessary experience constructs; the results are presented in Table 3.
in the relevant topic, avoiding the use vague concepts, and Multicollinearity was assessed by calculating the variance in-
using clear and concise language reduce common method bias flation factors (VIFs) and tolerance values among the indepen-
in survey research. Thus, to avoid common method bias, this dent variables. As recommended by Kleinbaum et al. (1988),
study recruited respondents who were managers of the SMEs multicollinearity is not an issue if the VIF value is lower than a
and had the necessary experience in digital innovation and threshold of 5–10 and has a tolerance greater than 0.2; in this
disseminated a survey questionnaire in Finnish, the native study, all the VIF values were in the range of 1.061–2.881
language of all respondents. Regarding non-respondent bias, with a tolerance greater than 0.3. As suggested by Fornell and
an analysis of the variance test (ANOVA) was conducted to Larcker (1981), the discriminant validity of the constructs can
determine whether any significant differences existed between be confirmed if the value of the square root of AVE is greater
the respondents’ answers on the questionnaire after the first than the value of the correlation between constructs.
reminder, called early respondents, and their answers after the Comparing the diagonal with non-diagonal values in Table 3
third reminder, named late respondents (Armstrong and confirmed the convergent validity of the constructs.
Overton 1977). The results revealed that there was no signif- Therefore, multicollinearity and convergent validity were not
icant difference between these two groups. Therefore, due to a significant concern in this study, as the requirements of all
the application of all these approaches, the study results were the recommended statistical tests were met.
1072 Inf Syst Front (2023) 25:1063–1080

Table 2 Results of validity and reliability testing

Latent variable Observed variable Loadings Cronbach’ α AVE CCR

Human capabilities Digital skills development is supported and promoted in our company. 0.778 0.772 0.514 0.760
Our employees are well trained in using digital tools. 0.718
Digitalization of the operating environment is easily accepted by our employees. 0.649
Collaboration capabilities Digital cooperation with other companies occurs. 0.882 0.799 0.597 0.812
Digital channels are used to share information with other companies. 0.824
Digitality transforms the social relationships in our business. 0.578
Technical capabilities Digitality increases the value of our products or services. 0.856 0.862 0.623 0.867
Digitality enables the integration of products and services into our company. 0.874
Digitality enables up-to-date, location-independent services for our customers.
Digitality allows us to work across boundaries of time, place, or activities. 0.795
Innovation capabilities Digitality enables innovation and new ideas in our company. 0.878 0.859 0.679 0.864
Digitality forces us to develop new solutions. 0.745
Digitality helps produce new products and services. 0.844
Business process Digitalization refers to real-time activities. 0.630 0.638 0.482 0.666
Digitalization refers to the automation of the production process. 0.754
Market offerings Digitalization refers to digital services. 0.666 0.591 0.428 0.616
Digitalization refers to digital products. 0.643

5 Results The first model was able to explain 47% of the variance in
digital market offerings and 29% of the variance in digital
Partial least squares (PLS)-based structural equation modeling business process. The path from technical capabilities (B =
(SEM) was used to test the hypotheses (SmartPLS v. 3.3.1). 0.617, p ≤ 0.10) to digital market offerings was significant,
Smart PLS has frequently been recommended due to its accu- whereas the paths from human capabilities (B = -0.215, ns),
racy and overall utility (Chuang and Lin 2015). SEM is suit- innovation capabilities (B = 0.050, ns), and collaboration ca-
able for data with multiple groups of regression, in which the pabilities (B = 0.239, ns) to digital market offerings were non-
dependent variable for one regression analysis is simulta- significant. Thus, technical capabilities had a direct positive
neously an independent variable for another (Hair et al. impact on digital market offerings, whereas human capabili-
1998). Thus, Aside from its capacity to handle multiple ties, innovation capabilities, and collaboration capabilities did
groups, PLS SEM can also be applied flexibly to both forma- not. The path from human capabilities (B = 0.559, p ≤ 0.01) to
tive and reflective constructs and, additionally, is undemand- digital business process was significant, whereas the paths
ing in terms of measurement scales, sample size, and distribu- from technical capabilities (B = -0.447, ns), innovation capa-
tional assumptions” depending on the intended meaning bilities (B = 0.482, ns), and collaboration capabilities (B = -
(Chuang and Lin 2015). Moreover, the PLS path models used 0.083, ns) to digital business process were non-significant.
in top tier journals are based on a significance level of 0.1 Thus, human capabilities had a direct positive impact on dig-
(Hair et al. 2012). Table 4 lists the testing paths from digital- ital market offerings, whereas technical capabilities, innova-
related capabilities to digital innovation. tion capabilities, and collaboration capabilities did not.

Table 3 Correlation matrix

Human Collaboration Technical Innovation Market offerings Business process

capabilities capabilities capabilities capabilities

Human capabilities 0.717a

Collaboration 0.543** 0.773a
capabilities
Technical capabilities 0.591** 0.525** 0.789a
Innovation capabilities 0.533** 0.568** 0.775** 0.824a
Market offerings 0.303** 0.355** 0.464** 0.445** 0.694a
Business process 0.332** 0.232** 0.255** 0.305** 0.073 0.654a
a
Square root of AVE, Sign. *** ≤ 0.001, ** 0.001 < p ≤ 0.01, * 0.01 < p ≤ 0.05
Inf Syst Front (2023) 25:1063–1080 1073

Table 4 Testing the paths from digital-related capabilities to digital innovation

Path Path coefficient t-value

Model 1
Human capabilities -> Market offerings -0.215 1.094
Technical capabilities -> Market offerings 0.617 1.730*
Innovation capabilities -> Market offerings 0.050 0.146
Collaboration capabilities -> Market offerings 0.239 1.263
Human capabilities -> Business process 0.559 3.017**
Technical capabilities -> Business process -0.447 1.524
Innovation capabilities -> Business process 0.482 1.579
Collaboration capabilities -> Business process -0.083 0.433
Model 2
Technical capabilities -> Market offerings 0.675 7.842***
Human capabilities -> Technical capabilities 0.278 3.374***
Innovation capabilities -> Technical capabilities 0.776 9.917***
Collaboration capabilities -> Technical capabilities -0.095 1.079
Model 3
Human capabilities -> Business process 0.499 5,730***
Technical capabilities -> Human capabilities 0.691 3,035**
Innovation capabilities -> Human capabilities -0.200 0,780
Collaboration capabilities -> Human capabilities 0.389 3,795***

Notes: *** Significance ≤ 0.001; ** Significance ≤ 0.01; * Significance ≤ 0.10

The second model was able to explain 43% of the variance 6 Discussion
in digital market offerings. The path estimates of this model
provide further insight into hypotheses 1–4. The path from Digital transformation is shaping the business environments
technical capabilities (B = 0.675, p ≤ 0.001) to digital market of contemporary companies and Big Data analytics and digital
offerings was significant, as in the first model. The paths from business ecosystems are providing increasingly new possibil-
human capabilities (B = 0.278, p ≤ 0.001) and innovation ca- ities for companies to develop their businesses; therefore,
pabilities (B = 0.776, p ≤ 0.001) to technical capabilities were companies need to be able to respond to the changes and
also significant. Thus, human capabilities and innovation ca- understand the possibilities provided by increased digitaliza-
pabilities both had a significant positive impact on digital tion (Delgosha et al. 2020; Mikalef et al. 2020; Pappas et al.
market offerings through technical capabilities. The research 2018). Companies need to find ways to exploit innovation in
model also predicted a mediated path from collaboration ca- digitalizing business environments (Bednar and Welch 2019;
pabilities (B = -0.095, ns) to digital market offerings. Mikalef et al. 2018) and to understand the role of different
However, this path was not supported. types of capabilities as a part of these activities (Mikalef
The third model was able to explain 25% of the variance in et al. 2019).
digital business process. The path estimates of this model The study aimed to investigate what digital-related ca-
provide further insight into hypotheses 5–8. The path from pabilities are required to shape the exploitation of digital
human capabilities (B = 0.499, p ≤ 0.001) to digital business innovation, namely digital market offerings and the digital
process was significant, as in the first model. The paths from business process. The results demonstrated that human,
technical capabilities (B = 0.691, p ≤ 0.01) and collaboration technical, and innovation capabilities contribute to
capabilities (B = 0.389, p ≤ 0.001) to human capabilities were digital market offerings, while human, collaborative, and
also significant. Thus, technical capabilities and collaboration technical capabilities contribute to the digital business
capabilities both had a significant positive impact on digital process. These findings suggest that the studied
business process through human capabilities. The research capabilities play a significant role in the reshaping and
model also predicted a mediated path from innovation capa- digitizing of an organization in a way that enables new
bilities (B = -0.200, ns) to digital business process. However, digital innovations. These results are consistent with
this path was not supported. A summary of the results is pre- research from Gobble (2018) that stated that the processes
sented in Table 5. of digitalization and digital transformation may start as
1074 Inf Syst Front (2023) 25:1063–1080

Table 5 Summary of the results

Proposition Support Interpretation

H1: Human capabilities relate positively to Supported Human capabilities contribute indirectly to digital innovation in terms of digital market
digital market offerings. offerings. Human capabilities enhance technical capabilities, which in turn contribute to
digital market offerings.
H2: Collaboration capabilities relate positively Not Collaboration capabilities do not facilitate the creation of digital innovation in terms of
to digital market offerings. sup- digital market offerings.
ported
H3: Technical capabilities relate positively to Supported Technical capabilities directly contribute to the extent to which companies are able to create
digital market offerings. digital innovation in terms of digital market offering.
H4: Innovation capabilities relate positively to Supported Innovation capabilities contribute indirectly to digital innovation in terms of digital market
digital market offerings. offering. Innovation capabilities enhance technical capabilities, which in turn contribute
to digital market offering.
H5: Human capabilities relate positively to the Supported Human capabilities directly contribute to the extent to which companies are able to create
digital business process. digital innovation in terms of the digital business process.
H6: Collaboration capabilities relate positively Supported Collaboration capabilities contribute indirectly to digital innovation in terms of the digital
to the digital business process. business process. Collaboration capabilities enhance human capabilities, which in turn
contribute to the digital business process.
H7: Technical capabilities relate positively to Supported Technical capabilities contribute indirectly to digital innovation in terms of the digital
the digital business process. business process. Technical capabilities enhance human capabilities, which in turn
contribute to the digital business process.
H8: Innovation capabilities relate positively to Not Innovation capabilities do not facilitate the creation of digital innovation in terms of the
the digital business process. sup- digital business process.
ported

innovation initiatives, but they ultimately must reach far ital market offerings; in contrast, no direct effects were
beyond the innovation function to reshape the entire or- found for human, collaboration, and innovation capabili-
ganization. One of the main results of this study was that ties. Thus, this finding strongly supports prior statements
human capabilities directly contribute to the extent to that technical capabilities are the main enablers of organi-
which companies can create digital innovation through zational capabilities toward digital innovation (Banker
digital business processes. This result strongly supports et al. 2006; Mithas et al. 2011; Setia et al. 2013;
the findings from Rachinger et al. (2019). This research Tanriverdi 2005). One explanation for this finding is that
studied representatives from two different industries and digital technology creates a bond between the physical and
found that, from a capability perspective, digitalization digital characteristics of products and services, as presented
requires human skills (Rachinger et al. 2019). The authors by El Sawy et al. (2016). In addition, the technical capabil-
also pointed out challenges in the areas of employee re- ities surrounding digital technologies relate to the value
cruitment and qualification, and they highlighted the im- propositions of digital products and services, addressing
portance of companies’ ability to develop the know-how how value is generated and captured in each digital product
required to seize digitalization opportunities (Arnold et al. and service (Nylén and Holmström 2015). For H3, the pres-
2016; Rachinger et al. 2019). Therefore, while digital ent research findings are in line with those of former stud-
transformation provides novel opportunities for compa- ies, indicating that, because of the growing and increasingly
nies, it also requires an understanding of which capabili- ubiquitous presence of digital technologies at a reasonable
ties are required and how those capabilities should be cost, factors hindering market offerings will be removed.
adapted with regard to innovation outcomes, processes, Consequently, the exploitation of products and services
and related markets (Kohli and Melvill 2019; Nambisan will be facilitated with integrated products and services,
et al. 2017). In the following sections, the implications of as well as with updated and borderless activities (Nylén
the results for theory and practice are presented in detail. and Holmström 2015; Sjödin et al. 2016; Yoo et al.
2010). The findings also support previous statements that
6.1 Implications for Theory technical capabilities permit activities to cross the bound-
aries of time, place, and function (Parida et al. 2015; Yoo
Referring to digital innovation in terms of market offerings, 2010; Yoo et al. 2012) and provide the potential to reinvent
technical capabilities have significant direct effects on dig- sales and distribution channels (Nylén and Holmström
Inf Syst Front (2023) 25:1063–1080 1075

2015). This result suggests that technical digital-related ca- Concerning digital innovation in terms of business process,
pabilities play a lead role in the provision and exploitation digital-related capabilities related to the human element had a
of market offerings. direct significant effect on the digital business process, where-
Referring to H1, the results of the study support previous as direct significant effects of collaboration, technical, and
research by indicating the complementary role of digital-related innovation capabilities on the digital business process were
human capabilities and continuous learning in digitalizing oper- not found. However, collaboration and technical capabilities
ating environments (Nylen and Holmströn 2015) and in had a mediating effect between human capabilities and the
launching new products in digital business (Fuchs and digital business process. The reason why human capabilities
Sevignani 2013). Although human capabilities in terms of em- have a predominant role may be the dynamic and cognitive
ployee readiness and digital skills play a role in the shift toward nature of digital business processes, which are more compat-
digitalization (Chan et al. 2019; El Sawy et al. 2016; Kane et al. ible with human capabilities in comparison to others.
2015; Legner et al. 2017), they do not directly reshape and ex- Although a variety of digital solutions provide possibilities
ploit market offerings. Instead, the effect takes place through for data gathering, and different types of artificial intelligence
technical capabilities. This means that skills related to under- solutions can assist companies, employees, and managers in
standing user experience and customer wishes and needs (Hoe decision making, as presented by Jarrahi (2018), humans re-
2017; Nylén and Holmström 2015) are being deployed to use main the sole authority for making decisions and generating
and select the technology needed to realize digital innovation. digital innovations. For H5, this study supports the view of
Regarding H2, the findings show that collaboration capabili- previous research, which suggested that employees’ digital
ties do not facilitate the creation of digital innovation in terms of skills and readiness to exploit the digital business process
digital market offerings. This is contrary to the predominant view (Richter et al. 2018) can be used to interpret the work gener-
in extant literature, which suggests that successful market offer- ated by digital solutions (Brynjolfsson and McAfee 2012).
ings in the blurry and complex arena of digitalization need col- These findings are in line with the notion that while real-
laboration, and that it is not possible to be successful in a time activities, artificial intelligence solutions, and automated
vacuum-like business environment (Canhoto et al. 2016; Kohli production processes assist and support companies, they can-
and Mekville 2019; Lyytinen et al. 2016; Pagani and Pardo not handle common-sense situations (Guszcza et al. 2017;
2017). This may be because digital technology is affordable Jarrahi et al. 2018) nor the entire structure of the digital busi-
and more ubiquitous than ever before, which may in turn facili- ness process. Digital solutions can assist in different aspects of
tate internal development and engagement in digital innovation the business process, but the combination of information de-
(cf. Nylén and Holmström 2015; Yoo et al. 2010). Additionally, rived from these aspects requires a common understanding of
digital technologies provide more sophisticated and easy-to-use the digital business process, which can be advanced by human
tools that together present opportunities for automatizing prod- capabilities. Hence, this finding confirms the important role of
ucts and making services smarter. This can in turn encourage human capabilities in moving toward digitalization in the dig-
companies to be less dependent on their partners and thereby ital business process.
reduce the importance of collaboration. Referring to H6, collaboration capabilities do not have a
In terms of H4, the results support the findings covered in direct effect on the digital business process. This may be be-
previous research that indicate that innovation capabilities are cause of the complex nature of collaboration in digital chan-
key organizational capabilities for creating new products and nels (Boland et al. 2007; Foltean et al. 2019; Iansiti and
services (Sia et al. 2016; Sousa and Rocha 2019). The current Lakhani 2014; Nath et al. 2010), the lack of skills needed
findings are also in line with those of Nylén and Holmström for collaborating with other companies via digital channels
(2015), who argued that exploiting novel opportunities for in activities that are more related to business processes
innovation is key to generating a compiled value via the cre- (Kietzmann et al. 2011), and the coordination costs and inte-
ation of digital products and services. However, like human gration difficulties in the product development process (Luo
capabilities (H1), innovation capabilities do not directly re- et al. 2010). However, collaboration capabilities facilitate the
shape and exploit market offerings. The effect actually takes business process through human capabilities. The role of col-
place through technical capabilities. The explanation for the laboration capabilities can thus be highlighted, since they ad-
mediation effect may be related to Fichman et al.’s (2014) vance human capabilities, which in turn positively affect the
earlier argument, in which digital innovation was claimed to business process.
require an understanding of what has become possible due to In terms of H7, the study results do not directly support the
advances in technology, as well as the exploitation of this hypothesis. In contrast to previous research that mentioned the
understanding to create something valuable for the company role of technical capabilities in digital business processes and
or for society. Overall, this finding illustrates the important operations (Chen et al. 2015; Nylén and Holmström 2015;
role of innovation capabilities in the exploitation of market Westergren and Holmström 2012; Yoo et al. 2012), the pres-
offerings. ent study did not discover a direct significant relationship
1076 Inf Syst Front (2023) 25:1063–1080

between technical capabilities and digital business processes. should concentrate more on digital-related human capabilities
The reason for this may be the collective nature of technical in order to obtain more benefits and the greater exploitation of
capabilities and the lack of linkages among companies using digital innovation in terms of the business process. Finally,
real-time activities. However, path modelling indicated that SME managers should consider the major role of technical
technical capabilities affect digital business processes through capabilities in digital innovation, namely market offerings,
human capabilities. Technical capabilities can thus be consid- as well as the dominant role of human capabilities in digital
ered as valuable drivers for human capabilities, which enable innovation, namely the business process.
the successful generation of novel information technology-
enabled products, services, and processes, whereby the pro-
cess innovation outcomes refer to the redesign and simplifica- 7 Conclusion
tion of the business process (cf. Kohli and Melville 2019).
Finally, concerning H8, this study did not support previous The aim of this research was to explore the conditions under
research indicating that innovation capabilities facilitate the which digital innovation opportunities emerge in SMEs.
creation of digital innovation in terms of digital business pro- Furthermore, the research identified the required capabilities
cesses. As mentioned in previous research, innovation capa- in digital transformation and understand the way of utilizing
bilities assist companies in sharing information (Lokuge et al. those capabilities to exploit digital innovation. Thus, the study
2019), corresponding to the opportunities and threats caused answered the question of what capabilities are required to
by digitalization (Sia et al. 2016), and appropriating digital shape the exploitation of digital innovation. As a first contri-
technologies relevant for their business activities (Nylen and bution, this research adds to the process perspective of digital
Holmström 2015). However, the results of this study may innovation. Few studies have concentrated on firm-level ca-
indicate that innovation capabilities offer opportunities for pabilities to identify, assimilate, and apply valuable knowl-
other types of digital innovation, such as digital market offer- edge from inside and outside the firm regarding opportunities
ings, rather than business process innovation. for digital innovation, known as initiate activity (Kohli and
Melville 2019). Further, this research extends the digital inno-
6.2 Implications for Practice vation literature by incorporating the effects of digital-related
capabilities based on digital innovation type. The findings
The findings of this research provide valuable insights for demonstrated that digital market offerings require technical-,
managers interested in establishing required digital-related ca- human-, and innovation-related digital capabilities. In con-
pabilities to develop and exploit digital innovations, including trast, the digital business process requires digital-related capa-
both market offerings and business processes in their business. bilities in terms of human, technical, and collaboration. Since
First, the vision of digitalization in this study may help man- the results showed that the capabilities required for the adop-
agers to perceive of their companies and nearby environments tion of digital innovation differ notably across the two digital
as a universal network, in which human, innovation, and es- innovation types, future research in this area should consider
pecially technical capabilities can create more opportunities the digital innovation types separately.
and potentials for the effective exploitation of market offer- This study had some limitations; however, these limitations
ings. Therefore, in the current digital era, managers may need can serve as the foundation for future research opportunities.
to focus more on these capabilities for enhancing their market First, the cross-sectional nature of the research imposed a limit
offerings in terms of digital products and services, as they are on understanding over time; simultaneously, however, it pro-
more likely to lead to the achievement of competitive advan- vided the possibility for longitudinal research in the future.
tages. Second, managers in charge of digital innovation Second, the provision of data from a single country as well
should consider and shape types of digital innovation in a as the focus on managers’ perceptions restricted the study’s
way that is compatible with the nature of digital-related capa- generalizability and increased the potential for bias; at the
bilities. For example, digital innovation in terms of market same time, however, these limitations present opportunities
offerings involves technology-related actions; thus, shaping to replicate this study in other countries and with other re-
market offerings requires technology understanding, such as sources. As mentioned above, many different methodological
digital-related capabilities emphasizing human, innovation, adjustments were made to correct or mitigate bias-related is-
and technical skills. In contrast, business processes in compa- sues. Third, the low reliability of the outcome measures may
nies are more dynamic and cognitive actions. Therefore, these have influenced the research results. A smaller value of alpha
capabilities make human digital-related capabilities more ap- is permissible if the scales are new and contain a small number
plicable in this regard. Third, managers in charge of digital of items (Nunnally 1978); however, there is a need for a sys-
transformation should better familiarize employees to and at- tematic approach to tackle this issue. Finally, since the study
tune working environments for digitalization; in addition, specialized in digital business processes inside companies,
managers should work to enhance digital culture, and they there is certainly more room for future research that would
Inf Syst Front (2023) 25:1063–1080 1077

seek to link business processes outside the organization by

utilizing real-time activities and digital twinning, as well as
via collaboration among companies.

Funding Open access funding provided by LUT University.

Appendix

Table 6 Items and their measurement

Latent Observed variable References* Type of Scale

variable measurement

Human Digital skills development is supported and El Sawy et al. 2016; Lerch and Reflective 7-point scale ranging from “strongly
capabilities promoted in our company. Gotsch 2015 disagree” (1) to “strongly agree” (7)
Our employees are well trained in using
digital tools.
Digitalization of the operating environment
is easily accepted by our employees.
Collaborative Digital cooperation with other companies Amit and Han 2017; Chuang and Reflective 7-point scale ranging from “strongly
capabilities occurs. Lin 2015; El Sawy et al. 2016 disagree” (1) to “strongly agree” (7)
Digital channels are used to share
information with other companies.
Digitality transforms the social
relationships in our business.
Technical Digitality increases the value of our El Sawy et al. 2016; Parida et al. Reflective 7-point scale ranging from “strongly
capabilities products or services. 2015; Xue 2014 disagree” (1) to “strongly agree” (7)
Digitality enables the integration of
products and services into our company.
Digitality enables up-to-date,
location-independent services for our
customers.
Digitality allows us to work across
boundaries of time, place, or activities.
Innovation Digitality enables innovation and new Parida et al. 2015; Sia et al. 2016; Reflective 7-point scale ranging from “strongly
capabilities ideas in our company. Xue 2014 disagree” (1) to “strongly agree” (7)
Digitality forces us to develop new
solutions.
Digitality helps produce new products and
services.
Business In our company, digitalization refers to Fichman et al. 2014 Reflective 7-point scale ranging from “strongly
processes real-time activities. disagree” (1) to “strongly agree” (7)
In our company, digitalization refers to the
automation of the production process.
Market In our company, digitalization refers to Nambisan et al. 2017; Nylén and Reflective 7-point scale ranging from “strongly
offerings digital services. Holmström 2015 disagree” (1) to “strongly agree” (7)
In our company, digitalization refers to
digital products.

Note: *All the observed variables were developed based on the mentioned references. Thus, existing observed variables or implications of the mentioned
studies were used as a reference to formulate new laten variables suitable for the current study
1078 Inf Syst Front (2023) 25:1063–1080

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