https://doi.org/10.1177/0008125620920349 https://doi.org/10.1177/0008125620920349 Strategies for Digitalization in Manufacturing Firms Joakim Björkdahl 1 California Management Review 2020, Vol. 62(4) 17–36 © The Regents of the University of California 2020 Article reuse guidelines: sagepub.com/journals-permissions DOI: 10.1177/0008125620920349 journals.sagepub.com/home/cmr SUMMARY This article discusses the digitalization efforts of 26 leading manufacturing firms, the difficulties encountered, and how they can be handled. It shows that many firms are far from ready to benefit from digitalization and are mainly focused on achieving greater efficiency through digitalization rather than pursuing a growth agenda. This imbalance is because of the difficulties related to identifying profitable configurations of competencies, assets, and data generated from digital technologies, orchestrating them, and exploiting them in an agile organization. Practical implications of digitalization are highlighted, specifically in terms of strategies for supporting the current business and embracing long-term digital transformation. KEYWORDS: agility, business model innovation, digitalization, digital transformation, dynamic capabilities, ecosystems, services, strategy, value capture, value creation H ow should established manufacturing firms embrace digitaliza- tion? Rather than trying to reduce the question to the advances of digital technologies, business leaders need to focus on developing new practices, capabilities, and strategies that will allow the cre- ation and capture of value from digitalization. Currently, most chief executive officers (CEOs) are preoccupied with attempting to understand how the digital revolution is affecting and will continue to affect their firms, in light of the ongoing paradigm shift from an industrial to a more digital economy. In some industries such as retail, the profits of large domi- nant firms are declining, despite attempts to stem this decline. For example, H&M, the world’s second largest clothing retail firm, only sensed the changes and seized the opportunities of digitalization much later than its main competitors such as 1Chalmers University of Technology, Gothenburg, Sweden 17 CMR747 This document is authorized for use only in Prof. Rakesh Raut's PGP Batch 22-24, Orientation Session 3 - 07.06.2022 at NITIE - National Institute of Industrial Engineering from Jun 2022 to Dec 2022. 18 CALIFORNIA MANAGEMENT REVIEW 62(4) Inditex, and currently, its brick-and-mortar business model is under threat. Despite major investment in digital channels and strategic reformulation, many investors are wondering whether it will be possible to regain the company’s previ- ous growth-machine status. So far, the dominance of leading manufacturing firms has not been threat- ened to the same extent. These firms are highly vertically integrated and generally compete based on their technologies (including products) and production func- tions and costly complementary assets down the value chain. 1 Appropriate man- agement of digitalization should provide them with opportunities to improve their creation and capture of value related to the digital revolution. But what do established manufacturing firms and their CEOs need to do to reap the benefits of digital technologies and data? This study aims to shed light on large established manufacturing firms’ digitalization efforts, the challenges involved, and how they can be managed. Observations from this study show that it is not technological issues that worry business leaders engaged in digitalization efforts. The development and use of new digital technologies are prerequisites for digital transformation, but are not sufficient for success. Successful efforts require re-optimization to allow effective use of digital technologies and data, and creation and capture of value in new ways. This may require new forms of organizing and new work practices to build the capacity for sensing, shaping, and seizing opportunities. 2 In other words, digi- talization includes more than digital technologies and data. If manufacturing firms do not comprehensively take control of their digitalization efforts in terms of developing and transforming their practices, strategies, and organization, they will risk losing profit-generating opportunities and being outcompeted by others. Understanding Digitalization Digitalization involves the increased use of digital technologies 3 and their integration and cross-fertilization in the firm’s products and inbound and out- bound activities. 4 This can result in fundamental changes, especially to how firms create and capture value. 5 In simple terms, digitalization can be seen as increased generation, analysis, and use of data in order, on one hand, to increase the firm’s internal efficiency, and on the other hand to grow the firm by adding value for customers through the change from analog to digital formats. 6 The challenges, opportunities, and effects of digitalization have had a major effect on both business leaders and politicians. Digitalization has come to be seen as the fourth industrial revolution (after the steam engine and mechanization, electricity and mass production, and computerization and automation). 7 The German government has defined the challenges, opportunities, and effect of digi- talization for manufacturing firms as “Industry 4.0.” 8 This has inspired efforts in several other countries described as “Smart Manufacturing” in the United States, “Industrie du Futur” in France, “Fabrica Intelligente” in Italy, and “Smart Industry” in the Netherlands. However, Industry 4.0 and similar initiatives are limited This document is authorized for use only in Prof. Rakesh Raut's PGP Batch 22-24, Orientation Session 3 - 07.06.2022 at NITIE - National Institute of Industrial Engineering from Jun 2022 to Dec 2022. 19 Strategies for Digitalization in Manufacturing Firms mainly to manufacturing process improvements enabled by smart manufacturing, whereas digitalization has the potential to affect many other functions beyond the manufacturing process. About the Research This article adopts a multiple case-study approach 9 to analyze the specific patterns of using data generated by digital technologies in leading multinational manufacturing firms and their products. The aim is to explore how manufactur- ing firms create and capture value from digital technologies, the increased vol- umes of data involved, and related problems. While case-study research suffers from limited generalizability, the intention is not to try to extrapolate from the findings but to address the under-researched question about how manufacturing firms create and capture value by means of digitalization. The limited generaliz- ability of case studies is, to some extent, mitigated by the use of many case firms, not focused on a specific sector or technology. The 26 sample firms belong to a range of sectors including automotive, steel, telecommunications, pulp and paper, and defense and security. They include ABB, Volvo Trucks, Autoliv, Husqvarna, Scania, Volvo Cars, Ericsson, Atlas Copco, SKF, Assa Abloy, Saab, Sandvik, SSAB, and Stora Enso. The data are from multi- ple sources, including interviews, site visits, and archival records. A total of 102 in-depth semi-structured interviews were conducted with managers at different hierarchical levels and in different functional positions, including CEOs, chief technology officers (CTOs), production managers, chief digital officers (CDOs), information technology (IT) directors, business development directors, sales direc- tors and sales staff, research managers, production operators, board members, product owners, and data analysts. The interviews focused on the constructs and perceived related challenges of value creation and value capture through digitali- zation efforts in relation to the different value chain activities. What Do Manufacturing Firms Currently Do? Observations of the manufacturing firms in this study show that obtaining advantages from new technologies and becoming digitally more mature involve several aspects. The effects of digitalization for firms can be categorized as more efficient product development, more efficient manufacturing, more sophisticated products and services, and more integrated value chains (Figure 1 exemplifies the different efforts along the value chain of leading manufacturing firms). Product Development Digitalization has the potential to make manufacturing firms’ product development more efficient. Digitalization of product development reduces the need for physical artifacts and prototypes; computer-based design and visualiza- tion as well as numerical computation programs are increasingly sophisticated and interactive, making product design much easier. This document is authorized for use only in Prof. Rakesh Raut's PGP Batch 22-24, Orientation Session 3 - 07.06.2022 at NITIE - National Institute of Industrial Engineering from Jun 2022 to Dec 2022. 20 CALIFORNIA MANAGEMENT REVIEW 62(4) FIGURE 1. Examples of digitalization efforts in relation to the different manufacturing firm value chain activities. At the same time, integration of digital technologies is making products more complex. The study firms use software with both internal and external interfaces, which requires testing using models in computer-aided environments to check product performance and functionality. These testing procedures can be accomplished quickly and can check various outcomes. Testing is an important part of a firm’s product development activities as demand for shorter development times increases. Volvo Cars, like many other automotive firms, simulates and runs different engine tests digitally before the decision to take a specific engine into production. In the past, an engine had to be built and then tested at different tem- peratures and altitudes and under different environmental conditions. Based on the results of these tests, engines were adapted, which involved high costs and long lead times before full-scale production. For many manufacturing firms, digi- talization has put an end to these ways of working. The trend toward more effective product development based on digitaliza- tion has been ongoing among manufacturing firms for more than a decade. A noticeable change that has occurred since 2017 among leading manufacturers is the adoption of artificial intelligence (AI) in their product development process. For example, AI (machine learning) is allowing more effective, faster, and cheaper (mainly bug) testing of software. AI is also being used to design products. For example, the telecommunications firm Ericsson uses AI (deep learning processes) to tune the complex filters used in its 5G network, which previously required an individual to undergo a six-month specialist training. Manufacturing Most manufacturing firms are engaged in extensive work to make their production more competitive by means of digitalization. 10 They can increase This document is authorized for use only in Prof. Rakesh Raut's PGP Batch 22-24, Orientation Session 3 - 07.06.2022 at NITIE - National Institute of Industrial Engineering from Jun 2022 to Dec 2022. 21 Strategies for Digitalization in Manufacturing Firms throughput and quality, decrease variance, and minimize the number of break- downs and stoppages by making the manufacturing process more intelligent through the use of digital technologies and more and better data. However, the breadth and depth of these efforts differ substantially among firms. In some cases (i.e., pulp and paper and steel sector firms), these activities are limited to the possibility of obtaining new data and linking different data sources to improve decision making and achieve integration among machines. The firms identify the reasons for production disturbances that result in reduced operational efficiency by identifying abnormalities and logging breakdowns to identify root causes. The leading firms also perform many other activities allowed by digitaliza- tion. For example, computer visualization systems that use machine learning algorithms to identify defects in the manufacturing process reduce the need to take products or materials out of the production line and check them manually. In addition, although the end products used by customers are not connected to the cloud, manufacturing firms often employ “digital twins” or models of a built product that reflect the complete manufacturing process and can allow improve- ments based on the performance of the product in a live setting. AI-enhanced predictive maintenance is taking over from preventive maintenance. The use of accelerometers, digital sensors, and advanced software algorithms allows report- ing of the machines’ real-time conditions. This translates into savings on time and resources, fewer expensive stops to production, and lower maintenance and inspection costs. One of the most recent developments is the construction of completely digital factories. For instance, the commercial vehicle manufacturer Scania has invested $220 million in a new heavy truck cab factory to produce cabins for its European market. The only remaining manual activities are related to the provi- sion of materials for production and surveillance and servicing of production. Scania’s production capacity has doubled, and the number of breakdowns and production stops has reduced. Another company, SKF, the world’s largest bearing manufacturer, also has digital factories. Based on their experience from a test fac- tory that they built in Sweden, SKF is constructing another new factory in Germany. Similar to Scania’s experience, SKF has improved its production plan- ning because the manufacturing process can be changed without causing disrup- tion and errors. The observations show that firms are investing in digital factories because they believe they will make them more competitive and produce better quality goods at lower production costs. Another important implication of digital factories that has yet to materialize is that since fewer individuals are required for production, the activity can be positioned strategically with less consideration of salary costs. It could be beneficial to relocate production facilities to somewhere with an existing digitally competent workforce, especially for firms such as SKF with production facilities in 103 locations around the world. Although SKF’s first digital factory was a test factory, the firm reduced the number of employees work- ing in and with the factory by 77%; it expects even higher staff reductions in rela- tion to future digital factories. This document is authorized for use only in Prof. Rakesh Raut's PGP Batch 22-24, Orientation Session 3 - 07.06.2022 at NITIE - National Institute of Industrial Engineering from Jun 2022 to Dec 2022. 22 CALIFORNIA MANAGEMENT REVIEW 62(4) Sophisticated Products and Services Digital technologies are embedded not only in the value chain but also in the products themselves. Increasingly manufacturing firms are integrating technologies in established products to make them more “intelligent.” The data generated from products in use may increase performance or give rise to new functionalities. Hence, the integration of digital technologies allows the firm and its customers to collect valuable data on the product and applications that depend on that product. These data allow products to be monitored, optimized, controlled, and sometimes operate autonomously. 11 Making traditional manufacturing products intelligent allows the firm to move downstream and provide new operational and complementary services; most of the firms in the sample are on this trajectory. This is in line with manufac- turing firm trends and reduces the distance between the firm and the end user while increasing business revenue streams, 12 which have been shown to increase overall firm profitability. 13 ABB, a global leader in power and automation technologies, creates value for its customers through digitalization based on the Internet of Things (IoT) and AI (reinforcement learning neural networks). For example, its robots are con- nected to the cloud, which allows predictive maintenance and production simula- tions that are sold as services to its customers. Automotive firms are connecting their vehicles to the cloud to enable new complementary downstream services. For example, Scania has 500,000 cloud-connected vehicles on the road. They enable optimization of routes, predictive maintenance, and more efficient staffing for trucks. Several firms also use digitalization and connected products to allow direct links to end users. Husqvarna, a leading producer of outdoor power prod- ucts, previously marketed and sold its products mainly through distributors. However, digitalization has triggered a new strategy and allowed the development of innovative services based on direct sales to end users. Integrated Value Chains Digitalization allows more integrated value chains, which increases the efficiency of various firm functions, reduces lead times, and enables bet- ter control over the operations. The sharing of information among systems and functions, such as production and enterprise resources planning, improves coor- dination, visualization, and planning of important processes. Manufacturing firms share data not only within the firm but also across firm boundaries with suppliers and customers. Recently, leading firms are adapting their supplier interface and limiting it to a single digital procurement channel through the use of machine learning algorithms. This change allows firms and their suppliers to have better control over materials and components and reduces inventories. Some firms are integrated with their customers’ production systems. One of the sample firms highlighted the amount of time saved in communicating with customers about supply by integration with its customers’ production and inventory management systems. Digitalization also provides easier traceability This document is authorized for use only in Prof. Rakesh Raut's PGP Batch 22-24, Orientation Session 3 - 07.06.2022 at NITIE - National Institute of Industrial Engineering from Jun 2022 to Dec 2022. 23 Strategies for Digitalization in Manufacturing Firms throughout the firm’s value chain activities, for example, by tracking the position in the supply chain of a specific customer order, using machine learning, or linking end products to data from the manufacturing process and the input materials used. From Effciency to Growth Observations show that the effects of digitalization can be traced primar- ily to more efficient firm operations and manufacturing processes and to better performing products with new functionality. Improved production throughput, fewer breakdowns, more efficient maintenance, more effective integration across activities in the internal value chain, and new product development methods provide many cost advantages. However, these are not the areas that present the greatest difficulty for firms and their ability to exploit the potential offered by digitalization. It is activi- ties and processes to grow the firms that pose the greatest challenge, while also offering opportunities that have yet to be exploited. More than half of the sample firms consider that digitalization offers equal opportunities or better possibilities to increase revenue than to lower costs. However, only a quarter of the observed firms consider that they pay more attention to increasing revenue than to lower- ing costs. Nobel Laureate Oliver Williamson argues that strategy starts at home, and that in the long run, the best strategy is to operate and organize efficiently, 14 which he describes as economizing. 15 This might suggest that firms should start with upstream digitalization activities, which is the strategy adopted by most of the observed firms, at the expense of focusing on activities to create new income streams and to reinvent the business model, or with strategizing activities to cre- ate defensible positions against competitive forces. 16 Economizing is an important source of profitability because it affects relative cost positions and underpins com- petitive advantage. 17 Digitalization is defining a new standard for operational effi- ciency in upstream activities for the observed firms and has raised the best practice bar even for the most advanced firms. 18 However, the current rapid digital advances not only provide greater effi- ciency for manufacturing firms but also promote a growth agenda from new com- binations (innovation). 19 They are not mutually exclusive, and both are essential for long-run superior performance. Few firms can compete successfully over the long term on the basis of operational efficiency alone. 20 Many of the firms in this study are very ambitious and are attempting to build growth and transform their business models to create and capture more value from the use of digital technol- ogy and data. 21 However, with few exceptions, the effects on firm performance have been small. There is a trend among the firms in this study toward becoming more service-oriented to realize value from digitalization. Several are selling oper- ational and complementary services based on the new functionality of their prod- ucts, but the effects, scope, and scale of these efforts are limited. The resulting firm revenue has been negligible, and most firms are disappointed that the results do This document is authorized for use only in Prof. Rakesh Raut's PGP Batch 22-24, Orientation Session 3 - 07.06.2022 at NITIE - National Institute of Industrial Engineering from Jun 2022 to Dec 2022. 24 CALIFORNIA MANAGEMENT REVIEW 62(4) not match expectations. At the same time, several manufacturing firms are trying to change their business model from selling products to selling services. However, the results of most of these changes have yet to materialize. For example, some automotive firms have ambitions to switch from selling vehicles to selling vehicles as a service and have been working on this for some time, but so far without much implementation. In sum, business leaders have focused mainly on cutting costs based on greater efficiency, and these initiatives have proven more success- ful than the few initiatives aimed at growth. 22 Business leaders believe that major competitive and market effects will not emerge without changes to their business offers to customers. 23 However, a growth agenda will require these manufacturing firms to shift from greater efficiency in established ways of working to working differently. Driving growth is a different game than using digitalization to achieve greater efficiency and is also experienced as more difficult (see Table 1 for a sum- mary). For the firms in this study, operational efficiency based on digitalization has been confined primarily to achieving excellence in individual functions. Compared to achieving growth, elimination of waste, for instance, has been rela- tively straightforward and generic across firms and sectors. 24 It is relatively easy also to evaluate returns on investments aimed at cost-cutting via operational effi- ciency. However, digitalization aimed at driving growth involves combining func- tions that require a good fit among internal activities across functions. Firms also need to create customer value in a more uncertain external environment. This is a challenge in the earliest stages of development. As described by Day and Schoemaker in the case of emerging technologies, customer usage patterns and behaviors are exploratory and formative and are accompanied by scarcity of mar- ket knowledge and embryonic competition among new solutions. 25 Hence, invest- ment in digitalization is considered uncertain for innovation and growth. According to the case firms, processes are inadequate, governance is weak, and there is no relevant and appropriate growth strategy that explains the asymmetric gains between cost-cutting and growth efforts. Digital technologies combined with the manufacturing firm’s inherited resources and capabilities can produce fundamental changes to how the firm cre- ates and captures value, 26 which makes the nature of future competition difficult to predict. 27 In turn, this adds to the importance of innovation and growth to achieve long-run competitive advantage. Work in the area of dynamic capabilities has taught us that such circumstances demand the honing of internal technologi- cal, organizational, and managerial processes to sense and seize opportunities. 28 If manufacturing firms do not seize opportunities and do not transform themselves to embrace the growth opportunities offered by digitalization, they are likely to be outcompeted by firms able to solve customer problems in more creative ways. In the present climate of Schumpeterian competition, this threat comes from both incumbent firms and firms outside the industry 29 because on many occasions, new technologies can produce disruptions to an established technical advance- ment trajectory. 30 Digitalization has changed the game for incumbents in many This document is authorized for use only in Prof. Rakesh Raut's PGP Batch 22-24, Orientation Session 3 - 07.06.2022 at NITIE - National Institute of Industrial Engineering from Jun 2022 to Dec 2022. 25 Strategies for Digitalization in Manufacturing Firms TABLE 1. Factors Explaining the Differences between Digitalization Aimed at Cost-Cutting versus Growth. Cost-Cutting/Operational Efficiency Growth/Innovation Asset redeployment Well-established mechanisms (e.g., taxes from the business divisions) for money-saving alternatives, to improve lead times, quality, and throughput. No established mechanisms to allocate capital needed by several functions to build a growth agenda. Culture Well-established culture to reduce waste through better methods. Collective ability across functions to transform output markets. There is no established culture to develop and sell services or to use data to build new businesses. Coordination between functions Dependent on excellence in individual functions. Dependent on several functions. Data management Data are generated internally and usually fewer variables need to be considered to identify efficiency improvements. Data are generated from customer applications and many variables need to be considered to identify growth options. Demand Internal demand and firm’s responsibility to decide if it would be productive. Uncertain market demand. External cooperation Well-established partners and suppliers for implementing efficiency improvements. Partnerships are context dependent and there is strong dependence on the complementors in the ecosystem to create value. Investments Relatively easy to estimate. Difficult to estimate. Managerial processes Established managerial processes are working. Dependent on new managerial processes to become flexible. Return on investments Easy to estimate. Very uncertain. Strategy Well-established procedures to invest in solutions that are critical for competitiveness and that have high rates of return on investment. No established strategy. Need to make trade-offs among many uncertain alternatives. Time to implementation Relatively easy to estimate. Difficult to estimate. Transferability High between firms. Low between firms. industries by introducing competition from firms outside the industry and compe- tition with more asset-light business models. 31 Teece, Peteraf, and Leih note that in environments characterized by uncer- tainty, firms must grasp opportunities for growth before their logic becomes This document is authorized for use only in Prof. Rakesh Raut's PGP Batch 22-24, Orientation Session 3 - 07.06.2022 at NITIE - National Institute of Industrial Engineering from Jun 2022 to Dec 2022. 26 CALIFORNIA MANAGEMENT REVIEW 62(4) apparent to all market players. 32 However, this does not assume first-mover advantages (or disadvantages) and we have to be very careful with such assumptions. 33 Digital transformation is equally important for the ability to follow, to have options related to growth, and to achieve learning advantages over firms that have yet to undergo digital transformation. Moreover, the digital transformation of manufac- turing firms does not necessarily involve a radical business model, a new product category, or response to a competing technology; it can take many shapes. In the context of the firms in the sample, until markets stabilize, it is too early to claim that digital transformation pioneers have achieved first-mover advantages or dis- advantages. 34 What can be said is that many firms’ attempts to achieve growth and to obtain economic returns from innovation have failed, but this cannot be attributed only to second-mover advantages. Nevertheless, business leaders from the observed firms believe that without some transformation, their companies’ prospects are poor, and they do not consider it to be a waiting game. 35 Some of the case firms would be suffering had they not sensed and seized opportunities and embarked on a digital transformation. 36 One of the most successful examples of a digital transformation among the case firms is Assa Abloy. The firm dominated the world market in mechanical door locks. Assa Abloy had no experience of using digital technologies or working with data but recognized that it needed to trans- form itself to exploit the opportunities related to various types of digital door locks. The market emerged in Southeast Asia with contributions from several firms from other sectors (e.g., Samsung). After a major transformation, Assa Abloy has become the market leader in digital door locks and is collaborating success- fully with complementors such as Apple and Google to drive the market forward. Assa Abloy appears in the Forbes list of the world’s 100 most innovative compa- nies, and 57% of its top line comes from electromechanical products and digital solutions. It now also enjoys recurring revenue based on subscriptions and upgrade services. Unresolved Strategic Challenges to Growth Firms have several issues that require resolution for investments in growth to bear fruit. The challenges related to increasing the top line through implementation of digital technologies and exploitation of data generated inter- nally and by customers are that firms generally do not have in place appropriate processes to develop and test new customer offerings. Most firms apply the same processes to develop new business and to achieve incremental development. They include the waterfall model, which is suited to incremental development when both the customer and offering are known. However, manufacturing firms typically do not have previous experience with the concepts and solutions they want to develop, and they involve product features and customer segments that are uncertain. Most firms believe that they need to change their processes and become more agile. 37 This will be increasingly important to allow utilization of the data generated by digital technologies and identification of viable business. Some firms argued that their service developments had failed because of their This document is authorized for use only in Prof. Rakesh Raut's PGP Batch 22-24, Orientation Session 3 - 07.06.2022 at NITIE - National Institute of Industrial Engineering from Jun 2022 to Dec 2022. 27 Strategies for Digitalization in Manufacturing Firms ad-hoc nature and lack of strategy and their being based on ideas the firm con- sidered feasible with no consultation with customers. In addition, very few firms have central control of data, which tends to be spread throughout the organization (across different functions and market seg- ments, and geographically). If these different firm functions do not routinely coop- erate and share data, it can be difficult for the firm to organize digitalization efforts. 38 This lack of control over the data also means that in most cases, firms are unable to share data outside the firm boundaries. 39 Many firms also lack the capa- bilities for rigorous analysis of available data to decide how they should be exploited. A potential solution to facilitate the better use of data is setting up data science groups. Volvo Cars and Scania have established such groups to work on data- driven innovations. For Scania, data science is viewed as necessary for firm sur- vival and provides a way to adapt to the new reality. Volvo Cars and Scania believe that data science has the potential to identify previously unrecognized patterns that would allow the firm to leverage its new knowledge to improve existing or create new business. These firms have created so-called data lakes that allow their firm members to access and analyze data. A data lake is a single storage for all the firm’s data (structured, semi-structured, unstructured, and binary data). 40 As firms find better processes for working with data and as their businesses develop, more problems arise. They need to establish governance structures and mechanisms to allow good coordination of their internal organizational and man- agerial processes. The observations conducted as part of this study show that firms find the organization of and responsibility for digitalization extremely difficult. The importance of digitalization is exemplified by the fact that most of the firms analyzed have created the post of CDO, although responsibilities and the position in the hierarchy vary among firms. For example, in Atlas Copco, Saab, Volvo Cars, and most steel manufacturing firms, promoting digitalization is the responsibility of the IT department. However, many IT department members lack experience in building new business and are more appropriately cast in the support function. At the same time, if they have the required experience, they may not have budgetary authority and may be dependent on another firm function. For example, in Husqvarna, Autoliv, and Inwido, this responsibility belongs to the R&D depart- ment. Although this can result in digitalization efforts organized to develop new customer solutions, problems arise in relation to coordination with sales and mar- keting functions to launch new products and services. Thus, problems can arise in the hand over and coordination of digitalization efforts across firm functions. Appointing a CDO but retaining the existing organizational structure may not solve organizational problems related to promotion of growth by means of digita- lization. Many functions and firms are stuck in old ways of organizing, which results in silos. Not all firms have a CDO to promote growth. Several firms (e.g., Bombardier, SKF, Volvo Penta) consider that digitalization should not be driven by one specific function but rather is an organization-wide responsibility. However, they may risk a lack of focus in their digitalization efforts and are trapped in an old way of organizing. Moreover, the lack of an appropriate culture to support digital This document is authorized for use only in Prof. Rakesh Raut's PGP Batch 22-24, Orientation Session 3 - 07.06.2022 at NITIE - National Institute of Industrial Engineering from Jun 2022 to Dec 2022. 28 CALIFORNIA MANAGEMENT REVIEW 62(4) transformation and strategy can result in stagnation. It seems clear that digitaliza- tion will entail ongoing complex organizational and managerial challenges. Its design is important because it has been shown to be a crucial enabler of dynamic capabilities and the capacity to sense changes, seize opportunities, and to trans- form the firm. 41 Many business leaders want their firms to become more agile and see the need for more flexible working as a result of digitalization. However, most have not come to grips with working with data, organizing for digitalization, or achiev- ing better cooperation among different functions. Development and maintenance of agility is costly, but trying to exploit the opportunities and benefits from digita- lization without an agile organization may be even more costly. 42 Looking for- ward, many large firms will need to coordinate their functions in new ways and find easier, faster, and more efficient ways of working to achieve full digitalization and drive a growth agenda. However, there is no “one-size-fits-all solution,” and firms need to have dynamic capabilities to achieve agility and address the business environment changes caused by digitalization. 43 Scania, one of the case firms, has reorganized more appropriately and changed its organizational dynamics, which allows it to benefit from the new growth opportunities brought by digitalization. Scania established “Digital” as a new business function responsible for coordinating, developing, and driving the firm’s digital transformation. It has undertaken other efforts to improve organi- zational dynamics and to better govern how it integrates, builds, and reconfig- ures competences to address digitalization. It has reallocated the IT department’s responsibilities among various firm functions, and every department in the firm includes data scientists. The result of these changes to the organizational struc- ture is that all the firm functions are involved in the digital transformation and are less dependent on input from software developers and data scientists from other functions in their efforts to explore and develop new customer solutions. A data lake allows all firm functions easy access to internally generated and cus- tomer data. Each firm function includes digitalization champions who are respon- sible for driving the digital transformation and keep digitalization high on the firm’s agenda. The different functions focus on sharing information to achieve greater coordination and unity. All these efforts are supported by the CEO who believes and communicates clearly that digital transformation is necessary for the firm’s survival. Another consideration is what firms should do themselves and how much they need to cooperate with or acquire other firms. Many of the observed firms cooperate outside the firms’ traditional boundaries for the development of tech- nological solutions, and several firms have made acquisitions to obtain access to technological competencies for immediate use or that they view as real options. The present manufacturing firm value system is based largely on the ecosystem, 44 and because digitalization increases system dependence among technologies, products, and services to form a system of systems, firms need to be better pre- pared to work according to an open paradigm to create and capture value. 45 This document is authorized for use only in Prof. Rakesh Raut's PGP Batch 22-24, Orientation Session 3 - 07.06.2022 at NITIE - National Institute of Industrial Engineering from Jun 2022 to Dec 2022. 29 Strategies for Digitalization in Manufacturing Firms Crafting an ecosystem strategy in which a firm approaches the alignment of part- ners can be a way to seize new growth opportunities. 46 However, this means that firms increasingly need to be involved in more dynamic value constellations where different actors from multiple industries contribute to firms’ value creation, and where parts of the firms’ value chain activities shift to new actors. 47 Hence, it can be a clever strategy (as the example of Assa Abloy demonstrates) to partner with firms that possess critical complementary assets, reducing the need to build them in-house, or to be outcompeted by these partner firms. 48 Business leaders consider that orchestration of ecosystems and cooperation is paramount, but most have yet to begin work on this. It will be difficult, especially since several of the case firms have ambitions to become “leading firms” by catalyzing ecosystem developments to enhance their competitive advantage. 49 All the firms in the study stated that they