Digitization and Complexity: Positioning in Complex Business Environments and Cocreation of IT Business Value

In today’s economic environment, firms that try to digitize products and services face an important challenge. On the one hand, digital products and services are complex, requiring groups of firms working together to be able to develop them. Digital products are modular products, with each product containing large numbers of connected socio-technologically complex components, each offered by a different firm. On the other hand, the overall economic environment has been becoming increasingly complex. In this new environment, a small group of firms control a large amount of value creation and distribution in the network. This small group of firms frequently attack other industries using a novel mode of competition. Therefore, the challenge that firms increasingly face is that they need to form partnerships required for producing complex digital products and services in an increasingly complex business environment. This dissertation addresses this challenge, and reveals mechanisms through which firms can co-create value from digitizing their products and services in a complex environment. First, I explore the network of strategic alliances between, in order to gain a better understanding about the structural changes of firms’ partnerships. Introducing two network based measures for identifying hub firms and capturing the hub characteristics of industries, I identified a general pattern of change toward a hub economy. Second, I introduced a digital proximity measure, capturing firms’ success in digitizing their products and services. My results reveal a causal relationship between gaining high levels of digital proximity and firms’ superior performance. Third, I explored the question of how firms’ can safeguard the value that they generate through their alliances. Using partners’ acquisition of technology firms as exogenous shocks, I found a collaborative design of the partnerships as a mechanism that can help firms against their partners’ strategic behavior. This dissertation is one of the first attempts toward gaining an empirical understanding about the increasingly complex economic environment. I introduce empirical approaches for quantifying the hub economy and firms’ success in digitizing products and services in such an environment. My results reveal mechanisms that could help firms in overcoming challenges created by this new economy reality.