Digital Business Strategy: Toward a Next Generation of Insights

Author(s): Anandhi Bharadwaj, Omar A. El Sawy, Paul A. Pavlou and N. Venkatraman

Source: MIS Quarterly , June 2013, Vol. 37, No. 2 (June 2013), pp. 471-482
Published by: Management Information Systems Research Center, University of
Minnesota

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Quarterly
Digital Business Strategy: Toward a Next
Generation of Insights

Anandhi Bharadwaj
Goizueta Business School, Emory University,
Atlanta, GA 30332 U.S.A. {abharad@emory.edu}

Omar A. El Sawy
Marshall School of Business, University of Southern California
Los Angeles, CA 90089-1421 U.S.A. {elsawy@marshall.usc.edu}

Paul A. Pavlou
Fox School of Business, Temple University,
Philadelphia, PA 19122-6083 U.S.A. {pavlou@temple.edu}

N. Venkatraman
School of Management, Boston University
Boston, MA 02215 U.S.A. {venkat@bu.edu}

Over the last three decades , the prevailing view of information technology strategy has been that it is a
functional-level strategy that must be aligned with the firm 's chosen business strategy. Even within this so-
called alignment view, business strategy directed IT strategy . During the last decade , the business infra-
structure has become digital with increased interconnections among products, processes, and services. Across
many firms spanning different industries and sectors, digital technologies (viewed as combinations of infor-
mation, computing, communication, and connectivity technologies) are fundamentally transforming business
strategies, business processes, firm capabilities, products and services, and key interfirm relationships in
extended business networks. Accordingly, we argue that the time is right to rethink the role of IT strategy, from
that of a functional-level strategy - aligned but essentially always subordinate to business strategy - to one that
reflects a fusion between IT strategy and business strategy. This fusion is herein termed digital business
strategy.

We identify four key themes to guide our thinking on digital business strategy and help provide a framework
to define the next generation of insights. The four themes are (1) the scope of digital business strategy, (2) the
scale of digital business strategy, (3) the speed of digital business strategy, and (4) the sources of business
value creation and capture in digital business strategy. After elaborating on each of these four themes, we
discuss the success metrics and potential performance implications from pursuing a digital business strategy.
We also show how the papers in the special issue shed light on digital strategies and offer directions to advance
insights and shape future research.

Keywords: Digital business strategy, scope of digital business strategy, scale of digital business strategy, speed
of digital business strategy, digital business strategy value creation and capture

MIS Quarterly Vol. 37 No. 2, pp. 471-482/June 2013 471

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Bharadwaj et al. /Introduction: Digital Business Strategy

Emergence of Digital Davis et al. 2009; Meyer et al. 2005; Pavlou and El Sawy
2010). Finally, exponential advancements in the price/
Business Strategy
performance capability of computing, storage, bandwidth, and
software applications are driving the next generation of digital
Over the last three decades, the prevailing view of IT strategy
technologies to be delivered through cloud computing. It is
has been that of a functional-level strategy that must be
clearly time to rethink the role of IT strategy, from that of a
aligned with the firm's chosen business strategy. Even within
functional-level strategy - aligned but essentially always
this so-called alignment view (Henderson and Venkatraman
subordinate to business strategy - to a fusion between IT stra-
1993), business strategy directed IT strategy despite calls for
tegy and business strategy into an overarching phenomenon
recognizing the importance of IT strategy shaping business
we herein term digital business strategy.
strategy and transforming business processes and business
scope (Venkatraman 1994). This "alignment" thinking of IT
Our working definition of digital business strategy is simply
strategy as a functional-level strategy - aligned but essentially
that of organizational strategy formulated and executed by
subordinate to business strategy - has been predominantly
leveraging digital resources to create differential value. This
reflected in a multitude of research studies, including studies
working definition highlights ( 1 ) going beyond the traditional
on business process redesign, intrafirm and interfirm systems,
view, thinking of IT strategy as a function within firms and
business value of IT, and IT outsourcing, among others (e.g.,
recognizing the pervasiveness of digital resources in other
Chan and Reich 2007; Hirschheim and Sabherwal 2001;
functional areas such as operations, purchasing, supply chain,
Hussin et al. 2002; Luftman and Brier 1999; Reich and
and marketing; (2) going beyond systems and technologies,
Benbasat 2000; Sabherwal and Chan 2001; Sabherwal and
which might have narrowed the traditional views of IT
Kirs 1994; Sledgianowski et al. 2006).
strategy to recognize digital resources , thereby being in line
with the resource-based view of strategy (e.g., Barney 1991;
However, during the last decade, impressive improvements in
Conner and Prahalad 1 996; Wernerfeit 1 984, 1 995); (3) expli-
information, communication, and connectivity technologies
citly linking digital business strategy to creating differential
have unleashed new functionalities. Thus, the post-dotcom
business value, thereby elevating the performance implica-
decade has seen firms - both established and startups - taking
tions of IT strategy beyond efficiency and productivity
advantage of lower price/performance levels of computing
metrics to those that drive competitive advantage and strategic
(hardware and software) as well as global connectivity differentiation.
through standard protocols (e.g., Internet and mobile web) to
adapt their business infrastructure to the new digital era.
These digital technologies are fundamentally reshaping
traditional business strategy as modular, distributed, cross- Digital Business Strategy Themes
functional, and global business processes that enable work to
be carried out across boundaries of time, distance, and func- We have identified four key themes to guide our future
tion (e.g., Banker et al. 2006; Ettlie and Pavlou 2006; Kohli thinking on digital business strategy and provide a framework
and Grover 2008; Rai et al. 2012; Sambamurthy et al. 2003; to help define the next generation of insights. The four
Straub and Watson 2001; Subramaniam and Venkatraman themes are (1) the scope of digital business strategy, (2) the
2001; Tanriverdi and Venkatraman 2005; Wheeler 2002). scale of digital business strategy, (3) the speed of digital busi-
Digital technologies also enable different forms of dynamic ness strategy, and (4) the sources of business value creation
capabilities suitable for turbulent environments (Pavlou and and capture in digital business strategy. We believe that the
El Sawy 2006, 2010). Digital technologies are also trans- proposed four key themes capture the key attributes of digital
forming the structure of social relationships in both the business strategy and help us to articulate its main nuances.
consumer and the enterprise space with social media and We synthesize these four key themes with a discussion of
social networking (e.g., Susarla and Tan 2012). success metrics (see Figure 1) that could serve as the starting
point for developing a rich set of research questions to guide
Furthermore, products and services increasingly have embed- the debate and discussion within the broader academic
ded digital technologies, and it is becoming increasingly more community and for guiding practicing managers and execu-
difficult to disentangle digital products and services from their tives.1 Toward seeking to better understand the nature, role,
underlying IT infrastructures (e.g., El Sawy 2003; Orlikowski and emergence of digital business strategy, these four themes
2009). Digital platforms are enabling cross-boundary have been generated from our own deliberations, inspiration
industry disruptions, and thus inducing new forms of business
strategies (e.g., Burgelman and Grove 2007). In addition,
theoretical structures for strategy making in nonlinear 1 Please note that the key external digital trends and organizational shifts
dynamic and turbulent environments are also emerging (e.g., identified in Figure 1 are merely illustrative rather than exhaustive.

472 MIS Quarterly Vol. 37 No. 2/June 2013

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 Bharadwaj et al. /Introduction: Digital Business Strategy

Key External Digital Trends

• Pervasive Connectivity
• Information Abundance
• Global Supply Chains
• Improved Price/Performance of IT
• Growth of Cloud Computing
• Emergence of Big Data ,

Strategy I I
• Scale of Digital Business _ ,

• Strategy
Speed of Decision Making ' '
Key Organizational Shifts l' Sources ofValue Creation and | y
• Limitations of Traditional
Business Models
• Trans-functional Role for IT
• New Mandate for IT and the CIO
• Increased Familiarity with IT

from the paper submissions to this special issue, "Digital Digital Business Strategy Transcends Traditional
Business Strategy: Toward a Next Generation of Insights," Functional and Process Silos
and informal conversations with academic and industry
thought leaders. Digital business strategy is different from traditional IT stra-
tegy in the sense that it is much more than a cross-functional
strategy, and it transcends traditional functional areas (such
Scope of Digital Business Strategy as marketing, procurement, logistics, operations, or others)
and various IT-enabled business processes (such as order
One of the fundamental questions in strategic management management, customer service, and others). Therefore, digi-
tal business strategy can be viewed as being inherently trans-
relates to corporate scope, which defines the portfolio of
functional. All of the functional and process strategies are
products and businesses as well as activities that are carried
encompassed under the umbrella of digital business strategy
out within a company's direct control and ownership. Pat-
with digital resources serving as the connective tissue. Digita
terns of corporate scope and the logic of diversification have
business strategy relies on rich information exchanges through
been shown to impact firm performance (e.g., Berger and
digital platforms inside and outside organizations that allow
Ofek 1995; Lang and Stulz 1994; Wade and Hulland 2004),
multifunctional strategies and processes to be tightly intercon-
and strategy research has been concerned with how firms
nected with the aid of interfirm IT capabilities (e.g., Rai et al
optimally use their core competencies and key assets and
2012). Discussion of how IT strategy shapes and influences
resources to extend their product and market reach (e.g., Amit
business strategy originally articulated by Henderson and
and Schoemaker 1993; Barney 1991; Conner and Prahalad
Venkatraman (1993) now emerges to the core through digital
1996; Wernerfelt 1984, 1995).
business strategy. Accordingly, digital business strategy is
broader, more prominent, more embedded, and more encom-
How can we draw the boundaries of digital business strategy passing than other functional strategies. Consequently, while
and how can we best characterize its scope? Understanding IT strategy may be positioned as a functional-level strategy
the scope of digital business strategy helps to conceive its (under the province of the chief information officer), digita
relationship to firms, industries, IT infrastructures, the business strategy should not be positioned below business
external environment, and how digital business strategy can strategy but treated as business strategy itself for the digita
be more effective in a variety of settings. Conceptualizing era. Over time, as firms and industries become more digital
competitive strategy under digital conditions raises the ques- and rely on information, communication, and connectivity
tion of how business scope is impacted by digital tech- functionality, we envision that digital business strategy wil
nologies. We believe that researchers should pay particular be the business strategy. At that juncture, there would be n
attention to how, when, and why the scope of digital business separation between business strategy and digital business
strategy is impacted by digital technologies. strategy.

MIS Quarterly Vol. 37 No. 2/June 2013 473

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Bharadwaj et al. /Introduction: Digital Business Strategy

Digital Business Strategy Includes Digitization quality (even time-lapsed) data, big data create conditions of
of Products and Services and the Information data (information) abundance due to the massive amount of
Around Them detailed (and often ready to analyze) data made available.
This opens up a whole new portfolio of digital business
The formulation of digital business strategy includes the
strategy approaches around the digitization of information for
products and services.
design of products and services and their interoperability with
other complementary platforms, and their deployment as pro-
ducts and services by taking advantage of digital resources.The importance of scope for products and services under
Many firms are beginning to see the power of digital digital conditions is relevant even beyond technology com-
resources to create new IT capabilities and craft new stra- panies such as Microsoft, Google, and others. It also applies
tegies around new products and services (e.g., Rai et al. 2012;
to GE as it seeks to find technology-based extensions in areas
Ray et al. 2005; Sambamurthy et al. 2003). such as GE aircraft engines, medical devices, and services as
well as transportation systems. It also applies equally well to
Visible examples include Amazon's Web Services on the Nike as it seeks to develop connectivity and information-
based metrics (Nike Fuel) to calibrate the use of its new pro-
cloud that substantially expand the strategy of a typical online
retailer by encompassing cloud computing services as a ducts.
key What we need is an updated way to classify and cate-
digital resource. Amazon's corporate scope of e-retailing and
gorize a firm's foray into digital frontiers involving hardware,
web services may be considered an unrelated portfolio under software, and services rather than treating the distance
between physical and digital domains as large and uncon-
traditional strategy conceptualization because of the distance
between these two business lines within Amazon. Recog- nected. Simply put, we need a reconceptualization of the role
nizing and mapping the underlying connections among of e- digital connections within a firm's corporate portfolio of
retailing, the role of hardware (Kindle) and web services products and services (its scope) to better prescribe its digital
(A WS) requires a more nuanced understanding of the effect business strategy under increased digital conditions.
of digital technologies than simply computing distances based
on SIC-codes and industry classifications. Therefore,
Digital Business Strategy Extends the Scope
Amazon's corporate portfolio may be wrongly characterized
Beyond Firm Boundaries and Supply Chains
as unrelated while we can easily see the related linkages
between the constituent parts. to Dynamic Ecosystems That Cross
Traditional Industry Boundaries
The same logic can be extended to firms such as Google,
Netflix, Microsoft, and others as they continue to adjust In
anda digitally intensive world, firms operate in business
fine-tune their corporate scope to take advantage of ecosystems
the that are intricately intertwined such that digital
developments in hardware, software, and Internet connec- business strategy cannot be conceived independently of the
tivity. Other examples of using novel digital resources to business ecosystem, alliances, partnerships, and competitors.
Furthermore, the use of digital platforms enables firms to
expand the scope of business strategy include Sony's digitized
product architecture in game consoles and televisions, break traditional industry boundaries and to operate in new
Honeywell's and Nest's next-generation thermostats with spaces and niches that were earlier only defined through those
remote real-time Internet capabilities, GE's healthcare devices
digital resources (e.g., D'Adherio 2001; Klein and Rai 2009;
Rai et al. 2012; Saraf et al. 2007). Take, for example, how
that are connected to the Internet to provide remote real-time
patient monitoring, andNike's digitized product development Apple has redefined the mobile entertainment ecosystem, or
supported by Apple's iOS. how Amazon has redefined the book-selling ecosystem. In
these two cases, there is no meaningful distinction between
Digital resources around digital business strategy shouldbusiness
be strategy and IT strategy, another example of digital
viewed relatively broadly. This is because digital resourcesbusiness strategy.
are "more than just bits and bytes, the digital infrastructure
Extending the range and reach of digital business strategy
consists of institutions, practices, and protocols that together
organize and deliver the increasing power of digital tech- beyond tight supply chains with partners in traditional indus-
nology to business and society" (Deloitte 2009, p. 2). They tries to loosely coupled dynamic ecosystems that are still in
emergence is a far more complex undertaking. This requires
include traditional data and information, but they also include
rethinking how to standardize IT infrastructures and the
the significant explosion of data. The proliferation of social
media, cloud computing, and mobile phones has enhanced business
the processes around them, and it also requires a digital
agility to respond to rapidly changing ecosystem conditions.
quality and quantity of data generated every day. While in the
past we have operated under conditions of data (information)It requires also an orchestration of digital resources that is
scarcity with decisions made with incomplete and often poor more multifaceted, data rich, and dynamic. The digital depen-

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 Bharadwaj et ai/Introduction: Digital Business Strategy

dency may require a mindset that may require pooling and have seen this theme played out over the last decade in soft-
sharing digital business strategy with other players in the ware (Microsoft) and videogames (Sony and Xbox), network
business ecosystem, whether they are partners or competitors. effects are becoming key in areas such as mobile hardware
and services through the existence of app stores (Apple iOS
and Google Android), chipsets, subsidies to handset manu-
Scale of Digital Business Strategy facturers, etc.

How should we think about the scale of digital business stra- As business strategy becomes digital, firms in a wide variety
of industries and markets should consider the role of network
tegy under digital conditions? Scale has been a primary
effects and multisided business models. This can be instan-
driver of profitability in the industrial age. Scale confers
benefits of lower unit cost of products and helps enhance tiated on the supply side with digitally interconnected partner-
profitability. When infrastructure becomes increasingly digi- ships (such as Google and its partnerships for Android-
tal, rather than thinking of scale only in terms of physical powered devices) and on the demand side with interconnec-
factors of production, supply chains, or geographic coverage, tions among web pages (such as Facebook with its Open
we need to think of scale in both physical and digital terms. Graph).
We have identified at least four ways that scale of digital
business strategy is distinct and qualitatively different. We have made significant progress over the last decade
focused on network effects and multisided business models
focused on software and related areas (e.g., Evans et al.
Rapid Digital Scale Up/Down as Strategic 2008). We believe that these ideas can be extended broadly
Dynamic Capability as digital connections extend to other areas such as auto-
mobiles (telematics), retailing through mobile apps, pub-
Increased availability and reliance on cloud computing lishing and advertising on tablets, and healthcare.
services provides a strategic dynamic capability for firms to
scale up or down its infrastructure. A cloud computing
infrastructure enables on-demand network access to a shared Scale with Digital Business Strategy Will
pool of configurable computing resources. This cloud model Increasingly Take Place under Conditions
is based on on-demand self-service, virtualized resources, of Information Abundance

rapid and elastic resource utilization, broad network access,

and measured quality of service (see http://www.nist.gov/ We are not only in a world of ubiquitous digital platforms
itl/cloud/). Historically, cloud computing has been seen as with broadband networks, cloud computing, and billions of
the prerogative of the IT function (the CIOs) but increasingly smart end-user devices; we are also in a world of amplified
it serves to support supply chains, marketing and service networks with an abundance of data, information, and knowl-
operations, and other functional areas as well (e.g., Buyya et edge. This combination of digital intensity, connectivity, and
al. 2007). When the digital infrastructure and business stra- big data provides a context of networked abundance. This is
tegy are fused, this rapid scaling ability becomes a strategic being further amplified by the growth of what has been called
dynamic capability for the firm to adapt to the dynamic the "Internet of Things" (OECD 2012), which includes not
requirements of the digital marketplace. Major cloud service only an interconnection of things, but also an exploding
providers such as Amazon Web Services, SalesForce.com, digital network of people and data. Thus scaling with digital
Rackspace, Joyent, Citrix, and VMware tout their pay-as-you- business strategy will require understanding how to develop
go elastic resources for software, infrastructure, and platforms the organizational capabilities to harness the huge quantities
that allow their customers to dynamically adjust their digital of heterogeneous data, information, and knowledge that is
resources as competitive pressures may demand. generated on a continuous basis. This "big data" includes the
explosive chatter on social networks, crowdsourcing of ideas
from the edges of networks, and the proliferation of billions
Network Effects Within Multisided Platforms of continuous machine-to-machine sensors in areas as diverse
Create Rapid Scale Potential as energy, environment, transportation, shipping, and health-
care, to name a few.
Network effects exist when the value of a good or a service
increases as more consumers use them (examples are e-mail,
Scale Through Alliances and Partnerships
social media, and buy-sell exchanges) or as more supply-side
partners augment the service. As more products and services
become digital and connected, network effects become the When digital intensity increases and digital business strategy
key differentiator and driver of value creation. While wetakes hold, scaling options are more likely to be based on

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Bharadwaj et alJIntroduction: Digital Business Strategy

alliances and partnerships through shared digital assets with as we combine Moore's Law with steady increases in band-
other firms in the business ecosystem across different tradi- width speed and mobile technologies, speed of product
tional industry boundaries. While we already see such scaling launches with connectivity to cloud becomes critical and
strategies in settings such as travel and hospitality as they important.
share reservation systems, loyalty programs, and online cross-
selling (e.g., Star Alliance, OneWorld), we will increasingly The speed of product launches in a digital business context
see companies rely on different firms to pull together the also highlights the importance of planned obsolescence.
requisite scale in areas where they do not see competitive Apple's iPod gives way to the iPod Touch and the iPhone
advantage. We expect that as firms continue to assess their (and even the iPad). The organizational ability to recognize
unique drivers of advantage in digital settings, they would and respond to the fast-paced nature of innovation and imple-
modularize their business processes and rely on plug-and-play mentation with planned obsolescence is fundamental to a
capabilities for richly linking digital assets. We already see firm's competitive success and survival under digital business
this with many new startups relying on linkages through conditions.
application programming interfaces (APIs) and web services.
The digital business context, however, brings an added
dimension of coordination of product launches across firms in
Speed of Digital Business Strategy business networks. In traditional business strategy, the speed
of launches is largely under the control of a single firm that
Although time has been recognized as an important driver of launches standalone, autonomous products. In recent years,
competitive advantage for firms in the strategic management with increased digitization, product launches need to be coor-
literature for quite some time (e.g., Stalk and Hout 1990), it dinated in networks with complementary products and
services. Amazon's launch of the Kindle Tablet needs to be
takes on a more central role in digital business settings. Per-
vasive connectivity challenges companies to think about time coordinated with the development of Android OS just as its
(or more specifically, speed) in important ways. We suggest original Kindle (e-book reader) needed to be timed with an
that speed be thought of through the four dimensions pre- adequate availability of e-books.
sented below.

Speed of Decision Making

Speed of Product Launches
There is general consensus that technology has allowed firms
Digital business strategy accelerates the speed of product to speed up decisions that otherwise might be slowed due to
launches. Pure-play digital companies such as Facebook, information flows up and down the hierarchy through multiple
Google, and Amazon appreciate the importance of developing layers of management. Leading companies such as P&G, GE,
and launching a timed series of products that take advantage and Cisco have invested significantly to provide management
of improvements in computer hardware, software, and con- with the capability to access diverse streams of information
nectivity. The speed of product launches set by these com- from within the focal firm and extend it to key partners and
allies.
panies now compels companies that are in the hybrid (digital
+ physical) space to also accelerate their product introduc-
tions. For example, Barnes & Noble's Nook initiative now Speed as a dimension becomes important in the context of
has to be aligned with the product launch speed not of the responding to customer service requests in real-time through
traditional booksellers but of Amazon and Apple. Thus, when Twitter, Facebook and other social media platforms. Slow-
traditional firms add digital dimensions to their business ness in response could mean customers moving away from
strategy, the clock speed of product launches is recalibrated companies perceived as being out of tune with the new
by the speed set by the pure-play companies. Under such reality. Thus, companies across a variety of organizations are
conditions, managers across a variety of industries find them- experimenting with multifunctional, integrative command
selves with capabilities that are misaligned with those of their centers (e.g., Pepsi's Mission Control for Gatorade and Dell's
new competitors. Social Media Center) to organize information flows from
within the company and outside to increase organizational
Steady, predictable improvements in computer hardware ability to sense and respond faster than ever before.
functionality (defined by Moore's Law for example) compel
firms to develop a multiyear, sequenced product roadmap to As noted earlier, big data sets pose enormous challenges to
remain competitive. We saw this in the case of Apple's access, process, and analyze the massive amounts of data that
multiyear sequenced launch of its iPod over the last decade. accumulate as a natural by-product of routine transactions in
More recently, we saw it in the case of iPhone and iPad. And a digitally connected world. In simple terms, big data refers

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 Bharadwaj et al. /Introduction: Digital Business Strategy

to data sets with sizes beyond the ability of common software into the new strategic capability of orchestrating networks.
tools to capture, curate, manage, and process the data within The speed of network formation is faster than traditional
a specified elapsed time. As companies make investments to supply chains in areas such as automotive, chemicals, or
process increased amounts of data, we find that few have textiles where trust built up over long periods of time acts as
made corresponding investments in the organizational pro- the glue. In contrast, app developers align and realign their
cesses to drive business value from data and information. Just affinity to the different platforms based on technical func-
as in the 1990s with the wave of business process redesign tionality and attractiveness. The dynamics of network forma-
efforts, the value lies not in investing in technology but in tion and reformation in such areas raise implications for us to
how increased access to information drives faster and more rethink the drivers of network structure in digital settings.
effective decisions.

Sources of Value Creation and Capture

The Speed of Supply Chain Orchestration
Value creation and capture in traditional business models are
End-to-end visibility and ERP deployments have allowed relatively well understood and strategic management theories
companies to be more efficient than before thanks to and practice have developed robust rules focused on lever-
developments in software from companies such as SAP and aging physical, tangible resources. Digital business strategy
Oracle. This, coupled with outsourcing of non-core activities brings in additional dimensions that alter the nature of value
to a network of partners, has allowed companies to optimize creation and capture. We discuss them below.
their supply chains in extended interfirm networks and
enhance efficiency (e.g., Klein and Rai 2009; Rai et al. 2012;
Saraf et al. 2007). The best in class in consumer electronics increased Value from Information
today are not traditional electronics companies such as Sony
or Panasonic but Apple, which has achieved 74 inventory- While information-based businesses have existed for a long
turns in a year (average of 5 days of inventory in the supply time (e.g., newspapers and magazines) in physical forms, the
chain) - supposedly at least twice faster than the industry digital business context brings new opportunities to create
average. Therefore, in industries marked by fast changes in value from information. As magazines abandon their physical
technology functionality, competitive advantage lies not in formats (e.g., Newsweek ), they need to fundamentally rethink
just announcing new products (first-mover advantage) but in their unique source of value through curating content and
ensuring the availability of new products on a global basis to assess the balance between subscription and advertising.
capture the fast-mover advantage. Google, Facebook, and eBay are just few examples of new
value created from information that go beyond niche areas
The speed of supply chain orchestration on a global basis is such as financial services whose business models rely on
now becoming an important driver of competitive advantage. accurate, timely information. Moreover, many firms are able
This is more than outsourcing of non-value activities, it is to fine-tune their actions and personalize their offerings based
truly working in a collaborative fashion from conceptual on information about customer preferences through Facebook,
design to recycling of the products. Orchestration of supply Twitter, and others. In addition, many business models based
chain is not about managing today's product portfolio but also in information have emerged in areas such as healthcare and
innovating tomorrow's product portfolio, which necessitates energy.
the need for dynamic realignment of partners and suppliers.
This brings us to the final dimension of speed about the pace Digital business strategy has also made possible the democ-
of network formation and adaptation. ratization of content as well as the subsequent sharing,
remixing, redistribution, and resyndication of content in
newer and more useful forms. These transformations have
Speed of Network Formation and Adaptation caused dramatic power shifts in market channels and dis-
intermediations that disrupt traditional sources of economic
The pace of network formation is rapidly accelerating in every profits while creating fundamentally new sources of value.
firm, industry sector, and industry (e.g., Easley and Kleinberg
2010; Venkatraman and Lee 2004; Viswanathan 2005). One
of the key requirements of digital business strategy is new Value Creation from Multisided Business Models
organizational capability to design, structure, and manage
networks that provide complementary capabilities to what Digital business strategy brings into sharp focus the impor-
firms have inside their own hierarchies. Digital business eco- tance of multisided revenue models not just in software.
systems in areas such as mobile apps provide useful insights Going beyond software pricing such as Adobe Reader and

MIS Quarterly Vol. 37 No. 2/June 2013 477

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Bharadwaj et aL/lntroduction: Digital Business Strategy

browsers, we now find that a wide range of companies are role of digital technologies in influencing not only the busi-
examining multisided business models. Indeed, new leaders ness strategies of individual firms but also the nature of the
in the digital space (e.g., Google, Facebook, Twitter, and industry and the sources of value creation and location of
others) base their raison d'être on such models. These multi- value capture. In doing so, we will be in a better position to
sided business models are also multilayered where a company identify the key metrics that should be tracked and followed
gives away certain products or services in one layer to capture in different industries.
value at a different layer. For example, Google's entry into
mobile phones is based on giving away the software Table 1 summarizes the description of these key themes of
(Android) free and monetizing it through its ability to influ- digital business strategy with an eye toward performance by
ence and control advertising. Digital business strategy intro- introducing some important questions on each of the four
duces more nuanced ways to conceptualize the drivers of themes to help formulate and execute organizational strategy
value creation and capture by thinking about the multisided by leveraging digital resources to create differential value.
nature of interactions.

Value Capture through Coordinated Business Papers in the Special Issue on

Models in Networks Digital Business Strategy
The logical extension of multisided business models Theis papers
a in this special issue on digital business strategy
recognition that value creation and capture in digital settings
offer some valuable insights on the key themes we have
often involve complex and dynamic coordination acrossdeveloped
mul- in this paper. Collectively, the papers speak to the
tiple companies. In the case of videogames, console manufac-
expanded scope and scale of digital business strategy as well
turers, game developers, publishing, and other content owners
as to the novel use of digital resources to rapidly formulate
coordinate and time their respective offerings to be ableandtoexecute digital business strategy to create differential
cocreate value in networks and share their respective pieces
business value. The papers in this issue include six stand-
of value.
alone research papers and a collection of "Issues and Opin-
ions" pieces, grouped under the title "Visions and Voices on
Specifically, in the case of mobile ecosystems, the value cap-
Emerging Challenges in Digital Business Strategy." The
ture involves complex coordination between app developers,
opinion pieces are written by thought leaders who, in addition
the mobile OS (Apple, Android, Windows, or Blackberry),
to their scholarship, have a keen sense of practice.
hardware manufacturers, telecom operators, and service
providers such as Facebook, YouTube, and others. The com-
The six research papers collectively examine the convergence
plicating factor is that the business models are not inde-
of the information systems and strategy domains under the
pendent but intersect and interoperate across these different
umbrella of digital business strategy. The papers focus on
players. So, we need richer models that delineate inter-
digital business strategy within and outside the enterprise,
dependent ecosystems that evolve more rapidly than what we
including the firm's competitive industry environment and its
have seen in traditional settings.
customer connections as determinants of digital business
strategy. The papers also examine how to formulate and
Value Appropriation through Control execute digital business strategy as well as examining
business models for digital products.
of Digital Industry Architecture

First,
Apple has a smaller market share but leads in profit share in echoing the core theme of this special issue, and
the mobile industry because it earns its profits not onlyfocusing on the rapid convergence of the information systems
and
through its product (iPhone and iOS) but receives a share of strategy domains, the article by Paul Drnevich and David
the follow-on revenue that the telecom carriers earn fromCroson,
the titled "Information Technology and Business-Level
Strategy:
end users. Unlike other handset manufacturers, such as Toward an Integrated Theoretical Perspective,"
makes
Samsung and HTC, Apple's appeal to the end consumer is a persuasive case for why digital business strategy
matters to business success. In developing an integrated theo-
arguably higher. This control of the industry architecture
retical perspective, the authors use a framework of potential
allows Apple to extract a higher premium. Is Apple's place
profit
in the telecom industry an outlier or an early indication of mechanisms to show how investments in digital
how we could see more companies that redefine industry resources and capabilities enable dynamic capabilities, such
as the flexibility to focus on rapidly changing opportunities or
architecture with digital control points and extract a dispro-
portionate share of profit? We need to think more about to the
quickly abandon losing initiatives.

478 MIS Quarterty Voi. 37 No. 2/June 2013

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 Bharadwaj et ai/Introduction: Digital Business Strategy

Scope of Digital Business Strategy

• What is the extent of fusion and integration between IT strategy and business strategy?
• How encompassing is digital business strategy, and how effectively does digital business strategy transcend traditional
functional and process silos?
• How well does digital business strategy exploit the digitization of products and services, and the information around them?
• How well does digital business strategy exploit the extended business ecosystem?
Scale of Digital Business Strategy
• How rapidly and cost effectively can the IT infrastructure scale up and down to enable a firm's digital business strategy to
bolster a strategic dynamic capability?
• How well does digital business strategy leverage network effects and multisided platforms?
• How well does digital business strategy take advantage of data, information, and knowledge abundance?
• How effective is digital business strategy in scaling volume through alliances and partnerships?
Speed of Digital Business Strategy
• How effective is digital business strategy in accelerating new product launches?
• How effective is digital business strategy in speeding up learning for improving strategic and operational decision making?
• How effectively does digital business strategy bolster the speed of dynamic supply chain orchestration?
• How quickly does digital business strategy enable the formation of new business networks that provide complementary
capabilities?
• How effectively does the digital business strategy speed up the sense and respond cycle?
Sources of Value Creation and Capture
• How effective is digital business strategy in leveraging value from information?
• How effective is digital business strategy in leveraging value from multisided business models?
• How effective is digital business strategy in capturing value through coordinated business models in networks?
• How effective is digital business strategy in appropriating value through the control of the firm's digital architecture?

Next, the article by Sunil Mithas, Ali Tafii, and Will Mitchell, and highlight the interplay between these constructs to show
titled "How a Firm's Competitive Environment and Digital how the design of digital artifacts contributes to firm-level
Strategic Posture Influence Digital Business Strategy," exa- business value creation and capture. They show how enter-
mines the competitive industry environment as a fundamental prises that hold positions of strategic value (i.e., hold many
component of digital business strategy that must be accounted control points) in these digitally enabled networks exercise
for when formulating the firm's strategic posture. The paper control as technology triggers new dynamic cycles of value
examines how the industry's competitive environment shapes creation opportunities.
the way that a firm's digital strategic posture (the degree of
engagement in a particular class of digital business practices Panjak Setia, Viswanath Venkatesh, and Supreet Joglekar
relative to the industry norm) affects the firm's realized digital take a customer-centric view of digital business strategy in
business strategy. The results imply that digital business stra- their article, "Leveraging Digital Technologies: How Infor-
tegy is not only a matter of internally optimizing the firm's mation Quality Leads to Localized Capabilities and Customer
operations or of externally responding to competitors, but that Service Performance." Through survey data from a large
it also arises from a deep awareness and dynamic respon- bank, they show how information quality acts as a key digital
siveness to the competitive environment. resource and a critical antecedent to customer-side dynamic
capabilities that enable a rapid sense-and-respond to customer
Similarly, Jason Woodard, Narayan Ramasubbu, Ted needs. This study provides insights for how local business
Tschang, and Vallabh Sambamurthy in their paper, titled processes and digital design can influence an enterprise's
"Design Capital and Design Moves: The Logic of Digital customer-side response capabilities and digital business
Business Strategy," study digital options and design moves as strategy.
digital resources that help the formulation and execution of
digital business strategy. They conceptualize the logic of Focusing on the specific context of online music, the paper by
digital business strategy in terms of design capital (the cumu- Gal Oestreicher-Singer and Lior Zalmanson, titled "Content
lative stock of designs of digital artifacts that are owned or or Community? A Digital Business Strategy for Content Pro-
controlled by a firm), and design moves (the discrete strategic viders in the Social Age," views the digital community
actions that enlarge, reduce, or modify a firm's design stock) formed by music websites through network effects to act as

MIS Quarterly Vol. 37 No. 2/June 2013 479

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Bharadwaj et ai/Introduction: Digital Business Strategy

the driving force for consumers to pay a premium for music. facets of digital shifts within traditional domains, such as
Essentially, the digitally connected "prosumer" acts as a marketing, operations, information systems, and Internet
resource for the firm to create value for other consumers. In technologies. Such disjointed views of digital shifts have
doing so, they address the changes wrought by social com- provided limited benefits to firms as they are still straddling
puting and the fusion between content and community in the continuum between the physical to the digital. Some
digital spaces. The paper shows how digital business models firms have embarked on social media as part of their mar-
can remain viable in a world of "freemium" and provides keting operations, but without necessarily linking them back
direct and compelling evidence of the importance of fusing to their core IT infrastructure. Other firms have focused on
social computing with content delivery to create and capture streamlining supply chains without necessarily taking an end-
new sources of business value in today's digital environments to-end look at the coordination challenges and rapid scale-up
within the domain of digital business strategy. necessary to buffer against uncertainties in the environment.
9 The main thesis of both our paper and the overall special issue
Finally, the article by Margherita Pagani, titled "Digital Busi- on "Digital Business Strategy: Toward a New Generation of
ness Strategy and Value Creation: Framing the Dynamic Insights" is that the time is right to shift our thinking about IT,
Cycle of Control Points," uses a novel view of digitally not as a functional-level response, but as a fundamental driver
enabled value networks as configurations of control points of business value creation and capture. Digital technologies
through which enterprises in digital business ecosystems shape the new business infrastructure and influence the new
create and capture value. Through empirical evidence from organizational logic and patterns of coordination within and
the European and U.S. broadcasting industries, the study across firms.
shows how these control point constellations shift as tech-
nological innovation and cross-boundary disruptions trigger Nonetheless, we believe that the four themes we have outlined
new dynamic cycles of value creation opportunities. The lend themselves to specific intermediate metrics to be tracked
enterprises that hold many control points have a strategic and assessed. We are not at a stage of either theoretical
advantage in terms of how the value network operates and development or management practice to offer generic metrics
how value is appropriated - and how the shift in those control of firm performance from an effective digital business
points influences the dynamic execution of digital business strategy. However, we urge researchers examining the
strategy. impacts of digital business strategy to theorize and develop
metrics reflecting the four themes introduced here.
The "Issues and Opinions" pieces take bolder and more avant-
garde positions on various issues related to digital business For example, what metrics could suitably describe the role of
strategy. These pieces are presented as a collection in an digital technologies on changing business scope both inside
article titled "Visions and Voices on Emerging Challenges in a company (corporate scope) and in an ecosystem (a com-
Digital Business Strategy" and we have provided a separate pany's network scope)? The distinguishing characteristic of
integrative commentary by way of introducing these pieces the scope of various digital business strategies is that it is not
and their contribution to thought leadership as well as about a single firm's corporate scope but that it also extends
practice. The five pieces are "Leadership in a Digital World: to the interconnections within a network of firms. How
Embracing Transparency and Adaptive Capacity" authored by should we conceptualize and measure such ideas in rich theo-
Warren Bennis, "Transparency Strategy: Competing with retical terms? Similarly, constructs and measures of the scale
Information in a Digital World" authored by Nelson Granados of digital business strategy should reflect the nature of scale
and Alok Gupta, "Revealing Your Hand: Caveats in Imple- through alliances and partnerships as well as in dynamically
menting Digital Business Strategy" authored by Varun Grover adjusting the requisite scale as a management capability.
and Rajiv Kohli, "Value Architectures for Digital Business: What are the drivers of virtual scale, and under what condi-
Beyond the Business Model" authored by Peter Keen and tions are they more effective than scale through ownership?
Ronald Williams, and "Commoditized Digital Processes and
Business Community Platforms: New Opportunities and In terms of the speed of decision making, we caution that this
Challenges for Digital Business Strategy" authored by Lynne is not to be conceptualized in absolute terms but relative to
Markus and Claudia Loebbecke.
the speed of the market and the competitive environment.
What characterizes digital business strategies whose clock-
speed of decisions and actions are aligned with the clock-
The Platform Forward speed of market conditions from those firms that have mis-
matched speeds? What technology characteristics create the
conditions for enhanced clock-speed of decisions? In line
Ideas regarding digital business strategy are still in the early
with other two themes, speed also recognizes the importance
stages of development. Many firms continue to treat different

480 MIS Quarterly Vol. 37 No. 2/June 2013

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 Bharadwaj et al. /Introduction: Digital Business Strategy

of network: speed of coordination of product launches with Conner, K. R., and Prahalad, C. K. 1996. "A Resource-Based
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