Digital capability gaps in traditional industries: influencing factors and strategic responses

This paper introduces the concept of digital capability gaps (DCG); the relative difference of a firm's ability to design and control products, services, and processes by utilising digital technologies in relation to customers and partners. These DCGs matter as they affect SME's strategic responses and the value-creating relationships. Our findings reveal that strategic responses differ according to the magnitude of DCGs: Large DCGs may offer the opportunity for 'digital diversification' by using the capabilities developed to enter new domains. In cases of moderate DCGs, firms respond by adopting the role of a 'digital parent' and innovate on behalf of customers. Finally, in the cases of small DCGs, firms may respond by forming 'digital collaborations.' Our study also unpacks the influencing factors that affect DCGs: the consolidation or fragmentation of customer portfolio and competitive landscape and the extent to which players have a similar digital pressure for adopting digital capabilities.