THE EFFECTS OF DIGITAL ECONOMY ON DIFFERENT
INDUSTRIES. A CONCEPTUAL TOOL FOR ANALYZING
Heikki Karjaluoto, Jari Salo
Faculty of Economics and Business Administration, University of Oulu,
Po Box 4600, University of Oulu, FIN-90014, Finland
The paper proposes a conceptual tool for analyzing the main effects of digitalization
on firms’ business logic. It is suggested that the main effects of digitalization of
industries at a firm level can be categorized under electronic business/electronic
commerce, networking, cost savings, and customer interface management. The tool
forms a matrix in which these effects are analyzed in relation to the four business
logic aspects: 1) the industry recipe, 2) the business system and the linking of business
systems, 3) industrial wisdom, and 4) corporate strategies. The matrix is also useful
for managers in empirically analyzing the effects of digitalization on various
Keywords: digital economy, internet, conceptual tool, business logic
Along with the progress of the new millennium, businesses have taken major steps in
utilizing Information and Communication Technology (ICT), which together have
created new possibilities to improve business on the traditional level and on virtual
level relating to cyberspace businesses. Improvements in ICT are often viewed as a
revolution and many times referred to as the digital economy. While the digital
economy especially affects traditional industries, it has also created new business
models and novel ways to excel at competition. The business logic in various
industries has already faced radical changes and is definitely an area currently under
Information technology influenced productivity, profitability and efficiency in various
businesses and industries. Information technology, also called e-business, is mostly
understood as Internet-technology. While e-business is seen as an upper construct and
defined as an integration of systems, processes, organizations, value chains and
markets utilizing Internet-technology, e-commerce is described as being a part of e-
business but confined to dealing mainly with marketing and sales processes (see e.g.
Chaffey, 2004). E-business has a profound impact on various business activities and
value chain activities, as shown in Figure 1. Especially four areas are under transition:
1) supplier relationships, including production and supply chain management (SCM
see Lancioni, 2000, Lancioni, Smith & Oliva, 2000); 2) R&D, comprising product
data management (see Philpotts, 1996) and design; 3) commercial activities, referring
to e-commerce, ordering, billing and enterprise resource planning (see Motwani et al.,
2002); and finally 4) marketing and sales, including customer relationship
management (Adebanjo, 2003), customer interface and intelligence management, as
well as relationship building (Mohr, 2001; Grönroos et al., 2000 Kekäläinen &
INTEGRATION OF VALUE CHAIN INTO THE E-BUSINESS
Production E-Business Ordering
The information refinement is of paramount importance to companies in every part of
their value chains. The competition is fierce, and companies have to consider whether
to take the advantage of all the opportunities the digital economy brings or only make
use of some of them. Many times a balance is needed between on-line and off-line
activities (Gulati & Garino, 2000). Companies not paying enough attention to
information management related to the value chain activities are undoubtedly giving
their competitors too much of a competitive advantage.
On one hand, this research deepens and widens our previous understanding of the
digitalization of traditional industries, and provides insights into comprehending the
impacts of the digital economy on business logic on the other. As a result of our
research we aim at creating a purposeful conceptual tool for managerial use. In order
to achieve the study objectives, the following research questions were developed:
What are the main effects of digitalization on economies and business logics?
How to describe and analyze business logic in different industries?
How to combine effects of the digitalization and the business logic in different
DIGITALIZATION OF INDUSTRIES
It is commonly accepted that the digital economy gives companies new possibilities to
conduct businesses. The adoption of e-business depends heavily on the strategic
objectives of each company. In other words, the e-business applications that cause the
most observable growths in productivity will be adopted in the first wave (Jalava &
Pohjola, 2001). Nowadays most companies operate in rapidly changing environments,
where time and information management has become the major criteria of success. It
is not enough any more to do your business right; instead, you must do it first to
achieve a competitive edge over others (see e.g. Hamel & Prahalad, 1994).
Definitions of the Digital Economy
Digital economy is a broad construct that has been used more or less interchangeably
with the concept new economy. As already mentioned, digital economy is a concept
used to describe the new world of business in which information and communication
technologies have become the key drivers of change (see e.g. Hunt, 2001; Jalava &
Pohjola, 2001; Wadhwani, 2001). For instance, Internet and all Internet-related
technologies combined with mobile and wireless technologies combined with the
software and hardware advancements have influenced the creation of the digital
Castells (2000) sees the digital economy as an informational, global and networked
economy, attempting to find the characteristics of this concept and to emphasize their
intertwining. The digital economy is, firstly, informational because the productivity
and competitiveness are basically based on the capacity to produce, process, and
efficiently use knowledge-based information. Secondly, it is seen as global because
the core activities (such as production, consumption and circulation) and components
(such as capital, labor, raw materials, management, information, and markets) are
organized globally. Thirdly, the digital economy is seen as networked because the
productivity is produced in a global network of interaction between business networks
while at the same time competition occurs.
Although some academics and practitioners use the concept information revolution
(or even internet age) when describing the new economy, the concept digital economy
is used more commonly. In the 20th century each of the shifts in economy from
farming to manufacturing to services can be labeled as a revolution. This is the reason
for calling this concept “the information revolution”. We have seen the effect of new
technologies in how they have changed our world in spite of the fact that there is no
major influence e.g. on tangible measures like wages and GDP (gross domestic
product) growth (Taylor, 2001; Landefeld & Fraumeni, 2001).
Figure 2 gives an overview of the economic history dating from the industrial
revolution in the late eighteenth century to the present day. Five longer-term cycles
(or even different marketing paradigms) can be separated on the basis of the
application and diffusion of key technologies and resources (Pattinson & Brown,
1996). As can be seen, phase five (the digital economy) relates to the diffusion of
information and communication technology on a global scale. During this time frame
the main resource of technology are microprocessors. Therefore the developments in
global information infrastructure are remarkable.
The lifeblood of the digital economy consists of new ideas, new economics, new
innovations and new companies (e.g. dot/mobcoms). In Finland, for instance, there
are many new high-tech companies such as Nokia which have managed to do business
successfully. However, it is unwise to bite off more than you can chew. Some of the
companies have made a mistake like this by focusing on too broad market areas or
made other errors in the internationalization process. The digital economy is said to
create success in several industries but for instance Porter (2001), for instance, along
with others reveals some negative aspects as well. Especially the benefits of the
Internet (such as making information widely available, reducing the difficulty of
purchasing, marketing, and distribution) are often difficult to capture as profits.
Nevertheless, the digital economy is here to stay by creating change, opportunities,
TECHNO-ECONOMIC PARADIGMS AND KEY RESOURCES (Pattinson &
Fifth: information and communication:
Microprocessors b Global information
Fourth: Fordist mass production: a Energy
(especially oil) b Highways, Motorways,
Telephone companies, Aviation
Third: Electrical and heavy engineering:
Steel b Electricity utilities, Large bank
Second: Steam power and railway: a Coal, Rail transport
Railways, Steamships, Postal systems
First: Early mechanization: Cotton, Pig iron
Water power, Canals
| | | | | |
1770 1835 1885 1935 1985 2035
Abundant technology resource
Major infrastructure developments
DIGITAL ECONOMY AT THE FIRM LEVEL
Economic performance during the digital economy and the “old” economy is often
measured in terms of productivity. Research in general agrees that the digital
economy has had a clear influence on companies' productivity by for example
enhancing processes and activities across the entire organization (Strauss, El-Ansary
& Frost 2006, p. 6). From 1986 through 1995, productivity grew in the non-farm
business sector at an average rate of 1.4 per cent per year. After this period the annual
average rate of productivity growth has been around 3.0 per cent, and it is mostly due
to the progress in computer technology in general and online technologies in
particular (Bullard & Schaling, 2001). The digital economy has for example helped to
tie together inventories, purchasing and accounting by pooling the strengths of better
computer-aided design, manufacturing and information systems (Taylor, 2001).
Porter (2001) indicates that the creation of true economic value becomes the final
arbiter of business success. He describes how many businesses active on the Internet
are artificial businesses competing by artificial means and propped up by capital that
until recently had been readily available. Due to economic value, it is useful to draw a
distinction between the uses of the Internet (such as operating digital marketplaces or
trading securities) and Internet technologies (such as site-customization tools or real-
time communications services), which can be deployed across many uses. Mainly, the
uses of the Internet create economic value. Technology providers can prosper for a
time irrespective of whether the uses of the Internet are profitable.
In what follows we concentrate on four main issues which have been identified as the
most important in the digital economy on the firm level: e-commerce, networking,
cost savings and customer interface management (see e.g. Pires & Aisbett, 2003; Rao,
Metts & Mora Monge, 2003; Fillis & Wagner, 2005).
Investments in computers have been very remarkable over the last decade or so.
Productivity growth has been soaring due to the growth of ICT, such as computers
and peripherals, computer software, communications and related equipment
(Bosworth & Triplett, 2000). It has also affected economic growth. However,
productivity growth will not last forever. Therefore new potential areas of business
are welcomed to keep the information revolution going. The most potential alternative
that would maintain the information revolution and productivity growth is e-
commerce, which is just beginning to rock the economy. According to Rotella, Abbot
and Gold (2001), the e-commerce environment demands that companies concentrate
on traditional basics, such as leadership (setting standards, establishing vision), clear
strategy and "human capital" (i.e. attracting and motivating employees). For instance,
e-commerce is very helpful in a supply chain. B2B works smoothly when an e-
commerce system takes care of the placement of the order, confirmation, updates
about delivery schedules, billing, payment, receipts, and accounting (e.g. SAP or i2
provides such marketing intelligence systems).
Overall, the results achieved using e-commerce are remarkable. However, there are
not that many companies that are willing to go through the changes needed in order to
become web-based organizations. Companies that are willing to use e-solutions can
also benefit from cost savings. For instance, according to a survey made by Taylor
(2001), the cost reductions resulting from utilizing e-commerce were an enormous 75
per cent in the area of administration.
Companies in the different areas of businesses are competing with each other in this
world. The 21st century is expected to be a time of market uncertainty, heightened
competition and slowing revenues. Therefore it is essential that companies
concentrate on interlinked value creation. While companies have previously focused
merely on managing tangible (e.g. physical and financial) assets, nowadays
companies also concentrate more on managing their intangible assets (e.g.
communication, connectivity and collaboration). Many business markets are
organized as networks where companies are able to create value with their intangible
assets. In other words, they jointly create value through relationships, partnering, and
alliances (Ulaga, 2001). IKEA is a good example of such a company, with its main
competence being the management of a wide logistical network (see Normann &
From the organizational perspective, companies can make major improvements by
increasing knowledge sharing via networking. It was just a couple of decades ago
when organizations became able to build new intra- and inter-organizational
relationships. These network types are able to communicate better and spread data
through the network. What is the most valuable is that companies can improve their
decision-making, planning and coordination due to the fast information connections.
The ability to create knowledge-based networks of partners gives the company a
major advantage in competing with others. Additionally, e-knowledge (e-business
knowledge) usage improves the company's reactivity (Warkentin, Sugumaran &
Bapna, 2001). However, while being capable of competing with others, companies
must be proactive, which refers to co-operation and support, a selective consumer
base and to having an innovation strategy (Carayannis & Sagi, 2001). Moreover,
flexibility and rapid response are also very focal in the new Internet-driven economy
(Hunt, 2001). Inter-organizational systems (IOS) give organizations the opportunity to
exchange information and interact electronically across organizational boundaries. In
other words, IOS interaction gives companies better connections to their collaborate
partners (Warkentin et al., 2001).
By using strategic alliances companies are able to enter a given market more
effectively and efficiently (Xie & Johnston, 2004). In addition to that, companies are
allowed to minimize risks relating to their technological, market, or competitive
environments. During the past ten years strategic business alliances have become
more common, and the change has due to the digital economy. A strategic alliance
refers to a relationship between one or more companies (alliance, joint venture and a
partnership). The partial commitments of the alliance members and their flexibility
make the relationship strong (Pietras & Stormer, 2001). According to Mayer-Guell
(2001), the effectiveness in the digital economy requires changes in the operating
levels. It is vital for companies to understand the changing market demands and also
to integrate with alliances in order to collaborate with other organizations across their
value chains. The digitalization of the entire value chain is required to attain the real
gains of the digital economy (Barua, Konana & Whinston, 2001).
According to Anandarajan, Anandarajan & Wen (1998), extranets, among other
technologies, can be used as a great tool for cost control in a value chain framework.
The cost savings are remarkable in every part of the chain. Cost reductions can be
made in various areas, such as in data entry and management, office and other routine
procurement, speeding financing accounts receivable, personnel management, and
communication, just to name a few examples. The savings made in data entry costs
are a consequence of the automatic transfer of information from one document to
another. The usage of office supplies is easily diminished because of the electronic
documents. Both postage costs and the need for paper are reduced. If the financial
issues are taken care of electronically, time will be saved because when done
electrically, the preparation and transfer of invoices is much faster. If customers, too,
use the electronic way as a payment method, the whole process will be faster. The
labor costs are much lower when using for example electronic preparation, storage,
retrieval and comparison of documents. The reduction is seen in person-hours. Last
but not least, the new technology enables us to communicate in several different ways
(such as by using telephones, faxes, e-mail, mobile messaging and voice-over-ip),
which also generates cost savings.
According to Kennedy & Deeter-Schmelz (2001), the purchasing cost reduction in
B2B activities on the Internet is estimated to increase from ten to thirty per cent
during the next five years. B2B purchasing activities on the Internet are also expected
to increase at least six times as much as the comprised business-to-consumer (B2C)
purchasing activities predicted to occur by 2003. In general, B2B purchasing activities
on the Internet have evolved to a considerable extent, and besides electronic
marketplaces, even electronic auctions are used for organizational buying of business
solutions (see Jap, 2007).
Customer Interface Management
While for most companies customer satisfaction is the number one aim, more
attention should be paid to customer relationship management and the building of
individual brands and the total company image. Customer interface management or
touch point management, to use another term,, is the key when trying to strengthen the
relationship between the customer and the company. When a company is able to
achieve two-way communication with the customers, it also encourages them to
create a co-operative and productive environment. It is a commonly held belief that a
trade-off situation takes place between the reach and the richness of information, as it
is shown in Figure 3. The trade-off situation has shaped the way companies
communicate, collaborate and conduct transactions both internally and with
customers, suppliers and distributors (Evans & Wurster, 1997; Walters & Lancaster,
THE IMPACT OF IT DEVELOPMENTS ON TRADE-OFF DECISIONS
(Walters & Lancaster 1999)
As Figure 3 shows, the trade-off situation fluctuates between reach and richness.
Reach contains the number of people exchanging information. Richness consists of
three different aspects of information, namely bandwidth, customization, and
interactivity. Bandwidth is defined as the amount of information that can be
transferred from sender to receiver in a given amount of time. Customization refers to
the extent to which it is possible to customize the information. Interactivity, also
called dialogue, is dominant among small groups. When trying to reach millions of
people, monologue has to be used instead (Evans & Wurster, 1997; Walters &
The first curve in Figure 3 presents the level of significance of the issues related to the
richness and the reach of information. For instance, when companies are conducting
business with one another, the number of people exchanging information is inversely
proportional to the richness of the information they want to exchange. A company can
send its message in an advertisement, a targeted (customized) letter or a personal sales
visit. This refers to the fact that the richness increases from the advertisement to the
personal sales visit while simultaneously the reach decreases. In other words, the
richness increases as the reach decreases. Figure 3 presents options A and B, which
describe the possibilities of high information quality with limited dialogue (A) and a
much larger number of contacts with limited information quality and the two-way
contact (B) (Evans & Wurster, 1997; Walters & Lancaster, 1999).
The second curve in Figure 3 indicates the impact of the digital economy on the reach
and the richness of the information. Both reach and richness increase simultaneously
due to the development of information and communication technology while at the
same time the significance of the issues related to richness and reach decreases.
Therefore the options A and B move closer together (Walters & Lancaster, 1999).
Along with the digital economy there are new universal technical standards for
communication, which allows companies, organizations and individuals to be
connected through networks in order to exchange information. It has been claimed
that in the future the standards improve exponentially, which makes it possible to
reach an increased number of people with an insignificant sacrifice of richness. In
addition to that, the trade-off situation effected by ICT developments is able to
increase in cost effectiveness. The contact costs of richness and reach decrease, and
the management of the company will have the opportunity to customize/target the
information flows without worrying as much about the costs.
Overall, the trade-off situation affected by ICT facilitates competition between
companies. Traditional industries are afraid of coming off a loser due to ICT and are
frightened that Internet industries steal their customers (Evans & Wurster, 1997). If
the trade-off situation can be eliminated completely, there is a possibility that
customers will change suppliers easily and the binding of new relationship and the
clarification of customer needs would become more difficult (Walters & Lancaster,
UNDERSTANDING BUSINESS LOGIC IN TRADITIONAL AND DIGITAL
Understanding different business contexts, e.g. industries, industrial fields and sectors,
business systems and clusters, has been one of the central themes in organization and
management studies (see Hellgren, Melin, Petterson, 1993; Lilja, Räsänen, Tainio,
1992; Whitley, 1992; Porter, 1990; Spender, 1989). In this study we attempt to
develop a 'local theory' about digitalization, business logics, the industry recipes and
dominant firm strategies in different industries. From a managerial point of view, a
host of alternative concepts exists to capture the logic of different industries and the
firms operating in them. For both researchers and managers alike, these concepts can
provide a point of departure toward a more complete understanding of the key
structural and/or processual characteristics of various industries. In this research we
primarily follow the stream of research that concentrates on generating local theories
of digitalization within specific industrial contexts. Based on previous studies about
understanding industries, we aim at forging a link between understanding the more
general digitalization processes on one hand and its links to business logics/industry
recipes on the other. In doing this we use different industries as empirical arenas on
which we tentatively highlight the interplay and connections between the recipes and
Traditional and Digital Industries
The information revolution has divided industries into two categories on the basis of
digitalization: 1) digital economy industries, and 2) “old” economy industries. In this
study the digital economy industries are called Internet industries and the “old”
economy industries traditional industries. The Internet industries utilize e-business
and virtual marketplaces owing to the fact that these kinds of companies operate
purely or partly in cyberspace. According to Porter (2001), the Internet has created
some new industries, such as on-line auctions and digital marketplaces. However, its
greatest impact has been on enabling the reconfiguration of existing industries, which
have been constrained by high costs for communicating, gathering information or
The so-called dot.coms began to conduct business in virtual marketplaces after the
mid-1990s. The dot.coms are characterized by inventive and ingenious business
operations. The virtual marketplace (marketspace) is a global network in which
companies have to consider the possibility for open competition. The number of the
Internet industries has increased enormously during the last three to five years.
According to Mohr (2001), there are lots of companies that have revolutionized the
traditional industries by utilizing the outsourcing strategy. They attend to their
customers directly in order to maintain all of the customers’ information. Capturing
and managing the data of their customers is essential to the company in the Internet
industry in order to maintain the customer relationship in the future. For instance,
Amazon, along with eBay and YouTube, has revolutionized a number of industries,
including the retail industry, by making it feasible to conduct business in the
marketspace rather than the marketplace. There are also lots of other virtual
bookstores that have begun to compete against the bookstores in the marketplace.
Another good example of an Internet industry company is YouTube, which enables
consumers to share their video files. In addition to that, YouTube offers simple
solutions like the Craigslist, which has caused serious damage to traditional industries,
as the list renders Yellow pages and miscellaneous ads from traditional newspapers
obsolete. Furthermore, miscellaneous ads are a huge source of revenue for local and
national newspapers. Besides digital content industry, more traditional industries like
the computer industry have also faced some challenges from digital economy, as it
enables transforming not only the logic of making things but the distribution logic as
With the help of the Internet, many companies have found new customers, new
sources of profit and new ways of doing business in a global marketplace. E-business
is first and foremost about business; technology is seen as only the facilitator in this
new business paradigm (Vlosky, 1999). However, a number of companies have
equally failed to utilize the potential of electronic commerce tools. According to
Janssen & Sol (2000), the usage of electronic commerce has at least one effect on
conducting business in traditional industries, namely the overlook of intermediaries
(disintermediation) in electronic markets in order to lower transaction costs. In some
cases new additional types of intermediaries are created that specifically handle online
transactions and verifications (Shaw, 2000). In addition to disintermediation and
reintermediation, electronic marketplaces are powerful tools for reaching new
customers and lower procurement costs (Bakos, 1997). Electronic marketplaces, e.g.
the Covisint, have lowered the costs of buying automotive supplies (Arbin & Essler,
2002). There is a good example of how traditional industries benefit from digital
economy in the banking world: In the year 2006 in Finland, for instance, over a half
of the adult population uses mainly electronic delivery channels in their banking, and
over 90 % of the banking transactions are made electronically.
Concepts of Business Logic and Industry Recipe
As far as the business logic/industry recipe is concerned, it is important to
differentiate between conceptual frameworks designed to tackle industry logic on one
hand and (empirical) analyses of the key features of different industries on the other.
The objective of the first category is to provide concepts in order to highlight
structures and processes of typical behavior in a certain industrial setting. The
dominant business strategies of individual companies are bounded by the general
industry logic. On the other hand, the industry logic emerges from the company
strategies in a certain industrial field. Thus there is an inherent link between the
industry recipe and the dominant strategies on the enterprise level. Furthermore, the
industry logic is also affected by the logic of doing business in the supplying,
customer and supporting industries (e.g. Porter’s widely cited structural analyses of
industries and industrial clusters, 1990).
In this research the analysis of the effects that digitalization has on different industries
is based on the following conceptualizations concerning the firms operating within
their contexts: the industry recipe by Spender (1989), the business system by Whitley
(1992), and the linking of business systems, industrial wisdom and corporate
strategies by Hellgren & Melin (1992, cf. the industrial field by Hellgren, Melin &
Petterson, 1993). These studies provide the theoretical points of departure for our
empirical analysis of the different industries.
Spender's (1989) industry recipe emphasizes the cognitive dimension of organizations
and organizational fields. Different industries are seen as collective structures.
Managers are claimed to draw their judgment from a shared pool of knowledge,
which is called the industry recipe. The recipe acts as a belief structure that regulates
collective behavior within an industry. The same idea has also been embraced by Huff
(1982). She talks about the importance of ‘shared’ or 'borrowed' experience within an
industry. According to Spender (1989), a recipe is a commonly shared way of
thinking and acting in a specific industry: "A recipe is a set of ideas that has certain
potential under the specific circumstances which are the recipe’s implicit expectations
…As different firms develop different strategies and experience results, messages are
broadcast back to others in the industry about what works and what fails" (Spender,
Although the industry recipe is considered to be relatively stable, managers in a
certain industry build and modify the recipe continuously in their everyday work. The
recipe as such is not assumed to be sufficient; rather, it offers partial and ambiguous
guidance for managerial action, which can then be adapted to the firm’s particular
situation. The same idea of cognitive framing in the structuring of organizations has
been utilized by Hellgren & Melin (1992). They used the term industrial wisdom to
express the shared beliefs about the competitive rules of the game and the structural
freedom of action in an industry: "Industrial wisdom is a shared conventional wisdom
about appropriate structure and action that is held by most firms in an industry".
To further elucidate, Whitley (1992) uses slightly different dimensions when studying
organizations in their contexts. In his concept of the business system, Whitley
emphasizes the institutional context of organizations. He describes a business system
as a distinctive configuration of market-hierarchy relations that becomes established in
its specific societal context, typically within the boundaries of the nation state
(Whitley, 1992, 36). The industry recipe, from this perspective, means simply a
specific configuration of relations, such as authority, relative size, and formal
structures that dominate in the given context – both within and between organizations.
Whitley (1992) argues that the most appropriate context for a business system is a
nation. However, the concept has also been applied to different levels of analysis.
Räsänen & Whipp (1992), for example, suggest that analysis should be conducted
on other units of collective actions, such as industries, industrial sectors, production
systems or cultures.
Spender’s (1989) concept of the industry recipe is often argued to be rather loose,
making differing interpretations possible. In order to further understand industries and
organizations within their contexts, Hellgren & Melin (1992) combine the two
complementary aspects of the business recipe: the recipe as a cognitive structure at the
ideological level and the recipe within an institutional context of a business system. In
other words, a conceptualization of different recipes should consider the role of both
institutional ruling and cognitive framing in the structuring of organizations.
Nonetheless, managers easily tend to become overloaded with information, and
therefore simplification is a necessity. In other words, managers have to concentrate
on certain pieces of information to be able to cope with their potentially vast
information environment quickly. According to Prahalad & Bettis (1986), managers
make decisions by using pre-existing knowledge systems (schemas). Past experience
has created a vast repertoire, a ‘cluster of knowledge’, which is assumed to be
organized into structural frames called schemas (Normann, 1976, 73.) The dominant
strategy can be understood as both a knowledge structure and as a set of managerial
actions. Often the dominant strategy is based on the logic of the core business of a
corporation and is thus a reflection of it.
A Conceptual Tool for Analyzing Effect of Digitalization
In order to empirically analyze the effects of the digital economy on the business logic
in the different case industries, it is necessary to have a conceptual tool which helps to
categorize the effects. Firstly, based on the previous conceptual discussion the general
effects of the digital economy on a firm can be categorized under 1) e-business/e-
commerce utilization, 2) networking, 3) cost savings, and 4) customer interface
management. Secondly, business logic features should be categorized under specific
themes capturing strategic and specific aspects that influence business logic of a firm.
These can vary from company to company, but the four main elements at least ought
to be analyzed: 1) the industry recipe, 2) the business system and the linking of
business systems, 3) industrial wisdom, and 4) corporate strategies (Spender, 1989;
Whitley, 1992; Hellgren & Melin, 1992; Hellgren, Melin & Petterson, 1993;
Alajoutsijärvi, Tikkanen & Sallinen, 2001). Thirdly, the effects and features are set
out in Table 1, where the combination of the effects on business logic features is
outlined. This kind of table helps us to analyze the changes occurring in business
THE EFFECTS OF DIGITALIZATION ON BUSINESS LOGIC OF A FIRM
→ Effects of the digital Customer
Networking Cost savings interface
↓ Business logic features e-commerce
1) Industry recipe
2) Business system
3) Industrial wisdom
4) Corporate strategy
As a result, Table 1 can be analyzed in two different ways. By analyzing the table
downward it is possible to analyze the effects of the digitalization on the different
business logic features one by one. It is possible to see how one effect of the digital
economy influences on different business logic features (such as how e-commerce
effects the first feature, the second feature and so forth). Moreover, by analyzing
sideways, it is very interesting to see how one business logic feature changes when
influenced by several of the digital economy effects - in other words, how for example
the first feature is influenced by e-commerce, networking, cost savings and customer
interface management. Finally, when all the effects of the digital economy and
business logic features have been gone through, all the effects and changes can be
seen in Table (white area). By analyzing the discovered effects and changes more
closely we are able to identify the new business logic influenced by digitalization.
In this paper we described the challenges and changes the digital economy has
brought to traditional marketplaces as well as on new-born industrial niches. By
quoting management literature we highlighted the central role of industry recipes in
understanding and coping with the challengers and changes passed down by digital
economy. With the help of brief practical examples, this paper illustrated how digital
economy is changing the industry recipes. A clear limitation of the study is the
conceptual nature of the paper. In the future some case studies on different industries
will be conducted to see if the framework applies, and a large-scale quantitative study
could be arranged to see if the results are applicable to a wider audience.
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