Value creation and appropriation of software vendors: A digital innovation model for cloud computing

What is it about?

------------------------ Research Focus ------------------------ Our study looks at the digital innovation of software firms that provide cloud computing solutions to their customers. We conducted multiple case research of 10 software vendors to investigate how they propose, create, and capture value in the digital transformation era. The thematic analysis yields a conceptual model that explains whether software vendors leverage cloud computing-enabled innovation for the digital boost. Our findings show that software vendors use a complementary portfolio of information technology and organizational capabilities to transform their business model and leverage cloud computing-enabled innovation, which we summarise in a conceptual model. We find that customer-centric offerings and customer relationships' intensification are crucial to redesign software vendors' customer value proposition. IT capabilities, business flexibility, and dynamic ecosystem architecture are the pathways to create value. Finally, software vendors capture value through improved cash flow management and adaptive revenue flows

Featured Image

Photo by Joshua Sortino on Unsplash

Photo by Joshua Sortino on Unsplash

Why is it important?

------------------------------------------------------- Contribution to Academic Scholarship ------------------------------------------------------- Cloud computing has not only profoundly changed business processes and organization modes on the user firm side, but it has likewise fundamentally transformed the software industry's modus operandi. Research on digital innovation has predominantly taken the user firm perspective to examine the strategic implications of digital business transformation. Independent of specificities of digital value offerings, the digital transformation profoundly reshapes established innovation activities and strategies of software vendors and user firms. Despite the transformative impact of digital technologies such as cloud computing on the software industry, we lack a comprehensive understanding of digital innovation as a coherent set of software vendors' strategic choices about how to do business in the digital age. To investigate this under-researched topic, we used multiple case research of 10 software vendors that operate in Germany and Austria. We conducted 28 in-depth interviews with top executives and added complementary archival records from these firms to understand how they integrate cloud computing technologies into their resource base and develop IT and organizational capabilities to transform their business model. Our thematic analysis of the data reveals a salient complementarity of software vendors' IT and organizational capabilities in reconfiguring their business model and executing a digital innovation strategy. This study contributes to IS research by providing a conceptual model that explains theoretically whether and how software vendors leverage cloud computing-enabled innovation for the digital boost. Our conceptual model suggests that software vendors use a complementary portfolio of IT and organizational capabilities to innovate their value proposition, creation, and capture in a B2B context. Specifically, our conceptual model explains how software vendors have transformed their business models in the integration and assimilation of cloud computing through the complementary portfolio of IT and organizational capabilities. This is the primary contribution of this paper to IS research. ------------------------------------------------------- Contribution to Management Practice ------------------------------------------------------- Our study provides several lessons learned to software vendor executives and IT and business executives. Software vendors have transitioned their core technologies and business processes to the cloud computing model, selling and delivering software applications on-demand and remotely. This digital transition to cloud computing requires software vendors to rethink their innovation strategy, develop their competitive resource base, and reconfigure their business models accordingly. Our study provides software vendor executives with a conceptual model that explains how their companies can leverage cloud computing-enabled innovation strategies for the digital boost. Specifically, this study demonstrates to these software vendors' executives how to reconfigure and transform their customer value proposition, creation, and capture. Software vendors can leverage customer-centric offerings and the intensification of customer relationships to redesign the customer value proposition. These providers can develop new IT capabilities, use business flexibility, and leverage the dynamic ecosystem architecture to transform value creation. Furthermore, our conceptual model also suggests software vendors improved cash flow management and adaptive revenue flows as the mechanisms to capture value. Finally, our research highlights IT and business executives the critical role of software vendors, cloud computing, and the complementarity of IT and organizational capabilities to design and execute their digital business transformation firm's initiatives successfully.

Perspectives