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Leveraging Dynamic Capabilities in the Creation of Virtual Servicecape in China
Ms Yang Zhang (Joy)
Bachelor of Business (Marketing/Advertising)
Graduate Diploma in Secondary Education
A THESIS SUBMITTED
IN FULFILMENT OF THE REQUIREMENTS FOR THE DEGREE OF
MASTER OF PHILOSOPHY
School of Advertising, Marketing and Public Relations
QUT Business School
Queensland University of Technology
2020
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Supervisors
Principal Supervisor
Associate Professor Shane Mathews
QUT Business School, School of Advertising, Marketing and Public Relations
Queensland University of Technology
Associate Supervisor
Dr Alvin Tan
QUT Business School, School of Advertising, Marketing and Public Relations
Queensland University of Technology
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Keywords Digital transformation, dynamic capabilities, virtual servicescape, capability
development, service innovation, virtual firms, strategic management
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Abstract Based on the strategic management literature, competitive advantage lies in the
firm’s dynamic capabilities. Although the strategic importance of dynamic capabilities
has been recognised, the specific type of dynamic capabilities required in digital
transformation remains underexplored. The advancement of novel and powerful
technologies (artificial intelligence, machine learning and Internet-of-Things) has enabled
a more efficient and effective manner for firms to build their dynamic capabilities for
value creation and capture. Digital transformation has become a strategic priority for many
enterprises, and yet, relatively little has been written about how it sustains a firm’s
competitive advantage. In order to study the value co-creation in this complex
phenomenon, Wilden et al (2017) highlighted the need to integrate service dominant logic
with dynamic capabilities. This research examines the building of dynamic capabilities in
the phenomenon of digital transformation with a Service Dominant logic lens. In particular,
the research sets the context of the study in the creation of virtual servcescape in China,
where changes are rapid, disruptive and less predictable. To thrive in such an ambiguous
or uncertain digital environment, firms must maintain ongoing evolutionary fitness
through digital transformation.
Drawing on in-depth and semi-structured interviews with eight business founders,
the research findings extend the literature by providing insights related to dynamic
capabilities used in the creation of virtual servicescape. The study finds that omni-channel
management capabilities are a new capability that is of critical importance in developing
dynamic capabilities. Furthermore, this study identified three extra dynamic capabilities,
that are of paramount importance in helping a firm to conquer these digital challenges,
namely; entrepreneurial capabilities (Zahra et al., 2011), absorptive capabilities (Wang et
al., 2007), and political influencing capabilities in combination to best exploit these new
virtual opportunities. The findings from this research indicate that entrepreneurial and
absorptive capabilities are the “sticky” firm-level resources that collectively contribute to
the creation of a unique resource bundle for nourishing, flourishing and sustaining
innovations in digital environments. Further, the findings suggest that political influencing
capabilities are critical for firms to thrive in the creation of virtual servicescape in dynamic
industrial settings. Finally, the findings of this study showed that organisations take a
particular technological path for service innovation (overcome resources restraints and
deficiencies on capabilities) through digital transformation towards virtualisation.
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For practitioners, the research findings present a range of specific capabilities that
firms should prioritise when facing environmental uncertainty. Whilst development of
capabilities is important for successful digital transformation in virtual servicescape, the
capacity of IT infrastructure of a firm is equally critical. Firms should work on developing
capabilities related to multi-faceted platforms to enhance its organisational agility as this
assists the firm to accumulate tacit and codified knowledge for greater digital
transformation.
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Table of Contents
Supervisors .................................................................................................................... iii
Keywords ...................................................................................................................... iv
Abstract .......................................................................................................................... v
List of Figures and Tables .............................................................................................. x
Statement of Original Authorship ................................................................................. xi
Acknowledgements ...................................................................................................... xii
CHAPTER ONE: INTRODUCTION .......................................................................... 13
1.1 Introduction ....................................................................................................... 13
1.2 Virtual servicescape in China............................................................................ 14
1.3 Theoretical background ..................................................................................... 16
1.4 Research questions ............................................................................................ 18
1.5 Methodology ..................................................................................................... 19
1.6 Contributions ..................................................................................................... 20
1.7 Thesis outline .................................................................................................... 21
CHAPTER TWO: LITERATURE REVIEW .............................................................. 23
2.1 Introduction ....................................................................................................... 23
2.2 Service-dominant logic (S-D Logic) ................................................................. 23
2.3 Servicescape ...................................................................................................... 28
2.3.1 Physical Servicescape .................................................................................... 28
2.3.2 Virtual Servicescape ...................................................................................... 29
2.4 Digital transformation ....................................................................................... 32
2.4.1 Capability distance of digital transformation ................................................ 33
2.5 Resource and capability view of digital transformation ................................... 35
2.5.1 Resource-based view ..................................................................................... 35
2.5.2 Dynamic capability view of the firm ............................................................. 36
2.6 Research gaps and questions ............................................................................. 41
2.7 Conclusion ........................................................................................................ 42
CHAPTER THREE: RESEARCH METHODOLOGY & DESIGN ........................... 43
3.1 Introduction ....................................................................................................... 43
3.2 Research approach ............................................................................................ 43
3.3 Unit of analysis ................................................................................................. 46
3.4 Research design: Multiple case studies ............................................................. 47
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3.4.1 Case selection ................................................................................................. 47
3.4.2 Data collection ............................................................................................... 49
3.4.3 Data coding and analysis ............................................................................... 51
3.5 Criteria for evaluating the quality of case studies ............................................. 52
3.5.1 Criterion One: Credibility .............................................................................. 52
3.5.2 Criterion Two: Transferability ....................................................................... 53
3.5.3 Criterion Three: Dependability ...................................................................... 53
3.5.4 Criterion Four: Confirmability ....................................................................... 54
3.6 Ethical considerations & limitations .................................................................. 54
3.7 Conclusions ....................................................................................................... 55
CHAPTER FOUR: FINDINGS .................................................................................... 56
4.1 Introduction ....................................................................................................... 56
4.2 Within-case Analysis ......................................................................................... 56
4.2.1 Case GmA: Fashion label company ............................................................... 60
4.2.2 Case GmB: Fabric and furniture company .................................................... 60
4.2.3 Case GsC: Beauty company ........................................................................... 61
4.2.4 Case SmD: Media company ........................................................................... 61
4.2.5 Case SmE: Home automation system ............................................................ 62
4.2.6 Case SsF: Gaming marketing agency ............................................................ 62
4.2.7 Case SsG: Marketing services ....................................................................... 62
4.2.8 Case SsH: Development company ................................................................. 63
4.3 Cross-case analysis ............................................................................................ 63
4.3.1 Research question one ......................................................................................... 63
4.3.1.1 Dimension 1: Technical distance ............................................................... 65
4.3.1.2 Dimension 2: Market distance .................................................................... 71
4.3.1.3 Dimension 3: Business model distance ...................................................... 79
4.4 Research Question Two ..................................................................................... 86
4.4.1 Dimension One: Sensing capability ............................................................... 87
4.4.2 Dimension Two: Seizing capability ............................................................... 89
4.4.3 Dimension Three: Transforming capability ................................................... 91
4.5 Conclusions ....................................................................................................... 92
CHAPTER FIVE: DISCUSSION AND CONCLUSION ............................................ 94
5.1 Introduction ....................................................................................................... 94
5.2 Overall findings ................................................................................................. 95
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5.2.1 Overall findings: Research Question One ..................................................... 95
5.2.2 Overall findings: Research Question Two .................................................... 96
5.3 Theoretical Contributions ................................................................................. 98
5.3.1 Theoretical contribution one ......................................................................... 99
5.3.2 Theoretical contribution two ....................................................................... 101
5.3.3 Theoretical contribution three ..................................................................... 105
5.4 Managerial contributions ................................................................................ 107
5.5 Limitations and future research ....................................................................... 108
5.6 Conclusion ...................................................................................................... 109
6 APPENDICES .................................................................................................... 111
7 REFERENCE ..................................................................................................... 113
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List of Figures and Tables
Figure 1.1 Diagrammatic overview of Chapter One 14
Figure 1.2 A visual outline of the structure of the thesis 22
Figure 2.1 Diagrammatic overview of Chapter Two 23
Table 2.2 Foundational premises of service-dominant logic 28
Figure 3.1 Diagrammatic overview of Chapter Three 44
Table 3.2 Four major research paradigms 45
Figure 3.3 Critical realism strata of reality 46
Figure 3.4 Nascent theoretical maturity 47
Figure 3.5 Criteria of case selection 50
Figure 3.6 Research protocol 51
Table 3.7 Four principles of data collection 52
Figure 3.8 Data coding and analysis 53
Table 3.9 Address qualitative criteria of trustworthiness 55
Figure 4.1 Diagrammatic overview of Chapter Four 57
Table 4.2 Descriptive summary of case firms 60
Table 4.3 Cross-case analysis: research question and key data sources 63
Table 4.4 Capability distances to new virtual servicescape 64
Table 4.5 Type of technical distance in virtual servicescape creation 66
Table 4.6 Supporting quotations for technical distance 69
Table 4.7 Type of market capability in virtual servicescape creation 71
Table 4.8 Supporting quotations for market distance 76
Table 4.9 Type of business model adaption capability in virtual
servicescape creation 77
Table 4.10 Supporting quotations for business model distance 82
Table 4.11 Cross-case analysis: RQ two and key data sources 83
Figure 4.12 Building sensing capabilities 84
Figure 4.13 Building seizing capabilities 86
Figure 4.14 Building transforming capabilities 87
Figure 5.1 Diagrammatic overview of Chapter Five 90
Figure 5.2 Transition of service platform business models 98
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Statement of Original Authorship
The work contained in this thesis has not been previously submitted to meet
requirements for an award at this or any other higher education institution. To the best of
my knowledge and belief, the thesis contains no material previously published or written
by another person except where due reference is made.
Signature: QUT Verified Signature
Date: 16 September 2020
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Acknowledgements
Undertaking this Master of Philosophy Research degree has been a challenging
(for someone who cannot sit still for more than one hour) but also rewarding experience.
I would like to thank all the people who have supported me in this adventure.
First and foremost, I would like to thank my supervisors, Associate Professor
Shane Mathews and Dr Alvin Tan, for their support, wisdom and motivation. It has been
a privilege to be the student of such humble, professional and supportive mentors. Their
fine support truly empowered me in this journey.
I would like to express my gratitude and appreciation to Associate Professor Shane
Mathews for his continuous encouragement and feedback. Your valuable advice has not
only allowed me to overcome many challenges and frustrations but also supported me to
develop enduring life skills to become resilient and adventurous in spirit.
I would also like to thank Queensland University of Technology (QUT) and QUT
Business School, where diverse opportunities and experiences are offered to enrich my
early researcher career. Further, I would like to gratefully acknowledge Australian
Government’s Research Training Scheme, without this financial scheme, I would not
have even been able to start my academic pursuit.
Finally, a big thank you goes out to all my friends, families, the fur baby and
Animal crossing for marching down the journey with me. I would like to thank mum and
dad for instilling this idea of passion for learning when I was young. I am also grateful to
my friends Jacqueline, Jessica, Sarah (and Michael) and Sylvia for their wavering
supports. A special thank you goes to my fiancé, Jackson Shaw, for his, encouragement,
incredible support and unconditional love.
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CHAPTER ONE: INTRODUCTION 1.1 Introduction
The advancement of innovation in the areas of artificial intelligence, big data and
Internet of Thing has significantly accelerated the shift of the business landscape toward
digital orientation (Matt, Hess & Benlian, 2015; Mendonça & Andrade, 2018; Warner &
Wäger, 2019). To stay ahead of the competition, digital transformation is increasingly
deemed as a strategic priority by many firms (Fitzgerald et al., 2014; Hess et al., 2016;
Matt et al., 2015). Such change forces some firms to blindly adopt technological resources
to keep abreast of competitors but only to find that the businesses are struggling for
resources and so called “digital improvements” are vulnerable when facing deep
uncertainty (Andal-Ancion, Cartwright, & Yip, 2003; McKinsey, 2018). However, some
firms successfully profit from digital transformation phenomena (Matt et al., 2015;
Mendonça & Andrade, 2018; Teece, 2019a). These firms showcase similar characteristics:
innovative, entrepreneurial and strategically agile, which enable them to thrive in a digital
environment (Ellonen et al., 2009; Lyytinen, Yoo & Boland, 2016; Teece, 2018, 2019a).
However, scant scholarly attention has been paid to study the phenomena of digital
transformation (Chanias, Myers & Hess, 2019; Verhoef & Bijmolt, 2019; Vial, 2019;
Warner & Wager, 2019).
The possession of dynamic capabilities has been highlighted as a way in which to
help firms sustain its competitive advantage (Teece, 1982, 2007, 2014; Teece, Pisano, &
Shuen, 1997; Winter, 2003). Although dynamic capabilities are not fully understood
within the theory of the firm, it explains the mechanism of firm’s long-term growth by
detailing how resources and capabilities are built, renewed and reconfigured to match
market while simultaneously managing competitive threats and effectuating necessary
transformations (Teece, 2010a). Central to dynamic capabilities is the idea of resources
orchestration to build new capabilities that meet the demand of external environment
(Svahn et al., 2017; Teece, 2019a). Strong dynamic capabilities are proven to improve
business performance through creating, capturing and protecting value in a more effective
manner (Helfat & Martin, 2015). Thus, it is argued that a firm’s competitive advantage
lies in a firm’s capabilities, specifically, dynamic capabilities (Eisenhardt & Martin, 2000;
Schilke, 2014; Sutton, 2005; Teece, 2019a; Winter, 2003). Despite the strategic
importance of digital transformation and dynamic capabilities, the development of
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dynamic capabilities in digital transformation remains underexplored (Warner & Wager,
2019).
More recently, the literature of service science suggested that Service-Dominant
Logic (S-D logic) offers a more comprehensive lens to understand the mechanisms of
value co-creation in a complex phenomenon (Chandler & Lusch 2015; Vargo & Lusch,
2004, 2008, 2016). Specifically, Wilden et al (2017) highlighted the need to merge S-D
logic with dynamic capabilities for a deeper understanding of value creation. As such, this
study explores the phenomenon of digital transformation in the creation virtual
servicescape through the lens of S-D logic and dynamic capability view (Li et al., 2018;
Ostrom et al. 2015; Singh & Hess, 2017; Teece, 2019a; Warner & Warger, 2019). To
address these gaps, Chapter One introduces the background of the research by presenting
the evidence associated to the topic of focus, followed by identifying research problem
and research gaps that provides the rational for conducting the study. A brief overview of
research design is included. Finally, Chapter One concludes with contributions and thesis
outline. Key terms and definitions are also presented in this chapter. A diagrammatic
overview of Chapter One is presented in Figure 1.1.
Figure 1.1 Diagrammatic overview of Chapter One
1.2 Virtual servicescape in China
China, the world’s largest digital retail market, is shifting digital commerce and
innovation on a global scale (PwC, 2018). The Chinese digital retail market, accelerated
by sophisticated internet infrastructure and rising mobile users, has matured into “new
retail” phase (Deloitte, 2018). The new retail normal provides seamless consumer service
1.7 Thesis outline
1.6 Contributions
1.5 Methodlogy
1.4 Research questions
1.3 Theoretical background
1.2 Virtual servicescape in China
1.1 Introduction
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experience by breaking the “invisible wall” between online and offline (Wasserman,
2015). Online retail transaction value in China is forecasted to reach US$1.5 trillion in
2019, at a compound annual growth rate of 9%, almost three times higher than the retail
sales of the US market (McKinsey, 2019). It is recorded that gross merchandise value hit
US$ 38.3 billion on Chinese single’s day in 2019, the world’s largest 24-hour online
shopping event (CNBC, 2019). Such sheer scale of virtual landscape has made China a
strategically significant market for investors.
While the new retail trend provides business the opportunities to connect and
interact seamlessly with consumers across multiple channels without interruption, the
digital market is filled with unknown challenges, intense competitions and frequent
innovations (McKinsey, 2019; PwC, 2016). For example, Internet-related innovation
investment had skyrocketed to US$ 20 billions in 2015 and the same year, total deal
volume of venture capital investment increased to 1,726 from 509 in China (PwC, 2016).
The country currently holds the largest collections of “unicorn” companies that valued at
US$ 1 billion or higher (PwC, 2016). The rapid increase in start-up and venture capital
investment has created a “high-velocity” digital market in which changes are rapid,
disruptive and less predictable (Eisenhardt & Martin, 2000). According to PwC (2016),
the speed of replication of a new digital feature, design or service from one Chinese
company to another is often achieved and enhanced within weeks, not months. Along with
its political factors and unforeseen digital market practices, Chinese virtual landscape is
perceived to be challenging not only for multi-national companies but also small and
medium enterprises (Li et al., 2018; Waldmeir & Anderlini, 2015; Williamson, 2016).
To thrive in ambiguous digital market environment, firm must maintain ongoing
evolutionary fitness to adapt to continuous changes of consumer preferences,
technological disruptions and market movements (Teece, 2007, 2014; Teece, Pisano, &
Shuen, 1997). That is, firms need to maintain balance between “the demand side” (what
consumers want) and “the supple side” (build capabilities that do not currently exist inside
the firm to meet the demand). In the context of virtual servicescape in China, the demand
side has changed drastically due to the accumulation of wealth and technological
developments (Li & Liu, 2014; Watering, Mikalef & Pateli, 2017). Quantity can no longer
satisfy the craving of online consumers in China, rather, an entertaining and personalised
online shopping experience complemented with a variety selection of premium products
and fine services (Deloitte, 2018; McKinsey, 2019; PwC, 2018). Such upgrade of
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consumption from the demand side has a profound impact on the supply side - firms’ value
proposition across multiple channels; meaning that strong dynamic capabilities must be
exercised to undergird sustainable competitive advantage in digital environment (Davis &
Dickson, 2014; Williamson & Yin, 2011). Since the dynamic capabilities’ literature has
only paid limited attention to virtual servicescape, this study explores the processes of
virtual servicescape creation to identify the specific types of dynamic capabilities that
firms need to develop to secure successful transformation.
1.3 Theoretical background
The nature of services and how services are delivered have been fundamentally
changed due to technological development (Bitner et al., 2010). Thus, the role and the
scope of technological changes should be reviewed in the study of service (Akaka et al.,
2014; Nilsson & Ballantyne, 2014; Rust 2004). In S-D logic, technologies are viewed as
an operant resource that are drawn upon to serve a human purpose, co-creating value and
facilitating service innovation (Akaka & Vargo, 2014; Arthur, 2009; Spohrer & Maglio
2010). Based on this emphasis, Akaka and Vargo (2015) specified that the internet should
be viewed as operant resources, as the internet opens up indefinite possibilities of
interactions, indicating a possible behavioural change in the perceived servicescape
Ballantyne and Nilsson (2017) revealed three trends transforming the characteristics
of servicescape in virtual environment. First, the role of the internet in virtual servicecape
transforms the dyadic relationship between firms and customers in physical servicecsape
to an interconnected web involving a network of wider range of actors co-creating value
through iterative process of configurations (Ballantyne & Nilsson, 2017). For example,
multiple actors such as influencers, suppliers, sellers, website designer, buyers and other
potential actors are required in order to fulfil a customer’s online order. Second,
communication is an ongoing process that simulating the experience of being physically
present in a virtually created environment (Bolton et al., 2018; Nilsson & Ballantyne,
2017). For example, 24/7 available virtual customer service to manage customer
engagement in virtual reality to stimulate brand interaction and nurture service relations
in physical world (Bolton 2011). Further, the role of actors in virtual servicescape, mostly
beneficiary of a service, are increasingly active in the process of value co-creation
contrasting to the legacy understanding of participants role as being scripted, staged and
controlled (Akaka et al., 2015; Baumöl et al. 2016; Sawhney et al. 2005). All the digital
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changes in virtual environment eventually influence the operational of a business in the
form of business model, structure, value and process (Hess et al., 2016). In the adaption
to technological environment, some firms are able to translate its competitive advantage
in servicescape by responding to digital challenges in an efficient and effective manner,
while others struggle. This implies that fast-moving hypercompetitive virtual servicescape
offers a rich context to study dynamic capabilities, leading to the discussion of resources-
based view of the firm.
Penrose’s seminal work “The Theory of the Growth of the Firm” is considered as
one of the most influential firm growth theories in the field of strategic management.
Penrose’s theory has contributed to the development of resource-based view of firm
(Wernerfelt, 1984) and its now the building block for dynamic capability (Penrose, 1959;
Pitelis, 2007; Teece, 2007). Resources-based view emphasises the strategic importance of
firm level resources (Barney, 1991; Wernerfelt, 1984). While Wernerfelt (1984) defined
resources as any tangible and intangible assets, Barney (1991, p.101; 2002, p.155) defined
resources as “all assets such as capabilities, organisational processes knowledge that
controlled by a firm that enable the firm to conceive of and implement strategies that
improve its efficiency and effectiveness.” Although both Barney (1991) and Wernerfelt
(1984) hold define resources differently, their argument on value-creating resources
showed significant similarities. That is, a firm’s source of competitive advantage is linked
to its internal resource profile that shows traits of valuable, rare, inimitable and non-
substitutable (VRIN) (Barney, 1986; Peteraf, 1993; Wernerfelt, 1984). However, with the
development of resources-based view, the assumption of VRIN as the key to achieve
sustained competitive advantage has been criticised. Firstly, the resource-based view
leaves firms vulnerable in rapidly changing environment as the view is static, excluding
the consideration of dynamic environment (Fiol, 2001). Secondly, the inclusive definition
of resources does not distinguish capabilities from resources (Kraaijenbrink et al., 2009;
Schreyögg & Kliesch-Eberl, 2007). That is, the ownership of valuable resources will
eventually lose its value and become harmful to the development of the firm. Such
emphasis on resources and lack of acknowledgment of capabilities have highlighted the
limitations of the resources-based view, suggesting the need for a new coherent framework
that can capture the essence of competitive advantage in a rapidly changing context
(Kraaijenbrink et al., 2009; Teece et al., 1997; Teece, 2007).
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While tangible and intangible resources such as knowledge, skills and machineries
are important, the way these resources are orchestrated becomes critical to sustain a firm’s
competitive advantage (Teece, 2019a). The ability of resource orchestration is identified
as dynamic capabilities. Teece explained “dynamic” as the capacity of timely
responsiveness of the firm and “capabilities” as the ability of senior management in
adapting and reconfiguring existing competences to meet market needs (Teece et al.,
1997). The definition has highlighted three characteristics of dynamic capabilities that are
particularly relevant for firms going through digital transformation. Firstly, dynamic
capabilities framework emphasises on the importance of capability adaption to external
and deep uncertainty environment (Teece, 2019). The process of digital transformation
involves high uncertain events, which often require firm to perform rapid decision making
to meet environmental changes (Harvard Business Review, 2019). That means ownership
of dynamic capabilities during digital transformation is important as its inherent flexibility
hedging firms from risks. Secondly, dynamic capabilities are often developed in-house
and rested in senior management (Teece, 2019). That is, dynamic capabilities cannot be
purchased or borrowed. In order to “make” dynamic capabilities, firms, in particular,
senior management needs to perform a series of agile decision makings on what scarce
resources to renew, what capabilities to build, when to enter the market and how to defend
competitors so that to sustain its competitive advantage (Helfat et al., 2007). Finally,
dynamic capabilities are embedded in organisational routines and processes meaning that
manipulation of resources and capabilities is a development of organisational capabilities
(Deken et al., 2016; Feldman et al., 2016; Teece et al., 1997). Overall, dynamic capabilities
are critical in sustaining a firm’s competitive advantage in drastic changing environments
(Matt, Hess & Benlian, 2015). Therefore, understanding how firms build dynamic
capabilities, leading to superior performance (and profit) is important.
1.4 Research questions
Key to maintain superior performance is the possession of dynamic capabilities as
it allows the firm to continuously sensing, seizing opportunity and reconfiguring existing
competence and resources to address new opportunities (Ojasalo et al., 2015; Teece,
2007). To survive and thrive in an environment characterised by technological changes,
some firms pursue digital transformation, that is, transitioning from a traditional strategic
orientation to a service dominant orientation. However, the success rate of digital
transformation recorded a new low, at 21 percent (McKinsey, 2018), which leads to the
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thinking as to why some companies have achieved success and what they have done
differently. This remains scarcely explored in the literature of both strategic marketing
and service science. Since the core of both service-dominant logic and dynamic
capabilities are about value creation and capture, there is a need to apply S-D logic to
renew dynamic capabilities to develop insights that explain how competitive advantage is
sustained in digital environment (Akaka et al., 2015; Vargo et al., 2015; Warner & Wager,
2019; Wilden et al., 2017). Furthermore, since Teece (2019a) highlighted that
transformation is one of the phenomena in addressing capability gaps. This thesis takes
digital transformation as the context of study, specifically, in the design and development
of virtual servicescape. Therefore, a joint investigation on how firms develop distinctive
capabilities and unique resources for a successful transformation in virtual service
environment is critical to address abovementioned gaps in the literature. (Arnould, 2008;
Teece, 2019a; Vargo & Lusch, 2016; Wilden, Devinney & Dowling, 2016; Wilden et al.,
2017). Therefore, drawing on the analysis of the literature, the following research
questions are developed and presented below:
RQ 1: How do firms close capability gaps in the creation of virtual servicescape?
RQ 2: How sensing, seizing and transforming are being managed to achieve
organisational agility in the creation of virtual servicescape?
1.5 Methodology
This research adopted critical realism to capture as much of reality as possible, while
emphasising the discovery and verification of theories (Denzin & Lincoln, 2011). A
multiple case study methodology was used in this research to interpret contrasting and
similar patterns of dynamic capabilities within each case situation and cross case situations
in the context of digital transformation (Baxter & Jack, 2008). Since dynamic capability
is a complex multidimensional concept, the unit of analysis in this study is the local, highly
innovative, Chinese small and medium enterprises working in virtual servicescape. In such
case, interviews were conducted at individual level with the owner/founder of the eight
case firms as these people represent their organisational decisions rather than their
personal decisions (Eisenhardt & Martin, 2000; Glavas & Mathews, 2014; Kumar et al.,
2018; Schilke, 2014b; Teece, 1997). Adhering to the critical post-positivism paradigm,
replication logic and research question, a purposive sampling strategy is adopted in this
research. Eight cases across goods and services sector in virtual environment in China
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were selected. Based on the replication logic discussed above, the size and the sector of
case firms were halved into small and medium, goods-oriented and services-oriented
respectively. Semi-structured interview was used to perform primary data collection with
documents and archival records to complement one another in the construction of case
studies.
1.6 Contributions
The thesis makes three important theoretical contributions and three important
managerial contributions. The theoretical contributions are: (1) that omni-channel
management capability is the new type of capabilities needed within these
transformations; (2) that entrepreneurial capabilities (Zahra et al., 2011), absorptive
capabilities (Wang et al., 2007), and political influencing capabilities necessary for
successfully navigating digital challenges; (3) that organisations take a particular
technological path for service innovation through digital transformation towards
virtualisation. This study shows each of the path that firms have taken towards
virtualisation and highlights the progression of business model shifting from internal
platforms, to open/closed platform to leading platforms. In addition to the theoretical contributions, this research offers three managerial
contributions to guide organisations through deep uncertainty. The research findings
present a specific range of new capabilities firms should prioritise to develop facing
environmental uncertainty; namely, omni-channel management capabilities,
entrepreneurial capabilities, absorptive capabilities. These identified capabilities can be
used as a tool to inform high quality managerial strategic formulation to calibrate the
technical, market and business model capabilities’ distances of firms (Teece, Peteraf &
Leih, 2016). Secondly, the findings of this research suggest that IT infrastructure of a firm
is important for the pursuit of successful digital transformation, particularly in virtual
servicescape, as the development of abovementioned capabilities is fundamentally
underpinned by sophisticated technical infrastructure. Third, the findings suggest that
while platform complementor is a useful pathway for firms to enter in to virtual
servicescape, senior management of the firm should actively adjust its business model
towards open service platform business model, to enhance its organisational agility.
Managers should take note that the most change resilience business model is the one that
is built internally to respond to the unexpected.
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1.7 Thesis outline
This thesis has six chapters. A visual outline of the structure of the thesis is provided
in Figure 1.2. Chapter One introduces the background of the research by presenting the
evidence associated to the topic of focus, followed by identifying research problem and
research gaps to provide the rationale for conducting this study. A brief overview of
research design is included. Finally, Chapter One concludes with contributions and thesis
outline. Key terms and definitions are also presented in this chapter.
Chapter Two presents an in-depth literature review pertinent to the field of services
as well as strategic management. Since the core of both service-dominant logic and
dynamic capabilities are about value creation and capture, there is a need to apply S-D
logic to renew dynamic capabilities to develop insights that explain how competitive
advantage is sustained in digital environment (Akaka et al., 2015; Vargo et al., 2015;
Warner & Wager, 2019; Wilden et al., 2017). Furthermore, since Teece (2019) highlighted
that transformation is one of the phenomena in addressing capability gaps. This thesis
takes digital transformation as the context of study, specifically, the design and
development of virtual servicescape.
Chapter Three provides a detailed justification for the choice of qualitative research
strategy adopted to address the research questions identified in Chapter Two. The chapter
begins with a discussion of research paradigm upon which the research is adopted. The
body of this chapter addresses details regarding to the research design, including
methodological fit, data collection procedures, case selection criteria, interview and
coding process. To demonstrate the rigorous of this research design, four criteria including
credibility, transferability, dependability and confirmability are addressed. The final
section of Chapter Three presents the discussion on ethical considerations and limitations,
followed with concluding comments of the chapter.
Chapter Four presents an analytical review of the case data collected from eight
information rich firms located in China. The chapter begins by summarising the findings
from within-case analysis. The within-cases analysis in this research was carried on a firm-
level, examining each firm based on firm’s year of establishment, the number of
employees, the years of virtual activity, the firm’s customer orientation, the firm’s
descriptive type, the intensity of virtual servicescape creation, the intensity of digital
adoption within the firm and the firm’s open innovation activities. Followed by cross-case
analysis, this section identified key patterns and themes related to the two research
22
questions identified in Chapter two. Thematic analysis and replication logic were
employed to guide the analysis of the transcripts (Boyatzis, 1998; Braun & Clarke, 2006;
Yin, 1994)
Chapter Five summarises the key findings of the research investigation by drawing
upon the findings discussed in Chapter Four. Both theoretical and managerial
contributions are presented. Specifically, the thesis contributes to three areas of literature,
digital platform dynamic capabilities and service platform: (1) that omni-channel
management capability is the new type of capability needed for building digital sensing,
digital seizing and digital transforming capabilities in drastic environment to sustain a
firm’s competitive advantage; (2) that entrepreneurial capability, absorptive capability and
political influencing capabilities are of paramount importance in helping firms to build a
digital platform-based ecosystem that breeds innovation; (3) that high performing virtual
firms strategically leverage on different service platform business models and platforms
in the creation of virtual servicescape. That is, the strategic choice of service platform
business model progresses from a platform complementary business model to an open
service platform business model. Further, the findings highlight that digital infrastructure
plays a critical role in digital transformation. Further, managerial guidance is provided,
along with limitations of this study as well as recommendations for future studies.
Figure 1.2 A visual outline of the structure of the thesis
6.0 Conclusion
5.0 Discussion
4.0 Findings
3.0 Research methodlogy and design
2.0 Literature Review
1.0 Introduction
23
CHAPTER TWO: LITERATURE REVIEW
2.1 Introduction
Chapter Two provides an in-depth analysis into the field of dynamic capabilities,
situated within the context of virtual servicescape. Specifically, the literature review
begins with a discussion on S-D logic as a novel perspective in operationalising the
dynamic capabilities in digital transformation context, followed by a discussion of
servicescape and its role in both physical and virtual environment. Given the transitional
nature from physical to virtual environment, digital transformation is required to
understand the mechanism of dynamic capabilities. This is further followed by a critical
analysis of the resource-based and capability view of digital transformation. Next, a
summary of research gaps and questions drawn from the literature review are outlined.
Concluding comments for Chapter Two are also provided with a visual overview of
Chapter Two in Figure 2.1.
Figure 2.1 Diagrammatic overview of Chapter Two
2.2 Service-dominant logic (S-D Logic)
The importance of services has long been recognised in the literature. Levitt (1972)
stresses that every business is in services. Some firms offer more advanced service
components than others. In twentieth century, almost all advanced economies experienced
a systematic economic shift to services, which attracted immense attention to study service
(Ochel &Wegner, 2019; Witt & Gross, 2019). For instance, some scholars have extended
the traditional 4P’s in goods-based marketing to 7P’s in services marketing by adding
2.7 Chapter conclusion
2.6 Summary of research gaps and questions
2.5 Resources and capabilities view of virtual transformation
2.4 Virtual transformation
2.3 From servicescape to virtual servicescape
2.2 Service-dominant logic
2.1 Introduction
24
people (Grönroos, 1996; Zeithaml & Bitner, 1996), process (Berry & Parasuraman, 1993;
Fisk et al., 1993) and physical evidence (Bitner, 1990, Booms & Bitner, 1981, Shostack,
1977). Some scholars have attempted to delineate services from goods by identifying the
characteristics of services, namely, intangibility, heterogeneity, inseparability and
perishability (Fisk et al., 1993; Lovelock, 1991; Rathmell, 1966; Zeithaml et al., 1985).
Specifically, intangibility implies that services are both mentally and physically intangible.
That is, consumers cannot touch, taste or smell a service. Heterogeneity refers to the
operational inputs and outputs tend to vary. In other words, the consistency of service
delivery is hard to maintain due to different factors, such as service environment, people
or time. Inseparability means that consumers may be part of the service production. For
instance, a hairdresser will not be able to perform haircut without the presence of the
customer. Perishability denotes as the output of service is perishable. That is, most
services are delivered in real time and cannot be inventoried.
Although these characteristics of services are widely accepted, some scholars argued
it is misleading and should be reconsidered (Beaven & Scotti, 1990; Gronroos, 2000;
Gummesson et al., 2010; Lovelock & Gummesson, 2004; Vargo & Lusch, 2004; Zeithaml
& Bitner 2000). Gronroos (2000) noted that Goods-Dominant logic (i.e., economic
exchange and value creation as primarily involving tangibles goods, with services as add-
on or a special type of a product) used to distinguish services from goods should be
questioned. The author advocated that service logic should become the mainstream
principle of marketing because products will become more similar as competition
increases. However, service being less visible and more labour dependent creates more
competitive advantage than products as it is more difficult to imitate by competitors (Oliva
& Kallenberg, 2003; Sasser et al., 1997). Further, some scholars criticise that the creation
of service characteristics just highlighted how inapplicable goods-centred logic is in
service economy (Berry & Parasuraman 1993; Lovelock, 2000; Vargo & Lusch, 2004;
Zeithaml & Bitner 2000). With approximately 80% of economy activity migrated to
service in many advanced economies, more and more of these activities cannot be
classified as goods (Schwab, 2016). For instance, G-D logic simply cannot facilitate the
exploration of the new phenomenon such as, the new collaborative economy, servitisation
shift or platform-based business model boom (Brodie, Lobler & Fehrer, 2019; Chase, 1981;
Cusumano, Kahl & Suarez, 2015; Fehrer, Woratschek, & Brodie, 2018; Kindstrom, 2010;
Mathieu, 2001; Sasser et al., 1997; Ulaga & Reinartz, 2011). Since the context of Goods-
25
Dominant logic has changed, the models of understanding economic exchange must be
expanded (Vargo & Akaka, 2009; Vargo & Lusch, 2004).
Motivated by economic exchange, service-dominant logic was introduced as an
alternative to the traditional goods-dominant logic (Vargo & Lusch, 2004). Since its
introduction, the framework of S-D logic has evolved to five core axioms, which are
presented in Table 2.2. These axioms and foundational premises contrast with G-D logic,
where value creation is produced tangibly through exchange of operand resources (Lusch
& Vargo, 2006; Vargo & Lusch, 2008).
Table 2.2 Foundational Premises of Service-Dominant Logic Modified/New foundational premises
Axiom 1 Service is the fundamental basis of exchange
Axiom 2 Value is co-created by multiple actors, always including the beneficiary
Axiom 3 All social and economic actors are resource integrators
Axiom 4 Value is always uniquely and phenomenologically determined by the beneficiary
Axiom 5 Value cocreation is coordinated through actor-generated institutions and institutional arrangements.
Source: Vargo & Lusch (2008a); Vargo & Lusch (2016).
Axiom 1: Service as the fundamental basis of exchange
Central to this axiom is the idea that all economics are service economies. That is,
service is the basis of all exchange. In S-D logic, service is defined as the application of
specialised competence for the benefit of another (Vargo & Lusch, 2016). The definition
highlighted (1) the importance of operant resource (i.e., knowledge, skills) in the process
of value (co)creation; and (2) the nature of interaction between resources and resources in
the process of value (co)creation. The interpretation of axiom 1 exhibited traces of
dynamic capabilities, which is value creation through sensing, seizing and transforming
firm’s existing resources and capabilities base (Wilden et al., 2017). Contrasting to the
traditional view of technology as an operant resource (product), technology is
conceptualised as operant resources that comprised of practices and processes (Akaka &
Vargo, 2013; Spohrer & Maglio, 2010). This argument implied that in order to facilitate
the delivery of value (fulfil a need), technology has to be operated by operant resources
for the benefit of other operant resources (Vargo, Wieland & Akaka, 2015). Take a website
for example, when a technology is developed such as websites, actors who operate the
26
website need to acquire highly specialised website coding knowledge and skill, but others
(website browsers) who benefit from the service a website provides (e.g., shopping on the
website) do not. The conceptual fit suggests that a deeper understanding of the mechanism
of dynamic capabilities in virtual servicescape can be developed if the perspective of S-D
logic is applied.
Axiom 2: Value is co-created by multiple actors, always including the beneficiary
Central to axiom 2 is the interactional nature in the process of value creation (Vargo
& Lusch, 2008). In this view, the process of value creation is situated in a complex and
interactive service context, composed of multiple actors and the institutional arrangements
(Akaka et al., 2013; Akaka & Vargo, 2015; Chandler & Vargo, 2011). Institutions are
defined as “humanly devised rules, norms and meanings that enable and constrain human
action” (Scott, 2001; Vargo et al., 2015). S-D logic suggested that in a dynamic service
context, value is not pre-determined by service providers but rather by the beneficiary of
a service (Alexander, Jaakkola & Hollebeek, 2018; Helkkula et al., 2012; Hollebeek,
Srivastava & Chen, 2019). That is, the beneficiary’s institution frames the service context,
shapes value and influences the service experience (Helkkula et al., 2012; Vargo et al.,
2017). In such service context, if value is disconfirmed by the beneficiary’ institutional
arrangements, exchange-related interactions will be declined (Akaka et al., 2015;
Helkkula et al., 2012; Ramaswamy, 2011). In contrast, if the value resonates with the
beneficiary’s lifeworld, direct and indirect interaction among all actors is initialised
(Akaka et al., 2015). The continual reconfiguration of the service context based upon
institutions is to ensure that service experience is always uniquely co-created (Akaka et
al., 2015; Wilden et al., 2017). The form (and reform) of service context over time
resembles the characteristic of dynamic capability, and thus a S-D logic infused
perspective to study virtual firms in virtual servicecaspe allows for a richer understanding
of dynamic capabilities.
Axiom 3: All social and economic actors are resource integrators
Contrasting to the traditional producer-consumer divide in G-D logic, S-D logic
recognises that the value is a non-linear flow. Instead, it emphasises the role of all social
and economic actors in the value co-creation process through resource integration and
service provision (Vargo & Lusch, 2008, 2011). It further classified resources into three
groups (1) private resources gained through self, friends and family; (2) market resources
27
gained through economic exchange or barter; and (3) public resources gained through
communal and governmental sources (Vargo & Lusch, 2015). In this sense, all value co-
creation is executed by indefinite potential combinations of resource integrators. The
interactional nature of service entities informed by systems thinking (Alderson & Shapiro
1957) and strategic thinking about markets (Barney, 1991; Teece, 2007) lay a solid
foundation towards a network orientated dynamic service system of value co-creation,
which conceptualised as actor-to-actor network (A2A) (Vargo & Lusch, 2011).
Axiom 4: Value is always uniquely and phenomenologically determined by the beneficiary
The essential intent of the fourth axiom is to highlight that value is experiential
(Vargo & Lusch, 2016). Conventional service researches highlighted that service
encounter and servicecsape are two critical determinants of service satisfaction in all
service experience (Akaka et al., 2015). However, the absence of technology in the
development of service encounter and servicecsape created barriers in understanding
service experience and satisfaction in the new ‘technology-infused’ service context
(Bitner et al., 2000; Voorhees et al., 2017). Traditionally, hedonic value is arguably at the
heart of service experience, neglecting the role of institutions (Jaakkola et al., 2015; Park
& Ha, 2016). Contrasting to the hedonic service experience, Vargo and Lusch (2008)
argued that all service experiences, co-created through interactions of multiple
stakeholders, are phenomenological experience. In other words, service experience,
dependent upon socio-historic context (e.g. institutional arrangements), is unique to every
individual and every scenario of value co-creation (Akaka et al., 2015; Sandstrom et al.,
2008). Hollebeek, Srivastava and Chen (2019) claimed that perceived value increases
when personalised activities are offered to the beneficiary of a service. In virtual
servicescape, firms can promote personalised advertisements autonomously and
accurately based on the visitor’s digital profile. That is, virtual servicescape can be
regarded as a large-scale value network involving multiple institutionalised actors and
institutional arrangements.
Axiom 5: Value cocreation is coordinated through actor-generated institutions and
institutional arrangements.
The latest axiom explicitly highlighted the foundational role of institutions play in
mutual service provision (Vargo & Lusch, 2011, 2016). Unlike the traditional customer-
firm exchange relations, S-D logic recognises that actors’ institutions guide the behaviour
28
and thinking as to what is considered to be a valuable resource in a particular place and
time, and how such resources can be accessed, adapted and integrated in a specific context
(Vargo & Lusch, 2014; 2016). Thus, S-D logic is a strategic business logic that places the
beneficiary of service, usually customer, as the source of competitive advantage (Karpen
et al., 2012). This presents similarities to the nature of dynamic capabilities to adapt to
consumer needs in a changing environment (Teece, 2014, 2017). Therefore, a S-D logic-
informed perspective is deemed to be appropriate for studying dynamic capabilities
(Ojasalo et al., 2015).
2.3 Servicescape
2.3.1 Physical Servicescape
The interactive nature of service has motivated a stream of researches studying
service encounter (Kotler, 1973; Russel & Ward, 1982; Shostack, 1977). The exploration
of service encounter has highlighted the importance of servicescape in shaping customer
behaviours, service quality and service perception. However, most researchers primarily
focus on individual dimension such as interior design, external architectural features and
auditory (Kotler, 1973; Russel & Ward, 1982; Shostack, 1977). Importantly, Booms and
Bitner (1981) proposed an umbrella term “servicescape” to refer to holistic physical
environment. Built on environmental psychology of Mehrabian and Russell’s approach or
avoidance model, Bitner (1992) named three constituents (1) spatial layout and
functionality, (2) ambient conditions, and (3) sign, symbols and artefacts, that influence
customers behaviour, service expectation, and satisfaction.
Spatial layout and functionality refer to the arrangement of floor plan and furniture
in facilitation of the service delivery. Both elements affect the experience and performance
of service in which satisfaction or dissatisfaction is determined (Fisk et al., 2011). For
example, lack of car parking spaces or uncomfortable seat on an overnight flight can
impact on consumers’ service experience and, consequently the business performance.
Ambient conditions refer to the five environmental characteristics pertaining to human
senses such as scent, noise, music, light and temperature. For example, using scent in the
entrance of store to solicit emotional (intriguing interest) and behavioural response
(walking into the store) from potential customer (Bitner, 1992). Signs, symbols and
artefacts are used in service environment to communicate message and convey image. For
example, no-smoking sign in a library is used to manage visitor behaviours.
29
Although Bitner extended the context of servicescape, the literature has since
extended beyond the discussion on staged environment. Studies done by Tombs and
McColl-Kennedy (2003, 2010) postulated the idea of social-servicescape that social
density, referring to the crowd of people in a physical environment, and indirect
interaction among customers contribute to the evaluation of customer service experience.
Further, another study done by Johnston (2012) introduced three additional social
dimensions that influencing customer service experience and decision-making behaviour,
namely (1) nurturing and supporting non-commercial relationships; (2) the need for social
connection; and (3) identifying with place. These findings suggested that the evolvement
of servicescape is no longer an environment staged by firms, rather, a coordinated effort
through direct and indirect interaction of multiple actors in service co-creation (Akaka et
al., 2013; Nilsson & Ballantyne, 2014, Vargo et al., 2008).
2.3.2 Virtual Servicescape
The nature of service and how service is delivered have been fundamentally changed
due to technological development (Bitner et al., 2010). Thus, the role and the scope of
technological influences should be reviewed in the study of service (Akaka et al., 2014;
Nilsson & Ballantyne, 2014; Rust et al., 2004). In S-D logic, technologies are viewed as
an operant resource that are drawn upon to serve a human purpose, co-create value and
facilitate service innovation (Akaka & Vargo, 2014; Arthur, 2009; Spohrer & Maglio
2010). Based on this emphasis, Akaka and Vargo (2015) specified that the internet should
be viewed as operant resources, as the internet opens indefinite possibilities of interactions,
across cultures, indicating a possible behavioural change in the perceived environment
(Ballantyne & Nilsson, 2017). They revealed three trends transforming the characteristics
of servicescape in virtual environment (Ballantyne & Nilsson, 2017). First, the role of the
internet in virtual servicecape transforms the dyadic relationship between firms and
customers in physical servicecsape to an interconnected web involving a network of wider
range of actors co-creating value through iterative process of configurations (Ballantyne
& Nilsson, 2017). For example, multiple actors such as influencers, suppliers, sellers,
website designer, buyers and other potential actors are required in order to fulfil a
customer’s online order. Second, communication is an ongoing process that simulating
the experience of being physically present in a virtually created environment (Bolton 2011;
Ballantyne & Nilsson, 2017). For example, 24/7 available virtual customer service to
manage customer engagement in virtual reality to stimulate brand interaction and nurture
30
service relations in physical world (Bolton 2011). Further, the role of actors in virtual
servicescape, mostly beneficiary of a service, is increasingly active in the process of value
co-creation, which contrasts to the legacy understanding of participants’ roles, as being
scripted, staged and controlled (Akaka et al., 2015; Baumöl et al. 2016; Sawhney et al.
2005). The digital changes in virtual environment influence the operations of a business
in the form of business model, structure, value and process (Hess et al., 2016). In adaption
to the technological environment, some firms can translate their competitive advantage in
servicescape by responding to digital challenges in an efficient and effective manner,
while others struggle. This implies that fast-moving hypercompetitive virtual servicescape
offers a richer context to study dynamic capabilities.
China virtual servicescape, with its vastness and vibrancy, is believed to offer rich
and thick insights for the contribution to the understanding of digital transformation and
dynamic capabilities (Li et al., 2018; Waldmeir & Anderlini, 2015; Williamson, 2016).
With one billion internet users and burgeoning middle-class consumers, China is currently
the largest online market in the world (Ferreira & Ferreira, 2018; McKinsey, 2019). The
Chinese digital retail market, accelerated by sophisticated internet infrastructure and rising
mobile users, has matured into a “new retail” phase (Deloitte, 2018). The new “retail
normal” provides seamless consumer service experience by breaking the “invisible wall”
between online and offline (Wasserman, 2015). According to Deloitte (2018), online sales
in China is 19 times higher than the world average, indicating the efficiency of the current
digital market. Further, online retail transaction value in China is forecasted to reach
US$1.5 trillion in 2019, at a compound annual growth rate of 9%, almost three times
higher than the retail sales of the US market (McKinsey, 2019). It is recorded that gross
merchandise value hit US$38.3 billion on the world’s largest 24-hour online shopping
event, Chinese Single’s Day (CNBC, 2019). Sheer scale of virtual servicescape has made
China a strategically significant market for investors.
PwC (2018) highlighted three distinctive characteristics of digital retail environment
in China. Firstly, the new retail normal where retailers utilise underlying technologies
such as artificial intelligence, and cloud computing and internet of things (IoT), to
delineate the boundary between online and offline shopping channels (PwC, 2018).
Secondly, content driven meaning that virtual selling is no longer transactional-based but
experiential-based (PwC, 2018). For example, Louis Vuitton hosted its debut live
streaming on one of the popular Chinese virtual shopping sites by a key opinion leader.
31
The livestream presented highly informative and entertaining content including celebrity
interviews and styling sessions, which attracted 130,000 followers and exceeded their
sales target within one hour of live streaming. Finally, China’s sophisticated digital
payment system, rising middle class consumers, regional economic growth and
technological progress, have become the major forces, spurring virtual business expansion
into new growth avenues of the food, luxury and wellness industries (PwC, 2018). These
industries in first tier cities, are leveraging on current internet infrastructure and digitalised
supply chain, to innovate their service offering. Fully digitalised supermarkets use facial
recognition for payment; wellness organisations use virtual reality equipment to simulate
physical user experience.
While the new retail normal provides business the opportunity to connect and
interact seamlessly with consumers across multiple channels without interruption, the
digital market is filled with unknown challenges, intense competition and frequent
innovations (McKinsey, 2019; PwC, 2016). Early on internet-related innovation
investment in China had skyrocketed to US$20 billion in 2015 and the same year, total
deal volume of venture capital investment increased to 1,726 from 509 companies (PwC,
2016). The country currently holds the largest collections of “unicorn” companies, valued
at US$1 billion or potentially higher (PwC, 2016). The rapid increase in start-up and
venture capital investment has created a “high-velocity” digital market in which changes
are rapid, disruptive and less predictable (Eisenhardt & Martin, 2000). According to PwC
(2016), the speed of replication of a new digital feature, design or service from one
Chinese company to another is often achieved and enhanced within weeks, not months.
Along with its political factors and unforeseen digital market practices, Chinese virtual
landscape is perceived to be challenging, not only for multi-national companies but also
small and medium enterprises (Li et al., 2018; Waldmeir & Anderlini, 2015; Williamson,
2016).
To thrive in an ambiguous digital market environment, firms must maintain ongoing
evolutionary fitness (through resources orchestration) to be able to adapt to continuous
changes on consumer preferences, technological disruptions and market movements
(Teece, 2007, 2014; Teece, Pisano, & Shuen, 1997). Firms need to maintain balance
between “the demand side” (what consumers want) and “the supply side” (build
capabilities that do not currently exist inside the firm to meet the demand). In the context
of virtual servicescape in China, the demand side has changed drastically due to the
32
accumulation of wealth and technological developments (Li & Liu, 2014; Watering,
Mikalef & Pateli, 2017). Quantity can no longer satisfy the craving of online consumers
in China, rather, an entertaining and personalised online shopping experience that
complements a variety of premium products and fine services (Deloitte, 2018; McKinsey,
2019; PwC, 2018). Such upgrade of consumption from the demand side has a profound
impact on the supply side (firms’ value proposition across multiple channels); meaning
that strong dynamic capabilities must be exercised to secure a sustainable competitive
advantage in digital environment (Davis & Dickson, 2014; Williamson & Yin, 2011). It
appears that dynamic capabilities literature has only paid limited attention to virtual
servicescape. This study explores the processes of resources reconfiguration of Chinese
firms, as they pursue competitive advantage in the creation of virtual servicescape (digital
transformation), to identify the specific types of dynamic capabilities that firms need to
develop further to secure successful transformation.
2.4 Digital transformation
The move to virtual servicescape is a company-wide digital transformation that
leads to revision of current business models (Pagani & Pardo, 2017). Teece (2010)
highlighted that a firm’s competitive advantage resides in its business model, which often
reflects how value is created, delivered and ultimately converted to profit (Gölzer &
Fritzsche, 2017). Pagani and Pardo (2017) claimed that during digital transformation,
organisations tend to rely on digital technologies to modify existing business routines,
resources and capabilities to generate value and strategic renewal. Thus, digital
transformation should be deemed as a strategic imperative for firms to sustain competitive
advantage in hypercompetitive environment (Singh & Hess, 2017; Warner & Wager,
2019). However, a recent scoping review on digital transformation suggested that
scholarly understanding of digital transformation remains surprisingly limited (Verhoef et
al, 2019). Given the strategic importance of digital transformation, a deep understanding
of digital transformation through the lens of dynamic capability is necessary (Ailawadi &
Farris, 2017; Lemon & Verhoef, 2016; Parviainen et al., 2017; Verhoef et al., 2019).
Digital transformation is defined as “a change in how a firm employs digital
technologies, to develop a new digital business model that helps to create and appropriate
more value for the firm” (Verhoef et al., 2019). There are three phases of digital
transformation: digitisation, digitalisation and digital transformation (Verhoef et al., 2019).
These transformations can be placed on a continuum that ranges from low-intensity
33
transformation (e.g. analogue information) to high-intensity transformation (e.g. a
platform-based business model) (Loebbecke & Picot, 2015; Verhoef et al., 2019).
Digitalisation is located somewhere in the middle (Pagani & Pardo, 2017; Verhoef et al.,
2019). The goal of digitisation is to achieve timesaving and cost-efficiency for the
business (Vendrell-Herrero et al., 2017). Often, technological related resources are being
deployed to improve operational efficiency of the firm (Katkalo et al., 2010). For instance,
the introduction of self-service technology by airlines and banks (e.g. online check-in,
internet-banking) can be considered digitisation. In contrast, digital transformation
requires deep use of technologies and IT to fundamentally transform an existing business
model and logic through building a system which enables interactions among multiple
actors in responding to changes in the digital environment (Loebbecke & Picot, 2015, Matt
et al., 2015, Parviainen et al., 2017; Verhoef et al., 2019).
Teece (2014) argued that to succeed in digital context, firms must build a platform-
powered ecosystem that combines multiple business models for value creation and capture.
To achieve this, firms need to go through iterative digital transformation, designing,
building and refining their business model (Teece, 2014). The process of designing a
competitively sustainable business model (suitable for digital context) requires two things:
dynamic capabilities and complementary assets (Teece, 2018). During digital
transformation, firms need to make decisions such as which capabilities need to be
developed, which resources need to be reconfigured, which products to develop or which
new market to target. These decisions made by firms establish organisational path for
future, resulting in interfirm differences. Such differences impact the way firms create and
capture value in future. Because of the importance of decision making, dynamic
capabilities must be exhibited by senior management in sensing business opportunities,
identifying distances between current position to target position, seizing opportunities by
reconfiguring existing capabilities and resources, and transforming organisations by
developing new capabilities or resources (Teece, 2018).
2.4.1 Capability distance of digital transformation
The identification of missing capabilities is triggered by market sensing, termed as
‘capability distance’ (Teece, 2019). When transforming, a firm’s capability distance can
be calculated on three dimensions: technical distance, market distance and business model
distance (Teece, 2019). Technical distance refers to any technological challenges that
firms might face (Teece, 2019). Since the very nature of digital transformation is to
34
incorporate technologies in building business models, the identification of technical
distance between firms is critical. For example, when designing a new application, some
firms may suffer from lack of coding and programming capability. If technical distance is
incremental, firms can leverage on existing resources and capabilities to address the
challenge. However, if the technical distance is radical, depending on the urgency of the
situation, firms can either outsource the technical capability or build their own technical
capability to shorten the distance. Market distance refers to the distance between the new
target market and the existing target market (Teece, 2019). Demographical, geographical
or cultural changes from one target market to another market, generally lead to market
challenges as the acceptance of value proposition is facilitated by institutional
arrangements (Lusch & Vargo, 2014; Vargo & Lusch, 2011). Another critical dimension
of capability distance is business model distance (Teece, 2019). This happens when the
existing revenue mechanism does not match or adapt to new technology. General-purpose
technologies (GPT) or enablement of technology firms introduce lead to the need to
coordinate and develop a new business model. It is important to note that firms with
extensive distance on each dimension, face greater challenges during digital
transformation than the ones with shorter capability distance.
Once capability distances are identified, firms need to address these challenges
effectively and efficiently. Corresponding to technical gap is the need to close technology
gaps (Teece, 2019). Often the more radical the technology firm introduces, the greater the
gap. Common ways of closing technology gaps include open innovation, licensing, hiring
new talent or R&D (Chesbrough, 2003). In order to close market gaps, a firms knowledge
of a new market segment is critically important. In the context of digital transformation, a
deep understanding of consumer data and market data may help the firm to provide more
accurate recommendations (value proposition) to encourage value co-creation (Vargo &
Lusch, 2016). In terms of closing business model gaps, technologies and the ways they
impact the capture of value in the digital environment is fundamentally different (Shuen,
Feiler, & Teece, 2014). To ensure potential future streams of income, firms must anew
their business model with appropriate level of technology adoption to derive full value
from innovation (Teece, 2018). Although Teece (2018, 2019a) provided the importance
of dynamic capabilities in calibrating these capability distances, there is little
understanding regarding how dynamic capabilities may manage all three gaps at once
(Teece, 2019a).
35
2.5 Resource and capability view of digital transformation
2.5.1 Resource-based view
Penrose’s seminal work “The Theory of the Growth of the Firm”, is considered one
of the most influential firm growth theories in the field of strategic management. Penrose’s
theory has contributed to the development of resource-based view of firms (Wernerfelt,
1984) and it is now the building block for dynamic capability (Penrose, 1959; Pitelis, 2007;
Teece, 2007). Penrose (1959) argued that the optimal growth of the firm involves
processes of combing excess and slack resources to create new product or activity
opportunities at near zero marginal cost. The idea of opportunity identification through
dynamic interaction between internal management and the external environment is the
essence to enable firm’s success (Penrose, 1959).
Built on Penrose (1959) insights, resource-based view has evolved by emphasising
the strategic importance of firm level resources (Barney, 1991; Wernerfelt, 1984). While
Wernerfelt (1984) defined resources as any tangible and intangible assets, Barney (1991,
p.101; 2002, p.155) defined resources as “all assets such as capabilities, organisational
processes knowledge that controlled by a firm that enable the firm to conceive of and
implement strategies that improve its efficiency and effectiveness.” Although both Barney
(1991) and Wernerfelt (1984) hold define resources differently, their argument on value-
creating resources showed significant similarities. That is, a firm’s source of competitive
advantage is linked to its internal resources profile, that shows traits of valuable, rare,
inimitable and non-substitutable (Barney, 1986; Peteraf, 1993; Wernerfelt, 1984).
However, along with the development of resources-based view, it has also been
criticised. Firstly, the resource-based view leaves firms vulnerable in a rapidly changing
environment, as the view is static, excluding the consideration of dynamic environment
(Fiol, 2001). Fiol (2001) claimed that no competitive advantage can last forever, and thus,
a firm must continuously adapt its resources and capabilities to sustain its competitive
advantage. Secondly, the inclusive definition of resources does not distinguish capabilities
from resources (Kraaijenbrink et al., 2009; Schreyögg & Kliesch-Eberl, 2007). The
ownership of valuable resources will eventually lose its value and become harmful to the
development of the firm. Therefore, it is the superior capabilities of a firm which enables
selection to integrate and re-combine resources to sustain its competitive advantage
(Eisenhardt & Martin, 2000; Helfat & Peteraf, 2003; Teece et al., 1997; Teece, 2007).
Such emphasis on resources and lack of acknowledgment of capabilities have highlighted
36
the limitations of the resources-based view, suggesting the need for a new coherent
framework that can capture the essence of competitive advantage in a rapidly changing
context (Kraaijenbrink et al., 2009; Teece, 2007; Teece et al., 1997).
2.5.2 Dynamic capability view of the firm
While tangible and intangible resources such as knowledge, skills and machineries
are important, the manner in which these resources are orchestrated is critical to sustain
competitive advantage (Teece, 2019). The ability of resource orchestration is identified as
dynamic capabilities. The author explained “dynamic” as the capacity of timely
responsiveness of the firm and “capabilities”, as the ability of senior management in
adapting and reconfiguring existing competences to meet market needs (Teece et al.,
1997). The definition has highlighted three characteristics of dynamic capabilities that are
particularly relevant for firms going through digital transformation. Firstly, dynamic
capabilities framework emphasises the importance of capability adaption to the external
environment and in deep uncertainty (Teece, 2019). The processes of digital
transformation involve high uncertain events, which often requires a firm to perform rapid
decision making, to meet environmental changes (Harvard Business Review, 2019). That
means ownership of dynamic capabilities during digital transformation is important, as its
inherent flexibility hedges firms from risks. Secondly, the framework highlighted that
dynamic capabilities are often developed in-house and rested in senior management
(Teece, 2019). That is, dynamic capabilities cannot be purchased or borrowed. In order to
“make” dynamic capabilities, firms, in particular, senior management, need to perform a
series of agile decision making on what scarce resources to renew; what capabilities to
build; when to enter the market; and how to defend competitors to sustain its competitive
advantage (Helfat et al., 2007). Further, the ability to make good decision are enabled by
learning and knowledge (Chesbrough 2006; De Clercq, et al., 2012; Kogut & Zander,
1996; Sok & O’Cass, 2011; Teece et al., 1997; 2019). Despite a body of literature
highlighting the importance of learning in governing organisational success, how firms
learn and how knowledge is transformed, transitioning from physical to virtual
servicescape remains scantly researched (Ballantyne & Nilsson, 2017; Verhoef et al., 2019;
Warner & Wager, 2019). Finally, dynamic capabilities are embedded in organisational
routines and processes, meaning that manipulation of resources and capabilities is a
development of organisational capabilities (Deken et al., 2016; Feldman et al., 2016;
Teece et al., 1997). Since dynamic capabilities are innovative and entrepreneurial by
37
nature (Camisón & Villar-López, 2014; den Hertog et al., 2010), it should be appropriately
differentiated from capabilities which maintain the status quo of the firm, also known as
ordinary capabilities (Helfat & Winter 2011; Teece, 2007; 2014; Winter, 2003). In a
virtual servicescape context, a firm must create and develop digital resources and
capability to achieve evolutionary fitness. However, how firms leverage on dynamic
capabilities to govern operational capabilities remains underdeveloped (Matt, Hess &
Benlian, 2015).
Ordinary and dynamic capabilities
Winter (2003) claimed that ordinary capabilities not only contribute to a firm’s
competitive advantage but can also hamper it. At a zero-level, ordinary capabilities are
“make a living” capabilities, supporting the productivity level of the firm through a set of
static activities, such as administration, accounting, and finance (Teece, 2007; Winter,
2003). In Winter’s work (2003), he identified that zero-level activities (employing
operational capabilities) are often locally defined. Examples of zero-level activities are
local R&D activities without alliances or strategic acquisition, as it does not alter the way
firms make their living (Capron & Mitchell, 2004; Helfat et al., 2007; Zollo & Singh,
2004). A study conducted by Laaksonen and Peltoniemi (2018) reviewed 141 dynamic
capabilities studies, highlighting R&D expenditure (without clarification) was heavily
used as a measurement for demonstrating a firm’s dynamic capabilities by the majority of
the studies. This appears to be against the idea from a group of pioneer researchers on
dynamic capabilities including Eisenhardt and Martin (2000), Teece et al (1997), and
Winter (2003). That is, dynamic capabilities are unique and cannot be measured through
R&D expenditure nor financial statements (Laaksonen & Peltoniemi, 2018). This study
views dynamic capabilities in line with Eisenhardt and Martin (2000), Teece et al (1997),
and Winter (2003). Transforming from the physical environment to virtual servicescape
is entering a new market which requires internal routine and skill development to build on
existing organisational assets to trigger dynamic capabilities (Bernroider et al., 2014;
Doving & Gooderham, 2008; Groysberg & Lee, 2009; King & Tucci, 2002). Further,
ordinary capabilities, static by nature, reveal vulnerability in deep uncertainty and
competitive environments (Cepeda & Vera, 2007; Helfat & Peteraf, 2003). That is, firms
which blindly pursuit the increase of efficiency of ordinary capabilities, often struggle in
innovating and sustaining competitive advantage (Junni et al., 2013; O’Reilly & Tushman,
2013). Therefore, to achieve success in digital transformation, it is assumed that firms are
38
likely to employ dynamic capabilities to alter its current position (how it makes its living)
to a new position, by transforming its operational capabilities.
While operational capabilities are useful to achieve technical efficiency, it remains
a low strategic value to sustain a firm’s competitive advantage (Helfat & Winter, 2011;
Teece, 2019a). In contrast, dynamic capabilities support high performance by responding
to business and technological opportunities through realigning organisational assets
(Pisano & Teece, 2007; Teece, 2019; Teece & Leih, 2016). The possession of dynamic
capabilities will help the firm to achieve digital transformation by sensing opportunities
in the market, seizing the identified opportunities and transforming existing business
resources to meet environmental changes (Teece, 2007).
Since the essence of a business model is a series of processes by which value is
created, captured and delivered to customers, it should reflect an organisation’s value
proposition and their strategy for execution (Rumelt, 2011; Teece, 2010a; Velu, 2017).
The new business environment comprising of new means of communications and
technologies, has amplified the change in market and consumer needs and wants (Teece,
2010b). Thus, the business model should be re-evaluated as to how should businesses
deliver value to customers and how they can capture value from new service or products
(Zott, Amit & Massa, 2011). It is argued that the growth of the internet, has fundamentally
changed how businesses deliver value in virtual servicescape (Teece, 2010a; Velu, 2017).
Velu (2017) noted digital transformation is essentially a business model evolution by
which firms leveraging on the internet network to yield accurate value proposition, are
enticing to its networks to pay and are therefore profiting from it. Such change in business
logic is likely to lead to a review of a current business model, with an idea toward
refinement or replacement (Teece, 2000a). In Velu’s study (2017), three micro-
foundations are identified to facilitate the processes of value creation and capture,
including (1) balanced redundancy, (2) requisite variety, and (3) cognitive discretion. It is
argued these capabilities are a key micro-foundations of dynamic capabilities, to select
and design a business model, as it provides capabilities that can be harnessed to create
unique organisational assets (Di Stefano, Peteraf, & Verona, 2010; Schilke et al., 2018;
Teece 2010a; Velu, 2017). The micro-foundations of dynamic capabilities can be broken
down into three clusters: (1) sensing market opportunities and threats; (2) seizing the
identified opportunities or defencing threats via new product or processes or services; (3)
39
transforming existing tangible and intangible assets to achieve evolutionary fit (Teece,
2007; 2019a).
Sensing capabilities
Sensing capabilities comprise a series of activities involving scanning, creating,
learning and interpreting changes in an environment (Teece, 2007). In general,
opportunity sensing can occur in two ways (1) differential access to information (Kirzner,
1973) and (2) access to new information and knowledge (Schumpeter, 1934). While
Kirzner’s view focuses on leveraging on disequilibrium, Schumpeter stresses destroying
the equilibrium of the economy. Both views are identified to be relevant in today’s
economy. A study performed by Alshanty and Emeagwali (2019) suggested that sensing
capabilities have positive impact on organisational knowledge creation and innovation.
That is, sensing capabilities allow firms to continuously accumulate knowledge in terms
of consumer needs, taste changes, competitor movements and technological developments,
which ultimately can be leveraged as insights for new service or product development
(Teece, 2007). Further, sensing is an ongoing process of managing organisational
information to form strategic decisions, which requires a combined effort at both
organisation level and individual level (Helfat & Raubitschek, 2018). At organisational
level, sensing routines should be implemented to perform frequent evaluation of the
external environment (Helfat & Eisenhardt, 2004). A study performed by Monteiro and
Birkinshaw (2017) suggested that high performing firms develop effective efforts in
conducting sensing activities, such as establishing a scouting network and external
partnerships. Individual actors could also contribute to early recognition of opportunities
through performing meaningful data interpretation (Helfat & Eisenhardt, 2004; Teece,
2007). While the literature links a firm’s superior performance with sensing capabilities,
the literature has yet to fully address how sensing capabilities is built to adapt to virtual
servicescape context (Nambisan et al., 2017; Warner & Wager, 2019). Therefore, there is
a need to understand as to how sensing capabilities unfold for firms going through digital
transformation (Glavas, et al., 2017).
Seizing capabilities
Once opportunities or threats are sensed, it must be addressed by making strategic
choices in conjunction with appropriate financial investments (Teece, 2007, 2019).
Strategic decision making is at the heart of seizing, determining the path of the
40
organisation (Schomaker & Day, 2019). It often involves senior management
orchestration of existing resources and capabilities to decide whether new products or
services need to be developed to address the new market segment; whether new
technological competence and complementary assets need to be improved; or whether the
timing of introducing new products is right. The capacity of making quality decisions with
respect to a firm’s existing position, influence the potential growth of the firm (Teece,
2007). For example, an empirical study conducted by Roberts and Grover (2012)
highlighted that seizing capability (the speed and the ability to respoond to customer
demands), showed significant relation to a firm’s sales growth and profitability in
comparison to rivals. However, to perform quality and unbiased judgment is difficult as
delusion is ubiquitous in every business environment. For example, a study conducted by
Li et al. (2019) highlighted multiple challenges faced by SMEs in China, in the pursuit of
digital transformation in cross-border trading including insufficient resources, limited
capabilities, weak cross-cultural awareness and low-level foreign language proficiency.
Such challenges make the transformation more difficult, as cognitive inertia is a persistent
issue faced by firms in digital transformation (Davidow & Malone, 1992; Massner &
Vosgerau, 2010). Therefore, management’s capability to reinvent business processes that
minimise decision errors and bias, is critical for seizing. Another challenge identified
within seizing process is the selection and creation of a business model that allows an
organisation to respond to customer needs, influence market outcomes and capture value
in a timely fashion (Nelson, 2005; Teece, 2007). Seizing capability is even more important
in the digital environment, as it allows the firm to create and capture value through a
dynamic process of asset orchestration (Helfat et al., 2007; Tecce, 2018). Helfat and
Raubitschek (2018) argued that integrative capabilities underpin the success of building
seizing capabilities, as it “encourages effective communication and coordination of
activities, resources and capabilities, investments and objectives within firms” (Helfat &
Campo-Rembado, 2016).
Transforming
Organisations benefit financially from sensing and seizing capabilities. The
financial growth of the firm often leads to changes in resources and assets, meaning that
the firm will continuously expand in a path-dependent way. Teece (2007) highlighted that
success breeds low-level routines, as organisations always seek to optimise productivity
for profit. O’Reilly and Tushman (2013) noted that such routines impede the
41
innovativeness of the firm, meaning that the firm’s ability to innovate and adapt to the
external environment, may be sacrificed at the cost of pursuing efficiency. Therefore, to
ensure the ongoing evolutionary fitness of the firm, transforming capability (the way a
firm’s resources and assets that are reconfigured to match new market needs) is critical
(Teece, 2007, 2014). Argote and Ren (2012) highlighted the importance of senior
management in building a firm’s transforming capabilities. In the context of digital
transformation, depending on the current digital position of the firm, transforming
capabilities are required, so that firms can either update their existing business model or
implement a new business model to improve business performance in the digital
environment (Teece & Linden, 2017). Further, Warner and Wager (2019) proposed that
strengthening a firm’s transforming capability also increases the speed of collaborative
behaviour, which ultimately contributes to sustain the competitiveness of the firm in
virtual servicescape (Warner & Wager, 2019). Since there is limited understanding on
how SMEs develop dynamic capabilities in the creation of virtual servicescape, this
research explores the building of specific dynamic capabilities that are needed for firms
to achieve transient competitive advantage.
2.6 Research gaps and questions
Key to maintaining superior performance is the possession of dynamic capabilities,
as it allows the firm to continuously be sensing, seizing opportunity and reconfiguring
existing competence and resources to address new opportunities (Ojasalo et al., 2015;
Teece, 2007). In order to survive and thrive in a technology-driven environment, some
firms pursue digital transformation, that is, transition from a traditional strategic
orientation to a service dominant orientation. However, the success rate of virtual
transformation recorded a new low, at 21 percent (McKinsey, 2018). This leads to the
thinking as to why some companies had achieved success, and what they have done
differently. This, however, remains scarcely explored in the literature of both strategic
marketing and service science. To understand digital transformation in a virtual service
context, S-D logic points toward the need to consider multiple actors directly and
indirectly co-creating value in the process of service exchange (Akaka et al., 2015;
Hollebeek et al., 2019). Dynamic capabilities are known as an aggregate multi-
dimensional construct that shares a significant conceptual fit with S-D logic on
interactivity with or between resources. There is a longstanding call to integrate dynamic
capabilities with S-D logic for more robust development. Therefore, a joint investigation
42
on how firms develop distinctive capabilities and unique resources to guarantee a
successful transformation in virtual service environment is necessary (Arnould, 2008;
Dowling, 2016; Wilden et al., 2017; Teece, 2019; Vargo & Lusch, 2016). Drawing on the
analysis of the literature, the following research questions are developed:
RQ 1: How do firms close capability gaps in the creation of virtual servicescape?
RQ 2: How sensing, seizing and transforming are being managed to achieve
organisational agility in the creation of virtual servicescape?
2.7 Conclusion
Chapter two presented a synthesis of the literature pertaining to digital
transformation, resources-based view of the firm and S-D logic. Chapter two opened with
a discussion of linking service-dominant logical (five axioms) and dynamic capabilities.
Based on S-D logic, this chapter discussed the role of internet and servicescape. The
chapter has also addressed the literature related to digital transformation. Three
transformation distances were outlined, namely: technical distance, market distance and
business model distance. The evaluation of the literature has identified two key gaps
worthy for further research. Therefore, two research questions were developed to address
these gaps.
43
CHAPTER THREE: RESEARCH METHODOLOGY & DESIGN
3.1 Introduction Chapter three provides a detailed discussion on proposed qualitative research
strategy to address the research questions. The purpose of the study is to identify firm-
level capabilities and resources required for firm longevity and adaptability through
multiple case study methodology. The chapter begins with a discussion of research
paradigm upon which the research is adopted. The body of this chapter addresses details
regarding the research design, including methodological fit, data collection procedures,
case selection criteria, interview and coding process. To demonstrate the rigorous of this
research design, four criteria including credibility, transferability, dependability and
confirmability are addressed. The final section of Chapter three presents the discussion on
ethical considerations and limitations, followed with concluding comments of the chapter.
A diagrammatic overview of Chapter Three can be seen in Figure 3.1.
Figure 3.1 Diagrammatic overview of Chapter Three
3.2 Research approach
A research paradigm constitutes school of thought and beliefs that reflects how a
researcher interacts and interprets within that world (Guba & Lincoln, 1994). As the
paradigm defines the philosophical orientation of the researcher, it influences every
decision made throughout the research process including the choice of research
methodology and method (Denzin & Lincoln, 2013). Since epistemology and
3.6 Conclusion
3.5 Ethical considerations and limitations
3.4 Evaluating the quality of case studies
3.3 Research design: Multiple case study
3.2 Research appraoch
3.1 Introduction
44
methodology are intimately related, it is important for researchers to state the paradigm in
which the research is located.
A brief overview of the four major paradigms will be discussed, followed by
proposing the philosophical perspective adopted by this research with a detailed
justification in relating to ontological, epistemological and methodological issues. Table
3.2 illustrates the four major research paradigms raised by Denzin and Lincoln (1994).
Table 3.2 Major paradigms Element Positivism Post-positivism Critical Theory Constructivism
Synonym Verify Predict Emancipate Interpret
Ontology Reality is real and apprehensible
Real reality but only imperfectly and probabilistically apprehensible.
*Also known as critical realism
“Virtual” reality shaped by social, economic, ethnic, political, cultural and greater values, crystallised over time
Local, relative, co-constructed realities
Epistemology Finding is scientific.
Findings approximate truth; reality is never fully apprehended.
Value mediated findings
Co-created multiple realities and truths
Methodology
Quantitative, primarily experimental or quasi-experimental
Usually quantitative –may include qualitative such as case studies
Action research and participant observation
Often qualitative and/or quantitative
Adapted from Denzin & Lincoln (1994), Milman (2010).
Positivism is not suited for this study as the core of positivism is empiricism, using
deduction to postulate theories rather than answering the why questions (Bogdan & Biklen,
1998). Since the interest of the study is to investigate a contemporary phenomenon in
depth and within its real-life context, positivism is unsuitable. In contrast, the central
endeavour of constructivism is that reality is socially constructed, meaning that every
effort has to be made by researchers to understand the subjective world of human
experience (Bogdan & Biklen, 1998; Healy & Perry, 2000). In this paradigm, qualitative
data collection is utilised, and findings usually reflect the value of researcher (Chalmers,
Manley & Wasserman, 2005). Therefore, the constructivism paradigm is regarded to be
inappropriate for this study. With the attempt to end the paradigm war between positivism
and constructivism, critical theory emerged (Gage, 1989). Critical theorists proposed
historical realism that regards reality as shaped by social, economic, political, cultural and
ethnic factors (Guba & Lincoln, 1994). The paradigm differentiated itself from positivism
and constructivism with an orientation to self-reflection and emancipation, which shaped
45
its epistemology to be more subjective and value dependent (Denzin & Lincoln, 2011;
Perry, 1998). Therefore, critical theory is deemed to be unsuited for this research.
Critical realism philosophical perspective is deemed to be the most appropriate to
facilitate the investigation of this study. A figure is used to illustrate the ontology of critical
realism. In critical realism, reality is stratified into three level (1) empirical level – the
transitive level of reality where events can be measured empirically and are always
mediated through the filter of human experience and interpretation; (2) actual level – the
level where events occurs whether or not we experience or interpret them and these true
occurrences are often different from what is observed at the empirical level (Danermark
et al., 2002); (3) real level – the level where causal mechanisms exists to produce events
at the empirical level, see Figure 3.3 (Miller & Tsang 2010). According to Wynn and
Williams (2012), each of level of reality in critical realism is equally important and seeks
to provide empirically supported statements about causation, specifically how and why a
phenomenon occurred, which is consistent with the proposed research questions:
RQ 1: How do firms close capability gaps in the creation of virtual servicescape?
RQ 2: How sensing, seizing and transforming are being managed to achieve
organisational agility in the creation of virtual servicescape?
This mechanism-oriented approach can be used to explain the underlying relations
between the deployment of dynamic capabilities, virtual servicescape, and the interior
world of the entrepreneurs. This research adopted critical realism to capture as much of
reality as possible, while emphasising the discovery and verification of theories (Denzin
& Lincoln, 2011).
Figure 3.3 Critical realism strata of reality
In any given fields of study, the key elements include research question(s), the
literature review, data collection and analysis, and contribution to the literature, which
should be aligned according to the stage of development of the current literature at the
time of the research to achieve methodological fit (Edmondson & McManus, 2007).
According to the three archetypes continuum proposed by Edmondson and McManus
Empirical level: experienced and observed events.
Actual level: events occur whether observered or not.
Real level: causal mechanism within objects or structure casue events at an empirical level to occur.
46
(2007), this present study of a contemporary phenomenon is a nascent theoretical maturity
as it seeks to investigate the rich and complex phenomenon of dynamic capabilities on an
organisational level in virtual servicescape. Table 3.4 demonstrated the methodological fit
in detail across seven research design elements mentioned by Edmondson and McManus
(2007). In summary, in order to shed light on the phenomenon of interest, rich and detailed
data with iterative and exploratory content analysis are needed for theoretical contribution
(Barker, 1993; Eriksson & Kovalainen, 2015).
Table 3.4 Nascent theoretical maturity
Element Nascent Present Study
Research questions Open ended inquiry about a phenomenon of interest √
Type of data collected Qualitative, initially open-ended data that need to be interpreted for meaning
√
Illustrative method for collecting data
Interviews, observations, obtaining documents/ field materials relevant to the phenomena of interest
√
Constructs and methods Typically new constructs, few formal measures √
Goal of data analysis Pattern identification √
Data analysis method Thematic content analysis coding for evidence √
Theoretical contribution New construct, suggestive theory/model √
3.3 Unit of analysis
In the first step to perform data analysis, the study must define the unit of analysis
(Trochim, 2006; Kumar et al, 2018). A critical review of methodological issues in the field
of dynamic capabilities, called for an immediate attention on the unit of analysis, as 82
per cent of the articles in the review did not clearly state the unit of analysis (Eriksson &
Kovalainen, 2008). Without a clear unit of analysis, the rigour of the study is hampered
(Babbie, 2005). Since dynamic capabilities are deemed as a complex multi-dimensional
concept, the unit of analysis would provide rich contextual data. Thus, the unit of analysis
in this study are local, highly innovative, Chinese small and medium enterprises (SME),
working in virtual servicescape. It is argued that in an SME context, the power of decision
making is held by a small group of people or the owner/founder of the business (Reid,
1981). In such cases, interviews were conducted at individual level with the
owner/founder of eight case firms, as these people represent their organizational decisions
47
rather than their personal decisions (Eisenhardt & Martin, 2000; Glavas & Mathews, 2014;
Kumar et al, 2018; Schilke, 2014; Teece, 1997).
3.4 Research design: Multiple case studies
A multiple case study methodology was used in this research to interpret contrasting
and similar patterns of DCs within each case situation and cross case situations in the
context of a developing economy (China) and virtual servicescape (Baxter & Jack, 2008).
Unlike a single case study, multiple cases allow researchers to study a real life, multiple
bounded system through multiple sources of information (Creswell & Miller, 2000; Yin,
2014). For instance, the within case data leads to theoretical conclusions via the
mechanisms identified, whereas the cross-case data reveals the pattern of similarities and
differences for advancing theoretical development (Yin, 2014). More specifically, the
literature of strategic management has also highlighted the explorative function of
multiple case studies, as a vehicle for understanding the complexity of strategic
management processes in the absence of previous work (Di Mauro et al, 2018; Ellonen et
al., 2009; Ridder, 2017; Thomas & Trevino, 1993; Yin, 2014). Replication logic is central
in multiple case studies to assist the analysis of the data (Yin, 2014). In the case of this
research, both literal and theoretical replication were applied, as was analytic
generalisation (Yin, 2014). Literal replication means that similar results across cases are
observed for predictable explanations, whereas theoretical replication means that contrary
results are predicted for theoretical reasons (Ridder, 2017; Yin, 2014). In this context,
service-oriented case firms and goods-oriented case firms may exhibit similarities and
differences in patterns between dynamic capabilities of the firm and firm performance
within industries and across industries (Yin, 2014). In summary, a multiple case study was
chosen as research design to improve the generalisability of the study (Yin, 2009).
3.4.1 Case selection
The execution of a good research depends upon the quality of the data, underpinned
by the competence of the informant and the manner of obtaining data (Bernard et al. 1986;
Eisenhardt & Graebner 2007). The selection of case organisations should be driven by the
research questions and research method (Creswell & Miller, 2000; Patton, 2014; Yin,
2009). Adhering to the critical post-positivism paradigm, replication logic and research
question, a purposive sampling strategy can be justified. Although ‘expert bias’ is
introduced in purposive sampling, the inherent bias captures the wisdom of informants in
48
the phenomenon of interest that sits outside the academic mainstreams (Campbell, 1955;
Patton, 2014). Several studies were performed to test the efficiency of purposive sampling
in comparison to random techniques. The findings suggested that the results of purposive
sampling and random sampling were highly correlated and in addition, purposive
sampling contributed new insights, encouraging scholars to look beyond the statistics
(Karmel & Jain, 1987; Tongco, 2007; Topp et al., 2004). In order to generate robust and
reliable data, the competence and reliability of the informant is key (Patton, 2014; Tongco,
2007).
It is important to be clear on the informant experience and qualifications in
purposive sampling (Patton, 2014). Hence, four criteria were set out to conduct informant
selection which may be seen in Figure 3.5. The first criterion was that the interview
informant must be the founder or co-founder of a local SME. A screening question was
asked to understand the role of the informant in the firm. It is commonly accepted by the
strategic management literature that dynamic capabilities, the capability to evaluate
complex firm-level issues, resides in senior management (Di Stefano et al., 2014;
Laaksonen & Peltoniemi, 2018; Teece, 2019a). By interviewing the founder or co-
founders who are expected to have in-depth knowledge regarding to the firm’s operational
process and overall strategies, phenomenon of dynamic capabilities can be vividly
documented (Barrales-Molina et al., 2013; Kriz, Voola & Yuksel, 2014; Teece, 2019a).
The second criterion concerned the size of the firm. In the context of China, firms with
“less than 2,000 employees” are regarded as SME (Tang, Tang, & Katz, 2014; Tang, Tang
& Cowden, 2017). This was an important criterion in developing understanding of
dynamic capabilities in the emerging economy. A research done by Rothaermel and Hess
(2007) highlighted that firms with larger numbers of qualified employees are able to
respond to changes quickly due to the possession of resources, operational capabilities and
dynamic capabilities. Since SMEs generally lack resources and capabilities, this criterion
was set out to capture how dynamic capabilities can assist the adaption and resilience of
the firm to maintain its competitive advantage in a competitive virtual context. The third
criterion conditioned case firms to be working in virtual servicescape in China and
engaged with at least one major e-commerce platform. The virtual environment in China
is highly innovative and competitive, which provides a fertile ground to study the
mechanism of dynamic capabilities (Biesenthal et al., 2019; Teece, 2018). Fourth, the
businesses were required to have undergone a minimum of one virtual transformation
within the past two years. Virtual transformation is defined as a process of cross-
49
disciplinary change, where a new virtual business model is developed using digital
technologies to create value for the firm (Schallmo et al., 2017; Verhoef et al., 2019). This
company wide transformation encompasses changes in marketing, product development,
supply chain, strategy, organisation structure, innovation and information technology
(Foss & Saebi, 2017; Verhoef, Kannan, & Inman, 2015). In other words, the pursuit of
virtual transformation requires a reconfiguration of digital resources and capabilities
(Teece, 2010). By documenting the changes of pre, during, and post-virtual transformation,
the understanding of dynamic capabilities in virtual servicecsape will be better captured,
see Figure 3.5.
The sufficient number of cases that should be included in a multiple case study is
not consistently clear (Perry, 1998; Yin, 2009). Yin (2009) suggested that the number of
case replication (both literal and theoretical). should be considered to determine the
desired sample size. Although it is impossible to specify a sample size without knowing
the study, typically six to ten cases are recommended for a type four case study (Gentles
et al., 2015; Patton, 2014; Yin, 2014). Given the recommendation, eight cases across the
goods and services sectors in virtual environment of China were selected. On the basis of
the replication logic discussed above, the size and the sector of case firms were halved
into small and medium, goods-oriented and services-oriented respectively.
Figure 3.5 Criteria of case selection
3.4.2 Data collection
Case study can be jeopardised if the preparation for data collection is not done well
(Yin, 2009). Guided by the four principles of data collection by Yin (2014), semi-
structured interviews, documents and archival records were used to complement one
another in the construction of case studies. The primary source of data was collected
through semi-structured in-depth interviews. These interviews were conducted
individually, with eight business owners across goods- and services- sectors, lasting on
average of 71 minutes, from November to December 2019. The interviews were
The role of the informant
• Founder or co-founder of the business
Non-state ownership SME in China
• Non-state ownership • SME with less than 2,000 employees
Firms working in virtual environment
• Internet-enabled business
• Selling goods or services via at least one e-commerce platform(s)
Virtural transformations
• Experienced minimum one virtual transformation
50
conducted face-to-face in a pre-booked meeting room in the interviewee’s firm. All
interviews were audio recorded and transcribed to aid the recall of discussion to facilitate
data analysis. To ensure the transcription represented the ‘full picture’ of the conversation,
apart from textual component, emotional aspects, pauses and silences were given
consideration (Lapadat & Lindsay, 1999; Poland & Pederson, 1998; Wellard & McKenna,
2001). The interviewees in this research were the key decision makers who were
responsible for firm’s virtual transformation. The purpose of semi-structured in-depth
interviews was guaranteed through the design of protocol questions (Yin, 2018). The
protocol questions are particularly important, as it helps to structure the flow of the
conversation (Patton, 2014). The interview protocol questions refinement framework
(IPR) was used for developing the effective interview protocols (Castillo-Montoya, 2016).
The procedure of the IPR comprised four phases, illustrated in Figure 3.6: (1) mapping
interview questions against the research questions; (2) paraphrasing interview questions
in a clear, short and conversational manner; (3) obtaining feedback on interview protocol;
(4) piloting the interview protocol. This research carried out the practices from phase one
to four to garner rich data.
Figure 3.6 Research protocol Research Question Corresponding question Research focus
Opening questions
RQ 1: How do firms close capability gaps in the creation of virtual servicescape?
Q2 and Q3 Performance of the firm, changes in ordinary capabilities and resource
Q4 Identification of capability gap (three gaps)
Q5 Capabilities and resources accumulated to overcome capability gap
Q6 Open innovation
RQ 2: How sensing, seizing and transforming are being managed to achieve organisational agility in the creation of virtual servicescape?
Q7 Competitive advantage of the firm before, during and post virtual transformation
Q8 and Q9 Sensing and seizing strategies to reconfigure resources and capability
Q10 Transforming strategies
Closing questions
To address the challenge of research design, four overriding principles of data
collection were incorporated (Yin, 2018). Principle one was executed through hybrid
evidence collection strategy. Besides interview data, documentation, archival records and
direct observations were collected as part of the multiple case study research. For instance,
51
stories from local news and articles which appeared on official websites, were mentioned
in the interviews to develop the timeline of virtual transformation. Archival data such as
aptitude tests, organisation digital infrastructure records and headquarter geographical
changes were recorded, in conjunction with other information. Less formal observations
were made, such as observation in the interview, environment of the workplace and
location of the office. The multiple sources of evidence allow more convincing and
accurate findings. Principles two and three were implemented though creating a case study
database in Nvivo, data analysis software. For example, sub-folders were created under
each case firm folder to store original evidence, allowing backward evidence tracing. The
last principle was followed with caution. Extra effort was committed to cross-check the
accuracy of the information.
Table 3.7 Four principles of data collection
Principle Examples
1 Use multiple sources of evidence √ Documentation, archival data, direct observation and interviews
2 Create a case study database √ A folder for each case including data, field notes and other information
3 Maintain a chain of evidence √ Storage of original data in Nvivo
4 Exercise care when using data from social media sources
√ Official social media accounts were used, and others were reviewed with cautions
Source: Yin (2018) Four principle of data collection.
3.4.3 Data coding and analysis
Data coding and analysis is one of the least developed aspects of case studies
(Saldana, 2013; Yin, 2018). Although there is no best way to code qualitative data, as each
qualitative study is unique, two or more coding methods are recommended to capture the
complex phenomenon of interest (Saldana, 2013). The data coding procedure and analysis
of this research was guided by The Coding Manual for Qualitative Researcher (Saldana,
2013). Figure 3.7 illustrated the coding process visually. In the present study, descriptive
and pattern coding methods were carefully considered, as this hybrid method could be
used to better reveal the epistemological questions (Saldana, 2015). An analytic memo
was implemented throughout the coding and analysis phase to stimulate “ah-ha” moments.
This process helps the researcher not only to familiarise with the data, but also to establish
connections of individual components (Saldana, 2015). In the first cycle of data coding,
transcripts were reviewed in a line by line manner, generating a pool of low inference
52
codes (Saldana, 2015). The goal of first cycle coding was to summarise and segment data
at a basic level, laying a solid groundwork for second cycle of analysis (Punch, 2014;
Wolcott, 1994). Before transitioning to second cycle coding, the researcher reviewed
existing first-order coding nodes with supervisors, to re-organise and re-assemble the
codes developed from first cycle processes. Diagramming technique was adopted in this
step to “think display” the threads of analysis and results in a coherent manner (Dey, 1993;
Miles & Huberman, 1994). During second cycling coding, pattern coding was adopted.
Overlapping and redundant codes from the first cycle were identified, then re-organised
into sub-codes (Miles & Huberman, 1994). From second-cycle coding, major themes
associated to dynamic capabilities were developed and patterns of connections between
the manipulation of capability and resource became clearer connections (Richards, 2015;
Saldana, 2015). After second-cycle coding, cross-case synthesis technique was applied to
assist the analysis of multi-case studies (Yin, 2018). The goal of this analysis approach
was to “retain the integrity holistic feature of the entire case and then to compare the any
within-case patterns across the case” (Yin, 2018, p196).
Figure 3.8 Data coding and analysis
3.5 Criteria for evaluating the quality of case studies
Ensuring the trustworthiness of the data and quality of the findings, four key
components proposed by Guba (1981) and further adapted by Shenton (2004) was applied
in this research. The four elements were (1) credibility; (2) transferability; (3)
dependability, and (4) confirmability. The focus of each criterion and strategies taken to
meet them for this research are summarised in Table 3.8 and explained below.
3.5.1 Criterion One: Credibility
In qualitative research, internal validity is replaced by credibility (Lincoln & Guba,
1985). That is, the researcher correctly interprets participants’ original views (Macnee &
McCabe, 2008). Several strategies recommended by Shenton (2004) were applied to
ensure the credibility of research. First, multiple-case study adopted in this study is a well-
Analytic memo
• Document coding process
First cycle coding
• Descriptive coding
Transition to second cycle
coding
• Review
Second cycle coding
• Pattern coding to develop major themes
Transition to analysis
• Writing about coding
53
recognised research method in the field of strategic management. Second, both
methodological triangulation and data triangulation were applied, to reduce bias and cross-
examine informants’ responses. The use of multiple sources of evidence, in a manner
encouraging convergence lines of inquiry, enhances the quality of the data (Yin, 2018).
For instance, stories from local news and articles which appeared on official websites were
mentioned in the interviews to develop the timeline of virtual transformation. Archival
data such as aptitude tests, organisation digital infrastructure records and headquarter
geographical changes were recorded, in conjunction with other information. Less formal
observations were made, such as observation in the interview, environment of the
workplace, location of the office. Third, member checks to eliminate researcher bias was
performed when analysing and interpreting the results. The analysed data and results were
sent back to the informants to ensure no misreporting (Schwandt et al., 2007). Fourth, the
researcher proactively sought opportunities to present the research topic for feedback from
academic staff, supervisors and fellow researchers. Fifth, detailed descriptions concerning
methodology and context were provided in the research reports allowing readers to make
judgements about whether the final themes are true to participants’ accounts (Yin, 2019).
3.5.2 Criterion Two: Transferability
Similar to external validity in quantitative research, transferability refers to the
application of findings to other contexts (Lincoln & Guba, 1985). This research facilitated
the transferability of the inquiry through thick description and purposeful sampling. The
research provided sufficient contextual information of SMEs in the sections of within and
cross-case analysis, which allowed practitioners to relate the findings to their own
positions (Yin, 2014). Further, informed by replication logic, purposeful sampling was
utilised in this study. Four selection criteria were developed to ensure the competence and
quality of the informants (Cohen, Manion, & Morrison, 2011). In addition, the application
of replication logic incorporating literal and theoretical replications strengthens the design
and analytical generalisability (Yin, 2018).
3.5.3 Criterion Three: Dependability
Dependability is equivalent to reliability in quantitative research. The dependability
of this research is addressed through research design and method. Shenton (2004)
suggested that a detailed reporting process of the research design, describing what was
planned and executed on a strategic level was included to demonstrate dependability.
54
Further, a case database records the operational detail of data gathering including raw data,
documents, field notes, archival data and news clippings was created to maintain a chain
of evidence for cross-checking (Bowen, 2009; Lincoln & Guba, 1985).
3.5.4 Criterion Four: Confirmability
Replaced objectivity is confirmability emphasising the work findings representing
the ideas of informants, rather than researcher’s imaginations (Shenton, 2004).
Confirmability is achieved when credibility, transferability and dependability are
addressed (Bowen, 2009). A clear and descriptive discussion of research process was
provided from initial outline to the findings in this chapter. In addition, memo,
triangulation, reflective commentary and audit trails were adopted to ensure the
consistency of research questions, research design and methods, see Table 3.8.
Table 3.9 Addressing qualitative criteria of trustworthiness Criterion Provisions made for this research
Credibility
Adoption of appropriate, well recognised research methods Development of early familiarity with culture of participating organisations Triangulation via use of different methods, different types of informants and
different sites Tactics to help ensure honesty in informants Iterative questioning in data collection dialogues Debriefing sessions between researcher and superiors Thick description of phenomenon under scrutiny Examination of previous research to frame findings
Transferability Provision of background data to establish context of study and detailed description of phenomenon in question to allow comparisons to be made
Dependability Employment of “overlapping methods” In-depth methodological description to allow study to be repeated
Confirmability
Triangulation to reduce effect of investigator bias Admission of researcher’s beliefs and assumptions Recognition of shortcomings in study’s methods and their potential effects In-depth methodological description to allow integrity of research results to
be scrutinised Use of diagrams to demonstrate “audit trail”
Source: Shenton (2004) further adapted from Guba (1981).
3.6 Ethical considerations & limitations
In between the completion of research design and data collection, an application
demonstrating the plans to protect the human subject from harm, privacy and
confidentiality was lodged with Queensland University of Technology Human Research
Ethics Committee. A low-risk research involving human participants was granted. In
accordance to the Australian Government’s National Statement on Ethical Conduct in
Human Research, researchers should conduct data collection with case and sensitivity.
55
Yin (2018) outlined two concerning issues relating to data collection: (1) the need of
consent: a folder including a summary of research, interview information and consent
forms were translated sent to all persons who may be part of the data collection to gain
informed consent. All participants were given the time to raise any questions and reminded
the rights to withdraw from the interview at any time. (2) Privacy and confidentiality of
the participants: participants’ confidentialities were protected by the use of consent forms.
No personal identifying information about the participants were revealed. Further steps,
such as using a coding system, were taken to disguise the identity of the participants. This
project did not raise any issues of deception, threat, invasion of privacy, mental, cultural
or physical risk or stress nor involve gathering of personal sensitive information about or
from individuals.
3.7 Conclusions
Chapter Three was opened with a discussion of the paradigmatic approach which
forms the foundation for the study. A critical realism perspective was adopted, given the
purpose of the study was to study the underlying relations between the deployment of
dynamic capabilities, virtual servicescape, and the interior world of the entrepreneurs.
Multiple case study approaches were adopted in the investigation of the dynamic
capability topic, followed by a comprehensive discussion on case selection strategies and
data collection procedures. Further, data analysis and coding procedures were presented.
The credibility, transferability, dependability and confirmability of case studies were
presented to ensure the quality of qualitative study. The end of this chapter presented a
discussion on ethical consideration and limitation discussion.
56
CHAPTER FOUR: FINDINGS 4.1 Introduction
Following the qualitative research methodology and design identified in Chapter,
the purpose of Chapter Four is to present the results of collected case data. The chapter
begins by summarising the findings from within-case analysis, followed with cross-case
analysis by presenting data collected from eight in-depth interviews with business
founders from China. Thematic analysis and replication logic were employed to guide the
analysis of the transcripts (Boyatzis, 1998; Braun & Clarke, 2006; Yin, 1994). Figure 4.1
provides a diagrammatic overview of Chapter Four.
Figure 4.1 Diagrammatic overview of Chapter Four
4.2 Within-case Analysis
Within-case analysis requires a comprehensive and descriptive case write-up,
allowing the researcher to familiarise with each individual case in the study (Eisenhardt,
1989). In order to identify unique patterns of each case, an in-depth exploration of each
individual case was conducted and presented in Table 4.2 (Perry, 1998). The within-cases
analysis in this research was carried on a firm-level, examining each firm based on firm’s
year of establishment, the number of employees, the years of virtual activity, the firm’s
customer orientation, the firm’s descriptive type, the intensity of virtual servicescape
creation, the intensity of digital adoption within the firm and the firm’s open innovation
activities.
4.5 Conclusion
4.4 Cross-case analysis of RQ2
4.3 Cross-case analysis of RQ1
4.2 Within-case analysis
4.1 Introduction
57
Overview of case firms
All eight firms in this study represent firms operating in virtual servicescape in
China. Of all founders indicated their experiences in virtual servicescape albeit the average
age of 34. Gender ratio of the sample was consisted evenly of four females (e.g. GmA,
GsC, SmE, SsF) and four males (e.g. GnB, SmD, SsG, SsH). At a firm level, the number
of employees ranged from five (e.g. GsC) to 220 (e.g. GmA), suggesting that all firms are
SME. The earliest establishment of the firm was dated back to 1999 (e.g. GmB) in
comparison to the most recent inception, 2017 (e.g. SmE). The year of virtual activity of
each firm ranged from 2 (e.g. SmE) to 13 years (e.g. GmA). The customer orientation of
the firm included six firms provide only business-to-consumer (B-to-C) goods and
services (e.g. GmA, GmB, GsC, SmD, SmE, SsH), two firms provide only business-to-
business (B-to-B) goods and services (e.g. SsF, SsG), and four firms provide both
business-to-business (B-to-B) and business-to-consumer (B-to-C) goods and services (e.g.
GmB, SmD, SmE, SsH). Regarding to intensity level of virtual servicescape presence,
four of which firms indicating high intensity in virtual servicescape presence (e.g. GmA,
GsC, SmD, SsF), four in moderate (e.g. GmB, SmE, SsG, SsH) and none in low. Further
in digital infrastructure adoption, three firms (e.g. GmA, SmE, SsF) have highly
sophisticated digital infrastructure in place for business operation in comparison to one
firm (e.g. GsC) in infancy and three in moderate stages (e.g. GmB, SmD, SsG, SsH). All
firms have engaged in open innovation activities. Therefore, all firms in this research will
provide variance in their insights by SMEs. To preserve confidentiality of participants,
both the firm of and the entrepreneur are referred collectively to as Case GmA-GsC and
SmD-SsH. “G” refers to a goods-oriented firm, “S” refers to a service-oriented firm, “s”
standards to small-sized firm and “m” refers to medium sized firm.
In order to develop better understanding of each single case, all samples can be
classified into four categories, respectively: entrepreneur’s experience in virtual
servicescape creation; activeness of firm in virtual servicescape industry, firm’s level of
digital infrastructure, and firm’s industry type. By entrepreneur’s experience in virtual
servicescape creation, firms are split into three groups: experiences below five years (e.g.
SsH), experiences between five to ten years (e.g. GmB, GsC, SmE, SsF), and experiences
above ten years (e.g. GmA, SmD, SsG). However, entrepreneur’s experience in virtual
servicescape industry does not fully translate to the activeness of firm in virtual
servicescape industry. Among all firms, up to five firms (e.g. GmB, GsC, SmE, SsC, SsH)
58
have indicated to have less than five years involvement in virtual servicescape industry
activities, two firms (e.g. SmD, SsF) meeting the requirement of having virtual
servicescape experiences between five to ten years, and only one firm (e.g. GmA) engaged
in virtual servicescape for more than ten years. By intensity level of digital infrastructure
adoption, firms can be divided into highly developed digital infrastructure (e.g. GmA.
SmE, SsF), moderately developed digital infrastructure (e.g. GmB, SmE, SsG, SsH) and
less developed digital infrastructure (e.g. GsC).
59
Table 4.2 Descriptive summary of case firms included in the research
Note. All firms are private, wholly owned Chinese businesses. * denotes the primary customer orientation. G= Goods-oriented firm, S= Service-orientated firm, s=Small sized firm, m= Medium sized firm.
Cas
e #
Job
role
of t
he
entre
pren
eur
Age
of t
he
entre
pren
eur
Gen
der o
f the
en
trepr
eneu
r
Yea
rs o
f di
gita
l ex
perie
nce
of
entre
pren
eur
Num
bers
of
empl
oyee
s
Yea
r of
esta
blis
hmen
t
Yea
r of
expe
rienc
e
Cus
tom
er
orie
ntat
ion
Indu
stry
in
desc
riptiv
e ty
pe
Inte
nsity
of
virtu
al
serv
ices
cape
pr
esen
ce
Inte
nsity
of
digi
tal
infr
astru
ctur
e ad
optio
n
Ope
n in
nova
tion
activ
ity
Freq
uenc
y of
le
arni
ng
activ
ities
GmA Founder & CEO
36 Female 17 220 2006 13 B-to-C Fashion label High High Yes Weekly
GmB Managing director
28 Male 6 29 1999 3 B-to-C*;
B-to-B
Furniture & fabrics Moderate Moderate Yes
Monthly
GsC Founder & managing director
28 Female 9 5 2016 3 B-To-C Beauty company High Low Yes Weekly
SmD Founder & managing director
36 Male 11 31 2011 8 B-to-B;
B-to-C
Social media company
High Moderate Yes Monthly
SmE Co-founder & managing director
37 Female 7 138 2017 2 B-to-B*;
B-to-C
Home automation system
Moderate High Yes Monthly
SsF Co-founder & managing director
32 Female 7 18 2011 8 B-to-B; Gaming marketing High High Yes Monthly
SsG Founder & CEO
36 Male 12 10 2015 4 B-to-B; Marketing service Moderate Moderate Yes Monthly
SsH Founder & managing director
42 Male 2 15 2008 4 B-to-B; B-to-C*
Development company
Moderate Moderate Yes Quarterly
60
4.2.1 Case GmA: Fashion label company
Case GmA is a medium-sized fashion label company targeting at Asian consumers
with strong digital presences on multiple e-commerce marketplaces in China. Established
in 2006, the firm was conceived as a virtual firm from inception. Prior to the establishment
of the firm, the founder had accumulated extensive online business knowledge by working
as a digital product manager for a multi-national corporation. To date, the firm had gone
through three digital transformations. Each digital transformation was focused on a
different aspect of business operation. Specially, the first digital transformation was to
increase the brand’s digital reach by improving the quality of digital content. The founder
stasted that, “this transformation was quite superficial as we really were trying to make
our online content appealing… we built our capabilities around content creation and we
try to be different.” The second and third digital transformations were aimed to increase
the organic ranking of the business. During the second transformation, GmA relied heavily
on platform assistance and external IT support. However, it is proven that this strategy
was slow, ineffectively and costly. For the firm’s third transformation, it invested heavily
on digital infrastructure in terms of data collection capacity, data storage and data
networking. The firm now has constructed its own current system by leveraging on big
data and machine learning. The firm’s IT infrastructure has the ability to perform
sophisticated modelling on user interest or sales forecast through aggregation of multiple
information sources.
4.2.2 Case GmB: Fabric and furniture company
Case GmB is a family business specialises in fabric and furniture. The business now
serves a diverse portfolio of customers from both online and offline including mainland
China, Hong Kong, South East Asia and Middle East. The company was established in
1999 as a curtain company with no intention to expand their business on online. The ex-
founder of the business had little to no knowledge about business operation in virtual
servicescape. Prior to digital transformation, the business found it difficult to compete in
the brick-and-mortar market and experienced significant decline in sales. To reposition
the business, the son took over the business. The current business owner oversaw the
social media portfolio of a multinational hospitality group for mainland China. To date,
the firm had gone through two digital transformations. The first digital transformation was
achieved through capabilities and resources outsourcing. The founder stated that, “this
transformation was really a test water. I wanted to see the challenges and the response of
61
digital consumers towards to fabric, curtain and furniture shopping.” The second digital
transformation was aimed to improve consumer experience with the brand. The firm
formed partnerships with a local university and one tech-firm, experimenting AR and VR
as a vehicle to improve business productivity and consumer online shopping experience.
4.2.3 Case GsC: Beauty company
Case GsC provides beauty and skin product advisory service to Chinese consumers,
using DNA swab test and skin analyser mobile application to conduct virtual consultation
and product recommendation. Established in 2016, the firm was conceived as a virtual
firm from inception. The firm’s major sales channel is via mobile application, followed
by WeChat social commerce. To date, the firm had gone through two digital
transformations. Prior to both digital transformations, the firm found it difficult to
uniquely position themselves in the market. The founder noted that the first digital
transformation was to build a solid technical foundation for second transformation. The
business relied open innovation and co-founder’s previous digital experience to develop a
mobile application. The app is based on big data (local geographical data, consumer screen
time, daily life routine) to perform skin condition diagnosis (using artificial intelligence)
and recommend suitable skincare products and solutions. The second digital
transformation was related to brand reposition from product strategy to promotion to
pricing strategy. The firm converted its major sales channel to mobile application,
followed by WeChat social commerce.
4.2.4 Case SmD: Media company
Case SmD was established in Australia as a boutique social media agency. Over the
years, the firm has evolved to a full-service communication agency, education advisory
and legal service partner serving Chinese audience in Australia. The education and legal
service team are Australia based, while the communication service including content
production, event management and media copy writing was relocated to China two years
ago and supported by contractors from local area. Internal project management and
communication were managed through the use of digital applications. Inbound open
innovation was adopted to expand the firm’s service eco-system. To date, the firm had
gone through two digital transformations. Prior to digital transformations, the firm found
the business model to be costly and inefficient.
62
4.2.5 Case SmE: Home automation system
Case SmE was established as a start-up company by two entrepreneurs with prior
experiences in software product and development services. The firm has developed a
home automation system where security, entertainment, audio command, lighting and
miscellaneous services are integrated onto one platform. Customers are mostly drawn
from China, United States, Australia and South East Asia. Leveraging on previous
resources and skillsets, the firm has collaborated with one of the largest real estate
company in China to develop robots to perform property management tasks. Open
innovation was detected in their virtual transformation. To date, the firm had gone through
one digital transformations.
4.2.6 Case SsF: Gaming marketing agency
Founded by three entrepreneurs with extensive experiences in virtual servicescape,
media and filming industry in China, Case E is a video game creative and marketing
agency providing marketing campaign on mobile, PC and console games solely to
mainland China. Due to the restrictions on China’s gaming industry, the firm relies heavily
on traditional network relationship which secures almost 85% of firm’s annual revenue.
The firm has developed mature new technology application in gaming including virtual
reality, augmented reality, drones and consumer robotics. With strong online presence,
the business intends to reverse digital transformation by partnering with a Chinese
multinational conglomerate to build the largest virtual reality gaming centre in Asia. To
date, the firm had gone through two digital transformations.
4.2.7 Case SsG: Marketing services
Case G was established as an online dating service when WeChat Mini Program was
first introduced in 2017. As one of the early adopters, the firm was facing significant traffic
flow issue. Accumulated experiences in managing traffic flow within WeChat ecosystem
repositioned Case G to become a niche marketing agency on WeChat mini program. The
founder has indicated that open innovation was critical to the transformation of the
business. The firm has built over 200 WeChat Mini Programs in the past two years
including e-commerce site, travel booking system, food delivery service, education
webinar, corporate management system, bike and car sharing service within WeChat mini
program. To date, the firm had gone through one digital transformation.
63
4.2.8 Case SsH: Development company
Case H is a development company that specialises in residential and commercial
projects in China. The firm was formed in 2008 and has created an extended portfolio of
six development brands. Addressing excessive capacity, the interior design brand has
entered virtual servicescape industry via major e-commerce marketplace providing online
interior design and furniture package. In 2015, 20 percent of its annual profit was
contributed from the online sector. The founder indicated that open innovation with e-
commerce platform allows them to revolutionise user experience by embracing drones,
virtual reality and augmented reality. To date, the firm had gone through two digital
transformations.
4.3 Cross-case analysis
Cross-case analysis examines themes, similarities and differences across and within
groups of cases (Yin, 2019). This section identified key patterns and themes related to the
research questions. The analysis was guided by research questions from the research
protocol, where questions were used to uncover insights related to capability development
for virtual service scapes. In the end, three conceptual themes were identified as critical
for the development of virtual service scapes which will be discussed next.
4.3.1 Research question one
Table 4.3 presents the research question, corresponding question from interview
protocol and the research focus of each question that designed to uncover how firms
build capabilities to meet market needs and what the firm technology and organisational
capability can provide. The following section presents the findings in relation to research
question one.
Table 4.3 Cross-case analysis: research question and key data sources Research Question Corresponding question Research focus
RQ 1: How do firms close capability gaps in the creation of virtual servicescape?
Q1, Q2 and Q3 Current firm focus in virtual servicescape
Q4 Identification of capability gap
Q4 and Q5 Capabilities and resources accumulated to overcome capability gap
Q6 Open innovation
64
Research question one incorporates three capability themes/constructs: dimension 1:
technical capability distance; dimension 2: market distance and dimension 3: business
model distance (Teece, 2018). Research question one also incorporated two resources:
resource 1: monetary and; resource 2: people (resources are not capabilities).
Table 4.4 presents key capability gaps firms facing with respect to the creation of
virtual servicescape. “Zero” indicates capability for new technologies that do not represent
a change for the case firm. “Near” indicates the current state of capability is closer to the
target state, meaning that the gap is relatively easy to close. “Medium” and “Far” mean
that the challenge the firm faces are quite radical, as the firm attempts to introduce new
technology, adopt new business model or expanding to a new market.
Table 4.4 Capability distances to new virtual servicescape
Three Dimensions of Capability Distance
Technology Business Model Market
GmA Medium Near Near
GmB Far Far Far
GsC Far Near Far
SmD Near Near Near
SmE Medium Near Medium
SsF Far Near Far
SsG Medium Far Medium
SsH Far Far Far
As shown in Table 4.4, technology distance was viewed as a “medium” to “far”
challenge for all firms except SmD. When it comes to business model, Internet-born firms
(GmA, GsC, SmE and SsF) found the transformation of revenue mechanism in virtual
servicecsape straightforward, while traditional businesses (GmB, SsG, SsH) regarded the
gap to be quite challenging. Market distance represents market opportunity, with all case
firms aware of the potentials in the virtual servicescape. GmA and SmD viewed their
market distance as ‘near’ because both businesses were already in the virtual business
paradigm. Goods oriented firm GmB and GsC viewed market gap as ‘medium’ whereas
service-oriented firms (SmE, SsF, SsG and SsH) as ‘far’. GmB and SsH were facing more
challenges than other firms with respect to developing new capabilities.
65
Business risk is associated with closing capability gaps and is multiplied with the
number of gaps to be closed. The further away the distance is from the traditional
capability set, the more uncertainty exists for the firm in relation to transformation. For
example, GmB had four out of five of their physical stores closed in one month as they
had to commit sufficient resources to support the transformation. Further, SsH had to
allocate large portion of the resources for learning such as hiring talent, foreign
cooperation and purchasing intellectual properties.
4.3.1.1 Dimension 1: Technical distance
Technical distance is to identify critical technological challenge that need to be
acquired or enhanced (Teece, 2019a). All firms were required to identify: (i) if it was
important for the firm to be continually address technical distance and (ii) something they
have done to address the technical distance in the creation of virtual servicescape.
As shown in column (I) of Table 4.5, four firms (GmB, SsF, SsH) viewed closing
technical distance to be “very important”. Three firms (GmA, GsC, SmE) indicated
“important”, while two firms (SmD, SsG) indicated as “moderate important”. All eight
firms (GmA, GmB, GsC, SmD, SmE, SsF, SsG, SsH) adopted open innovation in order
to address technological challenges in the creation of virtual servicescape creation.
On average, eight firms in this research consistently adopted website, social media
accounts, cloud computing and open innovation to address initial technical challenge
(GmA, GmB, GsC, SmD, SmE, SsF, SsG, SsH). Followed by augmented reality or virtual
reality, which was evident in six firms (GmB, GsC, SmE, SsF, SsG, SsH). In contrast,
only three firms (GsC, SmE and SsH) applied Internet of Things (IoT). Two firms (GmA
and SmE) engaged in machine learning. Case firm SsH applied drone technology and Case
firm SmF applied robotics technology.
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Table 4.5 Type of technical distance in virtual servicescape creation
Type of technical capability
Case
Web
site
, So
cial
M
edia
A
ccou
nts
(A)
Clo
ud
com
putin
g (B
)
Inte
rnet
of
Thin
gs (C
)
AR
or V
R
(D)
Dro
nes (
E)
Mac
hine
le
arni
ng (F
)
Rob
otic
s (G
)
Ope
n in
nova
tion
(H)
Leve
l of
impo
rtanc
e of
clo
sing
te
chni
cal
dist
ance
(I)
GmA √ √ - - - √ - √ I
GmB √ √ - √ - - - √ VI
GsC √ √ √ √ - - - √ I
SmD √ √ - - - - - √ MI
SmE √ √ √ - - √ - √ I
SsF √ √ - √ - - √ √ VI
SsG √ √ - √ - - - √ MI
SsH √ √ √ √ √ - - √ VI
Aggregate 8/8 8/8 3/8 5/8 1/8 2/8 1/8 8/8
Note: Column A to column H indicates technical capability from intermediate to advanced level. VI = Very important, I= Important, MI = Moderate important. Tick (√) = in-use, dashed line (-) = Non-use, bold font = Indicates very high levels of technical innovation.
Evaluation of dimension one: technical distance
Four key findings have identified from the data in relation to how firms address
technical distance: (1) Website, Social Media Accounts, (2) Cloud technology, (3)
Augmented reality and virtual reality and (4) Open innovation.
(1) Website and social media accounts to address data insufficiency
All eight firms (GmA, GmB, GsC, SmD, SmE, SsF, SsG, SsH) in this research
identified that in the initial phase of virtualisation: accessibility to data and online brand
awareness were the two major issues firms face. For example, GmA inferred the
importance of data:
“we cannot travel this far without data...without data, we won’t able to aim our
consumers precisely… one phase of our product developments is to analyse the data
from social media to predict consumer preferences…” (GmA)
When asked how these firm address data insufficiency issue, all eight firms (GmA,
GmB, GsC, SmD, SmE, SsF, SsG, SsH) in this research regarded social media and website
as a primary source for data collection. For example, GsC (customised skincare retailer)
and SsF (mixed reality gaming) indicated that listen to conversations on social media:
67
“we monitor every single review in the internet. Our customers are part of our product
development journey. They tell us what they want, and we execute on it. We have built a
consumer review organisation system that we monitor monthly.” (GsC)
Case SsH (virtual interior design) highlighted another insight that because each
social media platform includes a very different target audience cohort, in order for the
firm to collect high quality data, they have to alter their communication strategy to
encourage engagement. The firm deems social media as a potent tool for data collection:
“we had to create many social media accounts online to nurture the conversation
strategically across different platforms to educate consumers about our service in the
very beginning.” (SsH)
(2) Cloud computing to accelerate digital infrastructure
A firm’s digital infrastructure was identified as another influential factor in the
creation of virtual servicescape. All eight firms (GmA, GmB, GsC, SmD, SmE, SsF, SsG,
SsH) indicated that the adoption of cloud computing has accelerated the growth of
organisational infrastructure as well as innovations. For example, five firms (GmA, GsC,
SmE, SsF and SsG) adopted cloud platform with the goal to transform the existing
business model to be more customer-centric. For example, the owner of GsC noted:
“Cloud ultimately increases the agility and flexibility of the firm to respond to customer
needs. We adopted xxx cloud platform to encourage co-creation with customers.’ (GsC)
The rest three firms (GmB, SmD, SsH) applied cloud platform to increase the
efficiency of communication and to lower coordination cost between teams. These firms
were hoping to upgrade the existing infrastructure to be virtual friendly. For example,
SmD said
“the adoption of cloud computing accelerated the overall growth of the firm by
improving the productivity of employees, saving labour costs through elimination
wasteful manual tasks and attract talents.” (SmD)
(3) Augmented reality (AR) and Virtual reality (VR) to improve online consumer
experience
Five out of the eight cases (GmB, GsC, SsF, SsG, SsH) indicated that online
consumer experience was viewed as to be critical for virtual firms. These firms indicated
indicated that they have or had adopted either AR or VR or both in the creation of virtual
servicescape. The purpose of such attempt was to improve improve online consumer
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experience. Specifically, AR was evident in four cases (GmB, GsC, SsF, SsG); both AR
and VR were evident in two case firms (SsF and SsH).
GmB, GsC, SsF and SsG adopted AR in the pre-purchase phase of online consumer
journey to save cost, encourage consumer engagement and increase sales conversion. For
example, GmB used AR to perform virtual window measurement to generate cost
quotations. Similarly, SsH utilised AR to conduct virtual site visits to estimate budgets for
furniture, fixture, equipment and design fee structures. The owner of GmB said
“AR not only saved us so much labour cost but also quicken up the overall ordering
process. It is new and interactive. We found that even though some clients were not
interested in purchase our product. They are stilled attempted to download the Appl and
trial the function.” (GmB)
GsC, SsF and SsG applied AR into the product/service consumption phase to
improve the online customer experience. The owner of GsC said:
“as an internet company, we always aimed at customise consumer journey/experience.
Therefore, we used AR to help our users to find the right skincare products, translate
ingredients to Chinese and provide usage suggestion”. (GsC)
Case SsH used VR to showcase rendered images to cut down the time required in
the design and consultation phase with the client plus create an experience that separate
them from rivals in the online market, where Case SsF stated their business has used VR
to optimise gaming experience for their highly sophisticated players:
“we have a huge number of dedicated players in China region that willing to pay to
upgrade their gaming experience,’ ‘We have been working closely with our licensing
company to update our VR hardware, lighter weight, fewer cables and better visual and
audio quality.” (SsF)
(4) Open innovation to sense opportunities and manage unknown risks
All eight firms used open innovation to identify opportunities and manage unknown
risks (GmA, GmB, GsC, SmD, SmE, SsF, SsG, SsH). Firms used open innovation to
mitigate risk and deal with the uncertainty in ever changing market conditions in China.
For example, case GmA used open innovation for sensing and seizing opportunity in the
creation of virtual servicescape. The owner stated that: “we collaborate with the e-commerce platform to optimise the internal search algorithm
in order to make up our ranking. On other social media platforms, we always do product
69
collaboration with influencers and celebrity who have massive followings just to make
sure we have enough mentions in the hot topics” (GmA)
The owner of GmB, working with universities and other technology start-ups, stated
that ‘working with tech start-up opens up so many possibilities for us.’ Both SmE and
SsG relocated the firms to be physically close to the technology hub to encourage open
innovation, the owner of the SsG said: “we are very knowledgeable in our niche area, by collaborating, we actually increased
our brand awareness and shaped the firm to be more agile with changes.” (SsG)
(5) The level of importance of closing technical distance and company type.
As shown in Table 4.5, the findings suggest that brick-and-mortar firms during
virtual transformation face radical technological challenges in comparisons to new digital
native firms. Of all the eight firms, three firms perceived closing technical distance as
‘very important’ (GmB, SsF, SsH); another three firms perceived addressing technological
gaps as ‘important’ (GmA, GsC, SmE) and a further two firms indicated level of
addressing technology challenges as moderately important (SmD, SsG). Five companies
(GmA, GsC, SmD, SmE, SsG) were internet-based since inception and therefore did not
have to negotiate such a technological gap as these firms from inception were digital.
Three firms (GmB, SsF, SsH) indicated closing technical gaps as ‘very important’, these
firms are brick-and-mortar stores entering into virtual servivescape. The owner of SsH
said:
“We were like headless chicken in the beginning. The company was in chaos. We had to
hire another firm to step us through the transformation. It was just so different from
managing a physical store.’ (SsH).
Overall, four problems associated with technical distance were identified in the
creation of virtual servicescape, including: accessibility to data, lagged digital
infrastructure, poor online consumer experience and unknown technical risk. It was found
that (1) the creation and maintenance of website and social media accounts, (2) cloud
computing, (3) augmented reality (AR) and virtual reality (VR) and (4) open innovation
are critical to address the technical gap in the creation of virtual servicescape for SMEs in
China. The findings also indicate that firms (brick-and-mortar stores) outside of the
technology paradigm face more technical challenges (capabilities and resources aspects)
than the ones inside of the paradigm.
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Table 4.6 Supporting quotations for technical distance Case Code
Website, Social Media Accounts (A), Cloud computing (B), Augmented reality or Virtual reality (D), Open innovation (H)
GmA A: ‘we cannot travel this far without data.’ B: ‘cloud computing has improved overall productivity of our firm.’ H: ‘we open innovate with many different stakeholders, such as high-value customers, platforms, logistic centre and supply chain…’
GmB A: ‘that was the first thing I did when I took over the business from my father.’ B: ‘70% of our employees were made redundant under our transformation plan. We need new labour forces who understand cloud and are good at digital.’ D: ‘AR saved us so much labour cost and quicken the overall ordering process.” H: ‘working with tech start-up opens up so many possibilities for us.’
GsC A: ‘our customers are part of our product development journey. They tell us what they want, and we execute on it within couple days’ B: ‘Cloud ultimately increases the agility and flexibility of the firm to respond to customer needs. We adopted certain cloud platform to encourage co-creation with customers.’ D: ‘for internet company, the goal is always to customise experience and we used AR to help users find the right skincare products, translate ingredients to Chinese and provide usage suggestion.’ H: ‘our application was largely co-created with our customers. Their input was more important than the advice of our IT partner.’
SmD A: ‘we started from our weibo social media account, the interaction with our followers inspired us to build business’ B: ‘the adoption of cloud computing accelerated the overall growth of the firm by improving the productivity of employees, saving labour costs through elimination wasteful manual tasks.’ H: ‘our business grows together with our followers, over the years, we have also tapped into education, migration and family law areas and we cannot expand our business without collaboration.’
SmE A: ‘it took us more time to decide the social media profile of our product because a failed online profile signifies a failed business.’ B: ‘the early phase of virtualisation, the number of employees grew from five to 210 in a year, it was difficult for me to coordinate with contractor and external party. Cloud made coordination and collaboration easier.’ H: ‘marketing is not our specialty; therefore, we collaborate with external firms and contractors in this area to advance our game’
SsF A: ‘social media is no longer just a pretty face anymore. We have used it to understand our customers and their preferences to advance our service.’ B: ‘we do cloud system, but I don’t think this is a critical factor contributing to the business success’ D: ‘we have been working closely with our licensing company to update our VR hardware, lighter weight, fewer cables and better visual and audio quality.’ H: ‘as I mentioned earlier, alpha and beta testing is essential for us. We always involve our customers, engineers, and licensing company in the game development process to secure a better result.’
SsG A: ‘I don’t think we need to discuss the important of these, it is a must-have these days to survive in the new retail’ B: ‘I think every company should attempt to adopt cloud competing if they want to be future ready. The initial investment was painful, but it saves so much labour cost.’ H: ‘we are very knowledgeable in our niche area, by open innovation, we actually increased our brand awareness and shaped the firm to be more agile with changes.’
SsH A: ‘we had to create many social media accounts online to nurture the conversation strategically across different platforms to educate consumers about our service in the very beginning. B: ‘we paid for an external IT company to manage our digital infrastructure…our current design platform was designed by them and is a cloud platform… is not only user-friendly but also efficient.’ D: ‘we use VR to showcase rendered images to cut down the time required in the design and consultation phase with the client plus create an experience that separate them from rivals in the online market. H: ‘we really needed to build our reputation and awareness online, so we collaborated with a well-known online furniture company to expose our brand.’
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4.3.1.2 Dimension 2: Market distance
Market distance is used to understand how firms use the internet and technology to address
unmet consumer needs in virtual servicescape. Questions were related to: (i) identifying –
technologies or strategies firms have used to find out customers’ needs and wants (ii)
anticipating – technologies or strategies firms have used to predict sales and manage
production resources (iii) satisfying – something they have done to achieve online
customer satisfaction.
Table 4.7 Type of market capability in virtual servicescape creation
Type of market capability
Case
Iden
tifyi
ng
Ant
icip
atin
g
Satis
fyin
g
Leve
l of
impo
rtanc
e of
clo
sing
m
arke
t di
stan
ce (K
)
Cus
tom
er
serv
ice
(A)
Hig
h va
lue
cust
omer
s (B
)
Com
petit
ors
(C)
Live
-st
eam
ing
and
even
ts (D
)
Col
labo
ratio
n w
ith K
OL
(E)
Col
labo
ratio
n w
ith p
latfo
rm
(F)
Col
labo
ratio
n w
ith fa
ctor
y (G
)
Rev
iew
m
anag
emen
t (H
)
Offl
ine
pop-
up st
ores
(I)
Supp
ly c
hain
ef
ficie
ncy
(J)
GmA √ √ - √ √ √ √ √ √ √ VI
GmB √ - √ √ √ √ - - √ √ I
GsC √ √ - √ √ √ √ √ - - VI
SmD - - √ - - √ - - √ - VI
SmE √ - - √ √ √ √ √ √ - VI
SsF - √ √ √ √ √ √ √ √ - I
SsG - - - - - √ √ √ √ - VI
SsH √ √ √ √ √ √ √ √ √ - I
Aggregate 5/8 4/8 4/8 6/8 6/8 8/8 6/8 6/8 7/8 2/8
Note: Column A to column J indicates market capability from identifying to satisfying. Column K indicates the level of important of closing market gap, VI = Very important, I= Important, MI = Moderate important. Tick (√) = in-use, dashed line (-) = Non-use, bold font = Indicates very high levels of market innovation.
Evaluation of dimension two: market distance
As presented in column (K) of Table 4.7, closing market distance was viewed to be
‘very important’ in virtual servicescape by five firms (GmA, GsC, SmD, SmE, SsG) and
‘important’ in three firms (GmB, SsF, SsH). Column A to D were solutions used by case
72
firms for identifying consumer needs. Six firms (GmA, GmB, GsC, SmE, SsF, SsH)
signified that online live-streaming and virtual events (D) were the go-to option for them
to identify consumer needs. For example, two firms (GmA, GsC and SsF) used live
streaming to test product viability in the product development phase, one firm (GmB) used
live streaming prior to product launch to increase exposure, and the others (SmE, SsH)
paid live streamer to feature product education to trigger consumer needs. Five firms
(GmA, GmB, GsC, SmE, SsH) viewed the analysis of online customer service script (A)
to be the second most important solution for closing market distance. For example, these
firms collected live chat script either on a daily or weekly basis to analyse consumer needs.
Some firms performed the analysis using artificial intelligence and the others via manual
information processing. Column E to G were solutions related to anticipation on consumer
demands. It was recognised by eight firms that collaboration with the platform was the
key to anticipate sales and manage manufacturing resources. Working with the platforms
means exclusive assess to knowledge. Column H to J were solutions used by case firms
to address consumer satisfaction. Offline pop-up store (I) was highlighted by seven firms
(GmA, GmB, SmD, SmE, SsF, SsG, SsH), followed by review management (H), six firms
(GmA, GsC, SmE, SsF, SsG, SsH).
Evaluation of market distance
The data presents three key findings of market distance: (1) identifying consumer
needs and wants by live streaming and online events, (2) anticipating sales and resource
management by working with platform, (3) achieving consumer satisfaction by offline
pop-up stores.
(1) Identifying consumer needs and wants by live streaming and online events
A total of six firms (GmA, GmB, GsC, SmE, SsF, SsH) signified that online live-
streaming events (D) was the go-to option for identify consumer needs in virtual
environment. Two type of needs emerged: product needs and service needs. Goods-
oriented firms GmA, GmB and GsC reported actively using live streaming platforms
almost on daily basis to assess consumer product needs and create business opportunity.
The owner of GmA stated:
“we launched live-steaming a year ago. We have established live streaming routine with
our customers: Monday is fashion preview and pre-sale, Tuesday is fashion modelling
with the goal to reach new customers, Wednesday is weekly special, Thursday is for
logistic updates and chitchatting. Our product design team talks to our customers via
73
live streaming to understand what they want. Live streaming is currently the most
important content creation for our marketing department. 25% of the sales came from
live streaming.” (GmA)
GmB highlight that the role of live streaming in creating business opportunities.
The CEO of GmB stated:
“we will not be able to grow this fast and strong without listening to our audience online.
Live streaming is a perfect platform for us to listen and engage. We started from selling
just curtains online, we show them how to choose curtain and other soft decoration
techniques. Turned out, our audience also liked the furniture and bed sheets we featured
in live streaming. You know, two weeks later, we started to sell bedsheets with a small
margin, we received more than 10,000 orders in two hours. Small margin did not seem
so small anymore.” (GmB)
Service oriented firms SmE, SsF and SsH used live streaming on weekly basis,
which is less frequently than goods-oriented firms. Service firms stated that they used live
streaming as an information platform to educate their consumers to increase their needs.
All three firms stated that unlike goods-oriented firms, they do not host live steaming
themselves as they do not have the marketing capacity. SmE commented:
“we pay professional live streamers to feature our experience on their channel because
online customers would trust them more than us. Live streamers in China invest to build
a trusting relationship with their viewers. The higher the trust rating, the easier for the
streamer to sell. We also work with leading education live streaming platforms to
advertise our product.” (SmE)
Similarly, SsH pays streamers to feature online interior design service on their
channel, however, the owner added that:
“the downside of not developing its own live streaming capability is that the firm cannot
respond to consumer needs spontaneously and there is always a lag to see the effect
kicking in. Therefore, our marketing department will be aiming to develop brand live-
streaming skills in the next two years.” (SsH)
Same issue was also being raised by SsF, the firm was in the process of cultivating
their own influencers. They had launched a campaign with a leading live streaming site
for online gaming, handpicked five gaming key opinion leaders who matched the image
of the organisation to develop gaming content and expand brand reach.
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(2) Anticipating sales and resource management by working with platforms
The data indicated that all firms in this research displayed high level of engagement
behaviours with third parties to predict sales and manage production resources. Not only
goods-oriented but also service-oriented firms highlighted the importance of working with
platform. The most emphasised advantage by medium sized firms was related to product
or service ranking optimisation. Each platform has its own algorithm that influencing
product search rankings, by working with the platform, they would have unique access to
knowledge regarding to the firm’s current position and therefore, develop strategies to
optimise ranking position. The owner of GmA stated:
“do not think platform is just an online environment. Think the platform as a country.
(Platform) has 299 millions of daily active users. By working with them, I can leverage
their advantage to scale up my business.” (GmA)
Some firms (GmA and GmB) also highlighted working with platform allows them
to capture emerging consumer trend earlier than others. The owner of GmB commented
that:
“we have to be agile to claim market share. Therefore, to be able to identify consumer
trends faster than our competitors will improve long-term viability our business.” (GmB)
Another advantage being mentioned was order fulfilment by the platform centre
(GmA, GsC, SmE). SmE stated that:
“our fulfilment capability is considerably weak. Let the platform take over this process
means that the platform will ensure the highest quality shopping experience and
aftercare service. We also found out that our customer conversation rate is higher when
we partner with them (platform).” (SmE)
Small sized business (GsC, SsF, SsG, SsH) reported working with platforms helps
them to gain access to first-hand knowledge and resources that could be helpful to
overcome business hurdles but costly. The owner of SsH stated that:
“we used platform to kick start our virtual servicescape transformation. I needed their
expertise, capabilities and resources to build a solid foundation for my virtual business.
It was an expensive set up, but it was the right thing to do.” (SsH)
Similarly, SsG highlighted that working with platforms effective, yet costly:
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“currently we only work with platforms for our clients. It is definitely more costly but the
amount of information and data the platform can provide us is rigorous and quality.’
(SsG)
Interestingly, small business (GsC, SsH) also developed solutions to address the
limitation of cost. SsH highlighted that small business has limited data processing
capability. Therefore, small businesses are more strategic with paying for data. GsC said
that:
“We are only a small start-up firm and we could not afford to access platform resource
all the time. We closely follow the movement of industry leaders and their competitors
on the platform. Currently, we are looking at about 45 skincare leading brands. When
you only follow one competitor brand, it is hard to see the trend but when you follow 45
brands and 14 of them are changing the way they describe product information. I know
it is time for us to catch up.” (GsC)
Overall, medium sized firms working with platforms to increase access to new
knowledge and opportunities to perform mid-to-long run forecasts, which ultimately
contributes to the growth and the development of the firm. However, small business’s
focus is more short-term oriented on problem solving.
(3) Achieving consumer satisfaction by offline pop-up stores.
Seven out of eight case firms in this research identified offline pop-up store to be
important in achieving online consumer satisfaction (GmA, GmB, SmD, SmE, SsF, SsG,
SsH). GsC was the only firm did not adopt offline pop-up store but expressed that the
brand would consider pop-up store in its future plan. The word ‘new retail’ appeared
repeatedly in the interviews. All firms highlighted that the future of online shopping
experience is inseparable from physical stores. For example, the CEO of GmA said:
‘moving towards, pop-up store will be an essential extension of our online
business.’ (GmA)
Similarly, Case firm SsH added that offline pop-pup store should not be a simple
new retail channel but rather about a new experience. SmB also indicated offline pop-up
stores are a strategic advantage of their business as the perceived risk of purchasing
products is largely reduced:
“we are redesigning the current service process to be more inclusive with offline pop-
up stores. This is a strategic move, as I believe offline pop-up will become a critical point
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of connecting virtual and physical. If we can pull this off, I think offline pop-up stores
will contribute significantly to sales.” (GmA)
Regardless service-oriented or goods-oriented firms, offline location and store
design of the pop-up store was of strategic importance for attracting and retaining
customers. For example, a triangle rule was applied by GmA:
“the location of the store based on two post codes of frequent purchase areas and the
shopping centre with the most foot traffic.” (GmA)
GmB redesigned their offline pop-up store to accommodate the characteristics of
online shoppers, as online shoppers are often very visual:
“social media factor was considered into redesigning our store – every single corner of
the store needs to be instagrammable.”’ (GmB)
Both SmE and SsH relocated to be closer to its major consumer group. This benefits
the company in increasing brand image and capture sales. SsH commented that
‘the new office location was purchased in the busiest location of Guangzhou to simulate
online consumer drop-in experience.’ (SsH)
The second theme emerged from the pop-up store was timing. All virtual firms
opened offline pop-up store during holiday and sale seasons. Case firm SmE adopted
offline pop-up store during school holiday in a local library to increase digital brand reach
and awareness:
“kids love our product so much, so our pop-up store was set up in library during school
holiday. We were hopping our potential target audience would bring the product
awareness to their parents.” (SmE)
Social media firm SmD promoted their social media account and service during
orientation weeks and holiday seasons in airports to increase follows. The owner stated
that offline pop-up stores was one of the most effective method to gain new and quality
followers. In virtual servicescape, the quality of followers directly influences the
effectiveness of campaign performance.
Another theme emerged from the interview was functionality of the pop-up store.
All case firms indicated that pop-up store is to improve consumer shopping experience in
three ways: interactive, educational and personalisation. Mixed reality gaming SsF used
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pop-up store as a teaser to attract potential audience to its flag store. GmA commented on
integrated and personalised experience in their pop-up store:
“we have fashion associates armed with iPad in our pop-up stores. When a customer
walks in our store, she will be advised to scan a QR code. Our system will then match
this customer to one of our fashion consultants according to her age, preferences and
gender. If the customer had a great experience with this consultant, she can star this
consultant for future. All her enquires from product availability to delivery to refund will
be handled by the same consultant for a customised experience.” (GmA)
SmE described their offline pop-up experience to be unique and exclusive. Apart
from product demos, the business also provided on-site tutorial sessions teaching kids and
adults how to film, create music and write creatively using their devices.
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Table 4.8 Supporting quotations for market distance Case Code
Live-steaming and events (D), Collaboration with platform (F), Offline pop-up stores(I)
GmA D: ‘we launched live-steaming a year ago. We have established live streaming routine with our customers: Monday is fashion preview and pre-sale, Tuesday is fashion modelling with the goal to reach new customers, Wednesday is weekly special, Thursday is for logistic updates and chitchatting. Our product design team talks to our customers via live streaming to understand what they want. Live streaming is currently the most important content creation for our marketing department. 25% of the sales came from live streaming’ F: ‘do not think platform is just an online environment. Think the platform as a country. (Platform) has 299 millions of daily active users. By working with them, I can leverage their advantage to scale up my business.’ I: ‘we have fashion associates armed with iPad in our pop-up stores. When a customer walks in our store, she will be advised to scan a QR code. Our system will then match this customer to one of our fashion consultants according to her age, preferences and gender. If the customer had a great experience with this consultant, she can star this consultant for future. All her enquires from product availability to delivery to refund will be handled by the same consultant for a customised experience’
GmB D: ‘we will not be able to grow this fast and strong without listening to our audience online. Live streaming is a perfect platform for us to listen and engage. We started from selling just curtains online, we show them how to choose curtain and other soft decoration techniques. Turned out, our audience also liked the furniture and bed sheets we featured in live streaming. You know, two weeks later, we started to sell bedsheets with a small margin, we received more than 10,000 orders in two hours. Small margin did not seem so small anymore.’ F: ‘We have to be agile to claim market share. Therefore, to be able to identify consumer trends faster than our competitors will improve long-term viability our business.’ I: ‘social media factor was considered into redesigning our store – every single corner of the store needs to be instagrammable.’
GsC D: ‘we just started live-streaming two months ago. It is a lot of work for a small firm. We are still at the stage creating good contents to attract followers but we do find live-streaming helps sales.’ F: ‘We are only a small start-up firm and we could not afford to access platform resource all the time. We closely follow the movement of industry leaders and their competitors on the platform. Currently, we are looking at about 45 skincare leading brands. When you only follow one competitor brand, it is hard to see the trend but when you follow 45 brands and 14 of them are changing the way they describe product information. I know it is time for us to catch up.’
SmD I: ‘followers are directly associated to our campaign performance. It is getting more and more expensive to attract followers, so we have to be smart about it and so far offline was one of the most effective method to gain new followers’
SmE D: ‘We pay professional live streamers to feature our experience on their channel because online customers would trust them more than us. Live streamers in China invest to build a trusting relationship with their viewers. The higher the trust rating, the easier for the streamer to sell. We also work with leading education live streaming platforms to advertise our product.’ F: ‘our fulfilment capability is considerably weak. Let the platform take over this process means that the platform will ensure the highest quality shopping experience and aftercare service. We also found out that our customer conversation rate is higher when we partner with them (platform).’ I: ‘kids love our product so much, so our pop-up store was set up in library during school holiday. We were hopping our potential target audience would bring the product awareness to their parents.’
SsF D: ‘we are currently in the process of cultivating our own brand live streamers with a gaming site.’ I: ‘pop-up store acts as a teaser to attract potential audience to our flag store.’
SsG D: - F: ‘currently we only work with platforms for our clients. It is definitely more costly but the amount of information and data the platform can provide us is rigorous and quality.’
SsH D: ‘the downside of not developing its own live streaming capability is that the firm cannot respond to consumer needs spontaneously and there is always a lag to see the effect kicking in. Therefore, our marketing department will be aiming to develop brand live-streaming skills in the next two years.’ F: ‘we used platform to kick start our virtual servicescape transformation. I needed their expertise, capabilities and resources to build a solid foundation for my virtual business. It was an expensive set up, but it was the right thing to do’ I: ‘the new office location was purchased in the busiest location of Guangzhou to simulate online consumer drop-in experience.’
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4.3.1.3 Dimension 3: Business model distance
The last concept to be addressed in RQ 1 is the business model dimensions. This
dimension is used to understand how a firm actively aligns business model to a changing
environment or innovate to disrupt market conditions (Saebi, Lien & Foss, 2017; Teece,
2017). All firms were asked questions related to business model transitions: (i) drivers of
business model adaption or innovation, (ii) difficulties of managing business model
adaption or innovation (iii) facilitators of business model adaptation or innovation.
Table 4.9 Type of business model adaption capability in virtual servicescape creation Type of business model adaption
Case
Driv
ers o
f bu
sine
ss
mod
el
adap
tion
and
inno
vatio
n
Diff
icul
ties
in m
anag
ing
busi
ness
m
odel
ad
aptio
n an
d in
nova
tion
Faci
litat
ors
of b
usin
ess
mod
el
adap
tatio
n an
d in
nova
tion
Leve
l of
impo
rtanc
e of
clo
sing
bu
sine
ss
mod
el
dist
ance
(K)
Con
sum
er
need
s (A
)
Tech
nolo
gy
(B)
Reg
ulat
ion
(C)
Supp
liers
(D)
Low
s kill
&
know
ledg
e (E
)
Lagg
ed
digi
tal
infra
stru
ctur
e (F
) U
nsup
porti
ve
com
pany
cu
lture
(G)
Lear
ning
ac
tiviti
es (H
)
Com
pany
cu
lture
(I)
Supp
ly c
hain
(J
)
GmA √ √ √ - √ - - √ - √ MI
GmB √ √ √ - √ √ √ √ - √ MI
GsC √ - √ √ √ - - √ - √ MI
SmD √ - √ √ √ √ - √ √ - I
SmE √ - √ - √ √ - √ √ - MI
SsF √ √ √ √ - √ - √ √ - MI
SsG √ - √ - - - √ √ √ - I
SsH √ √ √ √ √ √ √ √ √ - MI
Aggregate 8/8 4/8 8/8 4/8 6/8 5/8 3/8 8/8 5/8 3/8
Note: Column A to column D indicates drivers of business model adaption. Column E to column G indicates difficulties of managing business model adaption. Column H to column J indicates facilitators of business model. Tick (√) = in-use, dashed line (-) = Non-use. Column K indicates the level of important of closing business model gap, VI = Very important, I= Important, MI = Moderate important.
Evaluation of dimension three: business model distance
As presented in column (K) of Table 4.9, closing business model distance was
viewed to be ‘moderately important’ in virtual servicescape by six firms (GmA, GmB,
GsC, SmE, SsF, SsH) and ‘important’ in three firms (GmB, SsF, SsH). Column A to D
highlights four main drivers for these firms for business model adaption and innovation.
All firms (GmA, GmB, GsC, SmD, SmE, SsF, SsG, SsH) signified that consumer needs
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(A) and regulations (C) were the change drivers to their organisations. Column E to
column G presents the difficulties of managing business model adaption and innovation.
Six out of eight firms (GmA, GmB, GsC, SmE, SsH) viewed the lack of technical skills
and knowledge in virtual servicescape as the major barrier for closing the business model
gap. Column H to column J presents three facilitators for business model adaption and
innovation. Learning activity was actively pursued by all eight firms in addressing the
difficulties.
Evaluation of business model distance
The following section highlights three key findings in relation to business model
adaptation and innovation. Namely: (1) consumer needs and regulation to drive business
model adaption and innovation; (2) the lack of technical skills and knowledge of virtual
servicescape operation as the primary barrier for managing business model adaption and
innovation; (3) embedded learning activities to facilitate the business model transitions.
(1) Consumer needs and regulation to drive business model adaption and innovation
All eight firms (GmA, GmB, GsC, SmD, SmE, SsF, SsG, SsH) in this research
indicated that consumer needs and regulation changes were the two main drivers that lead
to the revision of existing business model. One quotation by the owner of SsH
demonstrated this:
“I always tell my employees two follows: follow the regulations to survive and follow the
consumer needs to thrive.” (SsH)
This was unsurprising, given the sample of data collection was Chinese firms. No
firms were frustrated with the regulatory environment in China. In fact, all firms saw the
China’s regulatory environment optimistically as an opportunity to grow its market share.
“Conducting business in China is like playing an elimination game. If the firm cannot be
flexible with the environment, the firm is out. For us, this is a great news because one
more competitor is gone” (GmB)
Two firms (SmE, SsF) leveraging on exclusive overseas intellectual properties
claimed that they respect the rule of law in China, as without the support of government,
the business would not exist; ‘without the regulation supports, we were not be able to
grow at this speed. It is a win-win situation for overseas companies too.’ China’s
regulatory environment largely shapes its market and the way business is conducted.
Businesses are forced to be creative and adaptive in the market through continuous
81
resources and capabilities orchestration in order to survive and thrive. Therefore, it seems
that dynamic capability is already rooted since the establishment of virtual business. The
evolvement of business model should always foster innovation. GmA explained:
“A future proof business model in China is the one that engages with the government
and adjusts upon changes in a fast and efficient operational manner.” (GmA)
It is also found that some business sectors are more sensitive to environmental
changes than the others. Therefore, the sustainability of business model needs to be
industry specific and engineered to reflex response to environmental changes. This was
highlighted by business owner of SmD:
“some sectors are likely to be affected by regulatory changes, but some are not. We always stay
close to our friends to access to insider tips.” (SmD)
All eight firms (GmA, GmB, GsC, SmD, SmE, SsF, SsG, SsH) had stressed there
were four secret ingredients when it comes to business model innovation: customer,
product, service and supply chain. Consumer needs shaped the formation of value
proposition, which ultimate impacted the product feature, supplementary services and
supply chain to deliver the value proposition that satisfies customer needs. For example,
GsC stressed the importance of customer needs by stating:
“a business will not be able to head in the right direction without recognising consumer needs.”
GmB attempted various strategies to resonate with its consumers on a deeper level
to reach a new degree of brand intimacy and explore value propositions of targeted
customer segments. The firm committed a significant investment on social listening to
understand consumer perception of the brand and leveraging on the information, the firm
incubated a number of influencers that appeal to the customer segment to drive
sales:“consumers are the most precious resources a firm can leverage.”
Mixed reality gaming company also highlighted the importance of customers in
business model adaption, SsF:
“a good social conversation experience with one of our consumers allows us to create a
positive connection. The ultimate goal of creating connection (with consumers) is to
cultivate a group of highly engaged customers who act as brand ambassador. They (the
connections) are imperative to maintain and grow market share in virtual servicescape.”
(SsF)
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Further, identifying customer needs was used interchangeably with sensing
opportunity and threat by case firms in this research. For example, GmB explained,
‘I felt like the ability of being able to meet their needs is already a competitive advantage
of our business.” (GmB)
(2) Lack of technical skills and knowledge of virtual servicescape operation as the
primary barrier of managing business model adaption and innovation
The lack of technical skills and knowledge of virtual servicescape was recognised
as the primary barrier in updating an existing business model in virtual servicescape by
six case firms (GmA, GmB, GsC, SmD, SmE, SsH) in this research. Other difficulties
including company culture not having appropriate support for innovation (GmB, SsG, SsH)
and lagged digital infrastructure (GmB, SmD, SmE, SsF, SsH) that appeared in several
interviews. A lack of technological knowledge from leaders created challenges for
adaption of business modes. For example, case firm GmB noted that:
“my father had a very pessimistic attitude towards technologies. He refused to embrace
it for at least two or three years. By the time when I took over the business, we were at a
very passive state – waiting for customers to walk in the store.” (GmB)
Similarly, case firm SsH, said that:
“my business instincts told me I should start investigating how to use technology to
improve workplace productivity. I thought it would be fine to pay someone to lead the
virtual transformation. Turned out, my technological ignorance costed the business a
fortunate. I felt like the whole company was working for the system than the other way
around. It was after two digital infrastructure failures, I decided to learn technologies
myself. It sounded very vague but conducting business in digital world is different from
physical businesses.” (SsH)
Case firm GmA emphasised the importance of digitally minded leadership in
cultivating business model innovation:
“business logic is completely different from IT logic. When we decided to upgrade our
digital infrastructure, no tech firms had the system we needed. I negotiated with the tech
firm that we would use their systems under the condition they offer us exclusive support
to modify system over the period of three years.” (GmA)
When asked to define digitally minded leadership, the owner of GsC said:
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“a leader would say let us invest more money in digital marketing. A digitally minded
leader would say let us try to digitalise consumer skin care application process, see if
we could find any opportunity to capitalise. Can we convert our consumer habits from
single purchase to continuous subscription? We need to leverage on digital technologies
to make money.” (GsC)
Furthermore, having digitally inexperienced frontline staff impedes the virtual
transformation especially in the later transformation process. The business owner of GmB
said
“our business reputation suffered in the beginning when we first entered into virtual
servceiscape. My dad persisted to keep our long-term employees who he hired a decade
ago. They were the loveliest customer service staff in a physical retail store where face-
to-face communication was required. They found virtual selling extremely challenging
as they could not see them, and they were slow typers. They were slow with the system
too. Their lack of understanding in logistic and supply chain also generated many
shipment problems. All of these lead to a decrease in online consulting satisfaction,
which ultimately impacted our sales and reputation online.’ (GmB)
A similar experience happened with case SsH, the owner said ‘many firms in the
architectural design industry always try to avoid fresh graduates but he disagrees.
University graduates are fast and quick in adaptation.’ Therefore, based on the foregoing
line of evidence, it seems reasonable to suggest that the digital skillsets of frontline staff
is important to achieve business model innovation.
(3) Embedded learning activities to facilitate the business model transitions
Fundamentally all firms emphasised learning activity as a critical component in the
innovation stage of the process. All firms highlighted there were resource given to certain
level of staff for professional development. For example, the founder of GmA noted:
“we fly our design team and marketing team to fashion weeks every single season in
different countries for inspiration and content production, without being exposed to the
fashion culture and environment, they will not be motivated to change.” (GnA)
The social media firm SmD adopted google education for their staff in mainland
China, cultural learning was critical for the success of our business. The reason why we
could success was that we have taken cultural education carefully. Without understanding
the local culture, the editors will not be able to reproduce contents that resonate with local
consumers:
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“we wanted to keep the cost down, so we relocated to an university cluster in China to
access more affordable talents. It was extremely hard to recreate culture, so we
subscribed VPN, education tools and newspaper for them so that they can fully explore
overseas environment.” (SmD)
Such learning approach whereby technologies helps to facilitate customer and
market knowledge assisted the firm in addressing market capability gaps during the
transformation process. Asymmetrical information access is prevalent within China as
quality information is hard to gain so firms have to be creative in how they build
knowledge base. For example, owner of SsG mentioned that:
“I love hiring overseas graduates because they always bring fresh insights or
technologies back home. I think people from overseas are really good at creating
algorithms or applications, but they don’t know how to capitalise on it. For example. We
are the first firm in China adopted HTML5 banner ad and animation and interactive
content to Wechat.’(SsC)
Case firm SmE and SmD participated in career fairs in Canada and Australia to
access overseas talents. Case firm GmA co-created a customised learning system with a
third-party IT firm to improve learning experience for internal staff.
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Table 4.10 Supporting quotations for business model distance Case Consumer needs (A); Regulation (C); Lack of technical skill & knowledge (E); Learning activities (H)
GmA A & C: ‘A future proof business model in China is the one that engages with the government and adjust upon changes in a fast and efficient operation manner.’ E: ‘business logic is completely different from IT logic. When we decided to upgrade our digital infrastructure, no tech firms had the system we needed. I negotiated with the tech firm that we would use their systems under the condition they offer us exclusive support to modify system over the period of three years.’ H: ‘we fly our design team and marketing team to fashion weeks every single season in different countries for inspiration and content production, without being exposed to the fashion culture and environment, they will not be motivated to change’; we have created a learning platform available for all staff.’
GmB A: ‘attempted various strategies to resonate with its consumers on a deeper level to reach a new degree of brand intimacy and explore value propositions of targeted customer segments. We committed a significant investment on social listening to understand consumer perception of the brand and leveraging on the information, the firm incubated a number of influencers that appeal to the customer segment to drive sales; consumers are the most precious resources a firm can leverage.’ C: ‘Conducting business in China is like playing an elimination game. If the firm cannot be flexible with the environment, the firm is out. For us, this is a great news because one more competitor is gone; Conducting business in China is like playing an elimination game. If the firm cannot be flexible with the environment, the firm is out. For us, this is a great news because one more competitor is gone!’ E: ‘our business reputation suffered in the beginning when we first entered into virtual servceiscape. My dad persisted to keep our long-term employees who he hired a decade ago. They were the loveliest customer service staff in a physical retail store where face-to-face communication was required. They found virtual selling extremely challenging as they could not see them, and they were slow typers. They were slow with the system too. Their lack of understanding in logistic and supply chain also generated many shipment problems. All of these lead to a decrease in online consulting satisfaction, which ultimately impacted our sales and reputation online’
GsC A: ‘a business will not be able to head in the right direction without recognising consumer needs.’ E: ‘a leader would say let us put more money in digital marketing. A digitally minded leader would say let us digitalise the consumer skin care process by introducing an application that requires continuous subscription. It is a tech-way to make money’
SmD C: ‘some sectors are likely to be affected by regulatory changes, but some are not.’ H: ‘we wanted to keep the cost down, so we relocated to university cluster in China to access more affordable talents. It was extremely hard to recreate culture, so we subscribed VPN, education tools and newspaper for them so that they can fully explore overseas environment.’; ‘we are quite actively in career fair in Australia’
SmE C: ‘our reliance on government was heavy since establishment.’ H: ‘We have a team of engineers from Canada.’
SsF A: ‘a good social conversation experience with one of our consumers allows us to create a positive connection. The ultimate goal of creating connection (with consumers) is to cultivate a group of highly engaged customers who act as brand ambassador. They (the connections) are imperative to maintain and grow market share in virtual servicescape.’ C: ‘without the regulation supports, we were not be able to grow at this speed. It is a win-win situation for overseas companies too.’
SsG H: ‘I love hiring overseas graduates because they always bring fresh insights or technologies back home. I think people from overseas are really good at creating algorithms or applications, but they don’t know how to capitalise on it. For example. We are the first firm in China adopted HTML5 banner ad and animation and interactive content to Wechat.’
SsH A & C: ‘I always tell my employees two follows: follow the regulations to survive and follow the consumer needs to thrive.; I always tell my employees two follows: follow the regulations to survive and follow the consumer needs to thrive’ E: ‘my business instincts told me I should start investigating how to use technology to improve workplace productivity. I thought it would be fine to pay someone to lead the virtual transformation. Turned out, my technological ignorance costed the business a fortunate. I felt like the whole company was working for the system than the other way around. It was after two digital infrastructure failures, I decided to learn technologies myself. It sounded very vague but conducting business in digital world is different from physical businesses; many firms in the architectural design industry always try to avoid fresh graduates but he disagrees. University graduates are fast and quick in adaptation.’
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4.4 Research Question Two
Table 4.11 presents the research question two, corresponding question from
interview protocol and the research focus of each question designed to answer how sensing,
seizing and transforming are being managed to achieve organisational agility in the
creation of virtual servicescape. Secondary sources including websites, social media and
reviews of virtual firms were also drawn upon. Research question two incorporates three
higher order capabilities for firms to create and sustain competitive advantages in virtual
servicescape: dimension 1: sensing capability; dimension 2: seizing capability and
dimension 3: transforming capability (Teece, 2018a).
Table 4.11 Cross-case analysis: research question two and key data sources Research Question Corresponding question Research focus
RQ 2: How sensing, seizing and transforming are being managed to achieve organisational agility in the creation of virtual servicescape?
Q4, Q7 and Q8
Competitive advantage of the firm and dynamic capabilities strategies over the years
Q5, Q7 and Q8 Sensing and seizing strategies
Q7, Q9 and Q10 Managerial orchestration and transforming strategies
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4.4.1 Dimension One: Sensing capability
The first capability to be addressed was sensing capability. As a higher-order
capability, all firms were asked to identify (i) resources and capabilities the business had
done to build sensing capability for opportunity discovery and creation. Their responses
were summarised in figure 4.12.
Figure 4.12 Building sensing capabilities
As shown in 4.12, a series of factors pivotal for building sensing capabilities were
identified by case firms (GmA, GmB, GsC, SmD, SmE, SsF, SsG, SsH). The process of
sensing is realised through two steps: accessing information and the ability to sense
opportunities (Teece, 2007). In virtual servicescape, the mechanism of sensing
opportunity is harnessing the wisdom of crowds by building a decentralised organisation
structure. ‘Sensing is very much a task for everyone involved in our business from
customer to design to supply chain’ said by owner of GmA. Accessing information is
equally important as sensing opportunity. Almost all firms emphasised information
processing capabilities were essential in sales and marketing as these were critically
important. For example, The CEO of GsC pointed out that there is a distance between
information and opportunity:“we have a beauty consultant who has years of experience in
skincare and cosmetics industry. She is really good at spotting needs and part of her job
Building sensing
capability
Customer -engagement capability
Competitor -monitoring capability
Suppliers - on demand
manufacturing capability
Sales & Marketing -
info processing capability
R&D -knowledge
learning capability
IT - algorithem and analytical
capability
CEO -networking capability
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is to update me with the changes she sees. Beneath needs is an opportunity to
commercialise. With her information, I created an excel sheet listing technological needs
in cosmetics and skincare industry but only identified three commercialising
opportunities.” The quality of online information played a critical role in influencing the
opportunity for virtual firms. Five firms (GmA, GmB, GsC, SmD, SsF) were relying on
feedback from customers and suppliers to identify opportunity in virtual servicescape.
“We always prioritise information coming from customer reviews and supplier. We have
rewarding system in place to encourage to have their say” ( GmA). Four firms (SmE, SsF,
SsG, SsH) invested heavily on nurturing CEO’s networking capability. For example, the
co-owner of SsF, came from a background of online gaming and worked in a state-run
organisation in the area of press and publication, relied on traditional guanxi networks to
facilitate access to information for opportunity recognition. Three firms (GmA, SmD, SsG)
relocated to innovation and technology zones to speed up the sensing process by
monitoring competitor’s movement: “By staying in the cluster, we can anticipate
competitor’s change faster, which ultimately quickens business virtual transformation
such as identifying new market or service upgrade” SmD also highlighted the importance
of strategic location in a volatile environment in terms of strengthening innovation
capabilities: “we rely upon a favoured location in the cluster so that we establish stronger
external ties that helps us to locate information, stimulate innovation and build resources
over time.” Analytical capability also emerged as a theme from the interviews. Seven firms
invested heavily in advancing the firm’s capability in predictive analytics. For example,
“I often say we are more of a data company then a fashion label. We use data scientifically
to predict fashion trend for product design and development”. The owner of SmE
indicated ‘analytical skills is the superpower for virtual business. We only hire people who
worked in the internet and IT industry to fill this skillset gap.’ The CEO of SsH noted that
‘data gives us insights to optimise business performance.’
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4.4.2 Dimension Two: Seizing capability
The second capability to be addressed was seizing capabilities. As a higher-order
capability, all firms were asked to identify resources and capabilities that the business used
to build seizing capability for opportunity exploitation. Their responses were summarised
in figure 4.13.
Figure 4.13 Building seizing capabilities
As shown in 4.13, a series of capabilities pivotal for building seizing capabilities
were identified by case firms (GmA, GmB, GsC, SmD, SmE, SsF, SsG, SsH). Similar to
sensing, the process of seizing opportunity is not just realised opportunities through senior
management identifying but taking advantage of opportunity across the entire corporate
hierarchy. In virtual servicescape, open innovation or crowd sourcing was frequently
adopted by all case firms to build its seizing capability. For example, case firm GmA
engaged with high value customers in clothing design phase to impact product
development; “including high value customers in our design phase allows us to propel
our brand success which is important for SEO ranking in virtual market.” The same firm
also worked with international renowned fashion designers to create capsule collections
to strengthen its brand equity in virtual servicescape; ‘brand equity is another asset we
are trying to build over time.’ Case firm GsC handpicked 250 highly engaging members
in user communities to co-determine which features should be developed for the mobile
Building seizing
capability
Customer -co-creation capability
Transformation team -
coordination capability
HR - talent managment capability
Sales & Marketing -
market research
capability
R&D -innovation capability
IT - aligning digital
infrastrcuture and system
CEO -leadership capability
90
app and mini program; “it is rare for a product-oriented company to tap into service.
However, I think this will be the future. You will need to excel both to sustain loyalty from
your customers. The capability of business should be engineered to fulfil customer needs.”
Case firm SmE worked with foreign firms in algorithm developing and system
optimisation to extend its seizing capabilities; ‘technical capability in our Canada office
is more competent than in China. We rely on them to perform system optimisation based
on customer feedback we gathered in China.’ Three firms had set up coordination teams
to assist knowledge transfer during virtual transformation. For example, GmA said: “our
coordination team, I called them elite team, involves top performing employees from each
department of our organisation. Every team member is an expert in their fields. We gather
them together in a team to problem solving transformation bumps and monitor innovation
progression.” The owner of GmB also noted that ‘we do have a team of three including
me monitoring the entire movement of our firm. We hold meetings with different
department throughout the week to understand their position and how can we help. We
also work closely with our customers and suppliers to explore the possibility to optimise
service and product.’ Further, talent management capability was perceived to be essential
as human resource was pivotal for putting the transformation team together; ‘I used to
think that HR is not that important, but I was wrong. Their capability critically determines
the speed of or even the success of the transformation’ concluded by the owner of GmA.
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4.4.3 Dimension Three: Transforming capability
The third capability to be addressed was transforming capability. To understand this
higher-order capability, all firms were asked to identify resources and capabilities the
business had done to build transforming capability to sustain competitive advantage in
continually shifting business environments. Their responses were summarised in figure
4.14.
Figure 4.14 Building transforming capabilities
As shown in 4.13, six capabilities were identified by case firms (GmA, GmB, GsC,
SmD, SmE, SsF, SsG, SsH) in relation to building transformation capability. The findings
from the data indicated that a transforming capability as a firm level capability is critical
to sustain the competitive advantage of the firm. For example, GmA explained that the
transforming capability is the key to sustain competitive advantage; “our competitive
advantage is the artificial intelligence algorithm we have built in the past five years. We
make beautiful clothes based on our algorithm. We move along with our algorithm.” Case
firm SsH commented ‘our competitive advantage is not just that we have a competent and
capable team of designers but also how effective we respond to changes in our routines.’
In the year of 2018, SsH signed nine development projects with state governments
whereas the average deal number for a similar company is between three and four projects;
‘here are the business cards, portal platforms and websites we tailor made for all the
projects we participated just in 2018. We adjust the way we work every time when we got
a new partner. Normal companies cannot handle this, but we can.’ Unlike sensing and
Building transformi
ng capability
Adaption capability
Entrepreneuril
capability
Knowledge
absorption capability
Innovation
capability
Relationship
capability
Political influcing capability
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seizing capabilities, transforming capability can only be built internally and sustained via
decentralised organisational structure. All firms indicated that an absolute hierarchy style
of commanding in leadership impedes the overall evolutionary and effectiveness of the
firm. For example, 80/20 meeting style was introduced by case firm GmB; ‘the 80/20
means 80% of the conversation dialogue is contributed by middle and low level of
employees, 20% by senior leaders. Listening is very important for transforming.’ Case
firm SmD added, ‘I always tell my employees that we are a family. Regardless what
happened, it is us as a team against the world. We have team building dinners and
activities weekly to bond.’ A decentralised organisation structure lays a solid foundation
for firms to facilitate capability building required for transforming. Knowledge absorption
capability, in particular tacit knowledge, was regarded to be critical in driving organisation
innovation. For instance, case firm SmD, SmE and SsH chaired seminars and conferences
annually to yield up major gaps of knowledge in their fields; ‘learning allows us to reflect
upon how we can develop a better solution for the problem we are facing. It is a valuable
process in building our dynamic capability.’ The power and influence of knowledge in
shaping innovation capabilities and adaption capability was also highlighted by these case
firms; ‘learning is a routine in our organisation. We have a very positive environment
prompting learning. Such environment helps to form knowledge transfer and
communication relationship between employees.’ Political influencing and
entrepreneurial capabilities that would enable the building of transforming capabilities,
were also highlighted as critical by senior leadership, such as CEO. CEOs of case firm
GmA and GmB leveraged on their personal political skills and networking to gain external
resources to shape the development landscape of the firm. For instance, GmA was
recognised as top five influential virtual businesses by the local government, received over
million dollars funding to lead the development of artificial intelligence programs.
4.5 Conclusions
Included in this chapter is the findings from the data of within-case and cross-case
analysis. The data analysis procedures incorporated literal replications and theoretical
replications to ensure data was treated fairly (Yin, 1996; Yin, 2009). Three themes were
presented based on the evidence from research question one: (i) technical distance through
varies intensity of enterprise technologies; (ii) market distance via identifying consumer
needs and wants by live streaming and online events; anticipating sales and resource
management by working with platform, achieving consumer satisfaction by offline pop-up
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stores and (iii) business model gap filling through open innovation and embedded learning
activities. Relating to research question two, three themes were presented: (i) building
sensing capability for a strong data foundation to explore opportunities in virtual
servicescape transformation; (ii) building seizing capability for increased connectivity of
organisational service system in virtual servicescape transformation; (iii) building
transforming capability for financing innovation and resources in virtual servicescape
transformation. architecture. Chapter five will further the theoretical discussion of the
findings.
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CHAPTER FIVE: DISCUSSION AND CONCLUSION 5.1 Introduction
Chapter Five presents the findings of qualitative research undertaken to investigate
the building of dynamic capability when firms transforming from physical to virtual
service environment (Arnould, 2008; Dowling, 2016; Wilden et al., 2017; Teece, 2019;
Vargo & Lusch, 2016). Although research pertaining to the resources and capabilities of
firms in strategic change is well established, the building of dynamic capabilities for the
creation of virtual servicescape remains underdeveloped (Ojasalo, Koskelo & Nousiainen,
2015; Peter, Kraft & Lindeque, 2020; Warner & Wager, 2019; Verhoef et al., 2019).
Further, the conceptual shift to service dominant logic suggests that a deeper
understanding of the mechanism of dynamic capabilities can be developed with the
application of S-D logic (Arnould, 2008; Dowling, 2016; Wilden et al., 2017; Teece, 2019;
Vargo & Lusch, 2017). Therefore, in order to address these identified gaps in the literature,
two research questions were developed to investigate how firms leverage dynamic
capabilities in the creation of virtual servicescape (Wilden et al., 2017; Teece, 2019;
Warner & Wager, 2019; Verhoef, et al., 2019):
RQ1: How do firms close technical, market and business model capability gaps in
the creation of virtual servicescape and secondly
RQ2: How sensing, seizing and transforming are being managed to achieve
organisational agility in the creation of virtual servicescape?
In addressing these questions, Chapter Five is segmented into five main sections, as
seen in Figure 5.1. This chapter begins with an introduction, followed by presenting key
findings of each research question. Next, contributions of theoretical and managerial are
outlined, following with discussion on limitations and directions for future research.
Finally, concluding comments are provided. A visual outline of Chapter Five is provided
in Figure 5.1.
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Figure 5.1 Diagrammatic overview of Chapter Five
5.2 Overall findings
5.2.1 Overall findings: Research Question One
RQ 1: How do firms close technical, market and business model capability gaps in
the creation of virtual servicescape?
To address Research Question One, the findings of this research identified three
capabilities gaps that are integral for digital transformation: (a) technical capability gap,
(b) market capability gap and (c) business model capability gap (Tecce, 2019).
Specifically, the findings identified a combination of strategies that may contribute to
filling the capability gaps during digital transformation.
When closing technical gap, four significant barriers are mentioned, which include:
inefficiency in automated consumer data collection process, clogged digital infrastructure,
one-dimensional online shopping experience and other unknown technical risks. To
address these barriers, high performing firms used four types of capabilities, social media
capabilities for data capturing and analytics, cloud computing integration to improve
communication efficiency, augmented reality (AR) and virtual reality (VR) to enrich
virtual servicescape and open innovation with external stakeholders to improve firm’s
digital fluency.
Further, the findings inferred that market capability is vital in shaping digital
strategies in digital transformation. When closing market capability gap, firm often face
issues including inadequate virtual touch points and low-quality digital content. To
respond to these identified challenges, case firms emphasised on heavy investment on new
5.6 Conclusion
5.5 Limitations and future research
5.4 Managerial contributions
5.3 Theoretical contributions
5.2 Overall findings
5.1 Introduction
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forms of social media to encourage brand engagement, such as live streaming. Online
sales were adopted by goods-oriented firms to counter market gaps. Partnership with
influential platforms also provided firms the knowledge, capabilities and resource to drive
site traffic. High performing firms adopted offline pop-up store to encourage engagement,
increase brand exposure, convert sales, increase followings and drive traffic to online
stores.
Business model gap is the last gap to address in the building of virtual servicescape.
The findings pointed out that inadequate digital knowledge and lack of technical skills are
preventing businesses from closing business model gap. To address these difficulties, high
performing firms encouraged their senior staff to build digital mindset through learning
and training. Furthermore, firms also proactively looking to hire talents with strong digital
knowledge and technical skills, as these two components are identified to be crucial in
building a defensive and dynamic business models. Further, learning activities and change
leadership were deemed as equally important in facilitating the transition towards a more
flexible business model in virtual servicescape.
5.2.2 Overall findings: Research Question Two
RQ 2: How sensing, seizing and transforming are being managed to achieve
organisational agility in the creation of virtual servicescape?
Continuous engagement in sensing, seizing and transforming capabilities is crucial
for firms to sustain its competitive advantage in high uncertainty context (Teece, 2007).
In order to scan digital opportunities and threats in virtual servicecape, firms develop
sensing networks, in which employees, competitors, suppliers and customers are placed
in the centre of the network web. Competitor monitoring capability needs to be developed
by firms. High performing firms often uses digital data and software to conduct competitor
monitoring. With suppliers, firms need to focus on developing on-demand manufacturing
capability to digitalise its supply chain. On demand manufacturing capability helps firms
to achieve organisation flexibility (Lu & Xu, 2019). Customer engagement capability
should also be valued in building sensing capability. Firms often uses machine learning
and algorithms to uncover consumer insights, such as consumer demands, behaviours and
preferences. Capabilities mentioned above show the external coordination capabilities a
firm must develop in order to develop its sensing capability. To develop sensing
capabilities internally, firms have to develop the networking capability, algorithm
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capability, knowledge absorptive capability and information processing capabilities.
Networking capability refers to the firm’s ability to develop inter-organisational
relationships to gain access to resources (Galkina & Chetty, 2015; Johanson & Vahlne,
2009; McGrath & O’Toole, 2014, p.897). In the context of virtual servicescape,
networking capability allows the firm to facilitate their adaption faster.
To exploit opportunities and respond to threats in an efficient manner, high
performing firms often develop a coping system that is managed by cross-functional team.
The team involves both external stakeholders and internal stakeholders including
customers, suppliers, R&D team, IT, HR, and sales and marketing team. Specifically, once
a latent demand is sensed by product development team, transformation team often
initiates contact with R&D department and external manufacturer to explore the
possibilities for product or service innovation and creation. Once the new product/service
is realised, sales and marketing team would need to develop digital market research
capability, leveraging on digital statistics to propose promotional strategies. Meanwhile,
IT department is supposed to work with the coordination team to ensure the infrastructure
and digital resources are re-aligned for seizing opportunity. In addition, the team may
liaison with human resource team, if new capabilities are required. It is important to note
that a synchronised system, solid digital infrastructure and leadership capabilities are
pivotal for building seizing type capabilities.
To sustain a firm’s competitive advantage in deep uncertainty, transforming
capability needs to be valued (Teece, 2007). This study found that several firm-level
capabilities need to be developed in order to attain a good virtual business outcome,
including adaptive capability (Eshima & Anderson, 2016), entrepreneurial capability
(Zahra et al., 2011), knowledge absorption capability (Wang et al., 2007), innovation
capability (Lawson & Samson, 2001), relationship capability (Jiang et al., 2019) and
political influencing capability.
The study also found that the technical foundation of the firm influence the
progression and speed of digital transformation. Specially, technical infrastructure was
highlighted by all high performing firms. It is notable that an advanced technical
infrastructure drives internal efficiency and productivity of a firm during transformation
through enhancing a firm’s knowledge absorption capability as well innovation capability.
Further, leadership capabilities were required to secure a successful digital transformation.
Leadership capability performed by CEO influences the overall change climate of the
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organisation. Firms from certain industries highlighted the importance of political
influencing capabilities in nurturing change. For example, industries relying on
unpatentable intellectual properties or entertaining industries required high level of
relationship capabilities as well as political influencing capabilities to nurture a safe
ground for change. The research is suggestive of the importance of all these capabilities
in building organisation resilience, increase organisation agility and cultivate organisation
culture in the creation of virtual servicescape.
5.3 Theoretical Contributions
This thesis makes three important contributions to the literature. This research has
specifically addressed three pertinent gaps within the literature of dynamic capabilities,
services and digital transformation. Firstly, the research contributes to the literature of
digital transformation. The findings of this research are broadly consistent with Warner
and Wager (2019) who highlighted the importance of building digital sensing, digital
seizing and digital transforming capabilities in drastic environments to sustain a firm’s
competitive advantage. The findings extended Warner and Wager’s (2019) by giving
insights about dynamic capabilities where the context of digital transformation processes
help us understanding that omni-channel management capability is the new type of
capabilities needed within these transformations. Secondly, this thesis extends on Teece
(2018) and Helfat and Raubitschekb (2018) work by specifying three distinct and
important dynamic capabilities in relation to virtual servicescapes. That is, the study
uncovered three specific capabilities necessary for successfully navigating digital
challenges, these include: entrepreneurial capabilities (Zahra et al., 2011), absorptive
capabilities (Wang et al., 2007), and political influencing capabilities. Although the former
two capabilities have already been identified in the literature, these capabilities have yet
to be proven or applied to real world virtual contexts. Further, a political influencing
capability have not been identified in the literature but for the context of China are critical
for successful digital transformation of the firm. Thirdly, the findings of this study showed
that organisations take a particular technological path for service innovation through
digital transformation towards virtualisation. This study shows each of the path that firms
have taken towards virtualisation and highlights the progression of business model shifting
from internal platforms, to open/closed platform to leading platforms. Further, the findings
suggest that the open/closed platform business model plays a prominent part in
contributing to the accumulation of “knowledge sets” (Teece, 2009) for the building of
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dynamic capabilities. The findings also suggest that open/closed platform business models
do not offer any sustained benefits as many resources and capabilities under this business
model are borrowed and temporary, such as innovation capabilities or network
capabilities. Since Teece (2019) highlights dynamic capabilities must be built, the findings
in this study suggest that high performing firms should aim to progressively move towards
to an open service platform building their own set of new adaptable capabilities and
resources, to prepare firm for more advanced digital transformation, towards a greater
flexibility and connectivity with multiple actors in the value co-creation process. Overall,
these findings have important contribution and can offer a point of departure for future
scholars investigating the development of dynamic capabilities in changing environments.
Further details of the contribution will be presented, followed by its managerial
implications, limitations of the study and directions for future research.
5.3.1 Theoretical contribution one
The findings of this research are broadly consistent with Warner and Wager (2019)
who highlighted the importance of building digital sensing, digital seizing and digital
transforming capabilities in drastic environments to sustain a firm’s competitive
advantage. The findings extended Warner and Wager’s (2019) by giving insights about
dynamic capabilities where the context of digital transformation processes help us
understanding that omni-channel management capability is the new type of capabilities
needed within these transformations.
The present study identifies one new capability that is of critical importance in
developing dynamic capabilities for creating and capturing value in digital transforming.
The new identified capability is related to omni-channel management. Omni-channel
management is defined as “synergistic management of the numerous available channels
and customer touchpoints, in such a way that the customer experience across channels and
the performance over channels is optimized” (Verhoef et al. (2015, p. 176). Although the
importance of omni-channel management is highlighted in the literature, the majority of
research rarely linked the importance of omni-channel management to dynamic
capabilities building and digital transformation. The present research following Verhoef
et al. (2015, p.176) defines omni-channel management capability as:
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A firm’s ability to integrate the management of the numerous available channels
and customer touchpoints, in a way that the internal processes to support value creation
and capture is effectively and efficiently optimised.
The findings suggested that omni-channel management capabilities increase
organisational flexibility towards market changes through coordinating ordinary
capabilities. The findings suggest that the building of omni-channel management
capabilities is essentially realignment of existing assets and activities to achieve stronger
organisational flexibility to respond to changes in the market. That is, firms need to
redesign or update existing IT infrastructure to manage several channels into one to create
a full-channel integrated system. Such system provides firms a seamless view of improved
database of consumers, which allows the firm to accumulate knowledge to develop
consumer insights (Stone et al., 2002). That is, omni-channel management capabilities
capture the sensing element of the dynamic capability.
Once an opportunity is identified, firms move onto the seizing stage by coordinating
with its stakeholders to capture the value. While Warner and Wager (2019) highlighted
that strategic agility (describing as the ability to perform fast decision making) is critical
for incumbent firms to seize opportunities, the present study argues that the possession of
omni-channel management capability accelerates a firm strategic agility in an
environment characterised by changes.
The findings suggest that omni-channel management capabilities break down
organisational silos by cultivating a collaborative change environment which helps
reconfiguration of resources and capabilities. When various channels are being merged
into one channel, the core to strategic agility becomes clear, which is to maximise value
creation and capture from that one and only channel. It is observed that in virtual
servicescape responsibilities of internal units and departments are no longer treated
separately but rather collaboratively, to provide support to each other throughout the
process of value creation and capture (Doz & Kosonen, 2010). For instance, some high
performing firms in this study often break down phases according to consumer online
journey with each phase channel strategy adjusted to complement the weakness of another.
For example, these firms invest resources on touchpoints (offline-pop-up stores, social
media live streaming and sales events, influencers) and AI-powered system to generate
data and perform prediction as to how to sell, when to sell, what network to use and on
which platform to sell. Once the pathway of value creation and value capture is outlined,
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leadership makes agile decision as to how resources and capabilities can be integrated to
optimise value, followed by matching the capabilities of the employees to the
corresponding phase of value creation to optimise organisational performance in turbulent
environment.
The findings indicated that omni-channel management capabilities not only reduced
the time firms spending on decision making but also improved the internal structure agility
of the firm during digital transformation. Since there is scant research examining the
importance of omni-channel management capabilities in building of dynamic capabilities
in deep uncertainty environment, the findings are important because it empirically links
omni-channel management to dynamic capability, as a higher order capability, to assist
the digital transformation of the firm.
5.3.2 Theoretical contribution two
Teece (2018) highlighted the importance of dynamic capabilities in building
ecosystem strength in the digital economy. Expanding on his argument, Helfat and
Raubitschekb (2018) proposed four types of dynamic capabilities, that include: innovation
capabilities, environmental scanning and sensing capabilities, and integrative capabilities
that are crucial for building digital ecosystems. This thesis extends on Teece (2018) and
Helfat and Raubitschekb (2018) work by specifying three distinct and important dynamic
capabilities in relation to virtual servicescapes. That is, the study uncovered three specific
capabilities necessary for successfully navigating digital challenges, these include:
entrepreneurial capabilities (Zahra et al., 2011), absorptive capabilities (Wang et al.,
2007), and political influencing capabilities. Although the former two capabilities have
already been identified in the literature, these capabilities have yet to be proven or applied
to real world virtual contexts. Further, a political influencing capability have not been
identified in the literature but for the context of China are critical for successful digital
transformation of the firm.
The findings from this research indicate that entrepreneurial and absorptive
capabilities are the “sticky” firm-level resources that collectively contribute to the creation
of a unique resource bundle for nourishing, flourishing and sustaining innovations in
digital environments. These will be discussed next.
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Entrepreneurial Capabilities
In this study, entrepreneurial capabilities were identified as key capabilities that
enhanced the firm’s ability to exploit digital ecosystem opportunities. Entrepreneurial
capabilities are defined as the firm’s capacity to recognize, conceive, create, and exploit
opportunities for competitive advantage (Zahra et al., 2011). That is, entrepreneurial
capabilities are essential for a firm to seize new value-creating opportunities through
learning (new skills/knowledge) and unlearning (practices of home country) activities
(Tang & Zahra, 2008; Zahra et al., 2011). This research supports the idea that
entrepreneurial capabilities are critical in aiding a firm’s digital transformation. That is,
these high performing firms in the study leveraged these entrepreneurial capabilities to
facilitate and innovate how the firm seized digital opportunity and transform digital
business models.
The finding extends the literature by identifying how high performing firms leverage
frontline employees’ entrepreneurial capabilities to identify new opportunities and build
their “idea webs”. That is, not only the founder but also employees with entrepreneurial
capabilities are leveraged for development and implementation of innovation within
virtual servicescapes. High performing firms also value senior managers as a way to build
entrepreneurial capabilities, forming formal and informal “guanxi” (networks of
relationships) with all types of entities as a source of knowledge, and conduit for new
business. Senior management’s entrepreneurial capabilities contribute to the exploitation
of opportunities. For instance, some case firms work with the higher education sector,
design schools from Europe and tech start-ups to introduce new knowledge from outside-
in. In certain cases, entrepreneurship capabilities are adopted to safeguard a firm’s
unpatentable tacit know-how, despite the limitation of the legal system in the context of
China (Peng et al., 2017).
Absorptive capabilities
Although entrepreneurial capabilities can introduce ideas and networks from the
external environment to the firm, the findings highlight that a firm’s absorptive
capabilities are critical for organisational learning and organisational innovation. As Zahra
and George (2002, p.149) defined absorptive capability as the “organisational capability
of a firm to obtain, absorb, transform, and utilise external knowledge.” In the previous
literature, absorptive capabilities are often considered to be a success factor, impacting a
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firm’s innovation capabilities (Kundsen, 2007; Ritala & Hurmelinna‐Laukkanen, 2013).
This study illustrates how firms build their absorptive capability and how they leverage
the capabilities to learn and innovate. The findings indicate that high performing firms
often adopt “blood transfusion method”, which is replacing employees who had little to
no digital experience with those employees that have high levels of digital capabilities, to
build and accelerate in-house absorptive capabilities during digital transformation. Speed
is deemed as the prerequisite to maintain the competitiveness of a firm (Teece, 2019a,
2019b). Therefore, employees who demonstrate a lack of understanding of the mechanism
of the digital environment, slow down the transference of knowledge and the learning
process of the organisation, which subsequently impacts the selection and orchestration of
resources and capabilities within the firm. The findings also suggest that digitally inept
employees not only negatively impact the building of a firm’s absorptive capabilities but
also hinder a firm’s pursuit of competitive advantage over time.
Further, the findings in this study indicate that absorptive capabilities such as when
a firm digitalises their processes this is an effective and efficient mechanism to augment
technology in conjunction with human capital. That is, high performing firms in this study
showed a level of integration in relation to cloud platforms, artificial intelligence and data
infrastructure to gather knowledge (large amount of data), analyse knowledge (data) and
perform emulative predictions. For instance, one firm adopted cognitive algorithms to
follow the movement of competitors, social media trends, product reviews and key
influencer post to support and obtain a new business model path. Once the predictive
analysis is generated, senior management step in utilising knowledge obtained to
orchestrate resources and capabilities for innovation and transformation.
Political influencing capabilities
Previous literature has identified the close relationship between individual political
influence behaviour and career success (Judge & Bretz Jr, 1994). Ferris, Russ, and Fandt
(1989, p.145) defined political influence behaviour as a “social influence process in which
behaviour is strategically designed to maximize short-term or long-term self-interest,
which is either consistent with, or at the expense of, others’ interests”. A number of
researches suggest that political influence behaviour has a significant effect on human
resources outcomes, including salary growth (Bartol & Martin, 1988, 1990), more positive
performance reviews (Wayne & Kacmar, 1991) and faster promotions (Gerhart &
Milkovich, 1989; 1992). The findings of this study also show that the organisational
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political influencing behaviour is critical in the creation of organisational growth such as
the development of these new innovations of virtual servicescape in China. That is,
political influence capabilities are used as ways in which to gain insights, influence and
as mechanisms for developing new business models.
In China, economic and spending policies are highly decentralised (Xu, 2011). That
means that local governments have the control to perform budget allocation (Pan, 2018).
Often, local officials prefer to allocate budget to developments and projects that have a
rather positive influence on employment opportunities and are more tangible for GDP
growth, such as infrastructure developments or high-profile business projects (Pan, 2018).
Another factor impacting local budget allocation is the economic policies and agenda
revealed by national congress, known as the political cycle (Nie et al., 2013). Tao (2006)
finds that, economic cycles in China has become increasingly responsive to the political
rhythms. That is, the annual investment and inflation in China are cyclically affected by
the National Conference of the Chinese Communist Party (NCCCP) that is held every 5
years (Li, 2011). These conferences suggest that China is to be the centre of innovation
and that digitalisation is a mechanism within which to grow the country’s future.
In 2015, The Chinese government has launched “Made in China 2025,” a state-led
industrial policy that seeks to make China dominant in global high-tech industries. The
influence of such critical political events leads to a booming investment in internet-related
industries. All seven firms indicated they had benefited from local budget in early stage
of virtual servicescape creation. Two firms stated that their firm’s lobbied local politicians
to change the rules to their advantage in the early phase of digital transformation. Another
firm highlighted that the CEO’s political influence helped the firm to pull necessary
resources and capabilities that are beneficial for digital transformation. These findings
support the statement that political influencing capabilities are critical for firms to thrive
in the creation of virtual servicescape in dynamic industrial settings. These firms all
showed a history of relocating to political centres for staying in the “guanxi” cluster to be
friends with local officials.
To summarise, these findings are important, as this study identified three extra
dynamic capabilities, that are of paramount importance in helping a firm to conquer to
digital challenges, namely; entrepreneurial capabilities (Zahra et al., 2011), absorptive
capabilities (Wang et al., 2007), and political influencing capabilities. Although the former
two capabilities have already been discussed in the literature, it yet to be been applied to
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the virtual context. Political influencing capabilities are new, and it is identified as China
context-specific capabilities contributing to the success of digital transformation.
5.3.3 Theoretical contribution three
The findings of this study showed that organisations take a particular technological
path for service innovation through digital transformation towards virtualisation. This
study shows each of the path that firms have taken towards virtualisation and highlights
the progression of business model shifting from internal platforms, to open/closed
platform to leading platforms, see figure 5.2. Technologies have transformed the focus of
innovation to be network-centric focus (Chesbrough, 2003; Nambisan & Sawhey, 2007),
information-centric focus (Glazer, 1997) and value-and/or experience-centric focus
(Vargo & Lusch, 2004). Such a shift of focus on innovation suggested that goods-
dominant logic can only offer limited understanding of service innovation in the digital
era (Akaka, Vargo and Schau, 2015). Based on the meta-theoretical foundations of
Service-Dominant logic, Lusch and Nambisan (2015) conceptualised service innovation
via a tripartite framework that consists of three components: service ecosystem, service
platform and value cocreation. This framework demonstrates that service innovation
happens when actors continuously seek to optimise value co-creation through the support
of the service platform, to liquefy resources and enhance their resource density (Lusch &
Nambisan, 2015).
More specifically, the findings suggest that in the early phase of digital
transformation, there are higher risks associated with markets, technologies and business
models, which makes it more difficult for firms to transform (Teece, 2019). For some
SMEs in this study, the lack of financial capital as well as the lack of knowledge for
operation in virtual servicescape across divisions negatively impact the strategic decision
making. Thus, high performing firms move to open/closed platforms to overcome
resources restraints and deficiencies on capabilities by joining established multi-sided
digital platform. For example, these firms in this study leveraged on external platforms
such as Alibaba or JD to pull necessary resources and capabilities to facilitate early phase
of digital transformation to remain competitive. Some goods-oriented firms highlighted
that by partnering with Alibaba, the firm gained access to sophisticated service platform
support for operating in virtual servicescape, ranging from IT infrastructure, payment
solutions, marketing, system integration, digital store design, customer service, inventory
management, warehousing and order fulfilment services.
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The findings suggest that the open/closed platform business model plays a
prominent part in contributing to the accumulation of “knowledge sets” (Teece, 2009) for
the building of dynamic capabilities. That is, these firms worked with an established multi-
sided digital platform so as to gain tacit and implicit knowledge for building their own
digital capabilities and resources for digital transformation.
The findings also suggest that open/closed platform business models do not offer
sustained profitability as many resources and capabilities under this business model are
borrowed and temporary, such as innovation capabilities or network capabilities. Often,
multi-sided digital platforms “spoon-feed” firms by providing full range of digital services
to increase the dependency of firms on the platform. Dehler and Welsh (2013) argued that
businesses in a spoon-feeding culture often are not prepared for challenges and developing
sensemaking to create their own ideas demonstrated by contextualised knowledge. In the
context of virtualisation, over-reliance on the digital support from platforms impedes a
firm’s independent learning, knowledge absorptive and innovation capability, which in
turn, mitigate the development of dynamic capabilities.
Since Teece (2019) highlights dynamic capabilities must be built, the findings in
this study suggest that high performing firms progressively move towards to an open
service platform so to build unique capabilities. That is, experience and knowledge from
working with open/closed digital platforms, such as Alibaba, influences the firm’s
selection of resources and capabilities. These tacit knowledges contribute to the choice of
how and when to develop a set of new adaptable capabilities and resources that can prepare
the firm for digital transformation, towards a greater flexibility and connectivity with
multiple actors in the value co-creation process. For example, some high performing firms
opted out data services provided by the platform, so that they build their own data labs to
advance the firms’ data collection and analytical capabilities. To summarise, these finding
are important because they map the progression of business model development within
service platforms when firms are undergoing major changes, which are something not
highlighted in the literature.
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Figure 5.2 Transition of Service Platform Business Models
5.4 Managerial contributions
The rapidly changing technological landscape has introduced deep uncertainty in
the world of economic, meaning that a firm’s competitive advantage needs to be
constantly reviewed in the pursuit of profit (Teece, 2019). Sutton (2012) highlight the
importance of the capabilities of firms as the proximate cause of imbalanced wealth
distribution. Thus, it is important for managers to improve the evolutionary fitness of the
by creating hard-to-imitate capabilities and resources to sustain its competitive advantage.
The current research offers three managerial contributions to help guide organisations
through deep uncertainty. First, the research findings presented a specific range of new
capabilities firms should prioritise to develop facing environmental uncertainty; namely,
omni-channel management capabilities, entrepreneurial capabilities, absorptive
capabilities. These newly identified capabilities can be used as a tool to inform high
quality managerial strategic formulation to calibrate the technical, market and business
model capabilities’ distances of firms (Teece, Peteraf & Leih, 2016). In essence, this class
of capabilities will enable innovative resources and capabilities integration that can fuel
growth in profits. Second, while development of capabilities is important for the pursuit
of successful digital transformation, particularly in virtual servicescape, so too are the IT
infrastructure of a firm. The findings of this research suggested that the development of
abovementioned capabilities is fundamentally underpinned by sophisticated technical
infrastructure. That is, in virtual servicescape, processes such as recognition of latent
demands, consumer behavioural changes and competitor movements usually require
human intelligence, can now be replaced by artificial intelligence and cloud computing.
Open/closed platform business model (Pre-digital transformation)
Learning and accumulation of knowledge (During digital transformation)
Open service platform business model (Post-digital transformation; e.g. GmA, GmB, SmE, SsH))
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In fact, the adoption of artificial intelligence and cloud computing enables productivities
at workplace as well as accuracy in decision makings. Artificial intelligence is expensive
to implement however, once built, paring with the right talent (capabilities), this powerful
combo will fuel growth of profit. Third, the findings of the research suggest that while
platform complementor has been a useful pathway for firms to enter in to virtual
servicescape, firms or senior management should always actively update and re-update its
business model through the accumulation of tacit and codified knowledge. Managers
should take note that the most change resilience business model is the one that built
internally to respond to the unexpected. The findings suggest that firms should ultimately
move towards open service platform business model, to enhance its organisational agility.
5.5 Limitations and future research
Notwithstanding its contributions to the literature, this study is subject to three
limitations (Cooper et al., 2003). As such, a discussion of three limitations of this research
is provided in conjunction with future research. The first limitation of this study lies in the
context of China. That is, this study is delimited to the investigation of Chinese firms only.
Although the study carefully selected a mixture of industries from Beijing and Guangzhou,
the generalisability of the study is limited due to the heterogeneity of economic, culture
and political conditions between China and other countries. As such, future study on
dynamic capabilities should consider a sample beyond China and consider replication of
this study in a new cultural context. Such comparison will add richness in the literature of
dynamic capabilities. Second limitation of this study is relative to the context of SMEs.
The findings of this research are drawn from eight SMEs through multiple one-hour
duration interviews, meaning that the applicability of the research may delimited to SMEs.
Therefore, future research investigating dynamic capabilities would benefit from a wider
scope of the study, such as multi-national organisational. Third limitation of this research
concerns the qualitative nature of the study. The data of this research derive from eight
case firms through limited hours of interview, meaning that only the tip of an iceberg” is
captured. Therefore, it is suggested that future research would benefit from incorporating
quantitative method based on the findings of this research. In addition, the findings
identified that the importance of technological development such as artificial intelligence
as a critical source of knowledge in enabling a firm’s dynamic capabilities during digital
transformation, future study on dynamic capabilities might benefit from understanding the
109
role of digital-assisted knowledge management in accelerating the evolution of dynamic
capabilities.
5.6 Conclusion
This research has specifically addressed three pertinent gaps within the literature of
dynamic capabilities, services and digital transformation. Firstly, the findings of this
research are broadly consistent with Warner and Wager (2019) who highlighted the
importance of building digital sensing, digital seizing and digital transforming capabilities
in drastic environments to sustain a firm’s competitive advantage. The findings extended
Warner and Wager’s (2019) by giving insights about dynamic capabilities where the
context of digital transformation processes help us understanding that omni-channel
management capability is the new type of capabilities needed within these
transformations. Secondly, this thesis extends on Teece (2018) and Helfat and
Raubitschekb (2018) work by specifying three distinct and important dynamic capabilities
in relation to virtual servicescapes. That is, the study uncovered three specific capabilities
necessary for successfully navigating digital challenges, these include: entrepreneurial
capabilities (Zahra et al., 2011), absorptive capabilities (Wang et al., 2007), and political
influencing capabilities. Although the former two capabilities have already been identified
in the literature, these capabilities have yet to be proven or applied to real world virtual
contexts. Further, a political influencing capability have not been identified in the
literature but for the context of China are critical for successful digital transformation of
the firm. Thirdly, the findings of this study showed that organisations take a particular
technological path for service innovation through digital transformation towards
virtualisation. This study shows each of the path that firms have taken towards
virtualisation and highlights the progression of business model shifting from internal
platforms, to open/closed platform to leading platforms. Further, the findings suggest that
the open/closed platform business model plays a prominent part in contributing to the
accumulation of “knowledge sets” (Teece, 2009) for the building of dynamic capabilities.
The findings also suggest that open/closed platform business models do not offer any
sustained benefits as many resources and capabilities under this business model are
borrowed and temporary, such as innovation capabilities or network capabilities. Since
Teece (2019) highlights dynamic capabilities must be built, the findings in this study
suggest that high performing firms should aim to progressively move towards to an open
service platform building their own set of new adaptable capabilities and resources, to
110
prepare firm for more advanced digital transformation, towards a greater flexibility and
connectivity with multiple actors in the value co-creation process. Overall, these findings
have important contribution and can offer a point of departure for future scholars
investigating the development of dynamic capabilities in changing environments.
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6 APPENDICES
Appendix A: Interview Protocol
CONFIDENTIAL INTERVIEW PROTOCOL
Interviewee Name
Interviewee Age
Interviewee Education
Start Time
Finish Time
Greeting and show appreciation for the participation
Firstly, thank you for taking the time today to have this discussion with me. This research would not be possible without your valuable contribution. We have come together today to discuss how firm’s capabilities in virtual service environment. It is expected that the outcomes of this research will assist business owners’ decision makings in virtual space.
Explain interview process and form signing
Regarding our discussion today, there is no right or wrong answers to the questions we will discuss. I am simply interested in knowing your perspective of organisation innovation and capabilities. Our discussion today is a confidential conversation and information I record, such as your full-name and demographic information will not be kept by the researcher or QUT. For the safety of yourself, I will disguise your name, and any personal identifying information in the final report, so you remain anonymous. The complete interview process will take approximately 60 minutes. would like to audio record today’s interview, as I will be transcribing this discussion for analysis purposes. You can request a copy of the findings, when the data has been transcribed and analysed. As part of the National Statement on Ethical Conduct in Human Research, you are required to complete a consent form. If you require further details about the research, you can contact any member of the research team. The contact details are on the information sheet.
Recorder Check Interview Questions
Q1: Can you please give me a brief overview of your work history? Purpose
- Level and location of positions within the organization - What knowledge and skills the person has
Q2: Could you briefly explain your role in current position? - How many years have you been working in this organisation? - How did you start in this company? - Was there a shift in your role *now vs when you started? - What area/level of decision making you involve/incharge?
Q3: Could you please tell me a project that relevant to digital transformation: - What was the purpose of the project?
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- How long did the project last? - What departments or how many people were involved in the process? - What were your responsibilities? - Did you achieve your goal? (30%; 50%; 70%; 100%)
Purpose - Interviewee’s responsibilities in project vs interviewee’s responsibilities in daily life - General information of the project - Sensing capabilities; capabilities gaps
Q4: Could you tell me, what worked and what didn’t work at that time? - What were the difficulties faced?
Purpose - Interviewee’s responsibilities in project vs interviewee’s responsibilities in daily life - Challenges of digital transformation, managing unknows and developing capabilities and
resources (seizing capabilities) Q5: What were the critical factors contributing to the success of the project? Name three to five.
- Classify under the catalogue of knowledge, resource, skills and capabilities - Out of 10, how would you rate the importance of each
Purpose - Double checking… reconfirming the information from previous question - Which capabilities are essential for digital transfromation
Q6: How did THE FACTORS (mentioned above) develop over time? - In the beginning of the project vs the end of the project - Knowledge, skills, resources and capabilities - What did you have? - What was needed? - How did you create?
Purpose - Identifying what bundles of capabilities are important? - How do they develop over time?
Q7: By the end of the project, what skills, capabilities and resources were new to your team? - Internally, did you have to work with another department? How long does it take for each other
to get on same page? - Externally, did you need to work with other companies? How long does it take for you to adapt?
Purpose - Understand the coordination and communication efficiency within firm - Open innovation
Q8: If you were able to re-do the project again, what would you do differently? Purpose
- What are the must-developed dynamic capabilities? - Which capabilities are more important? Sensing, seizing or transforming
Q9: For you, what skillset are you looking for from people who working in virtual industry. Purpose
- Is talent important? And when will they become critical in the creation of virtual servicescape? Q10: Is there anything else you would like to add about dynamic capabilities for future retail or for your company? Purpose
- New information that might cover in the interview
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