E-Business Strategy Homework

This is a short E-Business Strategy Assignment where needs someone specialized in digital strategy and digital business. It is required to study the attached paper titled “ The influence of a digital strategy on the digitalization of new ventures: The mediating effect of digital capabilities and a digital culture “ and present the findings of a research paper in PowerPoint slides that shall cover whole paper. In addition to the PowerPoints slides, you have to prepare a side speech with a good explanation to use it when I present the slides.

E-Business Strategy
Individual Assignment – Research Paper Presentation
Please read the following instructions carefully before solving and submitting the
assignment.
Task details:
You are required to study and present the findings of a research paper assigned to you..
Please refer to the attached research paper with below title.
Paper Title
The influence of a digital strategy on the digitalization of new ventures: The
mediating effect of digital capabilities and a digital culture
Ensure the following;
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•
•
•
•
No.
The presentation must be submitted as PPT with speaker notes for each slide.
Presentation must not exceed 15 mints
The presentation must cover all main topics in the research paper
Professional and Attractive slides and well organized
Below criteria must meet the expectations.
Criteria
Expectations
•
•
1
Organization
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•
2
Content
•
•
3
Use of Supporting Media
•
Logical flow
Evidence to support assertions isclear and
correct
Demonstrates thoroughunderstanding
of topic
The content accomplishes the purpose of
presentation accurately and comprehensively.
All major topics covered thoroughly; supported by
specific, accurate, and relevant data.
Media is clear and professional and reinforces
the presentation.
Uses visuals effectively to clarify simplify, or
emphasize numericaldata or main point.
Journal of Small Business Management
ISSN: (Print) (Online) Journal homepage: www.tandfonline.com/journals/ujbm20
The influence of a digital strategy on the
digitalization of new ventures: The mediating
effect of digital capabilities and a digital culture
Dorian Proksch, Anna Frieda Rosin, Stephan Stubner & Andreas Pinkwart
To cite this article: Dorian Proksch, Anna Frieda Rosin, Stephan Stubner & Andreas Pinkwart
(2024) The influence of a digital strategy on the digitalization of new ventures: The mediating
effect of digital capabilities and a digital culture, Journal of Small Business Management, 62:1,
1-29, DOI: 10.1080/00472778.2021.1883036
To link to this article: https://doi.org/10.1080/00472778.2021.1883036
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Published online: 16 Mar 2021.
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https://www.tandfonline.com/action/journalInformation?journalCode=ujbm20
JOURNAL OF SMALL BUSINESS MANAGEMENT
2024, VOL. 62, NO. 1, 1–29
https://doi.org/10.1080/00472778.2021.1883036
The influence of a digital strategy on the digitalization of
new ventures: The mediating effect of digital capabilities
and a digital culture
Dorian Prokscha,b, Anna Frieda Rosinc, Stephan Stubnerc, and Andreas Pinkwarta
a
Stiftungsfond Deutsche Bank Chair of Innovation Management and Entrepreneurship, HHL Leipzig
Graduate School of Management, Germany; bResearch group on Entrepreneurship and Technology
Management (ETM), Faculty of Behavioural, Management & Social Studies, University of Twente, The
Netherlands; cDr. Ing. h.c. F. Porsche AG Chair of Strategic Management and Digital Entrepreneurship,
HHL Leipzig Graduate School of Management, Germany
ABSTRACT
KEYWORDS
A higher degree of digitalization in new ventures’ product/
service offerings and their processes can lead to a faster time
to market and the ability to rapidly scale. Hence, it has the
possibility to significantly impact the performance. To increase
the degree of digitalization in new ventures, they can imple­
ment a digital strategy. Currently there is no evidence if this
measure has a strong impact on the degree of digitalization. We
therefore empirically investigate the influence of a digital strat­
egy on the degree of digitalization in new ventures’ products/
services and processes. We analyzed 102 new ventures using
SEM. Building on the contingency theory, we show that only
having a digital strategy is insufficient to achieve a high degree
of digitalization. The digitalization of products/services is par­
tially mediated by digital IT capabilities, and the effect of digital
strategy on process digitalization is partially mediated by digital
IT capabilities and a digital culture.
Digital entrepreneurship;
digital new ventures; digital
strategy
Introduction
Today up to 90 percent of new ventures fail, while a big portion can be traced
back to strategic failures in assigning scare resources (Davidsson et al., 2017;
Steininger, 2019). Choosing the right strategic orientation to decide how to
create value-adding products/services and to carry out optimal processes is
therefore imperative for new ventures’ survival (N. Kim et al., 2013; Srinivasan
et al., 2002; Zhou et al., 2005). Recent research findings point toward an
increasing importance of digitalization as part of a firm’s strategic orientation
to be competitive (N. Kim et al., 2013; Sirmon et al., 2010). Digitalization,
which describes the usage of digital technologies in digital products/services as
well as digital processes, among others, is assigned a variety of benefits. These,
for example, encompass an increase in development speed and launching
CONTACT Dorian Proksch
d.e.proksch@utwente.nl
Faculty of Behavioural, Management & Social Studies,
RA2109, P.O.Box 217, Enschede 7500 AE, The Netherlands.
Supplemental data for this article can be accessed on the publisher’s website.
© 2021 International Council for Small Business
2
D. PROKSCH ET AL.
speed of new products, increasing new ventures’ flexibility, a possible faster
internationalization, as well as saving tangible and intangible resources
(Moreno-Moya & Munuera-Aleman, 2016; Nambisan, 2017; Pergelova et al.,
2019). More specifically a higher degree of digitalization in new ventures
enables firms to be successful with regard to, for example, generating higher
customer satisfaction and loyalty through flexible adaptation of the digital
product/service offering according to a customer’s needs or by increasing the
operational efficiency through digital processes (Autio, 2017; Rachinger et al.,
2018).
Thus, the strategic orientation on increasing the degree of digitalization in
new ventures products/services and processes can help those firms to better
manage their scarce resources (Nambisan, 2017). To capitalize on the benefits
of these current developments, many firms have incorporated a digital strategy
(Sebastian et al., 2017). In the corporate literature, a digital strategy has been
found to derive benefits in terms of the development of digital products/
services and processes (Bharadwaj et al., 2013; Sebastian et al., 2017).
It is thus surprising that the current entrepreneurship literature lacks
empirical investigations of the influence of a digital strategy on increasing
the degree of digitalization in new ventures products/services and processes.
This topic has gained some attention in related areas in the field of small and
medium-sized enterprises (SMEs) (Bi, Davison, & Smyrnios, 2019; Eggers
et al., 2017; S.H. Kim et al., 2017; Moreno-Moya & Munuera-Aleman, 2016;
Mohd Salleh et al., 2017; Nguyen et al., 2015; Pergelova et al., 2019); however,
we argue that the results may not apply for new ventures due to the resource
constraints and the liabilities of smallness. First advancements in the field of
entrepreneurship focus on the IT rather than the digitalization aspect (GarcíaCabrera et al., 2019; Parida & Örtqvist, 2015; Tornikoski et al., 2017).
We therefore answer the research question of whether a digital strategy can
increase the degree of digitalization of new ventures’ digital products/services
and digital processes. This might possibly enable a fast scaling of the company
and therefore a superior performance (Pergelova et al., 2019). We analyzed 102
new German ventures using structural equation modeling (SEM) in the form
of a partial least squares (PLS) approach.
Investigating the influence of a digital strategy on the degree of new
ventures’ digital products/services is important because of three main reasons.
First, it answers current calls for research to study the role of strategy as well as
the usage of digital technologies in the entrepreneurial context (Berger et al.,
2018; Ott et al., 2017). Second, knowing how to leverage a digital strategy to
create more digital products and services can help new ventures to create
additional value for customers (Amit & Zott, 2001; Rachinger et al., 2018).
Third, understanding the influence of a digital strategy on the degree of
digitalization in terms of processes supports new ventures in identifying
potential for increased flexibility and efficiency in their operations, which
JOURNAL OF SMALL BUSINESS MANAGEMENT
3
can result in cost advantages (Amit & Zott, 2001; Nambisan, 2017).
Consequently, increasing the degree of digitalization in products/services as
well as processes of new ventures with the help of a digital strategy might be
a viable measure for new ventures to develop competitive advantages and thus
be able to survive in the long run (Rachinger et al., 2018; Steininger, 2019).
The remainder of this article is structured as follows. In the next section, we
introduce our theoretical framework, which investigates the influence of
a digital strategy on digital products/services as well as digital processes of
new ventures. We further introduce our hypotheses to test for potential
mediators in this relationship. Then we describe the methodology of our
empirical study and present and discuss the results. Finally, we highlight the
implications and present the limitations.
Theory and hypotheses
Digital strategy and degree of digitalization
How a new venture defines its structures, processes, and initiatives is a result of
its strategic orientation (Kickul & Walters, 2002). A firm’s strategy is the
overall direction or vision set by the management for the firm’s upcoming
years. As a result, the success of a new venture depends on strategic decisions
by the management on how to allocate resources as well as which capabilities
to develop. According to Schuler and Jackson (1987), there are three types of
strategy: innovation, cost, and quality. We focus on the innovation strategic
orientation, which includes a focus on digitalization. New ventures following
an innovation strategic orientation are typically tolerant of risk and open to
change. As a result, those new ventures are often the first to identify new
opportunities, for example, with the help of digital technologies. Due to the
increasing incorporation of digital technologies in firms’ products as well as
rising customer demand with regard to the availability of digital services,
digitalization can hardly be separated from new ventures’ strategy nowadays
(Bharadwaj et al., 2013; El Sawy, 2003). Moreover, the growing usage of digital
technologies gives rise to new business opportunities, which help firms to
digitalize processes and enable increased efficiency. To capitalize on the
benefits of these current developments, many established firms have incorpo­
rated a digital strategy (Sebastian et al., 2017).
A digital strategy can be conceptualized as an organizational strategy that
leverages digital resources to generate differential value (Bharadwaj et al.,
2013). Consequently, Sebastian et al. (2017, p. 198) define it as “a business
strategy, inspired by the capabilities of powerful, readily accessible technolo­
gies [. . .], intent on delivering unique, integrated business capabilities in ways
that are responsive to constantly changing market conditions.” This over­
arching definition is different from related concepts, such as an IT strategy,
4
D. PROKSCH ET AL.
which only focus on the functional level in an organization and act as enablers
of a particular business strategy. For firms that aim to be a successful part of
the digital era, a digital strategy is one of the most relevant resources to
incorporate digitalization in firms (N. Kim et al., 2013).
Digitalization describes “the application of digital technologies and infra­
structures in business, economy, and society” (Autio, 2017, p. 1). It therefore
includes the concept of digitization, which is the process of transferring data
and information from an analog format to a digital format (Bleicher & Stanley,
2019).
The more a firm has incorporated digitalization, the higher the degree of
digitalization. We define the degree of digitalization similar to Hull et al.’s
(2007) conceptualization, distinguishing between different degrees of digitali­
zation by means of increasing involvement of digital products/services and
digital processes. A new venture without any degree of digitalization is offering
a nondigital product/service and utilizes manual processes; a new venture with
a low degree of digitalization refers to digital products/services and digital
processes as a supplement to traditional offerings. With an increasing degree
of digitalization, a new venture is putting a higher focus on digital products/
services and processes. A high degree of digitalization thus refers to a new
venture that is entirely digital—including the complete product and service
offering along with any possible processes (Hull et al. 2007).
Digital products/services and digital processes of new ventures
In the entrepreneurship literature, digitalization appears mainly in terms of
digital products/services offered by new ventures and incorporated digital
processes (Hull et al. 2007; Nambisan, 2017; Rachinger et al., 2018). Digital
products/services of new ventures are defined as products and services that
are made possible or enabled through digital technologies (Lyytinen et al.,
2016; Porter & Heppelmann, 2014). In this regard, not only entirely new
products but also digitally enhanced consumer products and add-on digital
tools belong in this category (Hull et al. 2007; Lyytinen et al., 2016). Digital
products/services can include any kind of digital element, media usage, or
application as well as digital components that provide the product or ser­
vice’s main functionality (Kallinikos et al., 2013; Nambisan, 2017). The
entrepreneurship literature notes that the digitalization of products/services
has a significant influence on the value creation of new ventures (Rachinger
et al., 2018).
Digital processes are all activities that create value by means of digital
technologies (BarNir et al., 2003; Kannan & Li, 2017). They provide digital
architectures to create complementary offerings (Nambisan, 2017). Thus,
digital processes include, for example, digital interaction with different stake­
holders, digital distribution, digital operations, or digital marketing (Hull et al.
JOURNAL OF SMALL BUSINESS MANAGEMENT
5
2007). Digital processes are not limited to one specific part of the value chain;
they can be applied along the entire chain (Bogner et al., 2016).
Influence of a digital strategy on digitalization of products/services and
processes
The extant literature has already highlighted digitalization as an important
part of the strategic orientation of firms (Im & Workman, 2004; Zhou et al.,
2005). N. Kim et al. (2013) even emphasized that a digital strategy is one of the
most relevant aspects in incorporating digitalization in firms.
To investigate the influence of a digital strategy on the degree of digita­
lization in terms of digital products/services and digital processes of new
ventures and thus improving the performance in the domains of digitaliza­
tion, we refer to the contingency theory. The theory emphasizes the
importance of a firm’s management to transform resources into capabilities
to improve organizational performance (Symeonidou & Nicolaou, 2018;
Venkatraman & Camillus, 1984). There is not a single best way that leads to
organizational success, but a variety of internal and external contingencies
have to be taken into account (Shepard & Hougland, 1978). The theory is
preferred in strategy analysis over the resource-based view with respect to
the alignment of resources and strategy relationships as well as valueadding capabilities (Chirico et al., 2011; Gruber et al., 2010; Sirmon et al.,
2010).
Applied to the field of digital strategy, the theory enables us to investigate
the alignment of interorganizational factors to improve digital performance in
two domains of new ventures: digital products/services and digital processes.
Thus, a digital strategy set by the management of new ventures helps to align
multiple organizational factors to increase the degree of digitalization in terms
of digital products/services and digital processes (Symeonidou & Nicolaou,
2018; Venkatraman & Camillus, 1984). In our study, we focus on firm-level
capabilities.
Established firms that incorporate a digital strategy have been found to
benefit from (a) enhanced digital products/services or developing completely
new ones (Sebastian et al., 2017), and (b) improving internal work routines by
developing digital processes (Bharadwaj et al., 2013; McConnell, 2015). We
believe that the incorporation of digitalization in a firm’s business strategy is
especially relevant in the field of entrepreneurship. In recent entrepreneurial
business models, the digitalization of products/services and processes can
barely be separated from new ventures’ overall strategy (Bharadwaj et al.,
2013). Thus, we believe that incorporating a digital strategy in new ventures
should have an effect on the digitalization of those firms in terms of digital
products/services and digital processes too. This holds especially true because
new ventures are typically smaller and younger than established corporations,
6
D. PROKSCH ET AL.
resulting in the fact that a strategy provided by the founders should be more
easily adoptable (Kearney et al., 2019). We therefore hypothesize:
Hypothesis 1a: A digital strategy positively affects the degree of digitalization in new
ventures’ digital products/services.
Hypothesis 1b: A digital strategy positively affects the degree of digitalization in new
ventures’ digital processes.
Current research is not only referring to digital strategy as a means to
influence the degree of digitalization in new ventures` products/services and
processes but also describing three intervening factors. Those factors include
digital information technology capabilities (BarNir et al., 2003), employees’
digital capabilities (Prokesch, 2017), and a digital culture (Deuze, 2006).
Dynamic capabilities, which can be defined as the ability to develop internal
competence, are required to follow the strategic orientation to incorporate
digitalization in new ventures (Teece, 2007). This follows the contingency
theory, which emphasizes that factors such as the organizational structure,
the employees, and the infrastructure of the firm have to be taken into account
for a good managerial outcome (Shepard & Hougland, 1978).
Mediating role of digital IT capabilities
Digital IT capabilities have been found to influence the degree of digitalization
in firms (BarNir et al., 2003; Neus et al., 2017; Souza et al., 2017). DeLone et al.
(2018) define digital IT capabilities as the ability to use technological applica­
tions to create value for customers, suppliers, and the firm itself. Those
technical applications include software and hardware. They form the basis to
develop digital products/services. We therefore assume that digital IT capabil­
ities support a digital strategy in increasing the degree of digitalization of new
ventures’ products/services (Denner et al., 2018). Having digital IT capabilities
allows firms to collect customer feedback through digital platforms to actively
integrate customers’ opinions within the progress of digitalizing products/
services. As such, digital IT capabilities might be also supportive in enabling
more rapid digital innovation that comes alive in digital products/services
(DeLone et al., 2018; Von Briel et al., 2018). Furthermore, we suppose that the
effect of digital strategy on digital processes is strengthened by digital IT
capabilities as new ventures need suitable digital IT capabilities to automate
their processes (Berghaus et al., 2017; Souza et al., 2017). Digital IT capabilities
enable new ventures to connect their IT with digital offerings, such as digital
payment, logistics, and customer- or supplier-relationship management sys­
tems, which can lead to more flexible digital relations between a firm’s internal
and external resources and processes. Considering these positive effects of
digital IT capabilities, we assume a mediating effect of digital IT capabilities on
JOURNAL OF SMALL BUSINESS MANAGEMENT
7
the relationship between a digital strategy and digital products/services as well
as digital processes. Consequently, we hypothesize:
Hypothesis 2a: The relationship between digital strategy and digital products/services is
mediated by the digital IT capabilities.
Hypothesis 2b: The relationship between digital strategy and digital processes is
mediated by the digital IT capabilities.
Mediating role of employees’ digital capabilities
In addition to the importance of a digital strategy, various researchers high­
light the significance of employees’ digital capabilities for new ventures’
digitalization (Parida et al., 2015; Prokesch, 2017). Employees’ digital capabil­
ities reflect team members’ ability to make use of digital technologies
(Arkhipova & Bozzoli, 2018), resulting from digital experience and technical
know-how (Bassellier et al., 2001). For example, to make use of big data
analytics, team members must be familiar with applications that allow them
to store, process, and use a large volume of data to simulate scenarios, create
networks, or build causal explanations (Arkhipova & Bozzoli, 2018). The
results of such work can, for instance, be used to improve or to create
innovative new digital products/services or processes (Ritter & Gemünden,
2004).
We therefore assume a mediating effect of employees’ digital capabilities
on the effect of a digital strategy on the digitalization of new ventures.
Employees’ digital capabilities include, for example, the ability to actively
exchange information and documents through digital platforms, such as
cloud services (Fischer & Reuber, 2014), as well as the capabilities to use
digital channels (including mobile and social media) to integrate digital
communication processes (BarNir et al., 2003). Thus, employees’ digital
capabilities might reinforce the effect of a digital strategy in terms of digital
products/services and processes. Having a high degree of digital capabilities
enables employees to track processes in real time so that workflows become
more transparent. This allows for identification of processes that can be
digitally improved or enhanced (Iivari et al., 2016; Knight & Cavusgil,
2004). Thus, we anticipate a mediating effect of employees’ digital capabil­
ities between a digital strategy and the digitalization of new ventures’ pro­
ducts/services and processes (Nylen & Holmström, 2015). Therefore, we
hypothesize:
Hypothesis 3a: The relationship between digital strategy and digital products/services is
mediated by employees’ digital capabilities.
Hypothesis 3b: The relationship between digital strategy and digital processes is
mediated by employees’ digital capabilities.
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D. PROKSCH ET AL.
Mediating role of digital culture
The extant research emphasized the significant role of a company’s digital
culture in tapping the full potential of the digitalization in new ventures
(Deuze, 2006; Nylen & Holmström, 2015; El Sawy et al., 2016). A digital
culture is defined as “an emerging set of values, practices and expectations
regarding the way people (should) act and interact within the contemporary
network society” (Deuze, 2006, p. 1). A new venture’s culture encompasses
common behavioral rules that determine its identity (Punnett & Ricks, 1990).
We assume that a digital culture might enhance the effect of a digital
strategy on the degree of digitalization in products/services and processes of
new ventures as it helps to unfold the potential of a digital strategy. A digital
culture also allows for flat hierarchies and decentralized decision-making,
which provide room for creativity and thereby creating opportunities for the
development of digital products/services (McConnell, 2015; Nylen &
Holmström, 2015). A digital culture generates new knowledge and increases
inventiveness, thereby supporting the development of new products/services
(Duerr et al., 2018). In addition, a digital culture leads to changes in the firm’s
behavior arising from the use of technology. This culture might include agile
and flexible working styles; a digital-first mindset; an adaptive skill set that
allows for failure when establishing digital abilities; and a focus on data, which
might influence the degree of the digital processes in new ventures (El Sawy
et al., 2016). Thus, we believe that a digital culture could mediate the relation­
ship of a digital strategy and digital products/services as well as digital pro­
cesses in new ventures, as it creates an environment in which team members
are empowered to make use of digital technologies (Deuze, 2006). This leads
us to hypothesize:
Hypothesis 4a: The relationship between digital strategy and digital products/services is
mediated by digital culture.
Hypothesis 4b: The relationship between digital strategy and digital processes is
mediated by digital culture.
Figure 1 summarizes our theoretical framework.
Methodology
Data
Our study focuses on new German ventures. We define a new venture in this
article as an organization that was established within the past 10 years and
offers an innovative product, service, or business model (Candi &
Saemundsson, 2008; Zahra, 1995). Focusing on new ventures in Germany
while studying the digitalization of new ventures is important for several
JOURNAL OF SMALL BUSINESS MANAGEMENT
9
Figure 1. Theoretical framework.
reasons. First, the capital of Germany, Berlin, is often ranked as one of the
most important cities for founders in the field of digitalization—for example,
seventh place globally in Startup Genome’s “2017 Global Startup Ecosystem
Report” (Startup Genome, 2017) and fourth place globally in Nestpick’s
“Startup City Index” (Nestpick, 2017)—which demonstrates the global rele­
vance of the German entrepreneurial ecosystem. Second, new ventures in
Germany receive 29 percent of Europe’s venture-capital investments, which
highlights the important role of new German ventures for European investors
(KPMG, 2018).
We collected our data through an open-source online survey tool
(LimeSurvey) from May 2018 until November 2018 using a snowballing
sampling technique. We chose this technique because the true population of
new digital ventures in Germany is unknown. Snowballing is an effective
method to build a homogeneous sample for hard-to-reach populations
(Khelil, 2016; Neergaard, 2007). Furthermore, snowball sampling is
a common approach in entrepreneurship research (Fischer & Reuber, 2014;
Gruber et al., 2015; Kuhn & Galloway, 2015).
For the data collection we recruited participants at two entrepreneurship
conferences and shared the survey link with entrepreneurs within a university
network whose private business school had many alumni who had started
digital businesses. Thus, these were effective methods to acquire respondents
for our survey. We asked respondents to refer us to other potential partici­
pants. We explicitly did not focus on a particular industry because we used
a multiconstruct approach to measure digitalization; for example, a software
company might offer only digital products/services but might not have
10
D. PROKSCH ET AL.
digitalized the processes internally, and a pharmaceutical company might offer
a nondigital product but have a high degree of digitalization of internal
processes.
In total, we collected 116 responses. We stopped the collection period when
subsequent respondents began referring us to founders who already partici­
pated in our survey. In the end, we removed responses from 14 organizations
from our final calculation, 10 of which were not headquartered in Germany
and four of which were older than 10 years. Therefore, our final model
contains 102 cases. With regard to position in the organization, 70.6 percent
of the respondents were members of the founding team, 15.7 percent were
members of the management team, and 13.7 percent were employees. The
majority of the respondents were aged 25–34 years (59.8 percent) and
35–44 years (24.5 percent); nine respondents were older, and seven were
younger. Most of the respondents had a business/economics background (61
participants), 11 had an IT background, four an engineering background, six
a life science background, eight a social science background, one a law back­
ground, and 11 respondents had other backgrounds. We established
a balanced data set in the sense of snowball sampling: On the selfassessment of how digital the company is on a Likert scale from 1 (not digital
at all) to 5 (completely digital), 45 participants responded with 4, which is also
the median; the average is 3.9. Thirty-one respondents selected 5, and 26
respondents chose less than 4. This variation shows that the degree of digita­
lization of the ventures is high within our data set, still keeping enough
variance for statistical analysis.
To establish a high reliability in creating our model, we conducted an
approach adapted from Davidsson et al. (2017). First, the four authors of
our article refined the items identified in literature. We had two experts in
the author’s team: One of the authors is a successful digital entrepreneur and
a frequent investor in digital businesses, and one of the authors is Minister of
Economic Affairs, Innovation, Digitalization and Energy of the State of North
Rhine-Westphalia, Germany. Then we discussed the survey questions with
four researchers in the field outside the author team and adapted the questions
based on their feedback. Thereby, we focused especially on improving the
understandability of the questions and items. In the next step, we conducted
two pretests involving a total of 17 participants in which we asked the
participants specifically to provide feedback to the survey questions; we
adapted our survey accordingly. This process identified several items that
were more appropriate for established firms than for new ventures. We
iteratively changed the respective items. Further, we looked for outliers in
our constructs that might have been caused by misunderstanding and refined
these items accordingly.
After the two pretests, we conducted a pilot study with 24 participants in
which we specifically looked for the reliability of the constructs and for
JOURNAL OF SMALL BUSINESS MANAGEMENT
11
significant items. At this point, the constructs exhibited high reliability; there­
fore, we decided to start the final data collection. The participants of the two
pretests and the pilot study were excluded from the final data collection.
On average, the new ventures of our final data set were 3.4 years old
(median: 3). Sixteen companies were in the idea or pre-seed round, 38 were
in the seed round, 27 were in a later financing round, 18 companies were in
the expansion stage, and three were in the exit phase. The industry distribu­
tion was diverse, with participating organizations active in IT/consumer
electronics (12 participants), consumer services (11 participants), and con­
sumer commerce (nine participants), among others. Seventy-five out of the
102 new ventures had at least one founder with a technical background in
the team.
Method
We used variance-based structural equation modeling (SEM) to build and test
our model. As the digital strategy, the mediators, and the degree of digitaliza­
tion for products/services as well as processes cannot be measured directly, we
created constructs that included several items. We used SEM in the form of
partial least squares (PLS), which has recently gained popularity in entrepre­
neurship, strategic management, and general management research (Hair
et al., 2012b; Kuckertz & Prochotta, 2018). A PLS model consists of an outer
model that includes the constructs and their items and an inner model that
includes the constructs and their relations. We estimated the model para­
meters in three steps (Henseler et al., 2009). First, the algorithm iteratively
estimates the latent variable score (the score for each construct). Second, the
algorithm estimates the outer weights/loadings and path coefficients (using
multivariate linear regression to estimate the latter). Third, the algorithm
determines the location parameters. See Hair et al. (2016) and Sarstedt et al.
(2016) for a detailed description of the PLS method and its usage.
We had different reasons for choosing PLS. First, PLS is an effective method
for explorative research aimed at creating new theories (Hair et al., 2016). Our
research can be considered explorative because models that measure the
degree of digitalization of new ventures are currently missing in entrepreneur­
ship research. Second, PLS models are desirable when the research goal is to
explain the variance of the model (Hair et al., 2012a). In studying the influence
of a digital strategy as well as other factors that might have an effect on the
degree of digitalization in terms of products/services and processes of new
ventures, we tried to maximize the explained variance.
We calculated our model using SmartPLS software (version 3.2.7; Ringle
et al., 2015) using the default properties that include a path weighting scheme,
300 maximum iterations, a stop criterion of 10−7, and initial outer weights of
+1. We used a reflective measurement mode for all our constructs. An
12
D. PROKSCH ET AL.
explanation for this choice can be found in Online Appendix E. For the
mediation analysis, we followed the recommendations of Nitzl et al. (2016)
and Hayes (2017).
Measures
We based our constructs on items identified in the literature. Table 1 lists all
the items as well as the survey questions. We used 5-point Likert scales for all
items.
We measured the digital strategy using five items, which we adapted from
the technology orientation literature (Chen et al., 2014; Hakala & Kohtamäki,
2011; N. Kim et al., 2013). The original construct measures the technology
orientation with the company’s strategy, and we tailored it to the field of
digitalization and updated one item after the pretest.
To measure digital IT capabilities, we used seven items. The original con­
struct was based on an adaptation of items measuring information and com­
munication technology capabilities (Chen et al., 2015; Parida & Örtqvist, 2015;
Wales et al., 2013) and digital platform capabilities (Cenamor et al., 2019). We
adapted the items during the pretests to fit the context of new ventures.
We measured employees’ digital capabilities using five items. The original
construct was based on an adaptation of items from the technological compe­
tence and expertise construct (Knight & Cavusgil, 2004; Ritter & Gemünden,
2004) as well as the IT competencies construct and its adoptions (Bassellier
et al., 2001). We updated the items during the pretest to tailor them to the
unique human resources conditions in new ventures.
We measured digital culture using five items based on the construct of
adhocracy culture by Lukas et al. (2013) and the findings of Duerr et al. (2018),
although we included only items applicable to new ventures. We updated the
items during the pretest to adapt them to the culture of new ventures.
We measured the digitalization of the product and services relying on the
constructs of innovation implementation (McAdam et al., 2010), technological
innovation (Tang & Murphy, 2012), and innovation radicalness (Marvel &
Lumpkin, 2007). We extensively updated the items after the pretest.
We initially measured digitalization of processes using items from the
constructs of business process digitization (BarNir et al., 2003; Bengtsson
et al., 2007), new process creativity (Rindfleisch & Moorman, 2001), and the
findings of Markus and Loebbecke (2013). However, we strongly revised the
construct according to pretest feedback.
Control variables
We included several control variables in our study. First, we included the age
of the new venture as a control, as it is one of the most common control
Construct
Items
Digital strategy: Please rate whether the following statements apply to your company on a scale (1) Digitalization is among the top three most important elements of our
from 1 (strongly disagree) to 5 (strongly agree).
business strategy.
(2) We investigate the newest trends and future scenarios in
digitalization to stay competitive.
(3) Digital projects have a high priority within our business.
(4) We constantly update and refine our digital strategy.
(5) Our competition as well as industry experts perceive us as a leader in
digital innovation.
Digital IT capabilities: Please rate whether the following statements apply to your company on (1) We adapt our digital offerings whenever changing business needs
a scale from 1 (strongly disagree) to 5 (strongly agree).
arise.
(2) We implement new digital products and services on a regular basis.
(3) Our IT integrates the most current digital offerings by third parties like
digital payments, customer relationship management systems, and
others.
(4) Our company provides access to a variety of digital devices.
(5) We use the most current IT infrastructure.
(6) We store all data digitally.
(7) We have Internet access with gigabit speed.
Employees’ digital capabilities: Please rate whether the following statements apply to your
(1) We offer different trainings (courses, literature, coaching) to improve
company on a scale from 1 (strongly disagree) to 5 (strongly agree).
the digital expertise of our team members.
(2) Digital skills are an important selection criterion in recruiting new
team members.
(3) Our team members use all digital services and products we offer.
(4) Our team has the necessary skills to further digitalize our company.
(5) We actively discuss our digital projects within our company including
failures and best practices.
Digital culture: Please rate how often you experience the following cultural influences ranging (1) We openly discuss failures with all team members.
from 1 (never) to 5 (always).
(2) Decisions are based on the opinion of the whole team, not on a single
person only.
(3) We work in cross-functional teams (combining people from IT,
marketing, finance, etc.).
(4) In our company, we avoid strong hierarchies in project work.
(5) Every team member brings in ideas and suggestions for digital
products and services.
Table 1. Constructs, survey items and literature.
(Continued)
Lukas et al., 2013;
Duerr et al., 2018
Knight & Cavusgil,
2004;
Ritter &
Gemünden,
2004;
Bassellier et al.,
2001
Chen et al., 2015;
Parida & Örtqvist,
2015;
Wales et al., 2013;
Cenamor et al.,
2019
Based on
Chen et al., 2014;
Hakala &
Kohtamäki,
2011;
N. Kim et al., 2013
JOURNAL OF SMALL BUSINESS MANAGEMENT
13
Items
Digital products/services: Please rate whether the following statements apply to your company (1) For the development of our products/services, we exploit all
on a scale from 1 (strongly disagree) to 5 (strongly agree).
opportunities for digitalization in the market.
(2) We successfully implemented new digital business ideas or business
models within the last three years.
(3) The degree of digitalization of our products and services is high
compared to our competitors.
(4) We actively integrate customers in the development of digital
innovations.
(5) We are able to quickly adapt our digital offerings based on customer
feedback.
Digital processes: Please rate how often you refer to the following statements ranging from 1 (1) We implement the most current digital channels (including mobile
(never) to 5 (always).
and social media) in our communication and service processes.
(2) We define and control metrics and goals for our digital channels.
(3) We improve our core processes with the support of digital
technologies.
(4) We use the most current digital technology to support standard
processes.
(5) We support our decision making by using data analytics.
Construct
Table 1. (Continued).
Based on
BarNir et al., 2003;
Bengtsson et al.,
2007;
Rindfleisch &
Moorman,
2001;
Markus &
Loebbecke,
2013
McAdam et al.,
2010;
Tang & Murphy,
2012;
Marvel &
Lumpkin, 2007
14
D. PROKSCH ET AL.
JOURNAL OF SMALL BUSINESS MANAGEMENT
15
variables in entrepreneurship and digitalization research (see BarNir et al.,
2003; Sarangee & Echambadi, 2014). Second, we included the investment
round because in a later stage, scaling the business is typically a high priority.
For scaling purposes, digitalization might become more important. Third,
participants were asked to specify the new venture’s industry. A new venture
active in the field of IT might be more inclined to adopt digital technologies
than a new venture in, for instance, the drug development field.
Results
We first assessed the validity of our constructs. We iteratively removed items
with loadings of less than 0.7 following Hair et al.’s (2016) guidelines. We
removed one item from the digital IT capabilities construct, two from the
employees’ digital capabilities construct, and one from the digital culture
construct. We reached the threshold for composite reliability and average
variance extracted (AVE). In addition, we removed two items from the digital
IT capabilities construct, one from the digital process construct, and two items
from the digital strategy construct to increase the discriminant validity. We
did not remove any items from the digital products/services. Table 2 shows the
loadings and p values of the remaining items based on 5,000 bootstrapping
rounds. All of our items had 99.9 percent significance. The descriptive
Table 2. Factor loadings and p values of the used items in our model.
Item
Strategy 1
Strategy 3
Strategy 4
IT 1
IT 3
IT 4
Employee 2
Employee 4
Employee 5
Culture 1
Culture 2
Culture 3
Culture 5
Product/Serv. 1
Product/Serv. 2
Product/Serv. 3
Product/Serv. 4
Product/Serv. 5
Processes 2
Processes 3
Processes 4
Processes 5
Digital
strategy
0.852***
0.909***
0.903***
Digital IT
capabilities
Employees’ digital
capabilities
Digital
culture
Digital pro­
ducts/services
Digital
processes
0.773***
0.822***
0.819***
Note. Unstandardized βs.
†p < .10, *p < .05, **p < .01, ***p < .001. 0.833*** 0.818*** 0.849*** 0.724*** 0.594*** 0.786*** 0.787*** 0.865*** 0.734*** 0.823*** 0.782*** 0.790*** 0.762*** 0.905*** 0.847*** 0.821*** 16 D. PROKSCH ET AL. statistics for the items as well as a correlation table are available in the Online Appendix A. In addition, we assessed the reliability of our constructs using Cronbach’s alpha, composite reliability, and the AVE (see Table 3 for results). We used a threshold of 0.7 for Cronbach’s alpha (Hair et al., 2016), and all of our constructs exceeded this value. In addition, all con­ structs exceeded the composite reliability threshold of 0.7 as well as the AVE threshold of 0.5 (Hair et al., 2016). We conclude that, in general, our constructs are reliable. To assess discriminant validity, we adopted the Fornell-Larcker criterion and the cross-loading approach. Both confirm discriminant validity (see Online Appendices OA.B1 and OA.B2). In addition, we used the heterotraitmonorait ratio (HTMT). We used the threshold of 0.8 (Hair et al., 2016, p. 119). Our model also passed this test (see Online Appendix OA.B3). Table 4 shows the path coefficients, effect sizes, and the explained variance for our model. The explained variance is high for the products or services and the processes constructs, as the first exceeds the 0.5 threshold and the second is only slight below that (Hair et al., 2016). First, we tested whether digital strategy relates to the degree of digitalization of product and services. The effect of digital strategy is strong (beta of 0.360) and significant (p < .001), therefore supporting H1a. When we include digital IT capabilities, employees’ digital capabilities, and digital culture in the model, digital strategy and digital IT capabilities are significant, but employees’ digital capabilities and digital culture are not. Therefore, the digital strategy is par­ tially mediated by digital IT capabilities. We can confirm H2a, but we must reject H3a and H4a. Furthermore, the explained variance is above 50 percent, indicating that the degree of digital products/services is well explained by the digital strategy and digital IT capabilities. Second, we tested whether digital strategy explains the degree of the digitalization of the new ventures’ processes. The effect of digital strategy is strong (beta of 0.244) and significant (p < .05), therefore supporting H1b. When we included digital IT capabilities, employees’ digital capabilities, and digital culture in the model, we found that digital strategy, digital IT cap­ abilities, and digital culture are significant. We conclude that digital strategy is partially mediated by these three variables. We therefore can accept H2b Table 3. Reliability criteria for the constructs. Construct Digital strategy Digital IT capabilities Employees’ digital capabilities Digital culture Digital products/services Digital processes Cronbach’s alpha 0.867 0.729 0.781 0.715 0.859 0.857 Composite reliability 0.918 0.847 0.872 0.816 0.899 0.902 AVE 0.789 0.648 0.695 0.528 0.641 0.698 JOURNAL OF SMALL BUSINESS MANAGEMENT 17 Table 4. Path coefficients, effect sizes, p values, and R2 in our model. Dependent variables Digital IT capabilities Employees’ digital capabilities Digital culture Independent variables β f2 β f2 β f2 H1: Digital strategy 0.641*** 0.689 0.638*** 0.685 0.336*** 0.128 H2: IT capabilities H3: Employees’ digital capabilities H4: Digital culture 2 R 0.411 0.407 0.112 Digital pro­ ducts/services HXa β f2 0.360*** 0.140 0.286** 0.091 0.100 0.010 Digital pro­ cesses HXb β 0.244* 0.367*** 0.010 f2 0.054 0.126 0.000 0.153† 0.035 0.208* 0.054 0.550 0.463 Note. β = coefficient, f2 = effect size. †p < .10, *p < .05, **p < .01, ***p < .001. and H4b, but we must reject H3b. Furthermore, a high explained variance (above 45 percent) indicates that the degree of digital processes is well explained by digital strategy, digital IT capabilities, and digital culture. In addition, a digital strategy can explain the digital IT capabilities, as evidenced by a high value for the explained variance of 41.1 percent. However, the digital strategy does not explain the digital culture, as indicated by a low value for the explained variance of only 11.3 percent. Figure 2 summarizes our results. With regard to the control variables, the age of the company as well as the investment round showed no significance, so we removed them from the model. Further, we extracted the latent variables scores of the constructs of the model. We used the scores to calculate a regression model with industry Figure 2. Graphical representation of path coefficients of the PLS model. 18 D. PROKSCH ET AL. dummies for each industry with more than seven mentions. For the construct digital products/services, none of the industry variables was significant. Although the industry dummy for “consumer service” was significant on a 95 percent level for the variable digital processes with a positive coefficient, only 11 of our 102 cases belong to the industry. The other coefficients changed only slightly, suggesting that no other industries had an influence on the degree of digital processes. Moreover, we checked for possible multicollinearity among our indepen­ dent constructs. The low values for the variance inflation factors (VIFs) indicate that this is not an issue in our model (see Online Appendix OA. C1). To test for a possible common method bias, we first referred to Kock’s (2015) method, which states that a common method bias can be identified based on the VIFs of the constructs. He proposes regressing all constructs on a random variable and then calculating the resulting VIFs. He argues that the threshold for common method variance is a VIF higher than 3.3 (Kock, 2015; Kock & Lynn, 2012). In our sample, all VIFs are below this value (see Online Appendix OA.C2). Furthermore, we followed Rönkkö and Ylitalo’s (2011) maker variable approach, which involves adding a variable uncorrelated to the constructs of the model and then checking the average correlation with each item. The correlation will capture any common variance bias; if it is below 0.05, no bias exists. We chose an item measuring whether less office space is needed due to the digitalization of the new venture. The average correlation with the items in our mode is 0.001, confirming that our model does not exhibit common method bias. Last, we controlled for possible endogeneity bias induced by reverse caus­ ality. In line with Hult et al. (2018), we first used the control variables as previously described. As we were unable to identify a potential bias with this method, we applied the Gaussian copula approach (Park & Gupta, 2012). We first assessed the nonnormality of our four independent constructs by running the Kolmogorov–Smirnov test with Lilliefors correction to assess whether the Copula approach could be applied. All four independent variables are non­ normally distributed (see Online Appendix D). Then we recalculated the two models including the copulas of our four enabler constructs. We could not identify an endogeneity problem in the models as none of the copulas were significant. We therefore conclude that our data do not suffer from a reverse causality issue. Discussion Our findings provide broad support for our theoretical conceptualization on how a digital strategy enables a high degree of digitalization in new ventures in terms of digital products/services and digital processes. We looked at three mediators in this relationship: digital IT capabilities, employees’ digital JOURNAL OF SMALL BUSINESS MANAGEMENT 19 capabilities, and digital culture. Our results indicate that in particular the digital IT capabilities and the digital culture play a role. Although the products and services offered by new ventures are mainly dependent on the founders of new ventures, our results show that the degree of the digitalization of the products/services offered is influenced by the digital strategy, which is most likely implemented by the founders as well. This finding is in line with previous research that highlights the importance of the founder in a new venture’s success (Song et al., 2008). Having a digital product or service offered (for example, providing an e-commerce platform) also leads to higher average sales growth rates, which derives a competitive advantage for new ventures (Abebe, 2014). This finding can be explained by the fact that a high degree of digitalization enables a high scalability of the products and services offered as well as a rapid launch of new products and services. Moreno-Moya and Munuera-Aleman (2016) showed that the ladder has a positive performance impact in SMEs. Our investigations show that the digital strategy has a direct relation to digital processes, but a much weaker one. Here we contradict the research in the SME context by Bi et al. (2019), who showed the importance of a critical role of top management in assimilating digital business within the organiza­ tion, and S.H. Kim et al. (2017), who showed that management support is more important than IT capacity for the adaption of Software as a Service (SaaS) in SMEs. One explanation is that the founders tend to focus more on factors that are visible from outside and less on managing the internal pro­ cesses, especially in the beginning. A reason might be that new ventures lack the resources to manage both. Although this approach might have its advan­ tages in the early stages, it can be a challenge when the new venture experi­ ences fast growth. It can lead to inefficiencies and reduce the productivity. We identify digital IT capabilities as an important mediator of a high degree of digitalization in new German ventures. This result is in line with the research of Bi et al. (2019), who showed the influence of IT business spanning capability on competitive process alignment for SMEs. As new ventures often have limited resources, a lack of IT resources might be problematic and potentially hinder fast digitalization and therefore the scaling of the business. This is especially the case for the digitalization of processes: Digital IT cap­ abilities strongly mediate them. Possibly, new digital ventures use their digital IT capabilities more on what is visible to investors and customers when IT resources are scare: the digitalization of the products. Furthermore, following the results of Mohd Salleh et al. (2017), the founders might not be fully aware of the benefits of process digitalization. Employees’ digital capabilities do not play a significant role as a mediator in our model. This marks a clear departure from findings in the corporate literature that highlight the need to develop employees’ digital capabilities to successfully digitalize (Kane et al., 2017; Neus et al., 2017). New ventures tend 20 D. PROKSCH ET AL. to have better access to skilled employees due to the network and experience of their founders (Zahra & George, 1999). Furthermore, Symeonidou and Nicolaou (2018) show that higher human capital investments compared with rivals do not necessarily lead to better company performance. The lack of a significant influence of employees’ digital capabilities on digitalization in our model may also be explained by a self-selection bias. New ventures often employ relatively young people who are digital natives and therefore likely to use digital products/services. Alternatively, they may include digital com­ petencies in their hiring criteria. The latter factor scored an average of 4 out of 5 in our survey, meaning on average they agree to that statement. A digital culture is a further mediator for digital processes in new ventures, in line with current research (Brettel et al., 2015; El Sawy et al., 2016). When beginning to digitalize manual processes, some tolerance of failure is necessary. The employees must be amenable to change, as digitalization makes it necessary to do things in new ways. In addition, the management of new ventures might focus more on product/service digitalization as they must show results to financial investors. A working product might be more important in the begin­ ning than running an efficient business. Possibly, the digitalization of processes might be triggered by the employees to make things easier for themselves—in a sense, making it an employee-driven innovation process (Kesting & Ulhøi, 2010). Interestingly, digital culture cannot be explained by the digital strategy. A reason for that may be that new ventures often lack hierarchies in the beginning (Minguzzi & Passaro, 2001). Rather than enforcing decisions from the top, employees freely work on different projects. The management sets the goals for the product or service development and digitalization but does not tell the employees how to do it. They do not “construct” the digital culture but rather let it unfold (Hayton & Cacciotti, 2013). Implications From a theoretical perspective, our study delivers empirical evidence on the influence of a digital strategy on the degree of digitalization of products/ services and processes building on the contingence theory. We followed Ott et al.’s (2017) and García-Cabrera et al.’s (2019) calls for research to explicitly study the role of strategy in the entrepreneurial context as well as of Steiniger’s (2019) to contribute to the research of combining digital technologies and entrepreneurship. Furthermore, we contribute to the discussion by Bi et al. (2019), Eggers et al. (2017), and Cragg et al. (2013) of the role of IT in small businesses. In addition, we contribute to the literature by highlighting the appropriateness of using the contingency theory for strategic issues in entre­ preneurship (Gruber et al., 2010). We emphasize the important role of a digital strategy in the digitalization of products/services. The results point to a similar direction like Tornikoski JOURNAL OF SMALL BUSINESS MANAGEMENT 21 et al.’s (2017) idea of technological distinctiveness. In this regard, we further show how internal contingencies can result in organizational outcomes. We highlight that digital IT capabilities as well as a digital culture influence the degree of digitalization in terms of products/services and processes in new ventures, which is assigned a variety of benefits like rapid scaling or a higher flexibility. However, future research is needed to determine how the degree of digitalization affects new ventures’ output and performance. In addition, we showed the importance of IT capabilities for enabling digitalization. We currently lack the understanding of how digital IT capabil­ ities for digital processes and digital products/services might differ and call for further research to understand this phenomenon better. Furthermore, we found new results in the area of the roles of digital culture. Digital culture has an influence on the degree of process digitalization. Surprisingly, digital strategy does not explain digital culture well. Future research should attempt to explain this effect. Currently, only limited empiri­ cal research addresses digital culture, especially with respect to strategic issues. Our work has several practical implications. First, we show that a digital strategy is influencing the degree of digitalization of new ventures’ products and services. Thus, founders who wish to increase the degree of digitalization of products and services, for example, to increase the potential for rapid scaling, can focus on implementing a digital strategy in their new venture. Second, we highlight that the effect of the digital strategy on the digitaliza­ tion of processes is strongly mediated by the digital IT capabilities. These results can be used by founder-supported initiatives, such as accelerators, by offering services and infrastructure for faster digitalization of new ventures. Especially in the early phases, new ventures might not have the resources needed to establish a sophisticated IT infrastructure in a way that supports further digitalization. This result is also relevant for founders, who should adapt their strategy to use more resources on digital IT capabilities, as a high degree of digitalization in processes can lead to cost savings and greater efficiencies and might enable a rapid scaling of the venture. Third, we show that the influence of digital strategy on digital processes is mediated by a digital culture. Increasing digitalization carries a risk of failure, especially considering that the solutions for some areas will be completely new. Therefore, a failure-tolerating culture—an element of the digital culture—can enhance digitalization. New ventures can actively engage in establishing such a culture. Limitations Our study has two main limitations that should be addressed in future research. First, we used entrepreneurs’ self-assessments to study the degree of digitalization of new ventures, which could be positively biased. In other 22 D. PROKSCH ET AL. words, entrepreneurs might be more inclined to create a positive image of their venture, especially as a high degree of digitalization often has a positive connotation in the media. 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