Impact of COVID-19 on Digital Transformation: An Empirical Analysis of Manufacturing Companies

  • Francesca Capo
  • Lorena M. D’Agostino
  • Salvatore Torrisi
Keywords: data-driven decision making; management practices; digital transformation; institutional logics; COVID-19

Abstract

Purpose of the paper: This study explores whether and how the restrictions resulting from COVID-19 crisis have affected digital transformation (DT) measured by the adoption of data-driven decision-making (DDD) and structured management (SM) practices.

Methodology: On the basis of an original survey of 102 manufacturing firms located in Lombardy, we explore the DDD and SM practices before and during the lockdown, which began on 8 March 2020. The factors explaining heterogeneous responses to the crisis, namely, institutional logic, firm size, technological sectors, and family business, are also considered.

Findings: We find that during the lockdown, firms suffered a setback in the use of DDD and SM. However, there is a significant heterogeneity in the response across firms. The factors considered in our study poorly explain this heterogeneity in DDD. Meanwhile, all factors, except institutional logic, effectively explain the differences in SM.

Research limits: This study provides a preliminary and descriptive analysis. Further analysis is needed to better identify causality and co-factors. 

Practical implications: DT could be particularly sensitive to crisis, and crisis response varies across different dimensions of DT (i.e. DDD and SM) and types of firms. This implies that a variety of firms may benefit from DT but that DT requires specific managerial attention.

Originality of the study: This study employs an original dataset that sheds new light on how the pandemic has affected DT. It focuses on one of the largest European manufacturing regions which was severely hit by the first wave of the pandemic.

References

AGHION P., ASKENAZY P., BERMAN N., CETTE G., EYMARD L. (2012), “Credit Constraints and the Cyclicality of R&D Investment: Evidence from France”, Journal of the European Economic Association, vol. 10, n. 5, pp. 1001-1024.

ARAL S., BRYNJOLFSSON E., WU L. (2012), “Three-Way Complementarities: Performance Pay, Human Resource Analytics, and Information Technology”, Management Science, vol. 58, n. 5, pp. 913-931.

ARCHIBUGI D., FILIPPETTI A., FRENZ M. (2013a), “Economic crisis and innovation: Is destruction prevailing over accumulation?”, Research Policy, vol. 42, n. 2, pp. 303-314.

ARCHIBUGI D., FILIPPETTI A., FRENZ M. (2013b), “The impact of the economic crisis on innovation: Evidence from Europe”, Technological Forecasting and Social Change, vol. 80, n. 7, pp. 1247-1260.

BALSMEIER B., WOERTER M. (2019), “Is this time different? How digitalization influences job creation and destruction”, Research Policy, vol. 48, n. 8, p. 103765.

BARLEVY G. (2004), On the Timing of Innovation in Stochastic Schumpeterian Growth Models, National Bureau of Economic Research, Working Paper No. 10741.

BARNEY J. (1991), “Firm Resources and Sustained Competitive Advantage”, Journal of Management, vol. 17, n. 1, pp. 99-120.

BASCO R., BASSETTI T., DAL MASO L., LATTANZI N. (2021), “Why and when do family firms invest less in talent management? The suppressor effect of risk aversion”, Journal of Management and Governance, doi https://doi.org/10.1007/s10997-021-09599-1

BERRONE P., CRUZ C., GOMEZ-MEJIA L.R. (2012), “Socioemotional Wealth in Family Firms: Theoretical Dimensions, Assessment Approaches, and Agenda for Future Research”, Family Business Review, vol. 25, n. 3, pp. 258-279.

BESHAROV M.L., SMITH W.K. (2014), “Multiple Institutional Logics in Organizations: Explaining Their Varied Nature and Implications”, Academy of Management Review, vol. 39, n. 3, pp. 364-381.

BETTIOL M., CAPESTRO M., DI MARIA E., MICELLI S. (2021), “Reacting to the COVID-19 pandemic through digital connectivity with customers: the Italian experience”, Italian Journal of Marketing, vol. 2021, n. 4, pp. 305-330.

BHARADWAJ A., EL SAWY O.A., PAVLOU P.A., VENKATRAMAN N. (2013), “Digital Business Strategy: Toward a Next Generation of Insights”, MIS Quarterly, vol. 37, n. 2, pp. 471-482.

BLOOM N., BRYNJOLFSSON E., FOSTER L., JARMIN R.S., SAPORTA EKSTEN I., VAN REENEN J. (2013), Management in America, Social Science Research Network, Rochester, NY, SSRN Scholarly Paper No. ID 2200954.

BLOOM N., VAN REENEN J. (2010), “Why Do Management Practices Differ across Firms and Countries?”, Journal of Economic Perspectives, vol. 24, n. 1, pp. 203-224.

BREM A., NYLUND P., VIARDOT E. (2020), “The impact of the 2008 financial crisis on innovation: A dominant design perspective”, Journal of Business Research, vol. 110, pp. 360-369.

BRYNJOLFSSON E., HITT L.M. (2000), “Beyond Computation: Information Technology, Organizational Transformation and Business Performance”, Journal of Economic Perspectives, vol. 14, n. 4, pp. 23-48.

BRYNJOLFSSON E., MCAFEE A. (2012), “Winning the Race With Ever-Smarter Machines”, MIT Sloan Management Review, vol. 53, n. 2, pp. 53-60.

BRYNJOLFSSON E., MCELHERAN K. (2016a), Data in Action: Data-Driven Decision Making in U.S. Manufacturing, Social Science Research Network, Rochester, NY, SSRN Scholarly Paper No. ID 2722502.

BRYNJOLFSSON E., MCELHERAN K. (2016b), “The Rapid Adoption of Data-Driven Decision-Making”, American Economic Review, vol. 106, n. 5, pp. 133-139.

CRAVEN M., LIU L., MYSORE M., WILSON M. (2020), “COVID-19: Implications for business”, McKinsey and Company, vol. 8.

D’AGOSTINO L.M., MORENO R. (2018), “Exploration during turbulent times: an analysis of the relation between cooperation in innovation activities and radical innovation performance during the economic crisis”, Industrial and Corporate Change, vol. 27, n. 2, pp. 387-412.

DAVENPORT T.H. (1998), “Putting the enterprise into the enterprise system”, Harvard Business Review, vol. 76, n. 4, pp. 121-131.

DAVENPORT T.H., HARRIS J.G., MORISON R. (2010), Analytics at Work: Smarter Decisions, Better Results, Harvard Business Press.

DEVADOSS P., PAN S.L. (2007), “Enterprise Systems Use: Towards a Structurational Analysis of Enterprise Systems Induced Organizational Transformation”, Communications of the Association for Information Systems, vol. 19, art. 17, pp. 352-385.

DRUCKER P.F. (1954), The practice of management, Harper & Row, New York.

EDERER F., MANSO G. (2013), “Is Pay for Performance Detrimental to Innovation?”, Management Science, vol. 59, n. 7, pp. 1496-1513.

ENGLMAIER F., FOSS N.J., KNUDSEN T., KRETSCHMER T. (2018), “Organization Design and Firm Heterogeneity: Towards an Integrated Research Agenda for Strategy”, Organization Design, vol. 40, pp. 229-252.

EUROSTAT (2018), “Glossary:High-tech classification of manufacturing industries”.

FABRIZIO K.R., TSOLMON U. (2014), “An Empirical Examination of the Procyclicality of R&D Investment and Innovation”, The Review of Economics and Statistics, vol. 96, n. 4, pp. 662-675.

FERRIGNO G., CUCINO V. (2021), “Innovating and transforming during COVID-19: insights from Italian firms”, R&D Management, vol. 51, n. 4, pp. 325-338.

FITZGERALD M., KRUSCHWITZ N., BONNET D., WELCH M. (2014), “Embracing digital technology: A new strategic imperative”, MIT Sloan Management Review, vol. 55, n. 2, p. 1.

GIBSON J.W., TESONE D.V. (2001), “Management fads: Emergence, evolution, and implications for managers”, Academy of Management Perspectives, vol. 15, n. 4, pp. 122-133.

GIURI P., TORRISI S., ZINOVYEVA N. (2008), “ICT, skills, and organizational change: evidence from Italian manufacturing firms”, Industrial and Corporate Change, vol. 17, n. 1, pp. 29-64.

GREENWOOD R., RAYNARD M., KODEIH F., MICELOTTA E.R., LOUNSBURY M. (2011), “Institutional Complexity and Organizational Responses”, Academy of Management Annals, vol. 5, n. 1, pp. 317-371.

HANELT A., BOHNSACK R., MARZ D., ANTUNES MARANTE C. (2021), “A Systematic Review of the Literature on Digital Transformation: Insights and Implications for Strategy and Organizational Change”, Journal of Management Studies, vol. 58, n. 5, pp. 1159-1197.

HERTEL G., GEISTER S., KONRADT U. (2005), “Managing virtual teams: A review of current empirical research”, Human Resource Management Review, vol. 15, n. 1, pp. 69-95.

KRETSCHMER T., KHASHABI P. (2020), “Digital Transformation and Organization Design: An Integrated Approach”, California Management Review, vol. 62, n. 4, pp. 86-104.

KUDYBA S., FJERMESTAD J., DAVENPORT T. (2020), “A research model for identifying factors that drive effective decision-making and the future of work”, Journal of Intellectual Capital, vol. 21, n. 6, pp. 835-851.

LI L., SU F., ZHANG W., MAO J.-Y. (2018), “Digital transformation by SME entrepreneurs: A capability perspective”, Information Systems Journal, vol. 28, n. 6, pp. 1129-1157.

MCELHERAN K. (2015), “Do market leaders lead in business process innovation? The case (s) of e-business adoption”, Management Science, vol. 61, n. 6, pp. 1197-1216.

MCGAHAN A.M., PORTER M.E. (2003), “The Emergence and Sustainability of Abnormal Profits”, Strategic Organization, vol. 1, n. 1, pp. 79-108.

MCKINSEY (2020), How COVID-19 has pushed companies over the technology tipping point-and transformed business forever.

MURRAY F. (2010), “The Oncomouse That Roared: Hybrid Exchange Strategies as a Source of Distinction at the Boundary of Overlapping Institutions”, American Journal of Sociology, vol. 116, n. 2, pp. 341-388.

NAMBISAN S., WRIGHT M., FELDMAN M. (2019), “The digital transformation of innovation and entrepreneurship: Progress, challenges and key themes”, Research Policy, vol. 48, n. 8, p. 103773.

RAMUS T., VACCARO A., BRUSONI S. (2017), “Institutional Complexity in Turbulent Times: Formalization, Collaboration, and the Emergence of Blended Logics”, Academy of Management Journal, vol. 60, n. 4, pp. 1253-1284.

REIS J., AMORIM M., MELAO N., MATOS P. (2018), “Digital Transformation: A Literature Review and Guidelines for Future Research”, in Rocha, Adeli H., Reis J., Costanzo S. (Eds). Trends and Advances in Information Systems and Technologies. WorldCIST’18 2018. Advances in Intelligent Systems and Computing, vol. 745.

RONDI E., ÜBERBACHER R., VON SCHLENK-BARNSDORF L., DE MASSIS A., HÜLSBECK M. (2021), “One for all, all for one: A mutual gains perspective on HRM and innovation management practices in family firms”, Journal of Family Business Strategy, vol. 26, n. 2, pp. 350-374.

RUMELT R.P. (1991), “How much does industry matter?”, Strategic Management Journal, vol. 12, n. 3, pp. 167-185.

SAUERMANN H., STEPHAN P. (2013), “Conflicting logics? A multidimensional view of industrial and academic science”, Organization Science, vol. 24, n. 3, pp. 889-909.

SCHUMPETER J. (1939), Business cycles, McGraw-Hill, New York.

TEECE D.J., PISANO G., SHUEN A. (1997), “Dynamic capabilities and strategic management”, Strategic Management Journal, vol. 18, n. 7, pp. 509-533.

THORNTON P.H., OCASIO W. (2008), “Institutional logics”, in Greenwood R., Oliver C., Sahlin K., Suddaby R. (Eds). The SAGE Handbook of Organizational Institutionalism, pp. 99-129.

TREVOR C.O., REILLY G., GERHART B. (2012), “Reconsidering Pay Dispersion’s Effect on the Performance of Interdependent Work: Reconciling Sorting and Pay Inequality”, Academy of Management Journal, vol. 55, n. 3, pp. 585-610.

VERHOEF P.C., BROEKHUIZEN T., BART Y., BHATTACHARYA A., QI DONG J., FABIAN N., HAENLEIN M. (2021), “Digital transformation: A multidisciplinary reflection and research agenda”, Journal of Business Research, vol. 122, pp. 889-901

Published
2022-08-31