Exploring the Interplay of Digital Innovation and Digital Transformation

Digital technologies are reshaping individuals, organizations, industries, and society, thereby enabling digital innovation (DI) and digital transformation (DT). DI involves using digital technologies as a means or an end to create novel, value-adding solutions, while DT describes the comprehensive reconfiguration of strategies, structures, processes, and cultures within organizations enabled by digital technologies. Both DI and DT create new opportunities for value creation but also introduce complexities and challenges that organizations need to navigate. They blur organizational boundaries, alter business logics and value propositions, often fostering a rethinking of organizational strategies and operations. Further, digital infrastructures and platforms transform established systems and redefine interactions between actors of public as well as private organizations. These developments demonstrate that DI and DT are key drivers of change in the digital age across multiple levels. Given this context, a more thorough understanding of DI and DT, their differentiation, and how they relate to each other is necessary. Although both concepts are widely discussed, their mutual influence is often ambiguous and insufficiently understood. Existing research frequently describes DI as either a driver of or a support for implementing DT. Yet it is also evident that DT affects which DIs are prioritized, how they are carried out, and how their value is perceived. Therefore, this dissertation considers DI and DT as separate yet interconnected phenomena. To examine their interplay, this study has two main goals: first, to explore how DI influences DT, and second, to analyze how DT impacts DI. Developing integrated knowledge about this relationship not only clarifies the concepts and reduces ambiguity but also lays the groundwork for stronger theories, methods, and practical strategies for managing the dynamic relationship between DI and DT. The first research objective is explored through three research articles: Research Article #1 introduces the SmartSI Compass, a method for generating smart service ideas. Research Article #2 examines employee-GenAI collaboration during the ideation process, and Research Article #3 analyzes different roles of digital post systems in public administration. Collectively, these studies demonstrate how DI influences DT: DI drives DT by creating new value propositions (such as smart services) and it realizes DT by providing infrastructures and specific measures for implementation (such as digital post systems). The second research objective is also studied through three research articles: Research Article #4 investigates organizational purpose as a cultural foundation for managing tensions in DT. Research Article #5 explores resource orchestration within the context of boundary blurring in DI, and Research Article #6 presents VAMOS, a method for anticipating the value-in-use of smart services during early stages of DI. Together, these articles show how DT influences DI: DT enables DI by shaping the cultural and organizational conditions for innovation (e.g., through purpose), and it directs DI by setting priorities and allocating resources (e.g., via value-based assessment methods). In summary, the studies use qualitative research methods such as case studies and design science research approaches to capture the socio-technical complexity of digital change. The empirical focus lies primarily on incumbents and traditionally product-focused companies, as these are contexts where the challenges of DI and DT are especially prominent. To ensure rigor and relevance, the developed methodological and conceptual knowledge was evaluated through applications in real-world settings and structured assessments against established criteria. Consequently, the six research articles contribute to both academic discourse and managerial practice. Primarily, this dissertation advances existing knowledge on the interplay of DI and DT by conceptualizing four mutual influences: drive, realize, enable, and direct. Additionally, it enhances the understanding of DI and DT individually, which involves developing descriptive knowledge to clarify the nature and mechanisms of shaping these phenomena, as well as prescriptive knowledge to offer actionable methods and frameworks for organizations to navigate digital change. Overall, it expands the current body of knowledge and provides practitioners with methods for idea generation, frameworks for human-AI collaboration, guidance on digital infrastructure design, strategies for value-based evaluation, approaches to resource orchestration, and insights into cultural foundations such as purpose. Taken together, this dissertation demonstrates that DI and DT are not isolated or sequential processes but interconnected and mutually reinforcing. When thoughtfully designed and responsibly managed, they enable organizations to actively shape digital change, foster sustainable competitiveness, and build the foundations to create long-term value for stakeholders.