Technological Forecasting & Social Change 207 (2024) 123624

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Technological Forecasting & Social Change

journal homepage: www.elsevier.com/locate/techfore

Digital transformation in manufacturing industries: Effects of firm size,

product innovation, and production type
Chia-Hung Wu a, d , Che-Wei Chou b, d, * , Chen-Fu Chien c, d , Yun-Siang Lin c
a
College of Management, Yuan Ze University, Chung-Li, Taiwan, ROC
b
Department of Industrial Engineering and Systems Management, Feng Chia University, Taichung, Taiwan, ROC
c
Department of Industrial Engineering and Engineering Management, National Tsing Hua University, Hsinchu, Taiwan, ROC
d
Artificial Intelligence for Intelligent Manufacturing Systems (AIMS) Research Center, Ministry of Science & Technology, Hsinchu 30013, Taiwan

A R T I C L E I N F O A B S T R A C T

Keywords: Digital transformation is an evolutionary process through which organizational processes and capabilities are
Digital transformation continually optimized to leverage the advantages of digital technologies. The advent of Industry 4.0 and the rise
Industry 4.0 of smart manufacturing technologies have revolutionized the manufacturing landscape, driving a significant
Firm size
interest in digital transformation in manufacturing sectors. Despite the potential benefits, the implementation of
Product innovation
Production type
Industry 4.0 in the manufacturing industry has been met with considerable challenges. The gap between a
manufacturing firm’s existing practices and the demands of Industry 4.0 should be taken into consideration. The
production and operation processes within a factory are not easy to redeploy or reconfigure. Most changes should
be coordinated toward a factory’s existing status. This study investigated the possible effects of different firm
characteristics and production contexts on firms’ digital transformation progress in manufacturing industries.
First, we used a cluster analysis method to cluster firms’ digital transformation levels on the basis of two di-
mensions: digital readiness and digital data capability. The cluster analysis revealed five distinct but progressive
clusters of digital transformation levels. Subsequently, we examined the association between firm characteristics
and the digital transformation levels. We conducted a questionnaire survey involving top 1000 manufacturing
firms in Taiwan; 139 responses were obtained. The empirical results indicated that larger firms and those with a
higher degree of product innovation were more likely to achieve higher levels of digital transformation. How-
ever, firm profitability and production type were not significantly associated with digital transformation levels.
This study contributes to digital transformation research by demonstrating that digital transformation is an
explorative process with high uncertainty. Our findings demonstrate that digital transformation presents chal-
lenges for small and medium-sized enterprises and highlight the practical managerial implication that strategies
suitable for large firms may not necessarily be appropriate for smaller firms.

1. Introduction The advent of Industry 4.0 and the rise of smart manufacturing
technologies have revolutionized the manufacturing landscape, driving
Industry 4.0 represents a transformative industrial paradigm shift a significant interest in digital transformation (DT) in manufacturing
that leverages the integration of information technologies (IT), opera- sectors. Unlike traditional IT transformations, which primarily focus on
tional technologies, and communication technologies to enhance building digital infrastructures, DT emphasizes data analysis capability,
manufacturing processes. The advancements in these smart which refers to the ability to analyze collected data to derive valuable
manufacturing technology have considerable influence on business insights (Sivarajah et al., 2017; Wamba et al., 2017). Such data-
manufacturing processes, activities, and logistics, which involve man- driven insights can be used to make relatively reliable and flexible
aging the internal flows required for products and services (Buer et al., operational and business decisions (Chien et al., 2020; Nguyen et al.,
2021). By enhancing control and operational efficiency, Industry 4.0 2023).
enables manufacturing firms to adapt to changing demands in real time Despite the potential benefits, the implementation of Industry 4.0 in
(Frank et al., 2019; Liao et al., 2017; Trappey et al., 2017). the manufacturing industry has been met with considerable challenges.

* Corresponding author.
E-mail address: [email protected] (C.-W. Chou).

https://doi.org/10.1016/j.techfore.2024.123624
Received 25 April 2023; Received in revised form 31 May 2024; Accepted 25 July 2024
Available online 7 August 2024
0040-1625/© 2024 Elsevier Inc. All rights are reserved, including those for text and data mining, AI training, and similar technologies.
C.-H. Wu et al. Technological Forecasting & Social Change 207 (2024) 123624

Factors such as the required investment (Eller et al., 2020), workforce engendered by the Industry 4.0 revolution, such as the IoT (Lee and Lee,
adaptation (Pedota et al., 2023; Srivastava et al., 2022), the need for 2015), big data analytics (Günther et al., 2017), platform technologies
new business models (Bouwman et al., 2019), the need for higher (Tan et al., 2015), and cloud computing (Velte et al., 2010), increase
organizational agility (AlNuaimi et al., 2022), and concerns over data data availability (Vial, 2021). These technologies enable new ap-
management and security have slowed the adoption process. proaches for value creation in DT (Hess et al., 2016). By using analytical
Acknowledging the challenges associated with transitioning from methodologies to assess data collected from different sources, enter-
Industry 3.0 to industry 4.0, Chien et al. (Chien et al., 2016, 2020; Chien prises can obtain valuable insights to enhance the quality of business
and Hong, 2024) propose the concept of Industry 3.5 as a hybrid strategy operations (Abbasi et al., 2016).
that combines the advanced technologies of Industry 4.0 with the In contrast to conventional IT-enabled organizational transformation
existing manufacturing systems of Industry 3.0. The gap between a that primarily focuses on the construction of digital artifacts, DT in-
manufacturing firm’s existing practices and the demands of Industry 4.0 volves a combination of analytical technologies and digital infrastruc-
should be taken into consideration. The production and operation pro- ture (Hartl and Hess, 2017; Nwankpa and Datta, 2017; Vial, 2021;
cesses within a factory are not easy to redeploy or reconfigure. Most Wessel et al., 2021). Although IT-enabled organizational transformation
changes should be coordinated toward a factory’s existing status. For is beneficial in that it improves data collation and information trans-
example, the textile industry, like most traditional industries, often has parency, such benefits are not sufficient for obtaining valuable business
fragmented data and information systems that are not integrated, insights; an analytical interpretation of the data is vital for obtaining
leading to information silos (Ku et al., 2020). This can hinder the effi- such insights (Nwankpa and Datta, 2017). Through big data analytics,
cient flow of information and decision-making processes. Considering firms can obtain valuable data-driven insights and information from the
the existing conditions of the manufacturing execution system, a better collected digital data, which can help them make informed decisions
strategy for transition is to build up a decision support system that in- (Chien et al., 2020; Newell and Marabelli, 2015). This increases opera-
tegrates current data flow and structure instead of investing in machines tional flexibility and enhances competitive advantage.
with cutting-edge Internet of Things (IoT) technology to collect and DT is a process in which an organization continuously transforms in
connect data automatically (Ku et al., 2020). response to new landscapes, including changes in business models,
Following this perspective, our study investigated firm characteris- products, process reengineering, and customer experiences (Mor-
tics that are associated with manufacturing firms’ product and operation akanyane et al., 2017; Nwankpa and Roumani, 2016). Successful DT
characteristics, such as industry, firm size, product innovation, and depends on improvements in business operations management (Ku
production types. We explore how these firm characteristics are asso- et al., 2020). Hence, the literature recommends that enterprises focus on
ciated with a firm’s level of digital transformation. developing organizational culture and training employees in IT capa-
We employed a survey approach to collect data. An invitation to the bilities to ensure the effective implementation of DT strategies (Goran
survey was sent to the top 1000 manufacturing firms in Taiwan. The et al., 2017; Karimi and Walter, 2015).
final sample comprised 139 valid survey responses. The study included The implementation of Industry 4.0 in the manufacturing industry
manufacturing firms from the following industrial sectors: semi- has been slower than expected. Most manufacturing firms are still in the
conductor, computer, electronic and optical product, fabricated metal early stages of implementation owing to the following factors: invest-
product, motor vehicle and part, machinery and equipment, chemical ment, workforce, new business models, organizational change, culture
product, and other manufacturing sectors. This study involved two and processes, data management, and security (Buer et al., 2021; Gadre
analysis phases. In the first phase, we used k-means clustering to cluster and Deoskar, 2020; Moeuf et al., 2018).
the firms’ digital transformation levels on the basis of two dimensions, Big data analytics is a revolutionary approach that facilitates the
namely digital readiness and digital data capability; we thus derived five extraction of valuable information from large volumes of data, thus
clusters of digital transformation levels. In the second phase, we enhancing business efficiency and establishing competitive advantage
examined whether the five clusters differed in terms of firm character- (Wamba et al., 2017). The current advanced technologies eliminate the
istics such as firm size, product innovation, and production type. limitations of data storage and processing capabilities, enabling the
The empirical results revealed that firm size and product innovation analysis of large volumes of data (Wamba et al., 2015). In addition to
matter. Firms with higher research and development (R&D) expenses being characterized by large volumes (size of generated data), big data is
and a higher share of new product development sales relative to total characterized by velocity (the speed or frequency of data generation and
revenue are more likely to achieve a higher level of digital trans- processing) (Russom, 2011), variety (data from different sources or
formation. Additionally, firms with more employees and more capital formats, including structured and unstructured data) (Abbasi et al.,
are more likely to achieve a higher level of digital transformation. 2016; Russom, 2011), and veracity (reliability and accuracy of data)
However, production complexity is not significantly associated with the (Ghasemaghaei et al., 2018; Hartmann et al., 2016; White, 2012). With
digital transformation stage. advancements in sensor technologies, the IoT, and smartphone devices,
This study contributes to the literature on DT by demonstrating that the volume of data has increased considerably, as has data velocity.
DT is a capability-building process rather than a technology adoption Analyzing data characterized by large volume, high velocity, high va-
process. Firms familiar with an explorative process, such as R&D riety, and high veracity can enable firms to extract potential valuable
intensive firms, tend to exhibit superior performance in DT compared insights (Vial, 2021).
with other firms. This study also confirms that DT is a challenge for small Big data analytics has become crucial for DT, particularly for firms
and medium-sized enterprises (SMEs). Accordingly, SMEs should iden- seeking to extract valuable insights from data (Günther et al., 2017). Big
tify the “optimal” level of DT. This is because the highest level of digital data is viewed as the “new oil” in the digital era because it can enhance
transformation is not necessarily suitable for SMEs. We also describe our the competitiveness of firms (Ohlhorst, 2012). With data collected from
study’s limitations and propose future research directions herein. various sources, such as customer information or machine parameters
from the manufacturing process, managers can obtain valuable insights
2. Literature review and hypotheses and develop innovative ideas to enhance business intelligence (Chen
et al., 2012). Therefore, big data analytics is regarded as a critical part of
2.1. DT, digital readiness and digital data capability the decision-making process in business (Hagel, 2015). Data analytics
can be used to extract potential value from current or historical data,
DT is a disruptive or incremental process that leverages digital thus enabling managers to gain data-driven insights and improve busi-
technologies to improve business operations (Henriette et al., 2016; ness strategies (Sivarajah et al., 2017). Data-driven insights can be
Morakanyane et al., 2017). The digital technologies and capabilities divided into three main categories: descriptive, predictive, and

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C.-H. Wu et al. Technological Forecasting & Social Change 207 (2024) 123624

prescriptive insights (Vial, 2021). Descriptive insights can be used to their planning and production system. Such organizational flexibility
identify valuable patterns and trends from historical data (Vial, 2021). increases firms’ capacity to cope with changes caused by DT. Second,
Predictive insights can be used to forecast future probabilities and firms intensively engaged in new product development cultivate a fa-
events (Dubey et al., 2019). Finally, prescriptive insights can be used to miliarity with the explorative process, thereby cultivating a heightened
determine the optimal results or actions through optimization engines or ability for iterative experimentation. The capacity to cope with changes
simulation techniques (Appelbaum et al., 2017; Vial, 2021). These data- and the ability for experimentation build up a good starting foundation
driven insights extracted from big data analytics can improve the for further DT.
innovation competency of firms and enhance intelligent manufacturing. Some organizational factors relevant to a firm’s imperatives of
exploration have been discussed in prior research on the implementa-
2.2. Firm size tion of DT. Firms with organizational ambidexterity—the ability to
balance exploitation and exploration efforts—tend to gain more from
DT is a resource-intensive process. Firms with more capital tend to digital transformation (Frank et al., 2019; Smith and Beretta, 2021).
have more potential to lead in DT. To implement a DT strategy and Structural and temporal separation enables firms to develop new
provide related investment and infrastructure, firms must allocate a knowledge and practices in response to DT while integrating them with
considerable amount of resources (Eller et al., 2020). In this context, existing practices. This dual approach eases the transition from old
large manufacturing firms have more resources to invest in digitization routines to new ones. Additionally, organizational agility—the capacity
technologies than resource-constrained SMEs (Buer et al., 2021). to swiftly sense and respond to changing market demands and techno-
Resource constraints in SMEs may cause two disadvantages when logical advancements—is also vital for successful DT (AlNuaimi et al.,
initiating DT. First, large investment increases the related operational 2022; Lu and Ramamurthy, 2011; Zhu et al., 2006). Agile firms can
break-even point (Rüttimann and Stöckli, 2016), which may cause SMEs rapidly replace outdated processes and reconfigure internal resources to
to be reluctant to engage in the DT process. Second, even if some SMEs maintain competitiveness in the evolving digital landscape. In sum, we
decide to engage in the DT process, they may implement DT progres- propose that firms with higher level of product innovation are more
sively and lose integration (Sony et al., 2022). likely to achieve higher DT level because a firm’s product innovation
The number of employees, another measure of firm size, is also level inherently shape its initial conditions for DT.
critical for firms implementing DT. A firm’s size can be defined by the H2. Firms with high level of product innovation are likely to achieve a
number of employees, annual turnover, and annual balance sheet total higher digital transformation stage.
(Egbu et al., 2005; Gunasekaran et al., 2011). According to the European
Commission, SMEs have less than €50 million in annual turnover and
fewer than 250 employees. On the basis of the definition provided by the 2.4. Production type
US Small Business Administration, SMEs have fewer than 500 em-
ployees, and their annual receipts vary depending on the sector in which As businesses grow and diversify, firms offer more individualized
they operate (Perera and Chand, 2015). Relevant empirical studies have and customized products and services to satisfy customers’ various re-
indicated that firms with a higher number of employees are more quirements and demands. This inevitably induces product, process,
adequately prepared for digitalization (Remane et al., 2017). More manufacturing system, and organizational complexities (Herrera-Vidal
employees allow firms to divide tasks into more specialized areas. and Coronado-Hernández, 2021; Mocker et al., 2014).
Therefore, large firms can recruit or gain access to skilled employees Revina et al. (2021) proposed a multidimensional complexity
(Eller et al., 2020). More employees also enable firms to have more slack framework incorporating three types of complexity: organizational
to cope with managerial changes, such as new tasks and processes complexity, textual complexity, and technological complexity. Organi-
(Bentley and Kehoe, 2020; Sony et al., 2022). In addition, Remane et al. zational complexity includes task, project, process, and product com-
(2017) used an analysis of variance (ANOVA) test and demonstrated that plexities; examples of such complexities include intricate projects and
firms with a higher number of employees are more adequately prepared organizational structures. Managers and executives facing these com-
for digitalization. In summary, considering the capital investment and plexities may encounter inefficiency, delays, or performance drops, as
employee skill specialization required for DT, we hypothesized that well as the inability to manage their businesses. Textual complexity
larger firms are more willing to implement DT. pertains to how people exchange information in organizations and
receive their tasks. Technological complexity includes software
H1. Large firms are likely to achieve a higher digital transformation complexity, event log and workflow complexity, and business process
level. model complexity. Zhou et al. (2011) considered R&D activities to have
notable characteristics of complexity and risk and categorized techno-
2.3. Product innovation logical complexity into three aspects: product complexity, process
complexity, and interactive product–process complexity.
DT is an explorative process characterized by high uncertainty Firms with more individualized and customized products for pro-
(Bouwman et al., 2019; Smith and Beretta, 2021; Verhoef et al., 2021). duction face greater complexity challenges in their manufacturing sys-
To fully benefit from Industry 4.0, firms should view DT as a continual tems. For such firms, controlling the nonlinearity, time variability,
capability-building process rather than a one-time capability acquisition suddenness, and imbalance of organizational structures and functions in
or installation (Ghosh et al., 2022). For instance, developing new busi- the manufacturing systems is difficult (Herrera-Vidal and Coronado-
ness models around DT requires firms’ time and effort to conduct Hernández, 2021). Manufacturing systems are complex because of their
business model experimentation (Bouwman et al., 2019). Through (1) innate nonlinearity, (2) autonomous and emergent behaviors, (3)
examining alternative business models and different configurations of openness, and (4) nonequilibrium (Zhou et al., 2011). Herrera-Vidal and
model elements, the firm can work out the best, tailoring business Coronado-Hernández (2021) reviewed and summarized the sources of
model. The development of data analytics capability, a core area of In- complexity, categorizing them into two types: static and dynamic. The
dustry 4.0, also requires firms to engage in trial-and-error to create sources of static complexity include the number and variety of products,
effective predictive and prescriptive data models (Verhoef et al., 2021). number of parts, structure of products, number of machines or work
We argue that firms with a strong focus on developing new products centers, and layout of the plant. The sources of dynamic complexity
exhibit a higher propensity for exploration for two reasons. First, include production volume, production planning and programming, and
manufacturing firms proficient at regularly changing product re- process uncertainty. Therefore, considering the variety of its compo-
quirements and production processes usually have more flexibility in nents, static complexity can be considered to have a negative effect on

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productivity and quality, and this engenders difficulties in design and Table 1
production. Furthermore, dynamic complexity engenders difficulties in Collected industrial categories.
controlling and managing a manufacturing system, which increases Industrial categories Numbers
production costs (Alkan et al., 2018).
Computers, electronics, and optical products manufacturing 37
Manufacturing firms can use computing and technological resources Semiconductor manufacturing 27
to mitigate or control complexity in a production environment. Strate- Fabricated metal products manufacturing 32
gies for managing static complexity include reducing the number of Machinery and equipment manufacturing 16
products, reducing options in the product and stock-keeping unit, Chemical products manufacturing 11
Other manufacturing industries 16
reducing outsourcing, and reducing work centers for internal static
complexity. Additionally, strategies for managing and dynamic
complexity include standardizing operations, automating processes, lists the number of questionnaire responses obtained from each of these
exchanging information, outsourcing logistics, implementing short-run sectors.
planning systems, managing demand and prognoses, and improving
and redesigning processes (Herrera-Vidal and Coronado-Hernández,
2021; Serdarasan, 2013). 3.2. Measures and questionnaire administration
Because of the complexity of products, processes, and manufacturing
systems, conventional complexity management strategies are generally As mentioned, our 37-item questionnaire comprised three parts. The
ineffective in handling complexity problems in modern manufacturing first part included questions designed to collect basic information about
systems. Mocker et al. (2014) proposed the following recommendations each of the manufacturing firms, which could help us comprehensively
that can help firms manage the trade-offs between the costs and benefits understand each firm’s characteristics at various maturity levels. The
of complexity through digital technology. First, digitization can help second part (named digital readiness) included two items about digital
firms increase product variety and integration while maintaining pro- process and strategy readiness. These items were adapted from a
cess simplicity. Second, digital tools enable customers to choose from Deloitte Global Survey. Finally, the third part included questions about
many product options. Third, reusing digitized platforms can help firms digital data capabilities, which were measured using 23 items divided
minimize complexity. As businesses grow and diversify, their product or into 7 dimensions about big data capabilities and analytical insights. The
service offerings tend to become more complex. Accordingly, we pro- items pertaining to big data capabilities were adapted from Johnson
posed the following hypothesis: et al. (2017), and those pertaining to analytical insights were adapted
from Ghasemaghaei and Calic (2019). The details of the questionnaire
H3. Firms with more complex production types are likely to achieve a
design can be referred to in Appendix A.
higher digital transformation level.
We also assessed the reliability of the questionnaire. Specifically, we
derived Cronbach’s alpha values for each dimension to validate the in-
3. Research method
ternal consistency of the questionnaire. According to Hair (2009), a
Cronbach’s alpha value greater than 0.7 indicates internal consistency.
3.1. Data collection
We observed that the Cronbach’s alpha values for digital readiness and
digital data capability were 0.78 and 0.97, respectively, demonstrating
To investigate how organizational context affects the digital trans-
the reliability of our questionnaire.
formation level in manufacturing firms, we conducted a survey of the
top 1000 manufacturing firms in Taiwan. We developed a 37-item
4. Data analysis and results
questionnaire comprising three parts. The first part included questions
regarding firm characteristics. The second part (named digital readi-
4.1. Cluster analysis for different contexts
ness) included questions about a firm’s readiness for process manage-
ment, readiness for manufacturing strategies, and awareness of DT; the
Our questionnaire contained two main dimensions. To identify the
items in this part were adapted from Puchan et al. (2018). The third part
maturity levels of firms along these two dimensions, we conducted a
included questions regarding digital data capabilities, including the di-
cluster analysis to group similar objects into homogeneous clusters
mensions of data characteristics and data-driven insights. The items (n
(Kaufman and Rousseeuw, 2009). This cluster analysis was conducted in
= 16) for assessing a firm’s data characteristics, such as volume, ve-
two phases. In the first phase, we applied the Silhouette method to
locity, variety, and veracity, were adapted from Johnson et al. (2017),
determine the appropriate number of clusters. The Silhouette method
and the items (n = 9) for assessing a firm’s data-driven insights, such as
measures the difference between within-cluster distance and cluster
descriptive, predictive, and prescriptive insights, were adapted from
distance, with a larger difference indicating a better cluster number
Ghasemaghaei and Calic (2019). We derived five clusters of digital
(Kodinariya and Makwana, 2013; Milligan and Cooper, 1985). In the
transformation levels: “Newbies”, “Beginners”, “Midfielders”, “Ad-
second phase, the widely applied k-means clustering method was used
vancers”, and “Leaders”. These clusters varied significantly in terms of
owing to its simplicity, efficiency, and empirical success (Chien et al.,
digital readiness and digital data capability.
2007; Steinley, 2006). The k-means method is iterative and identifies
The main survey was hosted by a market research firm and the
objects with the nearest mean for the same clusters while ensuring that
Artificial Intelligence for Intelligent Manufacturing Systems Research
the distance between clusters is maximized. The result of the Silhouette
Center. A total of 139 responses were obtained from top- and middle-
method indicated that five clusters would be suitable for our analysis.
level managers familiar with the DT status and strategies of their
On the basis of the recommended number of clusters provided by the
firms. Among these responses, 49 were obtained from senior executives
Silhouette method, we applied the k-means method and derived
(chief executive officers, chief information officers, and vice presidents)
empirical digital transformation clusters, as displayed in Fig. 1.
and 62 were obtained from directors and managers. The manufacturing
To obtain a more comprehensive understanding of each cluster’s
firms included in this survey were from six industrial sectors: (1) com-
characteristics, we estimated the mean values for the two dimensions, as
puter, electronic, and optical product manufacturing; (2) semiconductor
presented in Table 2. Considering the ordinal relationship between the
manufacturing; (3) fabricated metal product manufacturing (including
digital transformation clusters, we grouped the firms according to
motor vehicle and part manufacturing); (4) machinery and equipment
maturity level as Newbies, Beginners, Midfielders, Advancers, and
manufacturing; (5) chemical product manufacturing (including rubber
Leaders. The Newbies (Cluster 0) comprised 17 firms (12 % of the total
product manufacturing); and (6) other manufacturing sectors. Table 1
sample) with relatively low digital readiness and digital data

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C.-H. Wu et al. Technological Forecasting & Social Change 207 (2024) 123624

Table 3
ANOVA results.
Effect Variable name df F- P-value
value

Production type Operational type 2 2.261 0.108

Main product type 2 0.220 0.803
Firm size Capital 2 8.320 0.000**
Number of employees 3 3.865 0.011**
Product Percentage of new product revenue 2 4.116 0.018**
innovation in total revenue
R&D budget percentage 2 5.492 0.005**
Profitability Average net profit in the last 3 years 2 1.475 0.232
Marginal profit of the product 2 1.076 0.344
**
Significant at 5 % level.

implies that firms with more employees are more likely to become DT
leaders because they can afford to hire IT or analytical talents. However,
13.11 % of firms with a larger employee size were still in the Newbies
Fig. 1. Five clusters of digital transformation levels. cluster.
Table 6 lists the distribution of the proportion of new product rev-
enue in total revenue in the firms belonging to the various clusters. As
Table 2
indicated in this table, firms for which the proportion of new product
Clustering results: mean values of variables and number of samples.
revenue in total revenue was <20 % mostly belonged to the Beginners
Cluster Cluster 1 Cluster 2 Cluster 3 Cluster
and Midfielders clusters. Furthermore, firms for which the proportion of
0 4
new product revenue in total revenue was >20 % were predominantly in
Digital data 1.78 2.67 3.26 3.81 4.69 the Midfielders and Advancers clusters. These results indicate that firms
capabilities
with a higher proportion of new product revenue in total revenue have
Digital readiness 2.37 2.66 3.33 4.20 4.67
No. of samples 17 39 45 28 10 higher innovative powers, signifying that innovative firms are more
Share of samples 12 % 28 % 32 % 20 % 7% likely to have above-average digital transformation levels. However, no
Label Newbies Biginners Midfielders Advancers Leader apparent patterns for the proportion of new product revenue in total
revenue were evident for the firms in the Leaders cluster. Firms for
which the proportion of new product revenue in total revenue was <10
capabilities. These firms were new and inexperienced in navigating the
% also have the potential to become DT leaders in the market.
wave of DT. The Beginners (Cluster 1) contained 39 firms (28 % of the
Table 7 presents the distribution of R&D budget percentage for the
total sample) that were only starting their DT process and thus had
firms belong to the various clusters, indicating a similar pattern to that
slightly higher digital data capabilities and digital readiness experiences
in Table 6. In general, a firm’s R&D budget can influence its product
than did the Newbies. The Midfielders (Cluster 2) comprised 45 firms
invention, and a successful new product can generate higher revenue. In
(32 % of the total sample) and was the largest cluster. This cluster
this study, firms for which the R&D budget percentage was <5 % were
exhibited moderate performance, positioning it between the other four
mostly in the Beginners and Midfielders clusters. Firms for which the
clusters. The Advancers (Cluster 3) contained 28 firms (20 % of the total
R&D budget percentage was >10 % were more likely to be in the Mid-
sample) with high digital readiness, but their digital data capabilities
fielders and Advancers clusters. Firms for which the R&D budget per-
still had room for improvement. Finally, the Leaders (Cluster 4)
centage was between 5 % and 10 % constituted a large portion of the
comprised 10 firms (7 % of the total sample); it was the smallest cluster
Leaders cluster, indicating that firms with a moderate R&D budget are
and achieved the highest average value in both dimensions. This sug-
more likely to become leaders.
gests that the firms in this cluster were not only adequately prepared but
also had strong capabilities in big data analytics.
5. Discussion

4.2. Cluster Profiling Our results reveal that firm size, particularly capital, matters. Firms
with more capital tend to have greater potential to lead in DT. Our
We further investigated whether the five clusters significantly findings extend the study of Buer et al. (2021), who demonstrated that
differed in terms of firm characteristics. Four types of firm characteris- larger enterprises tend to have greater digitization levels and IT
tics were included: production type, firm size, product innovation, and competence. DT poses a considerable challenge for SMEs because such
profitability. We conducted an ANOVA to investigate the association enterprises often lack the additional resources necessary for DT strate-
between a firm’s characteristics and its digital transformation level. The gies (Eller et al., 2020).
results revealed that firm size and product innovation matter. Table 3 Regarding the effect of innovativeness, this study considered two
lists the ANOVA results. variables related to innovation: proportion of new product revenue in
As indicated in Table 4, the Leaders cluster mostly comprised firms total revenue and the R&D budget percentage. Both variables were
with higher capital. Notably, none of the firms in this cluster had <NT$1 demonstrated to strongly influence firms’ digital transformation levels.
billion in capital, suggesting that firms with higher capital are more Our ANOVA did not demonstrate a significant association between
likely to become leaders in DT. Firms with capital of <NT$10 billion profitability and digital transformation levels. Nevertheless, we
constituted a considerable proportion of the Beginners and Midfielders observed that firms with higher profits were mostly assigned to the
clusters. This indicates that firms with lower capital can develop mod- Leaders and Advancers clusters, but we did not observe an explicit trend
erate digital readiness and digital data capabilities. However, becoming for the Midfielders or lower clusters. Previous research has indicated
a transformation leader appears to be a challenging task for them. that firms with better financial performance are more capable of effec-
Table 5 presents the distribution of the number of employees in the tively implementing DT processes. Our analytical results indicate that
firms belonging to the various clusters. As indicated in this table, the production type, including operational type and main product type, does
Leaders cluster primarily comprised firms with >1000 employees. This

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Table 4
Distribution of firms by firm capital and DT levels.
Type Newbies Beginners Midfielders Advancers Leaders Total

<1B 5 13 18 10 0 46
(10.87 %) (28.26 %) (39.13 %) (21.74 %) (0.00 %) (100 %)
1B–10B 9 23 18 10 2 62
(14.52 %) (37.10 %) (29.03 %) (16.13 %) (3.23 %) (100 %)
>10B 3 3 9 8 8 31
(9.68 %) (9.68 %) (29.03 %) (25.81 %) (25.81 %) (100 %)
Total 17 39 45 28 10 139
(12.23 %) (28.06 %) (32.37 %) (20.14 %) (20.14 %) (100 %)

The unit of firm capital is billion (B) NTD

Share of samples in parentheses

Table 5
Distribution of firms by number of employees and DT levels.
Type Newbies Beginners Midfielders Advancers Leaders Total

<200 2 6 10 3 0 21
(9.52 %) (28.57 %) (47.62 %) (14.29 %) (0.00 %) (100 %)
201–500 2 13 6 5 1 27
(7.41 %) (48.15 %) (22.22 %) (18.52 %) (3.70 %) (100 %)
501–1000 5 9 10 6 0 30
(16.67 %) (30.00 %) (33.33 %) (20.00 %) (0.00 %) (100 %)
>1000 8 11 19 14 9 61
(13.11 %) (18.03 %) (31.15 %) (22.95 %) (14.75 %) (100 %)
Total 17 39 45 28 10 139
(12.23 %) (28.06 %) (32.37 %) (20.14 %) (7.19 %) (100 %)

Table 6
Distribution of firms by new product revenue percentage and DT levels.
Type Newbies Beginners Midfielders Advancers Leaders Total

<10 % 6 20 23 7 4 60
(10.00 %) (33.33 %) (38.33 %) (11.67 %) (6.67 %) (100 %)
10–20 % 5 13 11 8 1 38
(13.16 %) (34.21 %) (28.95 %) (21.05 %) (2.63 %) (100 %)
>20 % 6 6 11 13 5 41
(14.63 %) (14.63 %) (26.83 %) (31.71 %) (12.20 %) (100 %)
Total 17 39 45 28 10 139
(12.23 %) (28.06 %) (32.37 %) (20.14 %) (7.19 %) (100 %)

profitability did not differ significantly in their digital transformation

Table 7
levels.
Distribution of firms by R&D budget percentage and DT levels.
Finally, we found that production complexity was not significantly
Type Newbies Beginners Midfielders Advancers Leaders Total associated with digital transformation levels. Neither the operational
<5% 6 23 24 6 2 61 type nor the main product type shows impact on digital transformation
(9.84 %) (37.70 %) (39.34 %) (9.84 %) (3.28 (100 levels.
%) %)
5–10 2 8 10 9 3 32
% (6.25 %) (25.00 %) (31.25 %) (28.13 %) (9.38 (100 6. Conclusion
%) %)
> 10 9 8 11 13 5 46 This study investigated how organizational contexts affect a firm’s
% (19.57 (17.39 %) (23.91 %) (28.26 %) (10.87 (100 digital transformation levels. Our findings suggest that DT is a capital-
%) %) %)
Total 17 39 45 28 10 139
intensive and explorative process. This study contributes to the litera-
(12.23 (28.06 %) (32.37 %) (20.14 %) (7.19 (100 ture on DT by demonstrating that DT is a capability-building process
%) %) %) rather than a technology adoption process. Moreover, our findings have
practical managerial implications. Our findings reveal that firms with
large data volumes and high data variety do not necessarily achieve
not have a significant impact on digital transformation levels.
higher levels of digital transformation. Whether firms have the moti-
We also observed that among firm characteristics, firm innovative-
vation and ability to turn data into information and decisions is more
ness and firm size were major factors influencing digital transformation
critical to a firm’s DT. Furthermore, DT is a considerable challenge for
levels. Firms with higher R&D expenses and those with a higher pro-
SMEs because it requires substantial investment and a relatively high
portion of new product revenue in total revenue were more likely to be
level of labor specialization within firms. Considering these constraints,
assigned to the Advancers or Leaders cluster. Firms with a higher
SMEs should identify the optimal stage of DT maturity. This is because
number of employees and those with more capital were more likely to
the highest level of digital transformation is not necessarily suitable for
achieve higher maturity stages. We measured firm profitability by using
SMEs.
two variables: average net profit in the past 3 years and marginal profit
This study has several limitations, some of which present new op-
of the product. Our ANOVA indicated that firms with different levels of
portunities for future research. First, although our findings suggest that

6
C.-H. Wu et al. Technological Forecasting & Social Change 207 (2024) 123624

production type is not a critical organizational factor influencing firms’ Wei Chou: Project administration, Writing – original draft, Writing –
digital transformation, we did not investigate whether firms with review & editing. Chen-Fu Chien: Funding acquisition, Project
different production types adopt similar or different processes to achieve administration, Supervision. Yun-Siang Lin: Data curation, Investiga-
the same level of digital transformation (Frank et al., 2019). A qualita- tion, Methodology, Software.
tive study on the transformation process may be useful to reveal whether
DT has one best approach or whether different approaches can be Data availability
adopted by firms with different production types. Second, our results
indicate that SMEs are less likely to achieve the highest level of digital Data will be made available on request.
transformation; nevertheless, we did not investigate the optimal level of
digital transformation for SMEs. Future studies can thus address this Acknowledgments
problem by conducting a cost–benefit analysis regarding DT for SMEs to
determine the optimal digital transformation level. This research was supported by the Ministry of Science and Tech-
nology, Taiwan (MOST 111-2222-E-035-005-; MOST 111-2222-E-035-
CRediT authorship contribution statement 005-), the National Science and Technology Council, Taiwan (NSTC
111-2634-F-007-010-; NSTC 112-2221-E-035-065-) and Deloitte
Chia-Hung Wu: Conceptualization, Data curation, Investigation, Taiwan.
Methodology, Writing – original draft, Writing – review & editing. Che-

Appendix A. Constructs and survey items

Table A1
Measurement items for variables of profiling.

Construct names Measurement items (nominal scale) Amount Percentage

Production type Operational type, main product type – –

Operational type • Material/component supplier 38 27.4 %
• ODM/OEM manufacturer 45 32.3 %
• Own brand company 56 40.3 %
Main product type • Standardized product 41 29.4 %
• Modular product 36 26.0 %
• Customized product 62 44.6 %
Size Capital, number of employees – –
Capital • Less than 1 billion 4 2.9 %
• Between 1 billion and 10 billion 22 15.8 %
• Between 1 billion and 10 billion 20 14.4 %
• Between 1 billion and 10 billion 49 35.2 %
• Between 1 billion and 10 billion 13 9.4 %
• Greater than 10 billion 31 22.3 %
Number of employees • <200 people 21 15.1 %
• 201–500 people 27 19.4 %
• 501–1000 people 30 21.6 %
• >1000 people 61 43.9 %
Product innovation Proportion of new product revenue in total revenue, R&D budget percentage – –
Proportion of new product revenue in total revenue • Less than 5 % 34 24.5 %
• Between 5 % and 10 % 26 18.7 %
• Between 10 % and 20 % 38 27.3 %
• Between 20 % and 30 % 26 18.7 %
• Greater than 30 % 15 10.8 %
R&D budget percentage • Less than 5 % 61 43.9 %
• Between 5 % and 10 % 32 23.0 %
• Between 10 % and 20 % 23 16.5 %
• Between 20 % and 30 % 12 8.6 %
• Greater than 30 % 11 7.9 %
Profitability Average net profit in the last 3 years, Marginal profit of the product – –
Average net profit in the last 3 years • Less than 10 million 8 5.8 %
• Between 10 million and 50 million 13 9.3 %
• Between 50 million and 100 million 11 7.9 %
• Between 100 million and 500 million 29 20.9 %
• Between 500 million and 1 billion 15 10.8 %
• Greater than 1 billion 63 45.3 %
Marginal profit of the product • Less than 10 % 36 25.9 %
• Between 10 % and 20 % 51 36.7 %
• Between 20 % and 30 % 27 19.4 %
• Between 30 % and 40 % 16 11.5 %
• Between 40 % and 50 % 6 4.3 %
• Greater than 50 % 3 2.2 %

7
C.-H. Wu et al. Technological Forecasting & Social Change 207 (2024) 123624

Table A2
Measurement items for variables of digital readiness and digital data capability.

Construct names Measurement items (5-point scale) Mean SD

Digital readiness On the 5-point Likert scale with anchors ranging from “strongly disagree” to “strongly agree,” please indicate the extent to – –
Adapted from Puchan et al. (2018) which you disagree or agree with the following statements:
• In my firm, what is the progress of Industry 4.0? 3.3 1.3
• In my firm, what is the progress of process management? 3.6 0.8
• In my firm, what are the specific practices of the manufacturing strategy? 3.5 1.1
• In my firm, what is the extent of participation in Industry 4.0? 2.7 1.5
• In my firm, what is the attitude toward the organizational changes that come with Industry 4.0? 3.0 1.0
Digital data capability On the 5-point Likert scale with anchors ranging from “strongly disagree” to “strongly agree,” please indicate the extent to – –
which you disagree or agree with the following statements:
Volume • In my firm, we analyze large amounts of data. 3.6 1.0
Adapted from Johnson et al. (2017) • In my firm, the quantity of data we explore is substantial. 3.4 1.1
• In my firm, we use a great deal of data. 3.2 1.1
• In my firm, we scrutinize copious volumes of data. 3.2 1.1
Velocity • In my firm, we analyze data as soon as we receive them. 3.0 1.1
Adapted from Johnson et al. (2017) • In my firm, the time period between when we get new data and when we analyze them is short. 2.8 1.0
• In my firm, we are fast in exploring our data. 2.7 1.0
• In my firm, we analyze data rapidly. 2.6 1.0
Variety • In my firm, we use several different sources of data to gain insights. 3.2 1.2
Adapted from Johnson et al. (2017) • In my firm, we analyze several types of data. 3.1 1.2
• In my firm, we examine data from a multitude of sources. 2.9 1.1
Veracity • In my firm, we deal with precise and certain data. 2.9 1.0
Adapted from Ghasemaghaei and • In my firm, we analyze high-quality data 2.9 1.0
Calic (2019) • In my firm, we process data that are reliable and consistent. 3.1 1.0

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