Upgrading strategies for the digital economy

• Author: Timothy J. Sturgeon
• DOI: http://doi.org/10.1002/gsj.1364
• Date: 01 February 2021
• Published date: 01 February 2021

SPECIAL ISSUE ARTICLE

Upgrading strategies for the digital economy

Timothy J. Sturgeon

MIT Industrial Performance Center, Cambridge, Massachusetts

Correspondence

Timothy J. Sturgeon, MIT Industrial

Performance Center, Cambridge, MA.

Email: sturgeon@mit.edu

Funding information

Sveriges Regering

Abstract

Research Summary:Although computerization has been

enabling changes in the structure and economic geography

of industries for decades, recent public discourse has

become focused on a set of “new”advanced digital tech-

nologies and technology applications that appear poised to

dramatically reduce demand for routine tasks and trans-

form the organization and content of work. How are these

changes shaping the strategic options for companies and

policy-makers in less-developed economies? This paper

disentangles the old and new features of the digital econ-

omy; distills three key business strategies underpinning its

organization: modularity, open innovation, and platforms;

and summarizes some of the benefits and risks for society.

It explores the strategy and policy options available for

firms and policy-makers in less developed places, with a

focus on innovation and market positioning.

Managerial Summary:How is the digital economy shap-

ing strategic options for managers in less-developed econ-

omies? This paper disentangles the old and new features

of the digital economy and distills three key business strat-

egies underpinning its organization: modularity, open

innovation, and platforms. It then explores strategic

options available for firms in less developed places, with a

focus on innovation and market positioning. While core

platform owners will have the capability and authority to

accumulate, access, and analyze large pools of data, access

to all of the world's relevant data is not required to speed

innovation or carve out new market space in the digital

economy. The opportunities may be greatest in industrial

Received: 17 May 2019 Revised: 4 October 2019 Accepted: 4 October 2019

DOI: 10.1002/gsj.1364

34 © 2019 Strategic Management Society Global Strategy Journal. 2021;11:34–57.wileyonlinelibrary.com/journal/gsj

applications, where the continued importance of physical

systems and industry-specific domain knowledge drives

adaptation and customization.

KEYWORDS

advanced manufacturing, digital economy, modularity, platform

innovation, platform layering

1|INTRODUCTION

Recent public debate has become focused, with increasing frequency and urgency, on the immine nt

arrival of a “4

th

Industrial Revolution”which is said to be creating a “new”digital economy powered

by advanced “cyber-physical”systems spanning “advanced”manufacturing, transportation, services,

and even biological systems (Rose, 2016; Schwab, 2015, 2016). The products and services com-

monly mentioned in connection to the digital economy can be divided into two main market seg-

ments: industrial and consumer, and into four cross-cutting, base technology areas: (a) new sources

of data flowing via ubiquitous and often mobile internet connectivity, sometimes referred to as the

internet of things (IoT), (b) cloud computing, (c) big data analytics, and (d) artificial intelligence

(AI). In general, these advanced digital technologies could accelerate three ongoing trends in the

organization, work content, and geography of industries: (a) the continued fine-slicing of activities

into ever narrower and more specialized business functions, (b) the organization and spatial

separation of deskilled or low-skill jobs from knowledge-intensive jobs; and (c) the automation of

the low-skill tasks and/or their mobility to lower wage locations (Mudambi, 2008). Simply put, a fun-

damental characteristic of global value chains (GVCs), the increasing spatial separation of innovation

from production, could further accelerate.

The idea that the digital economy will advance with great rapidity creates worry about disloca-

tions, especially from rapid reductions in demand for labor-intensive and routine jobs from automa-

tion, autonomy, and artificial intelligence. Because they are far from core innovation regions

(e.g., Silicon Valley and Southern Germany), firms and industries in low- and middle-income coun-

tries run the additional risk of rising technological dependency and further isolation and exclusion

from high-value segments of these fast-moving and sometimes oligopolistic digital value chains.

They may receive work, but experience an intensification “thin industrialization”(Whittaker et al., in

press) because innovation remains in economies where core technology is developed while automa-

tion simultaneously decreases demand for unskilled labor. On the other hand, the technologies and

platforms underpinning the digital economy hold great promise for increasing the productivity and

global connectedness of consumers, workers, firms, and industries operating on the margins, and

may be providing powerful new tools for accelerating innovation in the periphery as well.

To help parse these opposite potentials, there is a need for an objective and concise description of

the digital economy and the strategic options it offers firms and industries in less developed coun-

tries. The first half of the paper provides an overview of the main features of the digital economy. It

identifies, in relatively simple and non-technical terms, its venerable and novel aspects and briefly

summarizes some of the main features of the aforementioned market segments and technology areas.

It also characterizes three key business models underpinning the organization of the digital economy

(modularity, open innovation, and platforms), and introduces the key concept of platform layering.

STURGEON 35