Digital transformation in manufacturing industries: Effects of firm size, product innovation, and production type

Digital transformation is an evolutionary process through which organizational processes and capabilities are continually optimized to leverage the advantages of digital technologies. The advent of Industry 4.0 and the rise of smart manufacturing technologies have revolutionized the manufacturing landscape, driving a significant interest in digital transformation in manufacturing sectors. Despite the potential benefits, the implementation of 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 dimensions: 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. However, 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 challenges 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.