Handbook of Interorganizational Research

Drawing on the Dynamic Capabilities Perspective, this research explores how manufacturing firms focus on industrial software to sustain and grow their competitive position in a rapidly changing market environment. When digitizing their market offerings, manufacturers can rely on industrial software for exploration or exploitation purposes. With an exploitation mindset, they leverage software for improving the efficiency and effectiveness of their existing, hardware-centric market offerings. In contrast, with an exploration mindset, they recognize software as a new and unique opportunity to unleash untapped market growth potential. Both exploitation and exploration require new resources and skills that manufacturers can either develop in-house (egosystem-based approach) or integrate by cooperating with external partners (ecosystem-based approach). Combining both dimensions (exploitation vs. exploration and egosystem vs. ecosystem), the authors propose a typology of four strategy types that explain how manufacturing firms compete with industrial software in business markets.