Combining digital and legacy technologies: firm digital transformation strategies—evidence from Chinese manufacturing companies

The rapid digitization spurred by the COVID-19 pandemic underscores the critical need for effective digital transformation strategies. While digital transformation is a pervasive trend driving economic and technological shifts, many firms struggle with implementation. This gap arises from a lack of understanding regarding how to integrate digital technologies with existing legacy technologies. This study addresses this by proposing that a firm's digital technology strategy—defined as the deliberate application of digital technology to strengthen legacy technology—is pivotal. The authors argue that successful digital transformation depends heavily on this integration, as the majority of revenue still comes from traditional products and services. The research focuses on high-tech manufacturing companies in China, a sector crucial to the country's economic development and characterized by high investment costs in advanced technologies, making careful digital transformation crucial.

Existing research explores digital transformation's antecedents, processes, and outcomes. However, findings are often contradictory, with significant gaps concerning the interplay between digital and existing technologies within firms. Previous studies examined digital technology's role in accelerating transformation and integrating with existing business models to create new value, serving customers better, and improving efficiency and innovation. However, these studies often overlook the specific strategies for integrating digital and legacy technologies and the factors influencing those choices. This research addresses this gap by proposing a typology of digital technology strategies and examining the role of context-specific factors.

This study employed a multi-case qualitative research method, focusing on 76 Chinese high-tech manufacturing companies selected from a larger pool identified by the Ministry of Industry and Information Technology. The sample included small and medium-sized enterprises (SMEs) listed on the Chinese stock market (A-shares). Data collection involved 2–4-hour face-to-face interviews with directors and executives in 2017 and 2018. Interview questions explored digital technology's impact on legacy technology, the distance between the two, the technical search processes used to find digital technologies, and leaders' perceptions of these technologies. Interview data were systematically coded to identify key variables: technology distance, technical search type, and leadership perception. Computer-aided text analysis (CATA) was used to analyze textual data from company reports to identify keywords related to the digital technology strategies. Fuzzy-set Qualitative Comparative Analysis (fsQCA) was applied to analyze the relationship between these variables and the choice of digital technology strategies. Technology distance was categorized into general (easily replicated, widely used) and specific (difficult to imitate, unique functionalities) technologies. Technical search type was categorized as breadth (exploration of various external sources) and depth (intensive exploration of a limited number of similar technologies). Leadership perceptions were categorized as perceived usefulness and perceived ease of use. To establish robustness, the qualitative coding was independently performed by multiple researchers, and regression analysis complemented the fsQCA results.

The study identified four digital technology strategies: searching (finding similar digital technologies), enhancing (improving legacy technology with digital tools), grafting (directly connecting digital and legacy technologies), and integrating (creating new technologies by merging digital and legacy technologies). The fsQCA analysis revealed various configurations leading to the adoption of each strategy. * **Searching and Enhancing Strategies:** These strategies were associated with configurations including general digital technologies, breadth searches, and perceived usefulness. Companies using these strategies often sought readily available technologies to replace existing ones or improve efficiency with widely-used digital tools. * **Grafting Strategy:** This strategy was linked to configurations featuring specific digital technologies, depth searches, and (in some cases) perceived ease of use. Companies adopted this strategy by adding new functionalities to existing systems, often adapting to specific customer needs. * **Integrating Strategy:** This strategy was found in configurations with specific digital technologies, depth searches, and perceived ease of use. These companies combined digital and legacy technologies to create entirely new systems, often driven by the perception that the new technology was both useful and easy to implement. Correlation analysis supported the fsQCA findings showing positive correlations between relevant variables and strategy choices. Robustness checks using regression analysis generally corroborated the fsQCA results.

The findings highlight the contingency of digital technology strategy selection. The choice is not simply a matter of selecting the 'best' technology but depends critically on the specific characteristics of the digital technology (general vs. specific), the type of search employed, and leaders' perceptions of usefulness and ease of use. The study confirms the importance of legacy technology in digital transformation, underscoring that digital strategies should not solely focus on new technologies but also on strengthening existing capabilities. The four-strategy typology provides a more nuanced understanding of how firms approach digital transformation than previous research, which often focuses solely on outcomes. The configurational approach reveals equifinality, showing that multiple paths can lead to the adoption of the same strategy.

This study contributes to the digital transformation literature by demonstrating the crucial role of legacy technology, proposing a refined typology of digital technology strategies, and revealing the configurational effects of technology distance, technical search type, and leadership perceptions. The four-strategy framework offers valuable guidance to managers navigating digital transformation. Future research could expand the study to include a broader range of industries and countries, further explore the interplay of organizational and cultural factors, and investigate the role of specific emerging technologies like generative AI and embodied cognitive technologies.

The study's focus on Chinese high-tech manufacturing SMEs might limit the generalizability of the findings to other sectors or national contexts. The qualitative nature of the data and the use of fsQCA, while providing rich insights, require further validation through quantitative studies. Finally, while the study considers key antecedents, other factors could influence digital technology strategy adoption. Future research should address these limitations.