Digital technology is pervasive and embedded in society, business, and the eve-ryday life. Objects that in the past included only physical materiality have been infused or augmented with digital features. Furthermore, new kinds products and services comprising of only digital materiality have emerged. (Yoo et al., 2012). Digitalization and characteristics of digital materiality enable new and powerful affordances in which digital innovation is based on. (Yoo et al., 2012;
Nylén & Holmström, 2015).
Innovation is a realized idea or concept that is technologically and geo-graphically novel and is successfully diffused into a new market. The market presence can be either commercial or non-commercial. Innovation can be cate-gorized by its scope, such as radical or incremental innovation. Radical innova-tion has more profound impact than incremental innovainnova-tion. However, it is more difficult to achieve and succeed in. On the other hand, incremental inno-vation is more common and frequent, thus providing benefits in faster cycles.
(Bogers & West, 2012).
Based on prior literature, Nambisan et al. (2017, p. 223) define digital in-novation as “use of digital technology during the process of innovating”. How-ever, they expand the definition with the results of exploitation of digital tech-nology. These results are such as new market offerings, business processes, and business models. Their definition includes three aspects of digital innovation: 1)
innovation outcomes, 2) digital tools for innovation, and 3) innovation diffusion via platforms. (Nambisan et al., 2017). Yoo et al. (2010, p. 726) describe digital innovation as “carrying out of new combinations of digital and physical com-ponents to produce novel products”. They utilize a product-based approach on digital innovation as opposed to traditional process-based approach in IT inno-vation research. Barrett et al. (2015) differentiate between product and service innovation. However, in their paper, they acknowledge that some researchers do not find meaningful to separate products and services from each other and instead focus on the implications of digitalization in service innovation. The definition of innovation and its boundaries and characteristics in service inno-vation are often blurry (Bogers & West, (2012; Nylén & Holmström, 2015).
Innovations in the digitized and digitalized world are convergent and generative by nature. Convergence means previously separate capabilities, user experiences, and even industries are coming closer each other. Thus, innova-tions are becoming similar with each other as physical barriers become obsolete.
Generativity is a result of digital materiality. Unlike physical products, digital products are malleable, dynamic, and reprogrammable. They are not limited to predetermined and predesigned form and function. Digital innovations can contribute towards and trigger other innovations and create unpredictable and unanticipated wakes of innovation. (Yoo et al., 2012).
Nylén and Holmström (2015) emphasize aligning digital innovation and business. Evaluating value from IT and innovation investments is not a straight-forward task. Companies need to scan for innovation opportunities even from unexpected sources and develop competencies in digital innovation. However, the generative and combinatorial nature of digital technology and the rapid pace of change introduce new challenges and needs. Flexibility and ability to improvise are needed to tackle the continuous change. Distributed and open innovation require tolerance for lack of control and the ability to control and coordinate collaboration. (Nylén & Holmström, 2015).
Digital innovations share three core traits: 1) digital technology platforms, 2) distributed innovation, and 3) combinatorial innovation (Yoo et al., 2012).
Digital platform is a core concept in this study and is discussed in more detail in the next main section. However, it is important to understand the general idea of digital platforms and how they relate to digital innovation. Platforms have become a center of digital innovation. Multiple industries have observed a shift from product-centric innovation into platform-centric. For example, enter-prise resource planning (ERP) systems can be considered as platforms for busi-ness processes and tools instead of stand-alone products. Digital technology platforms relate to many core concepts in digital innovation. Standardization of technologies and tools has led to convergence of digital information, designs, and architectures. Furthermore, new kinds or relationships have emerged as organizations share and reconfigure information and processes via boundary-crossing digital platforms. (Yoo et al., 2017).
Distributed innovation is related to the concept of open innovation (West
& Bogers, 2017). The idea in distributed innovation is that innovation has
shift-ed from centralizshift-ed to boundary crossing process that can mix and match het-erogenous resources across organizations (Yoo et al., 2012). Digital technology enables and empowers distributed innovation. Distribution means geographical and democratic distribution. Resources and knowledge required for innovation, and even the innovation process itself, are often spread across organizational landscape and multiple organizations. Innovations can emerge from unex-pected sources, such as completely different industries or seemingly unrelated bodies of knowledge. (Yoo et al., 2012).
Distributed innovation environments are temporary and dynamic. Rela-tionships between organizations are based on the needs and capabilities of the involved actors. Platforms enable distributed innovation via sociotechnical arti-facts, such as application programming interfaces (APIs) and software devel-opment kits (SDKs) that enable capability sharing and shared innovation pro-cesses. These artifacts include built-in social norms, organizational principles, and roles that shape and moderate relationships and potential for distributed innovation. However, distributed innovation introduces new kinds of risks, like decontextualization of innovation and inflated expectations. (Yoo et al., 2012).
Combinatorial innovation refers to the ability to mix and match digital technology to produce innovations. Digital technology can be combined in im-measurable configurations that enable vast innovation potential and accelerate the pace of further cumulative innovations. Recombining existing and known modules and components also decreases the required learning curve in innova-tion. In addition, it increases knowledge sharing and the diversity of problem solving. The concepts of combinatorial, distributed, and open innovation are related. Combinatorial innovation assumes the boundaries of digital technology are malleable and fluid, and thus decentralized and less controlled. (Yoo et al., 2012; Weiss & Gangadharan, 2010).
Modularity and standardization decrease the barriers to innovate and in-crease the potential and pace of combinatorial innovation (Yoo et al., 2012;
Weiss & Gangadharan, 2010). However, combinatorial innovation is often un-predictable. The exact modules that lead into an innovation are not necessarily known in advance. Due to the characteristics of digital materiality, modules and services can remain incomplete and unfinished until suitable business models and opportunities emerge. For example, online APIs can be utilized to develop new and unpredictable services and products based on the data and functional-ities they expose. However, during the design of APIs, the exact nature of the services is not known. Google Maps API is an example of such module. (Yoo et al., 2012).
Unpredictability can lead to serendipity. However, fostering serendipity and avoiding the risks in combinatorial innovation requires constant lookout for emerging innovations and exploitation opportunities. At the same time, in-novation diffusion could be accelerated by the familiarity and convergence of the innovations. Yet, wakes of innovation and recombining innovations can cause mutation, increase complexity, further unpredictability, and even system-ic failures. (Yoo et al. 2012).