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Slavković, M.; Pavlović, K.; Mamula Nikolić, T.; Vučenović, T.; Bugarčić, M. Impact of Digital Capabilities on Digital Transformation. Encyclopedia. Available online: https://encyclopedia.pub/entry/51596 (accessed on 03 July 2024).
Slavković M, Pavlović K, Mamula Nikolić T, Vučenović T, Bugarčić M. Impact of Digital Capabilities on Digital Transformation. Encyclopedia. Available at: https://encyclopedia.pub/entry/51596. Accessed July 03, 2024.
Slavković, Marko, Katarina Pavlović, Tatjana Mamula Nikolić, Tamara Vučenović, Marijana Bugarčić. "Impact of Digital Capabilities on Digital Transformation" Encyclopedia, https://encyclopedia.pub/entry/51596 (accessed July 03, 2024).
Slavković, M., Pavlović, K., Mamula Nikolić, T., Vučenović, T., & Bugarčić, M. (2023, November 15). Impact of Digital Capabilities on Digital Transformation. In Encyclopedia. https://encyclopedia.pub/entry/51596
Slavković, Marko, et al. "Impact of Digital Capabilities on Digital Transformation." Encyclopedia. Web. 15 November, 2023.
Impact of Digital Capabilities on Digital Transformation
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This entry is adapted from the peer-reviewed paper 10.3390/systems11040172

Digital transformation is one of the most significant business changes to prompt societal changes, thus altering old patterns of human activity, behavior, communication, and everyday routines. These changes have often been called dramatic because they entailed a transformation in present business structures and strategies for achieving a competitive advantage under new circumstances. Private companies are typically more agile in terms of digital transformation, but public companies are under pressure to follow digitalization trends in the delivery of their services, resulting in broader changes dispersed throughout society. The impact of digitization is readily apparent in the improvement of business processes or their complete transformation, the acceleration of operations, new requirements for employee training, the creation of a completely new job design with new job descriptions that incorporate digital skills, and the replacement of human labor with machines, which are all outcomes of workforce reduction. Success or failure in the era of digitalization depends largely on how human capital is managed, which is also due to the increasing interest for human–machine interaction. In addition to technical concerns and their solutions, the Industry 4.0 revolution demands employees who are creative, inventive, competent, and prepared to face challenges in the digital world.

digital transformation digital capabilities digital citizenship information and data literacy information security management change management

1. Introduction

Digital transformation (DT) affects companies on multiple levels and in different forms, reshaping traditional business models and strategies, which has repercussions for social relationships and networking [1][2]. Numerous studies addressed the distinctions and challenges posed by digitalization, such as customer demands, competitor behavior [3][4], new applications of information, communication technologies (ICT) [5], and acquired knowledge and skills [6]. To ensure success, employees must develop a “digital mindset” [7]. In other words, it is necessary to develop capabilities, such as innovativeness, intellectual agility, and a collaborative approach, and to build an organizational climate that supports digital transformation [8].
Previous studies have proved that dynamic capabilities have an important impact on the ability to effectively address digital transformation challenges [9][10]. Digital transformation requires a unique set of skills and competencies [11], including information literacy [12], information security [13], automation, cloud computing, agile approaches, and effective internal and external communications skills. Therefore, digital capabilities entail creative, critical, and safe use of information and communication technologies; empirical evidence shows that digital capabilities have a positive impact on digital innovation [14] and organizational performance [15]. Addressing the above, the conception of digital capabilities comprises applying digital technologies through a business model change. It accomplishes this research’s purpose through acquiring a more comprehensive knowledge of customer needs, developing new channels for selling and promoting products and services, or communicating with consumers. Digital capabilities defined in this way integrate technological achievements and their application in business, with the aim of establishing sustainable development and substantial changes in customer behaviors, which use a variety of digital technologies on a daily basis and focus on digital capabilities as the starting point for transformation based on digitalization. Traditional business models are increasingly losing their competitiveness and are replaced by new models that promote digital transformation.
Digital capabilities should be used in accordance with the proposed standards of responsible digital citizens’ behavior [16][17][18]. In the literature, digital citizenship is defined as the ability to manage information and interact with others using digital technologies [19]. According to the results of previous studies, digital citizenship has become an important element for successful digital transformation [20][21] while maintaining a balance between online and offline life [22]. Digital citizenship refers to safe and responsible behavior in using digital technologies [23][24]; therefore, the most common elements of digital citizenship are digital security, rights and responsibilities, digital literacy, and communication [24]. Although the essence of digital citizenship is the use of digital technology to exchange content and achieve virtual interaction, the security aspect must not be neglected. Widespread use of digital technologies offers significant benefits to users, but at the same time, opens a field of possible risks associated with their use, which is confirmed by the aforementioned research. Thus, this research incorporated two constructs related to information and data literacy and information security management in the assessment of digital citizenship.
Previous studies have focused on the drivers of digital transformation, success factors, and implications [25]. The concept of digital transformation is still relatively new, hence the primary focus of the present research was placed on digital citizenship and capabilities as the two primary drivers of transformation. Digital citizenship explains an individual’s ability to access, use, and create information in the digital environment while exercising safety-consciousness and responsible behavior [26]. Meanwhile, a set of skills and attitudes should be developed to assist individuals and companies in handling challenges caused by digitalization [27]. There is a limited number of empirical studies on the effects of employees’ capabilities on the effectiveness of digital transformation [18][28][29]. Considering the importance of digital transformation and the related concepts, the aim of this research was to investigate the effects of digital capabilities and digital citizenship on digital transformation, as supported by employees through their change management and risk management attitudes, which are inherent in digital transformation.
Digital citizenship is becoming the key to individual behaviors, integrating them in modern society based on collectively shared values [30]. Considering the requirements of digital transformation, digital citizenship focuses on education and training for developing skills and competencies that are necessary for dealing with issues in new technologies. To ensure rapid technology adoption and satisfy citizens’ needs, it is necessary to allow suggestions on directions in ensuring appropriate behaviors with contemporary digital tools [31]. Therefore, efforts are being made in education, which will provide universal access to technology and develop new literacies, mainly digital skills, in order to promote a more inclusive and engaged world [32]. Previous studies investigated the mediating role of a digital transformation strategy [33], ICT self-efficacy, ICT interest [34], and the ability to use communication technology [35], but to our knowledge, there is no evidence on the mediating role of digital citizenship. Therefore, this research extends the existing body of knowledge by exploring the mediating effect of digital citizenship on the relationship between digital capabilities and digital transformation.

2. Digital Capabilities Transforming Businesses

New technologies, such as cloud computing, big data, artificial intelligence, human–machine interactions, and the Internet of Things (IoT), are disrupting and transforming businesses [36]. Legner et al. [27] state that this process of dealing with digital technologies in order to undergo organizational change is referred to as digital transformation. Digital transformation considers a broad range of changes, including cultural, organizational, and operational transformations, by integrating digital technologies, orientation, and capabilities at all levels of organization [37]. These changes refer to a fusion of advanced technologies and the integration of physical and digital systems in order to develop innovative business models and new processes that will enable the creation of smart products and services [38]. As a multidimensional phenomenon [39], digital transformation entails a wide range of changes supported by the usage and applications of technology, which will transform the existing human-driven process into a software-driven process [37].
According to the European e-Competence Framework 3.0 [40], change management and risk management are considered dimensions for analyzing the accomplished degree of digital transformation in order to evaluate organizational readiness for the transformation. Jansson and Andervin [41] note that there are several stages of digital transformation. The first stage includes changes in technology, products, services, and behavior, while the other dimensions include building a good cooperation between actors in a digital environment and the development of ecosystems that will provide the integration of hardware and software. As a result of previous assumptions in the literature, change management is important for the development of a framework for: (i) Managing the people who acquire new knowledge, values, and skills; and (ii) Adopting new behaviors [42]. The transformation affects all organizational aspects, so it is relevant to formulate directions and initiatives that will be communicated and avoid a sense of lack of vision [43]. In accordance with the above remarks, conducting risk analysis is one of the essential steps in the transformation process, and it will provide necessary information regarding communication. Apart from calculating the probability (or frequency) of a potential problem and its consequences, in the digital transformation process, it is necessary to identify the possible barriers to successful organizational change and to define the actions that should be taken in order to overcome the aforementioned obstacles [43][44].
In order to overcome obstacles in the implementation of new technological solutions, it is relevant to develop a new set of skills in the virtual environment [45]. Schnasse et al. [46] note that digital transformation should be perceived as a “holistic socio-technical challenge”, pointing to the application of technologies by people. Respecting the dynamic managerial capabilities approach [47], companies need to constantly adjust and modify their resources and capabilities in a dynamic and volatile environment to ensure sustained innovation and market survival [25]. Entrepreneurial and managerial actions are needed to adapt and change the resources, processes, and structures required when a company engages in the digital transformation process [37]. While digital transformation depends on digital technology, it will not be successful if employees do not have an appropriate set of skills and competencies [48].
According to previous evidence, human collective intelligence could lead to better organizational performance and enhance innovative capacity [49]. In correlation with the demands of digitalization, digital capabilities entail leading the development, articulation, and effective utilization of technologies and organizational resources. Digital capabilities “allow enterprises to use digital resources for innovation purposes” [50], and also enable organizations to use digital technologies as a support for decision-making [51]. According to the digital capabilities framework, there are six key areas: ICT productivity and proficiency; information, data, and media literacy; digital creation, problem-solving and innovation; digital communication, collaboration, and participation; digital learning and development; and digital identity and well-being [52].
One of the key concepts related to digital literacy refers to the competencies needed to participate and interact with digital devices such as smartphones, tablets, laptops, and desktop PCs [53]. For example, digital literacy enables entrepreneurs to connect their ventures to digital platforms [54] and to achieve improvements in efficiency and effectiveness [55]. Therefore, organizational capabilities should be developed to enhance the ability to fail, and also be agile and flexible [7]. Previous research confirms the relationship between digital capabilities and business performance [14][28][37]. The development of capabilities is one of the assumptions for successful digital transformation, while the variety of capabilities depends on the specific sector and the specific needs of a particular enterprise [28]. Organizational capabilities encompass digital capabilities, and according to the findings of Konopik et al. [29], organizational capabilities are a component of dynamic capabilities, which are the core of the digital transformation process. Moreover, digital capabilities have a positive impact on digital innovation [14]. Following previous evidence, digital transformation can be perceived as a process that changes the entire business model and must be supported by a dedicated digital strategy and the development of digital skills [37]. Carcary et al. [56] show that organizations have shifted from a process-based approach to a capability-based approach in aiming at undergoing digital transformation. Heredia et al. [15] confirm that digital capabilities positively influence business performance through digital transformation, but only in conjunction with technological capabilities. Based on a summary of prior research, it can be stated that digital capabilities are an important premise for digital transformation; however, to our knowledge, there are no studies assessing the direct effect of digital capabilities on digital transformation. Consequently, researchers found that a relationship should be established between digital capabilities as an independent variable and digital transformation as a dependent variable.
Humans, as digital users, became addicted to information and new technology; thus, they have been transformed from passive receivers to active information processors, who must engage with, construct with, respond to, and act with information and technology. As a result of certain trends, the concept of digital citizenship has emerged in the literature [19][24][30]. Jæger [20] states that the digitalization of society completely changed the lives of citizens in the way they work, communicate, and make decisions. According to Simsek and Simsek [19], digital citizenship is defined as the ability to uncover information and interact with people digitally. Initially, Mossberger [22] and Ribble and Miller [24] explained digital citizenship in terms of online access, which has evolved into safe and responsible behavior. Recently, Ribble and Miller defined digital citizenship as comprising the concepts of responsibility, rights, safety, and security. Digital citizenship is defined by UNESCO [26], which notes the ability of citizens “to locate, access, use and create information effectively, actively, critically, sensitively and ethically engage with users and content while navigating digital environments, as well as, being safety-conscious and acting responsibly”. Morandi Sheykhjan [16], Spector [17], and Oberländer et al. [18] agree that digital skills entail the creative, critical, and safe use of ICT, factors necessary for citizens to adapt to a digital environment.
Digital citizenship contains several elements, such as digital access, digital commerce, digital communication and cooperation, digital etiquette, digital governance, digital health and well-being, digital law, digital rights and obligations, and digital security and confidentiality [24][30]. Important prerequisites for these qualifications, which are important for the competencies of the digital citizen, are digital literacy and skills. In this research, digital citizenship is presented by the constructs of: (i) Information security management; and (ii) Information and data literacy. In numerous studies conducted during previous years, it was possible to identify justifications for information literacy, media literacy, digital literacy, and data literacy. Doyle [57] explains that information literacy is “the ability to access, evaluate and use information from a variety of sources”. Pangrazio and Selwyn [58] state that data literacy entails the way “individuals might better engage with and make use of the ‘personal data’ generated by their own digital practices”.
Digital citizenship is a set of abilities that are necessary for conducting activities in the context of the digital environment in an appropriate way to evaluate information and realize the consequences responsibly [19]. In contemporary circumstances, employees should acquire digital capabilities, since digital transformation requires a special set of skills and competencies, such as automation, cloud computing, emerging technology, agile management, cyber security, and effective internal and external communications skills. Digital technologies are becoming a part of everyday life and are integrated into nearly all professions. The ability to uncover information and interact with people digitally are important determinants to deal with digital issues and to implement digital business. The development of digital technologies requires that citizens use a growing range of skills to complete a task and solve problems in the digital environment [30]. Summarizing previous research, no direct relationship between digital capabilities and digital citizenship was recorded, but the importance of developing digital citizenship, including changing the behavior of employees, was emphasized. Many facets of digital citizenship have been discussed in previous research, with a focus on those pertaining to data, information management, and security.
The transition from the current to the digital business model and digitalization of business processes is a complex process that goes beyond the implementation of technologies and includes all aspects of an organization. Previous studies were mainly focused on investigating digital transformation from the technological perspective, neglecting the managerial and organizational aspects [59]. In order to exploit the opportunities related to digitalization, change is necessary and it includes the transition from the current state to another state based on the implementation of digital transformation. Considering the fact that about 70% of change initiatives regarding digitalization fail [60], digital transformation is complex and risky. Keenan et al. [61] argue that the lack of communication skills, and change and risk management skills were the main reasons for the failure.
Digital citizenship enables people to overcome challenges, such as internet safety, privacy and security, relationships and communication, cyberbullying, digital footprints, self-image and identity, information literacy, and copyright. Jæger [20] argues that 60% of digital businesses would suffer major service failures due to the inability of security teams to manage digital risk. In consideration of the above, it is reasonable to suppose that information security management directly influences risk management as a part of digital transformation. According to a poll of 1500 executives conducted by Marsh and McLennan [62], 79% of worldwide executives rate cyber-attacks and threats as some of their organization’s top concerns. In addition, society is faced with a variety of crises that require a specific management approach, given that digital skills, information and data literacy, and information security management are essential components for a successful digital transformation. The role of education in the process of developing digital citizenship and enhancing the benefits of digital transformation is indisputable [30]. Coskun [63] argues that the development of literacy skills should improve students’ readiness to be more effective in the digital age, and therefore, improve preparedness for future jobs. Many institutions must invest in digital tools, devices, and technologies for learning and teaching [64] in order to assure that the students learn how to use technological solutions and acquire important knowledge [65].
Based on the above, researchers conclude that information and data literacy can contribute to the change brought about by digital transformation. Additionally, information security management can have a positive impact on risk management associated with digital transformation, and can contribute to a better perception of the risks related to change management in digital transformation.
It has been revealed that digital skills are important for maintaining the normal course of ongoing events and their interpretations [30]. Digital communication and cooperation, digital etiquette, digital governance, digital health and well-being, and digital security and confidentiality can enhance the effects of digital capabilities on the outcomes of digital transformation [24][30]. To maximize the benefits of using advanced technologies, business models based on digital technologies call for a different spectrum of skills, abilities, and competencies. Stimulating creativity and critical thinking, promoting independence, cognitive abilities, and emotional and intellectual competence, social skills are some of the competences necessary to develop citizens capable of dealing with digital issues [30]. In a time of crisis, digital citizenship contributes to the community’s understanding and individual practices, along with the changes in organizational culture that are necessary for survival [30][37]. An information-literate citizen will have the ability to be more productive and satisfied, using appropriate information and technologies [66].
Research conducted by Heredia et al. [15] confirm the positive influence of digital capabilities on firm performance, but only through the mediating influence of technological capabilities. In other studies, the mediating effect of digital citizenship was not recorded. Starting from the previously defined relations between digital capabilities and the constructs contained in the digital transformation variable, researchers establish relations in the research model, which include testing the mediating role of digital citizenship.

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Subjects: Management
Contributors MDPI registered users' name will be linked to their SciProfiles pages. To register with us, please refer to https://encyclopedia.pub/register :
Marko Slavković
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Katarina Pavlović
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Tatjana Mamula Nikolić
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Tamara Vučenović
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Marijana Bugarčić
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Update Date: 16 Nov 2023
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