Sociotechnical micro-foundations for digital transformation

ABSTRACT

This paper introduces sociotechnical micro-foundations for digital transformation. The concept highlights how the macro-level capabilities that enable organisations to conduct digital transformation originate from competent individuals, digital resources, and their interactions. In developing the sociotechnical micro-foundation concept, we explored the sociotechnical interactions that facilitated the digital transformation of a Nordic hotel chain and how macro- and micro-level interactions are linked throughout the transformation process. Adopting a sociotechnical perspective helped us shed light on how the synergistic effect of individuals and digital resources interacting in digital transformation enables higher-level outcomes. By developing and theorising sociotechnical micro-foundations, we offer three contributions. First, we propose a concept at the micro level, the basic building block of digital transformation, that ensures the joint consideration of social and technical elements, as well as how to combine them. By showing the interaction between the macro and micro levels, we extend the current knowledge of how organisations develop macro-level capabilities for digital transformation. Second, we contribute to the micro-foundation literature, a body of knowledge that lacks a technical dimension, by demonstrating how interactions between individuals and digital resources are key to understanding what happens at the micro level. Third, we offer practical implications for managers.

KEYWORDS:

• Digital transformation
• micro-foundations
• sociotechnical micro-foundations
• case study

1. Introduction

The literature defines digital transformation as a process precipitated by information technology that involves fundamental changes in business processes and/or operational models (Li et al., 2018, Vial, 2019). Managing digital transformation is challenging, as it may entail changes in sociotechnical structures, such as strategy (Bharadwaj et al., 2013), organisational structures (Berghaus & Back, 2017), work practices (Kane, 2019), services and products (Chanias et al., 2019), and organisational identity (Wessel et al., 2020). In an extensive review, Hanelt et al. (2021) found that digital transformation leads firms to aim for malleable organisational designs that enable continuous adaptation and that this process is embedded in and driven by digital business ecosystems.

Though crucial for companies, many fail in the implementation of digital transformation (Davenport & Westerman, 2018). Studies in the literature argue that firms need capabilities at the collective, macro level (often theorised as dynamic capabilities) to transform their existing operational models and manage digital transformation successfully (Ellström et al., 2021, Karimi & Walter, 2015). However, the digital transformation process is still, to some degree, a “black box”, and many relevant aspects of conducting such a transformation successfully have yet to be accounted for. Specifically, how digital transformation is influenced by skilful individuals’ interactions with digital technology is not fully understood. Therefore, to understand what it takes to succeed, we need to understand the underlying mechanisms: the capabilities and interactions at the individual level that can explain why some companies are more successful than others. In the literature, these mechanisms are framed as micro-foundations (Felin et al., 2012).

Research on digital transformation implicitly (Vial, 2019, Wessel et al., 2020) and explicitly (Dąbrowska et al., 2022, Trenerry et al., 2021, Vromen, 2011) acknowledges that it is a multi-level phenomenon. At the macro level, digital transformation is enabled by the collective capabilities through which the organisation systematically generates and modifies its operating model. These macro-level collective capabilities are enabled by skilful individual behaviour, often in teams, and are frequently referred to as micro-foundations. The digital transformation literature is overly focused on large organisations and capabilities at the organisational level. As digital knowledge and abilities are not possessed by the firm, but rather by the individuals within it, our study adopts a novel perspective by addressing capabilities at the micro level. We also address how the capabilities at the macro and the micro levels interact, a topic of debate and interest to researchers in various fields (Barney & Felin, 2013). Thus, the aim of our study is to understand how the digital transformation process at the organisational level emerges from the following micro-foundational components: (1) the individuals and teams, with their abilities, actions, and motivations; (2) the digital resources that enable the digital transformation; and (3) the interactional patterns and collective outcomes of individuals and teams, and digital resources (Hanelt et al., 2021, Henfridsson et al., 2018). Thus, we are concerned with the underpinning mechanisms that are necessary for conducting digital transformation and how they look. Viewing digital transformation as a multi-level process may facilitate empirical research on a yet unresolved issues, such as what the micro-foundations are, what they do, how they do it, and how they interact with the macro level. In our research, we are interested in not only the elements of which micro-foundations are composed but also the specific ways in which these elements interact. In particular, we seek to investigate the interaction of actors and digital resources, that is, the interplay of the social and technical elements at the micro-foundational level.

We are, of course, not the first to argue for the importance of micro-foundations in understanding digital transformation (e.g., Karimi & Walter, 2015, Warner & Wäger, 2019). Foss et al. (2023) argued that ecosystem leadership is a dynamic capability, and they identified micro-foundations such as leaders “taking a wide lens” and signalling “commitment and credibility to other prospective ecosystem participants”. However, there is no consistent approach to the use of the micro-foundation concept in this context, which has hampered accumulative research development. The underlying mechanisms, that is, the micro-foundations for building organisational-level capabilities for digital transformation, are still not fully understood (Ellström et al., 2021, Foss, 2009). In addition, the micro-foundations concept, as theorised in the literature (e.g., Abell et al., 2008, Felin et al., 2012, Felin & Foss, 2005), lacks a technical dimension, which is crucial for understanding a socio-technical phenomenon such as digital transformation. An exception was Teece’s (2007) article, which provided numerous examples of micro-foundations with a technological element; however, this was not followed up by later research.

When seeking to understand and promote change in organisations, sociotechnical systems theory advocates the consideration of both social and technical aspects. Introducing a change in aspect without considering how this might affect or require a change in the other will limit the outcome of the change (Coakes & Coakes, 2009). The sociotechnical paradigm has influenced the design, development, and implementation of information technology, as well as technology-led change (Baxter & Sommerville, 2011). Researchers have noted that although novel digital technologies have the potential to increase organisational performance (Nambisan, Lyytinen, & Yoo, 2020) and enable new business processes (Baiyere et al., 2020), digital technologies are unlikely to produce the desired outcomes without adequate consideration of the interaction between social and technical factors (Davis et al., 2014). This is particularly significant, as the interactions between actors and digital resources generate greater returns than either does by itself (Zhu, 2004).

The literature has recognised the generative attributes of digital technologies; they allow for joint agency between individuals and digital technology, loose coupling between representation and the represented, and the “shaping” of reality (Nambisan et al., 2020). These extremely flexible and re-combinable attributes enable organisations to offer new affordances that the creators of the technology never considered. Based on this reasoning, in this study, we are interested in the interplay of the social and technical elements at the micro-foundational level. This leads us to the following research question:

How can we develop and theorise a sociotechnical micro-foundations concept that facilitates macro-level capabilities in digital transformation?

To investigate this question, we assessed extant research on digital transformation, digital resources, sociotechnicality, and micro-foundations. We then conducted a single case study with the aim of identifying and exploring the sociotechnical micro-foundations that were developed during the digital transformation of a large Nordic hotel chain. Finally, based on our findings and case analysis, and building on sociotechnical thinking, we developed the sociotechnical micro-foundation concept.

We contribute to the literature in two ways. First, adopting a sociotechnical perspective helped us shed light on how skilful individuals and digital resources interact throughout the phases of digital transformation (i.e., the sociotechnical interactions at the micro-level that facilitate digital transformation), and how their synergistic effect yields higher-level outcomes (i.e., the transformation of major business processes). Second, by conceptualising sociotechnical micro-foundations, we offer a micro-level concept that ensures the joint consideration of social and technical elements, as well as how to combine them. Our concept also contributes to micro-foundation research.

2. Theoretical background

We first offer a brief outline of the research on digital transformation and digital resources. We then conduct a systematic assessment of the micro-foundation and sociotechnical literature.

2.1. Digital transformation and digital resources

Digital transformation is generally driven by external factors, such as intensified competition and/or opportunities emerging from new technologies, such as digital platforms, apps, big data, analytics, and artificial intelligence (Nambisan et al., 2020). Based on this and other insights, and to initiate the transformation process, firms develop digital strategies (Bharadwaj et al., 2013, Fischer et al., 2020) and/or digital transformation strategies (Bygstad et al., 2020, Chanias et al., 2019). New knowledge and skills are required to adopt, master, and manage new digital technologies and to integrate them into processes, services, and business models (Butschan et al., 2019). Cultural changes may also be necessary, as digital transformation requires an organisational environment in which employees are eager to continuously learn and gain digital experiences and are willing to change their work practices accordingly (Kane, 2019). A literature search reveals that digital transformation takes time, often many years; the transformation is normally not the result of one digitalisation project alone but of a combination of various digital and organisational changes that occur in sequence over time (Ross, Beath, & Mocker, 2019). In this study, we investigate the digital transformation of a major business process (Lie et al., 2018).

The relationship between digital transformation and digital resources has recently received increased attention, focusing on the lack of conceptual agreement among key terms (Markus & Rowe, 2023) and the need to differentiate between IT resources and digital resources (Piccoli, Rodriguez, & Grover, 2022). Following Henfridsson et al. (2018), we broadly define digital resources as building blocks in digital innovation. A digital resource belongs to a value space but can be used in different value paths in and between the four value spaces: content, service, network and device (Henfridsson et al., 2018).

Digital resources can be horizontally connected in value paths; for instance, a digital map or a video (belonging to the content value space) is often combined with other digital (content) resources, such as the price of hotel rooms in an area. Otherwise, they can be vertically connected in value paths through some or all of the four spaces; a booking app (service) can show the price of a hotel room (content) on a mobile phone (device) using a 5 G telephone network. Digital resources are often connected by APIs, themselves digital resources (Henfridsson et al., 2018, Pujadas et al., 2024).

Digital resources are key elements in digital transformations, but the latter also require specific human and social capabilities. At the (collective) macro level, these capabilities have been conceptualised in various ways, for instance, as dynamic capabilities (Teece, 2007), strategic and organisational insights (Vial, 2019), and new practices in business process management (Baiyere et al., 2020). However, at the micro level, much less is known about these capabilities. As pointed out by Hund et al., knowledge is a crucial asset in digital innovation, and it is clear that knowledge plays a key role in the recombination process (Hund et al., 2021). In this study, we adopt a micro-foundational approach (Felin et al., 2012) to explore this issue further.

2.2. Micro-foundations and the sociotechnical

The micro-foundation concept provides a framework for considering collective organisational phenomena in terms of their constituent elements and appeals to the logic that macro-level phenomena, such as digital transformation, must have their origins in individuals’ actions (Felin et al., 2012). Micro-foundations entail explanations of individual behaviour that provide a rationale for what we observe at the macro level. Micro-foundations enable the disaggregation of the complex sociotechnical process of digital transformation into its fine-grained sociotechnical components.

Although the micro-foundation concept has been discussed for two decades, as yet, no universal agreement exists on what the concept entails (Felin, Foss, & Ployhart, 2015; see also Table 1 on p. 593 of this work). However, an analysis of the literature yielded certain key characteristics. A recurrent argument is that micro-foundations should be analysed at the level of the individual (Abell et al., 2008, Felin & Foss, 2005, Felin et al., 2015). “How things are done in organisational settings, both in terms of structure and overall efficiency or creativeness, is a function of who is doing” (Felin & Foss, 2005). Individuals matter, and it is vital to understand the abilities, actions, and motivations of individuals to explain collective capabilities at the macro level (Felin et al., 2015, Foss, 2011). Moreover, as individuals do not work in isolation, micro-foundations are not only about individuals (Barney & Felin, 2013). Thus, The notion of team, as manifested in processes and structures, is a key component of the micro-foundation lens (Felin et al., 2015, Pentland et al., 2012). The underlying assumption is that these interactions occur at the micro level, that is, at a lower level than that of the phenomenon itself (Felin et al. 2015). See Table 1.

Table 1. Key publications defining micro-foundations.

Source/Reference	Constructs	Main arguments
Felin & Foss (2005)	Individuals (and their underlying nature, choices, abilities, propensities, heterogeneity, purposes, expectations, and motivations)	“How things are done in organisational settings, both in terms of structure and overall efficiency or creativeness, is a function of who is doing” (p. 450).
Teece (2007)	Skills, processes, procedures, structures, decision rules, disciplines	“The microfoundations of dynamic capabilities – the distinct skills, processes, procedures, organisational structures, decision rules, and disciplines – which undergird enterprise-level sensing, seizing, and reconfiguring capacities are difficult to develop and deploy” (p. 1329).
Abell et al. (2008)	Individual action and interaction, including motivation and skills	“There are no mechanisms that work solely on the macro-level” (p. 489). “[T]here is clearly an increasing need to build individual-level foundations for firm-level phenomena” (p. 498).
Felin and Foss (2009).	Individuals and the interactions of individuals	“The individual is always the basic strategic factor of organisation” (p. 165).
Foss (2011)	Individual action (and characteristics), and interactionThe processes through which actions, etc., synergize to yield collective outcomes	“[M]anagerial intervention is required, which inevitably has to take place with an eye to the micro-level” (p. 1417).
Felin, Foss, Heimeriks, and Madsen (2012)	Individuals, processes, and structures, and/or their interactions	“[A] strong motivation for unpacking routines and capabilities in microfoundational terms is that this will advance our understanding of what drives differences in the behaviour and performance of firms” (p. 1352).
Pentland, Feldman, Becker, & Liu (2012)	Action (in the context of routines)	“[W]e argue for action as an alternative micro-foundation. By action, we mean the things that actors do. Action refers to steps in a process of accomplishing an organisational task” (p. 1484).
Felin, Foss, & Ployhart (2015)	Individual actors with knowledge, skills, and abilities, and their actions and interactions	“The central impetus of the microfoundations research program has been to unpack collective concepts to understand how individual-level factors impact organisations, how the interaction of individuals leads to emergent, collective, and organisation-level outcomes and performance, and how relations between macro variables are mediated by micro actions and interactions” (p. 576).

The micro-foundations concept is not presented as a theory (Abell et al., 2008, p. 499), and there is a call to investigate micro-foundations in different contexts, such as digital transformation (Li et al., 2018). Digital transformation unquestionably involves a series of complex relations between the social and the technical – between competent individuals and digital resources. We use the term “sociotechnical” to emphasise that micro-foundations for digital transformation should cover both social and technological capabilities. Moreover, their interactional pattern matters, as the relationship between the technical and the social works both ways and in different ways. Technological capabilities influence the performance of organisational actors, while social capabilities influence the performance of technology. It is well acknowledged that to create value effectively, individual actors must possess a combination of technical and behavioural (socio-)capabilities (Fink, 2011). For example, a given technology, with its basic features, decides what the developer is capable of developing. Conversely, the social, with its rules, structures, competences, and expectations, determines the functionality of technological solutions. Thus, the social works on the technology and the technology works on the social. In digital transformation, social and technological capabilities are integrated, developed, and improved through a continuous learning process. Organisations undergoing a digital transformation must therefore carefully develop and integrate internal sociotechnical capabilities. Although the idea of combining micro-foundations with a technical element is not new (Teece, 2007, Niehaves et al., 2011, Jensen & Bækgaard, 2016), the micro-foundation concept has not been developed in terms of technology, which is crucial for understanding a sociotechnical phenomenon such as digital transformation. Therefore, there is a specific need to investigate the interactional patterns of the social and the technical during digital transformation by applying a sociotechnical perspective.

In the following, we present a single case study with the aim of identifying and exploring the sociotechnical micro-foundations – the interactions between competent individuals and digital resources – that were developed during the digital transformation of a major business process.

3. Method and case

3.1. Research setting and business context

To develop and theorise the sociotechnical micro-foundation concept, we adopted a longitudinal research strategy (George & Bennett, 2005) and investigated the digital transformation of the distribution process¹ (including branding, marketing, managing bookings, partners, loyalty programmes, etc.) of a large hotel chain over a five-year period. Qualitative, in-depth, longitudinal case studies are well-suited to generating an understanding of how a phenomenon emerges and develops over time (Langley, 1999), as well as to developing a theory that is rigorous and context-sensitive. We selected a large hotel chain for two reasons. First, the hospitality industry offers an opportunity to investigate digital transformation in an incumbent firm in a traditional sector embedded in a complex digital ecosystem. Second, in contrast to single hotels, a large hotel chain has the resources to establish an ambitious digital business strategy, invest in digital technologies, and transform its business processes accordingly. When searching for possible organisations, we identified the hotel chain Nordic Choice as an aggressive player that offered the opportunity to investigate the sociotechnical micro-foundations of digital transformation in detail.

The research setting was the competitive arena of the hospitality industry, where online travel agencies (OTAs), such as Hotels.com and Booking.com, have industrialised a complex digital hospitality ecosystem based on their digital platforms. From the individual traveller’s perspective, these platforms provide a convenient hotel booking process, typically by listing a destination’s available hotel rooms and sorting them under various criteria. This allows for easy price and offering comparisons. This development has led to an increasingly complex distribution environment (Tom Dieck, Fountoulaki, & Jung, 2018). For hotels and hotel chains, OTAs came as a mixed blessing. On the one hand, they offer an efficient distribution channel for making rooms available on the internet and help introduce new customers to hotels (Chang et al., 2019). On the other hand, OTAs position themselves between the guest and the hotel, representing a considerable challenge to the traditional hotel – guest relationship (Toh, Raven, & DeKay, 2011). OTAs are reported to charge 15–30% of the room price for their service (Feinstein, 2018). Moreover, by interacting directly with customers, OTAs accumulate customer data for further marketing. Hotel managers realise that these new actors are changing the rules of competition and thus threatening the hospitality industry’s business model and their distribution processes.

3.2. Data collection

This study was based on several data sources (Table 2). We gathered data that covered Nordic Choice’s 2014–2020 digital transformation process. The main data source was interviews. In line with Ghauri (2004), the primary selection criterion for key informants was personal involvement in implementing the digital business strategy and digital transformation. To gather varied experiences and viewpoints, we chose informants from different parts of the organisation and with different roles, such as top managers, the CDO, the CIO, IT personnel and IS developers, marketing managers, marketing officers, IT personnel, controllers, and receptionists.

Table 2. Overview of the data sources and their use.

Data source	Informant/Data type	Use in analysis
31 interviews
First-phase interviews (15) (2015–2016)	Top manager CDO CIO Marketing managers (2) Controller Market officers (3) IT personnel (3) IS developers (2) Receptionist	Obtain an overview of the participants’ perceptions of the external challenges that led to the digital business strategy implementation and their initial actions
Second-phase interviews (9) (2017–2018)	Top manager CDO CIO Marketing manager Market officer IT personnel IS developers (2) Receptionist	Understand the informants’ perceptions and experiences of the digital transformation Conduct mapping of sociotechnical interactions across various organisational areas and levels
Third-phase interviews (7) (2019–2020)	Top manager CDO CIO IT personnel Marketing manager Marketing officer Business officer	Understand the outcomes of the strategy, current activities, and plans for the future
Archival data Internal sources	Digital business strategy, technical documentation, internet statistics, digital channel distribution mixes, and accounting data	Provide information about the digital initiatives, digital services offered, digital architecture, and outcomes
		Create a timeline of events to support and triangulate the interview data
		Understand the digital transformation
External sources	Online articles (e.g., Skift.com), newspaper articles, magazines	Understand the global digital hospitality ecosystem
Observations	Participation at internal conferences, engagement with the loyalty program, hotel visits, and informal conversations	Provide insights into events that could be investigated further
		Conduct mapping of sociotechnical interactions
		Support and triangulate the interview data
	Meetings where we presented the study to Nordic Choice	Validate our interpretations and clarify uncertainties

The interviews were conducted in three phases. In the first phase (2015–2016), we conducted 15 interviews to understand the participants’ perceptions of the challenges and pressures confronting the firm in the lead up to the selection of a digital business strategy and the first activities to implement it. In the second phase (2017–2018), we conducted nine interviews to understand the informants’ perceptions and experiences of the digital transformation, including the establishment of a new digital innovation unit (eBerry), digital projects, and a loyalty programme. In the third phase (2019–2020), we conducted seven interviews in combination with several informal discussions with key players. The purpose of this phase was to understand the outcomes of the transformation, as well as the challenges and further plans. The data collection was purposely conducted to span the period immediately before and in parallel with the digital transformation to capture the conditions that led to its development and the actual issues inherent in the transformation.

The interviews were semi-structured and open-ended to capture the informants’ perceptions. We designed an interview guide to cover our topics of interest, while allowing the exploration of new areas. The main topics discussed were the key challenges facing Nordic Choice in the digital hospitality ecosystem; strategic alternatives and choices; the selected technical and organisational solutions; and implementation challenges, outcomes, and plans. In this manner, we tracked the unfolding of events in real-time and in retrospect, thus covering the five-year period. Two researchers participated in most of the interviews, which lasted 1.0–1.5 hours. Notes were taken during the interviews, and summaries were then made from these notes. The interviews were also audio-recorded and transcribed verbatim. When necessary, the interviews were complemented with email correspondence to ask supplementary questions or clarify certain points.

We also collected firm-level data from company reports, presentations, and internal documents for the period investigated. The archival documents were used to verify and cross-check the information obtained through the interviews, confirm the timeline’s accuracy, and follow up on key concerns and events mentioned during the interviews. In this manner, we triangulated the data sources, which contributes to the trustworthiness of the study (Cuervo-Cazurra et al. 2016).

3.3. Data analysis

The data analysis was conducted in four steps (see Table 3) to develop our theoretical concept (George & Bennett, 2005). Our analytical framing is sociotechnical interactions, that is, individuals interacting with digital technology and other individuals (Vatrapu, 2009). Sociotechnical interactions are synergistic, that is, the result of the process is more than the sum of its parts (Hong et al., 2017). Researchers have shown that sociotechnical interactions between highly qualified teams and advanced technology are part of a viable process for product development (Vlachos, 2021). We regard sociotechnical interaction as the interplay between actors and digital resources across various areas and levels, such as entire ecosystems, systems and applications, and data.

Table 3. In-depth data analysis.

Activity	Output
1: Analyse case chronology and key events	Timeline with key events
2: Analyse and structure case description	Structured case description based on three major themes and macro–micro-level logic
3: Analyse sociotechnical interactions in the case description	Sociotechnical interactions that enabled the digital transformation
4. Identify candidate sociotechnical micro-foundations	Candidate sociotechnical micro-foundations

In the first step, we analysed the case chronology and key events provided by the interview transcripts and supporting data sources and constructed a timeline with key events. In the second step, we analysed the timeline and the events, and structured the case based on three major themes and the macro-and micro-level logic. We analysed how the macro and micro levels integrated and how the capabilities at the individual (micro) level enabled outcomes at the organisational (macro) level. In the third step, we analysed the structured case description and applied open coding to identify the sociotechnical interactions that enabled the digital transformation. In the fourth step, we assessed the sociotechnical interactions and identified a set of sociotechnical micro-foundations for each of the three themes. We analysed the creation of new knowledge and the immediate results of sociotechnical interactions.

4. Findings

In this section, we unpack Nordic Choice’s digital transformation and identify the sociotechnical micro-foundations that enabled it. We illustrate the findings based on three major themes and the macro – micro logic and highlight the sociotechnical micro-foundations for each theme. Figure 1 visualises the timeline of Nordic Choice’s digital transformation, highlighting key decisions and initiatives.

Figure 1. The timeline of Nordic Choice’s digital transformation with key decisions and initiatives.

4.1. Theme 1: recognising the need to transform

This theme, which began in 2014, illustrates the hotel chain’s response to the intensified competition in the hospitality industry and explains how the Vice President interacted with existing digital resources to prepare for a digital business strategy. In the following, we explain the actions at the macro and micro level required to actualise three key sociotechnical micro-foundations that represent the initiation of the company’s digital transformation.

4.1.1 Macro level

For years, Nordic Choice had considered OTAs to be valuable partners offering an effective marketing and distribution channel. In 2014, by analysing the internet to understand the hospitality ecosystem, management identified OTAs as a threat. OTA platforms were challenging Nordic Choice’s business model at two levels. First, the increasing number of bookings through online intermediaries led to price pressure and lower margins. Nordic Choice Vice President Bjørn Arild Wisth stated:

The past decade had changed our communication with the customers. First, in the 1990s, the online booking websites, such as Hotels.com and Booking.com, emerged. We then regarded them as helpful add-ons that made it easier to find us, but got worried when their share of the room price got greedy. Over time, an increasing share of our customers communicated with these sites and not with us. I realised that if nothing were done, we would end up as a commodity provider of hotel rooms, leaving the distribution to the internet companies. This was a threat to our whole business model.

Second, by dealing directly with customers, OTAs also accumulate information needed to manage customer relationships. A top manager stated: “We had to face the tough insight that we had lost control over our distribution and customer data”.

Thus, management understood that they had to act. After numerous discussions about how to respond, the management team decided to initiate a digital transformation, and the vice president (VP) responsible for strategy and technology was given the mandate for it (macro to micro).

4.1.2 Micro level

First, the vice president analysed trends in the digital hospitality ecosystem and developed a digital business strategy with a clear digital vision. The vision was to create the “best ecosystem in the Nordic countries for digital booking and guest travel experience”. The aim was to secure Nordic Choice’s position in the future distribution landscape. Second, the VP analysed technology trends and compared them with the hotel chain’s own digital capabilities, identifying a gap between existing and needed digital capabilities. The existing IT department functioned as a traditional service provider designed solely to maintain the existing infrastructure, which was old and inadequate. Moreover, the booking website was outdated, unstable, and outsourced to an external provider. The VP summarised the situation as follows:

Nordic Choice’s current technology landscape is characterised by complex integrations, business function-specific processes and solutions, and dispersed and incomplete master data. Technology competence is limited.

By analysing the sociotechnical interactions in the first theme, focusing on the interactions between actors and digital resources, we identified a sample of sociotechnical micro-foundations:

• VP (individual) analysed trends in the digital hospitality ecosystem (digital resource).

• VP (individual) analysed digital trends (digital resource).

• VP (individual) detected a gap between existing and needed digital capabilities (digital resource).

The VP presented the digital strategy and his analyses to the management team (micro to macro).

4.2. Theme 2: implementing the digital strategy

This theme, which lasted from 2015 until 2018, illustrates the key decisions at the macro level that initiated the sociotechnical interactions at the micro level needed to implement the digital transformation and realise the vision of a digital guest journey. As the case exemplifies, teams were central actors in this period, and vital interactions emerged between organisational groups and digital resources. Moreover, renewing the digital infrastructure to enable the digital innovations represented a major challenge at the micro level. In the following, we explain the decisions and actions at the macro and micro levels required to actualise the sociotechnical micro-foundations necessary to implement the hotel chain’s digital transformation.

4.2.1 Macro level

Based on the input from the VP in theme 1 (micro to macro), the management team decided, in late 2015, after some discussions, to implement the digital strategy, although it was estimated to cost more than 20 million euros. It was also decided to develop a loyalty programme, “The best in the business”, to support the digital vision. “The goal is that 80% of those who order via a third party, such as an OTA, order directly with us the next time they order”, the Vice President commented. Based on the detected gap between existing and needed digital capabilities, the management team decided to establish a new digital innovation unit, eBerry, as a separate company with the mandate to implement the stated vision and realise the digital transformation. “We needed a totally different IT department that could adapt quickly and that had mastered the new technologies”, the Marketing Manager explained. A chief digital officer (CDO) was hired to build up and head the digital innovation unit (macro to micro).

4.2.2 Micro level

Based on the mandate from the management team, the CDO started building up the new digital innovation unit (eBerry) and quickly engaged 40 new IT experts with the new digital competences they needed. The CDO explained the recruiting process:

We employed people in all the specialist areas we needed to handle the development entirely in-house: from advanced technologists to UX designers. We went from 0 to 40. Everything happened in 2016; it was a revolution. However, recruiting top competence is challenging. The traditional hotel culture is not congruent with the young IT geeks we are recruiting.

Based on her new personnel resources, the CDO established three teams: a platform team, an app team, and a data science team. eBerry immediately started strategising its position in the ecosystem by entering the digital competition arena. Two short-term initiatives were immediately undertaken. First, the data science team analysed booking data, and the CDO utilised the findings to renegotiate Nordic Choice’s contracts with the OTAs. This led to a substantial decrease in the OTAs’ share of room prices. Second, the CDO assigned the data science team to utilise analytics to continuously monitor the digital hospitality ecosystem and use advanced algorithms to optimise the visibility of Nordic Choice offerings in Google searches in real-time. As one data scientist said, “What we do a lot is to ensure that we are in the right places so that when people are out looking and want to book a hotel, they are driven towards us”.

To develop new digital guest services, the CDO initiated three initiatives: the app team was given the job of developing a customer app that was aligned with the loyalty programme, the web team was given the job of redesigning the old website, and the platform team was given the job of establishing a new digital infrastructure. The CDO explained:

We do not run projects; we aim to be a technology firm building products. We have three main products: the Nordic Choice website, the integration platform, and the Nordic Choice app. We are responsible for the loyalty programme, campaigns, and bookings. We also have a “Future Business” unit developing new technologies and ideas, such as robots.

The first version of the customer app provided standard hospitality functions, such as booking and check-in/check-out. To enable an easy and convenient booking experience, it was decided not to require payment in advance. The app’s functionality was aligned with the offerings and benefits in the loyalty programme and provided Nordic Choice with valuable information about hotel guests’ behaviours and preferences. To redesign the old website, eBerry decided to insource it. The web team gave the website a new look, and they collaborated closely with the app team so that the booking functionality was aligned with that in the app. However, moving from a relatively simple booking system into the digital hospitality ecosystem was challenging. The CDO commented: “Legacy systems are a big challenge, both the six-year-old web solution and the old booking systems. We need a flexible platform, which is difficult to create”.

To connect the website and the customer app, the platform team established a robust internal digital platform (called Omni) based on a service-oriented architecture, and developed APIs to connect existing and new systems. One objective was to build a platform that provided the website and the customer app with equal booking functionality. From a customer perspective, the choice of a digital channel should be transparent. A robust and functional platform was also considered imperative to compete in the digital hospitality ecosystem.

Analysing the sociotechnical interactions in the second theme, focusing on the interactions between actors and digital resources, we identified a sample of sociotechnical micro-foundations:

• The data science team (individual, team) analysed booking data (digital resource).

• The data science team (individual, team) applied advanced algorithms (digital resource) to optimise the visibility of offerings on Google in real-time.

• The app team (individual, team) combined business knowledge and advanced development tools (digital resources) to develop a customer app.

• The infrastructure team (individual, team) established a robust internal platform with advanced APIs (digital resource).

The effects of the various initiatives were regularly reported by the CDO to the management team. However, after two years, in 2018, the CDO reviewed the overall outcomes of the digital transformation and found the following:

• The loyalty programme gained 2.2 million members, and the app had 254,000 downloads.

• The revenue from booking through Nordic Choice’s digital channels (website and app) was 210 million euros, representing a 78% increase in digital bookings since 2016.

• The booking costs through Nordic Choice’s digital channels were 3% of the price, compared to 15–20% using an OTA.

The outcomes were presented to the management team (micro to macro).

4.3. Theme 3: evaluating outcomes and continuing the digital transformation process

This theme, which began in 2018 and is still ongoing, illustrates how management at the macro level assessed the outcomes of the transformation and their existing digital capabilities, giving the actors at the micro level the mandate to continue innovating in the digital hospitality ecosystem. As the case exemplifies, aligning personnel’s competence and work practices with the new digital services represented a major challenge. In the following, we explain the decisions at the macro level and the sociotechnical interactions at the micro level that were required to continue the digital transformation.

4.3.1 Macro level

From a management perspective, the outcomes were satisfactory. The digital strategy had enabled Nordic Choice to maintain its share of bookings through its own distribution channels. Moreover, the ongoing competition in the digital ecosystem was handled by Nordic Choice’s own expertise. However, implementing the digital business strategy proved to be costly and challenging: “I didn’t think it would cost so much, and I may confess that I thought we would get an even bigger share of bookings through our own channels than we have had”, the Vice President commented. However, the management team realised that the digital transformation could not stop there, as the digital vision, expressed as “creating the best ecosystem in the Nordics for digital booking and guest travel experience”, was a long-term goal. The continuation of the digital transformation initiative was fully supported and fronted by owner Petter Stordalen and the management team. At a large in-house conference in 2019 for the hotel chain’s employees that the researchers attended, Stordalen presented Nordic Choice’s digital ambitions:

The competition is extremely hard. We must take part in the digital transformation and respond to our guests’ changing needs and requirements. We are already investing heavily in digital technology and will continue to do so. No hotel chain will invest more in technology than us: our app, our website, and in our hotels. One of our competitors said to me, “We have completed our technology investments”. My response to him was, “If you think you are finished, then you are indeed finished”. My message today is, we have just started.

According to this, the CDO had a clear mandate from the management team to continue the digital transformation (macro to micro).

4.3.2 Micro level

Based on management’s ambition to continue the digital transformation process, the CDO initiated several new initiatives. First, the CDO redesigned the loyalty programme and, consequently, requested that the app team redesign the customer app to influence customer behaviour. In addition, an extensive campaign was launched to encourage travellers to book with Nordic Choice directly. For example, when a customer who had once booked through one of the OTAs wished to register for Nordic Choice bonus points, the check-in staff told her that no bonus points were earned if the booking was done through OTAs, nor could she receive a free newspaper, as was typical for customers who booked with Nordic Choice directly. In addition, large advertising sign campaigns were arranged to stimulate customers to book rooms directly through the guest app.

Second, to further realise the digital vision, eBerry continued utilising novel technology to innovate new digital services. In 2018, the app team developed new app functions, such as mobile room keys, in-stay feedback, guest chat solutions, and a personal history function. Moreover, the app team developed a self-service check-in/check-out solution implemented in kiosks that were installed in hotel lobbies. The objective of the new digital guest solutions was to support guests’ pre-, in-, and post-stay experiences and implement the hotel chain’s digital guest journey vision. Thus, eBerry established a company-wide campaign to motivate and train desk personnel in digital routines to align their practices with the digital guest solutions. The CDO explained:

The biggest lesson we have learned over the past three years is that eBerry will not succeed if we do not get the employees in the hotels, our 16,500 employees, involved. And it was an enormously tougher task than I had expected. Getting the employees to understand that the future we are facing is going to demand other things from them. Very traditional ideas still dominate.

A receptionist at a Stockholm hotel commented on the training programme:

We have been participating in the eBerry kick-off and got quite excited about the solutions. Actually, I applied for a position at Nordic Choice because I perceive them as the most innovative chain in the business. It is not only the technology, which is fine, but also the energy in the organisation.

At the same time, the infrastructure team redesigned APIs to integrate the new digital services into a seamless digital guest journey, as illustrated in Figure 2.

Figure 2. Nordic Choice’s digital guest journey (from internal Nordic Choice documents).

In our analysis of the sociotechnical interactions in the third theme, focusing on the interactions between actors and digital resources, we identified the following sample of sociotechnical micro-foundations:

• The app team (individual, team) redesigned the customer app (digital resource) to influence customer behaviour (individual).

• Desk personnel (individual) aligned their work practices with the digital guest solutions (digital resource).

• The infrastructure team (individual, team) redesigned the APIs (digital resource) to integrate new digital services (digital resource).

In summary, the Nordic Choice case investigation offered a detailed account of a digital transformation of a major business process in the digital hospitality management ecosystem, namely, the distribution of hotel rooms in a global market, where regional chains compete with internet-based OTAs. Our case illustrates the complex and demanding issues of digital transformation, the interactions between the macro and micro levels, and the sociotechnical interactions investigated at the levels of skilful individuals and teams and their interactions with digital resources. Individuals and teams conducted these interactions with digital resources at various levels, from the entire ecosystem to customer app solutions, which were identified as sociotechnical micro-foundations.

5. Discussion

In this section, we first discuss our contribution to digital transformation research. We then assess our contribution to the literature on micro-foundations. Finally, we discuss the implications for practice.

5.1. Sociotechnical micro-foundations

In developing a sociotechnical micro-foundation concept, we built on three basic insights from the literature. First, the literature argues that micro-foundations should be analysed at the level of either the individual with knowledge, skills, and abilities (Felin et al., 2015) or supra-individual units, such as teams (Teece, 2007). Second, a sociotechnical perspective assumes that modern organisations should be understood not as purely social structures but as interacting networks of individuals and resources that perform roles and execute tasks to attain their goals (Coakes & Coakes, 2009). Third, as our literature review has shown, there are two key elements in a digital transformation (i.e., competent actors and digital resources); in combination, these elements determine what the organisation is capable of (Kane, 2019).

Our case analysis of sociotechnical interactions in the digital transformation of Nordic Choice’s distribution process revealed a variety of sociotechnical micro-foundations, as well as how the micro and macro levels integrate; these findings contribute to understanding how macro-level capabilities are built and configured in digital transformations. Building on these insights, we define a sociotechnical micro-foundation as “the interactions between competent actors and digital resources that enables the organisation to build macro-level capabilities during a digital transformation”. This definition expresses that a sociotechnical micro-foundation is not an attribute of the organisational actor or a digital resource but an emergent entity. We illustrate the sociotechnical micro-foundation concept and how it is linked to the macro level in Figure 3. Figure 3 is an adaptation of Coleman’s bathtub (1990); the presentation is inspired by Crick and Chew (2020).

Figure 3. The sociotechnical micro-foundation concept (adapted from Coleman, 1990).

The figure illustrates the macro-level phenomenon under study (i.e., digital transformation capabilities) at the top right. At the same level, the macro-level conditions that drive the digital transformation via the fourth path (4) appear at the top left. The first, second, and third pathways generate and illustrate the micro-foundational explanations for the macro-level outcomes. The first path (1), the macro to micro, concerns how conditions at the macro level (i.e., the need to conduct a digital transformation) impact the actors and digital resources at the micro level. The second path (2), the micro to micro, concerns the interactions of actors and digital resources as manifested in sociotechnical interactions. The third path (3), the micro to macro, concerns how the aggregative effects of interactions between competent actors and digital resources (i.e., the sociotechnical micro-foundations) lead to capabilities at the macro level, enabling the digital transformation. The figure is a simple illustration of the relationship between the macro and micro levels and the role of sociotechnical micro-foundations.

Actors in sociotechnical micro-foundations are often individuals, but as the case shows, they can also be teams or management groups. Following Henfridsson et al. (2018), digital resources can be content, services, networks, and devices, often in combination. Interactions emerge when a competent actor engages with a digital resource to obtain something, for example, when the data science team developed advanced algorithms to optimise the visibility of offerings on Google in real-time. This is in line with the view that micro-foundations involve a performative aspect (Pentland et al., 2012). The interactions between actors and digital resources are often quite concrete (e.g., “the app team combined business knowledge and advanced development tools to develop a customer app”) but can also be higher in level (e.g., “The vice president analysed trends in the digital hospitality ecosystem”).

Overall, we extend the knowledge of digital transformation research in two ways. First, in theorising the sociotechnical micro-foundation concept, we describe a basic building block of digital transformation. We regard these micro-foundations as relatively stable and generic processes that can be reused and copied. As we show in our case, managers can use them as repertoires of action.

In assessing the case, we note that a sociotechnical micro-foundation includes a competent actor interacting with a digital resource. This indicates that a sociotechnical micro-foundation is not something a company can buy, as observed by Teece (2007), but must be developed in a continuous learning process, since knowledge is a key resource in the innovation process (Hund et al., 2021). This is characterised by mutuality: individual input influences the digital resource, whereas the response from the digital resource is not deterministic but rather dependent on many other factors. For instance, when the data science team aimed to continuously optimise visibility in Google searches in real-time, the result was dependent on Google’s shifting algorithmic logic and the team’s interactions with other actors. Thus, a sociotechnical micro-foundation is an emergent phenomenon arising from the interactions between a competent actor and a complex digital resource. We believe that an important characteristic of digital innovation (being a key part of digital transformation) is that both the competence of the actor and the technology are unstable; as the technology changes, the competence has to change. In addition, as the competence changes, the use of technology will change (Henfridsson et al., 2018). In our view, this emphasises why digital transformation cannot be bought.

A sociotechnical micro-foundation can be seen as having similarities with an affordance, broadly defined as a possibility for action and specifically as “the potential for behaviours associated with achieving an immediate concrete outcome and arising from the relation between an object and a goal-oriented actor or actors” (Volkoff & Strong, 2013). However, the scope of the sociotechnical micro-foundation is larger than the affordance; the configuration of objects and actors is more complex, and although the outcome may be immediate, it can also be long-term and extensive. One example is analysing trends in the digital hospitality ecosystem, which requires various sensing and analytical tools.

Our second contribution, at a higher level, is that we extend the current knowledge of how organisations develop macro-level capabilities for digital transformation. As we initially proposed, digital transformation is a multi-level effort; it builds on macro-level capabilities, which, in turn, build on micro-foundations. In addition, our case revealed how the micro and macro levels integrate during the process, an issue that has not yet been adequately investigated in the digital transformation literature. As Abell et al. (2008) argued, there are no mechanisms that work solely on the macro level, and our sociotechnical micro-foundation concept contributes to our knowledge of how to develop macro-level capabilities for digital transformation. Simply put, since digital transformation is a sociotechnical phenomenon, the underlying mechanisms must be sociotechnical. A major organisational change, such as digital transformation, may involve a series of interactions between the two levels, as illustrated in Figure 4.

Figure 4. The linkage between the micro and macro levels during digital transformation.

Foss et al. (2023) proposed that ecosystem leadership is a dynamic capability and investigated how leaders sense, seize, and reconfigure the process. We build on and extend these insights through our sociotechnical perspective. We argue that our concept increases the precision with which leaders (and researchers) can understand and manage the complex tasks involved in digital transformation. Adding to the insights of Foss et al., our case illustrates the centrality of digital resources, not only as objects to be dealt with but also as interacting forces.

5.2. Contribution to research on micro-foundations

Micro-foundations refer to the idea that macroeconomic models should be based on individuals’ behaviours and decisions, rather than on aggregated or abstracted concepts. The aim is to provide a more realistic and comprehensive understanding of macroeconomic phenomena by building up from individuals’ actions and interactions to aggregate-level outcomes (Felin et al., 2015). The basic premise of micro-foundations is that to understand abilities and performance at the collective level (macro), we need to explore the underlying mechanisms performed at the lower level (micro), starting with the individual as the central actor (Felin & Foss, 2005).

In the prevailing literature, the role of digital technology in shaping individual behaviours and decision-making, and thus explaining performance at the organisational level, has become extinct. This is unfortunate, given how vital digital technology is for understanding the development of modern organisations and business ecosystems. It is also surprising; Teece, in his seminal article “Explicating dynamic capabilities: The nature and micro-foundations of (sustainable) enterprise performance” (2007), provides numerous examples of micro-foundations with a “technological” element. Unfortunately, the present literature has not followed up on Teece’s initial perspectives. For example, when Foss and colleagues (2023) analyse – by applying a micro-foundations perspective – the role of leadership in establishing and maintaining ecosystems, technology is virtually not addressed. Although their study addresses micro-foundations for managing a digital phenomenon, technology is not considered a micro-foundational element.

We make a further contribution by extending the current understanding of the “basic underlying factors that drive economic and business activities” by including a sociotechnical perspective involving digital technology. This perspective is increasingly relevant in modern organisational contexts where technology and social networks are tightly interwoven. Digital technologies are an integral part of modern organisations, and their adoption and use can have significant implications for organisational performance and outcomes. By including digital technology in the micro-foundation concept, we can provide better insights into the mechanisms that underlie these outcomes and inform the design of policies and strategies aimed at promoting effective technology use within organisations.

By integrating these insights, we extend the current understanding of interactions. In the literature, interactions are understood as relations between individual persons or supra-individual units, such as teams, processes, and structures (Teece, 2007, Felin et al., 2012, Vromen, 2011). We argue, based on a sociotechnical perspective, that the interactions between individuals and digital resources are key to understanding what happens at the micro level and how these interactions contribute to higher-level outcomes. In complex patterns, digital technology can shape individual behaviour; conversely, individuals can shape digital technology’s functionality and performance. Taken together, the interactions of individuals and digital technology determine what the organisation is capable of at the collective level.

5.3. Implications for managers

Digital transformation is very demanding for managers, not only at the strategic level but also in identifying relevant technologies and developing or acquiring the necessary skills to leverage them for business purposes. Building micro-foundations for digital transformation is challenging, and the task should not be underestimated (Ross et al., 2019). It requires employees with new and specialised knowledge, skills, and digital tools. This is well illustrated in our case study. For example, for Nordic Choice to optimise Google visibility, the data science team needed a) current knowledge, skills, and tools for collecting data, b) new knowledge, skills, and tools for analysing the data, and c) new knowledge, skills, and tools for continuously optimising visibility in Google searches in real-time.

We argue that the sociotechnical micro-foundation concept can be used by managers to identify and develop the detailed mechanisms necessary to support the digital transformation. This implies that managers should carefully assess their competencies and digital resources before conducting digital transformation. The value of applying the sociotechnical micro-foundations concept is that it gives managers a structured and systematic way of identifying and establishing interrelated sociotechnical mechanisms (i.e., actors, interactions, and digital resources). The sociotechnical micro-foundations may be configured to the specific needs of the organisation and its ecosystem’s characteristics. Digital transformation is a continuous learning process; it never ends. As such, the “grammar” of sociotechnical micro-foundations is evolving in the sense that possible novel combinations will emerge as new ideas meet emerging digital resources. New technologies are introduced consistently, such as platforms, AI and machine learning, IoT, and robotics (Nambisan et al., 2020). This means that managing sociotechnical micro-foundations is an ongoing task (Foss et al., 2023, Teece, 2007). It is hard to exaggerate this challenge. In the Nordic Choice case, a manager (the vice president) had to master the tools for analysing the data streams in the digital hospitality ecosystem, which required specific sociotechnical micro-foundations. In the same vein, the vice president constantly monitored new hospitality technologies to match them with customer needs, requiring detailed insights into employee routines and customer behaviour. Summing up, managers and planners can use sociotechnical micro-foundations predictively as a concept to help identify the initiatives necessary for realising a digital strategy and conducting a systemic digital transformation.

5.4. Limitations and future research

Two study limitations should be mentioned. First, the research design involved a sample of only one case. Thus, we do not claim that we have discovered all sociotechnical micro-foundations involved in digital transformation. Moreover, the data were collected from a company that was expanding and that was financially well-equipped to create digital initiatives and conduct a digital transformation. This certainly influenced the company’s ambitions, initiatives, and outcomes. Future research should address these limitations, and prospective studies could help refine the proposed concept. Moreover, our demonstration of sociotechnical micro-foundations for and involved in digital transformation suggests further investigation as practices continue to evolve and new technologies emerge. Although the goal for our research was to understand and conceptualise micro-level mechanisms in digital transformation, we believe that the concept of sociotechnical micro-foundations may be applied to other “digital” contexts as well. Thus, we invite scholars to validate the concept’s usefulness in a broader set of approaches. Another avenue for further research may be to combine the sociotechnical micro-foundations approach with the flow-oriented approach developed by Baygi and colleagues (Baygi et al., 2021). Together, the two approaches may explain the mechanisms and dynamics of sociotechnical transformations even more thoroughly.

6. Conclusion

The starting point for our study was that the digital transformation literature lacks a solid foundation at the micro level. One possible solution is the concept of micro-foundations; however, this body of knowledge lacks a technical aspect. Responding to both issues, we developed and theorised the concept of socio-technical micro-foundations with the research question: How can we develop and theorise a sociotechnical micro-foundation concept that facilitates macro-level capabilities in digital transformation?

To develop the concept, we investigated the digital transformation of a hotel chain’s distribution process, by revealing the underlying mechanisms necessary for building and maintaining macro-level capabilities for such a transformation. Based on previous research and our case analysis, we define sociotechnical micro-foundations as “the interactions between competent actors and digital resources that enables the organisation to build macro-level capabilities during a digital transformation”. We argue that the sociotechnical micro-foundations concept uncovers how specific combinations of competent actors and digital resources constitute necessary foundations for digital transformation.

We offer three contributions. First, in theorising the sociotechnical micro-foundation concept, we describe a basic building block of digital transformation, and by showing the interaction between the macro and micro levels, we extend the current knowledge of how organisations develop macro-level capabilities for digital transformation. Second, we contribute to the micro-foundation literature by challenging the overly managerial perspective of current research; we demonstrate how interactions between individuals and digital resources are key to understanding what happens at the micro level. Third, we offer practical implications for managers; the sociotechnical micro-foundation concept can be used to identify and develop the detailed mechanisms necessary to support digital transformation.

We have argued that this concept can provide support for future research by unveiling the realities of digital transformation in organisations. The concept may be applied as an analytical tool that enables improved and more comparable analyses, thus supporting the accumulative development of theory.

Acknowledgements

We thank the editors and reviewers for an excellent review process. We also acknowledge the generous openness and co-operation from the Nordic Choice hotel chain.

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes

1. The platform economy has a major impact on the distribution process of the hospitality industry (Akbar & Tracogna, 2018), but less so on the two other main processes of the industry, i.e., service delivery and property management.