Dimensions of Alignment between Digital Capability and Innovation Strategy in Petrochemical Industry

The reduction of profit margins and the disappearance of past competitive advantages have pushed companies in Petrochemical industries toward innovation by utilizing digital capabilities. This necessitates the establishment of a strategic alignment between digital capabilities and innovation strategies and decisions. This research aims to examine the dimensions of alignment between digital capability variables and innovation strategies and create a framework for its assessment. Initially, by reviewing the background of studies, a framework for assessing each of the variables was developed. Subsequently, a questionnaire for confirmatory structural analysis of the identified concepts and dimensions was formulated. This questionnaire was completed by 99 experts in innovation management, digital technologies in the industry, and academia. As a result, it was determined that to assess the level of alignment between digital capabilities and innovation strategies, creating digital value and digital innovation processes for innovation strategies, digital innovation infrastructure and digital innovation capabilities for digital capabilities, and complementarity, balance, and coordination for alignment were considered as assessment dimensions of the variables.

Today, the advantages of the past in the petrochemical industry are diminishing, and the competitive landscape is changing. It can be noted that one of the main challenges encompassing the petrochemical industry today is enhancing competitiveness and reducing operational costs, which require innovation in the use of new technologies (O. V. Zhdaneev, V. Korenev, and A. S. Lyadov, 2020).
Most organizations in this industry use structures and organizational procedures that are not well-suited for utilizing innovative capabilities, including digital capabilities (Alexey Shinkevich, Naira Barsegyan, Vladimir Petrov, and Tatyana Klimenko, 2021). On the other hand, organizations are striving to create complementarity between their different capabilities to strengthen potential innovation capacity (Rogier van de Wetering, Patrick Mikalef, 2017).
Therefore, one of the crucial questions for companies in the petrochemical industry can be how to assess the alignment between digital capabilities and innovation strategy. Consequently, the goal of this research is to identify appropriate dimensions and components for assessing the alignment of digital capabilities and innovation strategy in the petrochemical industry. To achieve this, the relevant concepts related to the main variables are identified and examined, and based on this, the dimensions and components under these variables will be confirmed through a validation process to create an assessment tool.

In the examination of digital capabilities in the petrochemical industry, it can be noted that new processes and patterns are emerging due to adaptation to new technologies, (Amankwah-Amoah, J., Khan, Z., Wood, G., & Knight, G., 2021). Studies conducted on dynamic capabilities (Loureiro, R., Ferreira, J. J., & Simoes, J., 2021) claim that the proper combination of resources and capabilities allows organizations to gain a competitive advantage and improve their performance. (Torres, R., Sidorova, A., & Jones, M. C, 2018). From automating data movement to leveraging processes, all of these have a significant impact on creating added value and generating income (Oztemel, 2018). Based on this, to assess the digital capability variable, one can consider the effective use of digital innovation resources, the management of digital innovation networks, the capacity for absorbing and accepting digital innovation, predicting trends and technologies, managing digital innovation risks, access, transparency, and information security, advanced analysis, and artificial intelligence, as primary components.
Pisano introduces three key questions as the pillars of innovation strategy: The first question is how the organization's innovation creates value for potential customers. The second is how the company gains a share of the value it creates due to its innovation. The third question returns to the type of innovations that enable the company to create and gain value, and what resources each innovation requires (Pisano, 2015). The role and position of digital technologies in addressing these key questions seem crucial. Since digital technologies have significantly influenced technical and social changes for individuals and societies, including organizations, they have caused products, services, processes, and business models to have a more substantial impact (Ciriello RF, Richter A, Schwabe G, 2018).
The concept of alignment implies the existing collaboration between different organizational units based on environmental needs. Organizations with greater alignment perform better in various performance standards, and an aligned organization has internalized directions (Labovitz, G. H., & Rosansky, V., 1997). Growth and profitability are ultimately the results of alignment between employees, customers, strategies, and processes (Labovitz, G. H., & Rosansky, V., 1997). It is necessary for organizations to prepare for changes by creating structures and processes that can easily be adjusted and realigned (Galbraith, 2002). Alignment should exist at all levels of the organization (individuals, projects, systems, and the company). In recent studies, digital platforms and the ecosystem around the company have been added to the scope (Coltman, T., P. Tallon, R. Sharma, and M. Queiroz, 2015).

This research was conducted with an applied approach using quantitative methods and confirmatory factor analysis. The main question in this study relates to the components and dimensions of assessing the alignment between two variables: digital capability and innovation strategy. Therefore, it was necessary to identify and categorize concepts, indicators, and main dimensions of each of the three variables (alignment, digital capability, and innovation strategy) based on previous studies, and this formed the basis for analysis in the confirmatory factor analysis. Based on the identified concepts and indicators for the variables, a questionnaire was developed. A total of 120 individuals were identified. A purposive sampling method was used to collect their opinions, and questionnaires were distributed. In the end, 110 responses were received, of which 99 were usable. The reliability of the questionnaire was calculated for each of the variables, and all of them had values above 0.7 (as reported in the findings). Then, using the smart PLS software and the confirmatory method, the sub-structures of each of the variables were modeled.

Based on a review of the literature and relevant concepts and topics related to the research question, a comprehensive understanding was developed. Previous alignment models in organizations have mostly focused on information technology and high-level business strategies.
Regarding the assessment of the innovation strategy variable, it's important to note that, given the decreasing profit margins and the increasing operational costs of companies, a shift toward value-oriented strategies (economic, social, etc.) is becoming more prominent. The realization of value can be achieved through customizing products, improving industrial processes, automating decision-making, and increasing the speed of decision-making in innovation. On the other hand, digital technology has brought fundamental changes to innovation management processes, requiring companies to be attentive to new tools and approaches when formulating innovation strategies. Artificial intelligence aids in identifying new opportunities, while big data analysis helps organizations make decisions based on their past records and experiences.
Furthermore, as companies in the petrochemical industry need to create digital capabilities for success in the field of digital innovation, some of these capabilities will be focused on changing historical business routines. In this context, businesses strive to continuously evaluate the returns on their digital projects and optimize resource allocation. Additionally, the enhancement of digital literacy, thinking, and human capital competencies, often referred to as digital talent, is essential.
In the context of digital capability and innovation strategy, there are three main dimensions. The first is coordination. If the path to digital innovation is pursued in a fragmented and uncoordinated manner within the organization, it is unlikely to enhance organizational performance and alignment. Therefore, organizational goals and needs in the digital innovation and digital capability domains should be coordinated, and the organization should be able to establish new processes to create dynamism in the problem-solution and digital innovation processes. Moreover, stronger attention and balancing are required, as unbalanced attention to digital capability or innovation strategy can disrupt alignment and equilibrium between organizational capabilities. This indicates the importance of flexibility and transparency regarding resource allocation. The illustration of model is showed in figure 1.