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Digital innovation poses a threat for incumbent product-centric firms as digitalization blurs industry boundaries and lowers entry barriers to new entrants. However, digital innovation offers many opportunities for incumbents to sustain and successfully compete in the new digital space, if they can overcome the challenges associated with the development and adoption of digital innovation practices. This study empirically explores how incumbent product-centric firms based in Germany, Switzerland, and Austria master the challenge of digital innovation by looking for specific microfoundations through the lens of the dynamic capabilities framework. The grounded theory method is used to get a subjective view of practitioners. The study’s contribution is two-fold. Firstly, it addresses criticism related to the practical application of the dynamic capabilities framework by providing a detailed view on specific underlying microfoundations. Secondly, it aims at expanding our understanding of how digital innovation evolves by providing key microfoundations deemed important by practice for the development of digital innovation among product-centric firms.



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