Digitalization is a phenomenon impacting all areas of our life. It opens a variety of opportunities for firms and individuals. For manufacturing firms digitization plays a significant role in the integration of digital components and services in physical products. The research examines the emerging role of digital innovation (DI) in the context of traditional manufacturing firms. Throughout this paper, DI refers to the innovation of smart connected products evolved from the symbiosis of physical products and digital components. The paper follows a case-study design with in-depth analysis of which barriers manufacturing firms face for the implementation of DI and discuss the perceive innovation type of DI. The study is exploratory and interpretative in nature and adopts the grounded theory methodology. This research provides an important opportunity to advance the understanding of how DI emerges in manufacturing firms and promote the grounded theory approach in the field of Information Systems.