How IT Architecture Flexibility and Governance Decentralization Shape Digital Transformation Capabilities

Modular systems theory and the dynamic capabilities perspective suggest that modularity in the IT function, both architectural and organizational, shapes a firm’s digital transformation capabilities (DTCs), yet the joint effect of these two organizational-design choices has not been tested. Drawing on survey data from 188 U.S. firms and partial least squares structural equation modeling, this study examines how IT architecture flexibility and IT governance decentralization, separately and jointly, influence digital sensing, digital seizing, and digital transforming. Findings suggest that IT architecture flexibility has strong positive effects on all three dimensions, while IT governance decentralization positively affects sensing and seizing but not transforming. Crucially, the interaction between flexibility and decentralization negatively moderates the relationships with sensing and seizing, indicating that technical and organizational modularity can substitute rather than complement. The study contributes a nine-micro-foundation operationalization of DTCs and challenges the prevailing complementarity assumption between architectural and governance modularity.