Scalability and scaling in digital firms

Recent years have witnessed growing interest in firm scaling and scalability within strategic management and entrepreneurship research. Scalability is a defining characteristic of digital firms and a critical determinant of their survival and long-term success. Despite its strategic importance, research suggests that identifying and leveraging scalability to support firm growth poses significant challenges for managers and entrepreneurs, as it requires navigating both internal organizational complexity and high levels of market uncertainty. While the extant literature has advanced our understanding of the types of resources and organizational features that drive scalability, important questions remain regarding how firms respond to variations in the inherent scalability of their businesses and the performance implications of these strategic responses. This dissertation addresses these questions across three core chapters, utilizing novel datasets on digital firms in the U.S., Europe, and India. The first chapter examines the impact of data privacy protections on firm scalability and the follow-on consequences for the scope of the firm. Leveraging the implementation of the General Data Protection Regulation (GDPR) as a quasi-experiment, it finds that stronger privacy protections significantly reduce firms’ scalability, which in turn results in an increase in firm scope (diversification). Within the same GDPR context, the second chapter examines whether such scalability constraints may explain the emerging phenomenon of acquisitions by startups. The findings suggest that startups may undertake acquisitions to offset unanticipated scalability constraints by rapidly augmenting the value of existing offerings and reconfiguring resource bundles, thus restoring or improving the scalability of their businesses. This strategic response is particularly pronounced among startups facing greater scaling pressure from investors and those with a lower degree of market differentiation. The third chapter uses the 2016 Indian demonetization as a quasi-experiment to investigate how demand-enabled scalability and experimentation interact in startup scaling. The findings suggest that startups with lower levels of pre-demonetization experimentation benefit disproportionately from demand conditions that enhance scalability. In addition, under such conditions, startups reduce experimentation to capitalize on demand-enabled scalability more effectively, and this effect is particularly salient among startups with limited financial slack and using platform business models. Together, this dissertation sheds light on fundamental questions about firm scaling enabled by scalability and the strategies digital firms use to respond to scaling challenges and opportunities, and offers important contributions to theory, methodology, and practice.

Name thesis:degree_name

Ph.D.

Level thesis:degree_level

Dissertation

Discipline thesis:degree_discipline

Business Administration

Grantor

University of Illinois Urbana-Champaign

Year dc:date

2025

Author dc:creator

• You, Jingya

Contributors dc:contributor

• Somaya, Deepak
• Mahoney, Joseph T.
• Graebner, Melissa
• Wu, Brian
• Kim, Min Jung

• Scaling
• Scalability
• Entrepreneurship
• Mergers And Acquisitions
• Diversification
• Experimentation
• Data Privacy
• Gdpr
• Demonetization
• Firm Growth
• Digital Strategy

Statement dc:rights

• © 2025 Jingya You

Language dc:language

en, eng

Handle dc:identifier

https://hdl.handle.net/2142/130154

OAI record oai:identifier

https://www.ideals.illinois.edu/oai-pmh?verb=GetRecord&metadataPrefix=etdms&identifier=oai%3Awww.ideals.illinois.edu%3A2142%2F130154