Phygital dynamic capabilities: Microfoundations and their reversed interplay

The convergence of physical and digital worlds—referred to as “phygital”—is reshaping how organizations develop and deploy strategic capabilities. While previous research has mainly focused on customer experience (CX), little is known about the organizational capabilities enabling firms to operate effectively in these phygital ecosystems. Adopting a dynamic capabilities (DCs) perspective, this study examines how firms sense opportunities, seize them, and reconfigure resources within phygital ecosystems. Building on Baskerville et al.'s (2020) notion of “ontological reversal”, we position phygital as a distinct form of DC extending beyond CX to impact operational, technological, and structural dimensions. Drawing on an exploratory case study of Webidoo Store, this study investigates how firms develop phygital dynamic capabilities (PDCs), the ability to identify opportunities across physical and digital layers, orchestrate hybrid resources, and transform operations by integrating digital intelligence with physical components into a cohesive, data-driven ecosystem. We identify the microfoundations (MFs) of PDCs across individuals, processes, and structure, uncovering mechanisms by which PDCs are created, expressed and transformed. Moving beyond a CX-centric view, this study provides a theoretical foundation for phygital capability development, and managerial insights on how organizations can strategically orchestrate and reconfigure hybrid resources to achieve competitive advantage in an evolving digital-physical landscape.