Background: The advancement of digital technologies and hence the emergence of new opportunities but also changing customer needs force incumbent firms to increase their innovation capacities. Therefore, they must find ways to explore the opportunities of digital innovation, while simultaneously exploiting their core business and ensuring a secured revenue stream. This phenomenon, called organizational ambidexterity, can amongst others be achieved by implementing a digital innovation unit (DIU). DIUs, structurally separated units, especially within Germany, Switzerland and Austria are declared to be successful instruments to increase incumbent’s innovativeness but also to foster an innovation culture and advance the corporate digital transformation while the core organization can focus on core business activities.

Research Problem: Despite the prevalent perception of DIUs being successful initiatives to find remedy for incumbents’ conflict of being innovative while simultaneously advancing the core business, in recent years more and more DIUs were closed. This development is particularly interesting as the amount of DIUs is still increasing while on the other hand especially business press claims the end of these units. However, regarding this paradox, academic literature is still rare and has until now primarily focused on the challenges of DIUs but not on their closure. Correspondingly, DIU closure poses a significant research gap.

Research Purpose: The study primarily aims to clarify why DIUs are being closed and derive a general theory explaining this phenomenon. Above that, a secondary purpose is to advance knowledge regarding DIUs as a digital innovation instrument and what characterizes a DIU. Finally, we aim to examine whether a closure can be equated with a failure.

Research Question: Why are Digital Innovation Units being closed?

Research Method: Qualitative, inductive research; Ontology – Relativism; Epistemology – Social Constructionism; Methodology – Grounded Theory; Data Collection – 14 semi- structured in-depth Interviews; Sampling – Purposive, Snowball, Theoretical; Data Analysis – Grounded Analysis

Conclusion: Resulting from the findings, a model was developed, that explains five major statements related to DIU closure. On the one hand, we ascertained distinct symptoms that anticipate a closure such as personnel measures and budget cuts. On the other hand, we identified factors that significantly influence the fate of a DIU such as corporate politics or cultural dissonances and identified remnants of closed DIUs. Finally, the immediate reasons why DIUs close can be related to strategic changes within the parent company and to how the DIU is evaluated.