Even if their company's offerings are not inherently digital, these executives realize that technology underlies their organization's fundamental business processes and is changing how they can interact with their business partners and customers. You present something called the Law of Diminishing Firms. No, but the nature of firms will change and already is changing. Increasing market efficiency puts tremendous pressure on companies to shed less efficient parts of their operations. Every large organization has its innovators and forward-thinkers who already believe in the digital imperative.
Senior management has to take the lead.
There's no way around it. Nobody out there is going to succeed if they still think technology is just a tool for implementing strategy rather than the basis for forming strategy. You can't unleash killer apps unless senior executives, the technology department, and every other part of the organization are working toward the new, common goal of digital strategy. They must manage innovation differently. They can set up miniature venture capital firms within their own organization, giving them the freedom to experiment.