Most manufacturing firms that undergo digital transformation fail to seize the expected benefits. A key reason is that those firms fail to extend their identity of operational excellence with a digital service provider identity, leading to tensions at the interface—the product. Although research has addressed individual aspects of organizational identity, how organizational identity evolves in incumbent firms remains to be understood. In a case study with a leading automotive manufacturer, we show how two conflicting identities lead to paradoxical tensions and how separating them through a spinoff shifts these tensions. This study provides initial results on conflicting organizational identities during digital transformation.