Municipalities constitute a core part of the welfare system, with responsibility for everything from the cradle to the grave for the local community’s citizens. As municipalities increase their engagement in digital government, shifting over into increasingly digitally intense modes of operations and delivery, they reportedly struggle with achieving digital transformation. This article contributes to the literature on digital transformation in the public sector presenting a study of what deters digital transformation in municipal conglomerates, i.e. legal constructs where the municipality controls a set of corporations tasked with for example housing and utility. The authors identify patterns that deter digital transformation by studying a Swedish municipal conglomerate consisting of a municipality and 16 corporations. Based on this, the authors theorize on the interplay of deterrents, proposing a mid-range process theory of digital transformation deterrence in municipal conglomerates that we call the vicious circle of ambiguity. The findings are discussed in relation to the extant literature, resulting in research, policy, and practice recommendations.