5. Organization Design for Digitalization

Question 1

Digitization vs. Digitalization vs. Digital Transformation (Definitions)

Answer 1

• Digitization
  = creating a digital version of physical things
• Digitalization
  = use of digital technologies and data to create revenue, improve business, and increase efficiency
• Digital transformation
  = profound and accelerating transformation of activities, processes and competences to fully leverage the opportunities of digital technologies

Question 2

Importance of Digital Transformation (3 Factors)

Answer 2

• Recent technology advances have opened amazing opportunities for organizations
  
  • Example: Real-time data enhances/facilitates fast decision making
• Organizations need to transform to be able to harness the advantages and to minimize the challenges of digitalization
• This transformation poses a huge challenge to organization design

Question 3

Effects of Digitalization (5 Effects)

Answer 3

• Transaction costs / coordination costs
• Diversity
• Rapidly decreasing information costs
• -> firms can harness the expertise of external parties
• Risk
• Information asymmetry (unknown what others know or do)
• -> firms lose control over processes and individuals

Question 4

Organization Design (Traditional vs. Whats needed today)

Answer 4

• Traditional organization designs:
  
  • Employ hierarchical mechanisms as a primary means of control and coordination
• Needed:
  
  • New incentives, flexible structures, autonomy
  • Organizational structure has to change, as well, since the culture determines the behavior of the individual, an organization won’t change

Question 5

Organization Design for Digitalization: Meta-Organizations (Challenge of Organization Design, Solution)

Answer 5

Challenge:

• Increase in collaborative relationships across geographies and industries o Increasing specialization
• Development places ever greater importance on coordination beyond the boundaries of the firm
• Organizational forms increasingly involve multiple firms and communities of non-contractually linked individuals emphasize of intrafirm design may be out of date

Solution: Meta Organizations

• Networks of firms or individuals not bound by authority based on employment relationships
• Not a purely self-organized system but characterized by a system- level-goal (= the goal of the architect of the META-ORGANIZATION) Formal authority is substituted by informal
• Compensation other than (immediate) pecuniary incentives, such as the expectation of future gains from exchange, the ability to trust and coordinate with a partner based on past experience
• Substitutes for collocated communication
  
  • Use of information and communication technologies (ICTs)
  • Partitioning of tasks to allow independence of action

Example: Wikipedia

• Multilingual, web-based, free-content encyclopedia project (Goal) supported by the Wikimedia Foundation (Architect)
• Wikipedia is written collaboratively (live collaboration) by largely anonymous volunteers who write without pay
• Anyone with internet access can write and make changes to Wikipedia articles
• “Vandalism is quickly edited away”

Question 6

Organization Design for Digitalization: Actor-oriented architectural scheme (3 Challenges)

Answer 6

• Challenge:
  
  • Increasing competitive pressure caused by a complex, dynamic, and highly interconnected global environment
    
    • Shorter product lifecycles
    • Incorporation of multiple technologies into the design of a product
    • Co-creation of products and services with customers and partners
  • To deal with these challenges, firms open up their value creation processes and collaborate
    
    • Reduce costs and risks
    • Speeds products to market
    • Provides access to new markets and technologies
  • Traditional organizational forms employ hierarchical mechanisms as means of control and coordination

! these mechanisms can constrain broad collaboration within/across firms

Question 7

Organization Design for Digitalization: Actor-oriented architectural scheme (Solution and its 3 Elemtents, Example)

Answer 7

Solution: Actor-oriented architectural scheme composed of three elements:

1. Actors who have the capabilities and values to self-organize
2. Actors accumulate and share resources
3. Protocols, processes, and infrastructure that enable multi-actor collaboration

→ these elements create and function within organizational contexts consisting of transparency, shared values, norms of reciprocity, trust, and altruism

→ control and coordination are accomplished primarily via direct interaction among the actors themselves rather than by hierarchical subordination

Example: Linux

• Linux is a global open-source software community
• Its source code that its members collectively developed is freely available to everyone
• Actors: Intrinsically motivated software programmers Resources: open, shared source code
• Infrastructure: To enable its large-scale online collaboration effort, the Linux community uses the platform of kernel.org as its infrastructure for pooled collaboration
• Protocols and Processes:
  
  • Protocols and processes for access, use, submission, and commitment of code
  • Strong norms of good community citizenship, enable the orderly development of the code

Question 8

Guest Lecture: Drivers of Digital Transformation (6 Drivers)

Answer 8

• Customer behavior: change due to digital natives
• Transparency and information
• Computing power
• Technologies and applications
• Real-time analytics of large amounts of data by intelligent algorithms
• New interaction models due to the “always on” culture

Question 9

Guest Lecture: Key Challenges to IT (4 Challenges)

Answer 9

–> generally speaking, digitalization is the top IT requirement, followed by efficiency, cost reduction, innovative IT products & services, and agility & flexibility

• IT as a critical enabler for digitalization
  
  • No digital enterprise without a digital IT
  • IT as critical driver for innovative products and services, digital business growth and transformation
• Fast growing business demands
  
  • Business velocity, increased customer individualization, shortened release cylces and new business models
  • IT to improve time-to-market and scalability
• Disruptive skill shift
  
  • New fundamental skills required at high rate of change
  • New ways of IT employee-driven development and talent attraction required
• IT as a key innovation driver
  
  • 50% of innovation budget comes from IT budget
  • IT budget shifts towards business growth and innovation

Question 10

Principles of Modern IT Organizations (3 Principles)

Answer 10

• Solution-oriented
  
  • Offer relevant business solution instead of technical artifacts
  • Achieve business value through customized solutions that meet the customer’s needs
  • Shift the focus of IT from process compliance towards value creation for the business
• Product-centric
  
  • Establish products and platforms as central steering elements of the IT organization
  • Provide standardized building blocks on benchmark-blocks for reuse in business solutions
  • Enable end-to-end delivery of business solutions in a multi-dimensional IT organization
• Capability-driven
  
  • Establish capabilities required for creation and operation of business solutions and IT products
  • Proactively engage in emerging technologies to build expertise and provide skills and assets
  • Scale fast and leverage the skills of workforce and partners across the entire IT organization

Question 11

Workplace Trends (4 Trends)

Answer 11

• Location independence = where organizations physically exist has shifted – this requires a technology shift to support this new normal of digital workplaces
• Resilient delivery = volatility as a constant variable – organizations must develop agile operating models which navigate them through stormy waters
• People centricity = people remain at the heart of the organization; to thrive, they need a better digital employee experience than ever before
• Innovation DNA = to foster productivity and unlock the user’s full innovation potential to build the organizations unique innovation DNA is key for future success