The digital transformation: tomorrow’s organization design

The digital transformation: tomorrow’s organization design

With ESSEC Knowledge Editor-in-chief

With the rise of technologies like Zoom, Teams, artificial intelligence, and people analytics, there’s a strong chance your work habits look different today than they did a few years ago. Indeed, over the last few years, new digital technologies have transformed the way we work.

In a recent paper in California Management Review, Pooyan Khashabi (ESSEC Business School) and Tobias Kretschmer (Ludwig-Maximilians-Universität München) explored how digital transformation will impact organization design, identifying opportunities and challenges and providing recommendations for managing these. 

The digital transformation offers a world of opportunities, and companies that capitalize on these tend to reap the benefits. Amazon has eclipsed its competitors through mastery of digital analytics and offering a personalized, user-friendly online shopping experience. They’re a success story - but companies that fail their digital transformation risk losing their competitive edge. 

There’s no shortage of coverage and case studies on the digital transformation’s effect on businesses - but what’s often left out of the narrative is the impact of the digital transformation on internal processes, and how it impacts organizational design. Yet this is key, because organization design can significantly impact performance. To study the effect of digitization on organization design, this study first focuses on how the overall goal of the organization is divided into smaller goals to be completed by its subunits, and how these are overseen and re-aggregated into the shared goal. Complementary subgoals should be executed by complementary subunits who work together to achieve the goals. Management will oversee their progress, and contribute to recombining it for the final output. 

The researchers broke down this process into steps, looking at how the digital transformation influences each one, as outlined below.

What needs to be done?

The first step for creating output by organizations is to define which tasks are needed and how they will divide and group these.

Thanks to digitization, more information is available, so decision-makers might identify new tasks that they hadn’t previously considered. For example, the Industrial Internet of Things (IIoT) provides a vast pool of data on how the manufacturing components are linked to the administrative ones. This means companies can more effectively outline the subtasks needed for their final goal. 

As a result of the digital transformation, new tasks are being created and old ones rendered obsolete as they can be accomplished with digital tools. This has also had an impact on grouping tasks: researchers suggest grouping interdependent tasks together, and digital tools may be able to identify and measure new interconnections between tasks, offering a better way to group them. Take the use of AI in healthcare: it has allowed hospitals to detect more information in prescreening, to name one use, eliminating the need for patients to go between specialists. This can also serve to simplify communications between different units of the organization, easing time and monetary costs and potentially making the firm more efficient. 

Who does what? Divide and conquer

Once the subtasks have been identified, next up is figuring out who will do what task. With more data at their disposal as a result of digitization, organizations can build matching mechanisms and attribute tasks more efficiently. This can also help with hiring: employers and employees increasingly use digital resume databases like LinkedIn and internal job boards for finding the right employee or position. This reduces search costs on both sides. It can also be useful for the prospective employee, who can use online communities like Glassdoor to get inside information about the firm that wasn’t readily available in the past. Even aside from finding traditional employment or the gig economy, there’s increasingly a market for online labor platforms for freelancers that share longer-term, high quality projects, like Upwork. These platforms make finding an assignment as a freelancer easier, and also less risky, and enables firms to easily find qualified external contractors.

Times are changing internally as well: digital human resources management systems (people analytics) provide managers with more information about their employees so they can make well-informed strategic decisions. One use of these is to use an employee’s task data to identify what kind of task they would be suited for, eliminating an expensive trial and error period. 

In addition to improving the employee-task match, the digital transformation has made task assignment more efficient by making it easier to acquire information. This makes decision-makers able to handle a new variety of problems, and offer more suitable professional development programs for employees. This makes it possible for employees to more effectively deal with complex issues, enabling employers to identify a larger pool of employees that can accomplish a task, achieving quality and quantity both. 

Monitoring and completing tasks 

Effective monitoring comes next to make sure that tasks are completed. Once again, the digital transformation can help: it might even make it so that less vigilant monitoring is necessary. With a better skill match, employees are working on a task that is suited to them, likely making them less likely to slack off. The use of digital tools also enable the use of new work arrangements, like working from home, which can lead to higher employee satisfaction and ultimately more productivity. 

If firms still want to implement tools to oversee their employees, they can do so. There are many virtual monitoring systems available that measure and record users’ work. One such example, the Upwork “Work-Diary”, tracks keystrokes and takes screenshots, so that their work progress and billable hours can be tracked. That being said, these monitoring systems can be received negatively by employees, who prefer autonomy and want to feel that they are trusted. Employers should keep this in mind to find a balance between monitoring, ethical considerations, and employee satisfaction in the digital era. 

Putting the puzzle back together 

Once the tasks have been completed, the final step in the sequence is to combine their outputs. This can be facilitated by the use of big data, making it easier to combine interconnected output in an optimal way - a task that can be challenging for managers. The amount of data available also provides more choices for combining the different pieces. For example, before launching Disney+, Disney tested the waters to gain insight about the preferences of their subscribers and the market landscape. With this knowledge in their pocket, they launched their streaming service with more confidence that it would be a success. They’re far from alone: the digital transformation is increasingly boosting value creation by showing companies new ways to combine their products. 

Practical guidance for firms

With great power comes great responsibility. The researchers identify key points that firms must take into account when undertaking their digital transformation:

  • Document information flow processes in the production process: Ideally, a firm should consider implementing changes in the organization simultaneously to reap the full benefits of digitization. They should note how information, material, and finances flow in the production process, as digital tools are likely to impact this flow.

  • Prioritize processes according to their permanence and potential to benefit from digitization: Consider which processes are most important - what is their output? Are they temporary processes or likely to be present long-term? How can digital tools help this process?

  • Identify how digitization will benefit your company, tailoring your strategy and structure accordingly. Not all processes or departments will equally benefit from digital tools, so it’s important to consider how they will be used. The structure and strategy will likely both develop over time as organization design adapts to the digital transformation, so firms need to be agile and update both as needed.

  • Consider which activities and processes will boost your competitive advantage the most. Picture your firm in 10 years, and think of what will set it apart from the competition. Firms that don’t keep up with the digital transformation will flounder, making this a huge challenge. What new processes and activities may pop up, and how can they use digital tools? How can you keep ahead of the competition? In the future, successful companies can likely thank their success on the type and the bundle of the complementary activities they offer, rather than solely on digital technologies themselves as more and more companies start to use them. 

  • If a process is strategically important and simple to digitize, do so quickly and commit to it. As mentioned above, prioritizing processes is important, and so is successfully pulling off the digital transformation. Timing is everything, so make the digital transformation a priority… but if a process does not need to be digitized right away (for example, if it’s short term) and would be costly to digitize, focus on the key processes first. Dr. Khashabi notes, “late and safe is preferable to rushed and uncertain”. 

  • Invest in the quality of your people and in the quality of your data. It’s also important to make sure that you have staff that is equipped to deal with these digital tools, so provide skill development programs as needed. It’s also key to have high-quality data, and with data still not immune to user error or bias, highly qualified personnel are essential. 

What’s next for digital transformation?

While this transformation isn’t new, it is picking up speed, and likely to gain even more ground in the near future. This makes it essential for organizations to understand how it can impact their processes and make a plan. The overview and directives provided here can inform decision-makers when planning their strategy and be used as a guideline for achieving their internal digital transformation.

Reference

Kretschmer, T., & Khashabi, P. (2020). Digital transformation and organization design: An integrated approach. California Management Review, 62(4), 86-104.

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