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Effects of Digitalization on Organizations

Written by Markku Kuusisto

Paper category

Master Thesis


Business Administration>General




Master Thesis: The size and shape of the organization When the first wave of IT came out, people mainly studied their impact on the business through their impact on business performance. Another early theme was the size of the company. The impact of IT on business performance has long been controversial—the so-called productivity paradox has existed in the academic literature for decades (Sriram and Stump, 2004). Some studies have found evidence that increased IT spending will increase organizational profits, while other studies are completely contradictory to these studies. Therefore, many mediating effects have been studied. Eventually the productivity paradox is more or less resolved, and the result is that IT does provide value, but value may occasionally be captured by other parties rather than the party investing in IT (Brynjolfsson and Hitt, 1998). Measured by the number of employees, the size of the organization is shrinking (Brynjolfsson et al., 1994; Snow et al., 1999). This is partly due to IT simply eliminating manual tasks, such as data collection and processing by middle managers. It was found that the main reason for the small size of the company was business decoupling (Sambamurthy et al., 2003). An obvious effect of early IT was to reduce transaction and coordination costs. Because of this influence, for example, it is more profitable to buy tires from a supplier to a car factory than to produce tires in-house. Smaller companies are more suitable to focus on producing tires and achieve economies of scale by becoming suppliers to multiple car companies. (Brynjolfsson et al., 1994) Virtualorganization as a term was coined in the 1990s. Snow et al. (1999) defined a virtual organization to refer to any multi-site, multi-organization and dynamic organization. Since then, the definition has been expanded to cover “whose business processes are driven by e-commerce activities and whose members are geographically separated” (Mohammad, 2009). The virtual organization is completely realized by IT. As Priego-Roche et al. (2015) pointed out: "In the layout of the entire information system infrastructure, this integration is possible to meet customer requirements or seize business opportunities without having to form a new legal entity." Certain forms of virtual organizations benefit from increased agility—teams are formed to solve problems and then disband, only depleting the relevant workforce that can contribute to the task at hand (Snow et al., 1999). Sometimes, by letting different teams work in different time zones, an effective 24-hour continuous work cycle is established, and sometimes a virtual organization is established to provide a constant workflow for specific tasks. 3.2 Organizational learning Organizational learning is important to companies because it promotes innovation and process efficiency (Joshi et al., 2010). Organizational learning is an ambiguous term with multiple meanings depending on the context. It may mean the process of learning in the organization or the result of the learning process (Real et al., 2006). Real et al. (2006) defined organizational learning as "a dynamic process and team created through knowledge generated by individuals at the core of the organization, aimed at cultivating and developing unique capabilities that enable the organization to improve its performance and results." In the study, Fernandez-Mesa et al. (2013) Distinguish internal learning and external learning. In their view, internal learning refers to all the knowledge created within the company-mainly through R&D and the implementation of best practices. External learning is considered to be all the knowledge the company has acquired from the outside world. This includes the environment and other companies working in the same field. In this article, organizational learning is viewed through the lens of digital effects, so the focus is on the process supported by digitalization, not the result of the process. -Proven knowledge analysis. A good example is a quality management tool: a recycling database that stores all the recycling information of a plant during its life cycle in an easy-to-search form. Compare this to a quality manager, who learns by doing and takes away knowledge when he leaves the company. Obviously, with other conditions unchanged, in the long run, if the personnel changes, the status of the former organization will be better. In fact, Sriram and Stump (2004) found support for the claim that quality programs improve after IT investment. Alavi and Leidner (2001) pointed out that digitization can act as a promoter of organizational memory in the database, thereby improving the company's learning capabilities. Another good example is the management and use of BI programs, which store and process relevant information for managers to improve the speed and accuracy of their decision-making. A study by Leidner and Elam (1995) shows that the use of BI is positively correlated with the speed at which middle and senior managers solve problems. (2006) found support for their hypothesis that "information technology as a knowledge creation process has a positive impact on organizational learning"-although in their empirical research, they did not distinguish how IT helps the knowledge creation process. Many information technologies directly affect the company's internal and external communication. Read Less