Lecture slides: Digital Innovation and Transformation
- 1. Modern trends in Innovation Digital Innovation and Transformation Michal Hron, PhD December 14th, 2023
- 2. Michal Hron ▪ Msc. Business Intelligence from Aarhus (2018) ▪ Elite semester on digital transformation,Aarhus BSS ▪ Dissertation on organising for digital innovation (2022) ▪ AtVSE from February at the Department of entrepreneurship Publications on agile software development, organising for innovation, digital artefacts 2 hronmichal.net michal.hron@vse.cz
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- 4. New technologies generally trigger changes in management
- 5. Technologies are connected with innovation of management models 5 Organizational paradigm Dominant management model Steam power and railways 1861- 1913 Professionally managed firm:The rationalized management dispersed enterprise Line and staff, managers, Industrial betterment Steel and electric power 1896-1945 Factory:The unitary, centralized organization structure Scientific management, human relations Automobile and oil 1955-1992 Corporation:The multi-divisional mass-production corporation Strategy-and-structure, Quality management Computers and telecommunication 1990s- Network: Linking and rationalizing processes across internal and external boundaries Business process redesign, open innovation, knowledge management Bodrožić, Zlatko, and Paul S. Adler. "The evolution of management models: A neo-Schumpeterian theory." Administrative Science Quarterly 63.1 (2018): 85-129. Digital innovation research is articulating management model for this organizational paradigm triggered by characteristics of digital technology
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- 7. 7 The literature agrees that digital innovation represents a distinct paradigm vis-a-vis traditional innovation
- 8. 8 Linear value chains Vertically integrated hierarchy Controlled Enterprise Architecture Digital Ecosystem Distributed Network Organisation Generative Digital Platform Drechsler, Katharina, et al. "At the crossroads between digital innovation and digital transformation." Communications of the Association for Information Systems 47.1 (2020): 23. Old logic New logic
- 9. Ecosystems In place of value chains
- 10. Distributed Network Organisation In place of hierarchies
- 11. Generative platforms In place of enterprise architectures
- 12. Disruptors 12 Digital entrants threaten established firms across industries due to their ability to harness affordances of digital technology in an agile way
- 13. Disruptors 13 Innovating with digital technologies unfolds differently than traditional innovation
- 14. Digital disruption across all industries 14 Even in sectors where the research suggests businesses are more insulated from the digital storm, disruption is still taking place. In energy and utilities, for example – which is bottom-ranked for the third time in the past four studies – climate-change imperative underpins the disruptive imperative. The pace of change may be slower, particularly in areas of the industry that rely on signi fi cant physical assets, but digital transformation in areas such as energy management has become an important theme. https://www.imd.org/ibyimd/strategy/digital-vortex-2023-revealed/
- 15. Digital disruption across all industries 15 Even in sectors where the research suggests businesses are more insulated from the digital storm, disruption is still taking place. In energy and utilities, for example – which is bottom-ranked for the third time in the past four studies – climate-change imperative underpins the disruptive imperative. The pace of change may be slower, particularly in areas of the industry that rely on signi fi cant physical assets, but digital transformation in areas such as energy management has become an important theme. https://www.imd.org/ibyimd/strategy/digital-vortex-2023-revealed/
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- 17. 17 Digital Innovation Digital Transformation A new paradigm for innovation management A new challenge for established organizations to seek resiliency against digital disruptors Digital Technologies Layered modular, SMACIT
- 18. 18 Digital Innovation Digital Transformation A new paradigm for innovation management A new challenge for established organizations to seek resiliency against digital disruptors Digital Technologies Layered modular, SMACIT Part 1 Part 2
- 19. Digital technologies and innovation Part 1
- 20. Digital Innovation Digital Innovation: carrying out of new combinations of digital and physical components 20 Yoo,Y., O. Henfridsson, and K. Lyytinen,“The new Organizing Logic of digital Innovation:An Agenda for Information Systems Research”, Information Systems Research 21(4), 2010, pp. 724–735. We need to define digital technology, which is what gets recombined.
- 21. Characteristics of digital innovation ▪ Generativity , or "a overall capacity of technology to produce unprompted changes” ▪ Convergence: innovation with pervasive digital technology brings previously separate user experience and industries together On the level of industries or products 21 Yoo, Y., Boland, R. J., Lyytinen, K., & Majchrzak, A. (2012). Organizing for Innovation in the Digitized World. Organization Science, 23(5), 1398-1408. https://doi.org/10.1287/orsc.1120.0771
- 22. Layered modular architecture 22 Yoo, Y., Boland, R. J., Lyytinen, K., & Majchrzak, A. (2012). Organizing for Innovation in the Digitized World. Organization Science, 23(5), 1398-1408. https://doi.org/10.1287/orsc.1120.0771
- 23. TECHNOLOGIES? SMACIT! Social Mobile Analytics Cloud Internet of Things Ross, Jeanne, et al. "Designing digital organizations." Working papers/Center for Information Systems Research 406 (2016): 1-19.
- 24. TECHNOLOGIES? SMACIT! Social Mobile Analytics Cloud Internet of Things internal social networks idea management systems
- 26. TECHNOLOGIES? SMACIT! Social Mobile Analytics Cloud Internet of Things big data business intelligence marketing analytics
- 27. TECHNOLOGIES? SMACIT! Social Mobile Analytics Cloud Internet of Things Infrastructure as a Service Scalability
- 29. TECHNOLOGIES? SMACIT! Social Mobile Analytics Cloud Internet of Things +Current “flavours of the month” AI, Blockchain, Metaverse,VR/AR
- 30. THINK-PAIR-SHARE ▪ What are the layers of layered modular architecture? ▪ How would you analyse Facebook through this lens? (What would be on each layer) ▪ Which layer is the most important these days? Why?
- 31. Layered modular architecture ▪ For analysis of digital technology: Digital products are assembled by channelling resources across the layers (i.e. recombinations) ▪ For analysis of competition: Different companies in the digital economy reside on different parts of the layered stack (e.g. Data only players on contents layer or hardware manufacturers the device layer) 31 (Henfridsson et al., 2018) Henfridsson, O., Nandhakumar, J., Scarbrough, H., & Panourgias, N. (2018). Recombination in the open-ended Value Landscape of digital Innovation. Information and Organization, 28(2), 89-100. https://doi.org/10.1016/ j.infoandorg.2018.03.001
- 32. What to remember from part 1 32 ▪ Digital technologies as layered modular ▪ Digital innovation as recombination ▪ SMACIT acronym
- 34. French hospital intending to transform itself into “the world’s most digitized hospital”
- 35. • Hospital that faced challenges in implementing an Electronic Medical Record (EMR) system. • The implementation process was slower and more expensive than planned due to difficulties in integrating the EMR with existing work practices. • A compromise was reached, where secretaries and radiology technicians would split indexing tasks in busy departments, allowing secretaries to learn how to use the EMR effectively and improve work practices. • The EMR was eventually integrated into Alpha, and the organization's core purpose of providing healthcare services and research
- 36. Finnish manufacturing company aiming to transform itself into a “leading provider of digital services”
- 37. • Beta is a Finnish hardware company that sold machinery since its founding in 1901. • The company was known for delivering top-quality machinery and had a reputation for quality, allowing it to sell its products for high prices. • In response to evolving technology, Beta embarked on a transformation to become a service supplier, involving a digital transformation leading to a new revenue model, redesign of departmental structure, and change of organizational practices. Finnish manufacturing company aiming to transform itself into a “leading provider of digital services”
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- 39. Think-pair-share 39 ▪ 1.What happened in the hospital and the manufacturer? ▪ II. How does their approach to digital technology differ? ▪ III. If you work in and organisation, what kind of change did you encounter? ▪ More like the hospital or the manufacturer?
- 40. Digital transformation “a process that aims to improve an entity by triggering significant changes to its properties through combinations of information, computing, communication, and connectivity technologies 40 Vial, G. (2019). Understanding digital Transformation: A Review and a research Agenda. Journal of Strategic Information Systems, 28(2), 118-144. https://doi.org/10.1016/j.jsis.2019.01.003
- 41. DIFFERENT FROM IT-ENABLED ORG CHANGE Wessel, Lauri, et al. "Unpacking the difference between digital transformation and IT-enabled organizational transformation." Journal of Association of Information Systems (2020).
- 42. DIFFERENT FROM IT-ENABLED ORG CHANGE Wessel, Lauri, et al. "Unpacking the difference between digital transformation and IT-enabled organizational transformation." Journal of Association of Information Systems (2020). Digital innovation research is articulating management model for this DT leads to new value propositions and revised organizational identity
- 43. DIGITAL DISRUPTEES Executives across industries expect major transformative impact IMD, 2021
- 44. Obwegeser, N., Yokoi, T., Wade, M., & Voskes, T. (2020, April 1). 7 Key Principles to Govern Digital Initiatives. MIT Sloan Management Review. https://sloanreview.mit.edu/article/7-key-principles-to-govern-digital- initiatives/ ”A well-governed digital program must satisfy different stakeholders across an organisation and be flexible enough to accommodate multiple types of initiatives, while ensuring enough rigidity to achieve strategic alignment and efficiency.”
- 45. Digital transformation “a process that aims to improve an entity by triggering significant changes to its properties through combinations of information, computing, communication, and connectivity technologies Vial 2019 45
- 46. Digital transformation “a process that aims to improve an entity by triggering significant changes to its properties through combinations of information, computing, communication, and connectivity technologies Vial 2019 46 usually an established company
- 47. Digital transformation “a process that aims to improve an entity by triggering significant changes to its properties through combinations of information, computing, communication, and connectivity technologies 47 digital technologies can change culture! Wessel, Lauri, et al. "Unpacking the difference between digital transformation and IT-enabled organizational transformation." Journal of Association of Information Systems (2020).
- 48. Digital transformation “a process that aims to improve an entity by triggering significant changes to its properties through combinations of information, computing, communication, and connectivity technologies Vial 2019 48 SMACIT, layered modular
- 49. Example disruptees 49 170 year old company threatened by changing consumer attitudes and digitally native companies transformed for natively digital media business. https://www.mckinsey.com/industries/technology-media-and- telecommunications/our-insights/building-a-digital-new-york-times- ceo-mark-thompson 125 year old company refocusing from a broad consumer electronics company to become specialised in healthcare and Internet of Things. https://www.philips.com/a-w/about/news/archive/blogs/innovation- matters/2020/20200224-embracing-healthcares-digital- transformation-2-0.html
- 50. Sebastian, Ina M., et al. "How big old companies navigate digital transformation." Strategic information management. Routledge, 2020. 133-150.
- 52. WHAT IS NEEDED? OPERATIONAL BACKBONE The technology and business capabilities that ensure the efficiency, scalability, reliability, quality and predictability of core operations. operational backbone customer engagement digitalized solutions Services platform
- 53. WHAT IS NEEDED? TECHNICAL ENABLERS the technology and business capabilities that facilitate rapid development and implementation of digital innovations. operational backbone customer engagement digitalized solutions Services platform
- 54. Operational backbone Digital services platform Managerial objective Business efficiency and technological reliability Business agility and innovation Architecture principles Standardised processes,transparency and data access Plug-and-play business and technology components Data SIngle source of truth for transactional data Massive repositories of sensor/social media data/purchased data Key processes Roadmaps, architecture reviews Cross-functional development, user- centred design Delivery Method Fast waterfall / regular releases / Software as a Service adoption Agile and DevOps, minimum viable products Method major programs / investments continuous funding
- 55. STRATEGY 1: DIGITALIZED SOLUTIONS A digitized solutions strategy aims to reformulate a company’s value proposition by integrating a combination of products, services and data operational backbone customer engagement digitalized solutions
- 56. SCHINDLER GROUP (FROM ELEVATORS TO MOBILITY) “When you have our PORT technology on your phone, the building will recognize you and know where you want to go, so you don’t need your badge. If you’re a visitor, we send you a message on your smartphone, and then you can flow into the building without signing in at the reception desk.” Michael Nilles " Chief Digital Officer, Schindler Group
- 57. STRATEGY 2: CUSTOMER ENGAGEMENT A customer engagement strategy typically aims to create a seamless, omnichannel experience that makes it easy for customers to order, inquire, pay and receive support in a consistent way from any channel at any time. operational backbone customer engagement digitalized solutions
- 58. KAISER PERMANENTE (HEALTHCARE PROVIDER) 1. Offering increased opportunities for patient interaction with care delivery teams by supplementing visits and calls with channels like video, text and email 2. Investing in data analytics to identify needs for—and most effective approaches to— personalized outreach, particularly patient compliance 3. Leveraging social media to develop communities of patients who have similar interests and to create care circles that engage patients and their families with care providers.
- 60. 60 How can we measure this? An example from my research
- 62. 62 Responde nts Percent Banking / Finance 11 7.6% Consulting / Business services 23 15.9% Distribution / Retail 3 2.1% Government / Municipalities 26 17.9% Education 4 2.8% Healthcare 7 4.8% Manufacturing 21 14.5% Technology 18 12.4% Transportation 2 1.4% Telecommunication 4 2.8% FCMG 5 3.4% Other 14 9.7% Construction 4 2.8% Total 145 100.0 Respon dents Percent Upper management outside IT 14 9.0% Middle management outside IT 20 13.9% Employee outside IT 13 9.0% Upper IT management 25 17.4% Middle IT management 31 21.5% Employee in IT 42 29.2% Retired/ unemployed 0 0.0% Total 145 100.0% Data from Danish companies…
- 63. 63 Partial Least Squares modelling…
- 65. Flexibility helps for customer engagement strategy…. 65 Path Original Sample (O) Sample Mean (M) P Values Flexibility → digital products → impl → org_perf 60 61 0.83 Flexibility → digital products → impl 0,0806 0,0799 0.043* Flexibility → cust_str → impl → org_perf 83 87 0.043* Flexibility → cust_str → impl 110 115 0.019* ✅ ✅ ✅ ❌
- 66. Efficiency does not help…. 66 Path Original Sample (O) Sample Mean (M) T Statistics (| O/STDEV|) P Valu es efficiency → digital products → impl → org_perf 9 9 0,450 359 efficiency → digital products → impl 17 17 0,484 338 efficiency → cust_str → impl → org_perf 29 32 1.331 128 efficiency → cust_str → impl 56 61 1.429 107 ❌ ❌ ❌ ❌
- 67. 67 Work in progress…. I will publish one day :)
- 68. 68 If you find this perspective restricting… Recent special issue in JAIS significantly broadened the scope of theoretical perspectives on DT Rowe, Frantz, and M. Lynne Markus. "Envisioning Digital Transformation: Advancing Theoretical Diversity." Journal of the Association for Information Systems 24.6 (2023): 1459-1478.
- 69. A SYNTHESIS… Leadership operational backbone customer engagement digitalized solutions analytical platform Technological competence Westerman, George, Didier Bonnet, and Andrew McAfee. Leading digital: Turning technology into business transformation. Harvard Business Press, 2014.
- 70. A SYNTHESIS… Leadership operational backbone customer engagement digitalized solutions analytical platform Technological competence Westerman, George, Didier Bonnet, and Andrew McAfee. Leading digital: Turning technology into business transformation. Harvard Business Press, 2014.
- 71. Westerman, George, Didier Bonnet, and Andrew McAfee. Leading digital: Turning technology into business transformation. Harvard Business Press, 2014.
- 72. Westerman, George, Didier Bonnet, and Andrew McAfee. Leading digital: Turning technology into business transformation. Harvard Business Press, 2014. Profitability • EBIT margin • Net pro fi t margin
- 73. Westerman, George, Didier Bonnet, and Andrew McAfee. Leading digital: Turning technology into business transformation. Harvard Business Press, 2014. Revenue generation efficiency • Revenue/employee • Fixed-assets turnover
- 75. 75 Digital Innovation Digital Transformation A new paradigm for innovation management A new challenge for established organizations to seek resiliency against digital disruptors Digital Technologies Layered modular, SMACIT Part 1 Part 2
- 76. What to remember 76 ▪ Digital technologies as layered modular (layers and how the framework can be used) ▪ Digital innovation as recombination ▪ SMACIT acronym ▪ Focus on operations and agility ▪ Digital transformation as change of value proposition ▪ Digital transformation focus on customer engagement or digitalised products
- 77. What to remember… part 2 77 ▪ Digital technologies as layered modular ▪ Digital innovation as recombination ▪ SMACIT acronym ▪ Focus on operations and agility ▪ Digital transformation as change of value proposition ▪ Digital transformation focus on customer engagement or digitalised products
- 78. Technologies are connected with innovation of management models 78 Dominant management model Steam power and railways 1861- 1913 Line and staff, managers, Industrial betterment Steel and electric power 1896-1945 Scientific management, human relations Automobile and oil 1955-1992 Strategy-and-structure, Quality management Computers and telecommunication 1990s- Business process redesign, open innovation, knowledge management Bodrožić, Zlatko, and Paul S. Adler. "The evolution of management models: A neo-Schumpeterian theory." Administrative Science Quarterly 63.1 (2018): 85-129.
- 79. Technologies are connected with innovation of management models 79 Bodrožić, Zlatko, and Paul S. Adler. "The evolution of management models: A neo-Schumpeterian theory." Administrative Science Quarterly 63.1 (2018): 85-129. Organizational paradigm Dominant management model Steam power and railways 1861- 1913 Professionally managed firm:The rationalized management dispersed enterprise Line and staff, managers, Industrial betterment Steel and electric power 1896-1945 Factory:The unitary, centralized organization structure Scientific management, human relations Automobile and oil 1955-1992 Corporation:The multi-divisional mass-production corporation Strategy-and-structure, Quality management Computers and telecommunication 1990s- Network: Linking and rationalizing processes across internal and external boundaries Business process redesign, open innovation, knowledge management In the fi rst phase of management innovation , innovators articulate a widespread organizational and management problem. …inadequacy of prevailing models of management relative to the potentialities of the new technologies. One indicator of such a reverse salient is ‘‘productivity paradoxes’’.
- 80. 80 Get in touch for master thesis work… We are putting together a group to help each other out with research on generative AI in practice
- 81. Faculty of Business Administration Prague University of Economics and Business W. Churchill Sq. 4 130 67 Prague 3, Czech Republic Thanks and good luck at the exam! Michal Hron, PhD Assistant professor michal.hron@vse.cz hronmichal.net