Lecture slides: Digital Innovation and Transformation

Modern trends in Innovation
Digital Innovation and Transformation
Michal Hron, PhD
December 14th, 2023

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

New technologies generally
trigger changes in management

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

7
The literature agrees that digital innovation
represents a distinct paradigm vis-a-vis
traditional innovation

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

Ecosystems
In place of value chains

Distributed Network
Organisation
In place of hierarchies

Generative platforms
In place of enterprise architectures

Disruptors
12
Digital entrants threaten
established firms across
industries due to their
ability to harness
affordances of digital
technology in an agile way

Disruptors
13
Innovating with digital
technologies unfolds
differently than traditional
innovation

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/

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/

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
Digital Innovation
A new paradigm
Part 1
Part 2

Digital technologies and innovation
Part 1

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.

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

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

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.

Social
Mobile
Analytics
Cloud
Internet of Things
internal social networks
idea management systems

Social
Mobile
Analytics
Cloud
Internet of Things

Social
Mobile
Analytics
Cloud
Internet of Things
big data
business intelligence
marketing analytics

Social
Mobile
Analytics
Cloud
Internet of Things
Infrastructure as a Service
Scalability

Social
Mobile
Analytics
Cloud
Internet of Things
+Current
“flavours of the month”
AI, Blockchain, Metaverse,VR/AR

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?

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

What to remember from part 1
32
▪ Digital technologies as layered modular
▪ Digital innovation as recombination
▪ SMACIT acronym

French hospital intending to transform itself into
“the world’s most digitized hospital”

• 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

Finnish manufacturing company aiming to transform itself into
a “leading provider of digital services”

• 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”

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?

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

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).

DIFFERENT FROM IT-ENABLED ORG CHANGE
Wessel, Lauri, et al. "Unpacking the difference between digital transformation and IT-enabled organizational transformation." Journal of
Digital innovation
research is articulating
management model for this
DT leads to new value
propositions and revised
organizational identity

DIGITAL
DISRUPTEES
Executives across
industries expect
major transformative
impact
IMD, 2021

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.”

communication, and
Vial 2019
45

communication, and
Vial 2019
46
usually an
established
company

communication, and
47
digital
technologies can
change culture!
Wessel, Lauri, et al. "Unpacking the difference between digital
transformation and IT-enabled organizational transformation." Journal of

communication, and
Vial 2019
48
SMACIT, layered
modular

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

Sebastian, Ina M., et
al. "How big old
companies navigate
digital transformation."
Strategic information
management.
Routledge, 2020.
133-150.

operational
backbone
customer
engagement
digitalized
solutions
Services
platform

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

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

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

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

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

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

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
How can we measure this?
An example from my research

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
Partial Least Squares modelling…

64
Results?
Does flexibility help?

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*
✅
✅
✅
❌

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
Work in progress….
I will publish one day :)

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.

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.

Profitability
• EBIT margin
• Net pro
fi
t margin

Revenue
generation
efficiency
• Revenue/employee
• Fixed-assets
turnover

75
Digital Innovation
A new paradigm
Part 1
Part 2

What to remember
76
▪ Digital technologies as layered modular (layers and how the framework can be used)
▪ SMACIT acronym
▪ Focus on operations and agility
▪ Digital transformation as change of value proposition
▪ Digital transformation focus on customer engagement or digitalised products

What to remember… part 2
77
▪ Digital technologies as layered modular
▪ SMACIT acronym
▪ Focus on operations and agility
▪ Digital transformation as change of value proposition
▪ Digital transformation focus on customer engagement or digitalised products

78
Dominant
management model
Steam power and
railways
1861- 1913
Steel and electric
power
1896-1945
relations
Automobile and oil
1955-1992
management
Computers and
telecommunication
1990s-
management

79
Organizational
paradigm
Dominant
management model
Steam power and
railways
1861- 1913
Professionally
managed firm:The rationalized
management dispersed
enterprise
Steel and electric
power
1896-1945
Factory:The unitary, centralized
organization
structure
relations
Automobile and oil
1955-1992
Corporation:The multi-divisional
mass-production
corporation
management
Computers and
telecommunication
1990s-
Network: Linking and
rationalizing processes across
internal and external
boundaries
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
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

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

Lecture slides: Digital Innovation and Transformation

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