Digital Transformation and Changes in Organizational Structure : Empirical Evidence from Industrial Organizations

Abstract

OVERVIEW: Despite the increased attention being given to digital transformation, scholars and practitioners have only realized limited insights concerning how industrial organizations are changing their structures to adopt digital transformation. Based on a multiple case study of three large industrial organizations, this article examines how industrial organizations are modifying their structures to attain meaningful outcomes from their digital transformation efforts. Building on a sociotechnical system view—that is, integration of digital technologies (technical system) into an organization’s operations and practices (social system)—this study explored the structural dimensions of formalization, hierarchy, and integration to examine the structural changes. The results revealed what structural challenges industrial organizations encounter with digital transformation and how they tackle them. This study also examined targeted performance outcomes to explain how structural changes help industrial organizations achieve agility, customer centricity, and collaboration through structural changes for digital transformation. We offer important insights for digital transformation practitioners to help them become aware of structural issues and suggestions on how to address them.

PRACTITIONER TAKEAWAYS: Rigid organizational structures impede digital transformation. Organizational leaders need to acknowledge this and, therefore, advocate for structural changes that can help create an environment for effective digital transformation.

Leaders should minimize formalization and levels of hierarchy, empower teams, and employ digital tools that integrate internal and external stakeholders into a collaborative environment.

Depending on their organizational goals, leadership may opt to create a new digital entity operating in parallel with other businesses or create new digital teams in each business unit to harmonize the digital initiatives across the organization.