Learning for "What is digital firm?"

 

In this piece of learning, we will learn what we mean by digital firm.  We will do this by:

 

 

 

Digital firm

 

There has been a tremendous growth in expenditure in information technology over the past two decades.  Companies have invested in information systems and have come to rely on functionality, reliability and availability of these systems to fulfil business processes effectively. Within the same period of time there has also been a tendency to increase connectivity within the organisation through the use of local and wide area networks. More over the availability of cheap communication networks and the Internet has prompted connectivity among the disparate systems leading to collaboration between different departments and between the organisation and its business partners.

 

Use technology to increase communication and collaboration has prompted the potential for rethinking and redesigning the corporate leading to:

 

 

Results are invariably increased flexibility of the organisation and what we call a digital firm.  In essence digital firm activities span across business activities comprehensively, including electronic commerce, electronic business and the electronic relationships. 

 

 

New organisational structure

 

Traditional organisation that has been developed before the information technology era is characterised by clear division of labour leading to inflexibility in terms of responding to need for change and reorganisation.  Organisations change continuously in the way they do things or in products and services they offer.

 

Conventional organisation in the information age may be less competitive than the new entrants to the market in global economy because it may be slow to respond to potentials for new markets, the need to develop new products and services, reconfigure business processes for better efficiency and more effective customer management.

 

Traditional organisation has a rigid hierarchical structure.  Pyramid shape of the organisation demonstrates many levels of middle management.  In order to compete, many of these types of company have had to downsize, reducing the number of employees and the management layers. These changes have to be accompanied by other developments such as a shift in working culture and enabling the employees to take advantage of opportunities for personal growth or to allow them to manage themselves.  This though has not always been the case.

 

The hierarchical structure of the organisation does not disappear and it persists with the contemporary firm.  In digital firm, the level of hierarchy is greatly reduced leading to flatter hierarchical organisation.  In designing a digital firm we endeavour to optimise the level of hierarchy to achieve balanced distribution of power among the various layers.  Delegation of decision making and distribution of power is extended to the lower layers of the organisation and lower level employees are given greater powers to manage themselves and more authority to make decisions than in the past.  A shift in culture takes place where employees are no longer required to work specified hours.  Employees become outcome driven and their performance is measured against requirements and achievements as oppose to presence.  Employees are much more likely to work flexible hours through the use of information technology.  Working from home becomes more fashionable through provision of information and opening access to internal organisational infrastructure.

This devolution of power also means that middle managers can manage higher number of employees leading to considerable reduction in their numbers and ultimately flatter hierarchy of the organisation.

 

 

Reconfiguration of working culture

 

Work culture has changed in a number of ways.  In fact in order to progress from the traditional structures to the contemporary and more efficient ways of working, there has to be a shift in the working culture within the organisation and the way organisation perceives its communication with the partner community such as the customers, the suppliers, the service providers and the stakeholders.  The major aspects are;

 

 

Changes to working location

 

Availability and use of IT and communication technology diminishes the importance of location.  Employees whom are in direct contact with business partners are much more likely to be effective if they spend their time in the field as oppose to the office.  For example salespeople would like to be talking to their customers rather than operating from the office.  Collaborative work in product design is another area where information systems and telecommunication networks can play a big role.  Design cycles have been reduced dramatically through electronic collaboration and online teamwork.  These partnerships have typically been international and across a number of continents.  Such projects have traditionally been relatively more expensive and time consuming.

 

Employees have the possibility to work from their preferred location such as their home, from the hotel room, while travelling, etc.  This shift in working culture is possible through provision of up to date information and arrangement of access to the information infrastructure through the use of telecommunication channels.

 

Automation of business processes

 

Introduction of information systems usually leads to automation of some or all of the business processes.  In a digital firm efficiency gains are achieved through redesigning, redefining and refining workflows.  Working processes and procedures are reengineered before the introduction of new information technology infrastructure. At times these activities lead to completely new ways of working and even new products and services.  Solutions such as Enterprise Resource Planning (ERP) serve to automate back office processes.  Efficiency gains are achieved by providing the employee with information from all areas of business, all relevant information systems and across many geographical localities to help improve the process of monitoring and control.

 

The idea of ERP is to maximise and optimise the use of resources within the organisation.  Resources are usually referred to time, raw material, space and premises.  In addition they also include employees and their skill set, experiences and specialities, the IT systems that are in place to support the various business processes and the organisational structure and procedures.  ERP is large investment and organisation has to make sure that business processes are functional, appropriate and efficient.  For this purpose a complete process of rationalisation is undertaken prior to the introduction of ERP system.

 

Business agility

 

In e-Business there is a notion that "small businesses can act big and big businesses can act small".  The idea is that small businesses can use information technology to acquire some of the know-how, expertise and functionalities that can only be afforded by bigger companies.  This tendency has been compounded by the availability of cheap communication and telecommunication channels.  On the other hand bigger businesses tend to traditionally be less agile than small businesses.  Large volumes of production, trading with big business partners and managing large volume of workforce forces these companies to adopt well defined product lines, business processes and business culture.  Large businesses can also use information technology to adopt more readily to changes in their environment in shape of new products, personalise products and services, etc.