Impact of Technology on the Strategic Management

This the English summary of my introductory lection (lectio precursoria) I gave in Finnish at my PhD defense at Aalto University on Feb 2nd, 2018. The title of the dissertation is: “The Impact of Technology on the Strategic Management of a Knowledge-Intensive Project Organization.”

Custos, my esteemed Opponent, ladies and gentlemen.

Do we still need humans? aka Rise of the Robots

Consider the balance between the human mind and the machine. An accountant with a spreadsheet and an engineer with a computer-aided design system are examples of how we have thought about the essentially supporting role of computing power. As machine learning becomes a major force, however, the balance is beginning to change — to the extent that the question is starting to shift from “What can computers do?” to “What do we still need humans for?” Anyone who thinks their personal contribution is special or un-computable should have significant doubts. (Machine, Platform, Crowd, McAfee & Brynjolfsson, 2017)

Since 2000, the number of financial workers on Wall Street has fallen by 50,000 — around a third — as high-frequency trading programs complete 100,000 transactions in a 10th of second, while simultaneously seeking to mislead their electronic competitors., “nearly any white-collar job that involves sitting in front of a computer manipulating information” is under threat. “The machines are coming for the high-wage, high-skill jobs as well,” “However, these things may lie centuries in the future”. (Rise of the Robots, Ford, 2016)

“Automation is blind to the color of your collar,” and “the holy grail of Silicon Valley entrepreneurs is the disruption of entire industries — because that’s where the big money is to be made”. (Humans need not apply, Kaplan, 2015)

We are in the midst of a technological revolution that is radically redefining what work is, how value is created, and how the economy distributes that value. Technology is causing this shift, simultaneously boosting the productivity of firms while also eliminating the need for many forms of human labor. (Race against the machine, Brynjolfsson & McAfee, 2011)

Paradox: Talent shortage vs Unemployment

• Unemployment 2017: EU 7,4% equals to 18M persons, Youth unemployment as high as 16%, Finland 8,7%, Spain +17%
• Need for talent: for the past nine years, software engineers have been at the top of the hardest to fill jobs in the United States. I don’t think anyone is surprised to learn that 2018 will be no different.
• Then again: 56,000 layoffs and counting: India’s IT bloodbath this year may just be the start (Quartz India Dec 2017)

I personally don’t believe in a jobless future. However, it looks self-evident that the current pay levels are unsustainable in routine work. Therefore, it is essential to focus either on learning how to utilize automation or on empathetic skills with human interaction.

Research Method & Case Organization (a very short intro)

We conducted a three-year action design research project participating in the design, development, and evaluation of a particular organizational management system implementation. Siili Solutions PLC conducted an R&D initiative aimed to improve competence management in order to meet current and future customer demand from January 2013 to October 2016. The heaviest development efforts were between 2014 and 2015 and Siili Solutions PLC has invested over €2 million in the program. During the research period Siili’s headcount increased from 100 to over 500 and it moved onto the Nasdaq main list. Currently the market cap is close to €100M.

In the research project we learned something about strategic leadership and technology. Especially how the interests of the talented experts should affect the development efforts. This might be interesting to others as well.

Future of Work — 5 trends

The combination of digitalization and globalization will have a dramatic impact on organizations and the way people work. Demographic upheavals and societal changes, as well as the inevitable focus on environmental issues, will amplify the effect of these trends.

• Digitalization
• Globalization
• Demographic upheavals
• Societal changes
• Environmental issues

As a result, business executives around the world will face new challenges with business models on one hand and leadership & organizational practices on the other hand. Let’s take a look at each of them before moving on to technology and data.

Dynamic business models — no more 5-year-plans

Modern theories emphasize the dynamic nature of evolving business environments and the active development of company resources with, for example, knowledge and competence management. These are called with many names like lean startup, sense & respond, or only the paranoid survive.

Collins (2001) defined the Hedgehog Concept as a simple understanding of three intersecting circles: The circles represent what a company can be best in the world at, how its economics work best, and what best ignites the passions of its people. According to him, breakthroughs happen when a company becomes systematic and consistent with its Hedgehog Concept and eliminates virtually anything that does not fit in the three circles. As a result of this strategy, the company is able to beat the competitors and become truly great in business.

However, my main focus is on the internal forces of organizations.

Distinctive way of management — Adaptability, Creativity, Respect

Since the 1960s organization theory and sociology researchers have been interested in professional organizations employing a large number of professionals (von Nordenflycht 2010, Malhotra et al. 2006).

The idea of knowledge intensiveness in organizations and in work has become very important from many points of view (Alvesson 1995, 2004, Rylander and Peppard 2015). Alvesson (2004) defines KIFs as organizations that offer the market the use of fairly sophisticated knowledge or knowledge-based products.

According to Alvesson (2004), organizations have transformed into more flexible forms, giving knowledge workers more space for initiative and discretion to effectively use their intellectual assets. Furthermore, there are three trends characterizing this organizational evolution: 1) more employees are expected to be self-organized around their core tasks, 2) more employees are expected to perform entrepreneurial tasks identifying and capturing value from customer needs, and 3) there are new opportunities for employees to experience psychological ownership over certain customers, markets, or services (Miles et al. 1997). As a result, companies are expected to invest heavily in human capabilities and apply a unique managerial philosophy.

According to Mattila (2012), knowledge workers need a new kind of modern leadership in order to be retained and to motivate them. Adaptability, creativity, and a strong respect for the competence of the employees are the new leadership drivers, meaning that the management concepts focused on control and efficiency no longer guarantee business success (Hamel and Breen 2007). According to Deloitte (2016), modern leadership practices are built on mission and purpose, utilizing networks of self-organizing teams

Flexible Organization Forms — Self-Organizing Networks of Teams

Scientists and practitioners are constantly looking for the optimal organization structure (Mattila 2012). The perception of the ideal structure has evolved from a bureaucratic, rigid form into a more adaptive and reactive way of organizing, which is thought to be especially suitable for KIFs, with less routine and more innovative work (Deloitte 2016). In fact, present literature claims that PSFs are the firms pioneering today the optimal organization of the future (Greenwood et al. 2009).

As organizations aim to attract talented employees and empower them to choose the optimal customer solutions and innovations in fast-changing environments, they are inclined to utilize a flat and flexible organization structure with less hierarchy and formal roles (Mattila 2012). Moreover, the organizations often strive for co-creation close to the customer, which results in a need for distributing the employees and work all over the world. However, even though this way of organizing might result in more customer-friendly solutions, it creates internal challenges for coordinating work and optimizing utilizations (Sydow et al. 2004). As a result, this kind of globally operating, decentralized organization needs many IT systems to help in coordination and collaboration between autonomous teams.

Technology

The most valuable strategic assets of the modern organization are its knowledge workers and data resources. In HR, this means the utilization of especially competence data about the current work force and data about the future skill needs. The former is available within the HR systems and the latter needs analytics that combine business intelligence from competition, knowledge of our offering portfolio and business trends.

Organizations have the following challenges with competence management:

• The need for specific true competence management systems
• The need for useful information to be stored in order to activate employees to use a system that they see as beneficial
• The need to look forward and enable individual development
• The need for transparency, ease of use, and dynamic visualization

Enterprise Systems can provide organizations with substantial competitive advantage, but the failure rate of implementation is high (Kähkönen et al. 2017, Momoh et al. 2010, Pekkola et al. 2013). ES are large suites of applications supporting operational and analytical business processes on an enterprise level (Brown and Vessey 2003). In other words, they provide organizations with the technological support to integrate business processes and to seamlessly integrate and share all the information flowing through the company.

Data Assets & Competence Analytics

Companies can no longer rely on technology alone as a source of competitive advantage (Carr 2003). They need an enterprise-wide information strategy and information governance in the current information-intensive, knowledge- based economy (Davenport 2007, Castells 2010). In 1998 Redman (1998) already argued that many enterprises have not achieved the needed awareness of poor data quality, which has adverse effects on the operational, tactical, and strategic levels of business. Nowadays, the leading organizations have learned the lesson that information quality problems are business problems rather than technical IT problems (Lee et al. 2014)

Companies should treat corporate information as a key strategic asset in order to achieve competitive advantage (Davenport 2007). Information-driven decision-making seems to lead to higher productivity and improvements in performance (Brynjolfsson 2011). Like any other asset, information needs good corporate governance and related quality controls across the entire information life cycle.

Information governance is a relatively new research area. It combines the best practices from many fields, such as strategic management, business process management, risk management, and IT governance.

Although the roots of information governance research are in the early 1980s, there are still not many studies today presenting prescriptive knowledge on how to design and implement information governance in an organizational context (Otto 2011).

The General Data Protection Regulation (GDPR; EU GDPR 2016) is intended to strengthen and unify data protection for all individuals within the European Union (EU).

Knowledge and competence as concepts are tightly connected with each other (Hellström et al. 2000, Lindgren et al. 2004). Competence can be defined as “a demonstrated ability to apply knowledge, skills, and attitudes for achieving observable results” (CEN 2010)

Managers can improve competence management and develop the idea of competence-in-stock and competence-in-vision for keeping and recruiting talented and rightly skilled knowledge workers.

What is the central message?

The “future of work” is already affecting strategic management, HR organizations, and technology in practice. The most valuable strategic assets of the modern organization are its knowledge workers and data resources. Therefore, new, innovative thinking and digital skills are needed in order to be able to facilitate reinvention on both individual and organizational levels.

Knowledge intensive firms (KIF) rely on intellectual capital and highly educated employees delivering high-value solutions instead of standardized products or services. Therefore, companies need to able to manage and develop this intangible knowledge, including attracting and retaining the scarce experts. Consequently, the KIFs require distinctive management that emphasize strong employee involvement, self-organizing teams, and cross-team collaboration.

In this research, we look at how forward-looking HR, or competence analytics, can help especially knowledge intensive firms to develop their talent pool and offerings by keeping the workers current and obtaining the right talent from the market either through strategic hiring or internal competence renewal. We believe that this leads into a more life-cycle oriented perspective of competences, meaning that, in addition to the past and present stages of competence, there is also a future stage.

There is now a great opportunity for information systems and human resources scientists and practitioners to work together in order to improve understanding of how technology can be utilized to make organizations more effective and inspiring.