Lecture Notes in Information Systems and Organisation 38

Rocco Agrifoglio
Rita Lamboglia
Daniela Mancini
Francesca Ricciardi Editors

Digital Business
Transformation
Organizing, Managing and Controlling
in the Information Age
Lecture Notes in Information Systems
and Organisation

Volume 38

Series Editors
Paolo Spagnoletti, Rome, Italy
Marco De Marco, Rome, Italy
Nancy Pouloudi, Athens, Greece
Dov Te’eni, Tel Aviv, Israel
Jan vom Brocke, Vaduz, Liechtenstein
Robert Winter, St. Gallen, Switzerland
Richard Baskerville, Atlanta, USA
Lecture Notes in Information Systems and Organization—LNISO—is a series of
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Rocco Agrifoglio Rita Lamboglia
• •

Daniela Mancini Francesca Ricciardi

•

Editors

Digital Business
Transformation
Organizing, Managing and Controlling
in the Information Age

123
Editors
Rocco Agrifoglio Rita Lamboglia
Department of Business and Economics Department of Business and Economics
Parthenope University of Naples Parthenope University of Naples
Naples, Italy Naples, Italy

Daniela Mancini Francesca Ricciardi

Faculty of Law Department of Management
University of Teramo University of Turin
Teramo, Italy Turin, Italy

ISSN 2195-4968 ISSN 2195-4976 (electronic)

Lecture Notes in Information Systems and Organisation
ISBN 978-3-030-47354-9 ISBN 978-3-030-47355-6 (eBook)
https://doi.org/10.1007/978-3-030-47355-6
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Introduction

Abstract This chapter introduces the theme of digital business transformation,

which is an emerging research topic in the fields of information systems, organi-
zation, accounting, and management studies. This volume contains a collection of
21 research papers focusing on the relationships between technologies, processes,
and firms with peculiar reference to the areas of organizing, managing, and con-
trolling. It is divided into four parts, each of which is briefly described in what
follows. This book provides critical insights into emerging topics of digital business
transformation and offers a plurality of views that make this book particularly
relevant for users, companies, scientists, and governments.

Keywords Digital transformation ∙ Digital business model ∙

Business administration process ∙ Industry 4.0 ∙ Smart organizations ∙
Collaborative networked organizations

This book explores a range of emerging topics and critical linkages between
information technology and digital business transformation and encourages debate
and opens new avenues of inquiry in the fields of information systems, organiza-
tion, accounting, and management studies.
The recent surge of interest in “digital transformation” is changing the business
landscape and posing several both organizational and sectoral challenges [1]. The
digital transformation of business is a change associated with the application of
digital technology in all aspects of business and enables organizations to create new
products, services and find more efficient ways of doing business. It concerns the
changes digital technologies can bring about on some or all segments within an
organization or on entire business models within a specific industry [1]. An inter-
esting example of digital transformation (at different levels of analysis) is the music
industry where the advent of the Internet, and related software developments,
caused a deep shift in the mechanics of music distribution. Within music industry,
first the CDs were replaced by downloads music, such as MP3 and MP4 files, and

v
vi Introduction

then streaming services of total recorded music were grown globally [2]. This
means that technology transformation has caused deep changes on ways of music
distribution, so influencing business strategies, organizational structures, and pro-
cesses—even before the services provided—of music companies and the growth of
a new sector, well known as “Artist and Label Services”.
The digital transformation is happening within and across organizations of all
types, in every industry, so resulting as a disruptive innovation enabling to break
down barriers between things, people, and organizations, as well as to create more
adaptive processes. In the information age, it is imperative for organizations to
develop IT-related capabilities that allow leveraging the potential from digital
technologies. Due to the pervasive effects of such transformation on processes,
firms, and industries, both scholars and practitioners are interested in better
understanding the key mechanisms behind digital business transformation emer-
gence and evolution. The relevance of the phenomenon was also proved by a MIT
Sloan Management Review Research Report [3] that points out how the 78% of
corporate leaders and managers across various industries consider digital trans-
formation achievement a critical asset for organizational performance. According to
Berman [4], the digital transformation enables organizations to achieve various
advantages in terms of (i) creating new business models; (ii) improving operational
processes; and (iii) enhancing customer experiences. More recent research on the
topic has revealed further advantages deriving from digital transformation in terms
of key impacts, such as value creation, competitive advantage, and improved
relationships, and transformed areas, such as employees, culture, and infrastructure
(see Morakanyane, Grace and O’Reilly [5] for a systematic literature review).
Scholars and managers are looking for possible organizational and management
solutions that allow easier management of the changes deriving from digital
transformation [6]. It is no coincidence that several initiatives were conducted for
exploring new digital technologies and for exploiting their benefits within all
industries [76]. As Hess and colleagues pointed out, “integrating and exploiting
new digital technologies is one of the biggest challenges that companies currently
face. No sector or organization is immune to the effects of digital transformation.
The market-changing potential of digital technologies is often wider than products,
business processes, sales channels or supply chains -entire business models are
being reshaped and frequently overturned” [1, p. 123].
The existing managerial literature agrees that organizations should establish
management practices to handle the complex transformations triggered by digital-
ization [e.g., 1, 3]. In this regard, it is critical to formulate a digital transformation
strategy that takes into account different options and elements enable to obtain
advantages of digital transformation endeavors and to avoid the risk that such
process does not meet the company needs. Consistent with previous research on the
alignment between business strategies and IT strategies [8], it is critical that busi-
ness leaders formulate and execute digital transformation strategies that focus on
“the transformation of products, processes, and organizational aspects owing to new
technologies” [3, p. 339]. Existing research on digital transformation issue has
Introduction vii

sought to consolidate IT strategies and business strategies into a comprehensive

‘‘digital business strategy’’ [8] that stresses the effects of digital technologies for
firms [7, 9].
Furthermore, another research has investigated digitalization processes through
controlling perspective [e.g., 10, 11, 12]. Like other business areas, digital trans-
formation has also caused changes on transactional processes in the back-office
activities. Digitalization is rapidly changing a company’s value chain, so involving
the various dimensions, such as the controlling that cannot avoid such impact. It is
no coincidence that chief financial officers (CFOs) argue that ICT’s standardization
and automation are currently rated as most important challenges in the next years
[12]. With reference to the effects of digital transformation on controlling, Schäffer
and Weber [11] identified various challenges that will shape the work of controllers
who are increasingly engaged in managing external and internal data with the help
of efficient tools, such as the big data.
This volume contains a collection of research papers focusing on the relation-
ships between technologies (e.g., digital platforms, AI, blockchain, etc.), processes
(e.g., decision making, co-creation, financial, compliance, etc.), and organizations
(e.g., smart organizations, digital ecosystems, Industry 4.0, collaborative networked
organizations, etc.) with peculiar reference to the areas of organizing, managing,
and controlling. It also provides critical insights into emerging topics of digital
business transformation and offers a plurality of views that make this book par-
ticularly relevant for users, companies, scientists, and governments.
The volume is divided into four parts, each one focused on a specific theme such
as (i) “Digitization and Business Model Transformation”, (ii) “Digitization,
Accounting, Controlling, and Reporting” (iii) “ICT, Organizational Processes, and
New Ways to Work and Interact via Internet”, and (iv) “Digital Ecosystems for
Business Innovation and Digital Transformation”. The content of the book is based
on a selection of the best papers (original double-blind peer-reviewed contributions)
presented at the annual conference of the Italian Chapter of AIS which took place in
Napoli, Italy, in September 2019.

Digitization and Business Model Transformation

The first part of the book includes papers that analyze the impact that digital
technologies produce on business models transformation.
In the era of digital transformation, companies are seeking new opportunities to
reshaping their business model and to transform their operations, in the order of
greater customer interaction and collaboration and to gain competitive advantage
through differentiation strategies. Recent studies show how companies with a
cohesive plan for integrating the digital and physical components of operations can
successfully transform their business models and are able to optimize all elements
of the value chain satisfying the need of their stakeholders.
viii Introduction

Businesses aiming to generate new stakeholders value propositions by trans-

forming their operating models need to develop also new capabilities. Foremost
among capabilities is that companies must constantly explore the best new ways to
capture revenue, structure enterprise activities, and stake a position in new or
existing industries. Another key competency is finding new ways to engage cus-
tomers and communities. This requires interaction with stakeholders across every
phase of business activity—not just sales, marketing and service, but also product
design, supply chain management, human resources, IT, and finance. Engaging with
customers at every point where value is created is what differentiates a customer-
centered business from one that simply targets customers well. Stakeholders inter-
action in all these areas often leads to open collaboration that accelerates innovation
using online communities.
As summarized below, the papers presented in this part of the book consider the
impacts that the application of digital transformation produces in different business
model’s elements: financial, marketing, and administrative performance; portfolio
management strategies; process and decision management; security risk and vul-
nerability in IT governance; decision-making practices; strategic decision; and
competition.
Chapter “Impact of Artificial Intelligence on Firm Performance: Exploring the
Mediating Effect of Process-Oriented Dynamic Capabilities” of Serge-Lopez
Wamba-Taguimdje, Samuel Fosso Wamba, Jean Robert Kala Kamdjoug, and Chris
Emmanuel Tchatchouang Wanko develops a research framework to integrate in a
more inclusive and comprehensive approach the capabilities of artificial intelligence
(AI) into organizations. The study is based on an in-depth review of 150 case
studies and highlights the added value of AI capabilities in terms of financial,
marketing, and administrative performance. The analysis also reveals that compa-
nies improve their performance when they use capabilities of AI to reconfigure their
dynamic process-driven capabilities.
Chapter “Artificial Intelligence and Ethics in Portfolio Management” of Elena
Beccalli, Viktor Elliot, and Francesco Virili aims to explore ethical dilemmas
connected to the use of AI in portfolio management strategies and their managerial
implications. To exploring these dilemmas, authors examine empirical evidence
drawn from MDOTM, an innovative and successful young enterprise developing
AI-driven investment strategies for financial market. The analysis reveals some
simple managerial implications: Traditional economic incentives do not work to
appropriately prevent ethical issues with AI programmers in financial portfolio
management. Furthermore, AI-based investing is particularly crucial not only for
the role and accountability of machine learning in decision making, but also for the
fact that there is no specific regulation for AI in Europe.
Chapter “Putting Decision Mining into Context: A Literature Study” of Sam
Leewis, Koen Smit, and Martijn Zoet conducts a literature analysis on the current
state of decision mining, with the scope to discover the research gaps and where
decision mining can be improved. The findings of the research show that the
concepts used in the decision mining field and related fields are ambiguous and
show overlap. Future research directions could increase the quality and maturity of
Introduction ix

decision mining research, by focusing more on decision mining research, a change

is needed from a business process decision mining approach to a decision focused
approach.
Chapter “Cloud Sourcing and Paradigm Shift in IT Governance: Evidence from
the Financial Sector” by Niloofar Kazemargi and Paolo Spagnoletti conducts an
exploratory case study in to large companies in the financial sector in order to
demonstrate how security risk and vulnerabilities in digital resources in cloud
reshape IT governance process and practices. The study shows that cloud adoption
alters the locus and scope of IT governance which consequently compels organi-
zations to rethink their control mechanisms to mitigate security risks.
Chapter “Data-Imagined Decision Making in Organizations: Do Visualization
Tools Run in the Family?” of Angela Locoro and Aurelio Ravarini proposes an
exploratory analysis of decision-making model and data visualization characteris-
tics, in order to extract a set of common aspects of decision making and to configure
a set of connections between them and data visualization tools features. Authors
demonstrate how these connections may serve to improve the current decision
routines in the enterprises.
The chapter of Niloofar Kazemargi and Paolo Spagnoletti entitled “IT
Investment Decisions in Industry 4.0: Evidences from SMEs” focuses on a
propensity of SMEs in IT investment in an industry 4.0 context. In order to achieve
this scope, authors analyze the responses of 1889 Italian SMEs to government
policies designed to facilitate SMEs in adopting technologies for Industry 4.0. The
study contributes to the literature highlighting the importance of IT investments
strategic decision in Industry 4.0.
Chapter “Creating a New Innovation Orientation Through Idea Competitions” of
Hanne Westh Nicolajsen and Ada Scupola conducts an in-depth case study of the
implementation of an idea competition in a consulting company. Based on 27
interviews with company managers as well as users and users of the idea compe-
tition, the case shows how the implementation of the idea competition in the
company has changed the innovation orientation of the company along several
dimensions including creativity and empowerment, innovation infrastructure,
innovation influence, and innovation intention.

Digitization, Accounting, Controlling, and Reporting

The second part of the book collects papers that analyze the link between digital
technologies and business administration processes. Even if those kinds of tech-
nologies have been studied in several business areas, as commercial function,
marketing, organization, and human resources management, little investigations are
developed in accounting, control, and reporting fields. Researcher asks for more
enquiries to help companies to face several questions regarding business admin-
istration: Why they have to implement or to not implement digital technologies to
manage administrative and control processes considering opportunities and
x Introduction

challenges; How they can implement digital technologies to better manage

administrative processes in terms of cost savings, efficiency, quality, etc.; What are
the impacts of those technologies on accuracy and effectiveness of accounting and
reporting; and so on.
This part includes paper discussing implications of blockchain and electronic
invoice.
Chapter “Accounting Information Systems: The Scope of Blockchain Accounting”
of Iacopo Ennio Inghirami develops some reflections and considerations around
the impacts of blockchain technology on accounting and accounting information
systems and gaps in current research. The author, underlining that currently
research works mainly focused on a technical view of blockchain, calls for
investigation on accounting implications of this type of technology. Finally, the
relevance of a distributed ledger and condition for the adoption are highlighted.
Chapter “Understanding Blockchain Adoption in Italian Firms” of Adele
Caldarelli, Luca Ferri, Gianluca Ginesti, and Rosanna Spanò investigates factors
affecting people intention to use blockchain adopting a quantitative analysis on 267
Italian information systems practitioners and entrepreneurs and the Unified Theory
of Acceptance and Use of Technology (UTAUT). Findings show that the intention
to use blockchain technologies, particularly in accounting practices, is positively
affected by performance expectancy and social influence blockchain, conversely
experience has a negative effect.
Chapter “Improving Invoice Allocation in Accounting—An Account
Recommender Case Study Applying Machine Learning” of Markus Esswein,
Joerg H. Mayer, Diana Sedneva, Daniel Pagels, and Jean-Paul Albers focuses on
the use of machine learning in classifying and codifying invoices to recommend the
most effective and accurate general ledger account. This paper highlights two very
relevant needs of companies, which are approaching to digital finance transfor-
mation, and answers to two important calls for research: (a) understanding
opportunities and challenges of digitization considering the implementation of
different kinds of technologies at different type of accounting processes; (b) com-
prehending how digital technologies could be implemented to ameliorate processes.
The article designs an algorithm based on machine learning, able to automatically
classify invoices without an order, and defines a guideline to help companies in the
implementation phase.
Finally, the contribution “Performance-Based Funding in the Italian Higher
Education: A Critical Analysis” of Alberto Ezza, Nicoletta Fadda, Gianfranco
Pischedda, and Ludovico Marinò is a theoretical paper, which aims at critically
analyzing the funding mechanisms of Italian Higher Education System. The paper
highlights criticalities of the funding systems and the related effects that influence
the strategic choices and consequent actions taken by universities to achieve a
higher level of performance and, so, more funds.
Introduction xi

People, Organizations, and New Ways of Working

in the Information Age

The third part of the book analyzes the effects of digital transformation on users’
attitudes and behaviors, organizational processes, and structures, as well as on the
new ways to organize work inside and across organizations. The relationships
between digital transformation, people, and organizations are an emerging topic in
managerial literature and information systems (IS) research. While the effects of
digital transformation on business models and on industrial changes are well noted
in the managerial literature—and business management in particular—less attention
has been given to organization’s capability to manage such constant (or disruptive)
revolution. It is interesting to note how managers design organizational processes
and new of working inside and across organizations—respect than traditional
work—in order to manage digital transformation.
The third part of this book collects various contributions on topic that are
illustrated below.
Chapter “Organizational Impacts on Sustainability of Industry 4.0: A Systematic
Literature Review from Empirical Case Studies” of Emanuele Gabriel Margherita
and Alessio Maria Braccini focuses on the organizational impacts on sustainability
of Industry 4.0. Authors conducted a systematic literature review of empirical case
studies from Industry 4.0 context in order to understanding the organizational
impacts on sustainability that was measured through three dimensions, such as
economic, social, and environment. Findings have shown that the economic
dimension is prominent in the literature, while little attention has been paid on
organizational impacts on social and environmental dimensions.
The chapter of Giovanna Morelli, Cesare Pozzi, and Antonia R. Guerrieri
entitled “Industry 4.0 and the Global Digitalised Production. Structural Changes in
Manufacturing” investigates the impact of Industry 4.0 on the Italian SMEs oper-
ating in the manufacturing sector and the effects of technology on work and
organizations with respect to SMEs and networks. Authors remarked that Industry
4.0 could be an effective driving force for networking SMEs, despite the employees
in manufacturing sector were reduced.
The chapter of Claudia Dossena and Francesca Mochi entitled “Managing
Online Communities and E-WOM: Prosumers’ Characteristics and Behaviors in the
Food Service Sector” investigates the prosumers’ use of social media in choosing a
restaurant and reviewing it online. It aims to understand if prosumers’ character-
istics influence the social media’s perception and usage in terms of information,
writing feedbacks, and trust online reviews. Findings have shown that social media
usage—gathering information and experience reviewing—depending on how many
times they go to the restaurant. Moreover, findings have also shown that prosumers
that have an “explorative” behavior (i.e., trying new restaurants) use social media
respect than prosumers with a “loyal” behavior (i.e., staying by a familiar
restaurant).
xii Introduction

The chapter of Ronald Van den Heuvel, Rogier Van de Wetering, Rik Bos, and
Jos Trienekens entitled “Identification of IT-Needs to Cope with Dynamism in
Collaborative Networked Organizations—A Case Study” focuses on the need for IT
systems to overcome (or to react) to the network dynamics that a collaborative
networked organization encounters. Using via a systematic literature review,
authors developed a framework to gather results in the case study—15 interviews
over 12 organizations that participate in the CNOs. This chapter provides insight
into the IT needs used to cope with the dynamics a CNO encounters.
The chapter of Haruka Ikegami and Junichi Iijima entitled “Unwrapping Efforts
and Difficulties of Enterprises for Digital Transformation” aims to investigate the
efforts and difficulties of enterprises when digital transformation occurs. Such
research identified three key topics that enterprises should consider for digital trans-
formation, such as (1) customer experience, (2) strategic intent, and (3) ecosystem.
Finally, the chapter of Mina Haghshenas and Thomas Østerlie entitled
“Coordinating Innovation in Digital Infrastructure: The Case of Transforming
Offshore Project Delivery” investigates how digital innovation influences project
delivery in the offshore construction industry. Based on a case study, such research
emphasizes how digital innovation unfolds within the confines of existing indus-
trial, organizational, and technological structures. It is also shown that digital
innovation network dynamics emerge through the interplay between generativity
and installed base.

Digital Ecosystems for Business Innovation and Digital

Transformation

The fourth part of the book analyzes the research topic of digital ecosystems, with
peculiar reference to business innovation and digital transformation inside and
across organizations. Digital ecosystem is a critical and current topic in managerial
literature and IS research. It is a dynamic integration of people, processes, com-
panies, and data aimed at enabling organizations to drive transformation and
improve business outcomes. It should be noted that when digital transformation
occurs, organizations with limited resources and competencies look at outside their
industry boundaries to seek new ways of supporting their business through coop-
erative and interactive relationships with partners. In this regard, organizations and
business processes need to be integrated through a digital ecosystem strategy, as
well as new systems and tools should be embraced for delivering value to stake-
holders through increased flow of data and shared insights.
The fourth part of this book collects various contributions on topic that are
illustrated below.
The chapter of Claudia Dossena and Francesca Mochi entitled “Organizational
Capabilities for Social Media Management: How Restaurant Managers Approach to
the Digital Ecosystem” is an explorative research on how restaurant managers
Introduction xiii

approach to (an manage) the digital ecosystem, as well on the organizational

competences required to effectively manage the digital ecosystem. Findings of the
explorative research have shown that restaurant managers’ and owners’ approach to
digital ecosystems in a variety of ways (i.e., via Web, social media, and restaurant
website), as well as they identified various organizational competences required to
effectively manage the digital ecosystem.
The chapter of Giovanni Vaia, William DeLone, Daria Arkhipova, and Anna
Moretti entitled “Achieving Trust, Relational Governance and Innovation in
Information Technology Outsourcing Through Digital Collaboration” focuses on
the theme of information technology outsourcing. In particular, it aims to explore
how the adoption of a digital collaboration tool influenced trust and the effective-
ness of relational governance in an IT outsourcing relationship. Using a case study
qualitative research method, they have shown that digital collaboration can affect
trust before and during the engagement phase of the IT outsourcing process.
The chapter of Roberta Cuel and Gabriella Maria Cangelosi entitled “In Vino
Veritas? Blockchain Preliminary Effects on Italian Wine SMEs” focuses on the
topic of the adoption of blockchain in the Italian wine industry. This research aims
to explore the effects of blockchain on the complex inter-organizational supply
chain systems SMEs are engaged in. Results of a pilot study have enabled to
identify the advantages or drawbacks managers perceive during the experimentation
of blockchain in the wine industry.
Finally, the chapter of Nunzio Casalino, Tommaso Saso, Barbara Borin, Enrica
Massella, and Flavia Lancioni entitled “Digital Competences for Civil Servants and
Digital Ecosystems for More Effective Working Processes in Public Organizations”
focuses on the adoption of digital technologies in the European public sector. It
presents the preliminary results of a research that aims at analyzing the adoption of
digital technologies in the European public sector, with peculiar reference to the
motivations leading adoption, the kind of technologies adopted, and the value
chain’s activities where the new technologies investments are focused.

Rocco Agrifoglio
rocco.agrifoglio@uniparthenope.it
Rita Lamboglia
rita.lamboglia@uniparthenope.it
Daniela Mancini
dmancini@unite.it
Francesca Ricciardi
francesca.ricciardi@unito.it
xiv Introduction

References

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Strategy & Leadership, 40(2), 16–24.
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Contents

Digitization and Business Model Transformation

Impact of Artificial Intelligence on Firm Performance: Exploring
the Mediating Effect of Process-Oriented Dynamic Capabilities . . . . . . . 3
Serge-Lopez Wamba-Taguimdje, Samuel Fosso Wamba,
Jean Robert Kala Kamdjoug, and Chris Emmanuel Tchatchouang Wanko
Artificial Intelligence and Ethics in Portfolio Management . . . . . . . . . . 19
Elena Beccalli, Viktor Elliot, and Francesco Virili
Putting Decision Mining into Context: A Literature Study . . . . . . . . . . 31
Sam Leewis, Koen Smit, and Martijn Zoet
Cloud Sourcing and Paradigm Shift in IT Governance: Evidence from
the Financial Sector . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Niloofar Kazemargi and Paolo Spagnoletti
Data-Imagined Decision Making in Organizations: Do Visualization
Tools Run in the Family? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
Angela Locoro and Aurelio Ravarini
IT Investment Decisions in Industry 4.0: Evidences from SMEs . . . . . . 77
Niloofar Kazemargi and Paolo Spagnoletti
Creating a New Innovation Orientation Through Idea
Competitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93
Hanne Westh Nicolajsen and Ada Scupola

Digitization, Accounting, Controlling, and Reporting

Accounting Information Systems: The Scope of Blockchain
Accounting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 107
Iacopo Ennio Inghirami

xv
xvi Contents

Understanding Blockchain Adoption in Italian Firms . . . . . . . . . . . . . . 121

Adele Caldarelli, Luca Ferri, Gianluca Ginesti, and Rosanna Spanò
Improving Invoice Allocation in Accounting—An Account
Recommender Case Study Applying Machine Learning . . . . . . . . . . . . . 137
Markus Esswein, Joerg H. Mayer, Diana Sedneva, Daniel Pagels,
and Jean-Paul Albers
Performance-Based Funding in the Italian Higher Education:
A Critical Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 155
Alberto Ezza, Nicoletta Fadda, Gianfranco Pischedda,
and Ludovico Marinò

People, Organizations, and New Ways of Working

in the Information Age
Organizational Impacts on Sustainability of Industry 4.0:
A Systematic Literature Review from Empirical Case
Studies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 173
Emanuele Gabriel Margherita and Alessio Maria Braccini
Industry 4.0 and the Global Digitalised Production. Structural
Changes in Manufacturing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 187
Giovanna Morelli, Cesare Pozzi, and Antonia R. Gurrieri
Managing Online Communities and E-WOM: Prosumers’
Characteristics and Behaviors in the Food Service Sector . . . . . . . . . . . 205
Claudia Dossena and Francesca Mochi
Identification of IT-Needs to Cope with Dynamism in Collaborative
Networked Organizations—A Case Study . . . . . . . . . . . . . . . . . . . . . . . 219
Ronald van den Heuvel, Rogier van de Wetering, Rik Bos,
and Jos Trienekens
Unwrapping Efforts and Difficulties of Enterprises for Digital
Transformation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 237
Haruka Ikegami and Junichi Iijima
Coordinating Innovation in Digital Infrastructure: The Case
of Transforming Offshore Project Delivery . . . . . . . . . . . . . . . . . . . . . . 251
Mina Haghshenas and Thomas Østerlie

Digital Ecosystems for Business Innovation and Digital

Transformation
Organizational Capabilities for Social Media Management:
How Restaurant Managers Approach to the Digital Ecosystem . . . . . . . 269
Claudia Dossena and Francesca Mochi
Contents xvii

Achieving Trust, Relational Governance and Innovation in

Information Technology Outsourcing Through Digital
Collaboration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 285
Giovanni Vaia, William DeLone, Daria Arkhipova, and Anna Moretti
In Vino Veritas? Blockchain Preliminary Effects on Italian Wine
SMEs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 301
Roberta Cuel and Gabriella Maria Cangelosi
Digital Competences for Civil Servants and Digital Ecosystems for
More Effective Working Processes in Public
Organizations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 315
Nunzio Casalino, Tommaso Saso, Barbara Borin, Enrica Massella,
and Flavia Lancioni

Author Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 327

Digitization and Business Model
Transformation
Impact of Artificial Intelligence on Firm
Performance: Exploring the Mediating
Effect of Process-Oriented Dynamic
Capabilities

Serge-Lopez Wamba-Taguimdje, Samuel Fosso Wamba,

Jean Robert Kala Kamdjoug, and Chris Emmanuel Tchatchouang Wanko

Abstract Organizations still dependent on information technology innovation have

already adopted the in AI subfields and techniques to adapt or disrupt the market
while improvement their performance. Other research has examined the relationship
between computing capabilities and organizational performance, with a mediating
effect on dynamic process-driven capabilities. We extend this flow of literature and
examine the same relationship by taking into account the capabilities of artificial
intelligence (AI). Our conceptual framework is based on the paradox of productivity,
resource-based view and dynamic capabilities. We relied on an in-depth review of
150 case studies collected on websites related to the integration of AI into organiza-
tions. Our study highlights the added value of AI capabilities, in terms of organiza-
tional performance, with a focus on improving organizational performance (financial,
marketing, and administrative). Our analyses also show that companies improve
their performance when they use capabilities of AI to reconfigure their dynamic
process-oriented capabilities.

Keywords Capabilities of AI · Process-Oriented Dynamic Capabilities · Firm

Performance

S.-L. Wamba-Taguimdje (B) · J. R. K. Kamdjoug · C. E. T. Wanko

Catholic University of Central Africa, GRIAGES, BP 11,628, Yaoundé, Cameroon
e-mail: lopezserge501@gmail.com
J. R. K. Kamdjoug
e-mail: jrkala@gmail.com
C. E. T. Wanko
e-mail: chrisemmanuelt@gmail.com
S. F. Wamba
Toulouse Business School, Midi-Pyérées, France
e-mail: s.fosso-wamba@tbs-education.fr
URL: http://www.fossowambasamuel.com

© The Editor(s) (if applicable) and The Author(s), under exclusive license to Springer 3
Nature Switzerland AG 2020
R. Agrifoglio et al. (eds.), Digital Business Transformation, Lecture Notes in Information
Systems and Organisation 38, https://doi.org/10.1007/978-3-030-47355-6_1
4 S.-L. Wamba-Taguimdje et al.

1 Introduction

The year 1974 saw the advent of the first expert systems; the most famous being
MYCIN [1, 2] designed to assist in the diagnosis and treatment of bacterial blood
diseases. At the middle of the twentieth Century, McCulloch and Pitts worked on
artificial neurons simulating the laws of logic [3]. Turing carried out research on a
universal machine that is theoretically able to solve all problems by manipulating
symbols [4, 5], and this was the starting point of investigations on an artificial system
that might be as good as a human mind. In line with the fast-paced sophistication
of technologies, Garry Kasparov, a world chess champion, was beaten in 1996 by
the Deep Blue software of IBM [6, 7]. In 1967, the first program of chess with
satisfactory performances was created by Greenblatt to beat a player. This significant
event demonstrates that AI performs better than men in specific areas, and the proven
efficiency of expert systems leads to increased sales of hardware using this system
[8]. AI begins to democratize to appear in large companies such as Google, Amazon,
IBM.
The digital revolution has produced its effects and is translating the modern world
into data. Data is no longer confined to data centers. With sensors of any kind, any
object, or environment of objects, becomes capable of measuring and producing data.
The impact of the industrial and digital revolutions has undoubtedly had a financial
impact on virtually every aspect of our society, life, business and employment. In
fact, digital transformation is changing business models and organizational culture.
It has an impact on its functioning, its organization, its teams, but more generally
on its governance [6, 7]. Thus, those who are at the end of the digital transition
see a new turning point: the one of intelligent transition. In the same way as digital
technology transformation, which has had a transversal impact on organization, will
involve all the functions of organizations during its operationalization [9, 10]. The
major advances in AI are based on three main factors: technological, economic and
human [9, 10]. Despite its relatively low level of integration, AI helps to modify
organizational processes, improve process and organizational performance, improve
cost reduction and track activities through its informational, automational and trans-
formational effects [9, 11]. With an average fundraising of $22 million per company,
the total amount raised by AI start-ups reached a record $10 billion. With a contri-
bution of $15.7 trillion to the global economy in 2030, AI is positioning itself as
a catalyst for organizational growth [11]. According to analysts TRACTICA and
GARTNER, the potential market for AI is expected to reach $11.1 billion by 2024,
up from $200 million in 2015 [12, 13]. The AI is expected to generate nearly $90
billion in profits by 2025, compared to just over $11.3 billion this year [12, 13]. The
exponential growth in the power of processing processes, combined with an unprece-
dented increase in available data, has made AI extremely attractive to organizations.
Its deployment requires significant investments in infrastructure, training, integration
and maintenance, in addition to an increase in IT budgets, particularly for hardware
and data storage including the cloud [14].
Impact of Artificial Intelligence on Firm Performance … 5

Our study proposes to analyze the effects of AI capabilities on improving perfor-

mance at the organizational level and their intermediate effects process-oriented
dynamic capabilities (PDCs) within organizations. Do AI capabilities influence orga-
nizational performance? What is the mediating impact of dynamic process-driven
capabilities on the relationship between AI capabilities and organizational perfor-
mance? We will first develop and justify our hypotheses based on a research model
that will be tested. But before then, we will describe our method of data collection
and techniques as well as the tools used for analysis. Recommendations will be
formulated following discussion of results.

2 Literature Review

Information technology (IT) has become ubiquitous in professional activities, leading

to profound transformation at the organizational level and affecting all core processes
and operations [15]. When integrated with the ecosystem of businesses, ITs can
produce a significant impact, especially on the relationship between the company
and its customers, prospects, and partners. They also play a key role in the way
companies’ processes and operations will evolve. Artificial intelligence (AI) remains
the most spectacular IT, as it has gone through an unequaled development over the last
decades [10, 15]. Since 1977, one of the main lines of research in information systems
has focused on the issue of IT evaluation. Studying the relationship between IT and
organizational performance is a permanent concern, although it has evolved over the
years. Today, IA has experienced unprecedented innovations, thus giving rise to more
scientific studies aiming to analyze their influence on organizational performance
through several theoretical models and foundations: Paradox Productivity, Process-
Oriented Perspective, Resource-Based View theory, and Dynamic Capabilities.

2.1 Paradox Productivity

This theory stems from a well-known statement by R. Solow: “The age of the
computer has arrived everywhere, except in productivity statistics”. For this author,
the technological evolution experienced during the last decades coincided with
a significant slowdown in the rate of productivity growth in organizations [16].
Analyzing the relationship between IT equipment rate and productivity through
the estimation of Cobb-Douglas traditional production functions, they were able to
demonstrate that organizations with higher IT equipment/infrastructure ratios have
an apparent productivity of higher work, and that organizations using more intensely
IT users are not penalized in relation to others in terms of productivity [15, 17]. Yet,
the measured productivity growth has halved over the last decade. Systems using
artificial intelligence match or surpass human performance in a growing number of
areas. As they take advantage of rapid advances in other technologies, they potentially
6 S.-L. Wamba-Taguimdje et al.

serve as catalysts that can significantly increase the productivity and performance of
organizations [15, 17].

2.2 Process-Oriented Perspective

Identifying the potential impact/influence of IT requires a “process-oriented” model

that accurately measures input (IT investment) and output (the outcome) while
making it possible to explicitly explain the use of IT by organizations. For this
purpose, Soh and Markus proposed a model that describes the relationship between
IT and its organizational impacts in the form of a value-creating process [18]. It is
composed of three types of processes, namely (i) the conversion process that turns
IT investment into assets, (ii) the usage process that deploys, mobilizes and over-
powers IT assets at the organizational level, and the competitive process that turns the
use of IT into organizational performance [19]. The link between IT, organizational
processes and organizational performance has lured the interest of other scholars, as
they take into account the effect of the competitive environment. Thus, organizational
processes consist of two categories: business processes and management processes.
Each category is subdivided into an automation, information and transformational
process [20].

2.3 Resource-Based View Theory

The organizations have resources (human resources, business resources and techno-
logical resources) which are valuable, rare, difficult to imitate, imperfectly substi-
tutable and non-transferable, a subset of which enables them to establish a competitive
position, competitive and privileged advantage, a source of superior performance,
provided that they are protected against imitation and substitution [21, 22]. Bharadwaj
[22] highlights the concept of information technology capacity, defined as the ability
to mobilize IT-based resources in combination with other resources and capabili-
ties. “IT capacity” is built on tangible resources, human resources and intangible
resources [21, 22]. He demonstrated that IT capacity is positively associated with
organizational performance.

2.4 Dynamic Capabilities

Dynamic capacity is conceptualized as “the potential of the organization to recon-

figure, integrate and coordinate internal and external skills to deal with rapid turbu-
lence in commercial environments” [23, 24]. To create, upgrade or transform orga-
nizational capabilities, the organization will use specific processes that implement
Impact of Artificial Intelligence on Firm Performance … 7

and express dynamic capabilities. Organizational capacity is defined as the ability

of the organization to carry out its productive activities efficiently and effectively
by deploying, combining and coordinating its resources and skills through different
value-creating processes, according to previously defined objectives [23, 24]. Indi-
vidual skills determine, direct and support the dynamic capabilities of the organiza-
tion [19]. They can be seen as a link between organizational resources and perfor-
mance, such as a converter that turns resources into improved performance because of
its valuable features. They can effectively use competitive combinations of resources
to improve performance at the organizational and process level [23, 24].

3 Conceptual Model and Hypotheses

The previous theoretical models allowed us to highlight different constructs: arti-

ficial intelligence capabilities, intelligence management capacity, the expertise of
the personnel in artificial intelligence, the flexibility of the infrastructure of artificial
intelligence, process-level performance improvement, automationnal effect, infor-
mational effect, transformational effect, process-driven dynamic capabilities, orga-
nizational performance improvement, financial performance, marketing performance
and administrative performance.
AI Capabilities (AICAP): are the organization’s ability to create a set of organiza-
tional, personal and artificial intelligence resources for creating and capturing busi-
ness value. Thus, artificial intelligence capabilities refer to an organization’s ability
to combine IT, AI techniques/technologies resources to quickly adapt to changing
environments and maintain competitive advantage [15, 19, 22]. Based on previous
research, we consider three types of artificial intelligence resources in our study: AI
Management Capability, AI personal Expertise, and AI infrastructure Flexibility.
AI Management Capability (AIMC): It is the ability of an organization and its
staff to administer or to model intelligent behavior in a computer or technology to
create added value for the organization’s sustainability. AI management capability
potential is peculiar to strategic planning, strengthening relationships within and
between companies, investment decision-making, coordination and control [19, 25].
AI personal Expertise (AIPE): It is defined as the professional skills and knowl-
edge of AI-related technologies, business functions and relational (or interpersonal)
domains required by the organization’s staff for modeling and/or using intelligent
behavior in a computer or technology to accomplish the tasks assigned to it [19, 25].
AI infrastructure Flexibility (AIIF): It refers to the composition of all technological
assets (software, hardware and data, etc.), systems and their components, network and
telecommunication installations and applications that are necessary for the imple-
mentation of an AI system capable of performing tasks [26, 27] The flexibility of
deploying AI infrastructure for organizational operations allows the organization’s
staff to rapidly support various system components, and adapt to changing business
8 S.-L. Wamba-Taguimdje et al.

conditions and business strategies, such as economic pressures, strategic alliances,

acquisitions, global partnerships or mergers [26].
Process-Oriented Dynamic Capabilities (PDCs): they refer to the ability of a
company to improve these organizational processes in order to reduce costs and
optimize business intelligence. By integrating PDCs, the company should see the
efficiency of these operational processes grow, increase its knowledge management
and better align its resources with the company’s vision [19].
The main objective of AI adoption by an organization is to solve a problem either at
the process level or at the level of dynamic process-oriented capabilities. The, we can
identify four IA capabilities: (1) modify organizational processes to improve integra-
tion, cost reduction, business intelligence, avoid ecosystem and business line hazards;
(2) increase and optimize the effectiveness of business processes; (3) promote and
improve the acquisition, assimilation of internal and external knowledge; (4) configu-
ration/reconfiguration of resources, strategies and processes to align themselves with
the organization’s vision [9, 11, 15]. These AI capabilities positively associated with
organizational performance improvement and process-oriented dynamic capabilities
have been demonstrated in several IT-based industry sectors [19, 28, 29]. Therefore,
we can enounce this hypothesis:
H1 AI capability has a significant positive effect on process-oriented dynamic
capabilities.
In social sciences, an organization is a social group of interacting individuals with
a collective purpose, but whose preferences, information, interests and knowledge
may diverge. Then, an organization may be the result of regulated actions: a company,
a public administration, a trade union, a political party, an association. Productivity
paradox theory considers organizational performance in productivity sense. In this
vein, it aims to measure the degree to which one or more factors of production (mate-
rial factors consumed or intangible factors implemented) contribute to the variation
in the final result of a transformation process [15, 17, 30–32].
Organizational Performance (PERF) represents the ability of the organization to
achieve financial/market/administrative performance that allows it to maintain its
position in competitive environments [19, 20, 33–35].
Financial Performance (FP): ability of the firm to attain financial gains. Profitability,
cost cutting, labor savings and budget reductions [19, 20, 33–35].
Marketing Performance (MP): organizational direction to create value for the
company’s customers. Improved customer satisfaction, reduced prices, new prod-
ucts and services, combination of products and services, buyback rate, retention of
new customers, number of new products/services launched [19, 20, 33–35].
Administrative Performance (AP): the firm’s renewed control over resources,
enhanced coordination among and within organizations. It is also viewed as an
enhanced co-ordination among department’s and management’s control over firm’s
resources [19, 20, 33–35].
Impact of Artificial Intelligence on Firm Performance … 9

H2 AI capability has a significant positive effect on performance improvement at

the organizational level.
H3 Process-oriented dynamic capabilities have a significant positive effect on
organizational performance.
In nowadays literature, the examination of the effects of process-oriented dynamic
capabilities, on how it improves organizational performance, has been limited to
specific processes or technologies. In fact, these studies provided limited informa-
tion on the role of process-oriented dynamic capability improvements as a medi-
ator between the effects of IT capabilities on organizational performance improve-
ments [19, 24, 29, 36–38]. We also argue in this study that process-oriented dynamic
capabilities will mediate the relationship between AI capability and organizational
performance (H4).

4 Research Methodology

We used a quantitative approach based on a number of case studies of organizations

that adopted AI. Basically, a case study is the in-depth study of a particular situation
rather than a broad statistical survey [39–41]. This method is used to refine a very
large search field into an easily documentable subject. The research design of case
studies is also useful for testing whether scientific theories and models work in the
real world [39–41]. This method of study is particularly useful for testing theoretical
models by using them in real-life situations [41–44]. A case study usually has several
parts, including: (i) the context that answers the questions ‘who’, on which domain
does the client work? What is his story? What are the members of the organization (the
remarks on which are reported in the case study). This part highlights the capabilities
of AI; (ii) the problem, which in this case is the challenge faced by the customer
and solved through this provider. Here we see how the capabilities of AI come into
play [45]; the answer provided, which is the solution provided to the client and
which always take the view of the customer into account, as well as the angle by
which the profit and the added value granted thanks to the supplier’s intervention.
This part highlights the benefits of AI at the level of PIOL and PDCs; and (iv) the
results achieved, which are the concrete and tangible results achieved by the client,
that is, quantified data, quantifiable, measurable and striking facts (e.g., in order
to increase the turnover, attract more customers each month, ensure more efficient
security measures). All figures/elements that prove that the action of the provider has
been beneficial to the customer will have to be highlighted. PIOL is usually found in
this part, which often includes the PDCs. It should be noted that all the cases studies
considered here derived from several industrial sectors.
In this digital age, case studies are more easily collated and available for all kinds
of analysis. Moreover, it is regularly observed that the primary data collected at a
high price are often poorly or not sufficiently exploited, which is a kind of waste
of resources. Therefore, the evaluator should also think about secondary data [46,
10 S.-L. Wamba-Taguimdje et al.

Fig. 1 Conceptual model

47]. These case studies provide verifiable facts, such as the contact details of the
organizations, the personal contacts of the members involved in the AI integration
process in their organizations, and excerpts from their interviews. The successful
adoption of AI explained in these case studies and in the literature, allows us to
support and consolidate the research elements at first. Second, allows us to propose
and develop an in-depth analysis of each research proposal. So, we examined 150
archived cases that had adopted AI, all of which were drawn from the website of a
leading vendor of AI techniques and technologies (Appendix).
For each identified case, the first author ensured the elements to be used to
build the search pattern were available. Such elements included: AI management
capabilities, AI personnel expertise, AI infrastructure flexibility, Process-Oriented
Dynamic Capabilities, financial performance, marketing performance, and adminis-
trative performance (Fig. 1). Then, two investigators took on the data coding process
and used a scale with values ranging from 1 to 4. The value 1 is assigned when the
construct is not mentioned in the case. Value 2 corresponded to the lowest value, 4
the highest value and 3 the average value when a given construct is mentioned in the
case study. The two (02) readers codified the case studies in a progressive manner.
Before assigning a score to a construct, the reader performs an evaluation process.
Subjective character is therefore not so much in the difficulty of measuring the quan-
tities that describe an object, but rather in the overall perception of the case studies
[48–50]. We started from the premise that subjectivity could influence the process of
coding constructs [50, 51]. The overall process is done in three steps. First, the choice
of case studies on the websites of AI solution providers was unanimously made by
both readers. Second, each participant performed latent coding (transforming quali-
tative data into quantitative data). During this phase, it was to collect all the evidence
for each score assigned to a construct in each case study. Third, both researchers
provided the scores for each case study. All case studies that were incompatible in
terms of scores for both readers were simply eliminated to avoid any subjectivity.
Impact of Artificial Intelligence on Firm Performance … 11

This was to ensure, first, that our codification process is universal and neutral. And
secondly, what does not depend on a reader and is valid for both [52, 53].
Table 1 gives examples of the scores that we assigned to a few individuals in our
sample. And Table 2 presents some of the results obtained after case coding. The
link to each case study included in this study can be found in Appendix.
We consider that the AI capabilities of an organization correspond to the sum
of AI management capabilities, AI personal expertise and AI infrastructure flexi-
bility. The performance Improvement at organizational level is considered as the
sum of administrative, marketing and financial performance. The missing value of

Table 1 Sample item ratings from the cases studies

Cases no. Sample expects Item rated Assigned score
79 “By mid-2018, TINE had saved Financial performance 4
50% on its IT costs compared to
its previous on-premises solution.
The company has begun to drive
faster development cycles since
migrating to AWS and expects to
increase its software development
and delivery speed by 60%”
19 “Happy employees. The team likes Process-oriented dynamics 3
the Slack integration for capabilities
approving expenses, and they like
the mobile app, which lets them
just take a picture and submit
immediately. People get paid back
faster, which they appreciated”
79 “We knew that we had collected AI management capabilities 3
and would continue collecting
data that could be used for good,
and we started with one simple
question when evaluating the
evolution of our organization and
the technology we use: what
benefits the farmer? We wanted to
develop the next generation of
tools for farmers to enable data
analysis and decision making that
could lead to happier cows and
better quality milk, says Volden”
1 “Hani Nehaid, ADNOC’s Administrative performance 2
Geoscience Team Leader, and his
team were considering using AI to
augment and accelerate the thin
section description process”
5 “Coca-Cola Amatil gained 1.3% Financial performance 4
market share in the Assai Pacific
region within five months”
12 S.-L. Wamba-Taguimdje et al.

Table 2 Sample extract from the dataset

Case no. AIMC AIPE AIIF PDCs FP MP AP AICAP PERF
1 4 3 3 4 4 2 2 10 8
2 4 4 4 2 3 4 4 12 11
3 4 3 4 3 4 4 2.5 11 10.5
4 4 1.5 3 3 3 3 3.5 8.5 9.5
5 3 2 3 4 4 4 3 8 11
6 4 3 3 3 3 4 4 10 11
7 3 3 3 3 3 4 3 9 10
8 4 3 4 3 4 2 2 11 8
9 4 3 3 4 3 4 1 10 8
10 4 2 2 1 3 3 2 8 8
AIMC AI management capabilities, AIPE AI personnel expertise, AIIF AI infrastructure
flexibility, PDCs Process-oriented dynamic capabilities, FP Financial performance, MP Marketing
performance, AP Administrative performance, AICAP Capabilities of AI, PERF Performance
improvement at organizational level

construct is labelled as 1. The hypotheses are tested employing [54, 55]. Bootstrap-
ping Procedure and for testing meditated effects. The computations were performed
utilizing SMARTPLS software. This method allows us to generalize problems that
were previously almost impossible to solve, such as the ability to simultaneously
process several sets of explanatory and explained observed variables, the ability to
analyze the relationships between unobservable theoretical variables and to take into
account measurement errors, and the ability to confirm [56, 57]. The study of vari-
ability in factor analysis results (eigenvalues, eigenvectors) or variance estimation
in complex surveys are carefully treated. To avoid underestimating variability (i.e.,
confidence intervals that tend to be too small or have insufficient coverage), we
used a sample of 150 archived case studies such as Seddon and Calvert [58] and
Bhattacharya and Seddon [59].

5 Results

From Fig. 2, we can see that all our proposed hypotheses are supported. More
precisely, we can see that AICAP has a significant positive effect on PDCs (β =
0.292, p < 0.001) (H1 is supported). Also, AICAP has a direct significant positive
effect on PERF (β = 0.370, p < 0.001) (H2 is supported), and PDCs have a positive
significant effect on PERF (β = 0.221, p < 0.01) (H3 is supported). Moreover, the
R2 of PERF is about 23, 30% and the one of PDCs is about 8.5%. Finally, as we can
notice from Table 3, PDCs mediate the relationship between AICAP and PERF (β
= 0.065, p < 0.05) (H4 is supported).
Impact of Artificial Intelligence on Firm Performance … 13

Fig. 2 Structural equation modeling estimation

Table 3 Meditated effects

Original Sample Standard T statistics P values
sample mean (M) deviation (|O/STDEV|)
(O) (STDEV)
AICAP → PDCs → PERF 0.065 0.065 0.026 2.468 0.014

The careful analysis of our results shows that 39.25% (Table 4) of our sample
uses what we have called generic AI, the term AI here referring to several types or
parts of AI that are used for example to perform analysis, for automation of tasks,
decision support or for redesigning a company’s processes by integrating digital
transformation. This trend may be justified by the fact that, in general, firms do not

Table 4 Classification of
Types of AI Total Percentage
case studies according to AI
technology used AI 73 39.25
Machine learning 49 26.34
Deep learning 8 4.30
Cognitive 25 13.44
Cognitive cyber security 6 3.23
Natural language processing 15 8.06
Robotic personal assistant 2 1.08
Pattern/visual recognition 3 1.61
Chatbots 2 1.08
Neural networks 1 0.54
Virtual companion 2 1.08
Total 186a 100
a There is repetition of AI type: some cases have multiple types of
AI
14 S.-L. Wamba-Taguimdje et al.

need a single solution or type of AI but a combination of these to make a greater

benefit. This result is important in practice and for business leaders and providers
of AI solutions. Indeed, in view of this result, the suppliers of AI solutions should
put a particular emphasis on solutions that integrate a set of technology rather than
providing a single type of technology to businesses. Business leaders should explore
the benefits of using multi-type AI solutions.
Our study also reveals a propensity for companies to use Machine Learning.
26.34% of our sample reports on its use in companies. This attraction for machine
learning can be explained by the fact that this type of technology reduces human
intervention in the processes to a minimum. Moreover, with this technology, the
system becomes more and more intelligent because it learns itself with use. Thus,
the more machine learning is used, the more efficient the system becomes the more
accurate and efficient the results and the less man intervention are needed to make it
work.

6 Discussion

Contrary to previous studies that examined the influence and the impact of IT on
specific business processes only, the conceptual framework proposed in this paper
examines the cumulative effects of AI capabilities on improving process-oriented
dynamic capabilities and the mediation effect of these between AICAP and orga-
nizational performance improvement. Furthermore, most of the previous research
on AI has been limited to either financial measures, marketing measures or admin-
istrative measures as a key indicator of organizational performance, our research
also applies to administrative and marketing performance to highlight the direct and
indirect influence of AI on organizational performance. Therefore, the results of
this research are new in terms of satisfying the need for leaders and managers to
capture, control and understand the direct and indirect benefits of AI capabilities
in their organizations. Our study also reveals that process-oriented dynamic capa-
bilities contribute significantly to improving organizational performance (marketing
performance, financial performance and administrative performance). This means
that organizations must use AI to modify their business processes so that they can
adapt to the ever-changing environment.
Our study has several theoretical implications for AICAP research to be consid-
ered in future research. First, it is one of the first studies to assess the direct impact of
AICAP on firm performance and dynamic process-driven capabilities, and to assess
the mediating effect of PDCs on the relationship between AICAP and PERF. Also,
our study contributes to the research stream on business value of IT by confirming
the importance of investing into complementary assets (e.g., dynamic process-driven
capabilities). The result is in line with those obtained by [29, 60] in their studies on
the influence of IT capabilities on business performance.
In addition to the theoretical implications, our study has several managerial impli-
cations. Firstly, the results suggest in particular that companies with improved PDCs
Impact of Artificial Intelligence on Firm Performance … 15

will generate better performance and achieve a competitive advantage [19]. Secondly,
our results show that the use reconfiguration of PDCs by companies in order to benefit
from the advantages of AI allows them to improve their performance, the profitability
of their investments in AI and thus have a competitive advantage. Our analyses are
consistent with proposals by [14] suggesting to managers who invest in AI to develop
capabilities to redefine their processes. Managers can therefore confidently discuss
the role played by AI in implementing business strategies and improving business
performance as suggested [61, 62].

7 Conclusion

We adopted a methodology based on secondary case studies to conduct this research.

The choice of this approach is justified by the benefits it offers to the type of research
based on secondary data (case studies). The quantitative approach allowed us to
study the causal links between the different variables of the conceptual research
model, to test the hypotheses/proposals constructed. The case studies collected were
analysed qualitatively to highlight the elements related to each variable. Then, a
coding process was applied to them in order to transform them into quantitative
data on the basis of a four (04) level scale. The concept of AI consists in developing
computer programs capable of reproducing and performing tasks achieved by human
beings, and which require learning, organization, memory and reasoning. AI is the
next computer and Cultural Revolution for businesses. In the continuity of their digital
transition, companies are now preparing for the intelligent transition, which integrates
both the Internet of Things and artificial intelligence. AI is obviously a business
topic, and it is important for IT to be a support, or even a pilot of this new business
model. The research framework adopted in our work integrates a more inclusive
and comprehensive approach to better account for the intangible benefits of AI in
organizations. In our study, we were able to appreciate the indirect effect that process-
oriented dynamic capabilities have on AI capabilities. It is also apparent that firm’s
AI capabilities have a direct and significant influence on the firm’s organizational
performance. Our results show that firm’s AI capabilities have a mediating effect
on process-oriented dynamic capabilities, and that PERF is not the only indicator
to examine the effects of AI capabilities, as we also have process-oriented dynamic
capabilities. This indicates that organizations gain AI performance when using these
features to reconfigure their process-oriented dynamic capabilities.

Appendix

Available upon request. Contact one of the authors to access the list of case studies,
and the links.
16 S.-L. Wamba-Taguimdje et al.

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Artificial Intelligence and Ethics
in Portfolio Management

Elena Beccalli, Viktor Elliot, and Francesco Virili

Abstract This work in progress aims to explore ethical dilemmas connected to

the use of Artificial Intelligence (AI) in financial portfolio management, and their
managerial implications. In old school quantitative investing, portfolio allocation
decisions are typically based on a well-defined investment strategy. Financial port-
folio managers devise and apply investment strategies to maximize expected returns
for customers’ portfolios. The introduction of AI-enhanced algorithms enables smart
machines to automatically revise and update investment strategies, learning from the
past. AI itself might produce significant effects on the gains and losses of the port-
folio management strategies, raising ethical dilemmas connected with human versus
machine responsibility, accountability, and risk. From the managerial point of view,
a new dimension of performance measuring, competence evaluation and incentive
allocation is required for managing AI software developers in this area. To explore
such dilemmas, empirical evidence is drawn here from MDOTM, an innovative and
successful young enterprise developing AI-driven investment strategies for financial
markets.

Keywords Artificial intelligence · Agency theory · Finance

E. Beccalli
Universita’ Cattolica del Sacro Cuore, Milan, Italy
e-mail: elena.beccalli@unicatt.it
V. Elliot
University of Gothenburg, Gothenburg, Sweden
e-mail: viktor.elliot@gu.se
F. Virili (B)
University of Sassari, Sassari, Italy
e-mail: fvirili@uniss.it

© The Editor(s) (if applicable) and The Author(s), under exclusive license to Springer 19
Nature Switzerland AG 2020
R. Agrifoglio et al. (eds.), Digital Business Transformation, Lecture Notes in Information
Systems and Organisation 38, https://doi.org/10.1007/978-3-030-47355-6_2
20 E. Beccalli et al.

1 Introduction

There is clearly an ethical imperative implicit in the growing influence of automation in

market behavior. The ethical dimension of market automation is therefore worthy of serious
study. —Hurlburt et al. [19]
Discussions of ethics in financial markets and financial services generally focus on profes-
sional responsibilities of money managers, brokers, investment advisors, and traders, who
are bound by the codes of ethics of their respective professions as well as by governmental
regulation and exchange rules. In the new age, however, the intermediaries are automated
agents in a global automated mechanism (not members of any profession). —Davis et al. [9]

The two quotes are illustrative of the new dimension that automation and artificial
intelligence (AI) brings to financial investment. Compared to old school quantitative
financial investing, where the human had to invent and create the investment strategy
(see e.g. Ou and Penman [27]; Holthausen and Larcker [18]),1 with AI the machine
continuously adapts the investment strategy on the basis of market conditions and
evolving performances; humans only focus on developing the right machine (i.e. to
devise and eventually improve the machine learning process). Because of this change
in the role of developers in financial modelling—rather than building a strategy, the
coders develop a machine that will eventually come up with its own strategy—their
work is not primarily evaluated in terms of performance (yield), but in terms of the
robustness/persistence/consistency of the training process of the AI.
The ultimate goal in AI-based tech investing is to develop strategies that will adapt
over time. But, who is accountable if the machine learning process eventually leads
the investment strategy to bad performances? As reported below, the AI developer
might face a trade-off between short term and long term portfolio performance,
raising issues on how to understand, evaluate and control the ethical and technical
correctness of the programmer’s job and its contribution to value production.
For the purpose of this paper we build on agency theory to discuss and analyse
the incentive conflicts that may arise among managers and AI developers when
they work together to teach machines how to make investments. In particular, via the
agency theory framework, we focus on how the ethical issues traditionally associated
with investment practice can be adapted to take into account the peculiarities of
AI-programming, so that we discuss ethical machine investments.
The rest of the paper is organized as follows. Section 2 provides the theoret-
ical framework based on agency theory in the context of machine ethics. Section 3
describes the methodology used to collect and analyse the empirical evidence on
the case of a AI-investment company. Preliminary results are discussed in Sect. 4.
Section 5 concludes.

1 These studies develop quantitative trading strategies based on statistical models designed to predict

the sign of subsequent excess returns from accounting ratios.

Artificial Intelligence and Ethics in Portfolio Management 21

2 Theoretical Framework

In the 2015 article entitled “The Irrelevance of Ethics”, MacIntyre [22] argues that
acquiring the moral virtues would undermine someone’s capacity to be a good trader
in the financial system. Yet, ethics is far from being irrelevant in finance. Accordingly,
Rocchi et al. [30] explain the challenge at the heart of MacIntyre’s [22] claims can
be crystallized in the question, “under which conditions, if any, can a person be
an effective trader and simultaneously live a worthy human life?” They conclude
that there are realistic possibilities of integrity and growth in moral virtue for those
who work in the financial sector, at least for those operating in a work environment
minimally permissive toward virtue, provided they possess characters of integrity
and genuine aptitude for the skills and attitudes required in their professional tasks.
Following on, a recent stream of literature focuses on unethical managerial deci-
sions. At sociological level, de Bruin [9] argues that a key element of the global
financial crisis of 2007–2008 was a failure of epistemic (i.e. knowledge-based) virtue,
whilst Borg and Hooker [6] argue that this is fundamentally not an epistemic but a
moral issue and change in the financial sector is best promoted by reconceiving of
the relationship between financial institutions and the societies they serve. At orga-
nizational level, Rafeld et al. [29] investigate three major collusive rogue traders
in banking (at National Australia Bank, JPMorgan with its London Whale) and
the interest reference rate manipulation/LIBOR scandal. There have been instances
of unauthorized acting in concert between traders, their supervisors and/or firms’
decision makers and executives. They explore organizational misbehaviour theory
through a descriptive model of organizational/structural, individual and group forces.
Their model draws conclusions on how banks can set up behavioural risk manage-
ment and internal control frameworks to mitigate potential collusive rogue trading.
Azim and Kluvers [4], with a focus on corruption within organisations, explore
the successful management of corruption by the Grameen Bank, a leading microfi-
nance institute that operates in Bangladesh. Their study explores the impact of the
anti-corruption structures, policies and processes implemented by Grameen Bank.
In what follows, we introduce machine ethics after which we discuss how the
broader agency theory concepts can be linked to the field of machine ethics and used
as a template to analyse how firms are creating different forms of incentive structures
to promote ethics in AI-based investment algorithms.

2.1 AI and Machine Ethics

Artificial intelligence is an Information Systems area with antique roots in decades

of interdisciplinary research. Being addressed to emulation of human beings, AI has
been concerned with moral aspects since the very beginning, but in recent years moral
issues are becoming of crucial importance in many different application fields [36].
In particular, AI “designers have both ethical and legal responsibilities to provide
22 E. Beccalli et al.

such justification for decisions that could result in death, financial loss, or denial of
parole” [25].
The emerging field of machine ethics is concerned with giving machines ethical
principles, or finding procedures for solving the ethical dilemmas that machines
may encounter. This means enabling machines to function in an ethically respon-
sible manner. Machine ethics links to autonomy, because by providing an ethical
framework for machines we effectively allow them to operate autonomously without
human intervention. There is an abundance of tasks that we would like to distribute
to machines (because the jobs are dangerous, unpleasant, shortage of humans, or
simply because the machine can do a better job), but no one would feel comfortable
to give machines autonomy without ethical safeguards [3].
Machine ethics in investment is intrinsically linked to the algorithms that develop,
suggest, or perform new investment strategies. According to Hill [16, p. 47] an
algorithm is a mathematical construct with “a finite, abstract, effective, compound
control structure, imperatively given, accomplishing a given purpose under given
provisions.” Still as argued by Mittelstadt et al. [24], it makes little sense to consider
the ethics of algorithms independent of how they are implemented and executed
in computer programs, software and information systems. The authors introduce a
framework for diagnosing the ethical challenges related to the use of algorithms.
The diagnostic framework is based on algorithms that (i) are used to turn data into
evidence for a given outcome, (ii) have an outcome which trigger and motivate an
action that may not be ethically neutral, and (iii) are complex and (semi-)autonomous,
complicating the apportionment of accountability and/or responsibility for the effects
of the actions driven by algorithms. The first three (darker grey) are considered
epistemic concerns meaning that they question the quality of evidence provided by
the algorithm, whereas the following two (lighter gray) are normative concerns, i.e.
used to evaluate the actions taken by the algorithms. Because all five concerns are
associated with potential failures that may involve multiple actors, the question of
who should be held responsible and/or accountable for failures is pertinent and,
therefore, the final (white) overarching concern is traceability.
Algorithms are ethically challenging because of the scale of analysis and
complexity of decision-making. In addition, the uncertainty and opacity of the work
being done by algorithms and its impact is also increasingly problematic. Algo-
rithms have traditionally required decision-making rules and weights to be indi-
vidually defined and programmed ‘by hand’. While still true, AI-based algorithms
increasingly rely on learning capacities [35], meaning that such rules and weights
are no longer necessary. In the next sub-sections, we frame the machine ethics issue
into agency theory to analyze how firms are creating different forms of incentive
structures to promote ethics in AI-based investment algorithms.
Artificial Intelligence and Ethics in Portfolio Management 23

2.2 The Agency Problem

Berle and Means’ (1932) seminal study [5] on the problems associated with dispersed
shareholders that cannot perfectly observe the actions of opportunistic managers was
the starting point of extensive theoretical and empirical work on agency theory (see,
Jensen and Meckling [20], Ross [31], Holmstrom [17], Fama [11], Eisenhardt [10]
and Shapiro [32] for important contributions and reviews). Agency theory (widely
applied to a multitude of academic fields as explained in Panda and Leepsa [28])
appears particularly relevant in the investigation of financial investment.
One such stream of research are the studies that apply agency theory to the relation
between investors and investment advisors (e.g., Golec [14], Ottaviani [26], Das and
Sudaram [8], Cuoco and Kaniel [7], Mitchell and Smetters [23], Tan and Lee [34]).
The majority of these studies focus on identifying models for the optimal incentive
contract that minimize agency costs. In this setup, the investor is the principal and
the investment advisor is the agent.
Building on Eisenhardt’s [10], Tan and Lee [34] elaborate on three problems
arising when a principal delegates to an agent: goals, risks, and information.
Goal asymmetry (GA) arise when the principal believes that the agent has different
goals from the principal. GA may lead to opportunistic behaviour either if the agent
have de facto different goals from the principal (as was common during the global
financial crisis, when poorly designed incentive systems encouraged investment advi-
sors to disregard risk in favour of bonuses), or when the agent fails to understand the
principal’s goal/s.
Risk asymmetry (RA) stems from the principals’ beliefs that the agent has different
risk preferences and, alas, will take decisions that are more or less risky than what the
principal would have preferred. This is based on risk-sharing between the principal
and the agent, but they differ in risk attitudes. In standard economic setting the
investor is risk averse, whereas the investment advisor is risk neutral. In addition,
moral hazard may enter if the agent shares the upside, but not the downside, risk.
Because financial products are credence goods (i.e. have qualities that cannot be
observed by the consumer after purchase, which makes it difficult to assess their
utility), RA might arise even if the risk preferences between the principal and the
agent are aligned. Especially, if the customer cannot accurately predict the expected
return.
Information asymmetry (IA) arises when one party has information that the other
party desires but does not have. In line with Eisenhardt [10], the principal can rely
on “information systems” as monitoring tools to evaluate and verify the behaviour
of the agent (see also, Aggarwal and Mazumdar [1]).
In our case on an asset management company selling investment strategies based
on AI, we rely on the three asymmetries listed above to analyse how the principal
agency relationship plays out in a specific organizational setting in which the role
of the principal is played by the top management of the company and the agents are
the developers of the company.
24 E. Beccalli et al.

2.3 Agency Theory in Complex and Uncertain Settings

As crystalized by Grandori [15, p. 169], for very complex activities and subject to
strong uncertainty, the agency relationship is in crisis since neither a greater transfer of
risk(to address risk asymmetry) nor the intensification of control (to address goal and
information asymmetries) are efficient. Therefore, the theory of the agency predicts
that in such conditions agency contracts will tend to be replaced by contracts of an
associative nature and by a sharing of ownership rights by the actors, that is by a
re-unification of the figures of the principal and of the agent and by the formation of
groups of peers [12, 13].
These implications are valid in the hypothesis of particular utility functions and
objectives that need to be realigned because they tend to be opposed (the hypothesis
of the effort as a cost). However, situations may arise where the management of
agency relations is simpler because the motivation of the agents is intrinsic to the job
and less instrumental than that assumed in the prevalent models of agency theory.
In addition, there are also other mechanisms for aligning objectives in addition to
incentives, in particular cultural and value-related mechanisms.
In our case, both the risk sharing mechanisms and the cultural and value-related
mechanisms appears to be relevant and actually used to deal with the accountability
and ethical issues raised by the introduction of AI.

3 Methodology

The study presented here considers how a young and innovative company is evolving
and applying digital technology (machine learning and other mechanisms commonly
linked to AI) to the traditional field of financial investments. The case firm is
MDOTM, a start-up that develops AI-driven investment strategies for global financial
markets. We chose the firm because of our interest in machine ethics and especially
linked to finance. MDOTM are considered as one of the innovation leaders in terms
of applying AI to financial investing and has been selected twice by Google for
its entrepreneurship programmes in Silicon Valley (Blackbox, focusing on business
acceleration and scale-ups) and Zurich (focusing on the business applications of AI
and machine learning).
At present we have done four formal interviews as presented in Table 1. The fourth
interview was purposefully a site visit in order to experience some of the things that
were mentioned during the previous interviews. During all interviews diligent notes
were taken, and these notes were transcribed directly after the interview. While the
empirical material is still somewhat limited there is a persistency in some of the
arguments that implies an emergent saturation (at least in terms of the CEO and
COO).
This paper is still an early draft version and we are developing the methods
linked to data collection and data analysis with respect to our conceptual model.
Artificial Intelligence and Ethics in Portfolio Management 25

Table 1 Scheduling of the field work

Date Informant designation Researchers present Time in interview (min)
May-2018 CEO and COO EB 120
June-2018 CEO and COO EB 120
03/06-2019 CEO, COO and analyst EB, FV, VE 120
14/06-2019 CEO, CTO, COO, analysts and EB, FV 60
researchers

Because this is an area with limited previous research, an exploratory and qualitative
approach is chosen. The exploratory purpose of the study motivates a search for
emergent generalizations rather than the testing of established patterns [21]. In line
with Suddaby [33] we rely on an abductive approach where matching, rather than
testable hypothesis or propositions, guides us in moving back and forth between
framework, data sources and analysis. In the words of, Alvesson and Sandberg [2,
p. 266]) “sometimes empirical findings play a major role in the formulation of a
study, such as in cases when one (re)formulates the research task quite late in the
process”, a point that well describes this study. In particular, while the starting-point
of our study was machine ethics more broadly, the moving back and forth between
data and theory helped us identify agency theory as a promising theoretical lens to
further our understanding of the empirical scenery. To some extent that paper has
moved from exploring machine ethics in finance to testing the relevance of traditional
agency theoretical arguments in an entrepreneurial and complex setting.

4 Preliminary Evidence on the MDOTM Case

4.1 Background of the Firm

MDOTM develops AI-driven investment strategies for global financial markets. It

has a B2B model and its clients are exclusively institutional investors (banks). Its
technology leverages large-scale financial data and the latest break-throughs in artifi-
cial intelligence and advanced statistical modeling to develop automated investment
strategies. To date, MDOTM has over $50 million running on their algorithms. To
date, MDOTM has 15 employees (expected 20 by the end of 2019) and over $50
million running on their algorithms.
MDOTM was founded in Milan (with a foothold in London) in late 2015 by
longtime friends Tommaso Migliore (CEO), who graduated in Finance, and Federico
Mazzorin (CTO), who has a Master’s degree in Physics.
The MDOTM leadership team guides developers (especially with a background in
physics) in their RandD efforts and, on the other side, manages the relationships with
existing clients and prospects. Research mainly focuses on themes that are widely
debated in academia and aims, through a trial-and-error process, at finding areas of
26 E. Beccalli et al.

inefficiency in standard financial modeling. Building on new approaches to tackle

those inefficiencies, investment strategies are developed and brought to market.
MDOTM competitors are both status quo incumbent and other research start-ups.
Its distinctive feature is the development of investment strategies using a systematic
approach through AI.
MDOTM is a start-up able to do better than big incumbents for two reasons.
Most big asset companies failed when creating their own internal group of devel-
opers because of the incentives of developers, who are too far away from the final
outcome. Also, start-up can grant stock options at the team level, and this creates
strong incentives for the developers. Incumbents, especially when big in size, tend
not to valorize developers.

4.2 The Regulation of the AI-Fintech Industry in Europe

Fintech is still not regulated in Europe (few exceptions, among which the “regulatory
sandbox” in the UK), whereas banks and insurance companies are heavily regulated.
Discussion on two possible regulatory approaches: rules-based (preferred by
Germany) or principles-based (preferred by the UK). However, there is no specific
regulation for AI in Europe.

4.3 New Challenges from AI

AI brings new challenges in the investment industry. Firstly, in a human-driven invest-

ment approach the individual trader needs to deliver performance over the short-term,
whilst in an AI tech-investing approach the team of developers (not the individual
developer) needs to provide stable algorithms. The team (with, possibly, several
different developers working on the algorithm over time) will make the machine
work in the long run. This determines managerial challenges because the CEO job
changes due to AI. On the one hand, MDOTM CEO needs to test the team of devel-
opers in terms of persistence over 3–5 years ahead. On the other hand, he needs
to avoid cheating of developers. This is why it is essential to develop a system of
incentives (short-term and long-term). For the future, the main concern of MDOTM
CEO is that his employees link the performance to the results of the machine in the
short run: if developers focus just on the performance and develop new algorithms,
the challenge is that developers push hard on the performance in the short-term of
the algorithms rather than on their persistency. Intellectual property protection. The
issues are those of potential reverse engineering of the algorithms and data protection.
Secondly, accountability for developers is probably one of the most important
challenges for AI tech-investing. There is a clear gap between the work of developers
and their impact on the output of the investment strategy they are working on. The
decisions of the development team are not immediately visible in the outcomes of
Artificial Intelligence and Ethics in Portfolio Management 27

the investments as the shift towards AI means development work does not add or
modify specific parameters to an algorithm but rather intervenes on how to set up the
learning process of the machine. It becomes extremely difficult to identify ex-post
specific tweaks that led to certain results.
AI algorithms are designed to evolve over time and adapt to new market conditions.
Hence, their efficacy might be stressed and/or put into question years after their
development and in a modified market context, dramatically widening the time frame
for evaluation of developers’ work. A remedy to the gaps that arise is the correct
use of incentives for developers (see next section) that need to be long-term, and
team-based.

Building Up Right Incentives for Algorithm Developers in AI Companies

Developers should be at the center of the company, notwithstanding the nature of
their job, that, especially as projects grow bigger, becomes more and more limited
in scope. At the same time an AI company is culturally centered around the research
and coding processes. This allows for a developer’s role that is culturally central in
the company, that however does not have to rely too much on any individual’s work.
The company must develop the right incentive scheme to align the developers to
the goals of the management.
Incentives should not be at the individual developer level, but at the team level so
that all developers contribute to the same algorithm to ensure its statistical robustness.
This helps to tackle the gaps in accountability that arise from working with AI because
it incentivizes a peer review-like approach from the rest of the research team that has
an economic incentive to contribute to the robustness of the models.
MDOTM actually changed its incentive scheme over time from an individual- to
a team-oriented approach, and now developers’ incentives are based on the company
revenues. Trial-and-error process. Their first incentive scheme was based on indi-
vidual performance and induced developers to keep developing new strategies rather
than optimizing the existing ones resulting in strategies providing only short-term
results (i.e. not significant over time). Following on, the CEO introduced a new incen-
tive scheme based on the performance (revenues) of the company. The developers’
salary is made of three components: fixed, variable and stock options.
MDOTM developed a program of M.Sc. dissertations’ supervision by developers,
to promote the change in role of developers (i.e. developers experiencing a new role
and point of view detecting inconsistencies and “shortcuts” in the students’ work).

AI and Challenges for the Relationship with the Asset Managers

The trust of the asset manager builds on facts to be evaluated in the medium-term
(not in the short-term as in the other tech-investing firms): different horizon on trust.
In AI-based strategies, the distinctive feature is that the company does not sell
just performance but persistence.
For MDOTM asset managers are partners. MDOTM develops an AI investment
strategy, the asset managers do the execution.
As in any other firm providing investment strategies, MDOTM’s CEO needs to
manage the emotions of clients (CEOs and top managers but still with emotional
28 E. Beccalli et al.

biases). The distinctive feature of MDOTM, following from AI, is that it sells the
ability of a machine to learn from the past and to adapt.
MDOTM pays attention to the selection of clients in each country/distribution
channel, in order to preserve the goal of the clients to protect their position. This has
an effect on the pricing (fees composed by a flat fee plus a performance fee).

AI and Challenges for Ethical Issues

A central question is whether in AI-based investing companies should introduce rules
of conducts for developers.
As AI is so complex, values are more effective than rules. Especially for the
developers, to share company’s values is more effective than to establish rules of
conduct.
MDOTM requires its developers to sign the company’s values rather than rules
of conduct. Their list of values is:
– Think big and innovate
– We are one team, we respect and help each other
– Communication is a must
– Be the best and lead by example
– Be courageous, don’t be afraid to be scared
– Always strive to improve yourself
– We never quit
– Passion for winning.
The enforcement of the values occurs via “lead by examples”. In short, values for
developers’ discipline, and incentives for alignment.

5 Expected Results and Implications

The collection and analysis of preliminary evidence briefly reported here, together
with the selection of the latest developments of agency theory as theoretical frame-
work, are encouraging, suggesting to proceed with further research development.
After completing a theory-driven, in-depth semi-structured interview guide, further
stages of data collection and analysis of the MDOTM case, and triangulation with
further similar cases, are expected to shed light on this innovative and challenging
area of investigation.
Handling ethical issues in AI-based investing is particularly crucial not only for
the role and accountability of machine learning in decision making, but also for the
fact that there is no specific regulation for AI in Europe. This contrasts with the
heavy regulation of the finance industry in general, making the AI-based investing
particularly interesting to investigate from an ethical perspective.
From the theoretical point of view, a closer understanding of alternative ways
of handling the principal-agent relationships in complex and uncertain settings is
expected to contribute to an important contemporary area of theoretical development
Artificial Intelligence and Ethics in Portfolio Management 29

and debate. The managerial implications are straightforward: traditional economic

incentives do not work to appropriately prevent ethical issues with AI programmers
in financial portfolio management. The expected theoretical developments would
represent a basis for devising and designing new value-based incentive systems in
forthcoming organizations.

Acknowledgements We wish to thank Nien-hê Hsieh for his contribution in the initial phase of
the interviews. We also acknowledge the helpful comments by reviewer and participants at ITAIS
and MCIS conference (Naples 2019), and at AEDBF Conference (Milan 2019). This research was
supported by the Italian Ministry of Education (MIUR): “Dipartimenti di Eccellenza” Program
(2018–2022)—Department of Economics and Business—University of Sassari.

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Putting Decision Mining into Context:
A Literature Study

Sam Leewis, Koen Smit, and Martijn Zoet

Abstract The value of a decision can be increased through analyzing the decision
logic, and the outcomes. The more often a decision is taken, the more data becomes
available about the results. More available data results into smarter decisions and
increases the value the decision has for an organization. The research field addressing
this problem is Decision mining. By conducting a literature study on the current state
of Decision mining, we aim to discover the research gaps and where Decision mining
can be improved upon. Our findings show that the concepts used in the Decision
mining field and related fields are ambiguous and show overlap. Future research
directions are discovered to increase the quality and maturity of Decision mining
research. This could be achieved by focusing more on Decision mining research, a
change is needed from a business process Decision mining approach to a decision
focused approach.

Keywords Decision mining · Data mining · Process mining · Business intelligence

1 Introduction

Decisions in the modern world are often made in fast-changing, sometimes unex-
pected, situations [1]. Such situations require the selection of the right decision maker
and supplying them with the necessary data. Decision mining solves this problem by
estimating data quality and interpretation of their semantics and relevance, the actual
meaning, and unit of measurement [1]. The second major advantage is the classifi-
cation of decisions which allow the discovery of correspondence between decision

S. Leewis (B) · K. Smit

HU University of Applied Sciences Utrecht, Utrecht, The Netherlands
e-mail: Sam.Leewis@hu.nl
K. Smit
e-mail: Koen.Smit@hu.nl
M. Zoet
Zuyd University of Applied Sciences, Sittard, The Netherlands
e-mail: Martijn.Zoet@zuyd.nl

© The Editor(s) (if applicable) and The Author(s), under exclusive license to Springer 31
Nature Switzerland AG 2020
R. Agrifoglio et al. (eds.), Digital Business Transformation, Lecture Notes in Information
Systems and Organisation 38, https://doi.org/10.1007/978-3-030-47355-6_3
32 S. Leewis et al.

makers and their roles through the development of decision models and (semi) auto-
matic decision analysis techniques [1]. Decision mining can be segmented into three
types: Discovery, Conformance checking, and Improvement (similar as in Process
mining research [2]. An often-used definition of Decision mining, and also referred
to as decision point analysis, is “aims at the detection of data dependencies that affect
the routing of a case” [3]. This focus leaves out other decision elements embedded in
decision trees, database tables etc., such as business rules, business decision tables,
or executable analytic models. Therefore, we define Decision mining as “the method
of extracting and analyzing decision logs with the aim to extract information from
such decision logs for the creation of business rules, to check compliance to busi-
ness rules and regulations, and to present performance information”. The system
supporting and improving decision making is known as a Decision Support System
(DSS). DSSs is “the area of the information systems (IS) discipline that is focused on
supporting and improving managerial decision making” [4]. The current DSSs give
insufficient insight into how decisions are executed, this is especially the case for
executing multiple decisions at once (a group of decisions), thereby lacking the trans-
parency [5, 6]. Methods of Data mining are used in Decision mining and DSSs for
the following purposes: finding associative rules between decisions and the factors
affecting them, user clustering using decision trees and neural networks, recognition
of common users’ features or interests [7–9].
To the knowledge of the authors, little research exists on the topic of Deci-
sion mining, especially that of a comprehensive literature study. Furthermore, to
the knowledge of the authors, no research exists where the concepts of Decision
mining, Data mining and Process mining are compared. The Decision mining field
and its related fields lack the use of unambiguous concepts. Conducting a literature
study on the Decision mining field and its related fields creates a clear overview of
which concepts and definitions are used and if any overlap between these concepts
exists. This research will focus on more than just the business process aspect when
considering mining decisions compared to previous research [3, 10]. To do so, we
aim to answer the following research question: “What is the current state of the
Decision mining research field?”
The remainder of the paper is structured as follows: First, the research method
that was utilized to collect and review the literature for the theoretical review. This
is followed by the results of the literature review depicting Decision mining and its
context, resulting in the conceptual framework. Finally, we discuss the conclusions
of our research and provide a discussion about this research and the results, which
is followed by possible future research directions.

2 Research Method

The goal of this study is to evaluate the current state of Decision mining and to
discover possible future research directions. To achieve this, a conceptual framework
is created to evaluate the current state and to identify possible future directions [11].
Putting Decision Mining into Context: A Literature Study 33

Fig. 1 Review protocol

Edmondson and Mcmanus [12] differentiate three archetypes of different levels of

maturity: Nascent (e.g. Decision Mining), Intermediate (e.g. Process Mining), and
Mature (e.g. Data Mining). The quality of research can be quantified with the H-
index, created by Hirsch [13], where Decision mining has a H-index of 54, Process
mining has a H-index of 116, and Data mining has a H-index of 305. With the rather
immature state, “Nascent” [12], of the Decision mining research field and the low
level of quality research (H-index of 54) a type of literature study is needed which
utilizes existing empirical and conceptual studies for the creation of a conceptual
framework together with possible future research directions. Therefore, a theoretical
review is selected as the literature review method. Paré, Trudel, Jaana, and Kitsiou
[11] state that a theoretical review draws on existing empirical and conceptual studies
providing context for the identification, description, transformation into a higher
theoretical structure for concepts, constructs, and their relations. The primary artefact
of this type of literature study is the development of a conceptual framework with a
set of research propositions [14, 15]. The contribution and value of the theoretical
review lies in its ability to the development of novel conceptualizations or extend any
current ones by the identification of knowledge gaps between the current knowledge
and future directions [15]. To ensure quality, rigor, and transparency, the theoretical
review was commenced by setting up a literature review protocol, as shown in Fig. 1.
Google Scholar was used as main search database due to the fact that it has a higher
coverage compared to other search engines or individual database searches [16–20].

2.1 Identify Query

Webster and Watson [15] state that Information Science is an interdisciplinary field
and is based on research from other disciplines and therefore reviewing inside the IS
field is not enough. To identify all concepts, constructs, and their relations concerning
Decision mining, a wide range of search queries are used in order to achieve this.
A difference is made between primary search queries focused on the research ques-
tion (Decision Mining) and secondary search queries (Process Mining, Data Mining,
Business Intelligence, Decision Management, Business Process Management, Deci-
sion Support Systems, Business Process Model and Notation, Decision Model and
Notation) providing context for the primary search queries. The relations between
the search queries are elaborated further in the result section.
34 S. Leewis et al.

2.2 Exclusion Criteria

Commonly used exclusion criteria for literature reviews are Date, Number of Cita-
tions, and High impact journals. Because of the low maturity and low H-index of
the research field, no citation criterion is used during this study. The common use
of the high impact factor journal inclusion and exclusion criterion [21–23] is not
used for this specific study. The difference between maturity in research fields and
the low research quality (H-index 54) is that the high impact factor journals do
not publish relevant articles on Decision mining. The dissimilarity between search
queries related to maturity and research quality is of that large a difference that the
inclusion or exclusion based on a high impact factor source would exclude a large
number of sources from the immature and lower research quality search queries. This
review protocol includes only the Date criterion and is defined as everything between
January 2000 and December 2018. The focus of this study lies on the current state of
Decision mining and by implementing a date threshold the actual current state can
be quantified in a date. Furthermore, Levy and Ellis [24] point out that by using a
review protocol, the actual moment a literature review is completed becomes much
clearer. An example of an element of a review protocol is a date range this clarifies
which papers with the specific dates are included [25].

2.3 Paper Review

Two reviewers (R1 and R2) are involved during the abstract and paper review. R1 is
a PhD-candidate with six years of practical and research experience in the field of
Decision Management; R2 is a lecturer and researcher with seven years of practical
and research experience in the field of Decision Management. The reviewers include
or exclude the papers based on the title and based on abstract, see Fig. 3. When the
two reviewers include the same paper based on the title, the paper is reviewed based
on the abstract. If the situation occurs that a paper was marked with one included and
one excluded, the two reviewers discuss the reviewing of the title. The same process
of reviewing also applies to the abstract review. R1 decides during the review of the
full paper on the relevancy of the paper. When any doubt on the relevancy exists by
R1, R2 decides if the paper is excluded or included.

3 Search Results

The executed search query resulted in 810 potential useable articles, see Fig. 2. Dupli-
cates and non-English papers were excluded, resulting in 74 papers being left out.
After title reviews 656 papers were excluded, 80 papers were included. Reviewing
the abstracts resulted in the exclusion of 24 papers, resulting in 56 papers that were
Putting Decision Mining into Context: A Literature Study 35

Fig. 2 Search results

included. After reviewing the full papers, 35 papers remained. Based on references
and feedback from the supervisors 5 articles were included.

4 Results

The review process resulted in a longlist of papers distributed over the primary and
secondary research queries. The identified concepts and their relationships are the
pillars of the conceptual framework and this paper. The concepts and the relationships
to each other are shown as a metamodel in Fig. 3. The following sections will create
context to capture the current state of Decision mining.

4.1 Business Intelligence, Business Process Management

and Decision Management

Business intelligence (BI) is described as a set of models and analysis methodologies

that utilizes the available data to generate information and knowledge for the support
of decision-making processes [26–28]. BI can be divided into four phases [29]:
(1) identification of information needs, (2) information acquisition, (3) information
analysis, and (4) storage and information utilization. Focusing more on information
and data, BI can be defined as a subset of the two (information and data). Where
data are facts or recorded measures of certain phenomena, information is structured

Fig. 3 Search query metamodel

36 S. Leewis et al.

data for the support of the decision-making process or to define any relationships
between two facts [27]. Business process management (BPM) [30] and Decision
management (DM) are examples of approaches utilizing available data to generate
information and knowledge for the support of decision-making processes.
BPM is “a collaboration of concepts, methods, and techniques to support
the design, administration, configuration, enactment, and analysis of business
processes” [30]. The base of BPM is the explicit representation of business process
containing activities with the execution constraints between these activities. After
defining the business processes, they can be analyzed, improved, and enacted [30].
The industry standard for defining a business process is the Business Process Model
and Notation (BPMN) [31].
DM is “the practice of managing smart, agile decisions” [32]. Decisions are
amongst an organization most important assets [33] Therefore, adequately managing
these decisions is vital. A decision is “A conclusion that a business arrives at through
business logic and which the business is interested in managing” [34] and busi-
ness logic is “a collection of business rules, business decision tables, or executable
analytic models to make individual business decisions” [35]. Modelling the deci-
sions and business logic to make them explicit for further analysis is an aspect of
DM. Decision Model and Notation (DMN) [34] is used as an industry standard for
the modelling of decisions.

4.2 Decision Support Systems

The first decision support systems (DSS) were developed for the support of decision
makers by analyzing data using predefined models [36]. Due to recent advancements
in technology and market demand, the DSSs are improved to serve future needs,
implementing, i.e., analytical tools [37]. The current DSSs lack the transparency into
how decisions are executed, especially for a group of decisions [5, 6]. DSSs play
a major role in IS. Looking at the importance of DSS research, 12% of the articles
published in IS journals are focused on DSSs [38] and citation-based analysis were
DSSs is one of the three core subfields of IS [39].

4.3 Decision Mining, Process Mining, and Data Mining

The literature review showed that research published in the fields of Data mining,
Process mining, and Decision mining have an overlap in used concepts The following
meta models [40] are used to ground the literature of the Data mining, Process mining,
and Decision mining fields.
Putting Decision Mining into Context: A Literature Study 37

Fig. 4 Data mining

literature relations

The Data mining field is consentient in its direction, the literature showed, on the
other hand, no specifications towards Process mining and Decision mining, identi-
fying these fields as an aggregation of Data mining focused on sequence (Process
mining) and derivations (Decision mining), as shown in Fig. 4 [41–44].
The Process mining field is comparable to the Data mining field as it is consen-
tient in its direction. Process mining utilizes Data mining techniques for mining of
events from event logs for process discovery, conformance checking, and process
improvement, as shown in Fig. 5 [2]. The Process mining field identifies Decision
mining as a case perspective focus in Process mining, also known as decision point
analysis, as shown in Fig. 5 [2, 3].
The Decision mining field has two main influences 1) Decision mining focused on
mining Decision Points from business processes (decision-annotated) [3] and (2) a
Decision mining approach where more implicit data involved in the decision-making
process (decision-aware) is taken into account [10, 45]. Both directions have overlap
and are a type of Decision mining with a Process mining focus and the utilization of
Data mining techniques, as shown in Fig. 6.
Data Mining is defined as “the automated or convenient extraction of patterns
representing knowledge implicitly stored or captured in large databases, data ware-
houses, the Web, other massive information repositories, or data streams” [41].

Fig. 5 Process mining

literature relations

Fig. 6 Decision mining

literature relations
38 S. Leewis et al.

Therefore, the term Data mining is a misnomer, as the goal of Data mining is the
extraction of patterns of aggregations from large volumes of data, not the extraction
of said data [41]. Data mining utilizes techniques for finding data patterns, these
patterns enables accurate and fast decision making or provide new insights [42].
Data patterns could contain a specific sequence (processes), or a specific derivation
(decisions). An example where Data mining can be performed is whether a specified
class of customers will buy a combination of products, a business can utilize this
data by predicting whether to increase the price on one of the articles or include
an article in a sale, also known as a basket analysis [46]. Prediction, together with
description, make up for the two Data mining categories [43]: (1) Predictive Data
mining, which utilizes variables of existing data to predict any unknown or future
values of other variables of value and (2) Descriptive Data mining, focusses on the
discovery of patterns non trivially describing data which in turn can be interpreted
by interested parties. Predictive and descriptive Data mining can be achieved by
utilizing Data mining algorithms for the following Data mining classifications [43]:
(1) Classification, a classification which discovers a predictive learning function that
generalizes the known structure for the application of new data items. (2) Regres-
sion, a classification where a predictive learning function models the data, for the
estimation of relations between data items. (3) Clustering, a classification where a
descriptive task identifies a set of categories or clusters for the description of data. (4)
Summarization, a classification where a descriptive task provides a compact repre-
sentation of the data. (5) Dependency Modelling, a classification which searches for
relations between multiple variables. (6) Change and Deviation Detection, a classi-
fication where changes or unusual records are discovered. The algorithms that are
widely used for Data mining are C4.5 [47], k-means algorithm [48], Support vector
machines [49], the Apriori algorithm [50], and CART [51], for a more extensive list
see the work of Wu et al. [52]. The Data mining algorithms look for structural descrip-
tions, these descriptions can become rather complex and are typically expressed as a
set of rules or a decision tree. Rules and decision trees are easier understood by people
and explain what has been learned, thereby serving as a base for future predictions
[42]. Besides Data mining being in a mature state, major issues can be identified
[41].
Process Mining is defined as “the discovery, monitoring and improvement of
real processes by extracting knowledge from event logs readily available in today’s
information systems” [2], i.e., the mining of sequencing patterns. This technique
is frequently used in BPM [30, 53]. Process Mining can be considered a twofold,
on one side an analysis technique for Data mining and on the other side a tech-
nique for process modelling. The three types of Process mining are [2]; (1)
process discovery, (2) conformance checking, and (3) process improvement. Process
Discovery constructs a representation of an organization’s business process and any
major variations. Event logs are used as input to set up the process models [2] and
serve as the starting point of Process mining [54]. Information systems utilized by
organizations store detailed information about the specific sequence of activities
performed by these information systems during the execution of a process [53]. The
events in the event logs symbolize each one activity which in turn is part of a business
Putting Decision Mining into Context: A Literature Study 39

process. Detailed information on events is stored in these event logs concerning: e.g.
finishing time of an activity. The algorithms that are widely used for process discovery
include Alpha Miner, Heuristic Miner, Trace Clustering, and Fuzzy Miner [54, 55].
During conformance checking, the discovered and created process model is analyzed
and it is checked on any discrepancy between the event logs and the process model
[2, 56]. The main purpose of conformance checking is to identify any problem areas
which can be improved by utilizing this knowledge. The modification of the process
model to comply with the event logs is done during process improvement. Process
improvement aims to extend or improve the process model using information from
the event logs about the actual process [2]. Two improvement types exists (1) repair,
the modification of the process model to better reflect the actual process [57], and
(2) extension, adding a new perspective after cross-referencing this with the event
log [2]. In relation to the three types of Process mining, four perspectives are charac-
terized [2] control-flow, organizational, case, and time. The four perspectives are all
related to each other. The control-flow perspective focuses on the ordering of activ-
ities. The organizational perspective focuses on resource information hidden in the
event logs e.g. involved actors, and their relations. The case perspective focuses on
case properties e.g. characterization of a case by the process path. The time perspec-
tive focuses on the time and frequency on events e.g. prediction of processing time
utilizing timestamps.
An often-used definition of Decision mining, and also referred to as decision point
analysis, is “aims at the detection of data dependencies that affect the routing of a
case” [3], i.e., the mining of derivation patterns. One of the major tasks of Deci-
sion mining is the estimation of data quality and interpretation of their semantics,
interpretation of data whether it is relevant, the actual meaning, and unit of measure-
ment [1]. The second major task is the classification of decisions which allow the
discovery of correspondence between decision makers and their roles through the
development of decision models and (semi) automatic decision analysis techniques
[1]. The work of Rozinat and van der Aalst [3] assumes the mining of decisions as the
mining of decision points from a business process. This method is comparable to the
three types of Process mining [2]: discovery, conformance checking, and improve-
ment. This approach uses a version of the C4.5 algorithm [47] for the construction
of decision trees which allow the analysis of the choice in the decision points of a
process.
Rozinat and van der Aalst [3] proposes the use of Petri Nets [58] for this approach,
thereby being able to determine the specific points where a choice is made and which
branches are followed. After the identification of a decision point, the authors try
to determine if certain cases with certain properties follow each a specific route.
However, this approach has many limitations. For example, this approach cannot deal
with event logs containing deviating behavior and with more complex control-flow
constructs [59]. Many variations on the decision point analysis variant of Decision
mining have been published, mostly focusing on refining the way to retrieve the
decision information [60–62].
Another approach of Decision mining is the focus on implicit knowledge of
the decision maker. The actions of the decision maker and the identification of the
40 S. Leewis et al.

decision-making strategy, and determining what data and information is used, how
this is used, and what knowledge is employed by the decision maker for the choice
between two alternatives [63]. The implicit knowledge is captured using the Deci-
sion Model and Notation standard (DMN) [34], together with the clear intention to
use it in the context of business processes using Business Process Model and Nota-
tion (BPMN) [31]. Hybrids also surfaced such as Product Data Model (PDM) [64].
Showing the influence that context plays on decision making is an important task
because [1]: (1) finds and models typical scenarios of interactions between users,
(2) discover reoccurring situations within large volumes of raw data, and (3) cluster
decision makers, allowing the reduction of supported user models and increasing
data presentation. The current Decision mining technique has a limited applicability
and is only usable for workflows that uses representations in Petri Nets. This current
approach utilizes control flow-based discovery techniques which lack in-depth anal-
ysis of the specific action that is performed. Future Decision mining techniques
should be driven by the construction of a decision model than by a control flow
containing decision points [10, 65]. The Data mining techniques used for Decision
mining, which do focus on temporal aspects, often leave out the importance of deci-
sions being the driver of the analyzed result. More can be gained to know which
attributes are important to a decision. Furthermore, it is paramount to understand the
importance of the decision-making process. The use of Data mining techniques can
be improved by implementing decision models [10].
Organizations using algorithms in decision-making processes have to adhere to
European legislation which stipulates that automated decision making, without the
interaction of a person, is in principle not allowed. However, an exception is made for
automated decision making based on a legal basis, provided that it provides for appro-
priate measures to protect the rights and freedoms and legitimate interests of the data
subject [66]. Therefore, the importance of transparent algorithms is clear. Another
example of mandatory transparency is the safety critical systems in autonomous cars
[67] which need to adhere to the ISO 26262 standard [68].
Furthermore, by reviewing the literature on Data mining, Process mining, and
Decision mining, the segregation of these concepts seems incorrect. Reviewing the
focus of each concept Data mining is data pattern focused, Process mining is event log
focused, and Decision mining can be depicted into two directions, calling it a decision
point analysis focused on annotating decisions, or focused on being decision-aware.
Therefore, Data mining seems a more general concept where Process mining and
Decision mining are included as a type of Data mining, as shown in Fig. 4.

5 Conceptual Framework

The conceptual framework depicts Decision mining and its related concepts, as shown
with annotationsx in Fig. 7, and is the result of the theoretical review. Data mining1 ,
Process mining2 , and Decision mining3 are identified as elements of BI, were BI is
described as a set of models and analysis methodologies that utilizes the available
Putting Decision Mining into Context: A Literature Study 41

Fig. 7 Conceptual framework

data to generate information and knowledge for the support of decision-making

processes [26–28]. Data mining is the mining of aggregation patterns4 , Process
mining is the mining of sequencing patterns5 , and Decision point analysis is utilizing
annotated decisions6 , thereby utilizing data to generate information and knowledge
for the support of decision-making processes. Additionally, reviewing the literature
of the context of Decision mining showed that Data mining is not the mining of
data, a so-called misnomer [41]. Changing this to Object mining7 would be more
appropriate. Specifying and designing focused on data, processes, or decisions each
has its standards, where decision trees8 are widely used, and for the more specific
models (processes and decisions) BPMN 9 [31], Petri Nets10 [69], and DMN 11 [34]
are used. Each mining technology uses each their own set of algorithms12 to identify
patterns based on statistical analysis.

6 Conclusion

The goal of this research is to review the current state of Decision mining. To do
so, the following research question was addressed: “What is the current state of the
Decision mining research field?” In order to answer this question, we conducted a
theoretical review consisting of 810 papers which were cut down to a total of 40
42 S. Leewis et al.

papers which were deemed relevant in covering the topic of Decision mining. This
study depicted the term Decision mining and where Decision mining falls under (BI,
BPM, and DM) or is directly related to (Data mining/Object mining and Process
mining). The theoretical review resulted into a conceptual framework were all the
discovered concepts were depicted. The conceptual framework revealed several gaps
in the existing research. Therefore, several research directions could be considered for
researchers to target and extend this scarcely covered topic. Additionally, the concep-
tual framework revealed the inconsistency in the involved research fields covering
the same subjects and using the same concepts but not using a clear definition, or the
same name.

7 Discussion and Future Research

The theoretical review resulted into a conceptual framework were all the discovered
concepts are depicted. The conceptual framework revealed several gaps in the existing
research Therefore, several research directions could be considered for researchers
to target.
The main future research focus should be directed to improve the level of research
maturity of the Decision mining research field. Therefore, the level of maturity should
mature out of the “Nascent” phase using the classification of research domain matu-
rity of Edmondson and Mcmanus [12]. Other authors support the notion of a more
direct focus for improving the maturity of the Decision mining research field [10, 65].
In relation to the previous research focus, the current research on Decision mining3
is focused on the perspective from a business process point of view, and a more
standalone viewpoint is needed where Decision mining13 is focusing on the decision
viewpoint with derivation patterns14 as output, as shown in Fig. 7. The two main
Decision mining influences lack the capacity to deal with event logs containing
deviating behavior and dealing with more complex control-flow constructs [59] and
lacks a holistic overview of the decision model [10]. Recent research focusses on a
more holistic discovery of decisions [70], which still has a business process point of
view with event logs as its data input. Additionally, with the focus on the viewpoint
shift, the data input for Decision mining should shift from an event log to a decision
log [10], as shown in Fig. 8. Supporting the previous notion the following Decision
mining definition is created to cover the new research directions: “the method of
extracting and analysing decision logs with the aim to extract information from such
decision logs for the creation of business rules, to check compliance to business rules
and regulations, and to present performance information”.
The third focus for future research is conducting research on algorithms in the
Decision mining field. Current Decision mining algorithm research is focused on
the assumption that the algorithms in ProM [3] are the best fit for mining decisions.
Future research should focus on creating an overview of useable algorithms for
Decision mining, and if needed, create a new algorithm if existing algorithms lack
the capacity for mining decisions. Recent technologies as Reinforcement learning
Putting Decision Mining into Context: A Literature Study 43

Fig. 8 Decision mining

activities

[71, 72] and Deep learning [73, 74] algorithms could create added value for Decision
mining. Lastly, the previous mentioned future research should be focused on the
elements centered around the activities of Decision mining: Discovery, Conformance
checking, and Improvement, as shown in Fig. 8.

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Cloud Sourcing and Paradigm Shift in IT
Governance: Evidence
from the Financial Sector

Niloofar Kazemargi and Paolo Spagnoletti

Abstract In the digital age, organizations are increasingly shifting their applica-
tions, services and infrastructures to the cloud to enhance business agility and reduce
IT-related costs. However, in moving applications and data to cloud resources orga-
nizations face new risks of privacy violations. To manage this risk, organizations
need to be fully aware of threats and vulnerabilities affecting their digital re-sources
in cloud. Although some previous studies have focused on the emerging challenges
of cloud adoption to governance and control, we know little regarding the paradigm
shifts in IT governance processes and practices. To address this gap, we conducted
an exploratory case study in two large companies in the financial sector. Our find-
ings show that cloud adoption alters the locus and scope of IT governance which
consequently compels organizations to rethink their control mechanisms to mitigate
security risks. Our findings contribute to the literature on IT governance and IT
outsourcing, and support IT executives and decision makers in mitigating the risks
of cloud adoption.

Keywords Cloud sourcing · IT governance · Information security

1 Introduction

Cloud computing technologies enable organizations to remotely access scalable

digital resources such as applications, platforms and infrastructures [30]. The poten-
tial benefits of cloud-based services for organizations are cost convenience, busi-
ness agility and scalability of resources [28] that have led to a growing trend in
adopting cloud-based solutions in recent years [31]. However, many organizations
are today concerned with the security and privacy implications of cloud sourcing.

N. Kazemargi (B)
Department of Business and Management, Luiss Guido Carli, Rome, Italy
e-mail: Nkazemargi@luiss.it
P. Spagnoletti
Department of Information Systems, University of Agder, Kristiansand, Norway

© The Editor(s) (if applicable) and The Author(s), under exclusive license to Springer 47
Nature Switzerland AG 2020
R. Agrifoglio et al. (eds.), Digital Business Transformation, Lecture Notes in Information
Systems and Organisation 38, https://doi.org/10.1007/978-3-030-47355-6_4
48 N. Kazemargi and P. Spagnoletti

These security concerns significantly influence sourcing decisions and outcomes

[6–16, 42].
The recent survey by the Society for Information Management (SIM)—mainly
based on US organizations—shows an increase in the adoption of cloud-based solu-
tions especially Software-as-a-Service, following a decrease in hardware and soft-
ware investment. At the same time, the study shows that cybersecurity and privacy
are the main concerns for organizations and IT leaders. The security concerns among
organizations result in higher IT expenditure on security, in particular investment on
the cybersecurity skills development of the workforce [9]. One of the reasons is that
cloud adoption poses security challenges to organizations [19]. Security threats in the
cloud environment, such as unauthorized access to sensitive data, can lead to signif-
icant financial consequences and reputation damage for client firms. The financial
consequences of data breaches cost a company around $3.86M in 2018, as reported
by Forbes. The number of companies that have been victims of data breaches is
increasing; this compels organizations to reconsider security threats and their gover-
nance efforts to mitigate security risks while reaping the benefits of cloud solutions.
For instance, not only are organizations investing in technology development (e.g.
encryption algorithms), but also national/international bodies are developing stan-
dards and regulations (e.g. Convention on Cybercrime, ISO/NP 23485 NIST and
GDPR) to mitigate the security and privacy risks of cloud.
Existing studies focus on the relationship between information security and
sourcing decisions [e.g. 6, 8]. Despite these efforts, considering the peculiar char-
acteristics of cloud technologies, it is still unclear how organizations govern cloud-
based services to mitigate security risk and promote desirable outcomes. Our study
addresses this gap. We aim to answer how cloud sourcing reshapes IT governance in
order to ensure the security and privacy of data while enabling organizations to enjoy
the benefits offered by cloud computing (e.g. agility and cost reduction). To address
this gap, we conducted an exploratory case study of two large companies in the finan-
cial sector. We elected to study large companies operating with relatively sensitive
data that have recently adopted cloud services. Our analysis investigates how cloud
sourcing induces paradigm shifts in IT governance processes and practices. Our
findings show that cloud adoption alters the locus and scope of IT governance which
consequently compels organizations to rethink their control mechanisms to mitigate
security risks in order to grant desirable IT outcomes. Our findings contribute to
the literature on IT governance and IT outsourcing, and support IT executives and
decision makers in mitigating the risks of cloud adoption.
The paper is organized as follows; first, we present related literature at the inter-
section of IT out-sourcing and IT governance. Then, we present our research design
and the findings of our study on the security implications of cloud sourcing decisions.
Finally, we present the discussion, and theoretical and managerial implications.
Cloud Sourcing and Paradigm Shift in IT Governance … 49

2 Relevant Literature

2.1 IT Outsourcing

Organizations outsource IT resources, which otherwise would be costly to develop

in-house, to service providers. The main benefits of outsourcing resources to cloud
service providers, besides cost convenience, are business agility and scalability of
resources [28]. Organizations can access three service levels offered by service
providers [30]: Infrastructure as a Service (IaaS), Platform as a Service (PaaS) and
Software as a Service (SaaS). The pay-per-use and on-demand characteristics of
cloud computing cause many organizations to change the way they store, save and
back-up business data and applications. Based on the service environment, there are
different cloud delivery models: (1) public cloud as a shared service environment
with no (or little) control over data; (2) private cloud as a contract-based cloud with
a higher level of control over data; (3) hybrid cloud in which consumers can use
public cloud for scalability and cost convenience as well as private cloud for storing
sensitive data [30].
In the IS field, IT outsourcing has been studied extensively, covering mainly the
drivers and associated risks of IT outsourcing (ITO) [14–21]. Lacity et al. [23] develop
a theoretical framework by looking at factors that influence IT outsourcing decisions
and ITO outcomes. Although ITO has a broad scope, in this section we focus on the
security aspects that influence cloud sourcing decisions and cloud sourcing outcomes
respectively (see Fig. 1).
As for cloud sourcing decisions, two elements act as barriers to these: lack of
full control over data and IT infrastructure [8–25, 41], and emerging new security
vulnerabilities characterized by cloud service levels and deployment models [1, 2,

Fig. 1 Review of cloud sourcing literature

50 N. Kazemargi and P. Spagnoletti

42]. Moreover, previous research has suggested a set of factors such as business
context, the level of sensitivity of data, and the nature of business processes, that
influence organizational decisions related to what resources can be moved to cloud
[25–27, 29]. For instance, banking, aerospace and healthcare sectors are more reluc-
tant to adopt cloud solutions due to their high level of data sensitivity. Moreover, it
is essential to consider internal IT skills, organizational capabilities and size of the
organization before moving to cloud [8–16, 39]. For example, small-sized organi-
zations have different intentions and lower security expectations in cloud sourcing
than large enterprises [42], thus, we observed a different trend of cloud sourcing by
small- and medium-sized enterprises (SMEs) with higher organizational flexibility
than large organizations.
Moreover, Fig. 1 illustrates three elements that reinforce the security outcomes of
cloud sourcing from the literature. The first element is the capabilities of the client
firm: the higher its internal IT skills, the more an organization is able to identify
and take proper security measures [36, 41]. Second, previous research highlights
that desirable security outcomes in cloud sourcing may be promoted by the ability
and power to negotiate terms and conditions of contracts with service providers
[1–3, 27]. Although establishing relationships with service providers may support
higher quality and availability of the services, not all organizations can develop and
leverage inter-organizational relationships effectively [6, 8]. This is mainly because
only a few firms, which have dominant power and control over infrastructures, offer
cloud resources. Third, the level of security of the client’s firm partially depends also
on the capabilities of cloud providers in identifying and reacting to cyber-threats
[26, 42].
From a theoretical perspective, the literature on IT outsourcing is vast and mainly
incorporates transactional views that are used as a framework to explain make or
buy decisions [22]. Transaction Cost Economics theory examines whether to make
or buy assets from an external vendor considering transaction costs [51, 52]. Cloud-
based solutions are based on multi-tenancy and standard solutions which allow cloud
providers to maximize economies of scale, and offer services lower than on-premises
investment, and further based on a pay-per-use model. However, new security issues
and risks in cloud-based solutions [1, 2] cause managerial concerns. To address
these security concerns and mitigate cloud computing risks, client firms need new
competences and skills to determine what the risks are and to identify a set of security
measures. One way is to negotiate and customize service level agreements (SLAs)
which, on the one hand, augment security through the increased liability of cloud
providers, on the other hand, increase transaction costs for the client firm [27].
However, as argued by [22], the concept of IT outsourcing is beyond make or buy
decisions. Firms need to retain control over strategic assets as a source of competitive
advantage. The IT strategic assets could be data, software, platforms or hardware.
Thus, firms typically opt to outsource non-core IT activities [40], and instead insource
strategic activities. Given the importance of data as an asset, firms prefer to retain
control and governance over their sensitive data and critical business processes.
Hence, organizations have a low propensity to shift sensitive data or core business
Cloud Sourcing and Paradigm Shift in IT Governance … 51

processes to cloud. This is because leakage of data and knowledge to competitors

puts the client firm in a challenging position [8–36, 39].
Based on Resource-Based theory and Knowledge-Based view, firms outsource
to access specific resources and knowledge in order to sustain their competitive
position [5]. Cloud sourcing provides client firms with access to cloud computing
resources such as applications (SaaS); platforms (PaaS); infrastructures (IaaS), which
otherwise are expensive for a single firm to develop in-house. In addition, Resource-
Based theory explains the decision on service levels (SaaS, PaaS or IaaS), depending
on organizational IT skills and expertise level. The successful adoption of IaaS and
PaaS solutions relies on the client firm’s IT capabilities to maintain and upgrade the
systems, while SaaS requires less effort and expertise from the client firm [39].
From a Resource Dependency View [34], handing over control of IT resources
to cloud providers increases the client firm’s dependency on the cloud provider.
Therefore, capabilities, skills and investments of cloud providers in business conti-
nuity, disaster recovery, data security and privacy directly influence the IT security
outcomes of the client firm [26, 42].

2.2 IT Governance

IT governance is a prominent topic in the literature by focusing on how organizations

govern their IT activities and IT assets [33–45, 50]. IT governance is defined as deci-
sion rights and responsibilities related to IT in order to ensure the proper outcomes
of IT use in an organization [50]. The outcomes of IT use in organizations refer to
the alignment of IT strategy with business strategy, management of risks, and finally
organizational performance [48, 53]. Tiwana et al. [46] outline three dimensions of IT
governance as follows: (1) the locus of IT artifacts to be governed, e.g. software and
hardware, (2) the scope of governance which use IT artifacts and grant the desirable
IT outcomes within the organization, and (3) IT governance mechanisms to ensure
alignment use of IT with organizational strategies.
However, the main streams of IT governance focus on well-defined physical IT
artifacts. Despite the usefulness of IT governance, existing practices and processes
are not sufficient for emerging digital technologies and digitalization. Tilson et al.
[44] mention that digital technologies are changing the locus of IT artifacts and the
scope of governance, and consequently IT governance mechanisms.
As for the locus of IT artifacts, as highlighted by Tallon et al. [43], the main
focus of the IT governance literature was mainly on the physical facets of IT arti-
facts, including IT infrastructure, hardware, networks and software. While the IT
governance literature is very valuable, recently studies have been investigating the
governance of the non-physical facets of IT artifacts, such as data and information
[43, 46].
Regarding the scope of governance, traditionally IT experts were mainly account-
able for the outcomes of IT use. With the development of IT and its growing use,
the scope of governance has been broadened and now includes the use of IT across
52 N. Kazemargi and P. Spagnoletti

functions and business units. In particular, considering IT outsourcing and digital

technologies, the scope of governance has spanned the inter-organizational level
[15].
Moreover, IT governance mechanisms can be in the form of (1) structural practices
such as formal assignments for responsibilities regarding the control and management
of IT artifacts and the locus of decision making; (2) procedure practices such as
controlling IT investment and allocation of resources, and control points; and (3)
relational practices such as establishing and maintaining intra and inter organizational
relationships to learn and share knowledge [33, 43].
While numerous studies focus on how security threats influence IT outsourcing
decisions and outcomes, a better understanding of how cloud sourcing challenges
and induces a paradigm shift in IT governance is needed. Thus, in this study we aim to
explore how cloud sourcing alters the locus, scope and mechanisms of IT governance
and how organizations manage and control cloud solutions, aligning IT assets with
organizational strategy in the short- and long-term, and mitigating associated risks
[7]. We first describe our research methodology and then present our findings.

3 Research Method

We used an inductive case study to investigate how cloud sourcing has reshaped IT
governance by focusing on security and privacy risks. The case study methodology
provides a tool to examine a complex phenomenon [10] and allows a rich description
and an in-depth understanding of cases [12, 54].
In our empirical analysis, we refer to two cases which are large, for-profit compa-
nies operating in the financial sector. The two cases match our research settings and
fulfill the relevancy criteria for this study: (1) both companies have adopted cloud-
based solutions during the last years, (2) both have strategic commitment to cloud
adoption, (3) both show a propensity for more cloud adoption in the future, and (4)
in the industrial sector, confidentiality and privacy are critical for IT security. The
two selected cases are reported in Table 1 where real names have been anonymized
for confidentiality reasons.
The semi-structured interview was used as one of the sources of data collection to
obtain information from various informants experiencing the phenomenon [10, 13].
Interviews were conducted with informants from different areas such as security, IT
infrastructure and legal departments. Data were collected from September 2018 till
June 2019. The interviews ranged from 45 to 90 min. We have also been given access
to archival documentation provided by both companies.
In parallel, we have collected and analyzed an extensive amount of data from
different sources and in different formats. The data has been collected from partici-
pation in roundtables/forums with companies adopting cloud computing, reports by
organizational, national and international bodies, direct conversations with infor-
mants and decision makers—see Table 2. This empirical data along with other
Cloud Sourcing and Paradigm Shift in IT Governance … 53

Table 1 Companies’ profiles and their cloud sourcing strategy

Company Background Cloud adoption
Alfa >130,000 employees In 2012, adopted IaaS in private cloud
>e600 million annual profit In 2015, adopted SaaS for mailing system and PaaS
for non-critical business processes. All critical
business processes are developed and implemented
internally and on-premises
Recently, Alfa has also considered moving some
critical data and assets to cloud
Beta >96,000 employees In 2010–2011, adopted IaaS in private cloud
>e7000 million annual profit Beta manages and controls all infrastructures
internally
Private cloud is the main cloud delivery model
In 2016, the company established a separate office
under its information systems department dedicated
to cloud services and cloud strategy. There is a shift
from IaaS to PaaS adoption, and toward public cloud

Table 2 Sources of evidence

Source of evidence Description Total number
Direct observation Roundtables and forums, informal conversation with 6
informants and decision makers on the topic of cloud
adoption and security
Interviews Semi-structured interviews with informants from 5
different fields of work: Security, IT infrastructure and
legal departments
Archival records Organizational websites and press, strategy documents, 30
meeting presentations
Documentation Newspapers, specialist magazines, national and 50
international reports, protocols and recommendations
Articles Specialist and academic articles 60

secondary collected data enabled us to triangulate and increase the reliability from
various data sources [18]. We used NVivo to arrange and analyze the collected
data—see Table 3.

4 Case Analysis and Findings

In this section we describe and analyze the cloud sourcing strategy and then focus
on the security practices of the two cases.
Through the development of cloud computing technology, by adopting cloud
services, the two cases sought to create and deliver business values through cost
reduction and agility. The potential for cost reduction is mainly in the procurement
54 N. Kazemargi and P. Spagnoletti

Table 3 Sample of data table

Sample codes Selected quotes
Business strategy alignment “[…] we need to adopt different IT solutions with
to create and deliver business values/cost higher speed, and lower cost which enable us to
reduction/agility etc. be more flexible”
“To have a standard and complete solution, the
timeframe shifts from several months to a few
hours”
IT security challenges “A recommendation is published to provide
Sensitivity of data/compliance with guidelines and practices of different companies”
regulations/shift from physical threats to “When it comes to contact, they [cloud providers]
logical cyber threats etc. don’t want any audit from cloud users”
Shifts in IT governance practices “It is wrong to think that security is all done by the
To evaluate and select providers/significant cloud provider”
effort dedicated to SLAs etc. “We see security is different at different layers”

and maintenance phases of sourcing new IT components. As one manager expressed

it: “Before [adoption of cloud services] it was a long procedure […] we needed to
prepare bids, go through procurement phase, then install, implement, test, modify and
finally use the system […] All procurement, operations like installation, upgrades
and maintenance were costly ….”. Cloud sourcing enables the companies to shorten
the time to market, temporal dimension of agility. As one informant explained: “To
have a standard and complete solution, the timeframe shifts from several months to
a few hours. At the beginning, it was various steps like manual configuration, server
procurement, and so on”. Furthermore, the two companies have started their cloud
outsourcing as infrastructure-as-a-service and eventually have moved to platform-
as-a-service level. This initiative set the ground for more standard solutions and
developing new applications and services—the flexibility dimension of agility. As
one informant summarized: “[…] we need to adopt different IT solutions with higher
speed, and lower cost which enable us to be more flexible.”
While the companies show a propensity to increasingly adopt cloud services in
future, especially for flexibility, speed and innovation, some challenges in cloud
outsourcing were recognized. The main challenge was related to IT security. In
particular, we realized a number of key challenges related to data confidentiality
and privacy. First, the major IT security concern was related to cyber security in
cloud outsourcing. Regarding the sensitivity of data in the financial sector, the two
companies not only develop their security measures to mitigate cyber risks but also
need to adhere strictly to security measures and compliance with national and inter-
national regulations in the industrial sector. For instance, some informants described
the importance of national regulations in defining internal strategy toward cloud
outsourcing.
Second, by adopting cloud solutions, the primary focus of IT security has shifted
from physical threats (i.e. in-house security threats) to logical cyber threats. This is
due to the fact that cloud service providers store and process data in dispersed systems
and data centers across the globe. Moreover, the companies highlight the fact that
Cloud Sourcing and Paradigm Shift in IT Governance … 55

cloud service providers may subcontract some services to third parties. This makes
the control over data even more challenging. Another issue that emerged was related
to the state of data. Data is not static in data centers, but rather in transit or in process
from one layer to another, or from one application to another. In other words, data
moves from the organizational IT infrastructure to cloud or vice versa. Therefore,
those challenges induce a paradigm shift in IT security governance and new practices
in the management of data and applications. While cloud service providers manage
the security of outsourced applications or infrastructures, informants consistently
reported the importance of internal security measures and control points. As one
informant highlighted: “It is wrong to think that security is all done by the cloud
provider”. By analyzing cases, a number of security practices emerge. The security
teams play a key role in mitigating security risks by developing security measures
based on cloud services such as authentication, encryption algorithms, control of
network traffic, etc. As explained by one informant: “We see security is different at
different layers, for instance for SaaS we use passwords and we control access. For
PaaS, we mainly use encryption for communication and information exchange. And
for mitigating risks in networks, we have firewalls to protect from denial of service
attacks.”
As emerged from the interviews, a best practice suggested by cloud service
providers is encrypting data. Cloud service providers offer encryption services; they
store encrypted files in data centers and manage and store encryption keys. Yet, inter-
viewees consistently emphasized the need for controlling and managing encryption
keys internally, which mitigates the risk of data breach. This included, for example,
data breaches by third parties or any security incident by malicious attackers at the
cloud providers’ data centers.
Third, cloud service providers have control over infrastructure, applications and
data; consequently, they play an important role in client firms’ security level. There-
fore, the companies emphasized the need to carefully evaluate and select providers,
with the main purpose of aligning the security level of cloud providers with the
organization’s expected security level. For instance, the security management team
of company Beta has the responsibility for evaluating and certifying cloud providers
according to internal security measures. However, as stated by the interviewees, this
leads to the minimum accepted security level, and more effort is still needed.
Fourth, significant effort was dedicated to SLAs in order to define terms and condi-
tions, including disaster recovery plans of cloud providers; alignment with GDPR;
compliance of subcontractors with obligations; access to data; and auditing rights.
All of this allowed client firms to implicitly detail the liability of cloud providers and
to expect cloud providers to fully comply with their obligations in SLAs.
Although a more comprehensive SLA would increase the security liabilities of
cloud providers, the interviewed cases experienced challenges in defining terms and
conditions, as well as managing SLAs with multiple cloud providers. Therefore, there
is a need for common measures and cooperation among companies to determine the
requirements for cloud service providers, particularly in the case of an IT secu-
rity incident. Furthermore, interviewees emphasized the existing power imbalance
with cloud service providers. The dominant position of cloud providers makes any
56 N. Kazemargi and P. Spagnoletti

negotiation challenging for client firms and constrains room for the customization
of SLAs. This is because coordination and managing standard SLAs for multiple
clients demand less effort. As one informant from the Beta company explained:
“When it comes to contact, they [cloud providers] don’t want any audit from cloud
users […] now there is not any response from cloud providers in request of auditing
data centers”. While the Beta company experiences rigidity from cloud providers,
the Alfa company has had some progress in customizing and negotiating its SLA’s
terms and conditions with a cloud provider. This might be due to the position and
characteristics of the cloud provider and modification requests to terms and condi-
tions. Overall, with the evolution of cloud services, more data and applications are
expected to migrate to cloud. This significantly demands the need to counterbalance
the power dominance by collaboration and cooperation with cloud service providers.

5 Discussion and Conclusion

In this study, we aimed at shedding light on the ways in which cloud adoption reshapes
IT governance [39]. The key contribution of our study is that we demonstrate how
security risks and vulnerabilities in digital resources in cloud reshape IT governance
processes and practices—see Table 4.
The two companies have a propensity for adopting diverse cloud-based resources
to enhance business agility and reduce costs. However, their primary concern was
to ensure security of data in a cloud environment. As both companies operate in a
context with relatively sensitive data, their security concerns were reflected in how
they both carefully revisited their IT governance processes and practices.
First, our findings highlight the need to expand our understanding of the locus
of IT governance in cloud sourcing beyond the existing focus on physical assets to
consider data flow in digital resources in cloud. As shown in the two cases, the locus
is shifted from on-premises IT artifacts, with well-defined physical boundaries, to
cloud-based solutions geographically dispersed. To reap benefits, organizations may
adopt different levels of services (such as low-level infrastructure service, middle-
level software service, to top-level application services) and deployment models.
Thus, the client firm needs to be careful to understand the level of control over
digital resources in cloud. Moreover, findings provide evidence that the focus has
been shifted to data-transported digital resources in cloud [43, 44]. Equally important
is that much effort is devoted to identifying and mitigating security risks of cloud-
resources as organizations neither have control over cloud resources nor over data
treatment in cloud.
Second, while previous literature has focused on project and firm [44], our find-
ings highlight the important roles of service providers and third parties [1, 28] in IT
security management, rather than only client firms. Cloud sourcing leaves security
responsibilities partially in the hand of the cloud providers. Therefore, the compe-
tences and maturity level of cloud providers play crucial roles in how an organization
effectively prevents or responds to cyber-attacks [4]. While cloud sourcing challenges
Cloud Sourcing and Paradigm Shift in IT Governance … 57

Table 4 - Governing cloud-based services

Dimension Selected codes
Focus • Adopting diverse cloud service levels and
• Cloud-based solutions (i.e. applications, deployment models, with different levels of
platforms and infrastructures) control over data
• Data (bits) flows in cloud-based solutions • Enhancing business agility and reducing IT
costs by adopting cloud-based services
• The focus has been shifted from physical IT
artifacts to data flow in IT artifacts
• Mitigating data security risks
Scope • Governing dyad relationships with cloud
• Cloud service providers service providers
• Third parties • Power of cloud service providers in decision
• Regulatory parties rights over services
• Ensuring that subcontractors comply with
obligations and regulations
• Adhering to security measures and
compliance in the industrial sector
• Implementing national/international
regulations within internal strategy
Mechanisms • Defining procedures and assessment criteria
• Formal control mechanisms depending on to evaluate cloud service providers
service level • Defining control measures according to
• Informal control mechanisms service levels
• Negotiating formal processes • Benchmarking of the best practices in the
• Relational mechanisms financial sector
• Seeking recommendations from regulatory
bodies
• Negotiating SLAs
• Establishing relationship with cloud service
providers
• Knowledge exchange and shared learning
within business networks

control over IT artifacts through leaving some decisions to cloud providers and third
parties, it is important to note that cloud providers’ decisions may not necessarily
be in favor of the client firm. Also, cloud providers may not disclose all informa-
tion related to the reliability of services and disaster recovery plans, although it is
reliability of the client firm to manage and control disaster recovery and back-up.
In addition, cloud service providers may subcontract some activities to third parties.
This introduces further security vulnerabilities and risks which need to be identified
and managed by the client firm.
Moreover, our findings emphasize the role of regulatory bodies in developing
standards and formal procedures that influence strategic decisions within organiza-
tions. By adding cloud vendors and other actors to the picture, this study highlights
the scope of IT governance changes with the rise in sourcing cloud-based services. In
addition, findings show the transformation of IT departments in terms of roles, skills
58 N. Kazemargi and P. Spagnoletti

and activities to ensure added value practices are in favor of the organization. Trans-
forming the role of IT departments includes cloud vendor assessment and selection,
managing information system policies, and ensuring security of data and privacy
[1–28, 47]. In sum, given the increasing value of data, the security of data in cloud
is important and demands actions from all involved actors.
Third, in cloud adoption, organizations face new security [11] such as data
breaches and lack of transparency in security measures by cloud service providers.
The security risks act as a barrier to cloud adoption and lack of proper IT governance
practices may lead to huge financial losses, especially for large organizations [42].
Our findings show the shift in locus and scope of IT governance due to security
risks results in development of new IT governance mechanisms. In the following
we present efforts by organizations to redefine governance mechanisms to mitigate
security risks.
Our findings illustrate that the cases have defined assessment criteria in order
to evaluate cloud service providers before adopting cloud services. We show that
organizational ability to develop control measures and policies to mitigate security
risks is important. By defining new standards and practices such as access permissions
and using authentication, organizations can prevent access to any sensitive data in
public servers. This is aligned with previous literature that has investigated security
practices. For example, Brender and Markov [8] and Sood [41] highlight some issues
in cloud adoption such as security, disaster recovery and governance, and list a series
of security practices that can be adopted by organizations to mitigate security risks.
Moreover, we notice that regulatory bodies are actively engaged in providing
directions, recommendations and policy to manage security risks. Even though each
organization develops internal IT security controls, the influence of external policies
by regulatory bodies on internal practices has to be considered. Moreover, organi-
zations learn to better govern digital resources in cloud through interactions and
knowledge exchange within regulatory bodies and other partners in networks. For
instance, the two cases interact with other organizations in order to share the best
governance practices to avoid the financial consequences of data breaches.
In addition, we find that both contractual and relational governance structures are
important to realize a favorable situation for client firms in terms of data security.
Making a legally binding agreement reduces the risks of a partner’s opportunism and
provides a guideline for various situations in the future and for managing conflicts.
Client organizations can enhance the security of data by including detailed rights and
obligations in SLAs. The contract and agreement should detail responsibilities of the
client organization and cloud providers in case of cyber-attacks and breaches of data at
the data layer, or malware at the service layer. Moreover, due to the complementarity
of contractual and relational governance structures [24, 35], we argue that the ability
to build and strengthen relationships with cloud service providers is important for
mitigating security risks by leveraging the power in negotiations.
In sum, in moving applications and data to cloud resources, organizations face new
risks of privacy violation. To manage these risks, organizations need to be fully aware
of threats and vulnerabilities affecting their digital resources in cloud. Our findings
highlight that cloud sourcing reshapes the traditional IT governance arrangements
Cloud Sourcing and Paradigm Shift in IT Governance … 59

[39]. We argue that cloud adoption alters the locus and scope of IT governance which
consequently compels organizations to rethink their control mechanisms to mitigate
security risks [47]. We especially focus on the impact of cloud on security and privacy
issues that must be addressed through proper IT governance practices [17, 49]. Given
the financial consequences of security breaches, it is important for IT executives and
decision makers to rethink their IT governance processes and practices to mitigate
the risks of cloud adoption.

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Data-Imagined Decision Making
in Organizations: Do Visualization
Tools Run in the Family?

Angela Locoro and Aurelio Ravarini

Abstract This paper reports of an experimental crossover between two different

perspectives of organizational activities: decision making and data management.
Although there are ever growing contact points between the two, it is also true that in
enterprises data-driven decision making often shows many room for improvements.
A converging direction of these two aspects of organizational routine could be that
of comparing and coupling decision making steps, activities and characteristics with
data visualization properties, capabilities and enablers of information sharing and
assimilation. This study goes in this direction, by proposing an exploratory analysis of
decision making models and data visualization characteristics in order to extract a set
of common aspects of decision making and to configure a set of connections between
them and data visualization tools features. These connections may serve to investigate
the strength of synergies between decision making activities and data management
visualization, their effectiveness for data-driven decision making and the margin
of improvements with respect to the current decision routines in enterprises. This
study contributes to set the terrain for making a clearer picture of the strengths
and weaknesses of data-driven decision making, to find implications for design of
data visualization tools for supporting decision making activities, and to provide
indications of how proactively data visualization toolboxes should run in the family
at all decision levels and for each role in organizations.

Keywords Data visualization · Decision making · Data visualization features ·

Decision making models

A. Locoro (B) · A. Ravarini

Università Carlo Cattaneo—LIUC, Castellanza, (VA), Italy
e-mail: alocoro@liuc.it
A. Ravarini
e-mail: aravarini@liuc.it

© The Editor(s) (if applicable) and The Author(s), under exclusive license to Springer 63
Nature Switzerland AG 2020
R. Agrifoglio et al. (eds.), Digital Business Transformation, Lecture Notes in Information
Systems and Organisation 38, https://doi.org/10.1007/978-3-030-47355-6_5
64 A. Locoro and A. Ravarini

1 Introduction

The ability to manage data has ever been and is becoming even more essential, since
the impact and the role of IT in shaping the information flows of an enterprise has
become hegemonic. As a consequence, the role of decision-makers and in particular
the competences they should exhibit are changing in the direction of a higher sen-
sibility together with the ability to scrutinize and critically interpret data, either big
or small. The familiarity with electronic devices as well as with software like data
visualization tools is becoming strategic in configuring the latter as companions of
decision-makers in the analysis, management and partial control of the informational
flow of their organization, both at operational and strategic levels. For these reasons,
an investigation of the commonalities, influences and reciprocity between decision
making and data interpretation can be traced along the following research questions:
• What are, if any, the main aspects common to decision making models, guidelines
and methodologies that rely on data availability and management?
• What are, if any, the main features of data visualization that are able to support
the decision making process?
• Why and how an organization do or should adopt data visualization tools as part
of their cultural assets for supporting decision making effectiveness in all its key
aspects?
The paper tries to answer the first two research questions so that the third question
could be rooted properly for future assessments. An outline of the paper is the fol-
lowing: Sect. 2 is an overview of the principal decision making models considered
for the extraction of common aspects of decision making activities; Sect. 3 reports
the main features of data visualization related to the content, the presentation and
the processing aspects of data management; Sect. 4 accounts for a model of connec-
tions between decision making aspects and data visualization features that represent
a conceptual frame of our analysis able to drive the assessment of our hypothesis
about the synergies between decisions and data interpretation; Sect. 5 draws some
conclusions about the work done so far.

2 Decision Making Models

A first scrutiny of salient aspects of decision making has been inspired by the analysis
of well known models. Starting from the point that decision-making is a process
(sequence of steps) converting available information (inputs) into decisions (outputs),
many theorists and researchers, after Simon’s [24], doubts about the validity of
‘perfect rationality’ or ‘global rationality’ model, and tried to figure out the ‘best’
way in which this process may be applied in real life. The term ‘best’ is reported into
inverted commas because it’s not possible to certify in absolute terms the superiority
of a model rather than another, but it is the context or the presence of some elements
Data-Imagined Decision Making in Organizations . . . 65

(like the nature of the problem, time pressure, costs, availability of resources and
decision-maker characteristics) that defines the most suitable approach. Nevertheless,
we extrapolated a common set of properties from each model that recalls the need
to rely on the collection, availability, management and sharing of data.
The models analyzed are the Incremental Decision Model [18], the Carnegie
Model; the Garbage Can model [9]; the Observe, Orient, Decide, Act Loop (The
OODA Loop) [7, 12]; the Recognition-Primed Decision Model (RPD) [15]; the Ana-
lytic Hierarchy Process (AHP) [22]; and the Ladder of Inference [20]. A list of the
main characteristics of each model are reported in Table 1. In this table, each model is
summarized into a set of characteristics, which represent the main elements involved
in the decision making process: the initial conditions and constraints, the way to pro-
ceed and to simplify assumptions and conditions, the people involved (either singular
or teams) and the description of the final phase before the decision.

2.1 Decision Making Properties

The decision-making models described in the previous section provide a general view
of the main theories developed around the paths that decision-makers should follow
in order to find out a solution at an existing problem through the consideration of some
aspects like the environment, timing and even the complexity of the initial situation
which has a significant impact on the final decision. From these considerations, we
may derive a series of factors that are common to all of the above models and help
contextualize data management tasks in support of the decision making loop that may
benefit from data visualization functionalities. We identified seven of such common
factors:

2.1.1 Sharing of a Common Language

This is factor concerning the concept of common knowledge and cooperation of

people. Common knowledge allows individuals to share and integrate aspects of
knowledge which are not common between them [13]. According to Grant’s above
definition, common language is a type of common knowledge.

2.1.2 Availability of a High Number of Data and Information

This factor is strictly linked with the high presence of Big Data in our everyday
life, a tremendously popular topic which will increase its importance in the next
years. Nevertheless, it’s not said that the availability of such amount of data always
represents a positive element, but only that it can be turned into an advantage if data
are managed properly.
66 A. Locoro and A. Ravarini

Table 1 The decision making models analyzed with their main characteristics
Decision making models Characterizing features
Bounded rationality Limited Rationality
Limited cognitive power
Selection of the ‘Satisfactory Option’
Single decision-maker
Incremental decision model Step by step process made of small choices
Long length in process application
step back in case of ‘decision interrupts’
Nonprogrammed decisions
One decision for each process (Single decision)
Carnegie model Initial ambiguity about the goals
Presence of limitations affecting the individual
Group of decision-makers (Organizational Coalitions)
Decision taken in a short-time period
One decision for each process (Single decision)
Selection of the ‘Satisfactory Option’
Garbage can theory High uncertainty
Rapid changes in the environment
Chaotic process
Streams of events
Group of decision-makers
More decisions in the same process (Multiple decisions)
OODA Step by step process
Continuous application of the process
Decision taken in a short-time period
High competition presence in the environment
RPD Experience of single person can make the difference
Decision taken in a short-time period
Unconscious comparison of alternatives
Selection of the ‘Satisfactory Option’
AHP Step by step process
Simplification of complex problems into sub-problems
Definition of goals, criteria and sub criteria
Judgment application
Comparison of alternatives
Ladder of inference Step by step process
Freedom for decision-makers in evaluating options
Selection of the ‘Best Option’ in that moment
Cognitive Biases avoided
Data-Imagined Decision Making in Organizations . . . 67

2.1.3 Routine Presence

This factor refers to all of the forms, rules, procedures, conventions, strategies, and
technologies around which organizations are constructed and through which they
operate [13]. It’s quite common to find the application of this factor on a daily basis,
especially when the decision requires little research or time investment. Routine
concept can even be referred to decision-makers’ ability to apply the same procedure
in different situation, no matter what the problem is. At the end of the day, two
interpretations can be derived from the ‘routine presence’ property: the first one is
applied when a programmed decision is requested to be taken and as a consequence
decision-makers behave in the same way every time a specific problem needs to
be managed; the other interpretation requires the application of the same decision-
making procedure without considering the different nature of the problem.

2.1.4 Knowledge Sharing

This factor describes the process of transferring knowledge (mix of know-how, expe-
rience, skills and information) from a person to another within an organization. This
exchange can lead to the creation of new knowledge which can be in turn an impor-
tant source for an organization to get competitive advantage [21]. People should
wish to communicate and share their knowledge, otherwise the process wouldn’t
start. Under this point view, people have to put the sake of the company above any
personal interest.

2.1.5 Lack of Clarity in Cause-Effect Relationships and Presence of

Cognitive Traps

This factor is characteristic of the Garbage Can model, where problems, solutions,
participants and choices flow through the organization. However, the presence of all
of these elements cause uncertainty in estimating the problem and potential solution
as well. Organizational decisions are not derived from a step by step process, instead
they are a mix of problems and solutions acting as independent events. In such a
situation the cause-and-effect relationships within the organization are difficult to
be identified [9]. Moreover, the presence of cognitive traps increases the complexity
of cause-and-effect relationships causing a distortion of the facts and influencing
decision-makers with prejudices not necessarily conform to the reality.1

1 For an example of cognitive information bias see https://en.wikipedia.org/wiki/List_of_cognitive_

biases.
68 A. Locoro and A. Ravarini

2.1.6 Identification of Opportunities Regardless of Problems

This decision-making factor describes the possibility that participants can keep iden-
tifying ideas without focusing just on a specific problem [9]. In other words, the
existence of a problem requiring a solution doesn’t impede to generate opportunities
that are not applicable in that case but may be useful in the future.

2.1.7 Capacity of Making Predictions by Considering Available

Information

This factor has been derived from the OODA loop and it explains how a decision-
maker applies the model by considering the available information that he has to
extract from the observation of the environment. Then orienting towards it allows to
form a mental image of the circumstances. It’s the orientation turning information into
knowledge that makes this knowledge become a good decision. In fact, one decision
should even be able to predict the next move of the opponent. The OODA loop
can be applied to competitive business scenarios where knowledge of an opponent’s
behavioral patterns can be exploited through fast and agile anticipatory action [12].

3 Data Visualization Features

Data visualization can be defined as ‘the representation and presentation of data that
exploit visual perception abilities in order to amplify cognition’ [14].
Data Visualization tools are software working as powerful instruments to manage,
represent and show data so to get insights and facilitate the identification of trends
or solve problems. They have features that correspond to the desired characteristics
or attributes that can support people in the decision-making process. A list of Data
Visualization features that we identify as meaningful factors for decision making
are reported in Table 2. They are inherent to the presentation, the processing and
the interaction with Data Visualization tools. The first three divisions have been
borrowed from a foundational work on the semiology of graphics [5]. Most of these
features have been defined in [2, 8, 16]. In what follows, some main features are
described in more details and definitions are given for each of them.

3.1 Data Organization

Data organization refers to the syntax of data in graphic visualizations. Multidi-

mensionality refers to the potential of data visualization tools to represent in a single
picture several dimensions besides the 2-D of the Cartesian plane, by exploiting other
perceptive variables such as size, color, shape, orientation, shades, and the like [23].
Selectivity and associativity are, respectively, the features that allow to filter and to
Data-Imagined Decision Making in Organizations . . . 69

Table 2 A list of identified meaningful factors for Data Visualization affecting decision-making
Data organization Data processing Data communication Ease of use
Multidimensionality Expressiveness Shareability Familiarity
Order Readability Universality Intuitivity
Proportionality Extensibility Storytelling Usability
Selectivity Sinteticity Interactivity Flexibility
Associativity Minimalism Adaptability
Predictivity
Immediacy
Clarity
Informativity

group data into sets and not in terms of individual data points that are of no interest
in most cases. Within the data visualization tools, it’s possible to distinguish (resp.
aggregating) measures or dimensions. The type of aggregation applied may change
every time according to the context of the view. Order and proportionality are related,
respectively, to the ordinal or numerical nature of the data that are to be represented.

3.2 Data Processing

When processing data, a series of features are necessary to manipulate them in order
to better interpret them for decision purposes. For example, expressiveness identi-
fies how the graphical language that expresses the desired information is relevant,
minimal and without noise [17]. Readability pertains to the good comprehension of
a topic through the interpretation of charts. A readable graph is not only appealing
because of the quality of the image drawn, but it mostly consents to get knowledge
of the underlying meaning and structure [3]. Sinteticity allows to reproduce reality
with the minimal use of informative resources [16]. In other words, a context can
be represented by relying just on some resources which are anyway able to provide
enough information for describing the reality.
Clarity and informativity refers, respectively to the ‘ease of understanding and
fruition of information by users’ and to the ‘complete representation of the real-
ity’ [16]. Indeed, the reader of the graph is the one who needs to interpret the data
and be informed on the facts, but the creator of the figure is much more relevant
because he is directly involved in the process and in its choices, like the selection
of sources or the type of chart, the impact on the clarity of a representation and the
reporting into graphs all of the necessary information for the audience so that a detec-
tion of the reality is possible. An accurate knowledge of the context analysed is what
a representation aims to achieve, and the application of the so called visualization
process allows it.
70 A. Locoro and A. Ravarini

This process begins with raw data, so the selection of a dataset capable of helping
users to detect reality is a good starting point. For instance, a design is judged effective
when it can be interpreted accurately or quickly, when it has visual impact or when
it can be rendered in a cost-effective manner (Mackinlay, 1986). In other words, a
visualization is more effective than another one if the information expressed by one
visualization are more readily perceived than the information in the other visualiza-
tion. As already said human brain has not been made for translating binary code or
quickly elaborating written information, so the visual representation of data seems
to be the most adapt way to deal with this problem. Under this point of view, data
visualizations play an important role since they allow a more efficient flow of infor-
mation within the organization which is directly converted in more efficiency for the
business. Thus, the better is the effectiveness of a visualization, the higher is going
to be the comprehension of the context and as consequence more knowledge can be
derived by users.

3.3 Data Communication

Data and charts can be easily transferred from a user to another so that anyone could
make its own analysis by having them at his disposal. In this way, the communication
would be facilitated by the fact that even people not being physically in the same
location can exchange impressions about a graph resulting from the data visualization
process. This is shareability of data.
The charts should be understood by the majority of people even if the audience
speaks another language or has a different cultural education than the ‘creator’. Data
Visualization in this sense has the feature of universality, and it may be considered
as the business’s new Lingua Franca [4]. The visualization of a dataset into a chart is
without any doubt a useful form of communication, comprehensible by the majority
of people even if may be required a minimum level of knowledge of the context from
which the chart is derived because otherwise wouldn’t be possible to analyse it and
the chart would be for its own sake. In fact, visualization is not the goal of the process
but it is the mean through which data can be analysed. Understanding is the final
objective. However, becoming fluent in communicating through data visualization is
a necessary skill that should be trained so to have more opportunities in the business
field.
Storytelling is the data visualization feature which permits to apply the available
techniques so to improve the comprehension of reality. Making it simpler users have
the possibility to use previously collected data, convert them into charts or graphs
and tell a story, from the beginning until the end. An example is the representation
of a fact though a storyline (e.g. the genealogical tree of a family) or a timeline
reporting a sequence of temporal events (e.g. all the wars that took place in the last
three centuries). The claim is ‘data tell what’s happening, but stories explain the
reason’ [6]. A tale made of charts simplifies the understanding of raw data because
human mind is able to create connections based on emotions and memorize images.
Data-Imagined Decision Making in Organizations . . . 71

Elements like color, length, width, size and shape can positively work in favour of
people who would better remember a chart. Thus, users aim to tell a story from which
knowledge can be extrapolated but this story brings advantages for different figures
that may have interests into the company. These people are mainly stakeholders
and customers. Its use may help in having an overview of the context, identifying
potential trends and making decisions but the last one is referred to managers.
Interactivity permits users to navigate within the data visualization tool, manipu-
late data that may be useful for the visualization process and display them at various
levels of detail and in various formats. A ‘dialogue’ between humans and machine
is required so to exploit the potentiality of interactive visualizations [10]. A good
design facilitates users’ examination since the presentation of data is clearer and a
better detection of solutions or new trends is possible.

3.4 Ease of Use

Ease of Use refers to the user friendly experience with an information tool that helps
users achieve their goals (like accomplishing a task and making a decision). The
ease of use has been associated with the familiarity dimension, and both have been
observed influencing the attractiveness as well [19]. Familiarity is the feature describ-
ing the high standardization and diffusion of classical charts which are provided by
every data visualization tool. In fact, users can choose among the most known pre-
sentation styles like bar, line, scatter, pie graphs and flow charts that are all easily
understood by visual creators as well as consumers. They are usually adopted to
solve common visualization problems even if their use is limited to specific data
types and the degree of novelty is quite low [8]. Usability is also part of the easiness
of use and is defined as ‘the extent to which a product can be used by users to achieve
specified goals with effectiveness, efficiency and satisfaction in a specified context
of use’ (ISO 9241-11 definition). In other words, this feature explains how the data
visualization tools would allow to achieve well defined objectives by providing a
high perception of the context and by yielding users’ satisfaction.
Intuitivity refers to the organization of information in terms of context, so that it
can convey all the properties of the reality of interest ‘at a glance’ [16]. The idea is
that important concepts need to be translated into visualization and the objective in
this case is to reduce the time thinking about how to use or how to read and interpret
the chart. The speed with which users are able to read or interpret a visualization
should be determined by the complexity of the subject and the purpose of the project,
not by the ineffectiveness of design. Indeed, a clear representation of data and the
familiarity with the chart selected are both important aspects allowing to get an
immediate comprehension of the situation.
Flexibility and adaptability are the interactivity counterpart related to the effec-
tiveness and satisfaction of users while manipulating data through visual means.
The objective of evaluating visualization flexibility is to improve computer users’
understanding of a dataset, otherwise the visualization would be totally useless [25],
72 A. Locoro and A. Ravarini

while adaptability is more related to represent charts and graphs on every kind of
device, no matter if the version of the tool is specifically developed for computers
or mobile devices. However, the visualization on different devices has been recently
analysed and according to some studies a reduction of the clutter on the screen is
the key for a better perception and comprehension of data reproduced. The problem
is that on-screen clutter becomes significant in the context of mobile devices which
have much smaller screens than traditional desktops [11].

4 A Preliminary Set of Connections

After having analyzed each decision-making factor and each data visualization fea-
ture in its group, we finally identified a first set of possible intersections between the
two. In the following paragraphs we describe and motivate them.

4.1 Connection 1: Better Communication Between

Decision-Makers

The factor ‘sharing of a common language’ describes how much is important the
comprehension between people since they cooperate into organizational coalitions
and share their know-how. In particular, the common language refers to charts and
graphs which are drawn through the data visualization tools. The type of communica-
tion that should be developed in order to improve the decision-making process is the
data communication. The question is: Do data communication support and improve
the sharing of a common language? And how? All the features associated to data
communication come into play to determine this dimension of synergy. A prominent
topic in this respect is also related to the need of specific roles in organizations that
are in charge of proactively mediating between data management visualizations and
decision makers (e.g., storytellers, and the like).

4.2 Connection 2: More Manageability of Data Which Flow

Through the Organization

Due to the increased availability of data from internal and external environment, their
collection and analysis would allow decision-makers to better understand the market,
find out potential trends, estimate customers’ preferences and evaluate the growth of
the company. If exploited, these possibilities will advantage the organization against
competitors. The management of such a big amount of data requires the application
of data communication as well as data organization and data processing features. All
the features of data visualization are crucial in the ambit of this connection.
Data-Imagined Decision Making in Organizations . . . 73

4.3 Connection 3: Enhancement in Picking Up the Most

Adapt Option within a Set of Alternatives

The decision-making process is applied so to get a final decision which can solve
an existing problem. However, it’s the decision-making model that provides the
guidelines for the path to follow in order to achieve the final decision. In some cases,
the decision is the result of a step by step process leading to that solution, in other
cases decision-makers have to pick up an option from a set of alternatives. The
identified features helping this enhancement are those of data organization and data
processing.

4.4 Connection 4: More Efficiency in Terms of Quality and

Time

The ‘Routine presence’ property allows to increase the efficiency of the decision-
making process. The result is translated in a better use of time and energy so that
any waste of them will be avoided. Moreover, even the quality of the final decision is
going to take advantage from the routine application since the higher is the familiarity
of decision-makers with a context, the better will be the decision. In fact, practice
makes perfect and once understood how to handle a situation, the successful approach
can be fast applied with a consequent low probability of committing mistakes. The
time saved can be used to focus on other tasks. The data visualization features that
can help this process are data organization and ease of use.

4.5 Connection 5: Creation of a Knowledge Flow

The creation of knowledge is what data visualization tools aim to obtain. In fact, these
software transform raw data into graphical representations which are consequently
interpreted by decision-makers through their competences. The outcome of such
interpretations is the acquired knowledge which allows to clarify eventual doubts the
decision-makers may have and take a decision. Thus, it’s like this new knowledge
needs human competences, skills and experience to be extrapolated from graphical
representations. However, competences, skills and experience can be considered as
components of knowledge itself. The creation of a knowledge flow may be optimized
by the data processing and data communication features of data visualization.
74 A. Locoro and A. Ravarini

4.6 Connection 6: Improvement of Data Quality When

Scenarios Are Full of Uncertainty

As the decision-making property ‘Lack of clarity in cause-effect relationships and

presence of cognitive traps’ has been derived from the Garbage Can model, this model
is taken as an example for this connection. Therein, participants throw problems and
potential solutions into a figurative garbage can. The outcome of this decision-making
process may lead to a final decision which results from the match between problems
and potential solutions. Thus, it’s not said that a potential solution will be paired to
a problem as well as a problem may not find the correspondent solution. In such
scenario the identification of cause-effect relationships is really complicated since
problems and solutions are independent variables. It generates a natural disorder and
decisions are taken in a context characterized by a high level of uncertainty. Moreover,
the presence of cognitive traps may influence decision-makers ability in considering
the reality as it is, so the choices are taken without the adequate level of perception.
In a nutshell the main consequences of the Garbage Can model application are:
1. not all the problems are solved since the correspondent solution may not have
been proposed by participants;
2. potential solutions might be proposed even if problems don’t exist at the moment.
In this scenario, data visualization tools may support the decision process with fea-
tures of information organization and ease of use.

4.7 Connection 7: Increase of Decision-Makers’ Satisfaction

The satisfaction principle corresponds to the main pillar of alternatives selection

in Simon’s Bounded Rationality decision-making model. The result of this model
application is the identification of the main problem and the consequent creation of
a set of possible alternatives from which the most satisfactory ones are going to be
selected. Since decision-makers can’t achieve the ‘maximum solution’, they try to
find out a course of actions that is good enough according to their minimal acceptabil-
ity criteria [1]. The data visualization tool features impacting on the decision-making
property in order to increase decision-makers’ are potentially all of the four groups of
features detected for data visualization. Also specific roles in organizations that can
match the data management visualization features with decision making activities
are strongly required in this scenario.
Data-Imagined Decision Making in Organizations . . . 75

5 Conclusions

In this paper, we put together well known decision-making models and data visual-
ization features. The goal of our study was to intersect them into a model framing
data visualization for decision-making practices. This model has been introduced and
described so that the first two research questions were answered and there is room to
validate it with qualitative future work in order to answer to the third research ques-
tion. Further assessment should be made with observational studies in enterprises
that wish to share with us their decision-making models and their use of data visu-
alization tools to support decisions at all levels and frequency. These further studies
aim for example at selecting among data visualization features the most relevant
ones for each connection or whether some of them may be for example considered
general enough to be supportive of all of the decision-making properties.
Our last point regards the present-day trends for which our research project fits
well. One of them is in line with the topics of EU calls next to come, regarding
for example the impacts on the future advancements of intelligent systems, machine
learning and pervasive technologies in the direction of proposing solutions for ‘algo-
rithms opaqueness, implicit biases in decision making and lack of explicability for
trusting, accepting and adopting the next generation of intelligent machines on a
wider scale’.2 Our study goes in the direction of supporting decision making for the
next generation of data management. Citing a bit more from the above call we dis-
cover that ‘explanation could be more tightly intertwined with the decision making
process itself so that decisions can be challenged, interpreted, refined and adjusted
through mutual exchange, introspection [...] and active learning of both system and
user, for example through dialogue or other forms of multi-modal interaction aimed
at establishing mutual trust’.

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IT Investment Decisions in Industry 4.0:
Evidences from SMEs

Niloofar Kazemargi and Paolo Spagnoletti

Abstract Organizational processes, production, business strategy, value creation

and value delivery are undergoing significant change as a result of emerging new
technologies in industry 4.0 context. This has drawn attention across many countries
and not only organizations, but also stakeholders and policy makers as the fourth
industrial revolution. While Industry 4.0 has been widely investigated in large enter-
prises, yet to date, little is known about how SMEs with limited financial resources
make strategic decisions in particular about IT investment on diverse emerging tech-
nologies. To close this gap, this paper focused on the propensity of SMEs in IT
investment in an industry 4.0 context. We analyze the responses of 1889 Italian
SMEs to Government policies designed to facilitate SMEs in adopting technologies
for Industry 4.0. This study aims to contribute to alignment literature by highlighting
the importance of IT investment as a strategic decision in Industry 4.0. Moreover,
the paper offers a set of practical implications.

Keywords Industry 4.0 · IT alignment · IT investment · SMEs

1 Introduction

Organizational processes, production, strategy, value creation and value delivery are
undergoing significant change as result of emerging technologies. The deep impact
of these technologies on business processes [12, 41] highlight the integration of
IT strategy with business strategy [9, 16]. Considering the fast-changing and diverse
emerging technologies, recent research emphasizes that IT alignment is a continuous
process [49]. Organizations need to consecutively align their IT strategy with business
strategy through investment and development their organizational IT resources and

N. Kazemargi (B)
Department of Business and Management, Luiss Guido Carli, Rome, Italy
e-mail: Nkazemargi@luiss.it
P. Spagnoletti
Department of Information Systems, University of Agder, Grimstad, Norway

© The Editor(s) (if applicable) and The Author(s), under exclusive license to Springer 77
Nature Switzerland AG 2020
R. Agrifoglio et al. (eds.), Digital Business Transformation, Lecture Notes in Information
Systems and Organisation 38, https://doi.org/10.1007/978-3-030-47355-6_6
78 N. Kazemargi and P. Spagnoletti

infrastructures. IT investment and developing digital infrastructure enable organiza-

tions to enhance their innovation performance, however, organizations have struggled
to opt and invest on the right technologies in consistent with their business objectives
which may create a path dependency and constrain the future organizational capa-
bility to innovate [40]. Moreover, when an organization has invested on a specific
technology and integrated it with the legacy system, adopting another technology
will be complex and costly.
Despite the increasing interest in Industry 4.0, our understanding of how firms
invest and align their IT strategy with business strategy in industry 4.0 is limited. In
particular, while the concept of Industry 4.0 has been widely investigated in large
enterprises [3], few studies focus on SMEs [34]. SMEs having limited resources
and capabilities face challenges in making IT investment decisions to align its IT
strategies with business strategies. Thus, in this paper, we examine the IT investments
made by SMEs in Industry 4.0.
In this study we focus on Italian SMEs investments on industry 4.0. Our rationale
behind our research design is that Italian government has launched a strategic plan
in 2016 to accelerate technology adoption and boost the Italian production system.1
Therefore, access to financial aids remove financial barriers to invest on industry 4.0.
This provides us with a unique occasion to examine IT investments and typology
of technologies on industry 4.0 across different industrial sectors and geographic
dimensions.
Based on accessing to a large-scale dataset including 1889 Italian SMEs bene-
fiting from the Italian financial incentive for Industry 4.0, the purpose of this paper
is to analyze IT investment by SMEs focusing on industry 4.0. The findings illus-
trate the propensity of IT investments by SMEs and invested technologies. More
specifically, since the financial incentive targets SMEs from all sectors, an analysis
of the technologies and assets that SMEs acquired for Industry 4.0 can provide us
with more detailed insights on IT alignment in SMEs.
The structure of paper is as follows. First, we present related studies on industry
4.0. Second, we present and discuss the importance of IT investment decisions in
business strategy and alignment. Third, we present the results of analysis conducted
on 3670 purchases by SMEs who benefit from industry 4.0 initiative. Finally, we
present the discussion and theoretical and managerial implications.

1 Lookingat data reported on digital economy society index in 2017, although Denmark, Ireland,
Sweden and Belgium are leading in digital economies in the EU, the rank of Italy is 25th among
28th EU member states. To fill this gap and support digital transformation by SMEs, thus, Italian
government has launched a strategic plan for digitalization in 2016.
IT Investment Decisions in Industry 4.0 … 79

2 Relevant Literature

2.1 Industry 4.0

The German government initiative known as Industry 4.0 refers to integration of cyber
and physical systems through interconnection of sensors, machines and systems
to create connected and smart value chain beyond a single firm’s boundaries. The
businesses have undergone significant change due to embedded systems that create
hybrid physical-cyber systems [38]. Following Rüßmann et al. [42], we consider
industry 4.0 as combination of different technologies See Fig. 1.
Advances in technologies enhance capability of firms to generate, collect and
analyze big amount of data. Capturing and processing real-time data enhance orga-
nizational capabilities in decision making and create new value creation opportunities
for firms [37].
The evolving robots allow firms to reduce cost and flexibility due to automation
and decentralization of decision making, for example, automated guided vehicles
(AGVs).
Cloud computing technologies enable organizations to remotely access scalable
digital resources: applications, platforms and infrastructures [31]. The potential bene-
fits of cloud-based services for organizations are cost convenience, business agility

Fig. 1 Industry 4.0 as combination of different technologies. Adapted from Rüßmann et al. [42]
80 N. Kazemargi and P. Spagnoletti

and scalability of resources [30], that have led to a growing trend in adopting cloud-
based solutions in recent years [35], specifically for small and medium enterprises
[23].
Simulating production process leverage by availability of massive real-time data
can allow firms to optimize process settings in terms of time and quality.
Internet of Things (IoT) refers to a network of interconnected machines, devices
and sensors with capability to communicate via standard protocols. Devices with
embedded computing systems connect via the internet, and enable to collect and
exchange data, and interact together. Real-time information can be captured and
exchanged through embedded systems which enhances productivity and facilitates
interoperability [50].
Prototyping and producing products in small batches with high level of customiza-
tion is feasible by using additive manufacturing like 3-D printing. The cutting-edge
technology enhances flexibility to produce customized products.
Augmented reality provides information via devices such as augmented-reality
glasses for better decision making.
Integration of systems refers to platforms and data-integration networks that allow
firms to access and exchange data across different processes, departments and also
across supply chain.
With increased connectivity among systems and devices, firms are more depen-
dent on management and protection systems to imitate cyberthreats. Cyber-connected
systems collect huge amount of data from devices, sensors and actuators which facil-
itate real-time monitoring flow of materials and data along the supply chain. In adop-
tion of cutting-edge technologies, firms need to pay particular attention on emerged
vulnerabilities and security threats. As to adopting cloud, multi-tenant characteris-
tics of cloud that contains data of multiple organizations increase the risk of direct
attacks on cloud infrastructures [4]. Poorly-secured systems make firms prone to
cyber security threats, especially when new IT technologies are integrated with the
legacy systems [20]. Thus, firms need to ensure security in terms of: (1) accessi-
bility of data only by authorized actors and protection of sensitive data i.e. confiden-
tiality; (2) controlling any modification i.e. integrity (3) continuity of operations i.e.
availability [2].
The combination of these technologies is extensively expanding the span of the
services and products and business networks [9]. The embedded and connected
sensors, microprocessors, software and systems with in physical artifacts allow orga-
nizations to expand the value of products and services [38] and more room for product
differentiation. At the same time, the on-demand resources e.g. cloud computing
enhance organizational scaling ability [9]. When it intertwines with availability of
real time data it allows rapid mass customized production and highly customized
services [41]. The expanded span of data collection (e.g. data created by embedded
sensors or digital actions by individuals knowing as Big data), analysis and moni-
toring capabilities across value chain enable organizations to manage the whole busi-
ness processes more efficiently and effectively. Moreover, the hybrid physical-cyber
systems facilitate integration of organizations (vertically and/or horizontally) across
IT Investment Decisions in Industry 4.0 … 81

the value chain. The plug-and-play concept in products and services, automation and
standardized processes facilitate integration of value chain.
Furthermore, industry 4.0 enhances the flexibility through decentralized control,
autonomous robots, and data-driven decision making across value chain networks
[12]. Simultaneously, automation and integration of value chain across organizations
enable organizations to reduce the time to market –named Smart supply chain [22].
Organizations aim to meet the needs of customers and adopt available technologies
to create new value propositions. Industry 4.0 introduces a paradigm shift in the
way organizations create value: offered services and products, customer interface,
required resources, core competences, partner network, and capture value [12, 36].
In sum, industry 4.0 enables firms to enhance flexibility, quality and productivity
and can facilitate monitoring and controlling of energy consumptions, thus, improve
sustainability [13]. However, research stresses on considering the overall sustain-
ability view since for instance some technologies such as automation and robots are
expected to challenge social aspects of sustainability such as employment [7].

2.2 IT Investment and Alignment in SMEs

One of the dominant topics in the IS research relates to alignment of IT strategy with
business strategy. The traditional view of IT alignment is limited to alignment of
IT strategy at IT functional level strategy with business strategy [21]. The recent IS
research highlights the peculiar characteristics of new emerging technologies and the
embeddedness of digital technologies in organizational operations which influence
and transform the business operations and business models of many organizations
[12, 41]. Consequently, the IT strategy is not apart from business strategy anymore.
Instead, it is intertwined and integrated with business strategies [9, 16]. Moreover, the
changes in IT landscape and emerging new technologies require that organizations
consecutively align the IT strategy with business strategy [49]. This means that orga-
nizations need to develop and change organizational IT resources and infrastructures
in consistent with business strategy. In particular, organizations need to align the
business resources and IT investment [33]. IT investment decisions influence organi-
zational and innovation performance [26]. For example, Kleis et al. [25] emphasize
on the link between investment on IT infrastructure and innovation. At the same
time, making IT investment decisions and opting typology of IT and infrastructure
create a path dependency that may constrain and influence the future capability of
organizations to develop new resources, processes, and even business models [40].
Therefore, considering the complex and fast changing IT landscape, managers need
to make sense [48] of IT trends and diverse emerging technologies in order to make
the proper IT investment decisions [1].
As reported by Gartner, organizational IT spending is expected to increase also
in 2019 [17], yet it is challenging for organizations to align IT investment decision
with business strategy and adopt proper IT resources and infrastructure to create and
add value. In particular, the SMEs may face difficulties in aligning and integrating IT
82 N. Kazemargi and P. Spagnoletti

strategies with business strategies due to several reasons. First, SMEs mainly focus
on short-term strategy [32]. Second, the characteristics of SMEs lead to different
IT adoption rates in comparison with large organizations [19], since SMEs usually
target a niche market in order to sustain their competitive position in the market
[15]. Consequently, even high-tech SMEs have adopted very specific technologies
to meet the niche demands. Third, the decision of what technology to adopt in SMEs
is influenced by external environmental factors such as competitive supply side [43].
Moreover, SMEs are usually characterized by limited knowledge and capabilities of
managers who making strategic decisions [28], limited IS skills of workforce, lack
of financial resources, and IT infrastructures [11, 45]. The lack of financial resources
also acts as barriers for SMEs to use external knowledge sources or to develop
internal IT skills. The uncertainty regarding the technologies and level of capability
of managers in seeing long-term benefit of IT investments influence IT adoption
by organizations [43]. However, Levy et al. [28] present evidence that managers of
SMEs align their IS investment with business strategies: either to focus on efficiency
and cost reduction or on added value strategies.
To develop new emerging technologies, SMEs require to invest on IT infras-
tructures, IT services, and train or hire new workforce in an industry 4.0 context.
However, the lack of sufficient resources may limit SMEs capabilities to adopt new
technologies. For instance, SMEs face difficulty in successful implementation of
Enterprise Resource Planning software which relies on high level of IS skills [14].
Another example is decisions related to cloud service level (Software-as-a-Service,
Platform-as-a-Service or Infrastructure-as-a-service) which is based on organiza-
tional IT skills and expertise level: Platform-as-a-Service or Infrastructure-as-a-
Service solutions demand higher IT capabilities to maintain and upgrade the systems,
while Software-as-a-Service requires less efforts and expertise from firms [44].
As evidence shows 58% of firms who are victims of cyber-attacks are small
organizations [47]. Thus, in aligning IT with business strategies, IT governance [10]
and investments is prerequisite in order to not only support business strategy in short
and long term, but also mitigate associated risks.

3 Dataset and Data Description

The significant influence of Industry 4.0 on businesses makes it an inevitable concept

in future industrial operations. For the purpose of our study, we focus on Italian SMEs
investment on industry 4.0. Our rationale behind our research design is that Italian
government has launched strategic plan in 2016 to accelerate technology adoption
and boost the Italian production system. As the major part of Italian enterprises are
SMEs, they have limited financial resources and face difficulty to access finance from
banks. Thus, the Italian Government has designed a number of direct and indirect
aids, among which an incentive for bank loans for SMEs investing on new assets
related to industry 4.0. The new policies following the National Plan for Business
4.0 embrace two types of incentives and supports: (1) tax benefits and credits for
IT Investment Decisions in Industry 4.0 … 83

organizations investing in new technologies, developing research projects, driving

incomes from intellectual properties (IPs), or investing in training workforce in an
industry 4.0 context, (2) bank loans and guarantee for organizations investing in
new technologies and innovation project (Piano Nazionale Impresa 4.0 by the Italian
ministry economic development).
We had access to a unique database including SMEs requests for IT investments,
funded IT investments and the typology of invested technology. We analyzed the
responses of SMEs to Italian Government policies designed to facilitate SMEs in
adopting technologies for Industry 4.0. The original database contains 3670 accepted
applications (1889 Italian SMEs) for bank loan support package out of 5130 appli-
cations made in 11 months from February 15th, 2017 to April 13th, 2018. All regis-
tered SMEs (1) operating in production sectors and (2) considered as low risk of
bankruptcy/not in difficulty were eligible to apply. This incentive includes physical
assets such as plant and machinery, industrial and commercial equipment, as well
as, intangible assets like software and digital technologies that support industry 4.0.
The loan ranges from 20.000 e and 2.000.000 e with maximum 5-year duration. For
all 3670 confirmed financial aid, our database includes also the type of purchased
asset/s based on Budget Law in 2017,2 in total 42 categories.
The database, then, was merged with data extracted from AIDA3 (Italian Digital
Database of Companies) which provides detailed data on Italian companies such as
size, industrial sector, region, foundation year and some financial information.
In order to further analysis of the technological investments, we initially adopt the
nine pillars in Industry 4.0 following Rüßmann et al. [42]. Since not all of assets can
be categorized based on the nine pillars in Industry 4.0, we identify another category
named “advanced manufacturing” referring to a various set of advanced machineries,
devices, equipment and systems for production processes.

4 Data Analysis and Findings

In total 5130 SMEs applied for financial aids through banks or intermediaries which
1889 of them granted for the financial incentive to purchase assets. For SMEs received
loans, Table 1 illustrates the demographic characteristics.
The majority of firms are located in the north part of Italy that around 44.5% of
them are small-sized: 21.9% North West and 22.49% North East (Fig. 2). The number
of SMEs located in South (2.4%) is much lower than in Center of Italy (16.3%).

2 Annex 6a, Annex 6b, INTERMINISTERIAL DECREE—List of Capital Goods eligible for the
incentive, January 25th 2016.
3 AIDA is the Italian provider of the Bureau Van Dijk European Database. The database contains

structured information on over 1,000,000 Limited Companies operating in Italy, providing updated
information such as shareholding, personal data, financial and economic information, investments
and M&A etc.
84 N. Kazemargi and P. Spagnoletti

Table 1 Demographic
Foundation year (%)
characteristics of SMEs
Before 1970 4.37
1970s 12.33
1980s 21.94
1990s 23.94
2000s 24.16
2010 and After 13.26
Total 100
% Of craft companies 36.13
% Of startups 0.36
No. of employees
Less than 10 employees 20.79
10-49 employees 62.01
50-249 employees 17.19
Total 100
Bold indicates main headings

Fig. 2 Size and regional distribution of SMEs

Our findings show that around 89% of firms gained financial benefits belong to
manufacturing sector. In particular, SMEs from manufacturing sector are concen-
trated in the following industrial subsectors:
• 33.5% manufacture of metal products (excluding machinery and equipment);
• 8.7% manufacture of machinery;
IT Investment Decisions in Industry 4.0 … 85

Fig. 3 Percentage of investments by technology category (purchases in 11 months period)

• 7.4% manufacture of rubber items and plastic materials.

It is important to highlight that firms operating in other industrial sectors are
very few, less than 5% for each industrial sector. Thus, the companies operating in
manufacturing sector may perceive the investment on new assets and technologies
as an opportunity to enhance operational effectiveness and productivity.
The main results of our analysis show the distribution of technology investments
on advanced technologies in context of industry 4.0. By looking at acquired assets,
as shown in Fig. 3, 74% of the investments in industry 4.0 are related to advanced
manufacturing. More than 12% of the firms invested on system integration. System
integration allows firms to monitor and control products by data exchange, not only
across different departments such as manufacturing and maintenance or inventory, but
also across supply chain; with suppliers, customers and other actors. Thus, one of the
main criteria to allocate financial aids emphasizes on standards and communication
protocols. This not only allows infra-firm data exchange but also is fundamental for
future connectivity at inter-firm and industrial level.
Although the majority of investments are on advanced manufacturing and system
integration, firms have also shown the propensity to invest on collaborative robots
(6.73%) and simulation technologies (3.95%).
As for cloud computing, according to findings, however, only few firms have
invested in cloud computing (0.2%). Cloud-based solutions are based on multi-
tenancy and standard solutions which allow cloud providers to offer services lower
than in-house investment by a single firm. Pay-per-use model enables SMEs to use
computing resources with very low cost by reducing significantly IT administration
and maintenance costs. Thus, SMEs can access to IT resources with little invest-
ment [39]. That is why although the general trend in cloud adoption is increasing
86 N. Kazemargi and P. Spagnoletti

Fig. 4 Percentage of tangible and intangible investments for each technologies

specially by SMEs,4 the findings of this study reveals that SMEs have seldom used
this financial aid to invest in cloud.
Surprisingly, evidence from this analysis shows the low propensity of SMEs in
investing on cybersecurity. Only few SMEs requested financial aid to invest on cyber
security. This is particularly an important issue, since insufficient attention to IT
security may lead to significant financial consequences and reputation damage for
firms. Specially, the increased connectivity resulted from adoption of cloud resources
and IoT increases the risk exposure of production and service systems [5].
For collaborative robots, SMEs purchased machines, tools and devices for
un/loading, handling, weighing, sorting materials and automated lifting and collab-
orative robots. As for simulation technologies, major purchase orders belong to 3D
modeling, simulation, experimentation and prototyping that allows organizations
to test production processes and optimize process settings in terms of time and
quality.
In total, SMEs invested mainly on physical assets (90%), while only few invested
on digital assets such as platforms, systems and software (10%). Figure 4 shows the
investments of firms in each technology based on tangible and intangible assets.
Additionally, based on detailed description on each purchase, four industrial
performance objectives were identified. As shown in Fig. 5, about 74% of SMEs
have invested on new assets to improve productivity of which 72% are dedicated
to acquisition of tangible assets. Around 15% of the firms invested to enhance flex-
ibility: 12.6% for physical assets. Even if results show significant investment to
enhance productivity and flexibility, it is interesting to see that SMEs concern with
sustainability and energy consumptions (4%). For instance, to improve sustainability,

4 Europe’s Digital Progress Report (EDPR) 2017, Country Profile Italy.

IT Investment Decisions in Industry 4.0 … 87

Fig. 5 Percentage of investments by performance objective

the three main asset acquisitions are related to waste tracking, recovery and treat-
ment, and intelligent human-machine interfaces (HMI) that assist the operator in
safety and efficiency of processing, maintenance and logistics operations.
The evidence revealed concern by SMEs on sustainability and energy consump-
tions. Although the number of purchases is not as significant as for productivity and
flexibility, it sheds light on increased concerns of SMEs respect to regulations and
laws related to energy consumptions and waste management.

5 Discussion and Conclusion

The ways organizations create, and capture value have undergone a significant change
due to emerging new technology and the embeddedness of such technologies in
business operations. Hence, as pointed out in literature, aligning organizational IT
strategy with business strategy is pivotal for business [8]. Moreover, the pace and
breadth of emerging new technologies induce challenges for firms in making deci-
sions about what technology to invest and how to align IT strategy with business
strategy [1].
In particular, for SMEs the challenges mainly refer to limited financial resources,
IS skills and knowledge. As for the financial challenge, given that the significant
contribution of Italian SMEs in economic growth, the Italian Government has intro-
duced the National Plan for Industry 4.0 aiming at removing financial barriers and
facilitating SMEs in adopting new technologies. However, SMEs face difficulty in
88 N. Kazemargi and P. Spagnoletti

making strategic decisions about technologies due to limited skills and knowledge,
especially considering the wide range of cutting-edge technologies, the substantial
influence on the organizational performance and future development capability due
to path dependency [40]. For instance, having complex legacy systems makes inte-
gration of the new system challenging and influences organizational performance.
Thus, SMEs need to make sense of fast pace of new technologies [48] and understand
what technology to invest in order to better align IT strategy with business strategy.
The findings of this study present a detailed insight on SMEs’ investments on
industry 4.0 supported by the Government following the National Plan. While digital
technologies are transforming business processes and business models, the findings
show that SMEs mainly invest on tangible assets e.g. plant, machinery, industrial
equipment. One plausible explanation for the current trend is that Italy is lagged
behind in digitalization of enterprises5 respect to the European average. Thus, we
can see that SMEs that mainly operating in manufacturing industry invest to develop
advanced production systems aiming at improving productivity. Our findings are
aligned with previous studies that highlight SMEs have a high tendency to keep the
existing business model [24], and by investing on technologies they pursue efficiency
goals [27] in current business which requires less efforts to realize.
Moreover, a negligible number of firms invest on IoT, virtualization, big data and
analytics. Since digital technologies have significant influence on business processes,
firms need to carefully assess and adopt these technologies aligned with the overall
business strategy. Thus, SMEs may need to better understand how they can reap
benefits from new technologies before any investment. It is worth noting that limited
resources are main barriers for SMEs to explore different technologies and access to
external knowledge. While large companies have sufficient resources to allocate for
exploring different technologies and innovative projects even in different markets,
SMEs mainly focus on specific technologies to meet demands in specific markets.
The limited IT skills and knowledge in SMEs act as a barrier in exploring new
technologies and strategic IT investment by managers [11–28, 45].
In particular, we found few SMEs invest on cybersecurity which might be due to
lack of awareness of managers making IT strategic decisions. Another reason for that
can be the security expectation of SMEs is lower than large enterprises, since the lack
of proper protection on IT infrastructure has higher financial consequences for large
enterprises [46]. Large organizations may be willing to pay more for customized
service level agreements to increase security measures. For SMEs, however, there
is a trade-off between security and cost [18, 29]. Lack of sufficient investment on
cybersecurity technologies can lead to significant financial consequences and repu-
tation damage for firms. Considering the fact that significant number of SMEs are
victims of cyber-attacks [47], proper information security strategies necessarily entail
employing practices for predictable and unpredictable security threats [6]. In partic-
ular, investment on cybersecurity technologies is crucial for organizations adopting
system integration since integrating information systems such-as supply chain-blurs
organizational boundaries which consequently increases exposure to cyber risks [5].

5 Source: Europe’s Digital Progress Report 2017—Research & Innovation.

IT Investment Decisions in Industry 4.0 … 89

While main stream of literature has focused on benefits of industry 4.0 [12–22, 41],
in this study we argue that the lack of investment on cybersecurity and adequate
knowledge of impact on technologies limit associated benefits of new technologies
and may lead to negative consequences.
To align IT investments with business strategy, possess IT skills and access to
external knowledge play an important role for SMEs. Thus, in the following year,
significant effort was dedicated by the Italian Government to operationalize digital
innovation hubs and competence centers to further support SMEs in innovation
investments through raising awareness and facilitating access to external knowl-
edge such as universities and other actors. This will allow SMEs to not only explore
and exploit new technologies, but at the same time be aware of security challenges,
and consequently wisely invest on IT technologies in industry 4.0 context.
The paths in technology adoption by SMEs are different from large organiza-
tions [19]. While the concept of Industry 4.0 has been widely investigated in large
enterprises [3], this study on Italian SMEs provides a useful insight into the actual
investments on digital technologies. The findings illustrate the propensity of SMEs in
embedding advanced technologies for Industry 4.0 across different industrial sectors
and regions.
While the incentive by Italian government to some extent remove the financial
barriers for SMEs in investing and acquiring new technologies, this study aims to
contribute to alignment literature by highlighting the importance of IT investments
as strategic decisions in Industry 4.0. Moreover, the implications of this paper for
practice are twofold. First, the results can help policy makers understand how SMEs
are likely to embed new technologies in an industry 4.0 context. Second for practi-
tioners, the results highlight the importance of integration of IT investment in new
emerging technologies with business strategy.

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Creating a New Innovation Orientation
Through Idea Competitions

Hanne Westh Nicolajsen and Ada Scupola

Abstract This paper conducts an in depth case study of the implementation of an

idea competition in a consulting company. Based on 27 interviews with company
managers as well as employees acting as users or non users of the idea competi-
tion in the company has changed the innovation orientation of the company along
several dimensions including creativity and empowerment, innovation infrastructure,
innovation influence and innovation intention.

Keywords Idea competition · Innovation orientation · Culture · ICT

1 Introduction

Being innovative is highly important for most companies in order to stay competitive,
also for service companies. Having a supportive innovation culture or strong innova-
tion orientation is essential regarding how innovative a company is [1]. An innovation
culture is in general described as a culture where risk- taking, empowerment and open
communication among other factors are appreciated [1, 2]. Chesbrough talks about
a closed and an open approach to innovation [3]. The open approach values external
partnerships and inspiration whereas the closed one values control and secrecy.
In the last two decades or more the open innovation approach has received high
emphasis as a way to strengthen the innovation potential. This is among other things
fueled by access to the Internet and software developments such as online collabora-
tive functionalities and lately social media that have made interaction and community
building infrastructures even easier to build and access [4, 5]. Many service compa-
nies have taken advantage of these interactive tools to involve their customers in
different phases of the innovation process [6–8].

H. W. Nicolajsen (B)
IT University Copenhagen, Rued Langgaardsvej 7, 2300 Kbh S, Denmark
e-mail: hwni@itu.dk
A. Scupola
Roskilde University (Roskilde Universitet), Universitetsvej 1, 25.3, 4000 Roskilde, Denmark
e-mail: ada@ruc.dk

© The Editor(s) (if applicable) and The Author(s), under exclusive license to Springer 93
Nature Switzerland AG 2020
R. Agrifoglio et al. (eds.), Digital Business Transformation, Lecture Notes in Information
Systems and Organisation 38, https://doi.org/10.1007/978-3-030-47355-6_7
94 H. W. Nicolajsen and A. Scupola

The studies investigating interactive tools for internal use such as the innovation
jams in IBM [9] or organizational Wikis [10] are flourishing. Idea competitions are
one category of these tools. The success of using these tools to involve external part-
ners such as customers to come up with ideas has been widely researched (e.g. [7,
11, 12]). However we argue that there is a new and not highly researched trend of
companies using such tools for internal use. It may be argued that these tools carry
with them an inherent approach to innovation much in line with the open innova-
tion paradigm due to functionalities supporting open communication, participation,
empowerment etc. [13]. Therefore we investigate the following research question:
How does a consulting company use an internal idea competition to influence the
innovation orientation in the organization?
We analyze a case study of a consulting company’s implementation of an idea
competition by investigating its conceptualization and the initial attempts to change
the innovation orientation in the company.
The paper is structured as follows. First we describe the theoretical grounding
defining service innovation, innovation orientation and idea competitions. Then
we present the research method. This is followed by the analysis, discussion and
conclusions.

2 Theoretical Grounding

To frame our understanding of innovation orientation and culture we first define

the concept of innovation and service innovation. Service innovation is defined by
Gallouj and Weinstein as any change affecting either the technologies (methods or
materials) involved in the service provision, the competencies (employees, organi-
zational or client) or any part of what makes the final service [14]. This definition
allows us to investigate and describe all sorts of innovations no matter which element
or extent of change involved as long as it results in added value.
Only few researchers have worked with the concept of innovation culture, which
is strictly related to innovation orientation. Brentani and Kleinschmidt define a firm’s
innovation culture as “involving entrepreneurship, risk taking, and openness to new
ideas” [2, p. 312]. The innovation culture is considered as a subculture with a style
of corporate behavior valuing new ideas, change, risk and not at least failure as a
necessary part of working innovatively. Also, an innovation culture is described as
one nurturing a climate of openness, informal communication, involvement, thinking
out of the box and adaptive to change. Whether this “subculture” is part of the
organizational culture as such or only counts for innovation departments or when
innovation is planned for is unclear.
Dobni, in line with Brentani and Kleinschmidt argues that an organization’s
strategy and degree of innovativeness is affected by what he coins “the innovation
orientation” [1]. Dobni argues that four dimensions are of importance to describe
the innovation orientation of a company (see Table 1 below): the intention to be
Creating a New Innovation Orientation Through Idea Competitions 95

innovative, the infrastructure to support innovation, the behaviors needed to influ-

ence a market/value orientation and the environment to support implementation [1].
Dobni’s overall understanding is that innovation orientation, which is part of the
organizations culture, affect the competitive strategy of the company and therefore
the organizations performance [1, p. 333].
According to Dobni [1] a strong innovation orientation engage behaviors such as
valuing risk taking, creativity, freedom, teamwork, it instills trust and respect as well
as fast decision making (p. 334) very much in line with Brentani and Kleinschmidt
[2]. The innovation culture definitions presented here provide a normative stand,
defining the companies as having a strong or weak innovation culture/orientation
with given values of what makes a strong innovation culture. However, no consider-
ations are made in terms of differences across the organizations with respect to for
example innovation and coordination needs, resources and qualifications, leaving
open questions as to whether it is positive that everybody are innovative at all times?
Dobni ends up asking whether it is possible to manage strategy through designing
the innovation orientation, a question in line with what we ask in this article.
Such questions point back to an old debate within the organizational culture
literature as to whether culture can be managed and how it changes. Pliskin et al.
state that the organizational culture literature can be divided into two streams [15].
The first one is descriptive and has the purpose of understanding and describing
organizational culture. The second one, which has a normative approach, assumes
that organizational culture can be managed, where Schein is a strong advocate [16].
Hatch further develops Scheins model of organizational culture and argues for a
dynamic relationship [17]. She understands organizational culture as constituted by
assumptions, values, artifacts and in addition symbols and the ongoing processes that
link them. Hatch’s understanding indicates that culture is changeable but that it is
difficult to manage culture due to the dynamics in play including the interpretation
processes going on. It may not be fully manageable and controlled and it makes more
sense to argue that it can be designed for [18].
This understanding is in line with the studies by Doherty and Doig [19] and
Doherty and Perry [20] examining how new technologies may become a catalyst
in transforming espoused cultural values into reality whereas or help strengthened
organizational values. These studies are however different then ours as they look at
innovating a certain practice, whereas our focus is on a tool to support innovation in
general.
Markus [21] argue that it is not the technology per se but rather the organizational
set- up around the new IT which creates the changes. Markus [21] also argues that
implementation of new systems fail if there are too big differences between the IT
system and the existing organizational culture.
96 H. W. Nicolajsen and A. Scupola

2.1 Online Idea Competitions

Online idea competitions allow an organization to post problems or themes online,

where a group of participants may provide solutions to a given problem. These
solutions may then be further elaborated by other participants or voted on online or
may be moved to another community for further evaluation and development. The
winning ideas are awarded some form of a prize, and the organization may implement
the idea for its own gain.
According to Ebner et al. [22] and Bullinger et al. [23] the key design elements
describing idea competitions are: the organizer, the timeline, incentives, problem
specification, target group, composition of groups, media, evaluation criteria, idea
review, idea review committee, elaborateness, context and community functionality.
Especially the element of community functionality, which is only part of Bullinger
et al’s framework, is essential as it makes idea competitions suitable for open commu-
nication and interaction, thus providing possibilities for collaboration and competi-
tion, which again allow for community building [23]. According to Bullinger et al.
[23], low and high cooperation orientation supports high degrees of innovativeness,
whereas medium cooperation orientation results in low degree of innovativeness.
The importance of community functionality is further supported by a more recent
study by Hutter et al. finding that the tension between competition and collaboration
is what makes an online innovation community flourish [24].

3 Research Method

To investigate the research question a case study methodology was considered appro-
priate as we investigate a real-life phenomenon—implementing an idea competition
tool - where control over the context is impossible [25]. The main data collection
method was semi-structured interviews with open-ended questions. We conducted 27
interviews (Table 2). The respondents were selected on the base of their involvement
in the planning, implementation and participation to the idea competition. At the
beginning of the research, the informants were selected by the competence manager
and the innovation director that we also interviewed. Later snowball sampling [26]
was used to find respondents with different profiles. 17 of the interviews lasted about
1–1½ hours each, the other 10 were short interviews of approx. ½ hour. All inter-
views were tape recorded and transcribed. We asked about the purpose of the idea
competition, how the tool and the organizational set-up were designed and supported
as well as about the organizational and individual outcome and challenges.
Documentation review and field notes were complementary data collection
methods including material about the idea competition process; schemes to submit
ideas, samples of submitted ideas, the winning ideas and criteria for idea selection.
The researchers also gained access to the idea competition platform for a short period
Creating a New Innovation Orientation Through Idea Competitions 97

Table 1 Dimensions of innovation culture [1]

1. Innovation intention
Innovation propensity The degree to which the organization has a formally
established—within their business model—architecture to
develop and sustain innovation. This would be communicated
through vision, goals, objectives, and operationalized through
the business model and business processes
Organizational constituency Considers the level to which employees are engaged in the
innovation imperative and how employees think of themselves
vis-á-vis their colleagues in respect to value, equity, and
contributions made within the organization
2. Innovation infrastructure
Organizational learning The degree to which the training and the educational
opportunities of employees are aligned with the innovation
objectives
Creativity and empowerment Determination of the creative capacity of employees and the
amount of creativity that employees are allowed to express in
their work. AIt assesses the degree of empowerment held by
employees, and the ability of employees to improvise and
enact at will
3. Innovation influence
Market orientation Market sensing and contextual awareness behaviors of
employees. It considers the extent to which employees
generate and disseminate knowledge on customers,
competitors, the industry, as well as their understanding of the
value chain or cluster in which their operate
Value orientation The degree to which employees are focused on and involved
in the process to create value for customer/clients
4. Innovation implementation
Implementation context The organization’s ability to execute value-added ideas. It
considers the ability to proactively co-align systems and
processes with the changes in the competitive environment

of time to get an idea of its functionalities. The interviews are combined with the
secondary material to create so-called rich descriptions [27] (Table 2).
The data analysis follows Miles and Huberman [28] instructions for analysing
qualitative data and interviews. In the process of data collection, data coding [28]
it became clear that the biggest issue was establishing an innovation orientation
rather different from the established innovation practice in The Company. In order to
analyze these attempted changes and challenges we use Dobni’s [1] understanding
of innovation orientation. Before we move into the analysis, we shortly present the
case company.
98 H. W. Nicolajsen and A. Scupola

Table 2 Interview data

Number of interviews 27
From HQ 17
From regional offices 8 (4 regional offices)
Other 1 customer
1 supplier
Duration of interviews Normal 1–1.5 h (17)
Short ca. 30 min (10)
The informants’ positions Competence manager
Innovation director
Innovation champion
Project manager
Project member
IdeaExchange team members
Marketing director

3.1 The Engineering Consulting Company

The Company (a pseudonym) is a large engineering consulting company with 1600

employees specializing in different fields including construction and design, infras-
tructure and transport, energy and climate, environment and water and IT and
telecommunications. The Company is part of a leading engineering, design and
consultancy group, headquartered and founded in Denmark.

4 Analysis and Results

4.1 Idea Exchange Implementation

In The Company, the main source of innovation occurs, develops and is financed
through consulting projects. However, it is believed that the company’s employees
possess a great deal of knowledge about the internal processes that could be a source of
organizational efficiency. The decision to use the idea competition platform was taken
at a directors meeting about the company strategy. A group of eight “smart employees
with drive” from different department in Denmark was invited to form a project
group—“The innovation team”. Their task was to develop a sustainable concept
around the idea management platform from Nosco (the software provider) called
“Idea Exchange” to crowdsource ideas from the employees. The Idea Exchange
platform includes a number of community functionalities that enhance interaction
and collaboration. For example, it is possible to submit one’s own ideas or comment
on ideas posted by others to suggest improvements or to further develop the idea. Each
employee is given an amount of virtual money at the beginning of the competition,
which can be invested into ideas contributed by others. At any point in time, the
Creating a New Innovation Orientation Through Idea Competitions 99

spot value of an idea—together with the comments that support it—is proxied by
the aggregate investment positions held on it relative to all other ideas. The ideas get
ranked automatically in the system according to their spot value.
The implementation of Idea Exchange is much more than implementation of
the Idea Exchange platform. It is a concept including components such as: the roll
out plan including invitations, follow up communication, deadlines, log ins, arti-
cles in the internal newsletter, information provided on the intranet, information
screens running commercials about the Idea Exchange event and the Innovation
Day, a formula for presentation of the ideas, nomination of the winning ideas and
the strategic implementation of the winning ideas.
By applying the design variables from Ebner et al. [22] and Bullinger et al. [23],
The Company is the organizer and the employees are the participants which partic-
ipate as individuals with user name without needing to state their position in the
company. The context is a call for ideas for upcoming strategy. Five strategic themes
were formulated by top management along with an online format to guide the form
of input desired. The activities on the online Idea Exchange lasted sixes weeks,
whereas the whole idea competition event including the off line activities followed
the strategic year and a little longer, as the winning ideas were turned into strategic
action areas for the upcoming year. Three rounds of review process took place. After
the online idea posting and trading period expired, prizes were given to the ideas
with the highest spot value in each theme, a prize to the best trader and a prize
to the best commentator. These prizes were symbolic such as an Ipad. The highest
ranked idea within each of the five themes entered into a pool of 10 ideas to be
further developed for a final evaluation along with five ideas selected through an off
line evaluation process. In fact, the Innovation Team screened the rest of the ideas
(approx. 100) and selected 20 promising ideas according to a number of criteria
developed by the Innovation Team and communicated at the very beginning of the
Idea Exchange event. These 20 selected ideas were presented to the management
group who in turn selected 5 of these ideas (Wildcards) for further development
together with the 5 highest ranked ideas. A number of work hours were then allo-
cated to these 10 finalist idea “owners” and each idea owner was assigned a couple of
experts to help them further develop the ideas and define the implementation needs.
The Idea Exchange event culminated with the Innovation Day, where the 10 finalist
ideas were presented to an audience of company employees and external people and
three “winner” ideas were selected by an innovation panel for final implementation.
The panel was composed by company directors and an external expert. The prizes
included participation to innovation courses and implementation of the idea. The
incentives to participate are both external such gifts, and internal as recognition and
influence if the idea get implemented.
100 H. W. Nicolajsen and A. Scupola

4.2 Changes in the Innovation Orientation

Innovation intention
According to Dobni there is a need of “a formally established architecture to develop
and sustain innovation”. The whole event of the Idea Competition with its anchoring
in the company strategy both regarding the themes’ formulation as well as the even-
tual implementation of the winning ideas is a way to ensure formality and business
alignment in The Company.
The primary intention of the Idea Competition was getting access to many different
ideas for innovation. The assumption is that all employees possess insight into The
Company’s internal processes and therefore might have ideas on how The Company
may do better. This is in contrast to the existing innovation culture as some respon-
dents state that having employee’s ideas heard, developed and implemented is not
easy. The leaders often act as “gatekeepers”. The idea competition is recognized as a
way to overcome this also by the employees as showed by the following statement:
You get innovation on the agenda and it becomes more approachable, more fun and more
interesting making people want to use their spare time on it. The main advantage is that
it shortcuts the distance between high and low in the system, meaning ideas that normally
don´t get to the management group, gets there. Project member #14

Likewise it has created a recurrent architecture supporting employee driven

innovations which otherwise aren’t supported as shown in the following quotes:
“.. how to move on when you bump into a good idea – well it has become rather easy here
in The Company, because you know that there are these possibilities occasionally” project
leader #23

I think many have thought about ideas before, but they would not come and tell, but now it
is easy, you just go and write it. Project member #15

Regarding the level of engagement of employees—there is an intention to reach

out and make it easy for all employees to participate. The focus on internal process
innovation along with the possibilities to take on different roles is a way to appre-
ciate any kind of engagement and acknowledging other roles in innovation than just
providing ideas. All employees should feel invited no matter if they are used to take
part in innovation or not.
.. innovation takes place on many levels and it may take many different forms, not necessarily
the one who has a good idea (..) it may also be the one sitting beside “well, what if you did
this” (..) It was meant to include widely to get people participating. Innovation Team member
#10

This approach is rather different as innovation in the company is acknowledged

as done by a few highly innovative and resource strong employees.
I believe it is really important to have an open forum, where you can voice all your ideas,
before it was some “fiery souls” who knew the system and knew how to apply for money,
now everyone can throw in an idea. Project member #19
Creating a New Innovation Orientation Through Idea Competitions 101

Others are however reluctant to participate, as they are afraid of the quality level
of their ideas. No resources are given to the employees to participate in the idea
competition and therefore it becomes “con amore” and the more “enthusiastic rather
than the crowd” as emphasized by an Innovation Team member. This is a way to limit
the participation. It may constrain the number of ideas for good and bad. However,
some of the employees also argue that not everybody is tuned towards innovation.

Innovation infrastructure
There are no particular qualifications needed to participate in the Idea Exchange event
as promising ideas can be further developed with help of organizational experts. On
the other hand, the constituency of the different roles is a way to create a learning
opportunity and to create a broader innovation awareness in The Company. The
employees are lured into the Idea Exchange as dealers, thus taking part in this “funny”,
non-risky part of the Idea Exchange event. Getting them into the Idea Exchange
platform is a way to get them exposed to the innovation process, which may make
them learn from the ideas of others and create awareness and confidence about what
innovation can be.
if you don’t think of your self as super innovative, then you can take part by playing the
game and be a good dealer. Innovation team member #15

The majority had contributed as s dealers rather than as idea contributors. Many
had entered the online Idea Exchange but did not even participate as dealers. One
respondent questions the ease to use the system. Many informants state that they
used almost an hour the first time to understand the Idea Exchange concept. One
argues it is due to too much text.
There is too much explanation on the different categories, you need to invest too many
resources to get into it, it’s a pity, everybody is busy. Project member #17

Another argues that some employees refrain to participate even as dealers due to
lack of overview
I could see that it would take a long time if I wanted to get a good overview. I probably feel a
little bad about putting my shares in one idea and then there are many other ideas, I haven’t
noticed which I would rather have supported. Project member #16

Negative learning also occurred. An employee explains that during the first idea
competition he thought it was really funny and contributed with three ideas. Some
of his ideas got selected for further development, but afterwards nothing happened.
In the second round he prioritized only to play the game for the fun of it arguing that
time constraints was crucial.
You could say I feel I already contributed. I would have liked to post an idea, but I did not
get to it, well you know time. It was not my highest priority. Project member #14

Creativity and empowerment

The visibility of the ideas in the Idea Exchange, the commenting and especially the
ranking functionality provides for a democratic and transparent innovation process
102 H. W. Nicolajsen and A. Scupola

as it gives each employee a voice to bring up ideas, comment and ranking ideas thus
influencing the process. It provides for open communication across the organization
raising new values and ideas.
Concerns with the results of such a democratic ranking made the Innovation Team
and Top Management to combine the online democratic ranking with a management
based selection of another five ideas. Likewise management was given the final word
when nominating the three finalist ideas. There is thus some opening up and letting
go of some control by enhancing the transparency of the idea generation process and
support a more open communication. However, management is still in control. Pure
empowerment might have compromised the need of strategic anchoring of innovation
with the business goal, as argued in the following quote:
When resources are allocated then severity sets in. It would be crazy, well, it is not sure the
democracy finds the best idea in relation to The Company business and strategy. It has to be
the leaders who decides. Project leader #18

This is supported by the observation that some of the top ranking ideas in Idea
Exchange were not really ideas, but more issues irrelevant for the company strategy.
This points to a weakness of the online ranking functionality and how employees
decide to buy shares into ideas. It turned out that employees buy shares to support a
mix of good, funny and different ideas especially when they are related to their area
of expertise as well as ideas from “friends” in the organization.

Innovation influence
The whole idea and outcome of the Idea Exchange event is to make the employees
contribute with ideas that may help to improve the organizational processes based
on their working experiences and knowledge Idea Exchange system is a way to
disseminate ideas and knowledge about challenges and related solutions. Having the
Idea Exchange event is a way to encourage employees to share their ideas about new
ways to create value for the company and the customers. The Idea Exchange system
seems to be strong in supporting communication about innovations as interesting or
funny ideas are often discussed at lunch by employees
Well regarding this one [a useful idea] a colleague told me about it. Try to look here, it is
really good, just something for you. Project manager #18

Innovation implementation
The Idea Exchange concept ensures that at least the winning ideas are implemented.
However, the lack of follow up on the majority of the ideas submitted has discouraged
some participants (se earlier quote). To address this issue, the Innovation Team had
considered of considering Idea Exchange platform as an incubator. An informal way
of dissemination and possible implementation is when employees learn about others’
ideas and experiences and get in contact with them to implement the ideas in their
own project/department (see quote above).
Creating a New Innovation Orientation Through Idea Competitions 103

5 Discussion and Conclusions

Our study reveals that idea competition tools may be used to rethink, encourage and
eventually create a new/different innovation orientation in companies. As argued by
Doherty and Doigh [20] the idea competition becomes a catalyst not only to imple-
ment espoused values but also to develop and rethink the approach to innovation
and innovation practice in the organization. In addition it becomes a catalyst as it
encourages and inspires innovative behaviors through the different design elements.
Idea Exchange architecture and especially the three different roles made it poten-
tially possible for all employees to participate whether or not they see themselves as
innovation drivers. This creates a vehicle for exposing and changing the employees
awareness of innovation. The idea competition event has created a new innovation
orientation due both to the strategic approach behind the call for ideas as well as the
allocation of resources for implementation.
Dobni [1] talks about a weaker or stronger innovation orientation as one common
underlying approach within the company. Our study questions this understanding of
one unified approach. We observe an innovation orientation with focus on collecting
employees ideas for internal process innovations; an innovation orientation which
is seen as complementary rather than in opposition to other innovation orientations
in the company such as ad hoc innovation (e.g. [14]) through customer projects or
innovation developed by top management. Also this type of innovation orientation
is created occasionally as it is argued that it is difficult to create the needed critical
mass and focus on an ongoing basis.

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Digitization, Accounting, Controlling,
and Reporting
Accounting Information Systems: The
Scope of Blockchain Accounting

Iacopo Ennio Inghirami

Abstract Distributed Ledger Technology—of which Blockchain is an example—is

revolutionizing different sectors, creating new challenges and new opportunities.
In this paper, we will investigate the impact of this technology on Accounting
and Accounting Information Systems (AIS). The adoption of a Distributed Ledger
Accounting presents extremely interesting characteristics, eliminating or redefining
the role of entities external to the company, such as Banks, Insurance Companies,
Certified Public Accountants and Auditors. Furthermore, we will try to outline the
impact of this technology on AIS by hypothesising possible paths of development.

Keywords Accounting information systems · Distributed ledger technology ·

Blockchain · Double entry accounting · Triple entry accounting

1 Introduction

Distributed Ledger Technology, the so-called Blockchain, is revolutionizing the

Internet. On the other hand, the Internet itself is changing, following the requests of
those who wish that it became not only a place of information exchange, but also a
virtual place to exchange actual values.
In this paper, we will try to understand the Blockchain technology and its evolu-
tion. We will analyse in depth the Distributed Ledger Technology and its relationships
with Accountability and Accounting. We will then analyse the impact of Blockchain
on Accounting Systems and finally we will examine the changes to be made to
Accounting Information Systems to exploit this technology.
Beyond the emphasis with which many researchers invite to welcome this new
technology, we will try to understand if Distributed Ledger Technology really has
the ability to revolutionize Accounting and Accounting Information Systems.
Some research questions emerge from this analysis:

I. E. Inghirami (B)
University of Milano-Bicocca, Milan, Italy
e-mail: iacopo.inghirami@unimib.it

© The Editor(s) (if applicable) and The Author(s), under exclusive license to Springer 107
Nature Switzerland AG 2020
R. Agrifoglio et al. (eds.), Digital Business Transformation, Lecture Notes in Information
Systems and Organisation 38, https://doi.org/10.1007/978-3-030-47355-6_8
108 I. E. Inghirami

RQ1: What impact will the adoption of Blockchain technology have on business
intermediaries?
RQ2: Will the Blockchain be universally adopted in the AIS of all companies?
RQ3: What could be the development paths of the AISs taking into account the
Blockchain Technology?

2 Blockchain Definition

Distributed Ledger Technology (DLT) is a technological protocol that enables data to

be exchanged directly between different contracting parties within a network without
the need for intermediaries. The network participants interact with encrypted identi-
ties (anonymously). Each transaction is coded and added to an immutable transaction
chain. This chain is distributed to all network nodes (ledgers), thus preventing the
alteration of the chain itself [1]. Although the correct denomination of this tech-
nology is DLT, we will use the most appealing name of Blockchain in the rest of the
paper.

2.1 Blockchain Technology in Details

The Blockchain can be seen as the distributed, decentralized, transparent and chrono-
logical database of transactions, sometimes also called the Ledger. The data in the
blockchain (e.g. transactions) is divided into blocks. Each block is dependent on the
previous one. The system in which a blockchain serves as the database comprises of
nodes or “workers”. These workers are responsible for appending new blocks to the
blockchain.
A new block can only be appended after all nodes in the system reach a consensus,
i.e. all agree that block is legitimate and contains only valid transactions. How the
validity of transactions is determined and how the nodes compute new blocks, is
regulated by the protocol. Blockchain is shared among all nodes in the system; it is
monitored by every node and at the same time controlled by none. The protocol itself
is responsible to keep the blockchain valid. According to the literature [2] there are
three main categories of Blockchain applications:

Blockchain 1.0: Currency The currency and services associated with money trans-
fers such as payment mechanisms and remittance services. Currently, there are
hundreds of different types of cryptocurrencies with bitcoin remaining the biggest
by market cup. The currencies may have different features such as being tied to a fiat
currency or commodity, but their nature stays the same—they are used for payments
and transfers of digital property.

Blockchain 2.0: Smart contracts It is a layer of smart-contracts, which are more

sophisticated than just a currency. A ‘smart contract’ is a computer protocol intended
Accounting Information Systems: The Scope … 109

to digitally facilitate, verify, or enforce the negotiation or performance of a contract.

Smart contracts allow the performance of credible transactions without third parties.
These transactions are trackable and irreversible. Nick Szabo, who coined the term
in 1994, firstly proposed the adoption of smart contracts [3]. Smart contracts can
represent shares of stocks, bonds, options, mortgages and smart property. While the
1.0 concept represents decentralization of money, the 2.0 concept is a decentral-
ization of markets. All the technologies aiming at decentralization of relationships
of different counterparties such clearing houses, banks, companies are covered by
this concept. Some interesting examples are peer-to-peer lending services Btc-jam,
Bitbond, Crowd-funding platform Koinify, bitcoin prediction markets Augur, Fairlay.
A potential accounting system on Blockchain is, therefore, covered by the 2.0 concept
as it is supposed to represent a smart-contract system where the transactions and
automatically paid bills are executed and recorded. Almost since the introduction
of Bitcoin and its underlying blockchain ledger, researchers began to explore other
field where a blockchain technology might be of great use. With Blockchain 2.0 we
introduce additional types of blockchains and reason about their potential in other
fields beyond cryptocurrency.

Blockchain 3.0: Areas in government, health, science etc. It is a Blockchain appli-

cations system beyond financial markets and covers government, art, culture and
science. Examples of 3.0 applications are Blockchain voting systems, Decentralized
Domain Name system— Namecoin, anti-censorship applications like Alexandria and
Ostel, and many other applications using immutability and transparency properties
of blockchain to promote freedom, democracy and fair allocation of wealth.

2.2 Distributed Ledger Technology Features

An extensive literature illustrates in detail the technical characteristics of the

Distributed Ledger Technology [2, 4]. DLT, of which Blockchain is an example,
uses cryptographic tools and a distributed consensus process to create a significant
innovation in traditional record keeping. It has three main features [1]:
• Veracity—multiple copies (as opposed to a single copy) of the complete historical
record of ledger entries are each verified by consensus. Bogus entries are identified
and eliminated by failure to reach consensus.
• Transparency—it is a public record of activity that can be seen by all market
participants.
• Disintermediation—it operates using a peer-to-peer network, rather than
requiring a specific central organization.
Disintermediation is the core feature that drives the benefits associated with
distributed ledgers. Traditionally, systems that have centralized ledgers have required
the participation of a trusted third party to maintain a record of transactions between
110 I. E. Inghirami

organizations. A Distributed Ledger overcomes the need for a third party, which can
be a significant benefit when there is no clear trusted central organization, or if the
costs of intermediation are high [1].
Main applications of Distributed Ledger Technology so far have been in financial
services, namely Bitcoin and all other cryptocurrencies. With Blockchain, we can
imagine a world in which contracts are embedded in digital code and stored in
transparent, shared databases, where they are protected from deletion, tampering and
revision- In this world every agreement, every process, every task and every payment
would have a digital record and signature that could be identified, validated, stored
and shared. Intermediaries like lawyers, brokers and bankers might no longer be
necessary [5].
To date, however, it has not made a significant impact on the core operations
of the banking and payments systems, although many banks, including the Federal
Reserve, the Bank of England and the Bank of Canada with its Jasper Project, are
carefully assessing the possible implications of this technology [6, 7]. Moreover,
many financial institutions are experimenting with broader uses like supply chain
tracking and digital identity management [1].

2.3 Blockchain Applications

Although the Internet is a great tool to aid every sphere of the modern digital life,
it is still highly flawed in terms of the lack of security and privacy, especially when
it comes to FinTech and E-commerce [8]. Blockchain, the technology behind cryp-
tocurrency, brought forth a new revolution by providing a mechanism for Peer-to-Peer
transactions without the need for any intermediary body such as the existing commer-
cial banks. Blockchain validates all the transactions and preserves a permanent record
of them while making sure that any identification related information of the user is
kept incognito. Thus, all the personal information of the users are sequestered while
substantiating all the transactions. This is achieved by reconciling mass collabora-
tion by cumulating all the transactions in a computer code based digital ledger. By
applying Blockchain or similar cryptocurrency techniques, the users neither need
to trust each other nor do they need an intermediator; rather the trust is manifested
within the decentralized network system itself.
Bitcoin is just an exemplary use of the Blockchain. Blockchain is consid-
ered to be a novel revolution in the domain of computing enabling limitless
applications such as storing and verifying legal documents including deeds and
various certificates, healthcare data, IoT, Cloud and so forth. Tapscott indicated
Blockchain to be the “World Wide Ledger”, enabling many new applications beyond
verifying transactions such as in: smart deeds, decentralized and/or autonomous
organizations/government services etc [9].
Researchers propose these fields of application [10]:
Accounting Information Systems: The Scope … 111

• Smart contracts. As we have seen, a general definition of a smart contract would

be a computer program that can automatically execute the terms of a contract.
By being self-executing and having property ownership information embedded,
they can solve the problems of counterparty trust. Smart contracts are trustless,
autonomous, and self-sufficient. Instead of reinventing contractual relationships,
smart contracts are making their formation and performance more efficient, cost-
effective, and transparent [11]. Blockchain and Smart Contracts can work together
to trigger payments when a pre-programmed condition of a contractual agreement
is triggered. Smart Contracts are really the killer application of the cryptocurrency
world. Using blockchain technology has made it much easier to register, verify
and execute them. Moreover, open source companies like Ethereum and Codius
are already enabling Smart Contracts using blockchain technology and many
companies which operate on bitcoin and blockchain technologies are beginning
to support Smart Contracts [12].
• Domestic payments. At a procedural level, the process of inter-bank clearing
requires an intricate coordination of resource-intensive steps between banks,
clearing houses, and the central bank. These steps are typically not executed
at a constant basis, but rather as a processing cycle that happens several times a
day. The outcome of it is that payment can often end up credited one or more days
after their initiation, especially over weekends or holidays. The intricacy of the
current system constitutes a procedural challenge for payment service providers,
and highlights the need for a more efficient system for real-time payment, both
domestically and internationally.
• International payments. To achieve real-time payments on an international scale,
there will be a need to introduce foreign exchange (FX) market makers to the
blockchain network. They will perform currency conversions on transactions
between consumer bank accounts. Central bank participation on the network
in a market maker capacity would also be needed between payment service
providers in different currency jurisdictions. In this way, real-time payments could
potentially be achieved on a cost-effective basis.
• Trade finance. Digitization and automation of trade processes has been ongoing
for many years, but the banks’ updated processes are still largely based around the
logistics of handling physical documents. Many processes share similar character-
istics but requires completely different IT systems and procedural steps to manage.
An example here would be documentary collection, letter of credit and consign-
ment. All of these processes follow roughly the same five steps: (1) Extension of
credit to customer; (2) Informing the customer of credit status; (3) Banks open a
communication channel regarding the customer; (4) Updating the status of goods
from freight forwarder; (5) Execution of full or partial payment of funds based
on certain criteria. Blockchain technology could bring the benefits of automation
to these trades. Using cryptographic keys and multisignature wallets, one can
create a replacement for traditional trade finance documents, which are stored
on the blockchain as a Smart Contract. The document is updated by blockchain
transactions as it moves through the steps of the trade process.
112 I. E. Inghirami

• Capital markets. When trading on the capital market, there exists a set of proce-
dural steps that enable the trading of assets in a legally conforming fashion, as
well as several custodian services revolving around facilitating the trade. A broad
definition of these steps can be termed as such: (1) Create a representation of an
asset, such as a currency, bonds, stocks, gold, etc.; (2) Enable a trade to take place
between two or more stakeholders; (3) Balances must be recorded and kept; (4)
The eventual liquidation of an investor’s position.

3 Blockchain and Accounting: Literature Review

As we have seen, the applications of Blockchain have evolved since its first implemen-
tation in 2008. It is possible to find a vast literature on Blockchain, on its applications,
on its strengths and weaknesses. In recent times some scholars have proposed the
adoption of Blockchain in Accounting Systems.

3.1 Double and Triple Entry Bookkeeping

Modern Financial Accounting is based on a Double Entry system. Double Entry

Bookkeeping (DEB) revolutionized the field of financial accounting during the
Renaissance period [13, 14]. DEB solved the problem of managers knowing whether
they could trust their own books. Double entry bookkeeping is a system of book-
keeping so named because every entry to an account requires a corresponding and
opposite entry to a different account. The double entry has two equal and corre-
sponding sides known as debit and credit. The left-hand side is debit and right-hand
side is credit.
In the double-entry accounting system, at least two accounting entries are required
to record each financial transaction. These entries may occur in asset, liability, equity,
expense, or revenue accounts. Recording of a debit amount to one or more accounts
and an equal credit amount to one or more accounts results in total debits being equal
to total credits for all accounts in the general ledger. If the accounting entries are
recorded without error, the aggregate balance of all accounts having Debit balances
will be equal to the aggregate balance of all accounts having Credit balances.
Accounting entries that debit and credit related accounts typically include the
same date and identifying code in both accounts, so that in case of error, each
debit and credit can be traced back to a journal and transaction source document,
thus preserving an audit trail. The accounting entries are recorded in the “Books of
Accounts”. Regardless of which accounts and how many are impacted by a given
transaction, the fundamental accounting equation of Assets equal Liabilities plus
Capital will hold.
Accounting Information Systems: The Scope … 113

However, to gain the trust of outsiders, independent public auditors also verify
the company’s financial information. Each audit is a costly exercise, binding the
company’s accountants for long times [15].

3.2 Triple Entry Bookkeeping

Blockchain technology may represent the next step for accounting: instead of keeping
separate records based on transaction receipts, companies can write their transactions
directly into a joint register, creating an interlocking system of enduring accounting
records [16]. Since all entries are distributed and cryptographically sealed, falsifying
or destroying them to conceal activity is practically impossible.
To explain the notion of Blockchain-based accounting some researchers use the
term Triple-Entry Accounting which is described as an enhancement to conventional
double entry accounting where the accounting entries of the involved parties are
cryptographically sealed by a third entity (the Blockchain) [16–18].
Since the Blockchain is immutable to any data amendment it is impossible
to falsify or delete the written accounting entries. Notably, the notion of triple-
entry accounting was first time described in 2005 by Ian Grigg three years before
Blockchain was invented [17]. Ian Grigg described the possibility of using crypto-
graphically protected digital receipt to verify transactions occurred between different
counterparts and stored by a third party and showing if any details in the records were
changed or deleted. With the advent of Blockchain that processes can become auto-
mated, cheap and even more reliable as the need for a third party holding the receipts
in a centralized manner is superseded by a decentralized ledger.
Lazanis was first to coherently describe the possibility of Blockchain Accounting
by conventional companies. He emphasizes that blockchain eliminates the need for
trust in any intermediary such as bank or insurance company if a company voluntarily
publishes its transactions on Blockchain [19].
The companies would benefit in many ways: standardization would allow auditors
to verify a large portion of the most important data behind the financial statements
automatically. The cost and time necessary to conduct an audit would decline consid-
erably. Auditors could spend freed up time on areas they can add more value, e.g. on
very complex transactions or on internal control mechanisms.
It is not necessary to start with a joint register for all accounting-entries. The
Blockchain as a source of trust can also be extremely helpful in today’s accounting
structures. It can be gradually integrated with typical accounting procedures: starting
from securing the integrity of records, to completely traceable audit trails. At the
end of the road, fully automated audits may be reality [15]. Since companies are
implementing Blockchain into their Enterprise Resource Planning (ERP) systems,
particularly for tasks such as procurement and supplier management, the accountant’s
and the auditor’s role has just evolved [4].
Blockchain’s transparency gives visibility to all transactions for approved users,
and this may decrease auditors’ work with sampling and validating transactions.
114 I. E. Inghirami

However, this allows auditors more time to focus on controls and investigating
anomalies. Meanwhile, opportunities are emerging for CPAs to use Blockchain
technology as they expand their assurance services to areas such as cybersecurity
and sustainability. Blockchain could enable a real-time, verifiable, and transparent
accounting ecosystem. It has the potential to transform current auditing practices,
resulting in a more precise and timely automatic assurance system [20, 21].

3.3 Real-Time Blockchain Accounting System

Another line of studies concerns Real-time Blockchain Accounting System (RBAS).

RBAS is a software solution that enables transactions of currency, financial deriva-
tives, and other digital documents between two or more counterparts, stores the
transaction data in cryptographically protected blocks whose integrity is verified
through the process of mining, and allows the composition of financial statements at
any time [7].
For companies and their stakeholder to obtain all the benefits provided by the
technology it is necessary that a RBAS possesses the following properties:
1. Transparency—the transactions must visible in real-time as it is the case with
bitcoin.
2. Immutability—there must not be a programming possibility to change any data
once they were entered, to ensure this, the company using the system must not
control the mining power.
3. Accessibility—the data must be easily accessible to a broad range of stakeholders.
Financial statements are prepared at regular intervals and sum up what has
happened in a firm’s ledger throughout a certain period. An auditor then issues an
opinion on the accuracy of the financial statements. Outsiders, such as investors and
credit risk managers, have to trust both that the auditing is thorough and unbiased
and that the firm has not given false information to the auditor. That is, the concept of
trust is critical in both the preparation of the financial statement and in the auditing
process.
This is where the Blockchain technology behind the bitcoin can play an integral
role [22]. If a firm were to voluntarily post all of its business transactions on a
blockchain, with a permanent time stamp on each transaction, the firm’s entire ledger
would be instantaneously visible and anyone could aggregate the firm’s transactions
into income statements and balance sheets in real-time.
That is, many of the things the auditor does in today’s accounting world, the
blockchain can possibly do much more efficiently and much timelier in tomorrows.
By construction, if a firm kept all its transactions and balances on a blockchain, then
the blockchain itself could, largely, replace the auditor in confirming the accuracy of
the firm’s accounting, thus avoiding potential moral hazard or agency problems [22].
In this sense, the only voice out of the chorus is Rückeshäuser. While agreeing with
Accounting Information Systems: The Scope … 115

the adoption of a Blockchain Accounting, she believes that it alone is not enough to
eliminate accounting fraud [23].

4 Blockchain and Accounting Information Systems

As mentioned above, companies are considering whether to integrate Blockchain-

based procedures with their Enterprise Resource Planning (ERP) systems, particu-
larly for tasks such as procurement and supplier management. Blockchain ledger-
based technology can simplify the procurement process because it enables secure
recording of transactions in a way that can lead to unprecedented transparency and
increased operational efficiency [24].
However, with respect to Blockchain technology, it is necessary to understand:
(1) what the application field really is; (2) how to implement it; (3) what the real
advantages and disadvantages may be.

4.1 The Scope of Blockchain

Looking at the current literature regarding the Blockchain, we can observe that there
is considerable confusion, at least from an accounting point of view. Our opinion is
that the approach currently followed is strictly technical and does not take account
of accounting rules.
An Accounting Information System (AIS) is a system that collects, stores and
processes accounting data in order to manage a company. The core of an AIS
is an Enterprise Resource Planning (ERP) system, that is the integrated manage-
ment of main business processes, usually in real-time and mediated by software and
technology.
ERPs implement Financial Accounting which is the field of accounting concerned
with the summary, analysis and reporting of financial transactions related to a
business. Financial Accounting strictly follows local and international rules, such
as Generally Accepted Accounting Principles (GAAP) and International Financial
Reporting Standards (IFRS) and uses the Double Entry paradigm. In other words,
and as said before, Financial Accounting is based on a Double Entry system. We
can therefore state that the transactions managed by ERP systems must implement
the Double Entry rules. Furthermore, they must adhere to local and international
standards that guarantee the correctness of data management.
We will call these transactions Internal Transactions, distinguishing them from
other transactions that involve information exchanges between different companies,
which we will call External Transactions.
Internal Transactions are stored in the Relational Databases of ERP systems
following the logic of the Double Entry. Changing a transaction is impossible or
extremely difficult. On the one hand, the internal consistency checks of the databases
116 I. E. Inghirami

Table 1 Scope of Blockchain

Internal transactions External transactions External transactions
(actual–No BC) (future–BC)
Physical layer RDBs Not formalized DLT
Logical layer Double entry No checks BC logic—smart
self-balancing system Contracts
Control layer External auditor External auditor DLT logic

exclude the possibility of removing and modifying a record, on the other it would be
necessary to modify all the related entries of the Double Entry ledgers. The controls
on Internal Transactions are carried out by external and independent Auditors. This
not only guarantees the correctness of the information, but it is also required by
current regulations. Automatic checks, even if they meet the needs, would not be
enough from a legal point of view.
As regards External Transactions, we must distinguish between the current situ-
ation and a future situation in which DLT technologies are adopted. Currently,
External Transactions are carried out using non-formalized channels, such as email
messages, and there are no secure, shared and non-modifiable archives that contain
the transactions themselves.
With the adoption of Blockchain these transactions could be included in a
Distributed Ledger, thus achieving the security and sharing objectives we have seen.
In addition to the physical storage in a formalized ledger, a logical control of the
transactions would also be possible, for example by checking that they comply with
the terms provided in a Smart Contract.
Finally, using Blockchain technology, it would be possible to obtain an automatic
control of the transactions, which is currently not performed. Furthermore, the checks
could not only be automatic, but also be carried out by interested parties that have
access to the ledgers. We have summarized all these observations in Table 1.

4.2 How to Implement Blockchain: Blockchain as a Service

(BaaS)

Claimed benefits of Blockchain include offering business value and efficiency gains
by, for example, assisting compliance, asset tracking, supply chain management,
and generally displacing intermediaries. The focus is particularly on multi-party
scenarios (across organizations, departments, individuals, etc.), where the ledger
provides a transparent and reliable source of facts across administrative domains
[25].
As such, “Blockchain-as-a-Service” (BaaS) offerings are emerging to make
Blockchain more accessible to businesses, by reducing the overheads of adoption.
BaaS entails a service provider offering and managing various components of a
Accounting Information Systems: The Scope … 117

Table 2 Top 10 blockchain as a service providers [26]

Provider Partners Tool name Cryptovalue
Microsoft Microsoft, consensys, Azure Ethereum
blockstack labs
R3 Barclays, Credit Suisse, Corda
Goldman Sachs, J. P.
Morgan, and Royal Bank of
Scotland, and more than 70
partners, including Bank of
America and Wells Fargo
HPE R3 HPE Corda
SAP cloud platform SAP Leonardo
blockchain
BitSE BitSE, VeChain
PricewaterhouseCoopers
(PwC)
Blocko Blocko, Samsung, LG CNS, Coinstack Lotte card
Hyundai, other South Korean
firms
Blockstream Blockstream Lightning charge, Bitcoin
lightning network
PayStand PayStand
Peer Ledger Peer Ledger
Deloitte Deloitte Rubix core Ethereum

Blockchain infrastructure. The precise nature of a BaaS deployment depends on the

service provider, application specifics, and the customer goals. Several IT solution
companies provide BaaS solutions, see Table 2 [26].
Although there is a noteworthy academic literature about the Blockchain, its appli-
cations and the benefits that can be achieved with its adoption, there are no works
related to real applications in Accounting Information Systems (AIS), as far as we
know.
Many “big players” like Microsoft, SAP or Deloitte are starting to offer solutions
that incorporate Blokchain-related technologies, typically based on a “Blockchain
As A Service” approach as those that we have seen. However, these solutions are still
at a prototype stage and the related documentation is halfway between a declaration
of intent and a marketing proposal.

4.3 Final Considerations and Future Research Directions

The above-mentioned literature highlights characteristics, merits and advantages

deriving from the adoption of DLT systems. However, no paper highlights the point
118 I. E. Inghirami

of view of companies. As an example, what are the actual costs of implementing DLT
systems? What are the real—not theoretical—advantages for the company deriving
from the adoption of such systems?
As often happens in the field of IT, after an initial emphasis on the theoretical
advantages of an innovation that feed great expectations, we are heading towards a
phase of disappointment of these expectations [27].
In the current literature, some fundamental aspects are excluded or are not
adequately investigated. As an example, we may argue that adoption of DLT-based
systems only makes sense if:
(1) all or most of the members of the Value Chain adopt these systems;
(2) the costs of new disintermediation services are lower than the costs of current
service providers;
(3) it is possible to adopt cryptocurrencies in order to take full advantage of the
benefits offered by the Internet of Values.
Future research should investigate these aspects.
Point 1: it is very likely that to create an effective and efficient network it is
necessary that most part of companies should be connected to a Blockchain.
What happens if only some companies of a Value Chain adhere to a Blockchain?
Point 2: Blockchain technology is convenient if the cost of intermediaries is
high. However, some intermediaries may not be necessary: this is the case, as
an example, of Small and Medium Enterprises (SME). SMEs are not obliged to
have auditing procedures, so the benefits of such complex accounting are lost.
Point 3: at present it is not clear if widespread use of cryptocurrencies is really
possible, or if in the future it will be possible for everyone to use them. In response
to this challenge, current financial systems could lower their costs, thus making
the use of cryptocurrencies unattractive.
Finally, we would like to propose a crucial consideration: how will national and
international legislation evolve? Most of the aspects exposed up to now have no
specific reference legislation. Users of cryptocurrencies and smart contracts are abso-
lutely not legally protected. This is currently the major obstacle to the spread of
Blockchain technology.

5 Conclusions

Internet has changed: from the Internet of Information it has become Internet of
Values. Blockchain is certainly one of the technologies that led to this transformation.
In conclusion, we can answer the Research Questions that we had placed in the
introduction:
RQ1: What impact will the adoption of Blockchain technology have on business
intermediaries?
Accounting Information Systems: The Scope … 119

Disintermediation is the core feature that drives the benefits associated with
Distributed Ledgers. Traditionally, systems that have centralized ledgers have
required the participation of a trusted third party to maintain a record of transac-
tions between organizations. A Distributed Ledger overcomes the need for a third
party, which can be a significant benefit when there is no clear trusted central
organization, or if the costs of intermediation are high. Intermediaries such as
banks, insurance companies and auditors will have to redefine their relationships
with companies.
RQ2: Will the Blockchain be universally adopted in the AIS of all companies?
The adoption of DLT-based systems only makes sense if: (1) all or most of the
members of the Value Chain adopt these systems; (2) the costs of new disinter-
mediation services are lower than the costs of current service providers; (3) it is
possible to adopt cryptocurrencies in order to take full advantage of the benefits
offered by the Internet of Values. This is not the case, as an example, for Small
and Medium Enterprises (SME).
RQ3: What could be the development paths of the AISs taking into account the
Blockchain Technology?
Adopting DLT in an ERP system makes no sense because the current accounting
logic is more reliable and efficient. For this reason, we consider it unlikely that
new versions of ERP systems Blockchain-based will be created. Conversely, a
company that wishes to implement truly effective and efficient intercompany solu-
tions will use Blockchain technologies using “Blockchain as a System” (BaaS)
platforms.
In conclusion, we can state that the Blockchain technology is extremely interesting
and its adoption has great theoretical advantages. However, we will have to evaluate
the implications and the costs of its use. Moreover, it remains to be seen what the
steps will be for its introduction, especially considering that at present there are no
studies that analyse these processes.

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Understanding Blockchain Adoption
in Italian Firms

Adele Caldarelli, Luca Ferri, Gianluca Ginesti, and Rosanna Spanò

Abstract This study investigates individuals’ blockchain adoption behavior

focusing on the Italian setting, and gathering perceptions from information systems
practitioners and entrepreneurs. The aim of the paper is to understand what are
the factors that push organizational actors to use the blockchain. To this aim we
embrace the second version of the unified theory of acceptance and use of tech-
nology (UTAUT). The model was estimated using the structural equation modeling
with partial least square estimation (PLS-SEM). Our results show that performance
expectancy and social influence are factors that have a strong positive effect on people
intention to adopt blockchain. Surprisingly, the findings unveil that experience has
a negative effect on blockchain use intention. This allows us to argue that the tech-
nology under scrutiny has such a disruptive nature that individuals with previous
experience look at it with skepticisms as its implementation involves a full re-think
of all routines and practices.

Keywords UTAUT · Blockchain · Italian firms

1 Introduction

The last years have been characterized by a raise in disruptive information and
communication technologies (ICTs), that are challenging organizations to fully re-
think their operational models [1]. Such emerging dynamics are putting on the table a
number of questions, dealing with aspects of trust between the actors, accountability,
transparency, collaboration, and knowledge sharing [2–5].
One particular technology, which is gaining momentum for its potential but at the
same time poses extreme challenges is the blockchain [6–9]. Blockchain is already
employed in a wide array of contexts [10–13], because virtually all transactions with
blockchain are safer, more transparent, traceable and efficient [6, 7], with favorable
impacts in terms of clients’ trust [14]. The benefits ascribable to the blockchain,

A. Caldarelli · L. Ferri (B) · G. Ginesti · R. Spanò

University of Naples Federico II, Naples 80126, Italy
e-mail: luca.ferri@unina.it

© The Editor(s) (if applicable) and The Author(s), under exclusive license to Springer 121
Nature Switzerland AG 2020
R. Agrifoglio et al. (eds.), Digital Business Transformation, Lecture Notes in Information
Systems and Organisation 38, https://doi.org/10.1007/978-3-030-47355-6_9
122 A. Caldarelli et al.

according to extant studies, are the amelioration of transparency and accountability

[7, 15], the traceability of the operations and the fraud prevention [13, 14, 16], the
cybersecurity and the data protection [7]. However, such benefits are achievable only
if the technology is implemented in a manner acceptable to those involved. It is exactly
to better tap into these issues that recent contributions are progressively exploring how
individuals react when it comes to accepting to deploy this technology. Such studies
fall into the domain of technology acceptance literature, which represents the main
debate that this paper addresses [17–19]. Indeed, even if the studies on technology
acceptance are steadily growing in number and scope [20–24], the blockchain seems
still a quite unexplored area [20, 25], and open unanswered questions remain as for
the drivers of the blockchain adoption.
Specifically focusing on accounting practices, the introduction of blockchain
technology in firms could change the way in which records are created and stored
triggering a deep revolution. Such a circumstance has been largely called upon,
but is poorly deepened in literature. Thus, in the current study we rely upon the
second version unified theory of acceptance and use of technology developed by
Venkatesh et al. [18, 19] (namely UTAUT) to understand what are the factors that
push organizational actors to adopt the blockchain.
To this aim, a Likert-based questionnaire was disseminated online between infor-
mation systems practitioners and entrepreneurs. The questionnaire was divided into
seven parts. The first part covered the respondents’ personal information while the
other six sections were about the different UTAUT theoretical constructs. Using the
questionnaire results, a partial least square structural equation modeling (PLS-SEM)
has been carried out in order to measure the effect of the theoretical constructs on
people’s intention to adopt the blockchain.
Our findings show that performance expectancy and social influence are factors
that have a strong positive effect on people intention to adopt blockchain while
experience has a negative effect on the use intention.
As for the remainder of this paper, Sect. 2 describes the features of the blockchain.
Section 3, presents the theoretical framework and develops the hypotheses of the
study. Section 4 describes the research design, Sect. 5 shows and discuss the results.
Section 6 offers some concluding remarks.

2 The Features of Blockchain

Blockchain technology emerged in the crypto-currency market as a disruptive tech-

nology [26, 27] considered as a digital, distributed transaction ledger, that stores data
creating identical copies, maintained on multiple computer systems, controlled by
different entities [28, 29]. Although there is no an official definition of Blockchain,
one of the commonly acknowledged formulations is the one proposed by Deloitte [29]
according to whom “anyone participating in a blockchain can review the entries in it;
users can update the blockchain only by consensus of a majority of participants”. In
other words, Blockchain technology represents a distributed database (ledgers) that,
Understanding Blockchain Adoption in Italian Firms 123

performing in a synchronized environment (chain), validates information uploaded

by users [6, 30–32]. This kind of technology implies the existence of a decentralized
system where the validation activity (of transactions, contracts, etc.) cannot give rise
to any kind of alteration [13]. Every data stored in a Blockchain represent informa-
tion that can never be erased. From the business perspective, the Blockchain involves
different entities as nodes in the transaction work and the process is being validated
through cryptography [31]. Records of these transactions are stored as shared and
decentralized ledger among all participating entities. Transactions are tamper-proof
and are traceable thanks to the existence of a “genesis node”. Indeed, data introduced
in the chain are organized in blocks that shape a chain [10], and the current block
is expected to store the information of the previous block. Blockchain transactions
operate in a peer-to-peer network, in a decentralized way [13]. Thus, the transactions
are validated and stored by a distributed consensus, and it is not necessary to have
a central entity that validates the transactions. Consequently, o when someone store
a set of transactions in the chain, information are recorded and validated by other
computers of the same network.
Each block is unique, has its own identification code (hash) and it is connected with
the preceding one making easier to have any kind of information history and to recover
or verify previous transactions just exploring the previous blocks, generating more
transaction security [32]. In this process, the transactions receive a unique sequence
and time (timestamp) that cannot be changed: once a transaction is validated it cannot
be modified [33, 34]. Furthermore, transparency of the operations is strengthened
because the transactions are shared across the network, together with any useful
information, thereby enabling all network actors to be timely informed.
Blockchain in itself can be termed as a meta-technology because it is the result of
the integration of several other technologies such as software development, crypto-
graphic technology, database technology, etc. [35]. Nowadays, firms that are looking
at digital technologies, as enablers of competitive advantage or disruption innovation
should consider the possibility to introduce blockchain technology in their activities.
While recent studies investigated the impact of Blockchain in supply chains,
this technology could affect on several firm processes such as accounting practice,
auditing activities (internal and external), information systems, quality activities, risk
reduction, contract registrations.
Thanks to the benefits that Blockchain could provide to firms (i.e. cost reduction,
efficiency improvement, quality improvement, risk reduction, flexibility) [8] almost
all organizations want to take advantage of the great deal of improvements brought
about by blockchain, which span enhanced process of adoption in Europe [29].
For example, authors examined how this technology has been an effective way to
validate information about financial sector [36, 37], other authors showed how ticket
events vendors are looking at using Blockchains to help prevent frauds [38]. Yet
other authors focused on how this new technology could help in storing patient
data securely and accurately in the health care sector [39]. Finally, some research
focused on the possible use of blockchain in the public sector for recoding property
transactions [40].
124 A. Caldarelli et al.

Table 1 Blockchain benefits for firms

Benefit Explanation
Reliable and available Because a wide circle of participants shares a blockchain, it has no
single point of failure and is designed to be resilient in the face of
outages or attacks. If any node in a network of participants fails, the
others will continue to operate, maintaining the information’s
availability and reliability
Transparent Transactions on the blockchain are visible to its participants, increasing
auditability and trust
Immutable It is nearly impossible to make changes to a blockchain without
detection, increasing confidence in the information it carries and
reducing the opportunities for fraud
Irrevocable It is possible to make transactions irrevocable, which can increase the
accuracy of records and simplify back-office processes
Digital Almost any document or asset can be expressed in code and
encapsulated or referenced by a ledger entry, meaning that blockchain
technology has very broad applications, most as yet unimagined, much
less implemented

Table 1, drawing from the above-cited contributions provides an overview of

Blockchain benefits.
These key characteristics of blockchain technology open the door to disinterme-
diating third parties from myriad transaction types, lowering transaction costs, and
increasing the potential for innovation in every major industry. This technology can
help to improve security and accountability of different firms’ activities (i.e. financial
transactions, micropayments, health records, corporate audits etc.).
Indeed, traditionally the double entry accounting system is in existence since
the fifteen century. Blockchain removes the disadvantages of trust related issues
associated with this system and thus reduces the friction in transaction process
[41]. Blockchain will make transactions more instantaneous and cheaper [42]. For
example, IBM has introduced a protocol for smart contracts that is based on the
underlying blockchain technology.

3 Theoretical Framework and Hypotheses Development

Over the last years scholars have increasingly devoted attention to the development
of models able to predict and understand information systems adoption behaviors
[17–19, 43]. The majority of contributions revolves around individuals’ attitudes,
and attempted to adapt the theory of reasoned action (TRA) concepts [44] to this
domain, by fostering the development of the TAM [17].
Before describing the adoption models’ characteristics, it is important to remark
that technology adoption represents the willingness within a group of users to employ
technology for their benefit [45]. Adoption is not only related to the technology itself,
Understanding Blockchain Adoption in Italian Firms 125

but involves multiple levels and factors such as users’ attitude and personality [18],
social influence [46], trust [47] and enabling conditions [48].
From this perspective, the TAM proposed by Davis [17] examines the technology
adoption devoting attention to the users’ perception of its utility and ease of use. This
model has been empirically verified and is largely accepted in literature [19, 49–52].
In addition to the TAM, the Theory of Planned Behavior (TPB) proposed by
Ajzen [53, 54], which extends the TRA, is widely used to model the acceptance. The
constructs included in TRA are behavioral attitudes, subjective norms, intention to
use and actual use, as well as perceived behavioral control. TPB has been increasingly
relied upon to comprehend the adoption dynamics of a variety of new information
technology products and also to predict their levels of usage [55, 56].
However, some limitations of the above-cited models led to further explorations
to encompass additional perspectives in the analysis. Further advancements have led
to the unified theory of acceptance and use of technology (UTAUT) [18, 19], which
ties together eight models from prior literature, that is TAM [17]; theory of reasoned
action (TRA) [43]; motivational model (MM) [57]; theory of planned behavior (TPB)
[54]; combined TAM and TPB (C-TAM-TPB) [58], model of PC utilization (MPCU)
[48]; innovation diffusion theory (IDT) [59]; and social cognitive theory (SCT) [60].
The value of the UTAUT lies in the fact that it allows us to comprehend the
role of performance expectancy, effort expectancy, social influence, and facilitating
conditions as exogenous constructs for predicting the intention and use.
The fully encompassing approach of the UTAUT is particularly suitable to explore
the issues forming the core of this paper on blockchain implementation. More specif-
ically, for the purposes of the current study we refer to the UTAUT proposed by
Venkatesh et al. [18], in order to include additional relevant dimensions such as the
hedonic motivation, price value, and habit. This predictive model has proved its rele-
vance in a number of contexts [61, 62] and is crucial in this paper to understand
the main actors’ motivations for blockchain adoption. In the UTAUT at the basis of
the intention to use a technology there are four constructs: performance expectancy
(expectation about performance or PE); effort expectancy (expectation on the effort
to support or EE); social influence (social influence or SOI); facilitating conditions
(conditions that make it possible to make the adoption of a technology less traumatic
or FC).
Performance expectancy measures the level of expectation of IS actors with
respect to improving the working condition due to the adoption of technology. The
effect of performance expectancy on intention could be mitigated by personal factors
such as age and gender. In our study performance expectancy refers to the degree to
which an employee perceives that using the blockchain will improve their produc-
tivity and performance. On this regard it is worth noting that this new technology
generates high expectations [8] and minimizes process complexity and uncertainty
[63]. Previous contributions signal that the intention of individuals to adopt and to
use a technology depends significantly on performance expectancy [18, 19, 64–66].
Therefore, we hypothesize that:
H1. Performance expectancy positively affects the intention to adopt blockchain.
126 A. Caldarelli et al.

Social influence stands for the level of influence that the opinion of the subjects of
a user’s social circle may have on a particular action. According to the authors, this
construct is mitigated both by personal factors such as gender, age or experience, and
by voluntariness in the use of technology. Social influence for the purposes of the
current paper refers to the extent to which the employee comprehends the relevance
of why others believe they should use the blockchain. The leading idea is that the
opinions of colleagues, friends, family members impact one’s choices [66, 67]. On
this regard, literature has contended that social influence impacts the adoption of
Internet-based banking [67, 68] and mobile government services [66, 69]. Several
contributions have also emphasized that collaboration and the relational dimension
are crucial and influence whether people are prone to adopt blockchain [66–69].
Therefore, we hypothesize that:
H2. Social influence positively affects the intention to adopt blockchain.

Facilitating conditions can be understood as the “degree to which an individual

believes that an organizational and technical infrastructure exists to support use
of the system” [19, p. 453]. In this paper, we consider employee’s awareness of the
resources available to sustain the blockchain implementation. Facilitating conditions
influence both the adoption and use of a given technology [18, 19, 69–71]. Indeed,
thanks to the existence of facilitating conditions users could be more incline to use
the new technology and the degree of inefficiency related to technological change is
significatively lower [71, 72]. Due to the importance of facilitating conditions and in
light of previous literature we expect that the existence of conditions that could help
people to use the new technology should have a positive effect on people intention
to use blockchain. Therefore, we propose the following hypothesis:
H3. Facilitating conditions positively affect the intention to adopt blockchain.

Effort expectancy, represents the measure of the perception of simplicity expected in

the use of the system. Literature posits that the relationship between effort expectancy
and intention is likely to be moderated by gender, age, and above all experience. A
common opinion is that the perceived ease of use positively influences the intention
to adopt a certain technology, but that the lack of experience may play a limiting role
[71, 72]. Therefore, we hypothesize that:
H4. Effort expectancy positively affects the intention to adopt blockchain
H5. Experience positively affects the intention to adopt blockchain.

4 Research Method

Questionnaire and reliability analysis

Understanding Blockchain Adoption in Italian Firms 127

Table 2 Sample description

Measure Item n. Percentage
Age 18–30 129 48.31
30–40 81 30.34
40–50 42 15.73
50+ 15 5.62
Gender Male 139 52.06
Female 128 47.94
Education High school 22 8.24
University degree 132 49.44
Master 94 35.21
Phd 19 7.12
Role Accounting specialist 197 73.78
Information system practitioner 66 24.72
Other 4 1.50

For the purposes of our analysis, we disseminated a Likert based questionnaire

among practitioners working in the information systems field during the period
January-March 2018. In line with Venkatesh et al. [19] the questionnaire was divided
into seven parts. The first part was about respondents’ personal information (i.e.,
gender, age, experience and voluntariness to use). The other six sections were about
the different UTAUT theoretical constructs. All constructs have been measured by
employing a 6-point Likert scale ranging from (1) strongly disagrees to (6) strongly
agree [73].
To ensure the reliability of the scale, a pretesting phase was carried out on sample
of 72 scholars and professionals involved in blockchain initiatives [74]. The survey
results of this sample were subjected to principal component analysis (PCA) in order
to discern the correlation between the different components. No items were dropped
after this analysis. Furthermore, we tested the same sample with Crombach’s Alpha,
which resulted in a satisfying score of 0.872.
Sample description

After the validation step, a survey was carried out between participants contacted
by using blockchain thematic groups on social media (i.e. LinkedIn, Facebook).
We considered as “thematic groups” all groups that have in the title the words
“Blockchain” and “Italy”. A total of 19 thematic group with more than 10 thou-
sand people were found. For each group an invitation letter, explaining the aim of
the study, has been sent. We collected a total of 322 observations. We excluded the
responses of people with less than 3 years of experience in accounting or information
systems fields and of those people that were not working for Italian firms. Our final
sample consisted in 267 observations.
128 A. Caldarelli et al.

Table 2 provides few descriptive statistics of the sample. Table 2 provides the
respondents’ profile showing a similar distribution between male (52.06%) and
female (47.94%) respondents. Also, in terms of age most respondents were between
18 and 30 years old (48.31%) and between 30 and 40 (30.34%) while just a little part
of our sample has an age between 40 and 50 or 50+ (respectively 15.73% and 5.62%).
With reference to the education level the 40.44% of respondents held a postgraduate
degree or a master (35.21%), while just a little part of the sample has a Ph.D. (7.12%)
or is not graduated (8.24%). Finally, with reference to the role in firms the great part
of the sample work as accountant or accounting specialist (73.78%), the 24.72%
is employed in information system field while a small part of the sample work in
another field (1.5%).

5 Research Results and Discussion

The data gathered through the survey were analyzed using a Partial Least Square
Structural Equation Modeling (PLS-SEM) approach in line with previous studies
[75, 76]. This method is widely used in ICT literature and, more generally, in social
sciences, because it is suitable for both large and small sample sizes, as well as for
non-normal data.
We assessed the overall goodness-of-fit measure using the Chi-square test. This
test is widely used to assesses the adequacy of a model in terms of its ability to reflect
the variance and covariance of data [77]. Our test shows an overall Chi-square ratio
of 661 with p < 0.001.
Because Chi-square is a test particularly sensitive to the size of the sample, we
decided to test our model with other fit indices following the approach of other
authors [76]. The results or our test are summarized in Table 3.

Table 3 Fit indexes

Index Test results Acceptable
Average path coefficient (APC) APC = 0.118 Yes
p < 0.001
Average R-square (ARS) ARS = 0.596 Yes
p < 0.001
Average adjusted R-square (AARS) AARS = 0.582 Yes
p < 0.001
Average block VIF AVIF = 3.355 (acceptable if <= 5, Yes
(AVIF) ideally <= 3.3)
Average full collinearity VIF (AFVIF) AFVIF = 3.911, (acceptable if <= 5, Yes
ideally <= 3.3)
Simpson’s paradox ratio (SPR) SPR = 0.948, acceptable if >= 0.7, Yes
ideally = 1
Understanding Blockchain Adoption in Italian Firms 129

Table 4 Research results

Hp n. Relation Path coefficient Std. dev. p-value
H1 PE.XP. -> BI 0.397 0.091 0.000
H2 SO.INF -> BI 0.401 0.067 0.000
H3 FA.CON. -> BI 0.256 0.082 0.000
H4 EFF.EXP -> BI 0.108 0.072 0.002
H5 EXP -> BI −0.099 0.090 0.019
Overall R-Square 0.596 Overall adjusted R-Square 0.582

Finally, we carried out structural equation modeling in order to understand

the effect of each theoretical construct on people intention to adopt blockchain
technology. The following table (Table 4) presents the research results.
The explanatory power of the UTAUT was tested using the overall R-square.
UATUT theoretical constructs explain the 59.6% of the total variance.
Performance expectation has a significant positive effect on people intention to
adopt blockchain technology (coefficient 0.397 p < 0.001). This result suggests
that every increase in the expectation about blockchain performance in firms could
improve the people intention to abide by this technology. This result is compliant
with the statement of several authors that discuss but not empirically demonstrate that
there is a strong expectation about the performance of blockchain for practitioners
that will push the use of this technology in firms [18, 19, 64–66]. Therefore, H1 is
fully supported.
With reference to social influence, we found a strong positive effect on intention to
adopt blockchain (coefficient 0.401 with p < 0.001). This results suggest that people
will use this technology if there will be a high level of acceptance by social groups.
These findings are compliant with those of other authors, which find that social
influence impacts the adoption of new technologies [66–69]. On this regard, our
results show that the relational dimension has a strong influence on people intention
to adopt blockchain in compliance with the statement of other authors. Therefore,
H2 is fully supported.
With reference to facilitating conditions, our results show the existence of a posi-
tive effect on the intention to adopt blockchain technology (coefficient 0.256 with p
< 0.001). This result suggest that employee are disposed in adopt blockchain changing
their working practices. This finding is compliant with the finding of Queiroz
and Fosso-Wamba [20] that verified the positive effect of facilitating condition on
blockchain use intention in different countries. Therefore, H3 is supported.
With reference to effort expectancy we found a positive and statistically significant
effect on intention (coefficient 0.108 with p < 0.01) while experience has a negative
effect on the intention to adopt blockchain technology (coefficient −0.099 with p
< 0.05). These results suggest that of blockchain is perceived as a technology difficult
to use. The negative effect of experience on the intention suggests that blockchain
is perceived as something absolutely new so the past experience could represent a
disadvantage because people should start over. More specifically, in this case the
130 A. Caldarelli et al.

lack of experience plays a positive role in which people with higher experience have
more difficulties in learning something completely new than less experienced people.
Therefore, H4 and H5 are supported.
Finally, with reference to the personal variables, we found that gender and age do
not have any statistically significant effect (both p- values are higher than 0.05) on
the theoretical construct.
Our results show that social influence (H2) is the most important predictor in
people intention to use blockchain technology. This is consistent with statement of
other authors according whom the process of technology adoption depends strongly
by social factors [67, 68]. Furthermore, consistent with prior literature, our results
show that performance expectancy (H1) is another important predictor of intention
to use [18, 19, 66]. Surprisingly, the experience of subject involved in the survey
plays a negative role on the process of technology acceptance, a possible explanation
of this phenomenon could be that blockchain technology is something completely
new and different from other kind of technologies so people will need new skills in
order to manage it.

6 Concluding Remarks

The current study is rooted in the increasing attention for the disruptive power of the
most recent information and communication technologies (ICTs), that are completely
changing the landscape of organizations and their daily routines, at both a strategic
and an operational level, not to say from the perspective of internal and external
relationships and dynamics of power [1].
Among others, the most prominent questions as to what concerns information
systems implementation refer to the more nuanced face of concepts of trust, account-
ability, transparency, collaboration, and knowledge sharing within companies [3–5],
that have nowadays a breadth and a content that has largely overcome their previ-
ously acknowledged semantic boundaries, and thus are changing in the perception
of organizational actors as well influencing their propensity to change.
It is worth noting that the current paper addresses the on-going debate by devoting
attention to the blockchain, considering its huge potential, its disruptive novelty, and
the numerous interesting and risky challenges that it poses to organizations. We
looked at the blockchain in the awareness that it is already in use in a number
of contexts, due to its undeniable benefits [6, 8–13]. Likewise, in looking at the
current dynamics the necessary premise is that any information systems need to be
implemented in a manner acceptable to those involved to express in full its potential,
otherwise it is played in parallel to the previous routines and represents only a waste
of resources for the company.
An essential element is to understand how individuals behave when it comes to
accepting to use this technology, which is the exact debate that we addressed in
the paper [17–19] since there are still unanswered questions in this domain for the
blockchain [20, 25].
Understanding Blockchain Adoption in Italian Firms 131

Consequently, our aim was to understand what are the factors that push organi-
zational actors to adopt the blockchain, by relying upon the second version unified
theory of acceptance and use of technology developed by Venkatesh et al. (UTAUT)
[18]. To this aim, thanks to a Likert-based questionnaire we gathered data among
information systems practitioners and entrepreneurs on their personal information
and on the UTAUT theoretical constructs. Then, a partial least square structural equa-
tion modeling (PLS-SEM) has been carried out in order to measure the effect of the
theoretical construct on people intention to adopt the blockchain.
Our results show that performance expectancy and social influence are factors that
have a strong positive effect on people intention to adopt blockchain. Surprisingly,
experience has a negative effect on blockchain use intention, unfolding that the
technology under scrutiny has such a disruptive nature that individuals with previous
experience look at it with skepticisms as its use involves a full re-think of all routines
and practices.
These results allow us to contribute to the literature in a twofold manner.
Firstly, they offer new bases for reflection given that on the one hand they confirm
previously detected trends, while on the other they unveil new tendencies that help to
gather a more complete picture of the phenomenon of the blockchain adoption and
its multiple nuances and implications.
Secondly, they are the first empirical insights from Italy, a country with such strong
cultural and contextual conditions influencing the change management dynamics,
that they enlighten the need to tap even more closely into the role played by the
surrounding environment in IS change choices.
Aside, it is also worth noting that trends as to what concerns experience and
its negative impacts represent a very interesting issue that deserves far more atten-
tion. Indeed, they unveil fundamental areas of resistance that need to be seriously
considered, as they need a rather different approach to the introduction of the tool
in the company. Far more, it is important to notice that the real comprehension of
such dynamics need to overcome the current quantitative approaches, towards the
recourse to case studies and participant observation to better comprehend the whole
processes.
Finally, before concluding, it is advisable to signal that these findings can be
of some aid also to practitioners and policy makers, as they unveil areas that are
fundamental to take care of over the changing phase, as well as possible triggers of
conflict and rejection that need to be prevented. Not to say that the findings also allow
us to start to reflect on possible institutional interventions and regulatory efforts by
policy-makers to sustain and ease blockchain adoption phenomena.

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Improving Invoice Allocation
in Accounting—An Account
Recommender Case Study Applying
Machine Learning

Markus Esswein, Joerg H. Mayer, Diana Sedneva, Daniel Pagels,

and Jean-Paul Albers

Abstract Covering transactions between buyers and sellers, invoices are essential.
However, not all invoices can be directly matched to a purchase order due to missing
order numbers, differences in terms of the invoice amount, quantity and/or quality.
Following design science research (DSR) in information systems (IS), the objective of
this article is to propose a new kind of an account recommender by applying machine
learning. We take a chemical company as our case study and build a prototype
that today handles more than 500,000 invoices without purchase order per year
more accurately and efficiently than manual work did before. Finally, we propose
five design guidelines to drive future research as follows: (1) Truly understand the
business need; (2) More data can only get you so far; (3) Give the machine a good
starting position; (4) Computing power is crucial; (5) Do not burn your bridges yet
(manual intervention).

Keywords Account recommender · Invoices without a purchase order (“SAP

financials (FI) postings w/o a purchase order”) · Cognitive-based automation ·
Machine learning (ML) · Nearest neighbor classification · Design science research
(DSR) in information systems (IS).

1 Introduction

For business transactions between buyers and sellers (even for intercompany sales),
invoices are essential [1]. Especially when companies are integrated in larger value
chains, the yearly number of invoices reaches millions.
However, not all invoices can be directly matched to a purchase order due to
missing order numbers or differences in terms of the invoice amount, quantity and/or
quality. For invoices without a purchase order, finding the account in the enterprise

M. Esswein (B) · D. Sedneva

University of Duisburg-Essen, 47057 Duisburg, Germany
e-mail: markus.esswein@uni-due.de
J. H. Mayer
Darmstadt University of Technology, 64283 Darmstadt, Germany

© The Editor(s) (if applicable) and The Author(s), under exclusive license to Springer 137
Nature Switzerland AG 2020
R. Agrifoglio et al. (eds.), Digital Business Transformation, Lecture Notes in Information
Systems and Organisation 38, https://doi.org/10.1007/978-3-030-47355-6_10
138 M. Esswein et al.

resource planning (ERP) system to be charged according to a predefined rule is

a repetitive task. In other words: In terms of cost per booking, it is not efficient that
qualified accountants perform such a kind of routine work.1
We propose that finding patterns in a big amount of (invoice) data and—more
forward-looking—encapsulating the pattern in rules that can be used for predictions
is a good use case for automation [2]. On the one hand, pattern matching is not new.
Finding rules for information extraction and complementing predefined fields in a
template was already addressed in the late 1990s [3]. On the other hand, automation
recently gained new momentum by leveraging machine learning (ML) algorithms
[4].
The term automation evolved from the Greek word “automatos,” which means
acting by its own will or by itself. With a focus on digitalization, it is defined as
machines, tools, devices, installations, and information systems (IS) performing a set
of activities without human intervention [5]. While Robotic Process Automation
(RPA) targets rule-based activities such as routine tasks with structured data and
deterministic outcomes [6], cognitive-based automation intends to perform activities
which are typically performed by humans and, thus, require cognitive capabilities
such as situational assessment, sensing, and monitoring [7]. ML enables cognitive-
based automation to learn a task from a series of examples. Recognizing patterns and
learning from them based on logical operations, ML seeks to perform a task more
effectively the next time [8].
Over the last years, Finance departments prominently automated record-to-report
(R2R) process activities, however, not yet addressing accounts payables (order to
cash) and accounts receivables (purchase to pay) [9]. Focusing on invoice processing
within the purchase-to-pay (P2P) process, the objective of this article is to propose a
new kind of an account recommender by applying ML. We take a leading chemical
company as our single case study and answer two research questions:
• Compared to manual work, what is the potential of ML to improve prediction
accuracy and process efficiency when handling invoices without a purchase order?
• Which are first design guidelines2 to implement ML in the accounting domain?
To create things that serve human purposes [13], finally, to create a better world
[14], we follow Design Science Research (DSR) in IS [15]. The publication schema
by Gregor and Hevner [16] gave us direction. We motivate an accounts recom-
mender by applying ML (introduction). Based on the state-of-the-art, we identify
several research gaps (literature review). To address these gaps, we adopt a single
case study and build a prototype following the tenets of requirements engineering

1 In terms of job enrichment, accountants may be thankful when they are relived from this task
to gain more time for creative work such as commenting on the reasons for identified differences
between purchase orders and corresponding invoices.
2 In addition to the four types of DSR artifacts identified by March and Smith [10] and Hevner

et al. [11]—constructs, models, methods, and instantiations—design guidelines are statements that
prescribe what and how to build an artifact in order to achieve a predefined design goal. Thus,
design guidelines contribute to theories that specify how IS artifacts should be designed based on
kernel theories [12].
Improving Invoice Allocation in Accounting … 139

(method). We present functional requirements, the redesign of the P2P process, and
the account recommender machine itself (artefact description). Emphasizing iter-
ative “build” and “evaluate” activities [17], we then evaluate the prototype within
our reference company and two other companies from different industries. Lessons
learned are captured in design guidelines. Comparing these guidelines with prior
work and examining how they relate back to this article’s objective, we end with
a summary, limitations of our work, and avenues for future research (discussion and
conclusion).

2 Literature Review

2.1 Search Strategy

Following Webster and Watson [18], we started our four-step literature review with
a (1) journal search. And, in doing so, we focused on leading IS3 journals comple-
mented by both proceedings from major IS conferences4 and leading accounting
journals.5 For our (2) database search assessing the outlets we used ScienceDirect,
EBSCOhost, JSTOR, and Google Scholar. Applying an iterative search process by
updating our (3) search string whenever we identified new relevant6 aspects in the
reviewed outlets, we started with the keywords “finance” and “automation” (Fig. 1)
and, in doing so, we focused on titles, abstracts, and keywords.
Due to the large number of hits in the thousands, we specified our search string
with “financial accounting” and “finance transformation” as well “cognitive-based
automation” and “recommender system.” Furthermore, we included MIS Quarterly
Executive, Harvard Business Review, and other “grey” literature to trace a first finding
that the topic on hand is reflected in practitioners´ journals. We came up with 31
relevant hits.
Referring to more details such as different methods of ML, in a fourth and final
step, we conducted a (4) backward and forward search [20]. In our backward search
we reviewed (older) references cited in the articles we already identified, whereas

3 Based on the senior scholars’ basket of leading IS journals (2019): European Journal of Information

Systems (EJIS); Information Systems Research (ISR); Information Systems Journal (ISJ); Journal of
the Association for Information Systems (JAIS); Journal of Information Technology (JIT); Journal
of Management Information Systems (JMIS); Journal of Strategic Information Systems (JSIS); MIS
Quarterly.
4 We followed the Association for Information Systems: Americas Conference on IS (AMCIS);

European Conference on IS (ECIS); International Conference on IS (ICIS); Pacific and Asia

Conference on IS (PACIS).
5 Following Bandara et al. [19], we examined the best rated accounting journals of the German Asso-

ciation of Business Administration: Accounting Review; Journal of Accounting and Economics;

Journal of Accounting Research.
6 Classifying an article as relevant if its scope covered accounts payable activities more in detail or

in a combination with ML.

140 M. Esswein et al.

Financial Finance Rule-based Recommender Reinforcement

accounting transformation automation system learning

Cognitive-based Machine
Purchase-to-pay Finance Automation
Automation learning

Business Artificial (Un-)Supervised

Invoice
process intelligence learning

Order-to-cash, record-to-report,
NLP, OCR Classification
enterprise performance management

Fig. 1 Iteration of our initial search term “finance” and “automation” following the citation pearl
growing approach [21]

our forward search covered additional sources citing the articles already identified
to locate follow-up studies or newer developments on our topic of research. This led
to another 17 hits. Hence, we ended up with a total of 48 relevant articles (Fig. 2).

2.2 Gap Analysis

For our gap analysis, we structured these 43 outlets along four categories (Fig. 2):
(1) Within the examined business domains we focused on financial accounting, infor-
mation technology (IT), and complementing articles without a domain specification
(“generic”) [22]. (2) Regarding automation, we differentiate between rule-based and
cognitive-based references. Within the latter, we focused on supervised, unsuper-
vised, and reinforcement learning algorithms. (3) Focusing on the research approach,
we distinguish empirical research, namely case studies, experiments, surveys, and
interviews from conceptual research extending existing artifacts by logical reasoning.
Regarding (4) the type of contribution, we differentiate constructs, models, methods,
instantiations as well as design guidelines [10].
To analyze the number of co-occurrences of each pair, we computed dyads between
the components of our framework [19]. For example, the number of articles covering
financial accounting and cognitive-based automation is four (Fig. 2).
(1) Business domain: Our literature review shows a large number of 33 generic
publications. However, some generic articles address problems related to finan-
cial and management accounting. For example, in their guide for ML applica-
tions, Witten et al. [2] present use cases like deciding whether to give a loan
to a customer or not. Among the seven articles covering financial accounting,
Wilson and Sangster [23] highlight the importance of rule-based automation
for the finance function due to their large volumes of numerical data to be
processed. Van den Bogaerd and Aerts [24] look at the applicability of different
computer-aided content analysis techniques. Codreanu et al. [25] provide a first
Improving Invoice Allocation in Accounting … 141

Fig. 2 Literature systemization

overview of supervised and unsupervised ML techniques and their relation to

online analytics processing (OLAP) in the accounting domain. Nolle et al. [26]
test the accuracy of their deep learning auto-encoder on P2P data. However,
their focus was on anomaly detection and they do not enhance their analysis
with a case study.
(2) Research approach: None of the above-mentioned authors lay out concrete
use cases. Only Bräuning et al. [27] introduce a learning algorithm and demon-
strate relevance for a single use case recognizing actuarial gains and losses from
occupational pension schemes. ML is applied in decision support of different
142 M. Esswein et al.

industries and application areas [28]. De Prado [29] covers ML for financial
analysis, but only from an external perspective. There is only one case study for
financial accounting. In line with our research objective, Veit et al. [30] demon-
strate the application of ML to finance processes with their process mining
tool. Overall, empirical research is clearly underrepresented in comparison to
conceptual work (14 vs. 34).
Summarizing the findings from our first two clusters of research, we constitute
a lack of research addressing concrete ML use cases in the (financial) accounting
domain.
(3) Type of automation: There are a five rule-based automation case studies. For
instance, Schmitz et al. [31] researched RPA at a large telecommunications oper-
ator, where more than a million transactions per month were automated in the
course of one year. Aguirre and Rodriguez [32] cover RPA in the order-to-cash
(O2C) process. With respect to cognitive-based automation, the foundations for
ML and pattern recognition were laid out in Theodoridis and Koutroumbas [33]
or Bishop [34]. In the late 1980s ML was established as an experimental science
[35]. Caruana and Niculescu-Mizil [36] present a comparison of supervised
learning algorithms like decision trees, support vector machines, neural nets,
and k-nearest neighbors. They follow up their analysis with a comprehensive
testing on different data sets, but none of them is accounting-related.
Among ML algorithms, nearest neighbor classification [37] is one of the most
widely applied methods [38]. Knowledge discovery in databases was a well-regarded
step ahead setting a framework for future work with the steps selection, prepro-
cessing, transformation, data mining, and interpretation [39]. Efficiently splitting the
available data into different sets for training algorithms and testing their performance
against known data has also been subject to research in the 1980s [40]. In their study
of ML in DSS, Merkert et al. [28] show that 30% use artificial neural networks while
less than 5% use pattern recognition. More in line with our objective, Califf and
Mooney [3] proposed a system for information extraction from documents to fill
templates. However, their system was not integrated into a corporate environment
and does not address information transformation, data mining, and interpretation.
(4) Type of contribution: Finally, we examined that constructs and methods exist
for all types of automation. However, there is a lack of models, instantiations, and
design guidelines. With respect to the latter, we did not find articles deriving
design guidelines for financial accounting. Design guidelines for cognitive-
based automation were given by five articles, among them Garcia et al. [38]
with a taxonomy for nearest neighbor classification.
Summarizing our findings, we revealed a lack in addressing the potential of
cognitive-based automation in (financial) accounting. To address this lack, we
propose a new kind of an account recommender by applying ML. We take a leading
chemical company as our case study and focus on two things: (1) examining predic-
tion accuracy and process efficiency when handling invoices without a purchase order
and (2) deriving first design guidelines to implement ML in the accounting domain.
Improving Invoice Allocation in Accounting … 143

3 Method

3.1 Case Study

Following Dul and Hak [41] case studies allow researchers to study artifacts in
natural settings [42] and observe the situation in which activities take place. Case
studies enable researchers to learn from practice (build on people’s experiences and
practices), understand the complexity of the process, and leverage the possibility of
iteratively testing results in a real world environment. The results are analyzed in a
qualitative manner [41]. In comparison to broader surveys, case studies provide in-
depth information (esp., internal company data), and recognize the complexity and
embeddedness of activities [43]. In the IS and accounting disciplines, case studies are
a generally accepted research approach and have been employed for decades They
are a proven way to research and contribute to theory building especially where only
few studies exist [42].
We opted for a single case study and took a leading chemical company with
revenues of more than 50bn USD and over 50,000 employees as our reference. Its
financial processes are standardized worldwide and continuously optimized. Global
Finance Transformation (GFT) has the central governance and harmonizes all finan-
cial processes running on a single SAP system. With the help of a network of process
experts around the world, GFT is constantly seeking new (digital) technologies whilst
promoting new solutions for process improvements. This way, we had the opportu-
nity to assess multiple sources from different entities and experts. In doing so, the
findings from the literature review gave us direction to ask the “right” question for
both setting up a prototype and answering our research questions.
Following the tenets of requirements engineering [44], we differentiate between
functional and non-functional requirements [45]. Focusing on the functional require-
ments, we examined internal documentations and archival records about invoice
processing in the P2P process, conducted four semi-structured expert interviews7 in
the reference company, and analyzed key statements from these interviews along the
guidelines of qualitative content analysis [46, 47]. Finally, we derived requirements
for a prototype (Sect. 4) and set it up by applying an ML algorithm (Sect. 3.2).
The P2P process within our reference company starts with managing a requisition
and comprises five steps from submitting a purchase order to invoice settling –
predominantly administrative tasks as illustrated in Fig. 3 [48, 49]. While many
rule-based tasks are already automated, the invoice processing still requires a lot of
human input. The company receives around 4.8 million supplier invoices per year,
out of which over 600,000 (13%) are related to a purchase order. This means a
bundle of materials and services (even expense sheets from team lunches and client
dinners) were requested without a purchase requisition and, thus, no purchase order
is available (“FI postings w/o a purchase order”). After approving the order number,

7 Interviewees were the head of the P2P process, a senior expert of R2R process, the head of the
order-to-cash (O2C) process and a senior expert for accounts payable.
144 M. Esswein et al.

Submit Receive Acknowledge Process SeƩle

purchase order order receipt invoice invoice

AdministraƟon
RequisiƟon

Verify Post Monitor

Fig. 3 P2P process of the reference company

invoice amount and/or quantity, finally, goods received, and the supplier of the invoice
without purchase order, the invoice is posted to a manually determined general ledger
(GL) account.
GFT set up a project team to develop a ML prototype that suggests a general
ledger-account within the SAP ERP matching the content of the invoice (account
recommender) according to a predefined rule. This should lead to both increasing
prediction accuracy and a more efficient P2P process by reducing the manual
workload.

3.2 Weighted K-Nearest-Neighbors

The k-Nearest-Neighbors (k-NN) algorithm is one of the simpler classification algo-

rithms. It is a method, where a new object is assigned the class that occurs most
frequently among the k observations in a given radius or neighborhood of the new
observation [37]. As opposed to the simple k-NN algorithm, the distance-weighted
k-nearest neighbor rule (dwk-NN) weighs the contribution of each of the k neighbors
according to their distance to the new observation, giving greater weight to closer
neighbors. The weights are taken from the interval [0–1]. The closest neighbor gets
a weight of 1, the furthest of 0, and the others are scaled linearly on the interval
in-between.
To determine the optimal number of neighbors, we computed the percentage
of correct predictions at k from 1 to 20. Figure 4 shows the results. For example,

Fig. 4 K-NN algorithm: 100%

Accuracy against number of 90%
neighbors
Accuracy

80%

70%

60%

50%
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20
Number of neighbors
Improving Invoice Allocation in Accounting … 145

if k = 1 is chosen, the accuracy of the proposed forecast will be approximately 60%,

whereas in the case of k = 20, the accuracy is 88%.
A decision for k should be a trade-off between the following two aspects: On the
one hand, k should be large enough to avoid noisy decision boundaries that occur
at very small k. On the other hand, it should be small enough so that only nearby
samples are included. Choosing k too large will lead to over-smoothed boundaries
and longer computation times without a proportional accuracy increase.

4 Artefact Description

4.1 Requirements Specification

Focusing on the functional requirements of an account recommender (Sect. 3), we

derived the following six functional requirements (Fig. 3): (1) New invoices without
a purchase order should be transmitted to the ML cloud right after arrival. Thus, they
should be taken out of the standard workload basket and the usual rule-based automa-
tion process (incorporating Finance robots) should be stopped. (2) The account
recommender should be able to handle all invoices, regardless of type and issuer.
(3) The GL-account should be determined by comparing the billing attributes of the
new invoice with historical data and their related postings to identify the best-fitting
account. (4) If the estimate for the account has a likelihood of 80% or higher, the
account should directly be written to the ERP system (without human interaction).
If the likelihood is below 80%, the three best options should be returned as a choice.
(5) The (human) approver should have the ability to override all propositions, even
those above 80% likelihood. (6) The algorithm should remember account choices
for retraining, which takes place every month.

4.2 Data Preparation and Feature Selection

Based on these requirements (Sect. 4.1), a data set was put together using historical
invoice data of more than two million records in the period from 2010 to 2018. Each
invoice includes over 200 fields. One of the most important steps in the preparation
of data is the selection of relevant features. The reduction in the number of variables
(the rejection of attributes that are weakly correlated with the target variable) not
only increases the accuracy of the prediction, but also lowers the requirements for
the computing resources. The most relevant variables for our use case were chosen
after getting acquainted with the process of invoice processing. Criteria for selection
included accounts payable employee experience, data availability in enough records,
the information gain ranking for all attributes, and insights from the first iterations.
146 M. Esswein et al.

Table 1 Relevant invoice fields (independent variables)

Field name Description Examples
WC_USER Invoice approver name SMITHJ
VENDOR_NO Account number of vendor or creditor 123456
REF_DOC_NO Invoice number from vendor system XX 12345
COMP_CODE Company code US01
CURRENCY Currency key USD
NET_AMOUNT Net amount in document currency 500
GROSS_AMOUNT Gross amount in document currency 600
INVOICE_IND X if it is a normal invoice, blank if it is something else (e.g., X
a credit note)
CP_DOC_TYPE Defines a kind of invoicing process ID
SUPCOUNTRY_ISO Country of the invoice (from vendor side) US
DOC_DATE Date of invoices 20180101

As a result, eleven fields were gathered, where “GL_ACCOUNT” is the dependent

variable and the remaining features are independent variables (Table 1).
Based on these features, the supervised learning algorithm predicts a matching
GL-account for a new invoice without a purchase order. Following the reasoning
that some fields are more relevant for prediction than others, we iteratively assigned
different weights to them. We then used K-fold cross-validation to randomly split
the full dataset into K subsets of approximately equal size. K − 1 blocks were used
to estimate the parameters of the model (train) and the one remaining block was used
for testing the model’s accuracy (test). The process was repeated K times, and each
of the blocks was used once as a test set. Finally, the parameters of the resulting K
models were averaged to get one estimate.

4.3 Results

The processing of invoices (step 4, Fig. 4) always starts with data extraction and
validation (Fig. 5). If all data are available, the standard approval process is trig-
gered. Otherwise, the type of data that is missing needs to be identified. In case of
a missing GL account, the account recommender performs the necessary actions of
(1) preparing the data, (2) computing a k-NN estimate, and (3) returning the GL
account. Note that if the confidence level for a single GL account is too low, the
account recommender returns three candidates from which the user has to select
one account. For missing data other than the GL account, manual handling is still
necessary. However, missing approvers have already been identified as an extension
(Sect. 5).
Improving Invoice Allocation in Accounting … 147

Start
ACCOUNT RECOMMENDER
Extract
invoice data Compute Return
Prepare data
k-NN es mate GL account
GL account Transform for Apply trained Or propose 3 op ons
Validate data efficient processing feature weights if confidence levels
on ML pla orm are too low

Data No Iden fy Which data is

End
complete? missing data missing/wrong?
Yes

Standard Other Manual

approval handling

Fig. 5 Invoice processing for invoices with missing data

One key tuning parameter of our prototype is coverage, which means the ratio
of invoices that are handled automatically by the prototype versus those for which
three candidates are proposed. We tested the performance for three scenarios, 50,
75, and 100% coverage. Figure 6 clearly shows that it is impossible to have high
prediction accuracy and high coverage at the same time. While the accuracy for 50%
coverage is around 87%, it is only 59% for 100% coverage. In our trade-off scenario,
the prediction accuracy is 72%.
Currently, the manual process requires at least five full time employees and can
take up to one day of time. In contrast, for the three steps indicated in Fig. 6, the
account recommender only needs a few seconds. However, training the model and
retraining it with delta loads every week consumes more time than single predictions
and is resource intensive. On a standard laptop, the process of initial model fitting
and estimating the test set takes around 24 h, which is a strong argument for cloud
computing.
Based on these results, we propose five design guidelines that sum up the lessons
learned during the design and development of prototype as follows:
The first guideline addresses the fact that with a sensitive topic like thinking about
replacing human labor with machines, the solution has to be all the better. More in
detail, turning affected and most often reluctant accountants into engaged innovators

Fig. 6 Accuracy and Accuracy Coverage

coverage of three prediction 100%
models
80%

60%

40%

20%

0%
HIGH ACCURACY TRADE-OFF HIGH COVERAGE
148 M. Esswein et al.

is a good facilitator for a successful digital transformation.8 However, this can only
be achieved if the prototype developer has a good business understanding and even
a good relationship to the accountants and owners of the process to-be automated.
Design Guideline 1 Truly understand the business need. Get yourself acquainted
with the process and automate with the best possible user experience in mind.
When training machines based on historical data, the quality of the training data is
a crucial factor.9 Although some algorithms are relatively robust against missing or
erroneous data, the risk of replicating past mistakes hundreds of times exists. Hence,
cleansing the initial training set from flawed data is an essential condition.
Design Guideline 2 More data can only get you so far. While a broader training set
generally leads to more accurate predictions, do not forget to provide good-quality
data.
Nowadays, most ML algorithms come paired with powerful feature selection and
iteratively adjust parameters with methods like gradient descent. Still, most of the
approaches to feature and weight selection are heuristics that start with a random
or an all-equal-to-one initial configuration and often only reach a local optimum.
In the presence of experts who have performed the task hundreds of times, initial
configurations can be deduced that improve speed towards and accuracy of the final
configuration.
Design Guideline 3 Give the machine a good starting position. Using a combination
of expert judgement and ML for feature selection and assigning weights speeds up
the training process.
Among the reasons why ML was not as prominently applied as it is today are
the hardware requirements with increasing data volumes and complexity of tasks.
Although business users were used to data loads over the night from traditional data
warehouses, they are no longer as patient. While there has been significant progress
in terms of single processing units, parallelization has had an even bigger impact
on performance increases. Thus, distributing the workload of a ML use case over
several machines is the most reasonable choice. A cloud architecture provides that,
which is why the reference company chose to implement the prototype on one of the
leading cloud platforms.
Design Guideline 4 Computing power is crucial. Processing large amounts of data
with ML requires resources that a cloud-based architecture is better suited for than
local hardware.

8 The shared-service center employees of the reference company were the ones to identify use cases

and develop an agenda for the broad introduction of rule-based and cognitive automation in their
daily business.
9 Training ML algorithms with biased and incomplete data has been subject to research for more

than twenty years [50]. In the context of big data analytics, patching, and cleansing data in real time
has become an important tool [51].
Improving Invoice Allocation in Accounting … 149

Despite the intelligence attributed to the machine and its far superior speed, there
are always situations that require human assessment, sensing, and monitoring in a
process as complex as invoice processing. As a result, in many cases the machine can
only provide likely alternatives or make a choice based on probabilities of past data.
Therefore, accountants should still have the option of overriding entries. Additionally,
this may help build confidence since the accountant can experience first-hand what
the machine does well and where it lacks behind. In turn, this knowledge can then be
used to adjust parameters and improve the accuracy and coverage of the algorithm.
Design Guideline 5 Do not burn your bridges yet. Keep a fallback solution for human
workers to override entries and help the machine learn from experts´ decisions.

5 Evaluation

Evaluating the relevance of new artifacts is a major activity in DSR [52]. Gregor
and Hevner [16] propose a number of dimensions such as validity, utility, quality,
and efficacy.10 Following our RQ 1, we evaluate our prototype focusing on predic-
tion accuracy and process efficiency asking if the prototype outperforms the current
standard of manual work in our reference company.
Following up on prediction accuracy, we had two unstructured interviews of
roughly 30 min each. Evaluating different combinations of invoice fields as well
as different levels of confidence and coverage, our first interviewee, the head of
accounting of the reference company, told us that the automation should mitigate
one of the bottlenecks in the finance back office. According to him, the process
of determining approver and GL account (with cost center or project reference)
sometimes take up to three weeks and it has not so good prediction accuracy rate than
the prototype exposes (Sect. 4.3). The lead audit partner as our second interviewee
pointed out that his company began to train a neural network that is fed all information
on an invoice, including visuals, text positions, and the text information used in
our prototype. He did not have comparable figures yet, however, acknowledged the
eagerness of two of his clients to try it out.
In order to assess process efficiency, we conducted another four interviews during
a workshop of a manager focus group, which is part of the Schmalenbach working
group “Digital Finance”11 and regularly meets to discuss trends in the digitalization
of the Finance function. Interview partners were the head of GFT of our reference
company, the head of accounting of a utility company, and a partner of an audit
firm who has recently started implementing several ML prototypes for finance as
well. The head of the GFT department laid out that the business case for the account

10 Besides these goal- and activity-related dimensions, Prat et al. [53] add environment, structure,

activity, and evolution as further evaluation criteria.

11 Schmalenbach Gesellschaft für Betriebswirtschaftslehre e.V. https://www.schmalenbach.org/ind

ex.php.
150 M. Esswein et al.

recommender is very straight forward and amortization should be within a maximum

of two years (Sect. 4.3). Today, our former prototype is being implemented to handle
more than 500,000 invoices per year in the future more accurately and efficiently
than manual work did before. Thus, our prototype results were very promising in its
case environment.
Gaining further process efficiency, the working group discussed a feasible
evolution of our prototype: An approver recommender. Based on a very similar
model where only the “GL_ ACCOUNT” dependent variable is exchanged with
“WC_USER” (the approver), this second use case is already on the list of future
projects for GFT in 2020.

6 Discussion and Conclusion

Taking a single case study in a leading chemical company as our reference, the
objective of this paper was firstly, to gauge the potential of ML in improving predic-
tion accuracy and process efficiency compared to manual work and secondly, to lay
out first design guidelines to successfully implement ML in the accounting domain.
In doing so, we proposed a new kind of an account recommender which applies
distance-weighted k-nearest neighbors to determine most probable general ledger
accounts. We demonstrated three scenarios with different levels of coverage, predic-
tion accuracy, and process efficiency. To drive future research, we proposed five
design guidelines.
From 2020 on, our former prototype will be implemented to handle more than
500,000 invoices without purchase order per year more accurately and efficiently
than manual work did before. For practice, our set of requirements and proposed
areas of applying ML in the accounting domain should help companies to drive their
implementation of cognitive-based automation whilst helping managers to improve
the prediction accuracy and process efficiency of their finance back office. In addi-
tion, our design guidelines should help companies get started with ML for accounts
payable. For research purposes, our approach is more comprehensive than mostly
literature-based references like Fung [54]. As opposed to articles like Lacity and Will-
cocks [6], we followed DSR’s iterative “build and evaluate” activities and deployed
a prototype for more in-depth research. In comparison to Bräuning et al. [27] or
Caruana and Niculescu-Mizil [36], we ensured the relevance of our design guidelines
by evaluating them with experts from different companies.
However, our research reveals avenues for future research. Single case studies
offer a broad range of advantages (Sect. 3), they have limitations in terms of validity
and generalizability [55]. Thus, future research should approach the potential of
ML in the accounting domain with the help of a quantitative approach or a multiple
case study. Furthermore, we only presented our results using the k-nearest-neighbors
algorithm. However, as Merkert et al. [28] pointed out, 30% of ML applications
use artificial neural networks, which should be an interesting option for a future
prototype.
Improving Invoice Allocation in Accounting … 151

Furthermore, the artifact itself faces limitations. Combining both findings from
literature and expert interviews, we derived at six functional requirements. Despite
our deep business understanding, further input factors could complement our find-
ings. Thus, future research should extend our set of input factors. Overall, the research
results should be interpreted carefully. Generalizability across companies is not
possible due to differences companies may work – even in standardized domain
such as accounting. Furthermore, digitalization and its transformational effects may
lead to unforeseeable (technical) developments in the future. Nevertheless, ML is a
rising topic and its application will become a game changer for the finance department
and even beyond.

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Performance-Based Funding
in the Italian Higher Education:
A Critical Analysis

Alberto Ezza, Nicoletta Fadda, Gianfranco Pischedda, and Ludovico Marinò

Abstract University performance is playing an increasingly important role in

financing public institutions. This has resulted in higher competitiveness and stronger
emphasis on efficiency and effectiveness and a propensity to hold universities directly
accountable. However, assessment tools are not consistently able to measure the
achievements of universities in a reliable way due to the lack of indicators that can
assess performance objectively. Furthermore, the formulas that are frequently used to
determine achievements are complex, and the raw data that feeds such formulas are
not unfailingly reliable. The aim of this theoretical study is underlining the potential
criticalities of the performance-based approach in the Italian higher education system
by critically analysing three of the main mechanisms that are employed to determine
resource allocation. The paper also highlights the derived effects that influence the
strategic choices and consequent actions that are implemented by universities.

Keywords Performance-based funding · Higher education · Research ·

Performance management · Informative system · Italy

1 Introduction

Over the last few decades, the higher education (HE) system has significantly changed
in line with New Public Management theories and marketization policies [2, 11].
In recent times, performance measurement and evaluation have become increas-
ingly important with the aim of increasing competition within the system [29] as a
means of enhancing efficiency [1]. Thus, governments have started to adopt different
managerial tools, such as performance-based principles or reward-based resource
allocation mechanisms, to achieve fairer and more efficient fund allocation practices.
However, the attempt to measure all the activities carried out by public institutions
can weigh down information systems due to the focus on complex indicators that
cannot consistently measure results in an equitable manner.

A. Ezza (B) · N. Fadda · G. Pischedda · L. Marinò

Department of Economics and Business, University of Sassari (Italy), Via Muroni, 25, 07100
Sassari, Italy
e-mail: alberto.ezza@uniss.it

© The Editor(s) (if applicable) and The Author(s), under exclusive license to Springer 155
Nature Switzerland AG 2020
R. Agrifoglio et al. (eds.), Digital Business Transformation, Lecture Notes in Information
Systems and Organisation 38, https://doi.org/10.1007/978-3-030-47355-6_11
156 A. Ezza et al.

Despite the substantial empirical literature available on this topic, especially in

relation to the impact of these reforms, there is still much research to be conducted
in relation to the Italian higher education system (IHES) as a whole. To contribute
to the debate on this topic, this work aims to point out the potential criticalities
of performance-based logics in the IHES by theoretically examining three of the
main mechanisms that are currently used to allocate resources to public universities
within the IHES: the allocation of the state funding mechanism (FFO—Fondo di
Finanziamento Ordinario), the budget for academic and administrative staff recruit-
ment (Punti Organico-PO), and the extraordinary recruitment budget for fixed-term
research fellows type B (Piano straordinario di reclutamento).
In particular, the study investigates, in depth, the characteristics of the
performance-based principles that have been adopted in the last year by the Ministry
with the underlying objective of identifying indicator peculiarities and criticalities.
At the same time, it aims to ascertain what strategic responses universities can adopt
to facilitate the achievement of a higher level of performance and, subsequently,
secure more funds.
This paper is organized as follows. Section 2 will present a review of the existing
literature on performance-based funding and the role performance information plays
within the existing HE funding practices. Section 3 will outline the Italian situation
with a specific focus on the reforms that have been implemented since 2010. Section 4
will describe three of the main mechanisms that are used to determine resource
allocation across public universities in Italy and will include a thorough analysis of
the indicators and performance measures that are in place. Finally, the conclusion
will be presented in Sect. 5.

2 Performance-Based Funding in Higher Education

In recent decades, several reforms have promoted a managerial transformation of HE

with the express intention of improving performance [7, 12] through the extensive
use of performance measurement and assessment approaches. Performance infor-
mation plays a fundamental role in budgeting decision [5]. Over the years, with
the aim of substituting the traditional input-based approach with output/outcome-
oriented models [28], different mechanisms of performance budgeting have been
developed; however, the various approaches that are available can typically be cate-
gorised as one of two types [6, 30]: performance-based funding (PBF), which relies
on the application of performance indicators directly, usually within a formula; and
performance-based budgeting (PBB), which applies performance indicators in a more
discretionary and indirect way.
PBF has been adopted to distribute funds more efficiently and facilitate the imple-
mentation of government policies. Indeed, by rewarding the highest-performing insti-
tutions, governments aim to increase the “value-for-money” of universities, and,
eliminate or reduce the size of wasteful programmes [36]. It worth noting, as high-
lighted by the resource dependency theories [35], that organizations are more likely to
Performance-Based Funding in the Italian Higher Education … 157

adapt their strategy and managerial behaviour to meet the needs and target of funders.
Consequently, public universities should be highly responsive to those targets defined
by their main funders [19, 23, 32].
PBF logic strongly relies on the existence of a direct and deterministic relationship
between policies (which result in goals and targets), incentives (higher shares of
funds), the actions of universities (which change to achieve targets), and intended
results [36]. Even if the rationale that underpin PBF is clear, there may be unintended
consequences following its adoption. In fact, the implementation of PBF in HE can
lead to some unpredictable impacts [34] and unintended results [14, 20].
The effectiveness of PBF programmes in HE (i.e., the capability of PBF to promote
the achievement of the goals set at a governmental level) can be hampered by some
factors. Regulators set indicators, which sit at the core of the PBF mechanism, to
assess the performance of universities and drive the allocation of funds. However, as
a PBF can only assess a limited extent of the activities in which universities engage
[22, 40], the quality of the measures used and, concurrently, the reliability of the raw
data collected and reported by the informative systems (both on an organisational
and institutional level) have a direct impact on the effectiveness of a PBF [21]. In
this sense, PBF has a limited ability to objectively identify the highest performing
universities and, subsequently, allocate a higher share of funds to such institutions.
As such, PBF can lead to inequitable funds distribution. Another potential weakness
linked to this system lies in the inability of the indicators that are employed to
comply with the institutional differences between the universities that result from
diverse dimensions, be they size, institutional, vocational or due to localisation.
So, what are the potential unintended consequences of PBF adoption? First, imple-
menting the PBF approach forces a government (and its agencies) and universities
to bear high costs to meet information requirements. The cost of compliance is also
high in terms of the higher workload that is created for university staff and the
greater investments in informative systems and personnel. Furthermore, the cost of
compliance can impact different universities in different ways due to heterogeneous
institutional capacity [14]. Second, the higher competition for public subsidies can
result in the adoption of policies that can reduce the diversity and specialisation
of the institutional missions or programmes, since universities are incentivised to
abandon those programmes that are not positively evaluated and, consequently, focus
on specific activities [25]. Moreover, PBF can profoundly change student enrolment
policies. Indeed, if indicators of students’ success are included in the PBF formula,
universities can refuse to enrol less-skilled students as a means of achieving higher
performance [14]. If universities are publicly funded and education is considered a
merit good [39, 41], these practices can seriously reduce the university’s capability
to achieve its institutional mission. Furthermore, PBF can reduce the overall quality
of the education programmes that are available since the system motivates universi-
ties to remove the obstacles that can impede students’ graduation. Even if, to some
extent, this can be considered to represent a positive feature (universities are forced to
increase their effectiveness), it can result in a reduction in the standard of education
on offer.
158 A. Ezza et al.

Lastly, the adoption of PBF in a HE system that is characterised by a higher

internal diversity can lead to an increase in inequalities. Indeed, the application of
formulas can perpetuate and boost the existing inequalities [33] by over-favouring
the best performing institutions and over-penalising the lower performing establish-
ments [26]. This is particularly true if the diversity in performance can be explained
by external factors [15] that are outside the control of public managers and are
accountable for a high share of a university’s results [42].

3 Performance-Based Funding in the Italian Higher

Education System

IHES is the outcome of the season of reforms inspired by the New Public Management
rhetoric and the European Union policies (Bologna process, Lisbon Strategy). The
reforms aimed to increase the overall IHES performance in order to overcome the
limited competitiveness, backwardness, and unfairness that characterised the IHES
[10]. In particular, the funding system was remodelled in line with quasi-market [4,
31] and performance-based funding literature [24, 28].
Two main paths of reform should be considered: the global reform of 2010, and
the reform of the funding mechanism in line with the PBF literature. IHES was
profoundly changed with the introduction of L. 240/2010, which aimed to increase
the autonomy, accountability and performance of universities [12, 13]. The so-called
Gelmini Reform changed the overall landscape of the IHES by reorganising the
governance mechanisms, strengthening the role and use of performance evaluation
within the system, and promoting higher competition among universities.
The funding of IHES has also profoundly changed over the last few years. The
latest evolution of allocative mechanisms was carried out during a phase in which
the government significantly reduced the availability of resources [17]. The overall
public funding dropped by 7.2% between 2006 and 2016 (−19.43% if the effect
of inflation is eliminated), thereby increasing the degree of competitiveness among
public universities.
The reform of IHES funding commenced in 1993 (L. 537/1993) and was amended
in 1995 (L. 549/995) when the government created a unique source of public funding
for universities (the so-called “Fondo di Finanziamento Ordinario”) and promoted a
shift to a lump-sum budget allocation process. After several trials of the PBF approach
in IHES, the 2010 reform generated a strong impetus in the use of performance to
determine public subsidy allocation.
In addition to the allocation of public subsidies, in 2012 (legislative decree
49/2012), a performance-based mechanism of allocating budgets for staff recruit-
ment (both academic and administrative) was introduced. The allocation process is
based on a metric named the Punto Organico (PO), which is the equivalent to the
average cost of a full professor. This is used to measure and parametrize the costs
of academic figures and the resources allocated to universities [16, 37]. In other
Performance-Based Funding in the Italian Higher Education … 159

words, using a set of weight defined ex ante (i.e., one associate professor equals 0.7
PO; one fixed-term research fellow varies from 0.4 to 0.5 PO; one executive equal
0.65 PO, etc.) this parameter expresses the resources that are available to univer-
sities. The budget that is allocated to universities on an annual basis (linked to the
number and type of academics and administrative staff who left the universities the
previous year) is shared among universities via a formula-based method that is based
on two economic and financial parameters. Through the application of this formulaic
approach, both the “best” and “worst” universities are identified, and the former are
awarded a higher share of POs.
The underlying risk associated with the formula used to allocate funds to Italian
universities is that is can serve to widen the gap between institutions by consistently
rewarding performance that is only partially determined by universities’ strategic and
operative behaviours. In fact, the differences in socio-economic environments (e.g.,
regional wealth, occupational rates, etc.) could significantly impact performance and
can explain perceptions that some areas of the country are more attractive than others
(i.e., northern versus southern areas).

4 The Three Main Mechanisms for Resources Allocation

in the IHES

The changes that have been introduced in terms of how resources are allocated in
the IHES has created a landscape in which the primary use of performance can
be found in the following three mechanisms: The state funding mechanism (FFO
- Fondo di Finanziamento Ordinario), the budgets that are allocated for academic
and administrative staff recruitment (PO), and the extraordinary recruitment budget
that is apportioned for fixed-term research fellow type B1 (Piano straordinario di
reclutamento).
The critical analysis of these three funding mechanisms described along the
lines of the latest regulation, determine which of the types of universities’ activi-
ties are taken into consideration during the process of allocating resources as well
as the performance areas of interest. Moreover, based on the classification of the
funding mechanisms in higher education proposed by Jongbloed [27], each criterion
of formula adopted to calculate the shares that are allocated have been categorized into
input and output measurements. Input measurements are student enrolment figures
and staff positions, while output measurements assess the results of the main activities
conducted by the university in terms of education and research.
As Table 1 highlights, FFO is composed of a basic share (70%), a reward share
(27%) and other specific interventions (3%).

1 Type B research fellow (from now RTD-B), as regulated by the L. 240/2010 is a three-year contract

that can lead to a tenure-track to became associate professor for those who achieved the national
qualification.
160 A. Ezza et al.

Table 1 FFO Allocation criterion D.M. 587/2018

Shares Basic (about 70%) Reward (27%)
1 Student standard cost (22% FFO) 1 National research assessment—VQR
2011–2014 (16% FFO)
2 Historical funding (48% FFO) 2 Recruitment policies evaluation (5.5%
FFO)
3 Responsible autonomy (5.5% FFO)

The basic share is the sum of two elements: Historical funding and student stan-
dard cost share. Historical funding, which is not directly connected with current
performance, is calculated as a percentage of the basic share of the previous year,
while the standard cost share is determined through a demand-driven mechanism
that weights the amount of resources allocated to each university against the number
of regular students plus the number of students who are one year behind schedule
(full-time equivalent—FTE). Within this model, students represent both the input
and the users of educational services [3, 8, 38].
It is important to note that the demand-driven mechanism adopted in the IHES is
mainly “virtual” since universities do not receive exactly the amount of funds defined
by (standard cost of university * number of regular students). Indeed, “standard cost”
is not a “fare” that is paid by the Ministry; rather, it is used as a parameter to allot
the “basic share” to universities.
In terms of the second component of FFO, the reward share was introduced
with the aim of allocating funds in association with teaching and research perfor-
mance. However, the criteria adopted seems to steer competition more towards
research quality than teaching quality. In fact, art. 3 of DM 587/2018 established
that (approximately) 27% of the total amount of FFO will be based on:
• National research assessment–VQR (Valutazione della Qualità della Ricerca)
2011–14 (60% of the reward share, about 16% of the FFO). A periodic evaluation
that aims to retrospectively assess the quality of research performed at a given
institution.
• An evaluation of recruitment policies (20% of the reward share, about 5.5% of
the FFO) that takes into account the effectiveness of research activity. However, it
focuses purely on new recruits and also assesses the attractiveness of universities
in terms of recruitment of fellow researcher or professor from other Italian univer-
sities, abroad or those awarded with a research project financed by the European
Union.
• Responsible autonomy (20% of the reward share, about 5.5% of the FFO), aims
to improve the autonomy of institutions. Universities can choose indicators from
a list provided by the ministry that relate to three main dimensions: (1) Teaching,
as assessed by students’ performance; (2) Research, which is evaluated in terms
of attractiveness in recruitment policies; and (3) Internationalization with regard
to regular students, regular graduates and Ph.D. students from other countries.
Performance-Based Funding in the Italian Higher Education … 161

Universities are required to choose between two of the three dimensions and select
one indicator for each dimension.
The FFO is a mixture of historical, input and output-oriented allocation mecha-
nisms. It should be noted that the basic share (see Table 2), which is still a significant
amount (70%), is mainly linked to dimensional parameters (the input number of
students) in both the cost standard allocation (with the number of FTE students) and
historical funding. The latter is obviously related to the dimension of universities. The
higher the number of students, the higher the basic share distributed to the providers.
Looking at the reward share (see Table 3) an initial observation reveals that research
activity is repeated in two of the three criteria adopted, which represents 80% of the
reward share (about 21% of the FFO). Education assessment is relevant only with
reference to the responsible autonomy, which accounts only for 5.5% of the FFO
(20% of the reward share). Indeed, the focus of the results assessment, to which
the resource allocation is related, is on the effectiveness of the research activities as
evaluated through the quality of publications (output of research) produced by the
academic staff and new recruits adopting the VQR. In this regard, it is noteworthy

Table 2 Elements of the basic share (about 70%)

Student standard cost share Historical funding (48% FFO)
(22% FFO)
Simplified formula or criterion No. of FTE students × unitary Allocations of restricted funds
standard cost
Focus on Input (students) Amount of resources allocated
the previous year
Performance area Economic efficiency No direct connection with
performance

Table 3 Reward share (27% FFO)

VQR Recruitment policy Responsible autonomy
evaluation
Activity area Research Research (1) Education
(2) Research
(3) Internationalisation
Focus on Output (academic staff) Output (new recruits − (1) Regular student
academic staff) credits accumulated
(output)
(2) Attractiveness in
recruitment policies
(3) Regular students,
regular graduate
students, Ph.D.
students from other
countries
Performance area Effectiveness Effectiveness Effectiveness
162 A. Ezza et al.

that the VQR results used to currently allocate funds spanned a previous temporal
period, 2011–2014. This evaluation process is still disarrayed due to its not recur-
rent implementation. Indeed, the third-round exercise is going to start for the years
2015-2019, and further assessment criteria have yet to be published. The adoption
of VQR results to distribute FFO over a period of several years led to the reiteration
of resources allocated without differences from year to year. Doubtless, this is due
to VQR mechanism assessment in relation to the period of the evaluation (research
results achieved in four-five years).
PO is a metric that was first introduced in 2003 and later (2012) used in the PBF
mechanism to allot annual recruitment budget. PO allocation is a complex mecha-
nism that considers the number and type of employees (academic and administrative
staff) who left each university in the previous year (turnover POs) and the financial
efficiency of institutions, which is understood as the efficient use of resources with
special reference to human resources expenses and indebtedness.
It is worth noting that there is no direct relationship between a university’s turnover
POs and the POs actually allocated since they are partially reallocated, and the
following indicators are used to identify if a university is a good performer:
A. Staff cost indicator, which is calculated as the ratio between personnel expenses
and total revenues (i.e., the sum of public funds and tuition fees net of loan
repayments);
B. Economic and financial sustainability indicator, which is the result of the ratio
between total revenues after reducing rents payable and personnel expenses plus
amortization charges.
On the basis of the latest ministerial decree (DM n. 873/2018), a university
is considered “virtuous” if indicator A <80% and indicator B >1. In this case,
the best-performing universities are awarded with a higher share of POs than the
worst-performing institutions. Following this classification, art. 2 of DM 873/2018
establishes three different groups:
1. Worst-performing institutions (indicator A > 80% or indicator B < 1), which
receive a maximum of 50% of their turnover POs;
2. Virtuous institutions: (indicator A <80% or indicator B >1), which receive 50% of
their turnover POs plus an additional budget that is identified through a complex
formula that uses the 20% of the differences between two economic margins
(20% of the difference between total revenues after reducing rents payable and
personnel expenses plus amortization charges) to share the additional POs;
3. Universities showing a severe financial crisis (see DM 353/2018) and indicator
A >80% will not receive any funds for recruitment purposes (Table 4).
The PO allocation deals with the most arguable mechanism among the three anal-
ysed. First, the requirements that have to be respected to receive PO (see group 3) and
the formula-based criteria adopted during the allocation process are purely financial
indicators. Therefore, this mechanism rewards those universities that perform better
in terms of financial efficiency; i.e., the weight of personnel expenses versus total
revenues. This may not reflect dimensional variables and, as such, can prevent an
Performance-Based Funding in the Italian Higher Education … 163

Table 4 PO allocation D. M. 873—2018

Indicators Personnel expenses on the total revenues
Economic and financial sustainability
Performance area Financial efficiency
Worst universities Virtuous universities
Requirements (Personnel expenses/total (Personnel expenses/total
revenues (public funding plus revenues (public funding
students’ fees) >80% plus students’ fees) <80%
or or
(Total revenues after reducing (total revenues after reducing
rents payable/personnel rents payable/personnel
expenses plus amortization expenses plus amortization
charges) <1 charges) >1
PO allocated: basic share 50% turnover POs 50% turnover POs
PO allocated: additional share 20% margin (total revenues
after reducing rents
payable/personnel expenses
plus amortization charges)

evaluation of the real personnel needs. However, although this criterion seems to
encourage universities to reduce costs in proportion to total revenues, there is a need
to clarify some underlying factors. In the total revenues an important role is played
by the tuition level of students’ fees whom total amount is proportional to the number
of students and the unitary value of taxes. These factors are heavily influenced by
contextual influences that are not completely within the universities’ control. In fact,
having the ability to attract students depends on the quality of the teaching offer-
ings, the alignment between offerings and the labour market, a university’s ability
to facilitate an easy entry into the labour market due to the relationships between
universities, and the economic and social fabric, etc. [8, 9]. These factors, in turn,
depend on the socio-cultural and economic environment of the territory in which
the university is located [16, 18]. Likewise, the tuition fees are correlated with the
attraction and reputation of the university; that is, the higher the university’s repu-
tation, the higher the level of taxes the students pay. Finally, there is also a need to
highlight that tuition fees can represent, at maximum, 20% of the total FFO (see
Dpr. 306/1997) that is allocated to a university. However, the tuition fee-FFO ratio
varies consistently throughout the country, and only northern universities can levy
higher fees. In the period 2007–2016, for instance, the average fees paid by a student
enrolled in a southern or insular university was about one half of that paid by a student
who attended a northern university (from about 630 e to more than 1100 e).
With the objective of promoting new research recruitments, the Ministry period-
ically allocates specific resources for RTD-B as part of the recruitment budget. For
the current year, the extraordinary budget—for a total of 1511 RTD-B—is allocated
on the basis of the following indicators (DM 204/2019):
• 29% based on the mean number of academic staff in service in 2010 and 2018;
164 A. Ezza et al.

• 36% determined as follows: 90% according to the number of students, as set out
in DM n. 587/2018 for FFO allocation, and 10% according to the number of
financed grants for Ph.D. students;
• 18% according to VQR 11–14 assessment;
• 16% number of RTD-B in service in 2018 with national scientific qualification
(abilitazione scientifica nazionale) multiplied by the ratio between the number of
students, as set out in DM n. 587 for FFO allocation and number of academics in
service in 2018.
The extraordinary recruitment budget for RTD-B is a combination of an input-
and output-oriented allocation mechanism. However, looking at each of the criteria
that is applied to assess the respective portion of the positions distributed, it is clear
that input variables have a higher weight in the general formula. Input drivers repre-
sent about 65% divided by the mean of academics (29%) and number of students
(36%). Therefore, as shown in Table 5, the output-based allocation pertains to the
residual share that adopt the research results. Again, one criterion is the VQR (about
18%) while the latest part of position allotment is driven by another research output:
the numbers of research fellows who obtained the national scientific qualification
weighted on a structural parameter (n. students/n. academics). Also, this mechanism
is mainly input oriented and, again, teaching results are not taken into consideration.

Table 5 Extraordinary recruitment budget for RTD-B-D. M. 204/2009 2019

N. (Total = 436 550 270 255
1511)
Approximate 29 36 18 16
percentage
Simplified Mean value of N. of FTE National research N. of research fellow
criterion academic students assessment—VQR with national
position (years (90%), N. of 2011–2014 scientific
2010-2018) financed qualification * [n.
grant for PhD of FTE
students students/n.
(10%) academics]
Focus on Input Input (students) Research output Research output
(academic
staff)
Performance Dimensional Dimensional Effectiveness Effectiveness,
area parameter (no parameter, structural parameter
performance students’
linked) attractiveness (no
performance
linked)
Performance-Based Funding in the Italian Higher Education … 165

5 Conclusions

The purpose of this theoretical paper was to critically analyse the fundamental
funding mechanisms of IHES with the aim of highlighting criticalities and the derived
effects that influence the strategic choices and consequent actions taken by univer-
sities. Indeed, the motivation for introducing performance measurements within
resource allocation practices was to substitute the traditional input-based approach
with output/outcome-oriented models and to stimulate universities to increase perfor-
mance through linking part of the funds that are distributed to reward shares or, rather,
the output achieved. However, as a large amount of funding is input-oriented, it is
anchored to dimensional parameters such as the number of students or academics.
These are the basic share FFO (about the 70%), the 50% turnover PO and the two
main portion of positions (about the 65%) in the recruitment budget for RTD-B.
The predominance of input-driver related criterion in the IHES funding mechanisms
triggers competition between universities in attracting students. In addition to the
extensive use of input-based logic to allot funds, the choice of linking a relevant part
of the FFO (about 48%) to previous allocation should be noted. The use of historical
funding share serves to maintain the ‘status quo’ since it prevents extensive variation
in the amount of funds allocated to universities. However, at the same time, using
historical-based allocation can perpetuate gaps among universities and reduce the
role of incentives linked to the PBF model.
The analysis highlights how the current system is extremely complex across all
three of the mechanisms examined. Table 6 summarizes the targets that are encom-
passed in the three PBF mechanisms and shows the predominant outcomes of the
actions that are motivated by the PBF mechanisms adopted in Italy.
It is worth noting that the repetition of some indicators/criterion, such as the
dimensional indicator “number of students” and VQR results, which are used to
determine the basic share of FFO and approximately 36% of the positions covered
by the extraordinary recruitment budget for RTD-B, and the reward shares of the
above mechanisms. In this regard, a questionable issue concerns the replication of
the resource allocation due to the adoption of VQR results in the allotment of the
reward shares over several years. The VQR exercise shows some issues in relation
of evaluation process in relation to the disclosure of the assessment criteria provided
at the end of the evaluation period. In terms of the reward shares, the deficiency of
output related to the educational activity of universities stands out. These are only
considered in the residual share “responsible autonomy” (20%) of FFO while they
are not an allocation criterion in the distribution of PO, within which only financial
indicators drive the PO assignment. The lack of adoption of educational outputs in
the PBF mechanisms analysed emerges as one of the more questionable weakness
considering the relevance of the education activity, which represents one of the key
institutional missions of Italian universities.
Of the universities’ behaviours that should be triggered by the resource allocation
mechanisms, increasing student enrolment is the more relevant expected action as
dimension indicators are the main resource allocation drivers. In fact, as previously
166 A. Ezza et al.

Table 6 Expected actions of PBF mechanisms

Target/focus Used in Expected outcomes (Rationale)
N. of FTE students FFO basic share Increase enrolment by
improving quality and
attractiveness
Extraordinary recruitment Promote higher efficiency of the
budget for RTD-B formative path
Research productivity FFO reward share—VQR Increase in the quality of
research
FFO reward
share—responsible
autonomy
Extraordinary recruitment Support a positive attitude
budget for RTD-B toward external evaluation
Recruitment FFO reward share Increase universities’
accountability of recruitment
Increase the competition to
attract “talent”
Support the internationalisation
of research
Education FFO reward Increase the overall students’
share—Responsible productivity and the quality of
autonomy the teaching path
Internationalisation FFO reward Increase the internationalisation
share—responsible of education
autonomy
Financial efficiency and cost PO (both indicators) Reduce universities’ expenditure
control with special focus on staff
Increase the financial and
economic sustainability of
universities

argued, the number of students represents a key parameter in all three of the main
funding mechanisms analysed, not only in terms of basic shares. This is reason-
able in order to guarantee the financial sustainability of the overall system such that
it is “giving more to the biggest”. However, it is also a competitive incentive that
should push universities to attract more students. Furthermore, the predominance
of this dimension in funding allocation can limit the capability of PBF to promote
higher performance in the IHES. Indeed, universities can be incentivized to mainly
orient their strategies toward increasing the number of students enrolled, thereby
limiting the effort that is invested in the dimension of performance, which is not
adequately considered by the PBF. Is the number of students a factor that universi-
ties can manage? Can universities make decisions and take consequent actions that
increase the number of students over the medium and long term? The attractive-
ness of a university is only partially conditioned by the quality and typology of the
Performance-Based Funding in the Italian Higher Education … 167

educational offerings. In this regard, universities should act to diversify or specialize

their educational offerings [43, 44]. However, student choice is not necessarily the
result of university quality and strategy. Indeed, the attractiveness of an institution is
affected by context variables such as the socio-cultural and economic environment
of the territory in which the university is located [8, 9, 17, 18]. As Table 6 shows,
the other expected outcomes linked to the different targets that are included in PBF
mechanisms are perhaps more within the control of universities; for example, they
can modify their strategies and implement actions that aim to increase the inter-
nationalization or reduce staff expenditure. However, it is worth noting that these
actions are linked to residual shares of resources.
Italian universities, as well as the ministry and the national agencies, are dealing
with an overall increase in the cost of compliance. As highlighted by Dougherty and
Reddy [14], the extensive use of PBF increases the costs of “producing” and managing
the information and data required to comply with the informative needs that emerge
from both outside and inside universities. Indeed, universities should produce and
manage a large amount of micro and macro data to feed into the evaluation process
and guarantee a management-by-objective approach.
Lastly, it is clear that the criterion adopted to allocate PO is questionable due
to the absence of any effectiveness or output-related measures in the formula. This
choice appears to be in contrast with of the main indication coming from the literature
[27, 28] and the other mechanisms (FFO for instance) of PBF in Italy. In this sense,
referring to the framework proposed by Jongbloed [28], IHES can be defined as a
hybrid model since it clearly shares the assumption and objective of PBF while still
strongly relying on input metrics instead of output/outcomes.
The analysis of the PBF systems adopted in the IHES highlights a further consider-
ation. The use of layered and, sometimes overlapping, PBF mechanisms to allocate
funds together with the high complexity of the system has increased the compli-
ance costs that the universities and systems as a whole encounter. Universities have
been forced to develop complex and costly informative systems to collect, report,
and manage the information requested. This can have varying repercussions for
universities according to their size; for example, bigger universities can benefit from
economies of scale and, on the contrary, smaller universities that exhibit lower insti-
tutional capacity can potentially face an increase in the complexity and costs of their
informative system [14]. In this sense, regulations should aim to achieve the right
balance between the need to analytically assess the performance of universities and
the requirement to manage information in a straightforward manner. It should also be
noted that an increase in the complexity of the PBF can also reduce its readability and
transparency, thereby limiting the role it plays in promoting higher accountability.
Examining these three models, there are issues that can lead to a reconsidera-
tion of some important peculiarities of PBF in IHES. First, despite the difficulty in
finding accurate measures, it is necessary to properly consider educational indicators.
Italian universities, in line with the traditional Humboldtian pattern, have to focus
on both education and research. In this sense, the lack of proper performance indi-
cators regarding education can push universities to focus only on research activities
168 A. Ezza et al.

rather than education. Such a scheme can lead to the reduction of the quality of the
educational programmes.
Secondly, the marketization policies imply that students and institutions can make
their choices autonomously and on a rational basis. In reference to rationality, if
universities do not know how their performance will be measured, are they able to
rationally choose their strategy to improve performance? In this sense, the disclosure
of the assessment criteria (e.g. VQR evaluation) must be provided at the beginning
of the evaluation period. In this way, policymakers can properly link VQR (and, to a
broader extent, PBF) to their political agenda and create incentives for institutions to
adapt their strategy. At the same time, universities will have the correct information
to plan accordingly.
Finally, using the number of students as one of the main funding allocation drivers
can lead to an increase in the gaps between institutions. Indeed, the underlying
assumption in using the number of students as a quasi-market metric is that students
‘vote with their feet’, implying that students are able to choose a university based
on a rational evaluation of its quality and performance, yet they may also have
insufficient information and be driven by external factors. In this sense, universities
operating in a wealthier or more developed area of the country will appear more
attractive than those located in other underprivileged areas, thus obtaining higher
shares of funds. Considering the traditional shift that exists between the North and
the South of Italy, policymakers should properly manage this potential shortcoming of
PBF by introducing parameters into the formulas to address the differences between
the areas of the country. Alternatively, the Italian government could modify the
funding mechanism by juxtaposing PBF with some ‘additional funds’ to help those
universities that underperform as a result of their location.

Acknowledgements This study contributes to the developmental project of the Department of

Business and Economics of the University of Sassari (“Dipartimenti di Eccellenza 2018–2022”)
financed by the Italian Minister of Education.

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People, Organizations, and New Ways
of Working in the Information Age
Organizational Impacts on Sustainability
of Industry 4.0: A Systematic Literature
Review from Empirical Case Studies

Emanuele Gabriel Margherita and Alessio Maria Braccini

Abstract There is an increasing interest in Industry 4.0 (I40) applications for orga-
nizations to act sustainable. Indeed literature agrees the adoption of I40 technolo-
gies promises various organizational benefits which lead to the achievement of an
enduring sustainability and competitive advantage for organizations. However, there
is a lack of a study which provides transparency confirming and summarizing those
spawned organizational benefits. This paper aims at addressing this gap performing
a systematic literature review analyzing I40 empirical case studies for detecting the
spawned I40 organizational impacts on sustainability. We employed the triple bottom
line (TBL) concept as sensitive device to confront different studies distinguishing
among the sustainability dimensions, namely the economic, social and environmental
dimensions. We then categorize and group I40 organizational impacts according
to TBL dimensions. The review portrays an initial empirical knowledge regarding
the I40 organizational impacts on sustainability since 18 I40 empirical case study
have found. Furthermore, the literature review reveals that I40 applications mainly
impact the economic dimension whereas few applications generated benefits for the
remaining dimensions.

Keywords Industry 4.0 · Organizational impacts · Organizational benefits ·

Sustainability · Internet of things · Literature review · Cyber physical system

1 Introduction

Nowadays due to the climate change and a constant increasing of pollution, acting
sustainable has become the requirement and priority for organizations [22].
Within this landscape, Industry 4.0 (henceforth I40) is a trendy industrial initiative
which aims at innovating production processes towards sustainable practices through
the use of advanced digital technologies into the assembly line [13, 19]. However,
even though there is a consensus in literature that I40 leads to positive organizational

E. G. Margherita (B) · A. M. Braccini

Department of Economics Engineering Society and Organization—DEIM, University of Tuscia,
Via Del Paradiso, 47, 01100 Viterbo, Italy
e-mail: emargherita@unitus.it

© The Editor(s) (if applicable) and The Author(s), under exclusive license to Springer 173
Nature Switzerland AG 2020
R. Agrifoglio et al. (eds.), Digital Business Transformation, Lecture Notes in Information
Systems and Organisation 38, https://doi.org/10.1007/978-3-030-47355-6_12
174 E. G. Margherita and A. M. Braccini

impacts on sustainability [13, 19], there is a lack of studies that provide transparency
summarizing and confirming these premises [28]. To address this gap, we perform
a systematic literature review of I40 empirical case study detecting the I40 organi-
zational impacts on sustainability. We use the Triple Bottom Line (henceforth TBL)
concept as sensitive device since it allows to study the sustainability in a holistic way
embracing the economic, environmental and social dimensions [12]. Therefore, we
detected I40 organizational impacts which affected positively the three dimensions.
Our investigation answers the following questions: “What are the organizational
impacts on sustainability of Industry 4.0?”
The reminder of this article is organized as follows. Section 2 describes the founda-
tional concepts of I40 and TBL. Section 3 illustrates the research method. Section 4
is devoted to the results of the literature review. Section 5 discusses the findings
proposing future directions for the research. The paper concludes in Sect. 6 proposing
implications for researchers and practitioners.

2 Related Literature

In this section, we portray the Triple Bottom Line, Industry 4.0 initiative, the related
technologies and their organizational impacts on sustainability.

2.1 The Triple Bottom Line

Developed by Elkington, the TBL describes sustainability in a holistic way. The

TBL encompasses three dimensions: environmental, social, and economic [12, 14].
TBL supports organizations to address sustainability issues providing accounting
measures for all the dimensions.
Indeed, the environmental dimension refers to organizational practices which
account the currently environmental issues like ozone depletion and climate change.
More specific, this dimension embraces practices which avoid consuming natural
resources as well as practices for alleviating CO2 and polluted gas emissions. More-
over, this dimension encourages practices dedicated to the recycling of resources, the
regeneration and purification of resources, as well as redesigning of processes and
products to minimize resource usage, in terms of raw materials, water, and energy
that even alleviate the pollution issue [14, 17].
The social dimension refers to organizational attitude to treat and develop people
as a capital within the organization for creating value. As such, this dimension
considers as main driver the enrichment of work tasks and a more suitable and
safer workplace which also are the means to improve the quality of life and society
[14, 29].
The economic dimension refers to organizational attitude to make profit as well
as protecting the other two dimensions. More specific, the economic dimension of
Organizational Impacts on Sustainability of Industry 4.0 … 175

Fig. 1 The TBL

organizational impacts [14]

the TBL is related to with economic and financial performance dimensions of the
organization. In addition, organization supports both long-term economic growth and
the community growth encouraging the increasing of the personal income, paying
taxes and promoting actions in order to support the other two dimensions [14, 34].
Finally, Fig. 1 punctuated the organizational impacts that TBL embraces for each
dimension which we employed as a sensitive device for detecting organizational
impacts on sustainability.

2.2 Industry 4.0

I40 is an industrial initiative launched by German government in 2011. I40 aims at

innovating production processes in industries which promises several organizational
impacts for organizations. The initiative goal is the development of cyber-physical
systems (henceforth CPS) which allow the interconnection between machines and
human resources as well as the machine self-decision making [19]. In fact, this latter
feature allows to predict and address malfunctions in assembly line by machineries
without human interactions [25].
The realization of these organizational impacts goes through an effective imple-
mentation of a mix of advanced technologies which enables CPS. These technologies
have presented as follows:
176 E. G. Margherita and A. M. Braccini

• Internet of things (henceforth IoT) describes the operation, in which physical

products and machinery are equipped with sensors like Radio-Frequency Iden-
tification (RFID henceforth) in order to capture, process, and communicate in
real-time data to humans as well as other machineries. These technology requires
sensors and actuators to acquire and communicate through a WIFI network [44].
• Big Data refers to technologies allowing to analyze a massive set of unstruc-
tured or semi-structured data, which is not possible to analyze by traditional data
process methods owing to their complexity in order to reveal patterns, trends, and
associations, especially relating to human behavior and interactions [19].
• Additive manufacturing is an “umbrella term” which employs different technolo-
gies, such as 3D printing, to produce a high quality real objects by adding material
rather than by mechanically removing or milling material from a solid block [2].
• Virtual Reality, Augmented Reality and Hologram are advanced technologies
which aim at designing products, operation planning, factory layout planning,
system maintenance through specific hardware and software without using real
materials [20, 33].
• Cloud manufacturing is the cloud computing technology that is applied to
the manufacturing area. Indeed, Cloud manufacturing is mainly employed for
its ability to make the entire manufacturing plant integrated and capable of
distributing machines as a service [4, 30, 47].
Regarding the I40 organizational impacts, there is a consensus in literature which
connects the interoperability of I40 technologies to positive organizational impacts on
sustainability [13, 19]. Indeed, I40 seminal paper explained the full potential and the
promising organizational impacts of I40. With regards to the economic dimension,
I40 leads to a higher process flexibility, higher decision making, chance to create
new services and products [15]. Whereas in terms of the environmental and social
dimension, I40 leads to energy savings and a better work life balance for employees
[19]. In line with this, a similar industrial initiative to I40 called Industrial Internet
undertaken in U.S., which employed the same technologies, have agreed on these
benefits [13].
As a result, because of a plethora of technologies deployed in I40 and industrial
initiatives with different names around the world, the knowledge of I40 organizational
impacts and I40 empirical studies resulted fragmented. To address this gap, Kang
et al. [20] performed a non-systematic literature reviewed both initiatives portraying
core technologies, benefits and empirical case studies, respectively. On the other
hand, Piccarozzi et al. [37] performed a rigorous and systematic literature review of
I40 in management literature focusing only on I40 without considering Industrial
Internet and individual technologies. Therefore, a systematic literature regarding
I40 organizational impacts on sustainability which includes keywords from both
initiatives and technologies is still lacking.
Organizational Impacts on Sustainability of Industry 4.0 … 177

3 Research Method

Our investigation aims at detecting I40 organizational impacts on sustainability from

I40 empirical case studies. First of all, we conducted a rigorous [6] and systematic
literature review applying the protocol by Webster et al. [46]. Table 1 shows the
details of literature search we performed over the SCOPUS database of indexed
scientific publications in February 2019.
Because of various and similar initiatives, the query contains “Industry 4.0” and
keywords which researchers frequently employed as a synonym of I40 applications
like internet of things, smart factory, cyber physical systems [37] as well as Industrial
Internet which is an equivalent initiative developed in U.S. [13]. In addition, we used
a set of secondary keywords, namely implementation, application and adoption since
they point to empirical adoption of the I40.
We encompassed in the database only papers containing industrial empirical case
studies which adopted I40 technologies. Since I40 is also used as a buzz word which
refers to the interconnection of technologies, the initial hits of our research included
several papers from different sectors as smart building, agriculture and e-health.
Accordingly, we excluded those papers as well as theoretical survey papers which is
also the cause of the cause of the large drop between the initial hits (386) to the first
exclusion step (25). Still, an author and reference forward and backward search was
conducted to ensure exhaustiveness [35, 46].
The final query produced 18 entries which have employed as database to iden-
tify the I40 organizational impacts. Figure 2 shows the publication trend. Hence,
afterwards we accomplished the literature review research, we conducted qualita-
tive coding techniques to explore and elucidate the various organizational impacts
on sustainability. We maintain a qualitative rigor following the canons by [8]. We
employed as a sensitive device all the organizational impacts of the TBL in Fig. 1.
More specific, we considered all the benefits which I40 technologies led to the

Table 1 Literature search for empirical I40 case studies

Item Description
Source Scopus
Query TOPIC: “industry 4.0” OR “industrial internet” OR “internet
of thin*” OR “smart factor*” OR “cyber physical system*”
AND “implementation*” OR “application*” OR “adoption*”
Refined by: LANGUAGES: (ENGLISH), Subject Area:
Business, Management and Accounting, Source Type: Journals
Hits 386
Papers retained after 25
• Title and abstract selection 10
• Full-text selection 18
• Backward and forward
search
178 E. G. Margherita and A. M. Braccini

Fig. 2 Publication trend of

the empirical I40 case study

organization for each paper. We then distinguished those benefits according to

the three sustainability dimensions of the TBL, namely the economic, social and
environmental dimension.

4 Results

The literature review search revealed 18 I40 empirical case studies in which the
I40 applications led to organizational impacts on sustainability. We summarized
organizational impacts in Table 2.
With regards to the organization impacts on economic dimension, all the I40
applications fully supported this dimension. Indeed, the literature review showed
I40 application which improved various back-end processes realizing cost reduction
and higher efficiency. As a matter of fact, there is a general consensus stating that IoT
applications into inventory management and warehouse management improved the
efficiency and effectiveness of the supply chain management reducing the inventory
inaccuracy and the time of receiving the goods by consumers [9, 18, 36]. Still, Reif
et al. [38] added that providing workers decision support via head-mounted displays
significantly reduces the required time for the picking process.
Moreover, according to Mourtzis et al. [31] and Sayar et al. [40] I40 applica-
tions, particularly IoT, provided new avenues to deliver enhanced services. While
3D printing applications affected positively small medium production of prod-
ucts allowing organization to produce different goods [1]. Likewise, I40 affords
an improved managerial decision-making capability in organizations, thanks to the
improved analytics capabilities of the data produced by the digital infrastructures.
Indeed, Shahbaz et al. [42] proposed a data mining techniques in manufacturing
industry in order to deliver information to improve the product manufacturing life
cycles and eventually the economic performance of the industry. Furthermore, Lee
et al. [26] argued that I40 allows predictive analysis on the organizational processes
and providing a promptly maintenance on production mistakes.
Organizational Impacts on Sustainability of Industry 4.0 … 179

Table 2 Industry 4.0 Organizational Impacts on Sustainability by authors

Authors I40 organizational impacts
Economic dimension Social dimension Environmental
dimension
Goyal et al. [18] RFID embedded in
inventory management
reduced inventory
inaccuracy
Cui et al. [9] RFID implemented
within supply chain
management improved
the efficiency and
effectiveness
Lee et al. [24] Warehouse management Improved employee
with RFID system morale
improved productivity
Reif et al. [38] Virtual reality improved
picking system
efficiency
Zhang et al. [50] IoT Real time Reuse of the materials
scheduling systems
Shahbaz et al. [42] Big data and data
mining to improve the
product manufacturing
life cycles
Shin et al. [43] Big data and analytics Analytics model
model maintained predicted energy
technical efficiency consumption
Thiede et al. [45] Continuous energy CO2 reductions
monitoring reduces
energy costs
Lee et al. [26] Big Data and predictive
analysis reduced
production mistakes
Yuan et al. [48] CPS enhanced Reduction of safety
operational agility and incident
improvement of
competitiveness
Liang et al. [27] CPS and Big data CPS and big data
generated Productivity generated energy
improvement. saving
Sayar et al. [40] IoT generated new
valuable services
Schulze et al. [41] Production processes CPS reduced water
resulted more efficient usage
thanks to CPS
(continued)
180 E. G. Margherita and A. M. Braccini

Table 2 (continued)
Authors I40 organizational impacts
Economic dimension Social dimension Environmental
dimension
Kembro et al. [21] IoT and sensors Safer workplace
technology improved
warehouse management
Braccini et al. [5] Robotics improved Safer work Reduction of CO2
productivity and environment, less emission and natural
product quality intense work-load and resources
job enrichment
Mourtiz et al. [31] Robotics generated new
and advanced services
Pero et al. [36] RFID improved the
efficiency of the supply
chain
Ardanza et al. [1] 3D printing improved
the efficiency of small
and medium production

Whit regards to I40 organizational impact on environmental dimension, the liter-

ature revealed that those impacts are generally connected to the former dimension
since the improvement of production processes led to a reduction of energy consump-
tion and natural resources. Indeed, according to Liang et al. and Shahbaz et al. [27,
43] the analysis of the big data through an analytic and predictive model allows to
predict and reduce the energy consumption with the maintenance of technical effi-
ciency within organization. Analogously, Strange et al. [45] presented a CPS study
where the application led to productivity improvement energy saving and with a
resulting reduction of CO2 reduction.
Finally, a more articulated research proposed by Zhang et al.[50] showed how the
IoT can reinvigorate the remanufacturing processes allowing a real-time production
scheduling method which combined with a mathematical model achieve cost reduc-
tion, dynamic management of re-manufacturable resources, and energy consumption
decrease.
With regards to I40 organizational impacts on social dimension, the literature
review found that researchers have paid little attention on it revealing only 3 case
studies with stressed on this dimension. As a matter of fact, Lee et al. [24] explained as
warehouse management systems improved the productivity increasing the employee
morale. Whereas Yuan et al. [48] considered in toto the Smart Factory adoption
for oil refinery demonstrating its operational agility, the improvement of economic
competitiveness, but also on the reduction of safety incident.
Finally, Braccini et al. discussed I40 application of robotics and big data where
workforce participated in the system design [5]. This user centric approach [11]
led to the various organizational impacts with affect positively all the three sustain-
ability dimensions of TBL. Indeed, the production quality increased together with
Organizational Impacts on Sustainability of Industry 4.0 … 181

productivity. The continuous energy consumption monitoring reduced CO2 emis-

sion and usage of natural resources. Beyond that, organization obtained a safer work
environment characterized by a less intense workload and job enrichment of tasks.

5 Discussion and Future Directions

Table 2 allows us to answer our research question summarizing the results of our
systematic literature review of I40 organizational impacts on sustainability. Table 2
depicts an initial stage of the I40 initiative. Indeed, most of the I40 applications
concerns individual technologies (e.g. 3d printings, big data or IoT) rather than a
mix of technologies which enable the full potential of I40. Figure 3 shows the tech-
nologies adopted in the empirical I40 case studies. Within the case studies, the most
studied technology is the IoT in the warehouse and inventory management leading to
several benefits along the supply chain which impacted mainly the economic dimen-
sion. Conversely, 3d printing and virtual reality appeared only in one case study
respectively. Therefore, we argue that there is a need for further studies in order to
understand the advantages of these technologies. Researchers should focus on 3d
printings when they are in a key role within the organizational strategy producing a
small amount of high customized goods for fulfilling individual customer [49].
The systematic literature review also revealed that several I40 applications did not
reach both the two features of I40 initiative since the CPS has not implemented in all
empirical case studies. Further research should focus on this issue investigating the
adoption barriers which impede the CPS implementation as well as how to address
them. As a matter of fact, the cybersecurity will become increasingly important in a
I40 context requiring more studies for addressing this issue.
Furthermore, we noticed that most of the studies underpinned a deterministic
technological approach. Indeed, I40 organizational benefits have connected to the
delivery of the technical systems without considering the social systems and the

Fig. 3 Industry 4.0 technologies adopted into empirical I40 case studies
182 E. G. Margherita and A. M. Braccini

complex interaction between humans, machines, and the environmental aspects

of the organizations. These studies employed a perspective at organizational level
presenting organizational needs in terms of poor productivity and weak coordination
among units which are then addressed by I40 technologies. The social systems,
composed by workers and their values, are not mentioned during the adoption
process. The I40 technologies themselves lead to benefits which rely on their prede-
termined functionalities. However, these I40 technologies, following this perspec-
tive, improved only the economic dimension of sustainability without considering
the remaining two dimensions. Accordingly, we suggest encompassing the social
system and environmental issues during the I40 adoption to fully exploits its benefits
employing a socio-technical perspective [19]. Indeed, the socio-technical perspective
stated that in order to enhance the organization’s efficiency, manager should opti-
mize the technological and social systems conjointly, otherwise the optimization of
only system leads to inefficiency. Therefore, we argue that researchers should apply
a socio-technical perspective during I40 adoption to deliver positive organizational
impacts over all TBL dimensions. Thus, we encourage management to encompass
the worker participation in the design and implementation of the new I40 systems
in order to accomplish I40 organizational impacts on the social dimension [32].
Whereas, in order to generate positive organizational impacts on the environmental
dimension, I40 technologies should be shaped following a green orientation rather
than the currently orientation. That considers as main purpose the cost reduction
without considering the reuse of resources as well as the stemming of the pollution
[19]. As a matter of fact, Braccini et al. showed how a I40 application led to posi-
tive organizational impacts over the three dimensions through a green mind-set of
management and a worker participation in the I40 adoption [5].
To conclude proposing a novel research avenue, we noticed that studies from the
database adopted the lean production within I40 context. Indeed, lean production
played a vital role in the mass production systems which is devoted to improved
product quality with the aim of satisfying customers [23]. Thus, recent studies
claimed that I40 and lean production can support each other [7, 39]. Accordingly, to
advance our research regarding I40 organizational impacts, researchers should also
consider lean production as a driver for those impacts studying also the interplay
with I40 and sustainability.
To sum up, Table 3 photographed the state of the arts regarding the I40 organiza-
tional impacts on sustainability. The economic dimension is well accomplished since
I40 technology functionalities mainly impact this dimension through cost reduction
and a higher process efficiency. Still, those studies employed a perspective at the
organizational level. Whereas, there is a lack of studies which employed a group and
individual perspective. Further studies should focus on addressing this gap showing
in which way the interrelation between individual worker or worker groups and I40
technologies support the economic dimension.
On the other hand, little attention has been paid on organizational impacts on
the environmental dimension. Due to the environmental issues which dominated our
world, this dimension is increasingly become more important. To support this dimen-
sion, I40 technology vendor and researchers should embrace purposes of the Green
Organizational Impacts on Sustainability of Industry 4.0 … 183

Table 3 Organizational Impacts of Industry 4.0 on Sustainability by TBL

I40 Organizational Impacts by TBL
Environmental dimension Economic dimension Social dimension
• Reduced natural • New valuable services • Improved employee
resources • Improved production efficiency morale
• Reduced CO2 emissions and quality • Safer work environment
• Energy Saving • Improved supply chain • Less intense work load
management • Job enrichment
• Reduced inventory inaccuracy
• Improved productivity

Manufacturing combining with I40 initiative [16]. Indeed, Green Manufacturing aims
at developing green innovation and new green products. Green Innovation refers to
innovation which is characterized by energy conservation, pollution prevention and
environmental management as well as produce products easy to recycle and less
polluting.
Finally, the social dimension is not prominent in the literature. Few studies covered
this dimension where organizational benefits often are generated by a positive exter-
nality. Information systems (IS) researchers should concentrate on this dimension
as implications of I40 technologies on social systems have not investigated yet. IS
researchers, employing an individual and group perspective, should pay attention on
how I40 technologies should change the way of working and how these I40 tech-
nologies improved work conditions answering questions regarding new competences
needed to handle these technologies and how I40 improve the quality of working life.

6 Conclusions, Implications and Limitations

Our investigation is motivated by the identification of I40 organizational impacts on

sustainability dimensions which have detected from a systematic literature review of
I40 empirical case studies. The literature review portrayed an initial empirical knowl-
edge regarding the I40 organizational impacts on sustainability as 18 I40 empirical
case studies have been found. Even though, I40 leads to the several organizational
impacts on the economic dimensions, further studies and I40 applications are required
to fully exploits the two remaining researches. This lack is due to the technologic
determinism perspective which surrounded the selected studies. We argue for a socio-
technical perspective to address this gap. Beyond, we also argue for further inves-
tigations at individual and group level to advance the knowledge regarding the I40
benefits.
The investigation proposed presents both implication for practitioners and
researchers. Regarding the implication for practitioners, Table 2 can be seen as a
repository of existing effective I40 implementations. It is useful for practitioners
since it highlights the spawned organizational impacts acknowledging the role of the
184 E. G. Margherita and A. M. Braccini

modern technologies such as internet of things, cloud, big data, robotic systems, 3D
printing.
Regarding the implication for researchers, the literature review summarized our
knowledge regarding I40 initiatives, these advanced technologies and their positive
organizational impacts on sustainability proposing new avenues. Still, the investi-
gation also opens for socio-technical approach in order to maximize organizational
impacts for I40. This triggers further consideration regarding the “fit” between the
two systems in terms of job satisfaction, knowledge, task structure and social value
[32].
Furthermore, Table 2 can be used to improve IS theories like the adaptive structura-
tion theory which is a meta-theory for accounting the change by a technology within
the sociotechnical systems [3]. Indeed, from these I40 case studies we can detect
and extend the construct of technology dimensions for I40 [10]. Indeed, Bostrom
et al. 2009 claimed for “further research exploring and identifying a complete set of
features and dimensions [of technologies] would be useful” (pg. 27) [3]. Finally, the
study limitation is that we employed SCOPUS database. This does not cover all the
accessible sources of I40 and similar initiatives. Accordingly, an interesting avenue
to extend our literature review, is to embrace further database such as Web of Science
(WOS), EBESCO and JSTOR.

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Industry 4.0 and the Global Digitalised
Production. Structural Changes
in Manufacturing

Giovanna Morelli, Cesare Pozzi, and Antonia R. Gurrieri

Abstract The globalization process and the new digitalized production have rapidly
changed the structural organizational models of major economies. To avoid the
commoditization trap, globalization and price-advantage erosion, manufacturing
industries are moving fast from mass to customized productions. They have servi-
tized business operations, taking advantages of the new emerging and digitized
technologies within the scenario of Industry 4.0 (I4.0). This paper recalls the most
significant debate on the new industrial paradigm, and investigates its impact on the
manufacturing sector, focusing on Italian SMEs. It evaluates the effects on labour
division, organizational models of production (agents-machines-organization), the
“new” power structure, and the economy as a whole. It investigates the effects of
technology on the labour market and organizational models with respect to SMEs
and networks, concluding that I4.0 could be an effective driving force for networking
SMEs, despite the reduction of employees in manufacturing is likely to continue.

Keywords Industry 4.0 · Servitization · Globalization · Labour division

1 Introduction

In the last decades, the process of globalization and the digital transformation of the
industrial production have changed economic systems all over the world, leading to
a significant impact on life, the way people work and the functioning of markets.
The socio-political context has deeply changed. The large increase on the extent of
the market followed the pervasive process of globalization, the new technological

G. Morelli (B)
University of Teramo, via R. Balzarini 1, 64100 Teramo, Italy
e-mail: gmorelli@unite.it
C. Pozzi · A. R. Gurrieri
University of Foggia, Largo Papa Giovanni Paolo II, 71100 Foggia, Italy
e-mail: cesare.pozzi@unifg.it
A. R. Gurrieri
e-mail: antoniarosa.gurrieri@unifg.it

© The Editor(s) (if applicable) and The Author(s), under exclusive license to Springer 187
Nature Switzerland AG 2020
R. Agrifoglio et al. (eds.), Digital Business Transformation, Lecture Notes in Information
Systems and Organisation 38, https://doi.org/10.1007/978-3-030-47355-6_13
188 G. Morelli et al.

opportunities offered by technical progress, and a more genuine attention to the

environmental problems identified a new way of producing in the changing world.
Time after time, industries have experienced deep structural changes in the production
organization; services have been more incorporated into final outputs, and the most
significant driver of change—across all industries—is the changing nature of work
itself. The manufacturing industries are currently moving from mass production to
customized one, acknowledging a strategic competitive advantage to the talent of
providing individually designed products and services to every customer through
high process flexibility and integration. We are facing a new “industrial revolution”,
the Fourth Revolution (FIR), with a simultaneous radical change in the economic
strategies and in the social roots of the society.
The “smart” factory, on which it is based the new paradigm, opens outward imple-
menting new production models and exploiting sizes far superior to those known so
far. The creation of a global supply chain allows sharing data, information and produc-
tion systems not only within the single system, but networking several organizations
in real time, reducing operational costs and increasing productivity. In this scenario,
Industry 4.0 (I4.0) radically reshapes production and market models so far adopted,
thanks to its flexibility in connecting worldwide via web not only machinery and
plants but also products, workers and consumers.
Over the past two decades, the structural and technological change associated with
the rapid progress in Information and Communication Technology (ICT) imposed a
deep reconsideration of the theoretical foundations of production and exchange of
the entire economic system. The increase in digitalization, the process of progressive
globalization of value chains, and the arising interconnection of people and systems
through the exchange of information in real time make the difference. It enforces
to better define and evaluate the final effects on products, machines and procedures,
and their capabilities to adapt them quickly to the new environment. Innovation, as
the result of the integration of science and technology, is always more cross-sectoral,
and has a simultaneous widespread effect on products, processes and methods to be
used. It becomes to be much more invasive for economic operators, deeply changing
the traditional relationship between producers and consumers.
Two features of the FIR are still remarkable: the rapid technological change,
and the growth of inequalities. The final effects on the division of labour, in terms
of employment and wages caused by the rapid advances and the raised reliance on
technology, the expected productivity increases, and cost reductions are still uncertain
[1, 2]. In the near future, if industrial policies will not be supported by ad hoc actions
on the supply side of the economy (labour market), the gap between employment
and productivity will increase, magnifying, but not recomposing, social inequalities
[3].
I4.0 identifies the FIR, namely the automation of manufacturing production and
the change in the labour market based on the digitization of robotics and automa-
tion, using ICT and intelligent production processes. Recently, the «Centre facilitant
la recherche et l’innovation dans les organisations» (CEFRIO) suggested a more
Industry 4.0 and the Global Digitalised … 189

comprehensive definition, including a series of initiatives to improve processes, prod-

ucts and services that allow decentralized decisions based on real-time data acqui-
sition [4]. Internet of Things (IoT), Industrial Internet, Smart Manufacturing and
Cloud based Manufacturing are the key concepts of this construction. The machine-
to-machine interaction associated to Internet opens the way for join-interfirm produc-
tion systems that allow the design and control of the production chain all over the
entire process.
The FIR involves a complex interconnection of the latter, starting from develop-
ment and ending with distribution to after-sales services. Automation uses robots
and smart technologies that move and develop through networking. However, the
shift from a mechanical production to an “intelligent” one entails a potential loss of
manual labour. Robots replace man, causing difficulties in skill-labour upgrading.
It usually takes a long time and, potentially, drives to technological unemployment.
The devices, and even the products themselves, have chips enclosing information
on where/how/when they should be processed. As a result, archiving systems also
send the order by themselves. The fast reorganization of cheaper and smaller produc-
tion runs is a plus. Smart and customized products include a deep knowledge of the
entire production process and of consumer applications, and independently lead their
way through the supply chain. The purpose of the automation pyramid towards the
controlling auto-systems manages to a great amount of extracted, visualized and used
data.
The aim of this work is to investigate the impact of I4.0 on the manufacturing
sector, focusing on Italian SMEs, and the effects of technology on work and organi-
zations. Our research hypothesis is to investigate the relationship between production
organization and the “new” power structure determined by I4.0, and its effectiveness
on the economy. In a word, the «political economy of industry». What are the changes
in the organization of production (agents-machines-organization)? What is the final
effect on the social division of labour after the introduction of the FRI? Does it hurt
the development of capitalism, as we know it today? Does it create a larger disparity
between worker classes?
The paper is structured as follows. Section 2 gives an overview of the rele-
vant literature on I4.0 paradigm. Section 3 offers some descriptive evidence on the
effects of technology on work and organizational models with respect to SMEs.
Section 4 presents the strategic benefits in terms of value creation associated to
networking. Section 5 discusses the economic insights related to the transformation
of organizational models in the labour market, while Sect. 6 concludes.
190 G. Morelli et al.

2 The Industry 4.0 Paradigm

The term I4.0 was introduced at the 2011 Hannover Messe, in Germany [5], and
denotes the transformation of “traditional” industries by the IoT, data and services.1
It relates to the FIR, which offers, in terms of industrial policy, very different char-
acteristics related to the three previous revolutions. It is based on the production of
cybernetic systems using heterogeneous data and knowledge integration, where its
core is the ever-closer integration of digital technologies in manufacturing processes
[6].
On the other hand, also the three industrial revolutions of the past were all triggered
by fundamental technical changes: the introduction of water- and steam-powered
mechanical manufacturing at the end of the eighteenth century, the division of labour
at the beginning of the twentieth century, and the introduction of programmable logic
controllers for automation purposes in manufacturing in the 1970s. They revealed to
be a sequence between different forms of manufacturing “regimes” in the produc-
tion organization they followed. The forth revolution is encouraged by the Internet,
which allows communication between humans, as well as machines, controlled or
monitored by computer-based algorithms throughout large networks.
The definition of I4.0 proposed by Kagermann et al. [7] is very promising: “a new
level of value chain organization and management across the lifecycle of products”.
Applying the new paradigm, firms are willing to achieve a higher level of operational
efficiency and productivity, as well as of automation, not only using Internet tech-
nologies and advanced algorithms, but also adding value and managing knowledge
inside the production process. A major objective of this industrial strategy is the
simultaneous integration, within a single network, of large and small firms, helping
the latter to overcome the traditional lock-in access to new technologies.
Among the main pillars of I4.0 are digitization, optimization and customization
of production, automation and adaptation, human-machine interaction (HMI), added
value services and activities, automatic data exchange and communication. The theo-
retical foundations of I4.0 have the great advantage of scalability (Cloud Computing),
which it makes possible to increase or decrease the use of resources, according to
the production schemes. Other added value are interoperability, i.e. the ability of two
systems to understand each other to use functionality of one another, virtualization,
decentralization, real-time capacity, service orientation and modularity [8].
Although I4.0 produces value creation results, by gains in productivity and effi-
ciency, developing “new” business models, it could have both, positive and negative
effects, on employment and wages due to the disruptive outcome of the technological
change on the labour market. Technological progress biased toward hi-specialization
(or skill biased) can lead, at the same time, to a higher wealth effect on behalf of a
low number of people, where substantially reducing the employment opportunities
of others. Today, automation systems can easily replace repetitive jobs at a much
lower cost per hour than a worker salary.

1 The form of numbering (4.0) it uses, the same as for software release, emphasizes more both the
high computer content, and the digital character of this revolution.
Industry 4.0 and the Global Digitalised … 191

Fig. 1 Drivers of change-effect on employment. Compound growth rate (2015–2020), in %

Source Elaboration on World Economic Forum (2016)
Note The compound growth rate, real and estimated, shown on Y axis, shows the effects of the drivers
of change on employment. Estimated employment effects have been converted into a compound
growth rate, i.e. the mean growth rate over the specified period of time if employment had grown
or declined at a steady rate, which is unlikely to be the pattern observed in reality. It can be thought
of as a useful measure of growth over multiple time periods

Figure 1 shows active workers in the most innovative technological sectors.

At a first glance, it would seem that Big Data, mobile Internet, IoT and robotics
have the potential to create “new” jobs. On the contrary, the negative value of geopo-
litical volatility risks being the greatest threat to job creation and employment itself.
The negative values of artificial intelligence and 3D printing would be explained as
the typical results of highly technological and competitive sectors, which, as such,
require specific skills. The changes imposed by I4.0 could bring new employment
opportunities and/or they result in a shift of retrained workers. Nowadays, the main
challenge is “job restructuring”, since some of the less skilled jobs will quickly
disappear in the near future.
On the one hand, productivity gains achieved through the use of “smart” technolo-
gies can help to increase employment and the demand for consumers with additional
income (compensation effect), whereas on the other hand the use of new technologies
and production processes can also destroy jobs (redundancy effects). No systematic
evidence exists whether the latter applied on I4.0 will prevail in the long term, leading
to technological unemployment [5]. Moreover, even the digitalisation of business
processes entails the automaticity of workers, whose added value will “create” new
output and solutions. The digitalization also helps to determine changes in “tradi-
tional” business models, and introduces the “smart” economy as a way of generating
value.
The I4.0 paradigm deals with:
192 G. Morelli et al.

1. Supply chain and logistics: technology and IoT, in particular, improve supply
chain efficiency by providing more detailed and up-to-date information, miti-
gating the “bullwhip effect”, reducing supply chain inefficiencies with adequate
forecasts, and lessening copying due to product traceability [9];
2. Security and privacy: since all devices are wireless, they are highly exposed
to information intrusion. The growing global networking increases the need to
protect industrial systems, production lines, and plants from cyber-attacks. The
data transfer and their storage in the cloud must not be subject to unauthorized
access;
3. Intelligent infrastructure: “smart” devices improve flexibility, reliability and
efficiency in infrastructure operations. Here, the added value is in terms of
reduced operating costs and improved safety, and refers mainly to smart, cost-
efficient, high capacity, user-friendly transportation infrastructures, smart cities,
and intelligent mobility management;
4. Healthcare: sensors, integrated in domotics environment or smartphone applica-
tions, screen patients and send information to specialists. They are integrated in
many different “things”, and are able to generate and transmit “granular” infor-
mation in real time through software and hardware technologies using Big Data
and automatic systems, thus improving the quality and variety of the offer. The
result is a positive network effects with increasing returns from data production,
as in all markets where knowledge comes from them [10]. Big Data Analytics,
for example, transform data into soft information in real time, which, applying
automation and artificial intelligence techniques, favours decision-making [11].
The integration and real-time analysis of a huge amount of data will optimize
resources in the production process, and enable better performances. The develop-
ment of algorithms to manage data is one of the main challenges of I4.0, as the perva-
sive integration of ICT into production components always generates also larger,
different data sets. By facilitating information and knowledge, the IoT improves
the efficiency and effectiveness of knowledge development and management in
I4.0. Therefore, manufacturers and retailers will not dominate production decisions.
Instead, customers will be more involved in quality decisions and product customiza-
tion. The disadvantages of heterogeneous data will compromise industrial develop-
ment, but Big Data management (data mining, data classification and data storage)
can help to mitigate the problem [12]. The use of artificial intelligence in produc-
tion processes involves an innovation in terms of organizational culture. It increases
creativity and result orientation. Moreover, Háša and Brunet-Thornton [13] argue that
managerial innovation involves fast time-to-market approaches through the creation
of intelligent, flexible and qualified production structures, suitable for overcoming
risky and heterogeneous step-by-step markets. It is therefore essential to implement
qualified strategies for human capital formation, so that not only the manager, but
also the entire workforce will be competitive.2

2 Schneider and Spieth [14] sustain that the innovation of business models is a relevant source of
unique sales proposals and strategic differentiation in highly competitive market contexts.
Industry 4.0 and the Global Digitalised … 193

3 The Industry 4.0 Action and the Small-Medium

Enterprises

According to the traditional paradigm of the value creation process based on a strict
good-dominant logic, large firms are more competitive in R&D capabilities and
complementarities, therefore are able to outperform small firms. The in-house activ-
ities are the most important source of innovation that validates the existence of a lock
in closed innovation model. The consumer-agent remains outside the enterprise and
does not contribute to co-create new value for the manufactured output, tangible or
intangible. However, over the past several decades, new perspectives have emerged
that have a revised logic focused on intangible resources, the co-creation of value,
and relationships. The globalization process with the opening to the outside world
has its advantages. In a global market with a rapid circulation of knowledge flows,
rich in venture capital and in massive labour mobility, firms could not indeed afford
to innovate themselves. The service-dominant (S-D) logic becomes prominent due
to the increasingly use of data-intensive technologies. As a result, open innovation
systems arise [15].
A closed innovation model is based on innovations developed exclusively by firms
themselves; it is costly and requires control. The innovation process is only settled
within clearly defined company boundaries, as it is (and remains) an internal action
where R&D investments are a strong entry barrier to outsider competition. When
the innovation process opens up beyond company boundaries, from the generation
of ideas to development and marketing, innovation arises through the interaction
of internal and external ideas, taking advantages of the potential strategic use of
the environment, technologies, processes and sales channels [16]. In both cases, the
aim of the firm is the same: to develop promising innovative products, services or
business models, in order to increase one’s own innovation. It is an example of nice
collaborative networking made by the integration of science and technology.3
In a global market with a rapid circulation of knowledge flows, abundant presence
of venture capital and labour mobility, firms could not afford to innovate themselves.
Gassmann [17], and subsequent theoretical papers, considers open innovations as
fundamental, especially for management innovation; Lichtenthaler [18] recalls that
the existence of a new paradigm for open innovation implies either technology
exploitation, or technology acquisition. This is true for small firms too [19]. Networks
are able to use outside knowledge for a specific need of internal network enterprises,
without passing for the internal vertical integration. In this context, I4.0 could be
crucial in SMEs development. I4.0 could be of help by improving the flow of infor-
mation across the entire system, allowing better control and real time adaptability to
the demand. However, despite the tools of I4.0 requiring large investments and a high
level of competence [20], the decentralization of information and decision-making

3 Among the determinants that leads to the open innovation logic, Chesbrough [16] clearly specifies

the increasing mobility of workers and the division of labour. In the last decades, the technological
success of several open source software, such as web applications and operating systems apps
(Android and iOS), has played an important role in spreading open innovation culture.
194 G. Morelli et al.

would allow SMEs with a greater flexibility and competitive capacity, and a better
managerial capabilities.
Finally, the conceptual paradigm of I4.0 can also be used to transform the nature of
products and services provided by organizations. Porter and Heppelmann [21] explain
how artificial intelligence change the current process control system, overcoming the
traditional approach to production planning and control, and reaching different levels
of performance. Setting simple monitoring tools help to reach the most complex
goals. Since each level requires investments and specific skills, it is essential to
classify I4.0 initiatives in terms of the desired goal to which a given management
capacity corresponds. To this end, I4.0 initiatives for SMEs can be implemented
through technological groups (Internet of objects, Big Data or Cloud Computing
(CC)), in which each of them represents different means to implement the desired
capacity [4].
In order to improve the instrumental skills of SMEs, a three-step process could
be undertaken: monitoring (analysis of the decision-making process); control (use
of algorithms for historical data analysis); optimization and autonomy (analysis of
monitoring data and consequent autonomy of behaviour). Furthermore, since perfor-
mance indicators are expression of corporate strategies, SMEs could improve their
indicators (lower costs, better quality, greater flexibility and productivity, reduction
in delivery times) resorting to technological investments [22].
One of the main goals of I4.0 is the synchronization of flows along the entire
supply chain (flexibility). CC platforms should be used as collaboration structures
between firms [23]. Bonfanti et al. [24] show that Italian artisan enterprises and small
businesses who introduced and implemented new digital tools (e.g. 3D digital model)
recorded a reduction in operational costs, and an increase in production demand. On
the one hand, CC is widely used between SMEs (e.g. document sharing, servicing,
collaboration, distributed production, and resource optimization). In practice, CC
platforms introduce a new business culture, from corporate individuality to network
sharing between partners, moving first from partner search, to risk sharing, to the
CC platform at the end. There is evidence that Italian artisan firms use CC to offer
products and services online, thus strengthening customer loyalty and providing
access to new markets.
With respect to productivity, an increase could take place at the plant level, or
at the level of calculation (algorithms) of the production plans forecasting internal
flow disturbances and changes in customer requests, or calculating algorithms based
on IoT data on a CC platform. Its use shortens design time, promotes collabora-
tion between all network partners, and facilitates the synchronization of the entire
production processes. Concerning the use of Big Data in I4.0, Ren et al. [23] suggest
a CC platform dedicated to SMEs that exploits IoT data using MapReduce algo-
rithms. However, due to the their traditional low investment in R&D, there are no
successful cases for the planning or control of production processes through the use
of these technologies which help to organize data. Simulation models for SMEs have
also been proposed. Barenji et al. [25] present a method (Prometheus) to develop a
software application for planning simulation, based on both dynamic demand, and
production variations. Denkena et al. [26], on the contrary, start from the idea that
Industry 4.0 and the Global Digitalised … 195

most SMEs do not have reliable data to introduce the IoT and RFID technology to
manage the flows and facilitate the implementation of Lean Manufacturing. Constan-
tinescu et al. [27] develop the Just In Time Information Retrieval (JITIR) to eliminate
the problem of excess data that flow into the IoT. In relation to CPS (Cyber physical
systems), or complex systems that incorporate processing algorithms, the cases of
applicability to SMEs are known. Givehchi et al. [28] refer that SMEs apply CPS for
production planning and control, although the low level of their internal skills, and
consequently the lack of ability to process complex algorithms, remains a constraint.

4 Network of SMEs in Industry 4.0

The network of legally independent organizations that share common skills in order
to exploit a business opportunity are identified as virtual companies. Collaborative
Manufacturing [29] and Collaborative Development Environments [30] are important
for SMEs strategies since they increase flexibility. In a collaborative network, risks
can be balanced and combined resources expand the range of perceivable market
opportunities. The organization in networks amplifies the available capacities without
the need for further investments. Therefore, firms in collaborative networks can adapt
to volatile markets and reduce product life cycles with ease.
A strong coordination capacity is needed to aggregate spatially separate produc-
tion processes and to integrate information (data) that comes from the different
production sites. Clusters of SMEs, and networks in particular, manage to imple-
ment product and process innovation, resulting in “open winners”, as the case of the
industrial districts. The availability of product data throughout the network is essen-
tial for the global optimization of the production processes. The maintenance of the
global competitive advantage occurs for the enterprises in collaborative networks,
for the single unit through the maintenance of the basic competences, for the group
through the externalization of other activities.
The key features of networks are generative knowledge and cognitive clusters
(accessible from anywhere). However, in the era of I4.0, the operating chains that
manage the multilocalized and interconnected transformation of intangible products
and services could represent the key feature. If the more technological sectors seem
to be able to cope well with the FRI, also the Italian manufacturing industry seems
to organise itself to the transformation and innovations imposed by the markets.
The creativity and flexibility of man will be an added value: therefore the study
and analysis of systems for the valorisation of people in factories remains of great
relevance. The new evolution will not only touch all industrial sectors, as it embraces
transversal technologies, but it will have a strong impact on processes and products.
The main problem related to virtual networks is information sharing, as
leaders/owners of SMEs do not share information they preserve [31]. Therefore,
while, on one hand, information sharing can lead to innovation, on the other it could
generate asymmetric action due to opportunistic behaviour (learning tenders), and
higher coordination costs resulting from antagonisms and competition between firms.
196 G. Morelli et al.

Advanced visualization techniques of context-sensitive data via virtual reality can

be used to illustrate information for effective collaboration. Local availability and
understanding of global production data is essential for real-time intervention in a
changing environment.
The idea of I4.0 is based on the concept of a modular enterprise that combines new
business models for “smart” supply chain management. Thus, the importance of a
flexible network of relationships consisting of autonomous, but interdependent, frag-
ments of production within the organizational structure usually connected through
ICT systems. For this reason, I4.0 seems to be a valid tool to activate processes of
reindustrialisation and industrial competitiveness all around the world. It uses cyber-
physical systems and dynamic production networks to create flexible and open value
chains, as well as 3D printing, Big Data, IoT and the Internet of Services, which are
all facilitators of intelligent production and logistics processes [7].
However, despite I4.0 points towards horizontal integration, value chains could
develop complex and intertwined manufacturing networks, where supply chains
could be fragmented [32]. Division would reduce barriers to entry for SMEs, and
could lead to the creation of new business models. It calls for the Italian economy
to recover from the slowdown and speed up. The production development cycle
will lower its costs, reduce delivery times, the potential of 3D printer and manufac-
turing will increase; the spread of robots proceed at very high rates. From the growing
diffusion of digital technologies, it is reasonable to expect significant network effects:
companies will have to adapt their business models, above all, to manage the Big
Data available.
The new I4.0 paradigm is a positive opportunity to globalization because it ampli-
fies positive trends, making it possible to resort to suppliers (source of localization)
and to share knowledge in manufacturing activities. Thus, it is the necessary link
between man and machine, and the training and requalification of digital workers
are the required step to compete. In addition, digital platforms are a strong means
of cooperation among firms, which co-located SMEs can exploit to compete at a
broader level. In this process, the role of policy makers and institutions is funda-
mental, since it should support the migration from a traditional way to do business
to a “new” technological one.

5 The Industry 4.0 and the Labour Market

Along with FIR characteristics, one of great relevance is the convergence between
industrial production technology and science, which allows entrepreneurs the oppor-
tunity to choose tools that are more suitable, i.e. those offered by their integration, to
gain a better competitive position in the “new” value chains. Innovation, as the result
of science and technology integration, is a crucial element for the development of
the global industry.
Recently, the Italian Ministry of Economic Development, in order to spread I4.0
culture, identifies three different areas for policy actions. These are the scientific
Industry 4.0 and the Global Digitalised … 197

and technological strategy of culture innovation, promoting measures for supporting

investments in human capital digitalization and in firms’ innovation; the political
perspective towards innovation, encouraging public incentives for supporting “I4.0
firms”; the perspective of business management towards digitalization, favouring
innovation hubs, and high competence centres for the local dissemination of basic
knowledge on I4.0 technologies. However, the applicability of I4.0 policies has many
limits, such as the digital organizational form (agents-internal-work organization),
the implementation of ad hoc policies, and the interaction between them.
The transformation of organizational models follows the growing fragmentation
of production in several global value chains, where the single production process is
the result of the convergence between the “real” world of manufacturing plants and
the “virtual” world of IoT. Consequently, a system of goods and services suitable for
I4.0 challenges should be flexible and adaptable to both, the external and internal
environment. Inside the “black box”, in a cyber-physical atmosphere, economic oper-
ators interact together and with a complex network of machines, physical goods,
and digitalized devices. Entrepreneurs must manage the pre-existing organization
and digitalization of markets in real time, and I4.0 tools embody the opportu-
nity to adapt the firm’s organizational system. A new (advanced) business model
should reconsider both, the role of the individual agent in the digitalization, and
the entire organizational structure. Products are not only gradually assembled along
the production chain, like before, but using digital devices all means of production
(workers, machines, network) can intercommunicate and specify detailed further
steps of activities. “Technical” division of labour goes under stress.
Frey and Osborne [33] highlight some criteria to identify which jobs are exposed
more than others to the risk of automation. These are routine (manual and cognitive
tasks involving explicit rule-based activities) and non-routine (digital intensive) jobs
and, following recent technological advances, digitalization is now spreading to non-
routine extents. In this respect, because of the technological evolution, the effects on
I4.0 labour division is very significant, and it is in large part related to the process of
deskilling, especially if we consider the technologies adopted by Big Data and IoT.
Thanks to them, a wide range of non-routine cognitive tasks could be digital-
ized with a scalability of human labour. The continuous identification and resolution
of digital problems, due to a fast technological progression, will lead to a growing
specialization of digital work. The man-machine replacement can be limited by iden-
tifying elements that only the worker-man possesses, such as the ability to manip-
ulate or assemble objects in a singular and non-automatic way (finger and manual
dexterity), creative (ability to present clever ideas) and social intelligence (persua-
sion, assistance). In advanced manufacturing, machines can easily replace jobs that
require routine and standardized tasks. Jobs losses are mainly due to inadequate skills
of the workers, who are unable to keep up with the innovation rate of growth. In fact,
on the one hand investments in education-digitalization are low but, on the other
hand, the speed at which technical progress moves does not allow the demand for
skill-labour to be able to adapt quickly.
In Italy, several reforms have been introduced in recent years (e.g., Jobs Act, 2014
for the labour market, La Buona Scuola, 2015 for education; school-work transition
198 G. Morelli et al.

Table 1 Italy. Firms’ actions for facing the lack of I4.0 skills, 2017 (in %)
Size classes in number of persons employed (%)
1–9 10–49 50–249 +250 Totala
New employees 11.1 33.7 50.7 55.7 17.7
Qualification of workers 37.2 60.1 69.0 78.8 43.6
External collaborations 35.9 42.1 47.7 43.3 37.7
No actions 32.0 10.8 5.7 3.2 26.2
Source Elaboration on Italian Ministry of Economic Development (2018, Table 4.10)
a In Table 1, the total exceeds 100% because the interviewed firms involved in the survey had the

option of choosing more than one answer

projects, at regional level). In the period 2017–2020, thanks to I4.0, incentives for
13 billion Euros have been allocated to firms to be invested in technologies in order
to qualify them with the high skills required. According to a survey of the Italian
Ministry of Economic Development (IMED), a large number of firms used human
capital training (43.6% of the answers), and preferred outsourcing solutions (37.7%)
to overcome the obstacles in the application of I4.0 (Table 1).
Only less than one third of all responses (26.2%) provided by the firms confirmed
that they have not yet implemented any corrective action, while a 17.7% of the
respondent decided to hire new employees. Indeed, from a dimensional point of
view, some substantial differences emerge. Larger firms are more reactive; they rely
mainly on staff training and new employees, while micro and small ones, in addition
to training, use relatively more services and external collaborations. The smaller firms
(10–49 employees), accounting for less than 11% of the total, fail to take actions to
solve positively the “digitalization problems”; instead, only 11.1% of the micros
(1–9 employees) make new hires, while 32% choose not to take action.
Following the IMED survey, in 2017, the so-called “I4.0 firms”, because of the
adoption at least of one of the new technologies considered in FIR, cover only 8.4%
of the entire population of active enterprises in industry, excluding construction,
substantially differing from 86.9% representing the traditional firms that do not use
new technologies and confirmed not to be intended to use it in the next three years.
Data concern a well-structured, small but representative sample of 23,700 industry
and service firms of different sizes distributed throughout the country. At regional
level, I4.0 technology is more widespread in the Northern and Central Italy (in italics
related data for these macroareas); Piedmont (11.8%), Veneto (11.7%), Trentino
(10.9%) and Emilia Romagna (10.6%) stand out, both in 4.0 “smart manufacturing”,
and in firms that have planned to introduce 4.0 technological actions (Table 2).
On the other hand, the innovation of intelligent production systems faces limits
due to the rapid migration of data, the integration of new systems in existing produc-
tion facilities and databases (which already have very high entry costs). Concerning
organization, the main problem is that intelligent systems based on decentralized
and automated self-organization collide with the traditional organizational scheme of
production, causing paradox of (organizational) inertia. SMEs with limited resources
Industry 4.0 and the Global Digitalised … 199

Table 2 Italy. I4.0 technology disseminations by selected regions and macroareas (in italics) (%),
2017
Regions Traditional firms Traditional firms with planned I4.0 measures I4.0 firms
Piedmont 81.8 6.4 11.8
Lombardy 86.1 4.2 9.7
Trentino A.A. 83.9 5.2 10.9
Veneto 80.5 7.8 11.7
Friuli V.G. 86.4 4.1 9.5
Northern Italy 85.8 4.7 9.5
Tuscany 92.1 3.3 4.3
Marche 89.5 3.5 7.0
Lazio 86.7 5.3 8.0
Central Italy 89.5 3.8 6.5
Abruzzi 89.4 3.7 6.9
Molise 88.3 3.0 8.7
Apulia 90.2 5.1 4.6
Calabria 88.3 4.8 6.8
Sicily 91.0 2.0 7.0
Southern Italy 89.8 3.7 6.3
Italy 86.9 4.7 8.4
Source Elaboration on Italian Ministry of Economic Development (2018, Table 4.2)

could fail in a “smart” factory perspective, but networking would allow sharing and/or
training of the necessary skills. With respect to the geographical macro-areas, the
South shows a higher proportion (89.8%) of traditional firms compared to a below
country average of 85.8% in the North, with more than three points higher percentage
(9.4%) due to the presence of I4.0 firms than in the South. Southern and Central Italy
differ slightly from the North due to firms that have introduced I4.0 measures.
Technology, machines and algorithms complete human work in data and infor-
mation processing, technically supporting humans for some complex assignments
integrating numerous physical and manual tasks. Nowadays, the limit of machines
and algorithms concerns some work activities with high communication and inter-
action. Therefore, where for some fields it is possible (Fig. 2: Information and data
mining, job related information, technical activities performing, and so on) to foresee
that in the near future machines and algorithms can increasingly replace human work,
for others (Fig. 2: Administering, Managing and Advising), this substitution is not
so easy. Some work tasks have thus far remained overwhelmingly human.
According to the World Economic Forum (WEF 2018) estimates, the information,
processing and transmission of an organization’s data and research activities will be
performed by automation technology with a potential average increase (30%) of
labour productivity in all sectors.
200 G. Morelli et al.

Fig. 2 Human/machine (hours worked)—projections %

Source Elaboration on World Economic Forum (2018)

Since I4.0 represents an opportunity for firms to compete at increasing speed, the
challenge will consist in the ability to apply the 4.0 paradigm also to the intentional
and decision-making processes of men. Although I4.0 may lead to a decrease in the
employment levels of less qualified workers, higher skills can stimulate competition.
Big Data and algorithms could allow testing new products and services on
customers anywhere in the world, customizing the company offer, reducing devel-
opment costs, product launch and adaptation. The growth of digital platforms for
product distribution (e.g., Amazon) can facilitate the entry of small businesses into
global markets. On an institutional level, new internal and external structures must
emerge that are suitable for the regulation of a more complex reality where, within
the smart manufacturing, products, people and machines can be related via internet
and interact simultaneously. The result, at the industrial policy level, is a reduction
in organizational costs as integrated firms, since hierarchies are able to better control
the production process at all levels thanks to the increasingly complete integration
between science and technology.
Industry 4.0 and the Global Digitalised … 201

Some interesting features arise from the analysis of WEF 2018 survey data. I4.0
disrupts as well as creates jobs for improving both, productivity and quality, of
existing work of human employees. Figure 2 shows the projections of hours worked
by man and machine in the period 2018–2020 explaining the potential of new tech-
nologies towards jobs innovation. At a first reading, data on human labour indicate a
decrease in almost all the economic sectors. The most involved are Information and
data processing, Job related information, Identification of job relevant information
and Technical activities performing, and in general those which require a highly
automation processes, where the presence of man can be easily partially replaced
by the machine. On the contrary, the predominance of man over the machine would
persist in the planning and strategic sectors (e.g. managing and advising; reasoning
and decision making) where, despite an expected absolute decrease in human pres-
ence over the period, it is possible to believe that the complete machine-man substi-
tution cannot take place as they are areas in which human abilities still act as a
fly-wheel.

6 Conclusions

In the new competitive environment, I4.0 has been changed competition scheme, as
the competitive phenomenon also extends to supply chains. Innovation and time, i.e.
the frequency by which new or significantly updated product versions are introduced,
denote the real competitive advantage, as they have an insightful effect on the life
cycle of outputs, changing the firm production and organizational structure.
What are the major changes? When a firm uses I4.0 tools, it assumes that it is
open to cultural changes, to operate new management strategies. Men and machines
have an essential role in doing this. The acquired knowledge that represents the
“social capital” of the firm, using Big Data and the IoT, is able to compete in a global
perspective, in which the value chain of production changes radically. Consequently,
smart firms will face a persistent increase in the knowledge content of outputs,
strengthening the prominence of intangible assets in production. The main reasons lay
in the increase in the extent of the market induced by globalization that pushes firms to
boost the knowledge content of products, including more innovation, so to remodel
them frequently and exploit new competitive advantages [34]. A consequence is
the changes in the international economic scenario, which have gradually shifted the
foundations of industrial competitiveness from a static to a dynamic cost competition
that companies attempt to implement, improving their learning skills and creating
knowledge faster than the competitors do.
Such an increasingly complex competitive setting has its origins in different
phenomena such as market globalization, continuous socio-cultural changes,
political-financial instability and the increasingly abrupt development of new tech-
nologies. These events are inevitably leading to a significant improvement in the
ability of firms to innovate their production processes, goods and services, and to
approach new markets in a new and unconventional way.
202 G. Morelli et al.

The division of labour will be still affected: the decrease of employees in manufac-
turing is likely to continue as machines will replace workers, and the remaining ones
must be qualified to a higher level of education and capabilities in order to handle the
new technologies. Unfortunately, many Italian firms, especially of medium-small
size, are still vulnerable to face the new challenge and show a severe handicap
compared to their foreign competitors. It seems they are far from understanding
the ongoing culture according to which “smart” factory opens outward using new
model and dimensions, superior to those previously known. The firm becomes an
“open place” that looks to the future, closely connected to the territory, the research
system, the entire community.
Skills gaps in human capital formation remain one of main problem of Italy, both
with respect to workers and managers. This lack would accelerate in some cases the
trends towards automation, but it also block the adoption of new technologies and,
therefore, hinder business growth. A solution might be both investments in the forma-
tion of specific skills, suitable for worker recycling, and in favouring collaborative
practices between small firms. The changes due to the introduction of new technolo-
gies aim to increase labour productivity in all sectors, in order to move competition
among firms from the reduction of the labour cost to the ability of exploiting new
technologies to integrate and improve human work. The traditional business models
are under stress, and the technological progress open the opportunity for the firms to
reduce working time and to grow and expand rapidly.
In order to spur innovation within emerging sectors fostering development, new
industrial policies are needed: they will involve activities where knowledge networks
are still weak and concern to the open question that technological and digital diffusion
entails. Moreover, the FIR has bounded new paths in the mobility of workers and in
the international division of labour. A further research direction that has not yet fully
tested and explained might be the total effect on the labour market, since it is still
persistent a deep heterogeneity and asymmetry in human capital formation among
countries. The introduction of suitable strategies to favour new relationships between
manufacturing and services following the theoretical scheme of S-D logic will play
an important role, as well as strategies for a more complete international opening.

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Managing Online Communities
and E-WOM: Prosumers’
Characteristics and Behaviors
in the Food Service Sector

Claudia Dossena and Francesca Mochi

Abstract Nowadays having a good online corporate reputation is a valuable resource

for organizations, especially in the food and beverage service sector. Potential diners
frequently rely on people’s opinions shared online in choosing a new restaurant.
In so doing, online communities are gaining increasing importance in influencing
the customer journey. This research aims to better understand the prosumers’ use
of social media (i.e. people that are both consumers and social media users and
that contribute to create digital contents) in choosing a restaurant and reviewing it
online. In particular, we want to investigate if prosumers’ characteristics or habits, can
influence their use and perception of social media, such as looking for information,
writing feedbacks, and trust online reviews. In this paper we will focus on two
main prosumers’ characteristics or habits: the frequency of going to a restaurant and
the willingness to try new restaurants. Our main findings suggest that prosumers
that frequently go to a restaurant have a different approach to social media being
more inclined to used them both for gathering information and for reviewing their
experience. Similarly, we find that prosumers that have an “explorative” behavior (i.e.
enjoy to frequently try new restaurants), use social media differently from prosumers
that have a “loyal” behavior, i.e. that choose the same and familiar restaurant. In this
explorative study we adopted a quantitative methodology by using a survey on 315
Millennials prosumers. Theoretical and managerial implications are also developed.

Keywords Prosumers · Social media platforms · Food service sector · Online

reputation · Online attractiveness

C. Dossena (B) · F. Mochi

Università Cattolica del Sacro Cuore, Milan 20123, Italy
e-mail: claudia.dossena@unicatt.it
F. Mochi
e-mail: francesca.mochi@unicatt.it

© The Editor(s) (if applicable) and The Author(s), under exclusive license to Springer 205
Nature Switzerland AG 2020
R. Agrifoglio et al. (eds.), Digital Business Transformation, Lecture Notes in Information
Systems and Organisation 38, https://doi.org/10.1007/978-3-030-47355-6_14
206 C. Dossena and F. Mochi

1 Introduction

Social media platforms provide extensive opportunities for consumers to share online
their evaluations about organizations, their products and/or services. In recent years,
an increasing number of opinion platforms, that offer consumers’ online reviews and
ratings, have been introduced. Opinion websites and social media platforms allowed
the arise of online communities in which users can spread their opinions and have
access to other people reviews (e.g. [1]), thus having a profound effect on consumers’
purchase decisions and behaviors.
Social media’s bi-directional communication characteristic develops large-scale
word-of-mouth (WOM) networks in online environments (e-WOM). Online reputa-
tion mechanisms allow the members of a community to submit their opinions, thus
influencing online corporate reputation. Online communities related to social media
are now available for many categories of products, including hotels, restaurants,
books, electronic goods, and games. In particular, for restaurants online communi-
ties are channels that connect potential diners with many other diners. Numerous
web sources enable users to easily spread their reviews and share their experiences
online, such as opinion platforms (e.g. TripAdvisor), social networks (e.g. Facebook)
and Google Reviews. In this way, everybody can access user-generated reviews even
more easily than in the past.
Online communities evolve during time and co-evolve with the daily contribu-
tions of users, thus constantly changing. In this sense consumers are now defined as
prosumers (i.e. people that are both consumers and users and that are co-creator of
contents [2]). This aspect and the widespread of e-WOM, highlight the relevance of
an effective online community management and the awareness that social media are
now essentials tools for business [3, 4].
Currently, some authors have investigated the e-WOM phenomenon, the content
of reviews, their credibility and trustworthiness in the hospitality industry (e.g. [2,
5]). However, to our knowledge only few works focused on the food service sector
(e.g. [3]). Moreover, in literature there is a lack of studies that focus on users’ profiles,
their characteristics and online behaviors.
This research aims to better understand the prosumers’ use of social media such
as choosing a restaurant and/or reviewing it online. In particular, we want to inves-
tigate if prosumers’ features or habits, such as frequency of going to a restaurant, or
willingness to try new restaurants can influence their use and perception of social
media, such as looking for information, writing feedbacks, and trust online reviews.
The study is explorative, thus the methodology that we used is an explorative
survey to assess the main topics of interest concerning prosumers’ behaviors in
searching for restaurants and rating their experience, especially considering the use
of social media and digital devices.
Managing Online Communities and E-WOM: Prosumers’ … 207

2 Theoretical Framework

Researchers noted that consumers are becoming “hyper-digital”, using connected

devices every day or multiple times a day. As a consequence of the massive use of
mobile devices for gaining information and giving feedbacks, the literature shows
that digital tools replace human contacts with technological interactions, from the
information research stage through booking a place at a restaurant to give a feedback
about the experience [6].
Before the advent of social media, word of mouth (WOM) was the most useful tool
for marketing research and the most influential source for information exchange [4].
Furthermore, previous researchers noted that in the hospitality sector and especially
in the food service one, consumers mainly trust the WOM [3]. WOM is the transfer
of information from one customer to another in a way that has the potential to change
their preferences, purchase behavior, and interaction with each other [3, 7]. However,
nowadays the e-WOM is even more used as a method to reach information.
e-WOM is defined as “any positive or negative statement made by potential,
actual, or former customers about a product or company, which is made available
to a multitude of people and institutions via the Internet” [8, p. 39]. e-WOM takes
place in a more complex technologically mediated context whereas traditional WOM
occurs normally in a face-to-face fashion, with participants in close proximity [9].
Unlike traditional WOM, e-WOM spreads more widely and rapidly due to e-WOM’s
unique characteristics. In particular, e-WOM is directed at multiple individuals, is
anonymous and is available at any time [6]. Consequently, the potential impact of
e-WOM on customers’ decision-making processes can be more powerful than the
impact of traditional WOM [10].
Although there is still a lack in literature in investigating e-WOM concerning
restaurants, there is an increasing consumer reliance on e-WOM when choosing a
restaurant [3, 11].
Websites and social media allow users to be influenced by the e-WOM about
the restaurant choice [12, 13]. Those tools have completely reshaped the hospitality
industry scenario and changed the sources customers use/trust to search for hotels,
locate restaurants, place orders, make reservations, plan trips and share experiences
[14].
Unlike traditional forms of communication (i.e. TV, newspaper, advertisement on
street) communication through social media is bi-directional: consumers are not only
receivers of information, but they are active participants in content and information
creation, opinion sharing, e-WOM creation and co-creator of value for the restau-
rant [12]. In effect, previous research considers them as “prosumers” (combining
the words “producer” and “consumers”) thus describing the consumers’ ability to
openly share their product/service experiences [2]. The prosumers’ co-creation of
content and sharing of experiences affect the brand-image of the restaurants [15] and
influence other prosumers’ behaviors.
Previous research considers the use of different social media platforms such as
Facebook, TripAdvisor, Yelp, etc. In particular, Facebook and TripAdvisor are the
208 C. Dossena and F. Mochi

social media that seemed more used by customers when choosing the hotel [16,
17], however we still do not know the prosumers’ preferences concerning the food
service sector. In the food service literature there are some studies that investigate how
different social media are able to make big data analytics useful both for the customers
and the restaurant managers [18], however only few contributions investigate which
are the main social media platforms used by prosumers and how they impact their
consumption behaviors.
Researchers also start to investigate the content of reviews, their credibility and
trustworthiness. To quantify the credibility of reviewers, [19] we consider two key
dimensions: expertise and trustworthiness of the reviewers, which can be extracted
from reviewers’ contribution histories and number of helpful votes [20]. Previous
research shows that positive and negative reviews are perceived differently in the
level of trustworthiness: negative reviews are usually perceived as more reliable than
positive ones [21]. However, at the stage of evaluating the gathered information,
people perceive as more important the negative information they have gained about
the products and services and consider them more meticulously than positive infor-
mation [22, 23]. Customers may attach more importance to negative information in
order to be prepared in advance for certain negative characteristics of the purchased
products and services.
Previous managerial literature informed us about certain prosumers’ behaviors
such as searching information on particular social media platforms (e.g. Facebook
and TripAdvisor) [18] or rely more on negative comments and reviews than on
positive ones [21, 23]. However, at the best of our knowledge, literature does not
consider the influence of prosumers’ characteristics and the impact on their choices
and behaviors. In particular, we are interested in exploring if people that frequently
goes to the restaurant have a different approach to social media being more inclined to
use them both for gathering information and for reviewing their experience. Similarly,
we want to analyze if prosumers that have an “explorative” behavior (i.e. enjoy to
frequently try new restaurants), use social media differently from prosumers that have
a “loyal” behavior, i.e. that choose the same and familiar restaurants. Indeed, previous
research shows that restaurants can strategically engage “loyal users” and convert
them to advocates and serve as “hubs” for users who trust friends’ recommendations
[12].
Our paper is thus exploratory and aims at understanding if there are some charac-
teristics or habits that can influence prosumers’ behavior and choices and how this
can impact the restaurants owners and other prosumers.

3 Methodology

The aim of the study is explorative, thus the methodology that we used is an explo-
rative survey to assess the main topics of interest concerning prosumers’ character-
istics and behaviors in searching information about new restaurants and rating their
experiences.
Managing Online Communities and E-WOM: Prosumers’ … 209

The overall sample was composed by Millennials (minimum 18 years old,

maximum 20 years old, mean age 19 years old). The millennial generation is generally
defined as those born between 1981 and 2000 [24] and is reported to be more tech-
nologically advanced than the previous generations [25]. Millennials have always
known and been immersed in technology [26] and within the generally accepted
millennial age cohort has now emerged the ‘Generation C’, formed by those born
after 1990. These Generation C consumers were born into a digital world and, as such,
are frequently referred to as digital natives [27] and they love content creation, form
active communities rather than remain passive, and they gravitate toward social media
sites where they can participate in discussions about different ideas and products
Bowen and McCain [28] reported that Millennials share their personal experiences
with products and learned from others’ reviews through social media. For Millen-
nials, social media are a mean to connect to each other, as they crave social interac-
tion and want to share everything [29]. Furthermore, Millennials are replacing baby
boomers as the major travel and food consumers segment [30]. At least in the US, a
large portion of Millennials’ expenditure is primarily spent in the restaurant industry,
they eat out an average of 3.39 times per week, and the frequency is almost twice that
of the rest of the population [31]. Moreover, Millennials treat dining out as a social
event, and meeting for food and beverage is one of the most common ways to spend
time with friends and relatives [32]. For all those reasons, they seem to represent the
adequate sample for exploring the use of social media in the food service industry.
The questionnaire was spread among 380 Millennials that were homogeneous in
age and background. In effect they all are studying at the same Italian University
and at the same bachelor course (economics), furthermore they were homogeneous
in wealth, habits and they live in the same area (Milan). Among those 380, the
respondents were 315 students. 55% of them were female.
In the first analysis, in order to reveal Millennials’ behaviors and preferences, we
divided the sample into groups to reveal if there are some prosumers’ characteristics
or habits that can influence their use and perception of social media platforms in
the food service sector. At first, we consider the Millennials’ tendency to go to
a restaurant as a multi-categorical independent variable that split our sample in 4
groups thus allowing us to run ANOVAs. The first group (participants never go to a
restaurant) is actually not present in the results as no one has declared that. We thus
remain with only 3 groups: the second group (participants rarely go to a restaurant),
the third (participants often go to a restaurant) and last one (participants always/every
day go to a restaurant) (Fig. 1).
Our dependent variables concern the mean of research of information about a
restaurant, the check for the reliability of online reviews, the online comparison of
their restaurant experience with those made by other prosumers, the willingness to
write a review after being at the restaurant and the use of smartphones and app to
make a reservation or to order with a delivery service. All those variables are single
item variables and we used a 4-point Likert scale in order to avoid the mid-point
category thus forcing the indifferent respondents to make a choice and, as the sample
is made by students, to avoid their desire to please the interviewers or appear helpful
210 C. Dossena and F. Mochi

Fig. 1 Groups according to

the frequency of going to a
restaurant

or not be seen to give what they perceive to be a socially unacceptable answer (for
discussion about the Likert scale points see [33, 34]).
In the second analysis, we divided the sample in 4 groups depending on their
willingness to try new restaurants, the first group is composed by Millennials that
do not want to try new restaurants, but trust the few that they already know (we will
call them the “loyal” prosumers), while the fourth group is composed by Millennials
that always want to change the restaurant and try new ones (we will call them the
“explorer” prosumers) (Fig. 2).
The single items dependent variables used a 4-points Likert scale and concern the
mean of research of information about restaurants, the willingness to read positive
and negative comments to understand the restaurant strength and weaknesses, the
willingness to move with cars (30 km) to try a restaurant with good online reviews,
the tendency to compare the experience with those made by others, the willingness
to write a review and to use social media for making a reservation and ordering food
delivery.

Fig. 2 Groups according to

the tendency to try new
restaurants
Managing Online Communities and E-WOM: Prosumers’ … 211

4 Results and Discussion

First of all, from our descriptive statistics, we found that 92.4% of our sample use
Internet to search information at least once a day, so they are all proficient in using the
web. Furthermore, 96.2% of our sample use the mobile device to search information
about restaurants, thus confirming the literature about the relentlessly trend of use
mobile devices for searching information that overcome the use of laptop and PC
[6].
In the first analysis the sample was divided in 4 groups depending on the frequency
of going to the restaurant (form never to always/every day), however, as stated before,
no one responded “never”, thus the results that we present show only 3 groups.
We ran multiple one-ways ANOVAs in order to explore our data (Table 1).

Table 1 Prosumers’ behavior comparison depending on their frequency of going to a restaurant

Dependent variables Groups Mean Standard deviation Significance
Search for information on FB 1 1.41 0.701 0.021
2 1.84 0.818
3 1.80 0.830
Search for information on 1 1.53 0.788 0.009
specialistic blogs 2 1.64 0.791
3 1.91 0.920
Search for information on 1 2.56 0.824 0.170
restaurant website 2 2.83 0.814
3 2.87 0.923
Search for information on 1 2.91 1.083 0.218
comparison platforms (e.g. 2 3.16 0.811
TripAdvisor, the Fork) 3 3.19 0.817
Check for the reliability of 1 1.91 1.311 0.05
online reviews 2 2.50 1.363
3 2.50 1.328
Comparing experience online 1 1.29 0.462 0.042
after being in a restaurant 2 1.54 0.698
3 1.63 0.825
Write a review after being in a 1 1.29 0.579 0.026
restaurant 2 1.66 0.724
3 1.63 0.742
Use social media to make a 1 1.91 0.866 0.042
reservation 2 2.10 0.877
3 2.29 0.886
Use social media for food 1 1.82 0.834 0.000
delivery 2 2.07 0.871
3 2.44 0.924
N = 315; Groups: 1 = rarely go to the restaurant (n = 34), 2 = often go to the restaurant (n = 128)
3 = always go to the restaurant, every day (n = 153)
212 C. Dossena and F. Mochi

ANOVAs results show us that prosumers in our sample mainly use Facebook
(p-value = 0.021) and specialistic blogs (p-value = 0.009) to search for informa-
tion about a restaurant, however we have found non-significant the use of restaurant
website and comparison platforms such as TripAdvisor and the Fork. Probably for
those social media platforms the differences in mean among the groups are non-
significant, i.e. they all use those social in a similar way and frequency. Those results
partially contrasted with the literature that assessed that both Facebook and TripAd-
visor were the most used platforms in the hospitality industry [16, 17, 35]. Results
also show that the more you are inclined to go to the restaurant the more you rely on
social media as information tool as the significant means differences among groups
can show. Results on Table 1 show that people that have a higher score in going
to restaurants for lunch or dinner (group 2 and 3), have a higher mean score in
checking the reliability of online reviews (p-value = 0.05). Therefore, prosumers
that frequently go to a restaurant significantly exploit online opinions but also have a
more careful approach in trusting online reviews. Furthermore they are more willing
to compare their experience with the reviews of others after having lunch or dinner
(p-value = 0.042), i.e. their ‘online experience’ is not limited to the phase before the
dinner (to search information) but it keeps on also after having dinner, in order to
confirm their opinions. Similarly, those people are also the ones that more frequently
write a review after their experience at the restaurant (p-value = 0.026). Lastly,
the results show that the more the prosumers go to restaurants the more they use
social media not only for acquiring information and write reviews, but also to make
reservation (p-value = 0042) and to exploit the food delivery options (p-value =
0.000).
From these results we can infer that prosumers that frequently go to the restaurant,
strongly rely on information found on social media platforms and e-WOM as their
decision will influence not only an occasional night, but probably every day since
they often or always go to restaurant. They are also prone to exploit social media in
an active way for various purposes such as sharing their experience or use them to
reserve a table.
Starting from these results, we deepened our investigation by dividing the sample
in a different way. As the previous results show us that the people who frequently go
at restaurants are also those that are more proactive on social media, we decided to
compare the behaviors of people that frequently change restaurant (the explorer ones)
with people that are not so willing to change (the loyal ones). We run a series of one-
way ANOVAs where the independent variable is multi-categorical and composed by
4 groups depending on the participants’ frequency of trying new restaurants (Table 2).
Therefore, the sample were divided in 4 groups, from 1 = almost never change the
restaurant, to 4 = almost always change the restaurant. This distribution of the sample
allows us to understand and compare the behaviors of the people that are very loyal
to a single or few restaurants with those that always want to change the choice of the
restaurant and are prone to try new ones.
First of all, as shown in Table 2, we again found the significance of searching
information about a restaurant on specialistic blogs (p-value = 0.043) as well as
on general blogs (p-value = 0.033), the search on other social media was found
Managing Online Communities and E-WOM: Prosumers’ … 213

Table 2 Prosumers’ behavior comparison depending on their frequency of trying new restaurants
Dependent variables Groups Mean Standard deviation Significance
Search for information on 1 2.00 1.732 0.043
specialistic blogs 2 1.68 0.830
3 1.75 0.856
4 2.23 0.922
Search for information on 1 2.33 1.528 0.033
non-specialistic blogs 2 1.44 0.695
3 1.52 0.730
4 2.27 1.120
Search for information on 1 2.33 1.528 0.204
comparison platforms (e.g. 2 3.07 0.856
TripAdvisor, the Fork) 3 3.21 0.828
4 3.18 0.853
Search for information on 1 2.00 1.732 0.108
social media (e.g. Facebook) 2 1.64 0.781
3 1.82 0.789
4 2.05 1.046
Read positive comments to 1 2.00 1.00 0.045
understand the restaurant 2 3.31 1.014
strengths 3 3.32 1.065
4 3.73 1.985
Read negative comments to 1 2.00 1.00 0.043
understand the restaurant 2 3.50 1.930
weaknesses 3 3.60 1.117
4 3.86 1.082
Willing to move 30 km to eat 1 1.67 1.155 0.013
in a restaurant with good 2 2.39 1.211
reviews 3 2.58 1.305
4 3.52 1.555
Comparing experience online 1 2.00 1.732 0.000
after being in a restaurant 2 1.33 0.566
3 1.65 0.784
4 1.95 0.844
Write a review after being in a 1 2.00 1.732 0.000
restaurant 2 1.38 0.587
3 1.70 0.719
4 2.00 0.926
Use social media to make a 1 1.33 0.577 0.000
reservation 2 1.90 0.859
3 2.28 0.857
4 2.77 0.813
(continued)
214 C. Dossena and F. Mochi

Table 2 (continued)
Dependent variables Groups Mean Standard deviation Significance
Use social media for food 1 1.67 0.577 0.009
delivery 2 2.01 0.865
3 2.34 0.920
4 2.45 1.011
N = 315; Groups: 1 = Mainly go to familiar restaurants (n = 3), 2 = Occasionally go to new
restaurants (n = 112), 3 = often go to new restaurants (n = 178), 4 = Always go to new restaurants
(n = 22)

not significant probably because every group use other social media (Facebook,
TripAdvisor, Google Review) at a similar intensity.
However, we found significant differences in means among groups concerning the
attention to positive and negative comments and reviews. It seems that the more you
are willing to change restaurants and try new ones, the more is the attention towards
both positive comments (p-value = 0.045) and negative ones (p-value = 0.043).
Positive comments are read in order to understand the strengths of a restaurant,
while negative ones are taken into count in order to understand the weaknesses of
the restaurant. This is partially in contradiction with previous literature that stated
that negative reviews are the most taken into count and perceived as reliable [21].
Furthermore, the more the people assume an “explorative” behavior, always trying
new restaurants, the more they are prone to go far away (at least 30 km) in order
to reach restaurants that have very good reviews (p-value = 0.013). In this case the
differences in means among groups are very strong showing an exponential increasing
of the willingness to go far for those that always want to try new restaurants (mean
= 3.52) particularly if compared with those that prefer the familiar ones (mean =
1.67).
Results show that participants that love to change restaurants and those that
trust only few well known one share a similar behavior as they both compare, post
consumption, their experience with those shared online by other users by looking at
reviews or comments (p-value = 0.000, mean group 1 = 2.00; mean group 4 = 1.95)
even more than the groups with preferences in between (mean group 2 = 1.33; mean
group 3 = 1.65).
The results show similar conclusions about writing online reviews. The ones that
write the most are those that are loyal to few restaurants (mean group 1 = 2.00),
probably they post positive reviews to promote the restaurant they love, and those
that always change their restaurant choice (mean group 4 = 2.00; p-value = 0.000).
Lastly, again, it seems that the more you are an “explorer” of restaurants the more
you use social media to make a reservation (p-value = 0.000) or to use the food
delivery option (p-value = 0.009).
Managing Online Communities and E-WOM: Prosumers’ … 215

5 Conclusions

5.1 Theoretical and Managerial Implications

Our research tries to develop two different literature, the social media literature
by considering social media platforms and online communities, and hospitality
industry literature, especially the food and beverage service sector, by considering the
prosumers’ behavior in choosing a restaurant and reviewing it. Furthermore, the paper
aims at investigating how prosumers’ characteristics or habits, i.e. the frequency of
going to a restaurant and of being prone to change restaurants, can impact the use
of social media platforms. Thus, also e-marketing literature can benefit from our
explorative study since it opens up a new debate on the prosumers’ profile.
The study, even if exploratory, can give some interesting suggestions also to prac-
titioners. Firstly, restaurant managers have to be aware that there are some prosumers’
characteristics or habits that influence their use of social media. For instance, restau-
rant managers should be aware that Facebook and specialistic blogs are social media
mainly used by prosumers that frequently go to the restaurant. Moreover, those people
that frequently go to the restaurant are prone to check the reliability of reviews
and also after the experience at the restaurant they tend to compare their experi-
ence with those of the others by re-screening the reviews. This means that people
that frequently go to the restaurants, and that probably are those more valuable for
restaurant managers, are also those that are more careful in checking comments and
reviews and that re-think and re-evaluate the restaurant experience even after the
lunch or dinner is over. Similarly, those people are the ones that actively use social
media platforms and also use them as a tool for simplifying their lives by using
online reservation apps or food delivery options thus evaluating those services tools
and expecting them from a restaurant. Lastly, restaurant managers should consider
that loyal customers and the “explorer” ones can perceive and use social media in
different ways. The explorer ones are more prone to consider both positive and nega-
tive comments and are willing to choose a restaurant that is far away if it has very
good online reviews. They are also those that are more active in using online reser-
vation tools and food delivery. However, the two groups (loyal and explorer) can
also show behaviors similarities, as they both are really inclined to write reviews
and to re-examine online comments after being at the restaurants. Restaurants can
strategically engage “loyal users” and convert them to advocates and serve them as
“hubs” for users who trust friends’ recommendations [12].

5.2 Limitations and Future Research

Our study presents some limitations, first of all the sample is composed only by
students, it could be interesting to develop the same study but with a less homo-
geneous sample in order to understand if differences in age, digital literacy, past
216 C. Dossena and F. Mochi

experience can influence the use of social media in terms of information research,
trust in reviews, writing of comments.
Furthermore, our research only considers few prosumers’ habits or characteris-
tics (i.e. frequency of going to a restaurant and willingness to change the restaurant),
but future research can consider other prosumers’ characteristics, also by involving
personal traits (e.g. openness to experience, extraversion) or competencies (e.g.
digital skills, communication skills).
Lastly, future research can also investigate not only the prosumers’ perspective
but also the influence of prosumers’ behaviors on restaurant managers.

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Identification of IT-Needs to Cope
with Dynamism in Collaborative
Networked Organizations—A Case Study

Ronald van den Heuvel, Rogier van de Wetering, Rik Bos,

and Jos Trienekens

Abstract Collaborative Networked Organizations (CNOs) are increasingly

common in current dynamic markets. The participants in a CNO try to achieve a
common goal while acting on market opportunities. Information technology (IT)
facilitates collaboration between participants within a CNO. In this paper, we
show how CNOs cope with network-dynamics related to their IT-needs. Two sub-
characteristics of network dynamics, respectively many-to-many relations and inter-
action patterns, will be investigated. In the end, we are trying to answer the question
regarding what IT-needs CNOs have, to cope with CNO-dynamism. Based on a
literature review we developed a framework on CNO-dynamism and executed a
multi-case study within four CNOs. We conclude that all framework components
are recognized within the CNOs. CNOs appeared to mainly cope with dynamics by
using collaborative platforms, task management systems, and conference facilities.

Keywords Collaborative networked organizations (CNOs) · CNO-dynamism ·

IT-needs · IT-alignment · Multiple case study

1 Introduction

Organizations that operate in highly turbulent markets demand more agility from their
strategic partners and suppliers. In response to rapidly changing customer demands
and wishes, organizations are forced to collaborate and jointly create products and

R. van den Heuvel (B) · R. van de Wetering · R. Bos · J. Trienekens

Faculty of Management, Science and Technology, Open University of the Netherlands, Heerlen,
The Netherlands
e-mail: ronald.vandenheuvel@ou.nl
R. van de Wetering
e-mail: rogier.vandewetering@ou.nl
R. Bos
e-mail: rik.bos@ou.nl
J. Trienekens
e-mail: jos.trienekens@ou.nl

© The Editor(s) (if applicable) and The Author(s), under exclusive license to Springer 219
Nature Switzerland AG 2020
R. Agrifoglio et al. (eds.), Digital Business Transformation, Lecture Notes in Information
Systems and Organisation 38, https://doi.org/10.1007/978-3-030-47355-6_15
220 R. van den Heuvel et al.

services [1]. Collaborative networks (CN) have become a common organizational

form in these dynamic markets to innovate and collaborate, allowing these organi-
zations to cope with the dynamics at hand. A collaborative networked organization
(CNO) is comprised of multiple participants whose aim is to achieve common goals
[1–3]. Achieving a state of Business/IT-Alignment (BITA) between the participants
in the CNO appears to be a valuable endeavor that could provide benefits on agility
and performance [4].
Extant literature on BITA predominantly focuses on uni-minded organizations (as
opposed to networked organizations); it does not consider the networked dynamics
“lens” [4–7]. The alignment frameworks dedicated to uni-minded organizations are
based on hierarchical structures and governed within one organization. Within a
CNO, multiple, participating organizations have their own governance structures.
BITA could provide organizational benefits to these CNOs. It is this networked
perspective on alignment within CNOs that is unique to the current dynamic times;
this perspective is not yet part of the current body-of-knowledge.
The goal of this paper is to provide insight into the need for IT systems (described
as IT-needs) to overcome or react to (described as coping with) the network-
dynamics that a CNO encounters. This CNO-dynamism influences the CNO via
market dynamics, network dynamics between partners and dynamics related to
reconfigurations of the CNO itself. This results in our research question:
RQ: What IT-needs do CNOs have to cope with CNO-dynamism?
To answer this research question, we use the “Dynamic and self-regulating
networks” characteristic presented by Van den Heuvel et al. [8] and focus, as part of
this characteristic, on the interrelations and interactions between participants within
the CNO. We focus on two operational (system/process) characteristics: “many-to-
many relations” and “interaction patterns.” Many-to-many relations and interaction
patterns are typical for collaborative environments, where multiple organizations
work together.
Via a systematic literature review (SLR) we created a framework to structurally
gather results in the case study. The case study consists of 15 interviews over 12
organizations that participate in the CNOs. Semi-structured interviews were used to
gather insight into IT-needs, and the results were transcribed and coded to answer
the research question.
Our results can help practitioners to determine the needed IT when creating a
CNO to can cope with dynamism. Researchers can use our results to get a better
insight into these IT-needs to extent BITA models that fit CNOs and their dynamics.
Section 2 describes the theoretical background. Section 3 describes the method-
ology of the SLR, framework development, the case study, and coding. Section 4
describes the framework that is used within the case study. Section 5 outlines the
results. We finalize this paper with a discussion (Sect. 6) and a conclusion (Sect. 7).
Identification of IT-Needs to Cope with Dynamism … 221

2 Theoretical Background

2.1 Networked Organizational Context

CNs are complex networks of organizations that cannot achieve their goals by
themselves. These CNs are not hierarchically structured, are evolutionary, and are
continuously interacting with the environment [9]. When we talk about organized
collaboration, the term Collaborative Networked Organization (CNO) is used [10].
Walters and Buchanan [9] describe that these organizations have benefits
compared to hierarchical networks. A few of the benefits are: leverage via best capa-
bilities, higher speed due to reduced management and increased IT usage, agility,
independence, and interdependence [9]. The rationale behind “increased IT usage”
within a CNO is that CNOs need to communicate and IT is needed to facilitate this
communication [10, 11].

2.2 Business/IT-Alignment (BITA)

BITA has been popularized by Henderson and Venkatraman [12] in the Strategic
Alignment Model (SAM). Henderson and Venkatraman [12] state that “the inability
to realize value from IT investments is, in part, due to the lack of alignment between
the business and I/T strategies of organizations.” Organizations should embrace a
process of continuous adaptation and change in order to achieve alignment. BITA
“refers to applying Information Technology (IT) in an appropriate and timely way, in
harmony with business strategies, goals and needs” [13] and leads to an increase in
agility and performance [4]. Within this paper, we define alignment as strategic and
operational alignment as described by Bagheri et al. [14], where strategic alignment
is the fit between business strategy and IT strategy and operational alignment is the
alignment between business processes and supportive information systems.
The extant literature shows that a higher degree of alignment within an organiza-
tion provides benefits to the firm [4]. Current models for BITA do not address the
‘networked lens’ that we see within a collaborative environment [8].

2.3 Many-to-Many Relations

CNOs are networks of participating entities, where entities can be a variety of types
like organizations, humans, or systems. An important aspect is the bi-directional,
reciprocal way of exchanging resources [15] which show bi-directional interaction
existing between participants in a CNO. If we consider the dynamics of a CNO and
the vast number of participants collaborating within the CNO, many relations can
222 R. van den Heuvel et al.

exist. Each participant and organization can take part in multiple other organizations,
resulting in many-to-many relations which could have an epistatic nature.
Ahuja [16] argues that the number of relations, specifically direct ones, can posi-
tively affect the innovative output of the organization. The relationships influence
the output via knowledge sharing, complementarity, and scale. The power of rela-
tions and their impact on the innovative output is essential for the dynamism that
CNOs experience. While the benefits of indirect relations are low compared to direct
relations, they still contribute to innovative power.

2.4 Interaction Patterns

The created interaction patterns are the connections between the entities during
collaboration. Jaakkola et al. [17] describe collaboration in Information Systems
(IS) research as information processing by humans and computers, the informa-
tion transfer between them and the transformations needed in the transfer itself.
Camarinha-Matos [18] describes collaboration as “a more demanding process in
which entities share information, resources, and responsibilities to jointly plan,
implement, and evaluate a program of activities to achieve a common goal and
therefore jointly generating value.” Entities can manifest in various forms, such as
organizations, humans, and systems.
Dynamism in CNOs, whether it is facilitated by internal or external change, forces
collaboration to evolve and thus results in ever-changing interaction patterns. These
internal or external interaction patterns need to be taken into account when looking
at CNO-dynamism as a whole [19].

3 Research Methodology

Our research comprises a literature review (3.1) that forms the basis for our frame-
work (3.2) used in the case study (3.3), which is executed via interviews. The
interviews were transcribed and coded (3.4) to gather insights into IT-needs (see
Fig. 1).

3.1 Literature Review

Two SLRs were conducted for each of the sub-characteristics. The execution was
based on Saunders et al. [20]. We selected articles based on the following charac-
teristics: peer-reviewed, age (10 years, or seminal paper), language (English). The
search query was based on the components CNO, BITA, dynamic and self-regulating
network (DSN) extended with the sub-characteristic interaction patterns (IP) or
Identification of IT-Needs to Cope with Dynamism … 223

Fig. 1 Research model

Table 1 Results SLR on

Building blocks Results
many-to-many
sub-characteristic CNO + BITA + MM 73
CNO + BITA + Dynamics + MM 28
CNO + BITA + Self-regulating + MM 1
CNO + BITA + Dynamics + Self-regulating + MM 0

Table 2 Results SLR on

Building blocks Results
interaction patterns
sub-characteristic CNO + IP 4
BITA + IP 1
DSN + IP 19
CNO + DSN + IP 0

many-to-many (MM) relations. We executed the search by combining the mentioned

components to create search queries executed on EBSCO host (Academic Search
Elite, Business Source Premier and E-journals). Additional literature was gathered
by using backward searching. The literature found during the review was analyzed
and used to create the framework (see Tables 1 and 2).

3.2 Framework Development

The material from the SLRs was reviewed and analyzed to create the framework
that was used during the case study interviews. The framework components were
grouped into themes. Section 4 contains the framework, based on the theme CNO,
relation (many-to-many relations), and interaction (interaction patterns).
224 R. van den Heuvel et al.

3.3 Case Study Approach

The selection of organizations is based on heterogenous non-probability sampling

advised by Saunders et al. [20]. Organizations needed to meet the following qualifi-
cations: The CNO is operational or has been in the last six months; A clear goal for
the collaboration is available; At least one IT specialist and one business specialist
are available for the semi-structured interviews within the CNO; Collaboration exists
between three or more partners (to account for many-to-many relations); Within the
case study, a minimum of three interviews are executed within a CNO. If the require-
ments could not be met, the case would be discarded. We aimed at four organizations
within the same sector with goals related to IT service management (ITSM).
The interviews were held in a semi-structured manner based on the framework
and an interview guide. The semi-structured interview provided us with the flex-
ibility to discuss specific topics within the interview guide. Specifically, experi-
ences were asked within the interview to focus on real effects instead of expected
outcomes. A trial interview was held to test the interview guide. The participant
received an introduction letter to increase the understanding of the research topic
and to level the knowledge between the participants within the study. Interviews
were conducted face-to-face, recorded, and transcribed. The transcriptions were
provided to the participant for validation [20]. All transcripts are anonymized to
provide confidentiality and anonymity.

3.4 Coding Procedure

Quantitative coding was used to analyze the transcripts of the interviews inspired
by the methods of Muhr [21]. Closed-coding was used to set a base codebook,
based on the interview guide, that was used by all three researchers. Each researcher
independently coded and used open-coding to extend the codebook. Codes that were
created during the coding process were shared within the research team to align coded
phenomena. After closed and open-coding we used axial coding to find relations
between the codes.
The first author reevaluated the codes in the transcripts. An independent researcher
evaluated the process and, via selective bi-directional inter-coding, validated the
coded interviews based on the transcribed text and codes. We retrieved an inter-coder
agreement beyond 90% of these transcripts, providing us with sufficient confidence
in our analysis [22].
Identification of IT-Needs to Cope with Dynamism … 225

4 Network Dynamics Framework

The framework created from the literature review contains three main themes. The
first theme is CNO, which provides insight into CNO-related characteristics to clas-
sify the CNOs and topology. The second theme is the relation, which provides insight
into the connection between participants within the network. The third theme is inter-
action, which provides insight into the relation itself. The first theme is descriptive
for the CNO the second and third are possible influencers of CNO-dynamism.

4.1 Theme CNO

There are multiple forms of CNOs structured in the taxonomy provided by

Camarinha-Matos and Afsarmanesh [23], and this taxonomy is still evolving.
Based on the SLR, we found the following components related to the theme
“CNO”: CNO goal, CNO type, and CNO life cycle. Cheikhrouhou et al. [24] describe
two topologies of networks—vertical and horizontal. We called this CNO Type,
where vertical CNOs try to extend their capabilities and horizontal CNOs try to
extend their capacity to fulfill a business goal. Camarinha-Matos and Afsarmanesh
[25] describe five stages of the life cycle of the CNO: L1 Creation: In this phase, the
CNO and its components are created or acquired, and the legal structure is formed; L2
Operation: CNO is operational and moving towards its intended goal; L3 Evolution:
In this phase, the CNO is changed in daily operation. L4 Dissolution: In this phase,
the CNO is ended, commonly when they achieve their goal. This phase is common
for short-term CNOs; L5 Metamorphosis: The CNO fundamentally changes its goal
or structure. This stage is common for long-term partnerships where the L4 is too
destructive for the assets that are available within the CNO.
These CNO-related components provide insight into the CNO and could poten-
tially identify relations between CNO-components, and the dynamics related
components many-to-many and interaction patterns.

4.2 Theme Relation (Many-to-Many Relations)

Based on the SLR, we found the following components related to the theme
“relation”: trust, entity role, relation type, tie form, tie strength, and embeddedness.
Cheikhrouhou et al. [24] mention five types of trust in their paper: competence,
contractual, relational, indirect, and negative trust. Cheikhrouhou et al. [24] define
these types of trust as: Competence trust is founded by the belief a partner has the
competence to achieve the goals. Contractual trust is based on economic or “formal”
aspects of a relationship. Relational trust includes human aspects of the economic
relations that could allow developing or improving relations while indirect trust
226 R. van den Heuvel et al.

focuses on the external factors and components that can indirectly influence trust
between partners in a CNO. Last, we have negative trust, defined as the difference
of power between two partners in a considered relation. “If the relation is not on the
same level from the point of view of both companies, this can lead to a source of
conflict between the partners” [24].
Grefen et al. [1] describe two non-hierarchical types of entity roles within a
network: hub, a focal firm distributing communications through the network, and
contact point, a focal firm acting as a contact point to a client party for accepting
orders and distributing them through the network [1].
A connection between two or more actors in the network results in interdepen-
dency [16, 26]. Ahuja [16] describes three relation types: direct ties—the arrange-
ment of direct inter-firm linkages between a firm and its network partners, which
primarily serves as sources for resources, and information. Indirect ties—inter-firm
linkages between a firm and its indirect partners, via partners of its partners, which
primarily serves as a source for information. Structural holes—a structural hole is a
gap between parties that have a relationship with a central organization but not with
each other, resulting in the possibility of receiving different information within the
network [16].
Wulf and Butel [27] found that the position of a participant in the network influ-
ences their ability to achieve sustainable competitive advantage (tie form). They
describe a difference between business eco-systems and business networks. In these
two constellations, the structure is viewed from a governance and a relationship
point of view. The governance point of view relates to the CNO. The structural part
describes the difference between formal and informal ties. Formal ties are related
to hierarchical structures governed by contracts (prescribed) or ownership, whereas
informal ties are related to social organizational structures where there are informal
relationships between individuals and are the basis for collaboration and knowledge
transfer (emergent) [28].
When communication takes place mutually and frequently, strong ties exist [27].
They can reduce cost, reduce monitoring and integration costs, and improve informa-
tion flow. Thus strong cohesion can be instigated [29]. “Weak ties provide access to
non-redundant information” [30]. Strong ties and weak ties are part of the framework
where the “strongness” relates to frequent mutual interaction and infrequent distant
interaction (tie strength).
Osman [26] studied the influence of formal versus informal ties to the embedded-
ness of the participant within the CNO. Embeddedness is the degree of centrality of
any company within the social network. Strong embeddedness refers to an organiza-
tion which has many close ties with which it is in frequent contact, it may be the hub
with many spokes; weak embeddedness is where the organization does not actively
take part in ties within the (social) network.
These components provide the ability to gather data about the relations within the
CNO, related to dynamics and how IT-needs change based on these relations.
Identification of IT-Needs to Cope with Dynamism … 227

4.3 Theme Interaction (Interaction Patterns)

In the theme “interaction” we identified interaction mode, locale, time, the goal
of the interaction, structures, and level of formality as relevant components. These
components describe how a relation is used. We will describe the components in the
following text.
The modes as described by Oukes and von Raesfeld [31] are as follows: Inter-
action create mode: “The creation of innovative solutions by an organization and
its counterpart beyond the scope of their initial agreement to align their interests
and preserve the relationship”; Interaction acquiesce mode: “The compliance of an
organization to the action of its counterpart or situation even at the expense of its
own short-term interests”; Interaction compromise mode: “The partial compliance
of an organization to the action of its counterpart or situation. They renegotiate the
relationship’s agreements in a relationship preserving manner”; Interaction manipu-
late mode: “The persistent efforts of an organization to act regardless of the ideas and
preferences of its counterpart. It tries to shape, change or redefine the counterpart’s
actions or the situation by overpowering its counterpart”; Interaction avoid mode:
“An organization’s lack of intention to react to the action of a counterpart or situa-
tion”; Interaction defy mode: “An organization’s dismissal of a counterpart’s action
or situation. It may either try to benefit from the relationship at the expense of its
counterpart’s interests, or it ends the relationship”.
Another aspect is the locale the interaction takes place in. We identified two dimen-
sions relevant for our research based on Camarinha-Matos and Afsarmanesh [19],
namely Endogenous—Interactions that lie within the CNO-network, and Exoge-
nous—Interactions between actors outside the CNO-network. Additionally, we see
a difference between synchronous and asynchronous communication [32], classified
in our study as “time.”
Clark et al. [32] indicate that there are three types of goals an actor tries to
accomplish with an interaction. These are Consensual: Both Actors are in agreement;
Responsive: An actor expects an answer from another actor; Elaborative: Interaction
between two actors until the goal is reached. While the study focuses on student
interaction, we think these types of goals can help understand the dynamics within
CNOs and their interaction patterns.
Wagner et al. [33] describe the common human (H)/computer (C) communication
model. This model describes the transfer of knowledge between two parties where
the combination can be H-H, H-C/C-H, and C-C. These combinations need to be
facilitated in knowledge transfer. We define H-H interaction as a biological interac-
tion, H-C/C-H as a formal interaction, and C-C as a technical interaction. Within our
study, this component is called “Structures.”
The level of formality is also a component we see that influences the interaction
pattern. We combined these communication models with formal and informal levels
where formal communication follows specific guidelines and has lower sequential
variety, and informal communication is more ad hoc and has a higher sequential
variety [34].
228 R. van den Heuvel et al.

These components provide the ability to the framework to gather data about the
way a relation is used, how they react to dynamism, and how this influences IT-needs.

4.4 Framework

The described themes provided a framework to structure and analyze the cases for
our study. The framework is meant to provide a basis to discuss IT-needs in relation
to dynamism in CNOs. The framework components can be viewed in Table 3.

Table 3 Network dynamics framework

Theme CNO
CNO goal [35]
CNO type (horizontal, vertical) [24]
CNO life cycle (initiation, foundation, operation, evolution, metamorphosis, [35]
dissolution phase)
Theme relation
Trust (competence, relational, contractual trust) [24]
Entity role (hub, contact point) [1]
Relation type (direct tie, indirect tie, structural gap, tie value) [16, 26, 31]
Tie form (formal, informal tie) [27, 36]
Tie strength (strong, weak tie) [27, 30]
Embeddedness (strong, weak embeddedness) [27]
Theme interaction
Interaction mode (interaction create, interaction acquiesce, interaction [31]
compromise, interaction manipulate, interaction avoid, interaction defy mode)
Locale (endogenous, exogenous) [19]
Time (synchronous, asynchronous) [32]
Goal of interaction (consensual, responsive, elaborative) [32]
Structures (biological, formal, technical) [17, 33]
Levels of formality (formal, informal) [34]
Identification of IT-Needs to Cope with Dynamism … 229

Table 4 Identified IT-needs

T1 Collaboration tooling T5 Process support tooling
T2 Document templates T6 Knowledge sharing
T3 Task management tooling T7 Documentation tooling
T4 Conference facilities T8 Forum

5 Case Study Results

5.1 Organizations

This case study comprises four CNOs with a network size ranging from 4 to 50+
participants. The CNOs have an ITSM focus and, at a minimum, one party has
extensive IT knowledge in the ITSM project space.
CNO 1 and 2 show a vertical topology; CNO 4 shows a horizontal topology. CNO
3 shows both types. CNO goals were related to providing a service, ranging from IT
consolidation to project management. In total, 12 organizations participating in one
of the four CNOs took part, resulting in 15 interviews spread over the organizations.

5.2 Case Study Results

During the analyses, the components most related to IT-needs and dynamics were
CNO life cycle, interaction mode, and interaction structure, followed by trust, relation
type, time, and level of formality. The least found components were entity role, CNO
goal, CNO type, and locale. We did not see any influence by CNO goal and CNO
type and therefore these components are omitted from the results. Only CNO life
cycle was used for theme CNO. The identified IT-needs are listed in Table 4.
The IT-needs are mapped to the components of the framework (vertical axis)
and the CNOs (horizontal axis) (Table 5). Each component describes the high-level
findings.
From the case study, we confirmed that IT is crucial to facilitate collaboration for
a CNO. Collaboration tooling (T1) and conference facilities (T4) are mentioned
frequently as an IT-need related to the majority of the framework components.
The components trust, relation type, embeddedness, and time were also discussed
frequently. IT-needs T1 and T4 were mentioned to increase trust, facilitate direct
relations, strong embeddedness, and (a)synchronous communication. T1 is not only
focused on office tooling but also a shared environment for specific tools used within
the CNO. An example is 3D drawing tools. The intensity for the IT-need T4 increases
when there are direct and strong ties as opposed to only providing and using T1 as a
shared environment (relation type and tie strength). When participants in the network
230 R. van den Heuvel et al.

Table 5 High-level results per CNO

CNO 1 CNO 2 CNO 3 CNO 4 Needs
Theme CNO
CNO life cycle Evolution Evolution All phases were All phases T1, T3,
decreased increased recognized except T4, T5
dynamics dynamics dissolution
Theme relation
Trust Competence Contractual and Relational. Competence, T1, T3,
and relational. after evolution Minimalistic contractual T4
Informal competence and agreements,
communication relational high amount of
increased trust trust
Entity role Hub, contact Hub Hub, contact Hub T1, T4,
point point T6
Relation type Direct Indirect, after Direct Direct T1, T3,
evolution direct T4, T5
Tie form Formal and Formal and Informal Formal T1, T4
when dynamics after evolution
increased, informal
informal
Tie strength Strong Weak and after Strong Strong T1, T4,
evolution strong T6
Embeddedness Strong Weak, Strong Weak T1, T4
decreased
dynamics,
created
misalignment,
lowered trust
Theme interaction
Interaction Acquiesce, Avoid and Compromise, Acquiesce, T1, T2,
mode create manipulate to acquiesce and create T3, T4
gain a dominant create
role and
increase trust
Locale Exogenous Exogenous Endogenous Endogenous T1, T4,
and T8
exogenous
Time Synchronous Asynchronous Asynchronous Endogenous: T1, T3,
and moved to at initiation. synchronous. T4, T5
synchronous Moved to Exogenous:
synchronous asynchronous
Goal of Consensual, Consensual, Consensual, Elaborative T1, T2,
interaction responsive, responsive, responsive T4, T5
elaborative elaborative
(continued)
Identification of IT-Needs to Cope with Dynamism … 231

Table 5 (continued)
CNO 1 CNO 2 CNO 3 CNO 4 Needs
Structures Biological and Technical at the Biological and Biological T1, T3,
later formal and beginning and formal and formal T4, T5
technical then biological
Levels of Informal. Later Formal with Informal, Formal and T1, T2,
formality formality goal to increase which provided informal T3, T4,
increased due to trust. After a basis to cope T8
tooling increase, with dynamics
informal to
increase
dynamics
IT-needs T1, T2, T3, T4 T1, T3, T5 T1, T3, T5, T6 T1, T3, T7,
T8

work on different components of an assignment, defining used tooling and collab-

orating via T1 is extended by integrating the work to a combined result during the
creation of a product.
When discussing trust, interviewees mentioned that when competence and rela-
tional trust increases, informal ties, strong embeddedness, and synchronous inter-
action in a biological structure is preferred. T1, T3, T4, and T5 were mentioned as
IT-needs related to these components. Contractual trust (mainly in the initial life
cycle phase) did also trigger the IT-need for T1 and T4 to facilitate collaboration.
When discussing how CNOs cope with dynamics, informal ties and an informal
level of formality were mentioned. The related IT-needs were T1, T3 and T4.
Interviewees did not mention technical communication structure to cope with
dynamics. Within the cases, tooling was used to optimize processes between partic-
ipants (T5), and in the evolvement of the CNO more tooling was introduced to
optimize biological, formal, and technical communication.
Indirect relations were also recognized and it was mentioned that the collaboration
relied on email and in some cases T3 and T5.
Exogenous relations were mentioned to be supported by asynchronous commu-
nication and facilitated by T5 and T8. When the interaction in exogenous relations
increases, T1 and T4 were mentioned as an IT-need to cope with dynamics.
Overall, we can see that when interaction increases (which in the cases is related
to increased dynamics) the move to more “active” relations and interaction patterns
are visible. These increased communication paths are then supported mostly by T1
and T4, sometimes by T2, T3 and T5 and in some cases T6 and T7. T8 (Forum)
is often seen as a method to cope with asynchronous, indirect communication, and
exogenous relations.
232 R. van den Heuvel et al.

6 Discussion, Limitations, and Future Research

In this section, we will discuss IT-needs within CNOs to cope with CNO-dynamism.
The interviewees recognized all components in the model, which validates the
model we created. The framework was not extended based on the result. We
got valuable information about IT-needs of CNOs and the IT-needs to cope with
dynamics.
When the relationship and interaction were exogenous and formal, and the tie
strength was weak, the communication regularly was asynchronous via email or a
forum (T8). In some cases, supported via supportive systems (T5). When the relation-
ship and interaction moved to tie strength strong, tie form informal and embedded-
ness was high. Moreover, T1 and T4 were mentioned as an IT-need. When dynamics
are introduced in a CNO, the interviewees indicated a preference for synchronous,
informal communication in a biological and formal structure, resulting in the need
for T1 and T4. We cannot state that dynamism forces T1 and T4 or if dynamism
forces active interaction and therefore the need for T1 and T4. Still, the need to
cope with dynamism triggers the IT-need for the collaborative environment (T1) and
conference facilities (T4).
The IT-need for task management tooling (T3) was mentioned in relation to
dynamics related to trust, relation type, interaction mode, time, and structure within
all CNOs. When dynamics occur, the number of tasks to execute increased and
tooling that supports that was needed. The IT-needs document templates (T2), knowl-
edge sharing (T6), and documentation tooling (T7) were not mentioned related to
dynamics, and thus we think that these are not used to cope with dynamics within
the CNO.
IT-needs did not drastically change related to the CNO life cycle. Dynamics
cannot be planned and therefore facilitating a collaborative environment (T1), task
management tooling (T3), and conference facilities (T4) from the beginning of the
CNO could be part of general requirements.
The topic of technical structures was not frequently addressed and did not result
in an IT-need. We expected this to be a more prominent topic especially with the
ITSM focus within the CNOs. Technical structures were mentioned as a possible
improvement for the CNO. The lack of technical structures could be related to the
goal-oriented focus of the CNOs within our study.
Our model could be extended by different research fields. For instance, media
synchronicity [37] could provide more insight into biologic communication from a
process perspective differentiated in a conveyance and convergence stage, to in the
end, tailor it to the CNOs specific need. Also, electronic negotiation [38] could be
used to facilitate technical communication, still this was not specifically mentioned
as a method to cope with dynamism within our study.
Overall, we noticed that trust was a central and important topic within our inter-
views. Trust (specifically competence and relational) was mentioned combined with
other characteristics like a direct relation type, strong ties, and a high amount
of communication (biological). Leading to strong relations. The component-time
Identification of IT-Needs to Cope with Dynamism … 233

and locale were often mentioned together. Mainly in the combination of asyn-
chronous/exogenous and synchronous/endogenous. All IT-needs are, as expected,
related to collaboration and interaction. When discussing dynamics mainly IT-needs
T1, T3, and T4 were mentioned. Mostly in the context of increased informal and
synchronous communication.
In this study, we focused on the relationship between participants and not all
“dynamic and self-regulating” characteristics. Our characteristics are on an oper-
ational level, where others are related to strategy (landscape of organizations) or
governance topic (dynamic partnering, maturity). We expect that analyzing the other
characteristics will be useful. Also, the lack of technical structures was not expected.
We do not know why these technical structures were not present, but we would
have expected that these structures would be an IT-need to cope with dynamism in a
prosperous CNO. These points show room for future research.
These results can help practitioners in determining the needed IT systems when
participating in a collaborative organization so that they are prepared to cope with
the dynamism they could encounter as a CNO. From a research perspective, these
results provide more insight into IT-needs that help cope with the dynamism CNOs
can encounter. Within our broader research program, we will try to create guidelines
and hopefully a new BITA model that could facilitate CNOs and specifically their
operational BITA between the participants that take part in the CNO. To in the end
provide a model that is more suitable for these networked organizations with their
vast number of configurations, and fill a gap within the body-of-knowledge on this
topic.
Our study does have some limitations that future research should seek to address.
First, our SLR and thus our framework finds it basis in the paper of Camarinha-Matos
and Afsarmanesh [2] where they introduce the scientific discipline around CNOs.
We tried to keep our search queries as broad as we can, but the concept of CNO is part
of our search queries. By using backward searching we broadened our scope, still
could have limited our SLR, our framework, and thus our results. Second, dynamism
is a phenomenon that changes over time. Our research was cross-sectional and thus
replicating the study over time could gather more valuable insights. Third, CNOs
consist of and are formed by multiple participants. The vast number of configurations
a CNO can have based on capabilities, the configuration of the participant, and other
characteristics create complex objects to analyze [39]. We gather results within our
study and agree that generalization based on these configurations is hard. By using
common aspects of the CNOs, like goals and type of participants within a CNO, we
tried to limit this effect. Still, we think that multiple studies will result in valuable
additional data to research this topic. Last, by using transcribed interviews, intensive
coding frameworks, and cross-referencing the codes between the interviewers, we
tried to limit observer bias; however, we cannot guarantee that no bias entered the
research. We do think we mitigated this risk adequately by applying a rigorous
method of coding and analyses based on theory from Yin [40] and adding validation
from external researchers.
234 R. van den Heuvel et al.

7 Conclusion

By following an explicit research methodology we derived results regarding IT-needs

in CNOs having to cope with dynamism.
First, collaboration tooling (T1), document templates (T2), task management
tooling (T3), conference facilities (T4), process support tooling (T5), knowledge
sharing (T6), documentation tooling (T7) and a forum (T8) are IT-needs within a
CNO.
Second, collaboration tooling (T1), task management tooling (T3), and conference
facilities (T4) are IT-needs to cope with CNO-dynamism. T1, T3, and T4 facilitate
informal, synchronous, biologic communication that is mentioned as a preferred
method of interaction to cope with dynamism. Third, when trust is lacking, informal
and face-to-face communication is mentioned as a method to increase trust, which
can be facilitated via the IT-need T1, T3, and T4. Last, we notice that technical
structures were not mentioned as an IT-needs.
Via a rigorous research process; creating a framework via systematic literature
reviews and using this framework in our multi case study in four CNOs (15 interviews
over 12 organizations), coding the results and validating these codes, we succeeded in
identifying IT-needs that are used to cope with the dynamics a CNO encounters. Our
results can help CNOs determine their IT-needs upfront and the framework could help
CNOs to identify their IT-needs. Scientifically we extended the body-of-knowledge
with more insights in IT-needs to cope with CNO-dynamism.

Acknowledgements This paper was created with the help of Manon van Rooijen—van der Bas,
Merel Visser, and Danny van Maanen.

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Unwrapping Efforts and Difficulties
of Enterprises for Digital Transformation

Haruka Ikegami and Junichi Iijima

Abstract Since the late twentieth century, Information Technology (IT) has made
a fundamental transformation in our society through automation, a process known
as the third Industrial Revolution. More recently, in the twenty-first century, there
has been a farther stage of transformation through IT called “Digital Transforma-
tion.” However, enterprises are struggling with aligning suitable digital strategies
and actions for Digital Transformation, since there is a fundamental complexity in
IT management, and a scarcity of research relating to how enterprises could system-
atically approach Digital Transformation. Therefore, we conducted eight interviews
as a case study to explore key strategic themes for those enterprises regarding Digital
Transformation. We applied directed content analysis for the interviews and obtained
detailed descriptions that fully explain Digital Transformation in Japanese enter-
prises. From our results, three key topics have been discovered for the enterprises to
consider for Digital Transformation: (1) Customer Experience, (2) Strategic Intent,
and (3) Ecosystem. The results of our research contribute to a better understanding of
what struggle enterprises have experienced with Digital Transformation by showing
a practical approach for real businesses, as well as by demonstrating the possibilities
for future research.

Keywords Digital transformation · IT-capability maturity framework · Directed

content analysis · Customer experience · Strategic intent · Ecosystem

1 Introduction

The tech wave has been building for a long time but it has accelerated in recent
years [34]. Since the third Industrial Revolution in the late twentieth, we have bene-
fited from increased automation by electronics and information technology. In the

H. Ikegami (B) · J. Iijima

Tokyo Institute of Technology, Meguro, Tokyo 152-8550, Japan
e-mail: ikegami.h.ac@m.titech.ac.jp
J. Iijima
e-mail: iijima.j.aa@m.titech.ac.jp

© The Editor(s) (if applicable) and The Author(s), under exclusive license to Springer 237
Nature Switzerland AG 2020
R. Agrifoglio et al. (eds.), Digital Business Transformation, Lecture Notes in Information
Systems and Organisation 38, https://doi.org/10.1007/978-3-030-47355-6_16
238 H. Ikegami and J. Iijima

twenty-first century, we stand on the brink of a technological revolution that will

fundamentally alter the way we live, work, and relate to one another [28]. The
latest digital technologies such as SMACIT (Social, Mobile, Analytics, Cloud, and
Internet of Things) will enable us to achieve things that were impossible a decade
ago, and many occupations, institutions and industries that are established today will
not survive this transition intact [20]. This transition is referred to as Digital Trans-
formation. Digital Transformation can be understood as the changes that have been
caused by the digital technology in all aspects of human life [31].
For instance, Burberry Group PLC, a London-based apparel company, committed
to a digital future by offering the comfort of cross channels and the expansion of its
presence in mono-brand websites for operations based on the shop-in-shop conces-
sion with T-Mall and Amazon [13]. The company engages its customers and show-
cases its brand seamlessly across its physical and digital channels by revamping its
online assets and building a strong, engaging experience on social media [33]. The
new offerings to consumers include such as fitting products in their 500 stores spread
across 50 countries with RFID tags that give manufacturing information or dressing
recommendations to the shoppers’ mobiles in addition to providing product infor-
mation and digital contents through Snapchat’s Snapcode, Facebook’s chatbots and
its own channel on Apple Music [21]. As this example shows, the use of different
digital tools has facilitated the process of communication between company and the
consumer [13].
Prior research on Digital Transformation has been carried out in various industries
such as automotive [15, 24, 27], media [32], healthcare [1] and music industry [4].
Based on these, we have learned that the impact of Digital Transformation can be
a radical and disruptive change. Since Digital Transformation strategies cut across
various other strategies at the same time, as shown in prior studies, complex coordina-
tion efforts might be needed [22]. While many decision makers sense technological
changes and the resulting competitive context shifts, which can potentially have a
profound impact on their organizations, it is not yet clear, how the organizations
should prepare and what steps are needed in order to respond appropriately to these
threats arising from Digital Transformation [2]. Overall, decision makers need to
think more about the role of digital technologies in influencing not only the business
strategies of individual firms but also the nature of the industry, the sources of value
creation, and location of value capture [3].
Our research complements prior research from the perspective of enterprises that
stumble on Digital Transformation in the initial phase by comprehensively analyzing
enterprises across industries. This paper explores their current efforts and difficulties
regarding Digital Transformation, and it aims to identify difficulties that the enter-
prises have. Additionally, this paper will suggest a practical way for enterprises to
approach digital transformation in their business. Our research questions in this paper
are as follows:
RQ 1: Where do enterprises stumble on Digital Transformation?
RQ 2: How can those enterprises approach Digital Transformation?
Unwrapping Efforts and Difficulties of Enterprises for Digital … 239

To answer the research questions above, we conducted a case study with eight
enterprises. For the study of the case, we introduced a directed content analysis [16]
as analysis method and a capability maturity framework, IT-Capability Maturity
Framework [18] as conceptual background, particularly its part that is specialized in
managing organizations’ IT function [11].
This paper is organized as follows: following introduction, the next section
describes the conceptual background of this study, a maturity framework used to
measure and grasp the maturity of Digital Transformation in enterprises. Next, we
describe our research methodology and results in the third section, and insights based
on the analysis result in the fourth section. Finally, the paper concludes by addressing
our theoretical contributions and avenues for future research.

2 Conceptual Background: IT-Capability Maturity

Framework

Our study is based on cross-industry case studies in their initial phase of transfor-
mation, which is often perceived as ill-defined, random and mysterious [26]. The
IT-Capability Maturity Framework (IT-CMF) allows us to study such situation more
comprehensively due to its focus on IT management capabilities [17].
There are three reasons why we chose to apply the IT-CMF in this study. First,
the framework is an innovative and systematic framework, representing an emerging
blueprint of key IT capability processes, and acting as an assessment tool [6]. Second,
over 150 assessments have been performed across 80 leading Fortune 500 firms [7],
which enables the survey result to be compared with their benchmark data. Third,
the framework is easy for practitioners to understand and leverage [9]. While other
IT management frameworks such as CoBIT and ITIL have contributed to describing
a set of good practices in IT-related processes [14], IT-CMF has competitiveness in
its practice-oriented structure and it can be used to avoid spending too much time on
complicated process diagrams [30].
IT-CMF is a high-level process capability maturity framework for managing the
IT function within an organization [11]. It was created by Innovation Value Institute
(IVI), co-founded in 2006 by Maynooth University in Ireland and Intel. From the
point of a maturity model, the created analysis technique has been proved to be
valuable in measuring the different aspects of a process or an organization, and it has
been well-established academically for its model structure, assessment method and
support availability [25]. This result indicates that IT-CMF is one of the state of the
art maturity models.
IT-CMF consists of 37 management disciplines which are defined as Critical Capa-
bilities (CCs) [18]. For each capability, IT-CMF incorporates a comprehensive suite
of maturity profiles, assessment methods, and improvement roadmaps, expressed in
such a way that businesses can use them to guide discussions on setting goals and
evaluating performance [18]. Based on the framework and its defined capabilities,
240 H. Ikegami and J. Iijima

Table 1 Seven digital business behaviour themes [18]

Digital business behaviour theme Definition
DBB_01 Planning and Execution Establishing a coherent direction and actions
Management regarding how digital can assist the organization
to compete and thrive
DBB_02 Ecosystem Management Leveraging the capabilities of, and creating
synergies amongst, participants involved in the
value chain supporting digital business
objectives
DBB_03 Delivery and Operations Providing the digital enablement across the
Management organization
DBB_04 Talent Development and Aligning leadership, skills and management
Organizational Design structures in support of the organization’s digital
business objectives
DBB_05 Investment and Financial Improving the return on investment from
Management IT-related resources
DBB_06 Information Exploitation Leveraging data to improve decision-making and
Management business outcomes
DBB_07 Risk, Control, and Cyber Security Mitigating threats to digital business objectives,
Management and enforcing regulatory obligations, standards,
policies and guidelines

IVI offers seven processes for Digital Transformation from the management point
of view. These are called the “Seven Digital Business Behaviour Themes” (Table 1),
which serve as guidelines for our analysis.

3 Research Methodology and Findings

In this research, we followed a directed content analysis approach [16] for our case
studies. This approach is defined as a research method for the subjective interpretation
of the content of text data through the systematic classification process through
the coding and identifying themes or patterns [16]. The reason why we selected to
utilize this methodology is that it can provide knowledge and understanding of the
phenomenon under study [12].

3.1 Case Selection

Selection of the cases began with a broader survey to understand the overall state of
digital transformation in enterprises. This was then followed up with more detailed
qualitative, open-ended interviews to collect detailed views from participants [8].
With this goal in mind, we conducted an online survey ahead of the case studies. The
Unwrapping Efforts and Difficulties of Enterprises for Digital … 241

survey was conducted on 45 people from 45 different Japanese enterprises via Google
Forms during October and November 2018. The reason why we chose to target
Japanese enterprises for this research is based on the fact that academic research
on enterprises’ Digital Transformation in the Japanese context is still lacking in
comparison to studies carried out in European countries [29], the United States
[10], and even other Asian countries such as China [35], India [23], South Korea
[19] and ASEAN countries [5]. If the environments or conditions where enterprises
are undergoing changes differ, then the enterprises themselves would be different.
Therefore, further research regarding Digital Transformation in Japanese enterprises
is needed.
Among the 45 enterprises, 73.3% are IT User enterprises in Finance (8.9%),
Manufacturing (20.0%) and other industries (44.4%), with 66.7% of respondents
being large enterprises with over 1000 employees. In addition, the survey consists of
four sections, A through D. Section A is for profile information followed by Sections
B to D that focus on the digital readiness assessment based on IT-CMF. Section B
consists of five questions on the intensity of digitization (e.g. “Is central to the organi-
zation’s success leveraging a diversified portfolio of digital technologies?”). Section
C consists of five questions on breadth or reach of digitization (e.g. “Are business
processes digitally transformed across the organization?”). Section D consists of
seven sub-sections based on Seven Digital Business Behaviour Themes (e.g. “Does
the organization have an agreed upon and shared a business-aligned digital strategy
that can rapidly adapt to turbulent business conditions?”). Interviewees answered
each question on a scale of 1–4.
We analyzed the answered results, and the result of how interviewee companies
are ready for Digital Transformation are shown in Fig. 1. Figure 1 indicates the
attainment level of digital readiness, which is calculated by the percentage of the
sum in Sections B, C and D. According to the total percentage, we categorize the

Fig. 1 Attainment level of digital readiness in Japanese enterprises

242 H. Ikegami and J. Iijima

result into four stages of digital readiness: reactive (0–25%), emerging (25–50%),
ambitious (50–75%) and leading (75–100%).
From this result, it can be seen that 77.8% of the enterprises belong to the reactive
stage and 20.0% belongs to the emerging stage. This result shows that Japanese enter-
prises have just started taking actions for Digital Transformation. In the following
section, we focus on Section D, which refers to Seven Digital Business Behavior
Themes as the first step for our research.

3.2 Case Studies

For the first research question, “Where do enterprises stumble on Digital Transforma-
tion?”, we conducted follow-up interviews on eight Japanese enterprises (Table 2).
As theoretical sampling, we selected one enterprise for an interview to avoid bias
in the attainment level of digital readiness, industries and company size, every time
we finished analysing one enterprise. We finished selecting with eighth enterprise,
reaching data saturation. Titles of the interviewees included Manager and Head of
Digital Transformation.

3.3 Interviews and Analysis Method

Each interview was conducted in a semi-structured manner based on open-ended

questions [16] for approximately 60 min. The analysis was carried out by two authors
as follows:
• We asked each interviewee questions which were prepared in advance to corre-
spond to their measurements and mindset for Digital Transformation along the
Seven Digital Business Behaviour Themes, and if necessary, asking additional
questions. In addition to the interview, we used complementary documents such
as Integrated Reports and strategy papers (available for five out of the eight
enterprises) for additional sources of data for the analysis.
• For each company, we transcribed all the recordings of the interviews and the
complementary documents, identified the key descriptions related to Digital
Transformation through open coding. Each description was labelled with descrip-
tive titles.
• While paying attention to prevent the result from having an arbitrary bias,
we extracted the labelled descriptions according to the Seven Digital Business
Behaviour Themes in order to gain a complete and systematic picture of the
enterprise’s Digital Transformation activities. We lastly looked over the data of
each company and coding result to ensure the validity of coding.
Unwrapping Efforts and Difficulties of Enterprises for Digital … 243

Table 2 Overview of eight interviewee enterprises

Company Digital readiness Industry Number of Key objectives of
(%) employees digital
transformation
Alpha 77.4 IT service 1100 To provide
digitalized
products/services
and optimize the
back-office operation
Beta 43.7 Consulting 10 To provide
digitalized
products/services for
better customer
engagement
Gamma 38.8 Electric 100,000+ To provide
digitalized
products/services
Delta 26.2 Manufacturing 100,000+ To provide
digitalized products
and optimize the
back-office operation
Epsilon 24.7 Manufacturing 250 To optimize the
back-office operation
Zeta 17.7 Social 700 To provide
infrastructure digitalized products
and optimize the
back-office operation
Eta 13.1 Manufacturing 950 To provide
digitalized products
and optimize the
back-office operation
Theta 11.3 Finance 7500 To provide
digitalized services

3.4 Result of Directed Content Analysis

From the total analysis across all the 8 companies, we acquired 19 descriptions
(between 2 and 3 descriptions for each theme) as shown in Table 3.
The detailed results of the directed content analysis are described according to the
seven themes in this section. We would like to note that the following describes the
summary of the aggregated empirical findings from all the companies, and as such,
not all of the descriptions apply to each company.
244 H. Ikegami and J. Iijima

Table 3 Coding result in

DBB_01 Lack of leaders to draw fundamental designs
directed content analysis
Middle-down management siloed by department
Low information mobility due to complex
organization structure
DBB_02 Closed ecosystem
Strengthening recruitment and education system
internally
Fixed relationship by traditional business practice
DBB_03 Undeveloped integration of old and new systems
Traditional vertical organization structure
DBB_04 Lack of leaders with sufficient knowledge to
realize DX
Suboptimal utilization of human resources due to
localized focus
Pushed assignment
DBB_05 Low investment budget for digital activities
Execution within the previously approved budget
Difficulty of evaluating by indicators such as ROI
DBB_06 Undeveloped of data collection process
Lack of quantitative and qualitative data collection
Under developed data sharing systems and digital
marketing
DBB_07 Building an internal risk management policy only
Enhancing operation management in internal
security

3.4.1 Planning and Execution Management (DBB_01)

The enterprises, especially large ones, have often middle-down management within
each department, and there is no common agreement in the enterprise regarding
Digital Transformation. They also have worked on digitalization by for example
creating a special department for Digital Transformation. However, due to a lack of
the leaders’ skills, which can draw the fundamental strategy design, the degree of
influence on digitization remains at an improvement level instead of at a transforma-
tion level. Such vertical and siloed organizational structures lead to the low mobility
of information.

3.4.2 Ecosystem Management (DBB_02)

In the enterprises, there is little incentive to create a joint platform due to a want
to maintain the current balance between each other’s competitive advantage within
Unwrapping Efforts and Difficulties of Enterprises for Digital … 245

the industry. The enterprises try making up for resources that are necessary for
Digital Transformation through in-house recruitment or by strengthening the educa-
tion system. Moreover, they often have an account with specific fixed third parties
owing to traditional business practice in Japan, and subcontracting enterprises tend
to be treated with scepticism.

3.4.3 Delivery and Operations Management (DBB_03)

Many large enterprises have a complicated organizational structure, which slows

down information transmission speed leading to a lethargic and inflexible operations
styles. Most decision makers are veterans who have low motivation to change, and
can even have a negative influence on their department due to vertical structure.
Therefore, these enterprises are struggling with integrating old and new systems on
a department level. Additionally, collected data is not in a form that can be used to
optimize products and services through the use of analytics.

3.4.4 Talent Development and Organizational Design (DBB_04)

While the top management in the enterprises are engaged in activities to improve the
organization’s digital capabilities, they lack the latest knowledge related to IT and
digital. However, since the pace of Digital Transformation is rapidly accelerating,
the top managers are not able to catch up even if educated from this current situation.
In addition, the overall structure of the organization has not been visualized due to its
complicated organization structure, which leads to a suboptimal allocation of human
resources due to a focus on the local optimum. Employees use digital technologies
without understanding the underlying mechanisms used by the process. Instead they
just carry out the work given to them by their bosses, which can be considered as a
push assignment that ignores individual skills.

3.4.5 Investment and Financial Management (DBB_05)

Among these enterprises, the proportion of the new digital budget is low due to
existing IT investment and overestimated risk. They promote Digital Transforma-
tion through activities such as setting up a fixed budget amount, but at such a low
budget ratio that it is not always tied to the business results. They evaluate the cost-
effectiveness of digital investment based on performance indicators such as Return
On Investment (ROI). However, using such indicators can have a bad influence on a
digital investment since it does not immediately lead to an immediate improvement
in performance but instead should be continued over a longer time period.
246 H. Ikegami and J. Iijima

3.4.6 Information Exploitation Management (DBB_06)

These enterprises require an enormous time and resources to collect data since the
data collection process is not well established due to a huge number of legacy systems
and manual processes. Data integration has not progressed and does not meet the
criteria required for analytics from both points of quantity and quality. Regarding
information sharing, information on the site is not shared real-time to the top manage-
ment, hence they invest a significant amount of money in traditional activities such
as TV commercials and leaflets particularly in marketing.

3.4.7 Risk, Control, and Cyber Security Management (DBB_07)

The enterprises recognize that dealing with cyber security matters is indispensable,
and establish and maintain risk management policies within the enterprises even
when external cloud services are used. However, as the range of digital services used
widens, there can be concerns on the security risk of business partners’ part which
cannot be fully grasped by the enterprise. Moreover, the enterprises sometimes have
not considered the security risks concerning employees’ use of personal data.

4 Insights on Digital Transformation of Enterprises

Based on the presented case studies, which showed what enterprises struggle with and
lack for their Digital Transformation, we would like to identify what the enterprises
must do and seek in order to answer the second research question, “How can those
enterprises approach Digital Transformation?”. We reorganized the seven themes
by considering how the themes are related to each other based on our recursive
discussion (Fig. 2).
In an ambitious digitally transformed world, an enterprise firstly considers
customers since all the business activities start with its customers (DBB_01). In order
to offer a better customer experience, the enterprise seeks to utilize digital technolo-
gies (DBB_06) and build an investment portfolio flexibly (DBB_05). To realize the
portfolio, the decision makers design the whole organization and tries optimize the
assignment of human resources (DBB_04). Furthermore, for the designed ambitious
organization and digital technology utilization, the enterprise reforms its IT infras-
tructure (DBB_03), and finally, utilizes external resources effectively to realize all of
the activities mentioned before (DBB_02). In addition, it handles its risk management
policy of the whole ecosystem (DBB_07).
As shown in Fig. 2, the seven themes can be captured from three points of
view, customers, enterprises and suppliers. For each point of view, we offer three
key topics, Customer Experience, Strategic Intent and Ecosystem, which showed a
lack in the interviewee companies but are indispensable for them to achieve Digital
Transformation.
Unwrapping Efforts and Difficulties of Enterprises for Digital … 247

Fig. 2 Restructured seven digital business behaviour themes and three keywords

First, Customer Experience. All business activities begin with customers. Digital
transformation makes it possible to realize customer experience that is close to the
needs of each customer. In order to respond to the diverse customer needs, it is neces-
sary for the enterprises to adapt flexibly and agile through Digital Transformation.
While top management must not only decide the direction of the whole enterprise
but also have its own vision of business with digital technologies. The enterprise
must also be able to break down the vision into concrete action plans. Additionally,
the employees, as well as the top management, must engage in designing customer
experience increasingly from customer points of view.
Second, Strategic Intent. Since enterprises that are lagging behind in Digital Trans-
formation have too many things to deal with. As a result, trying in a blank way
would not be effective. From the point of Information Exploitation Management,
for instance, it is important to tackle the development of the data collection process
as the first action since it can be valuable in terms of both quality and quantity.
However, due to the wide range of data collection, priority must be given on the
basis of strategic initiatives in activities such as the development of data collection.
For anything other than that, the top management needs to have strategic intent to
realize their vision.
Third, Ecosystem. What Japanese enterprises currently have worked on is opti-
mization of digitalization at a department level which is not as transformation but
on an improvement scale. In addition, in order to further increase in the impact of
Digital Transformation, it is indispensable to cooperate with other enterprises both
in the same and different industries. In order to achieve Digital Transformation, it
is necessary to involve stakeholders, inside and outside of the enterprise, and aim
towards the optimization of the entire ecosystem, which would increase the impact
of Digital Transformation on not only their own enterprise but also on the suppliers
and the whole ecosystem.
248 H. Ikegami and J. Iijima

5 Conclusion

This study aimed to clarify the current situation of how enterprises make efforts
and struggle with Digital Transformation by researching case studies on Japanese
enterprises. Through the directed content analysis, we could clarify the characteristics
of specific efforts and difficulties the studied companies have in regards to Digital
Transformation. From the analysis result, this study could illustrate the three key
topics that enterprises having difficulties in Digital Transformation must consider in
order to accomplish Digital Transformation.
This study has several limitations as it is still an in-progress work. First, the number
of samples should be increased. Since the difficulties of enterprises, which have just
started tackling Digital Transformation, are changeable and difficult to summarize,
we need to collect a large sample of enterprises with different backgrounds. Second,
the scope of this study could be limited. We only focused on Japanese enterprises
and it would be difficult to apply the results for enterprises in other countries. In
order to have a more comprehensive grasp of the situations in enterprises’ Digital
Transformation, we plan to further analyse enterprises in other countries as well.

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Coordinating Innovation in Digital
Infrastructure: The Case
of Transforming Offshore Project
Delivery

Mina Haghshenas and Thomas Østerlie

Abstract The relationship between digitalization, digital innovation, and digital

transformation is an emerging topic in information systems (IS) research. Whereas
IS researchers widely acknowledge that digitalization underpins both digital innova-
tion and digital transformation, just how and by what mechanisms link digital inno-
vation with digital transformation remains underexplored. Differentiating between
‘digital infrastructure innovation’ and ‘innovation in digital infrastructure’, this paper
contributes towards current discussions by empirically elaborating how the open-
ended and generative potential of digital innovation in practice has to be negotiated
against the installed base of technical and organizational arrangements in digital
transformation. We pursue this argument through a case study of digital innovation
coordination in an inter-organizational digital innovation project with the goal of
instigating digital transformation within the offshore construction industry.

Keywords Digital innovation · Digital infrastructure · Digital transformation ·

Digital delivery

1 Introduction

Digitalization1 impacts on central aspects of industrialized society, ranging from

the reshaping of individual organizations to the transformation of entire societal
sectors and industries. At the same time, digitalization transform the very char-
acter of innovation as the open-ended and generative capacity of digital technolo-
gies challenge fundamental assumptions about innovation boundaries, agency, and
the process-product relationship [2]. While Information Systems (IS) researchers

1 Drawing upon Tilson et al. [1] we understand digitalization as the socio-technical processes through

which digital technologies become infrastructural to work and organizing.

M. Haghshenas (B) · T. Østerlie

Norwegian University of Science and Technology, Høgskoleringen 1, 7491 Trondheim, Norway
e-mail: mina.haghshenas@ntnu.no
T. Østerlie
e-mail: thomas.osterlie@ntnu.no

© The Editor(s) (if applicable) and The Author(s), under exclusive license to Springer 251
Nature Switzerland AG 2020
R. Agrifoglio et al. (eds.), Digital Business Transformation, Lecture Notes in Information
Systems and Organisation 38, https://doi.org/10.1007/978-3-030-47355-6_17
252 M. Haghshenas and T. Østerlie

widely acknowledge the relationship between digital innovation and the transforma-
tive impacts of digitalization, just how and by what mechanisms the two are linked
remains an issue of much debate among IS researchers [3–7].
In this paper, we contribute towards these discussions through a case study of
digital innovation for transforming project delivery in the offshore construction
industry. Through this case study, we empirically elaborate how the open-ended and
generative potential of digital innovation in practice has to be negotiated against the
installed base of technical and organizational arrangements in digital industrial trans-
formation. This argument supplements ongoing discussions about the open-ended
possibilities of digital technologies in IS research [e.g. 3] by emphasizing how digital
innovation unfolds within the confines of existing industrial, organizational, and tech-
nological structures. To this end, we empirically demonstrate that digital innovation
network dynamics emerge through the interplay between generativity and installed
base.
We pursue our argument through an analysis of digital innovation in the Open
Industry Platform (OIP, pseudonym for maintaining anonymity), an industry-level
collaboration project in the offshore construction industry. Specifically, we follow
the challenges OIP faces in transitioning from a stage of mobilizing industry support
for the project towards a full-scale digital innovation project. Emphasizing how
digital innovation is negotiated towards an installed base of existing socio-technical
arrangements, this paper can be regarded as a response to Nambisan [6] call for
more research on institutionalized aspects (i.e. installed base) of digital innovation.
More specifically, this paper contributes to theory on digital innovation networks in
three ways. First, we empirically demonstrate and draw implications of a temporal,
evolutionary dimension to digital innovation networks. Second, we elaborate upon
and substantiate the need for coordinating mechanisms to evolve as digital innova-
tion networks change. Third, by arguing for the embeddedness of digital innovation
networks in other network structures and its implications for digital innovation. We
also draw practical implications for coordinating large-scale and complex digital
innovation projects.

2 Digital Innovation Coordination and Digital

Infrastructure

While digital innovation is by now a well-established topic in IS research [2, 8], IS

researchers approach it somewhat differently. On the one hand, there are those who
emphasize digital innovation as processes, products, or business models that are new
and enabled by IT [e.g. 8]. This paper, however, draws upon a recombination approach
to digital innovation [9]. Emphasizing digital innovation as producing novel products
through new combinations of digital and physical components, this approach empha-
sizes digital technologies’ generative and open-ended potential enabled through the
key characteristics of being editable, re-programmable, and with functionality that
Coordinating Innovation in Digital Infrastructure … 253

can be procrastinated until the point of use [3]. This differentiates digital innovation
from earlier forms of IS innovation [10] by two distinguishing features: the changing
role of digital technology in innovation from operand to operant resources, and a
shift in innovation locus from firm-centric to innovation networks.
Pervasive digitization changes the role of digital technologies from an enabler for
innovation (operand resource) to a trigger for innovation and medium through which
innovation unfolds (operant resource) [11]. Digital technologies as operant resource
conflates innovation product with process [11], with attention shifting towards recon-
figuration [9] of innovation processes and the generativity unleashed by digital
resources. Pervasive digitalization also shifts innovation locus from firm-centric to
innovation networks. Innovation no longer unfolds within a single company, but
through a network of actors [1].
Digital innovation affords, as such, new modes of coordination. Based on the
two distinguishing characteristics of digital innovation, Lyytinen, et al. [4] forward
a framework for innovation network coordination that characterizes innovation
networks along the two axes of (1) heterogeneity of operant resources, and (2) distri-
bution of coordination and control within the innovation network structure. Through
this framework, they forward that there is limited need for social and cognitive trans-
lation when innovation networks consist of “a homogenous pool of actors and related
tools that are readily identified” (ibid., p. 58). Lyytinen et al. define cognitive translate
as “a generative process whey innovation knowledge is identified, produced, refined,
integrated and evaluated partially through digital means in its movement towards
(…) being stabilized in a new product” (p. 55), and social translation as the processes
through which “an innovation process, by necessity transforms the social space of
the actors in the innovation network” (p. 56). As such, in networks of actors consists
of heterogenous operant resources, coordination mechanisms’ need to support social
and cognitive translation. Specifically relevant to this paper is what Lyytinen et al. [4]
characterizes as ‘anarchic’ digital innovation networks; i.e. networks with operant
resource heterogeneity and distributed control and coordination as ‘anarchic’. These
networks are characterized by collaboration of self-adjusting actor-to-actor networks
driven by opportunistic behavior with “actors spontaneously sensing and responding
to their continued market relevance and viability/sustainability” [12].
Digital infrastructures offer a pertinent example of anarchic innovation networks.
Digital infrastructures underlie pervasive digitalization of organizational life [1].
Drawing upon a network perspective on infrastructure [cf. 13], Tilson et al. [1]
characterized digital infrastructure as “shared, unbounded, heterogeneous, open, and
evolving socio-technical systems comprising an installed base of infrastructure capa-
bilities and their user, operations, and design communities”. Digital infrastructure
innovation is, as such, subjected to heterogeneous and distributed actors’ indepen-
dent choices beyond the control of any central actor [14]. A key challenge is, as
such, handling the different interests. However, as Sørensen [14] notes, specific
control mechanisms are needed to coordinate and balance distributed action for
digital infrastructure innovation to be successful.
While there is some research on coordination in networks of heterogeneous
operant resources and distributed control and coordination, Lyytinen et al. [4] argued
254 M. Haghshenas and T. Østerlie

that the main challenge in digital infrastructure innovation is to actualize digital inno-
vation in such networks. The degree of alignment between network actors is a partic-
ular challenge pertinent to this paper. Swanson and Ramiller [15] forwards the notion
of ‘organizing vision’ to explain the productive capacity industry buzzwords have in
mobilizing and shaping actors’ expectations and opportunities in innovative applica-
tion of digital technologies. Similarly, Pollock and Williams [16] shows how industry
analysts’ classifications of different digital technologies influence the trajectories
of emerging classes of digital technologies. While both studies show coordination
across heterogeneous networks, they do so among loosely aligned actors. While some
mechanisms function in loosely aligned networks (such as organizing visions), other
mechanisms are needed as networks become more closely integrated and aligned;
as in digital infrastructure innovation. Furthermore, while IS scholars acknowledge
the importance of digital innovation coordination, Nambisan [6] argues there is still
lack of knowledge about institutionalized aspects of innovation. In the case of digital
infrastructure innovation, such institutional aspects include the installed base of orga-
nizational, technical, and financial investments [17]. As such, digital innovation coor-
dination needs to encompass the tension between the generativity and open-ended
potential of digital innovation [3] with the digital infrastructure’s installed base.

3 Methods and Materials

This paper draws upon the authors’ engagement with digitalization of offshore
construction projects over the past three years. The empirical data are mainly from
the first author’s embedded case study [18] of OIP (project title along with company
names have been anonymized). OIP is a collaborative project among companies
throughout the offshore infrastructure industry. The project aims at developing
an industry-wide system for digital exchange of technical information in offshore
construction projects.
Participant observation [19] has been the first author’s main data collection method
for the case study. The author has been embedded with an OIP project team located at
HostCo, the company responsible for project management of the joint project, from
November 2018 through April 2019. During this period, the author spent 3–4 full
days a week at HostCo, for a total of 54 days of participant observation. The author
was provided with office space together with the project team and OIP management,
with full access to observing meetings, spending time talking with the project team
and management, as well as contributing by maintaining the project’s document
repository. Data from observations have been written in a field notes journal [20].
The first authors’ participant observation has been supplemented with both
authors’ interviews and analysis of documents related to the project and the overall
transition towards digital delivery of offshore construction projects. We have individ-
ually and together done 24 semi-structured interviews [21] with OIP’s project partic-
ipants including software engineers, domain experts, management-level participants
and the project initiators.
Coordinating Innovation in Digital Infrastructure … 255

We have conducted data analysis and collection in parallel. Initial data analysis
was informal, aimed at narratively analyzing observations and interviews to form an
overall understanding of the project. Over time, data analysis turned more system-
atic through coding of interview transcripts and fieldnotes for concepts and topics.
During this process, we supplement the emerging analysis by sampling from the
second authors’ fieldnotes from participating in meetings and workshops related to
digitalization of offshore construction projects at the industry level. Throughout this
process, we sought to relate aspects of the emerging analysis back to different poten-
tial theoretical venues. In this paper, we draw upon literature on digital innovation
networks and mechanisms for coordinating these.

4 Case Setting: Digital Offshore Project Delivery

The Open Industry Platform project sought to establish a system for digital exchange
of technical information shared by all companies throughout the Engineering,
Procurement, and Construction (EPC) industry. The EPC industry delivers offshore
infrastructures such as pipelines, new production facilities, and more recently
offshore windmill parks through large and complex infrastructure projects. The main
contractor (usually referred to as ‘the EPC company’) subcontracts and outsources
much of the project activities through a heterogeneous ecology of subcontractors,
vendors, and service companies with different specialties. OIP was, to this end,
organized as a collaborative project between key companies representing different
stakeholders in this ecology.
Digital delivery is considered the next step of digitalization in the EPC industry.
While practically every individual company have digitalized their activities, digital
delivery is “the use of integrated software and processes across the project ecology”
[22]. Technical information is the basis towards which companies in EPC projects
verifies that individual pieces of equipment fulfil technical and regulatory require-
ments. Furthermore, forwarding the project as the transition ‘from document-centric
to data-centric’ exchange of technical information, the initiators projected how OIP
would not merely replace existing work processes. Seeking to mobilize industry
support for the project during the first six months of 2018, OIP’s initiators forwarded
the project as the missing piece in transitioning towards digital delivery of EPC
projects:
What we are doing is a game changer, and can make tremendous changes to how we are
working in large [offshore] construction projects (…) (OIP project participant, fieldnote
excerpt)

However, upon project initiation in mid-2018, HostCo—the service company

given responsibility for hosting and managing OIP—quickly faced problems.
Reflecting upon this a few months into the project, a key project participant observed:
256 M. Haghshenas and T. Østerlie

“So, I now see that the project has been somewhat oversold in that the foundations of the
project is more based on, let’s say, hopes and aspirations rather than being expressions of a
clear plan [of project goals and how to achieve them].” (Interview excerpt)

Labelling the initial months of the project a ‘preparatory phase’ prior to

commencing the project proper in early 2019, HostCo worked to operationalize
‘hopes and aspiration’ through which the project initiators had sought to mobilize
support for the project.
To facilitate a transition to digital exchange of technical information, OIP was
to consolidate, update, and digitize existing standards that specify the informational
elements required for different classes of equipment used on offshore installations.
There is currently no single standard that completely specifies what information
should be supplied for different equipment classes. Rather, they are distributed across
over 50 different national and international standards (as well as company-specific
documents). With little or no coordination among different standardization bodies,
the standards are often overlapping and sometimes even downright contradictory. To
this end, OIP was organized around two related activities at project initiation:
One activity was to update existing national guidelines by consolidating existing
standards on technical information required of different classes of equipment
The other activity was to develop a core technology (OIP Core) for digitally
expressing the requirements laid down in the updated national guidelines
The content of these activities, however, remained underspecified. As such,
moving from ‘hopes and aspirations’ towards concrete project outcomes and activ-
ities turned problematic. OIP’s participants spent most of 2018 seeking to oper-
ationalize the project vision into concrete technical features, and a plan laying
out what activities are to be done by whom, when, and how. With this came a
shift in focus for the activity to develop OIP Core. More than developing tech-
nology in support of digitizing the updated national standards, they came to focus on
methods for expressing and processing digital requirements in general. Throughout
this period, participants involved in updating the national standard repeatedly raised
questions about OIP’s functional focus, and the appropriateness of OIP Core’s general
requirements handling features for their activities on updating national guidelines for
technical information and what they perceived as a lack of progress in this activity.
As such, how OIP’s vision was to be operationalized into activities and materi-
alized into concrete outcomes (plans, reports, revised standard, designs, executing
software) remained contested as HostCo prepared to scale up the project for the
second phase; the project proper. Consequently, when it came to mobilizing funding
for the project proper in early 2019, most of the participating companies were hesi-
tant. Several expressed the view that OIP was lacking a clear direction to meet the
needs of the industry. As a key stakeholder put it:
Isn’t it discouraging that we have conducted a first [preparatory] phase of the project and no-
one really knows what the outcome of this has been or how to progress from here? (Fieldnote
excerpt)
Coordinating Innovation in Digital Infrastructure … 257

As the preparatory phase came to a conclusion, several of the key companies

involved in the project openly considered pulling out OIP, possibly even terminating
the project entirely.

5 Analysis: Digital Infrastructure Innovation Versus

Innovation in Digital Infrastructure

Conflicting views on the nature of digital innovation in OIP lie at the core of the
controversy threatening OIP’s continuation after the preparatory phase. Echoing
Schumpeter, Henfridsson et al. [3] forward that “[r]ecombination is at the heart of
innovation” (p.89). Rather than conceiving of digital technologies as pre-packaged
applications or services, Henfridsson et al. (ibid., p.90) forward the notion of digital
resources, “entities that serve as building blocks in the creation and capture of value
from information”. The technical approach chosen for OIP, which all participants
agreed upon, followed a similar logic. Rather than developing a self-contained appli-
cation, OIP was to provide a digital resource—the OIP Core—that its participants
could freely integrate with their own technical and organizational arrangements.
While agreeing on this, whether OIP Core would form the basis of a new infrastruc-
ture for digital EPC project delivery or simply provide functionality to be inserted in
existing technical and organizational arrangements remained contested throughout
the project period.
We conceptualize this as an unresolved tension between divergent views on the
nature of digital innovation in OIP; between an emphasis on digital infrastructure
innovation versus an emphasis on innovation in digital infrastructure. We draw the
line of demarcation between the software engineers developing OIP Core, on the
one hand, and the domain experts tasked with updating national guidelines on infor-
mational requirements for different classes of equipment on the other. Emphasizing
the open-ended, transformative, and generative potential for a large-scale transition
from document-based to data-oriented requirements handling, the software engineers
regarded OIP as digital infrastructure innovation. The domain experts emphasized
the need for OIP Core to take into account operators’ and EPC companies’ installed
base of financial, technical, and organizational investments in digital EPC project
delivery in general, and digital exchange of technical information in particular. As
such, they viewed OIP as a form of innovation in digital infrastructure (Table 1).

5.1 Innovation Focus

Organized around two related activities, OIP faced two possible points of departure at
project initiation: (1) focus on updating national guidelines for technical information,
or (2) focus developing a technology for expressing the requirements laid down in the
258 M. Haghshenas and T. Østerlie

Table 1 Digital infrastructure innovation versus innovation in digital infrastructure

Digital infrastructure innovation Innovation in digital
infrastructure
Description Innovation of the infrastructure for OIP as an innovative part of
Innovation dimension digital EPC project delivery through existing technical and
OIP organizational arrangements for
digital EPC project delivery
Focus Technology-driven Use-oriented
Trajectory Start afresh with new technology Build on existing activities
Outcome OIP as digital platform outside of OIP integrated as system for
installed base digital exchange of technical
information within installed base

updated national guidelines. There were discussions from onset of the project about
which of these two activities to consider as driver of project activities. The software
engineers working on OIP Core advocated that developing the technological basis
of the project should be central to proceeding with updating the national guidelines.
Although the domain experts agreed that the updated national guidelines should be
digitized from the onset, their view on OIP Core’s role in the project diverged from
that of the software engineers:
The goal is to update the standards [national guidelines for technical information]. The
technology [OIP Core] is to support this process, rather than setting the premises for the
standardization. (Fieldnote excerpt, OIP initiator)

At the onset of the preparatory phase, HostCo donated the results from a company-
internal project for digitally expressing requirements on a machine-readable form.
Their argument was that building on this as the technological basis for OIP would
give the project a ‘flying start’. The donated technology, which became OIP Core,
was a technology for digital requirements handling in general. This aligned well with
HostCo’s other business areas in requirements validation and verification:
“We [HostCo] are working with requirement in very broad scale and large volume. Much of
what we are doing is about creating rules and publishing guidelines where most of them are
based on industry standards. The complexity in understanding set of rules is work intensive.
(….) It [OIP Core] will provide computer assistant requirement management by which we
can move the burden of knowing and applying complex rules to the computer and then
improve quality.” (Interview excerpt, software engineer)

Deciding to use HostCo’s general digital requirement technology for OIP Core
emphasized requirements handling and its transformative potential on digital EPC
project delivery. While the technology provided the domain experts with a format for
unambiguously expressing requirements, they remained uninterested as their focus
was on how digital technologies could simplify time-consuming and error-prone
aspects of their work. As such, within the first months of OIP, the disagreement on
project driver came to be drawn between the software engineers seeking to estab-
lish development of OIP Core, on the one hand, and the domain experts wanting
Coordinating Innovation in Digital Infrastructure … 259

technological development to be driven by the user needs for updating the national
standards, on the other hand.
The software engineers attributed the domain experts’ skepticism of digital
requirements handling in general as a failure to grasp OIP Core’s generative poten-
tial. As such, they translated the domain experts’ objections to OIP Core’s emphasis
on digital requirements handling as a form of user resistance. As a software engineer
noted:
I have been in the oil and gas industry for many years myself, and I know that this is an
extraordinary conservative business. Engineering and engineers by themselves are particu-
larly conservative and procedurally oriented, right? And used to doing things the way they
have always done. (Interview excerpt)

From the domain experts’ point of view, however, software engineers failed to
grasp OIP’s role in the wider context of transitioning towards digital EPC project
delivery:
We were introduced to an application which [the software engineers] believe is the best
solution. But as we moved on, we understood this was only a small piece of the bigger
picture. This is the drawback of [HostCo] having the potential solution in-house. (Interview
excerpt, domain expert)

The domain experts attributed the focus on digital requirements handling to a lack
of domain knowledge among the software engineers. The operators’ domain experts
argued the software engineer’s insistence on digital requirements handling’s gener-
ative potential failed to appreciate that the recipient and end-user for the technical
information generated during an EPC project are the operators’ life-cycle information
departments.2
The emphasis kind of changed towards the HostCo technology rather than focusing on the
technical [information] requirements. I think they gave too much focus on that (…). In a
way the work was done on the technology [OIP Core], it is kind of difficult to understand
how that would work before agreeing upon what we want to digitalize and used that engine
for. (Interview excerpt, management-level stakeholder operator)

Similarly, the EPC companies’ domain experts argued that focusing on digital
requirements handling failed to acknowledge key competitive dynamics in EPC
projects. While technical information is the basis for validating that delivered equip-
ment fulfils technical requirements, requirements validation efficiency is a key
competitive factor among companies in the EPC ecosystem. All companies therefore
have internal systems for requirements validation already. Moving such function-
ality to the digital infrastructure would undermine these companies’ organizational
and technological investments in requirements validation efficiency. As such, the
disagreement over OIP Core’s functional scope was not solely about functionality
per se, but also on whether OIP’s focus should be on digital infrastructure innovation
or innovation in digital infrastructure.

2 Life-cycle information departments are responsible for providing technical information to internal

departments as well as subcontractors in relation to operations and maintenance activities.

260 M. Haghshenas and T. Østerlie

5.2 Innovation Trajectory

OIP is infrastructural in ambition and scope. The offshore industry’s interest organi-
zation clearly signals OIP’s infrastructural ambitions by concluding their report on
future competitiveness with
Digitalization: collaboration, sharing, openness, standardization. OIP is the foundation.

This statement reflects what Star and Ruhleder [23] refers to as the ‘common-sense
view’ of infrastructure as “substrate (…) something upon which something else ‘runs’
or ‘operates’”. The conclusion forwards the ambition of OIP as the substrate for “col-
laboration, sharing” to underpin digital EPC project delivery. OIP is infrastructural
in scope in its focus on cross-domain standardization. Henfridsson and Bygstad [13]
describes a relational perspective on infrastructures. This perspective emphasizes
infrastructures as socially embedded and coordinated across social worlds and stan-
dards. Companies throughout the EPC industry tend to spend an inordinate amount
of time sifting through technical equipment information. Different suppliers provide
the information on differing formats and with differing information depending upon
the customer. In worst case, the same supplier can provide the same customer with
differing information for the same piece of equipment as operators have limited
standardization of technical information across their development projects. OIP is,
as such, infrastructural in scope as standardizing the information elements to be
provided for specific classes of equipment is key to coordinating across the different
social worlds involved in EPC projects.
Both of these perspectives of OIP’s infrastructural aspects are well acknowl-
edged among the participating companies, and link closely with the view of OIP
as digital infrastructure innovation; the innovation of the infrastructure for digital
EPC project delivery. Less acknowledged, however, is how OIP is also innovation in
digital infrastructure.
OIP had been preceded by a series of smaller, independent, yet related collabora-
tive projects focusing on different aspects of digital exchange of technical informa-
tion. Companies have, in the past, pursued digital EPC project delivery internally.
The effect has been that vendors, subcontractors, and EPC companies spend much
effort on transferring data and information to and from different companies’ digital
delivery systems. Key stakeholders throughout the EPC industry (including OIP’s
initiators) have therefore sought to consolidate and move internal systems onto what
they referred to as ‘the common arena’ over the past years. All participating compa-
nies, apart from HostCo, have previous investments in at least some of these projects.
In mobilizing participants for OIP, the project initiators therefore highlighted the
importance of OIP as a continuation and consolidation of these past projects. The
domain experts’ objections to OIP Core’s emphasis on digital requirements handling,
can be understood as a failure by the software engineers to acknowledge that OIP
is not developed in isolation, but within an installed base of financial, technolog-
ical, and organizational investments [17] made by companies throughout the EPC
ecosystem.
Coordinating Innovation in Digital Infrastructure … 261

The domain experts’ objections to OIP Core’s emphasis on digital requirements

handling was, as such, not solely a critique of the software engineers’ lack of domain
knowledge. They also found the focus on digital requirements handling to lack
an appreciation of the need for continuity with previous industry efforts towards
establishing an infrastructure for digital exchange of technical information in EPC
projects:
I have participated in [a previous project on identifying informational element requirements
for technical information] from 2015 to 2018 on behalf of my company. (…) From our side,
(…) the OIP project is to use the results from previous initiatives. How can we say that the
[previous] project is OIP’s background without continuing it? (Interview excerpt, domain
expert)

Having attributed the domain experts’ objections to a lack of understanding

of digital requirements handling’s transformative potential, the software engineers
responded to the critique by organizing a workshop. The goal of this workshop was to
instill an understanding of digital requirements handling’s transformative potential
among the domain experts by explaining the technical basis of OIP Core. Yet, as a
management-level participant noted in the aftermath of the workshop:
It isn’t that the domain experts don’t understand OIP Core. It’s that they fail to see how it
builds on and extends their existing work on identifying and standardizing the information
elements’ requirements for [different classes of] equipment. (Fieldnote excerpt)

Emphasizing the generative potential of digital requirements handling, the soft-

ware engineers failed to acknowledge the other participants’ previous investments in
digital exchange of technical requirements. Indeed, by translating the other partici-
pants’ objections to OIP Core’s focus on digital requirements handling as a form of
user resistance (as elaborated in 5.1 above), the software engineers failed to acknowl-
edge that the other companies have previous financial, technological, and organiza-
tional investments in the digital exchange of technical information that they seek to
further through OIP. Unresolved, the conflicting views of digital innovation escalated
into suspicions over HostCo’s ulterior motives to use OIP Core to re-configure the
digital EPC ecosystem around their product offerings.

5.3 Innovation Outcome

The EPC industry draws upon a wide array disparate, frequently overlapping, and to
a certain degree even redundant digital systems for creating, exchanging, and storing
information in a single infrastructure project or for an installation. The degree to
which companies in the EPC industry implement digital delivery varies greatly. Most
energy companies have their own internal systems for digital project delivery that all
subcontracted companies are required to use. Similarly, all EPC companies have their
own systems for digital delivery that their subcontractors and vendors are required
to use. Even the large equipment vendors have their own internal systems for digital
delivery. Some of the systems used are commercial software offering with a higher or
262 M. Haghshenas and T. Østerlie

lesser degree of tailoring to fit individual companies’ organizational practices. Others

are custom-built for individual companies. The situation is made further complex as
the same company may assume different roles across different EPC projects (such
as having the role of EPC company in one project, while functioning as vendor of a
particular piece of equipment in another EPC project).
How OIP fit into this picture remained challenging for everyone involved.
Deciding upon developing a digital resource that the participants could integrate
with existing technical and organizational arrangements made it possible to progress
without deciding upon the issue. However, as focus for OIP Core shifted towards
digital requirements handling, the operators and EPC companies raised questions
over the overall architecture OIP was working towards. The underlying concern
was about the implications such architectural decisions would have for the (re-
)configuration of the digital EPC ecosystem. OIP’s participants envisioned two
scenarios. One, that OIP would be “an open industry platform that translate different
companies’ practices into shared technical requirements which helps the industry
to improve efficiency and cut cost” (HostCo presentation). Such a digital platform
would obviate and replace functionality in the companies’ existing systems (such as
requirements management), moving it into the platform and the ‘common arena’.
The other scenario was for a bare minimum but fully standardized system providing
a lingua franca for the digital exchange of technical information between companies’
existing systems.
HostCo and the software engineers working on OIP Core were the main propo-
nents OIP aiming towards becoming a digital platform. Domain experts on the other
hand advocated for the second scenario; to have a shared standardized system that
can fit to their existing technical arrangements.
In our company, we are using a tool for our requirement management in which we can create
specification to have the traceability of the requirements. (…) The tool that is developing in
OIP project would then communicate with the system we are using now (Interview excerpt,
domain expert)
The tool we are using is not a competitor to the OIP product, but it is a facilitator providing
dynamic information administration. We would use the engine [OIP Core] that comes out
of the OIP project to build on our system (Interview excerpt, domain expert)

Focusing on developing the OIP Core based on the first scenario, failed to encom-
pass the existing systems’ functionality. While, domain experts translated HosCo’s
tendency for development of open platform as their effort for gaining generative
potential over OIP’s outcome, software engineers referred to their lack of acknowl-
edgment of the existing system’ functionality in order to dispense with the over-
lapping and redundant systems. Indeed, divergent focus on the digital infrastructure
innovation and innovation in digital infrastructure lead to the conflicting views over
architectural aspects of OIP’s outcome.
Coordinating Innovation in Digital Infrastructure … 263

6 Discussion and Conclusion

The above analysis contributes to theory on digital innovation networks in three

ways. First, by introducing the temporal dimension in our analysis, we demonstrated
digital innovation networks as dynamic and evolving over time. Lyytinen, et al. [4]
argue that “the speed and scope of pervasive digitization have created an increasingly
dynamic and complex set of social processes in digital product innovation” (p. 52),
affording new modes of coordination. How and by what mechanisms to coordinate
is contingent upon the taxonomy’s two axes of digitizing as operand and operant
resource. Including the temporal dimension emphasizes digital innovation networks
as ongoing and dynamic, not merely fixed or static entities. As such, not only are
the social processes of digital innovation dynamic and complex. They also evolve
over time as the configuration of the digital innovation network shifts and evolves.
The above analysis traces this as the configuration of companies involved with OIP
moved from the pre-project phase of distribution with no centralized control (i.e.
anarchic network) towards a more federated innovation network with HostCo as its
focal form. Introducing a temporal dimension to digital innovation networks also
brings out the tensions that can arise out of such changes. We showed this with
regards to modes of coordination. ‘From document-centric to data-centric’ was an
effective organizing vision [15] in mobilizing and coordinating companies’ efforts
in the loosely coupled, anarchic EPC network. Yet, as the participating companies
became more integrated and aligned as a federated network in OIP, this abstract
slogan became an ongoing source of confusion as well as contention among project
participants seeking to enroll it in favor of their interpretation of project scope and
focus.
This argument is similar to Gardet and Mothe [24] observation that different coor-
dination mechanisms are needed as innovation networks evolve. Their observation
is grounded in studies of innovation networks in general. Our second contribution
is therefore to elaborate upon and substantiate this observation in the context of
digital innovation network theory. OIP drew a subset of EPC sector companies closer
together in a federated innovation network with HostCo as focal firm. This network
came to be coordinated through a centralized project structure with hierarchies and
division of labor distributed among sub-projects, along with a work plan with mile-
stones and deliverables. While these mechanisms are well suited to distributing and
coordinating more or less clearly defined tasks or activities and for tracking progress
through deliverables with deadlines, they do not address what Lyytinen et al. [4]
refers to as knowledge and resource heterogeneity resulting from network partici-
pants coming from different organizations as well as professional and disciplinary
knowledge domains. As Carlile [25, p. 556] notes in the context of new product design
“[a]s difference in the amount and/or type of domain-specific knowledge increases
between actors, the amount of effort required to adequately share and assess each
other’s knowledge also increases.” Framed in the Lyytinen et al. [4] terminology,
with increasing knowledge heterogeneity comes the need for modes of coordinating
between professional and knowledge domains.
264 M. Haghshenas and T. Østerlie

While HostCo recognized that the organizing vision ‘from document-centric to

data-centric’ was inadequate as coordinating mechanism for OIP phase 1, they did
not fully acknowledge its function as translator between heterogeneous knowledge
domains. Carlile [25, p. 556] traces the complexity of collaborating across disci-
plinary and professional knowledge domains increases with (a) knowledge hetero-
geneity, (b) dependence between different knowledge domains, and (c) the novelty of
the project. While knowledge heterogeneity did not change from pre-project to phase
1, the big difference was that the dependencies across knowledge domains increased,
actualizing differences in type and amount of domain knowledge. Drawing upon
Carlisle’s notion of ‘knowledge translation’ as a mode of coordinating across hetero-
geneous knowledge domain, Lyytinen et al. [4] observe that coordination across
knowledge domains requires both cognitive and social translation. The unresolved
tension between the divergent views on the nature of digital innovation in OIP (i.e.
‘digital infrastructure innovation’ vs. ‘innovation in digital infrastructure’) can as
such be interpreted as a failure by OIP management to acknowledge the need for
coordinating mechanisms in support of cognitive translations across heterogeneous
knowledge domains.
OIP management sought to address this issue by giving the workshop on OIP
Core. This workshop constituted a form of knowledge transfer from software engi-
neers to domain experts, whereas—thinking in terms of Carlile [25] notion of collab-
orating across disciplinary knowledge domains—what was needed was a transla-
tion between the differing knowledge domains to develop an understanding of OIP
goals, processes, and outcome. As such, the workshop solidified the tensions between
software engineers and domain experts. Furthermore, digital requirements handling
challenges existing industry and professional structures. Such questions are resolved
through social translations, that “involve constant interaction and political positioning
among innovation network participants [whose] perspective are often in conflict, but
they still need to find a way to modify and align their interests into temporary dialectic
synthesis” [4, p. 56]. Therefore, the ending of OIP phase one can be understood as a
failure to negotiate the open-ended and generative potential of OIP Core as envisioned
by HostCo’s software engineers, against the installed base of previous investments
among the EPC sector companies’ knowledge base, technical know-how, standards,
and existing tools. This leads us to the third and final theoretical contribution, the
embeddedness of digital innovation networks.
OIP shares a similar structure to Boland et al. [26] digital innovation network
centered on a key firm. Boland et al.’s study shows that the focal firm enforces
a transformation throughout the network of subcontractors and vendors delivering
goods and services. While HostCo assumed a similar position in the innovation
network, its ability to enforce an agenda did not match that of Boland et al.’s focal
firm. A key difference between the two cases is the broader network of companies the
two digital innovation networks are embedded in. While Boland et al. offers a case
study of designing and constructing a novel building, the 3D construction drawing
tools enabling such novel design are in more or less widespread use throughout the
construction industry. As such, the installed base of technological know-how, disci-
plinary knowledge was to a large degree already oriented around 3D drawings. In
Coordinating Innovation in Digital Infrastructure … 265

the case of OIP, however, there was no such alignment of the installed base. Rather,
OIP’s outcome needed to fit with the participating companies previous technolog-
ical and organizational investments in different approaches to digital delivery. While
it is not correct to say that OIP management did not acknowledge this, our anal-
ysis illustrates how digital innovation coordination needs to encompass the tension
between generativity and open-ended potential of digital innovation [3] with the
digital infrastructure’s installed base.
The practical implication of our study relates to networks of projects’ participants.
Due to the fact that digitalization changes the way innovation unfolds, from a single
firm to the networks of actors, considering the heterogeneity and distributed features
of innovation networks are at the core. Based on the networks’ configuration (whether
it is heterogenous or homogenous, centralized or decentralized), coordination needs
to be considered as an evolving and achieved accomplishment. Respectively, the first
feature characterizes that although networks of actors may not be changed through
the project, new modes of coordination are required as projects progress to the next
stage. In our case, the reason why challenges arise was lack of proper coordination and
ability to align the coordination mechanisms to the changes when projects progress
to the next phase (i.e. from preparatory phase to the project proper).
More importantly, the embeddedness of innovation networks may exist in large-
scale projects. For instance, as we showed in our case, the project network was
embedded in an industry network which made some challenges in coordination
mechanisms. Therefore, differentiating the industry level and organizational level
strategies is vital in coordinating such complex and large-scale projects.
In concluding, by focusing on the innovation networks we have provided insights
about how and why challenges arise during large-scale and complex projects, yet
future researches are needed to discuss the possible solutions in coping with such
challenges. For instance, future studies can investigate different coordination mech-
anisms (especially the ones used in more heterogeneous and distributed networks of
actors) and how they affect the project progress.

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 Digital Ecosystems for Business
Innovation and Digital Transformation
Organizational Capabilities for Social
Media Management: How Restaurant
Managers Approach to the Digital
Ecosystem

Claudia Dossena and Francesca Mochi

Abstract Digital platforms and social media are now widespread and their diffusion
enables the development of digital ecosystems where organizations, users and firms’
stakeholders virtually meet, share knowledge, influence each other and co-evolve.
In order to effectively manage and exploit digital ecosystems, organizations require
to evolve their processes and capabilities. The paper aims are threefold: (1) under-
standing how restaurant managers perceive and approach the digital ecosystem, (2)
investigate how they concretely manage the digital ecosystem, and (3) comprehend
what organizational competences are perceived as useful to effectively manage the
digital ecosystem. We adopt an explorative approach through a qualitative analysis
of 54 companies in the food and beverage service sectors.

Keywords Digital ecosystem · Social media · Organizational competences

1 Introduction

The Web and, in particular, social media have radically changed the business land-
scape, with relevant consequences on organizations’ knowledge management activ-
ities. Basically, social media stand for open participation and user-interaction, e.g.
through user groups and online communities, forums, blogs, wikis and social network
sites [1]. Through social media, stakeholders have a powerful medium to share knowl-
edge and information. From this perspective, the Web is a fundamental information
source for organizations, especially for what concerns stakeholders’ opinions. Due
to the increasing easiness and user-friendliness of online publishing processes, espe-
cially if compared to traditional media, every Web user is now able to communicate
unmediated and unchecked contents via simple and widely used publishing tools,

C. Dossena (B) · F. Mochi

Università Cattolica del Sacro Cuore, 20123 Milan, Italy
e-mail: claudia.dossena@unicatt.it
F. Mochi
e-mail: francesca.mochi@unicatt.it

© The Editor(s) (if applicable) and The Author(s), under exclusive license to Springer 269
Nature Switzerland AG 2020
R. Agrifoglio et al. (eds.), Digital Business Transformation, Lecture Notes in Information
Systems and Organisation 38, https://doi.org/10.1007/978-3-030-47355-6_18
270 C. Dossena and F. Mochi

thus affecting firm’s legitimation and reputation [2]. E-word of mouth communica-
tion (e-WOM) is a major part of online consumer interactions, particularly within the
environment of online communities [3]. Modern social media make easier and viru-
lent the diffusion of comments, anecdotes, opinions, and this can be both profitable
and problematic for online reputation. Park and Lee [4] demonstrate that just one
negative comment can contribute to worsen the reputation within an online forum,
while the perception of a positive reputation is merely proportional to the number
of positive comments. Therefore, online reputation is a resource cumulated in time,
it is also quite ‘fragile’ and quickly damageable [5–7]. This makes more important
the proactive interventions in managing the environment of online communities. In
academic world many authors have studied online reputation both at an individual
and a firm level, focusing mainly on the opportunities and threats of e-WOM [8, 9].
From an empirical point of view, a growing number of organizations are developing
a digital strategy [10, 11] or are developing processes of digital transformation [12,
13]. However, despite the increasing attention paid from both academics and prac-
titioners on how to approach to the digital world, there isn’t a dominant reference
model or best practices yet [14]. In particular, there is a need for a deeper under-
standing of the digital competences required to effectively explore and exploit the
opportunities coming from the digital platforms. The diffusion of digital platforms
enables the development of digital ecosystems where organizations, users and firms’
stakeholders virtually meet, influence each other and co-evolve. Consequently, orga-
nizations require to evolve their processes and capabilities in order to manage this
digital ecosystem.
Drawing on from those premises our research questions are the following:
• how restaurant managers perceive and approach to the digital ecosystem,
• how they concretely manage the digital ecosystem
• what organizational competences are useful to effectively manage the digital
ecosystem.
In order to answer our research questions, we follow an explorative approach
through a qualitative analysis of 54 businesses in the food and beverage service
sectors. With this research we thus expect to find some answers about how restaurant
managers approach and manage the digital ecosystem and the competences and
behaviors that managers may adopt.
The research aims at contributing to the digital ecosystems’ literature, the e-HRM
literature and the IS literature. Furthermore, it will offer managerial implications of
digital ecosystems’ effectiveness and on the behaviors and capabilities that the HR,
managers and firms owners have to monitor, search and promote among employees
and themselves. Lastly, it will give managerial suggestions on how to deal with
e-WOM and reputation issues.
Organizational Capabilities for Social Media Management … 271

2 Theoretical Framework

2.1 e-WOM and Social Media Management in the Food

and Beverage Service Sector

Previous literature in hospitality and tourism management noted that consumers are
becoming “hyper-digital”, an “always-on consumer, using connected devices every
day or multiple times a day” [15]. Before the advent of the Internet, word of mouth
(WOM) was the most useful tool for marketing research and the most influential
source for information exchange [9]. e-WOM is defined as “any positive or negative
statement made by potential, actual, or former customers about a product or company,
which is made available to a multitude of people and institutions via the Internet” [16:
p. 39]. Fox and Longart [8] investigated restaurant marketers’ use of social media as
part of an integrated marketing communication strategy. They highlighted some rele-
vant recommendation to restaurant marketers in order to create a positive e-WOM for
the restaurant (e.g. maintain fluid and flexible communication, adapt tactics by the
channel, i.e. by the social media platform used, give stickiness to the content in order
to avoid boredom and predictability, adapt the social media strategy to include mobile
devices in order to follow the increasing trends towards mobile consumption of social
media). Similarly, Ghiselli and Ma [17] examine the use of social media by restau-
rants in China. Their results suggest that even if restaurants are not very active on the
four main Chinese platforms (WeChat, Dianping, Baidu and Meituan), actually they
are making efforts to improve their social media presence, especially upscale restau-
rants. Surprisingly, international chains are doing worse than domestic restaurants,
but the authors stated that this probably is due to the fact that social media landscape
in China is drastically different from that in the West. Although consumers seem to
appreciate online ordering and online payment, they are not provided widely. Ghis-
elli and Ma [17] also adopt the consumers’ perspective and investigate the extent to
which consumers are using social media to obtain information about dining options.
They found that 85% of participants (a total of 254 responses were considered) use
social media to search for restaurants; 15% of participants indicated they use social
media to search for restaurants almost every time. Older participants were less likely
to use social media to search for restaurants, as they trust friends’ recommendations
more. The authors also investigated the usage of different social media for the restau-
rant selection (e.g. Dianping, WeChat, Baidu, Meituan, Tripdvisor), they found that
those social media were almost equally used when looking for restaurants. Moreover,
they investigated the willingness to receive update information from the social media
pages of the restaurants (69% of the participants were willing to receive social media
updates at least once a week). Lastly, they investigate some consumers preferences
and highlight that consumers “prefer (in order): real-time updates (e.g. special offers),
GPS/location and direction services, online menu information, online ordering (for
delivery and carryout), average spending/expectation, a social function (likes, share
with friends, check in where you have been, rating, etc.), online payment, new menu
items, reservation/waiting time and an interaction function (leave message, provide
272 C. Dossena and F. Mochi

feedback)” [17: p. 257]. Similarly to Ghiselli and Ma [17], in 2011 Jeon and Jang
[18] investigate which restaurant experiences trigger customers to engage in posi-
tive e-WOM. The results show that restaurants’ food quality positively influences
customers to spread positive e-WOM, because diners want to help the restaurant;
also satisfactory service and a superior atmosphere triggered positive e-WOM. On
the contrary, price fairness did not drive diners toward e-WOM. As previous research
shows us, web sites and social media allow users to be influenced in the restaurant
choice by the e-WOM [17, 19]. Those tools have completely reshaped the hospitality
industry scenario and changed the sources customers use/trust to search for hotels,
locate restaurants, place orders, make reservations, plan trips and share experiences
[20].

2.2 Digital Competences in the Hospitality Industry

Social media have significantly impacted the tourism system [21] since they are
widely adopted by travelers to search, organize, share, and annotate their travel stories
and experiences through blogs and microblogs (e.g., Blogger and Twitter), online
communities (e.g., Facebook, Qzone RenRen, TripAdvisor and TheFork), media
sharing sites (e.g., Instagram, Flickr, Pinterest, and YouTube), social bookmarking
sites (e.g., Digg), social knowledge sharing sites (e.g., Wikitravel), and other tools
in a collaborative way. Social media are useful for managing customer relationships
with their unique ability of attracting customers through in-depth, focused, and user-
generated content, engaging customers through social interactions, and retaining
customers through relation building with other members [22]. Dellarocas [23] also
suggested that social media provide tourism companies with unprecedented opportu-
nities to understand and respond to consumer preferences. Analyzing the comments
on online communities such as TripAdvisor, organizations are able to better under-
stand what their guests like and dislike about them and their competitors. Conse-
quently, tourism businesses have been integrating social media platforms into their
websites to enhance customers’ travel information searching experience [24, 25].
Leung et al. [26] reviewed and analyzed social media-related research articles in
tourism and hospitality sectors. Adopting both the consumers’ and the suppliers’
perspectives, the authors found that consumer-centric studies generally focus on the
use and impact of social media in the research phase of the travel planning process.
Supplier-related studies in tourism and hospitality sectors [27] have concentrated
closely on the role of social media in supporting marketing activities—especially on
promotion [26, 28]—communication mechanisms, both internal and external to the
organizational boundaries, [27, 29], management function [30], and research area,
training and learning processes [31]. However, what are the main organizational
competences required for effectively managing social media remains still unclear
both for academic scholars and practitioners. Roy e Dionne [32] investigated how
4 SME (inns and restaurants) perceive social media and how they use it to sustain
their day-to-day work. In their multiple case study they found that all the businesses
Organizational Capabilities for Social Media Management … 273

developed the social media platform internally even though some organizations had
difficulties in doing so. The choice of content to publish on social media platforms
is usually not related to a formal and specific marketing strategy, but it is mostly
based on the personal choices of the person in charge of the platforms monitoring.
The 4 SMEs are aware that they are not exploiting social media to the extent they
could or should. Lack of time, lack of technological knowledge and lack of knowl-
edge on how to evaluate their performance on social media are only some of the
reasons that explain the underuse of social media platforms. In tourism literature,
Schmallegger and Carson [27] used case studies to discuss the challenges tourism
organizations face when using blogs to five key functions—promotion, product distri-
bution, communication, management and research. Ayeh et al.[33] explored Hong
Kong practitioners’ perceptions of social media and concludes that organizations
apply a variety of strategies in day-to-day management: organizations employ a
variety of social media platforms in order to maintain high exposure to potential
and existing customers, they continuously update the company’s account in order
to ideally raise the users interest, they assign a staff member to be responsible for
answering enquiries and comments through social media platforms, and they post
positive reviews on the social media to maintain a positive image and online reputa-
tion. However, the capabilities, competences and personal attributes needed to apply
a strategy in managing social media remain still unclear. Munar [30], focusing on
social media strategies for destination management organizations, argued that social
media require a new communication culture and training, but this is not enough to
succeed.

3 Methodology

We adopted two different methodologies, firstly, we used structured interviews in

order to assess the familiarity and use of digital platforms and to assess the restaurant
managers perceptions on the use of digital platforms. Our sample of the structured
interviews is based on 54 restaurants. To deepen our understanding regarding the
organizational competencies needed to efficiently manage digital ecosystem, we have
also developed in-depth semi-structured interviews with 19 restaurant managers that
have also participated to the structured interview. Thus, among the 54 restaurants
of our sample, 19 agreed to be further interviewed. By analyzing the social media
pages of those restaurants (i.e. TripAdvisor, Google rating, Facebook, JustEat and
Deliveroo) we found that all the 19 were active online—with an institutional account
on at least three different digital platforms—and with a good online reputation [with
feedback ratings higher than 4 (out of 5) in Google, Facebook, Tripadvisor, JustEat
and Deliveroo and higher than 8 (out of 10) in TheFork]. This seems to highlight an
auto selection bias of our sample, only those restaurants that are interested in the use
of social media for their business activity actually agreed to be further interviewed
with the semi structured interview.
274 C. Dossena and F. Mochi

To analyze the semi-structured interviews, we adopted the Gioia’s methodology

to assess qualitative rigor [34]. Our analysis consisted of multiple, iterative read-
ings of the interview transcripts, and the identification of dimensions of first-order
concepts uttered by respondents regarding the use and management of social media.
We concentrate our study on the restaurants of Milan, one of the most well known
northern Italian cities in the key tourism generating markets [35]. The majority of
respondents is male (74%) and with an age between 21 and 68 years old. All respon-
dents are restaurant managers and/or owners. Our sample is heterogenous in terms
of dimensions, typology and average cost for a dinner. We have considered both
very small restaurants and medium restaurant chains (with more than a restaurant in
Milan). We excluded from our analyses the big food service chains, since we decided
to focus on SMEs because they are the majority of businesses in the food service
sector in Italy. We included in our sample different typologies of restaurants: Italian
restaurant, ethnic cuisine, pizzeria, vegan cuisine, regional cuisine, gourmet cuisine.
The sample is mixed also in terms of average cost for a dinner: less than 10 euros
a person (9% of the sample), between 10 and 25 euros (35%), between 25 and 50
euros (44%), more than 50 euros a person (11%).

4 Results and Discussion

4.1 How Restaurant Managers Perceive the Digital

Ecosystem

In our sample there are two polarized positions regarding the evolution of the
ecosystem in the food and beverage service sector. Some interviewees seem enthu-
siastic about how their ecosystems are changed, especially thanks to the diffusion
of social media. Those people see digital ecosystem as a new world, a harbinger of
opportunities for the development of their business. Other interviewees have a more
circumspect attitude to social media, since they recognize in this new ecosystem
also potential threats for their business. In Table 1 we compared different posi-
tions of restaurant managers and owners as emerged by in-depth interviews. The
semi-structured interview data were grouped and coded into four first-order themes
[34].
Competitiveness and market shares

The majority of the interviewees perceive digital ecosystem as fundamental for the
success of their business (66.7% of respondents) and the remaining one third of the
sample declares that even if digital world is important, there are also other important
things for their business. Social media can be an effective means to reach more users
(through a greater visibility) and to increase customers if this visibility is combined
to a positive online reputation. According to 50 (out to 54) respondents, the Web
Organizational Capabilities for Social Media Management … 275

Table 1 How restaurant managers and owners perceive digital ecosystems

Theme Pros Cons
Competitiveness and market • Increase visibility • Increase market competition
shares • Increase attractiveness
• Offer improvement:
– Listening customers
through reviews and
feedback
– Copying competitors’ best
practices
– Offering digital
experiences
Communication • Increase communication • Possible conflicts and
between the restaurant and misunderstandings
customers • High costs (in terms of time
• More direct communication and competences required)
• Voice of the cunstomers
Transparency • High transparency • Low transparency
• Democratization of the web • Fake reviews
Customer education • More informed customers • “know-all” customers

is an effective channel to have visibility. Digital platforms are perceived differently

according to their ability to give a greater visibility to a restaurant: Google (53 out
of 54), TripAdvisor (46 out of 54), Instagram (45 out of 54), restaurant website (43
out of 54), Facebook (43 out of 54), thematic blogs and forums (28 out of 29), food
delivery websites (28 out of 54), YouTube (18 out of 54), generalist blogs and forums
(16 out of 54), LinkedIn (8 out of 54). To efficiently managing digital ecosystem,
restaurants can also use social media for increasing their attractiveness. About two
thirds of respondents believe the majority of their customers searches for online
information about a restaurant, independently by the customer age (i.e. everybody,
and not only younger customers, use online platforms as information source) (43%
of respondents) or if customers are under 30 (26%). Moreover, thanks to the digital
ecosystem, restaurants can improve their offer through at least three different ways:
• Exploiting customers’ feedbacks and reviews online: according to 45 (out of
54) restaurant managers, social media are effective channels to listen customers’
opinions and, consequently, improve their offer. About 82% of the sample
perceives customers’ feedbacks and reviews useful for improving their services.
According to respondents, constructive feedbacks are given by young and extro-
vert customers, with great familiarity with social media tools and high instruction
levels. The remaining one third perceives customers’ feedbacks as means for
venting frustration. In an in-depth interview, a restaurant owner declares: “online
reviews and comments are driven by emotions and not by the desire to give a
constructive opinion”;
• Copying competitors’ best practices: 43% of respondents declare to frequently
search for information about competitors’ activities; 39% of restaurant managers
276 C. Dossena and F. Mochi

monitor competitors’ online activity at least occasionally. Only 18% of respon-

dents don’t search for information about competitors;
• Offering digital experiences: according to in-depth interviews, managing in a
synergetic way the real and in the digital world, restaurants can offer an extra
service to their customers, i.e. a digital experience.
Even if digital ecosystem is generally perceived positively by respondents, some
restaurant managers complain about a generalized increase of market competition,
also because of the diffusion of social media. In particular, through food delivery
platforms a lot of new cooking businesses have arisen.
Communication

Restaurant managers speculate that their customers are very active online. In restau-
rant managers opinion, often (28% of respondents) their customers leave online
reviews, or at least occasionally (72%).
Social media can increase communication between restaurants and their stake-
holder, enabling a more direct communication. Of course, social media, enhance
a better listening of customers opinions, expectations and desires. As argued in
managerial literature, thanks to their interactivity, social media significantly empower
users, increasing the voice of the customers. However, social media are also a
useful tool for giving voice to restaurant managers. 81% of respondents declare
that the direct communication with the customer enables restaurant managers to
transform a negative comment in a business opportunity. However, there are also
restaurant managers in an opposite position, that perceive social media as something
that mediates relationships and hinders communication. The written form and the
asynchronous communication can lead to conflicts and misunderstandings. More-
over, surprisingly some restaurant managers highlight high communication costs.
Indeed, even if social media have apparently very low costs, somebody argue that
the management of the digital ecosystems has high costs, especially in terms of time
and competences required.
Transparency

Some restaurant managers and owners believe in the democratization of the Web,
especially for the high transparency, the lack of filters and control in sharing user-
generated contents within social media. However, most of them adopt a skeptical
position about transparency in the digital ecosystem, especially in negative reviews.
83% of respondent declares to have read at least an online comment and thought
that it was a fake review. About two third of the sample believes that highly nega-
tive comments may be fake reviews left by competitors in order to intentionally
damage their online reputation. In general, e-WOM is perceived as less truthful and
corresponding with reality than traditional WOM. Moreover, some respondents with
technological competences are aware that for having a good online reputation you
can “simply” pay social media agencies and develop Search Engine Optimization
(SEO) and Search Engine Marketing (SEM) activities. One interviewee implicitly
Organizational Capabilities for Social Media Management … 277

cites Asch conformity effect, i.e. the influence of the group majority on an individual’s
judgment. A restaurant owner declares “if users read very positive comments about
a restaurant, when they have to judge (or rank) their personal experience they tend
to conform with the group majority”. However, some digital platforms (e.g. Google)
are recognized as more credible than others (e.g. Tripadvisor).
Customer education

In in-depth interviews, some interviewees recognize in the social media also an

educational role for customers. This cookery education is also reinforced by the
spreading of cooking TV shows. Moreover, thanks to social media, customers are
now more informed and more aware than in the past. They pay more attention to the
quality of raw material, to original or traditional recipes, and also to plating. For the
majority of restaurant managers, this is an important advantage for their businesses.
However, some interviewee also argue that now almost everybody considers his(her)
self an expert and a great culinary critic, even if he(she) has not adequate competences.
And even worse, he(she) expresses and shares his(her) opinions through social media.

4.2 How Restaurant Managers Approach to the Digital

Ecosystem and How They Manage It

Restaurant managers and owners approach to digital ecosystems in a variety of ways.

As expected, all the interviewees use the Web, and in particular social media and
the restaurant website, for marketing purposes. However, as argued in the previous
paragraph web platforms are used also for other purposes, i.e. for improving the
restaurant offer, for benchmarking activities, for efficiently managing relationships
with partners and suppliers, for engaging customers, for increasing brand awareness,
for internal and external communication, for educating customers and spreading
cookery culture, for CRM activities, for getting sponsorships, improving booking
(online booking), and e-recruitment.
In Fig. 1 we reported the digital platform used by respondents.
Many restaurant managers highlight the appropriateness in using different digital
platforms depending on the content of the message and its aim. These digital plat-
forms are managed both internally and in outsourcing. 49 restaurants managers (out of
54) internally manage the digital ecosystem, personally or through internal collabora-
tors, after an adequate training. 5 interviewees give in outsourcing the management
of the digital channels to communication agencies, web agencies or social media
managers. Notably, even if some restaurant owners have technological and digital
competences, they choose to externalize the digital platforms management to more
specialized people. Restaurant managers feel to have adequate technological skills to
manage social media, these latter perceived as intuitive and user-friendly tools. The
choice to give in outsourcing social media management relies in perceived difficul-
ties to correctly communicate within online communities. Many restaurant managers
278 C. Dossena and F. Mochi

Fig. 1 Presence in the digital platforms

declare to have inadequate communication skills for the digital ecosystem, this latter
perceived with high degrees of complexity, dynamism and heterogeneity. Moreover,
8 restaurant owners (out of 54) declare to use ad hoc web tools for monitoring the
web.
Regarding Web monitoring activities, 63% of respondents declare that they don’t
perceive difficulties or critical issues in monitoring social media. However, web
monitoring is described as an activity particularly time-consuming. Nevertheless, the
majority of respondents continuously (daily or at least one time a week) monitors
online activities only on selected digital platforms: Google, TripAdvisor, Facebook
and Instagram. Another issue related to social media monitoring relies in under-
standing the truthfulness of online reviews. Interviewees identify fake reviews by
looking at some review or reviewer characteristics such as very generic review and
with a lack of details, reviews that are too similar to other reviews, that describe
situations that don’t confirm to reality and that are left by users with ambiguous
profiles. In order to improve online reputation, restaurant managers pay great atten-
tion in writing and in replying to online reviews. From this perspective, restaurants
in our sample adopt very different strategies. About a quarter of respondents reply
to all comments, both positive and negative ones. 31% of respondents reply only to
comments in specific digital platforms, perceived as strategic ones. 20% of restau-
rant managers choose to reply only to negative reviews (a respondent says “reply is
extremely important and, in case, also apologize”). The remaining respondents (14
out of 54) reply only occasionally (a respondent argues “the better strategy is never
reply, either to positive or negative reviews, since ‘the customer is always right”).
For writing on digital platforms, communication capabilities are essential for
message efficacy. Interviewees declare that communication has to be clear, brief and
linear and different communication style is needed accordingly to the social media
used.
Organizational Capabilities for Social Media Management … 279

Table 2 Relevant competences for restaurants managers

Aggregate dimension Macro themes
Communication • Language coherency
• Message efficacy
Customer management • Negotiation and conflict management
• Customers understanding
• Customers management processes
People’s engagement • Brand identity
• Storytelling
Restaurant management • Organizational change
• Food and service quality and creativity
Social media management • Awareness about the characteristics and differences of social
media
Imitation • Recognition of best practices
• Implementation of best practices

4.3 What Organizational Competences Are Useful

to Effectively Manage the Digital Ecosystem

Table 2 reports the systematization of the interviews by showing the competences

that the interviewees explicitly or implicitly reveal as fundamental to effectively
exploit digital ecosystems for their business. We adopted the Gioia’s methodology
[34] to aggregate the competences in macro themes and aggregate dimensions. We
unified those competencies in 6 aggregate dimensions: communication, customers
management, people engagement, restaurants management, social media manage-
ment and imitation. Those dimensions allow us to understand which competencies
are relevant for the interviewees. Notably, digital and technological competences are
not perceived as relevant. Technological capabilities are left to more IT-specialist
people, since managers do not need to know how to use the technology, but they
would benefit from greater understanding of how it can be used and what can be
achieved.
Communication

Respondents consider communication as a core competence to effectively communi-

cate with users in a digital ecosystem. Restaurants owners and managers mainly focus
their attention on language coherency and message efficacy. Language coherency
refers to the attention that the interviewees pay to the use of different communi-
cation style accordingly to the social media used, the content of the message and
the customers that have to receive the message. For example, the use of LinkedIn is
related to a formal communication, it mainly reaches professionals and could be used
for posting CSR initiatives or to promote the brand identity of the restaurant. Face-
book, on the other hand, is used for a more informal communication, to promote new
menus or promotional deals. Moreover, different social media and different language
280 C. Dossena and F. Mochi

styles allow a different use of jokes, slogans and photos. The language style depends
also on the type of restaurant, an elegant restaurant usually adopts a more formal
communication, while a fast food relies on informal one. Respondents also high-
light the importance of effective message by giving examples of the qualities that a
message must have such as clarity, linearity, sincerity and transparency as well as
charisma and surprise. Moreover, the message must contain valuable information for
the customers.
The message posted on social media has to be simple and clear, brief and strict to the point
in order to be easily comprehensible from everyone
It is better to write sincere messages, to show transparency and thus avoid possible critics

Customers management

The second set of competencies that the interviewees identified are related to
customers management. They highlight the relevance to have negotiation compe-
tencies in order to resolve conflicts smoothly, to understand the customers’ needs
and preferences and to engage in customers management processes also using CRM
software. In particular, in negotiation and conflict management interviewees mainly
focus on the ability to detect fake comments and reviews posted on their social media
pages and the ability to answer in a polite way but at the same time discrediting the
fake reviews, thus sometimes obtaining visibility and competitive advantage.
People’s engagement

Some respondents have focused on the competence of being able to engage people.
In order to engage potential customers, it is essential to know the restaurant strengths
and promote them. Managers need to build a strong brand identity to be recognizable
and different from others. Furthermore, building a strong identity helps to engage and
retain employees and promote a strong organizational culture. Lastly, there is nothing
such as a good story to engage people and to obtain their attention, and our results
show that promoting a good story about the restaurant and practicing storytelling is
a competence that is valued by some of the respondents.
Restaurant management

Managing a restaurant comprises a lot of competencies and the overcome of frequent

problems or unexpected events. However, social media could help to manage restau-
rants and to promote internal change too. The interviewees, although only few of
them, show that social media could be a useful tool to promote organizational change
and improve food and service quality and creativity. Customers’ comments and
reviews work as a check of the customers’ evaluation of quality and can thus reveal
if something went wrong during a specific day, thus promoting a constructive change
in the work processes or in the plates offered. Furthermore, the wide competition that
restaurants are facing due to the spread of social media reviews, are an incentive to
improve not only the quality of food and service but also the aesthetic presentation
of the plates and the creativity and innovation of the product.
Organizational Capabilities for Social Media Management … 281

Social media management

As previously argued, some restaurants managers declare to rely on external social

media managers or social media agency, while others internalize the management of
digital ecosystems. However, when social media are used to improve competencies
such as negotiation management, organizational change management, creativity and
innovation, they are mainly managed internally in the organizational boundaries. The
majority of restaurant managers is aware of the necessity to use digital platforms in
different ways depending on the platform itself, and on the purpose and content to
share. Some of them are also aware that there are tricks that can be used in order to
increase the visibility of posts, such as posting on certain day hours or carefully plan
the frequency of a new post. Lastly, they are aware about the need to have coherency
of information among every social media page they owned and the website as well,
however due to time restriction this is not easily implemented.
Imitation

Lastly, there is one interviewee that declares to not be obsessed with digital and
social media competencies, because the relevant and first competence to own is to
understand who are the best players on the market and their social media strategies
in order to imitate them.
I only need to recognize which are the best practices in dealing with social media platforms
from other restaurants that seem effective in using them. Once I have understood those best
practices I simply try to replicate them on my social media

5 Conclusions

Theoretical and managerial implications

Our study leads to some relevant theoretical and managerial implications. Firstly, our
study gives an original interpretation of the web, recognized as a digital ecosystem
where organizations, users and firms’ stakeholders virtually meet, influence each
other and co-evolve. Secondly, the present work focuses on the food and beverage
service sector, that is still insufficiently investigated [8, 17]. In particular, we inves-
tigate how restaurant managers perceive and approach to the digital ecosystem, how
they manage social media, and what organizational competences are useful to effec-
tively manage the digital ecosystem. It is an attempt to investigate the competen-
cies that seem more relevant for effectively dealing with social media in the food
and beverage sector thus enriching both social media literature and hospitality one.
Moreover, the research aims at contributing to the digital ecosystems’ literature, the
e-HRM literature and the IS literature. The study also offers some relevant managerial
implications for practitioners regarding how restaurant managers concretely manage
digital ecosystem in day-by-day activities and what organizational competences a
282 C. Dossena and F. Mochi

restaurant manager should have according to how social media can be used and what
organizational purposes can be achieved. An interesting result is that some restaurant
managers use social media as a knowledge source for improving their offer and their
processes. From this perspective, restaurants could reinterpret digital capabilities as
a tool for continuously explore and exploit external knowledge shared within online
community. The social media are thus a tool that allow knowledge sharing and that
promote the transformation of organizational processes. Lastly, in this contribution
we try to give some managerial suggestions on how to deal with e-WOM and repu-
tation issues, e.g. how to write an effective message and how to manage and reply to
negative reviews. Social media can show competitors best practices in dealing with
negative reviews that can be imitated by other restaurants thus sharing knowledge
about problem solving competencies and negotiation abilities.
Limitations and future research

The research has some limitations, first of all the sample is still small, and a future
research can continue the data gathering for enriching the explorative study. The
sample is also composed by restaurant in the same Italian city. This criterium was
chosen in order to be able to compare the restaurants, however, future research can
replicate the study in other cities or Countries. Furthermore, there is the chance
of auto-selection bias of the sample of the second semi structured interviews. The
sample is indeed composed by a subgroup of the first sample that agree to further
investigate the use and perceptions of social media in the food and service sector.
Furthermore, the comparison with other Countries could reveal different approaches
in managing the digital ecosystems.
Lastly, a longitudinal investigation could be useful in order to understand if with
time and practices the restaurant managers and owners acquire new competences and
change their perception about the use of social media for their businesses.

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Achieving Trust, Relational Governance
and Innovation in Information
Technology Outsourcing Through Digital
Collaboration

Giovanni Vaia, William DeLone, Daria Arkhipova, and Anna Moretti

Abstract Through an explorative case study, this paper provides insights on how the
adoption of a digital collaboration tool (i) can create a more trust-based relationship
between ITO client and suppliers, and (ii) can foster collaborative relationships that
result in both operational and strategic innovation outcomes. Our case study is based
on an ITO project developed by Infocert, the first Certification Authority in Italy,
having issued and managed more than 4,500,000 qualified certificates of digital
signature. Our findings show how digital collaboration can affect trust before and
during the engagement phase of the IT outsourcing process. The digital media tool
increased communication flexibility and supported temporary relationships based
on explicit rather than implicit agreements. This case, therefore, highlights how the
use of a digital collaboration tool can change relational governance in a short time
frame as trust among client and suppliers switched swiftly from affective attitudes
to a more objective relations based on competencies.

Keywords IT outsourcing · Outsourcing governance · Trust · Digital

collaboration · Operational innovation · Business process innovation · Strategic
innovation

G. Vaia (B) · D. Arkhipova · A. Moretti

Ca’ Foscari University of Venice, San Giobbe 873, Cannaregio, 30121 Venice, Italy
e-mail: g.vaia@unive.it; giovanni.vaia@gmail.com
D. Arkhipova
e-mail: daria.arkhipova@unive.it
A. Moretti
e-mail: anna.moretti@unive.it
W. DeLone
American University, 4400 Massachusetts Ave NW, Washington, DC, USA
e-mail: wdelone@american.edu

© The Editor(s) (if applicable) and The Author(s), under exclusive license to Springer 285
Nature Switzerland AG 2020
R. Agrifoglio et al. (eds.), Digital Business Transformation, Lecture Notes in Information
Systems and Organisation 38, https://doi.org/10.1007/978-3-030-47355-6_19
286 G. Vaia et al.

1 Introduction

In an economy increasingly characterized by dispersed production networks and

disintegrated supply chains, firms are gradually turning to outsourcing relation-
ships for an increasing number of steps in their value creation processes. How to
manage and govern the resulting thick network of outsourced relations is now a key
factor for achieving competitive advantage. This phenomenon, from the beginning
of the century, has had a great boost from Internet that offered an immense oppor-
tunity for selecting and interacting with suppliers. In recent years, e-procurement
systems increased in popularity and firms started to extend their adoption also to
other areas—including IT purchases, with a specific focus on the partners’ selec-
tion process [1]. The literature has explored how the adoption of online systems to
select IT suppliers had an impact on firms’ competitive advantage and cost reduction
strategies. It is important to highlight that e-procurement systems are now evolving
towards more integrated management and governance systems for outsourcing rela-
tionships. Digital collaboration tools are able to assist managers along all the phases
of the value creation process, beyond the initial step of supplier selection.
Understanding how the adoption of such collaborative systems, which enable
virtual interaction between client and suppliers, may have an impact on personal and
inter-firm relations is an important and growing area of research interest [2]. With
this paper, we aim to advance our knowledge of this impact by explicitly focusing
on relational governance and on trust within IT outsourcing relationships supported
by digital collaboration tools.
In recent decades, the literature on information technology outsourcing (ITO) has
progressed significantly: scholars have examined several aspects of this phenomenon,
from the motivations behind outsourcing decisions, through to their consequences
and strategic implications for management and governance [3]. The governance of
inter-organizational relationships has been identified, among others, as one of the
main issues firms have to tackle in order to reach superior ITO outcomes [3], and
it has been found that the inter-organizational relationships can make the difference
between a successful versus an unprofitable ITO deal.
This paper contributes to the field by reporting on an exploratory case study
that analyzes how the adoption of a digital collaboration tool influenced trust and
the effectiveness of relational governance in an IT outsourcing relationship. This
research was guided by two main research questions: (1) how the adoption of a
digital collaboration tool affects the development of trust, as a component of relational
governance, in ITO relationships, and (2) how the adoption of a digital collaboration
tool and improved trust and relational governance potentially affect the achievement
of performance outcomes?
The paper is organized as follows: the next section reviews the relevant literature;
the third section presents the case methodology; the fourth section reports the data
analysis and findings; the fifth section discusses the results, the sixth section presents
limitations and future research opportunities and the last section summarizes our
conclusions.
Achieving Trust, Relational Governance and Innovation … 287

2 Theoretical Background: Relational Governance

and Virtuality

The governance of inter-organizational relationships has been identified as one of the

main issue firms have to tackle in order to reach superior outcomes in IT outsourcing
projects [3]. The literature has traditionally identified two main approaches to ITO
governance [4]: contractual and relational governance. While the concept of gover-
nance, indeed, is predominantly framed in the ITO literature within a transaction
cost approach [5], studies on relational mechanisms have emerged and informed
governance research in the last decade in response to more dynamic environment
and business relations [6]. The concept of relational governance is reported here as
“the role of the enforcement of obligations, promises, and expectations that occur
through trust and social identification” [7, p. 121].
The literature is mostly aligned in stating that the two are complements rather
than substitutes, and specifically that contractual governance needs to be oppor-
tunely sustained by the development of collaborative relationships between client
and supplier [7–9]. Commitment, mutual dependence, trust and relational norms
play a significant role in the maintenance of exchange relationships among firms,
especially in the context of IT outsourcing [10]. In fact, successful management of an
outsourcing relationship today requires a highly interactive, flexible relation between
two organizations.
Today, this area of investigation needs to confront the fact that social processes
and means of interaction, including IT outsourcing deals, are becoming more and
more virtual, due to the prevalent use of digital collaboration tools. The shift from
conventional to new virtual organizational forms, supported by advances in informa-
tion and communication technologies such as smart mobile devices, social media, the
internet of things, etc. (today labeled “digital media”), has resulted in new questions
about relationships developed both within a company’s boundaries and with external
actors, where the concept of “virtual” implies permeable interfaces and boundaries.
Global virtual team research was a useful guide for our study [7, 9].
Virtual work, decomposed into different ontological forms of companies, groups
or networks, has produced more flexibility and favored temporary and fluid relation-
ships based on explicit agreements. Virtual organizations have been shown to improve
resource utilization, support better quality products and services, strengthen manage-
rial control, and lower costs [11]. However, there are some difficulties that can inhibit
the switching from conventional to virtual forms, which have been studied by the
literature [12. p. 791]: “such dysfunctions as low individual commitment, role over-
load, role ambiguity, absenteeism, and social loafing may be exaggerated in a virtual
context”. Social relations, naturally, are affected by these means with an impact on
mechanism of coordination and management of business relation. Trust is one of the
most powerful mechanisms within the general concept of relational governance and
scholars are paying more and more attention how this “tool” is affected by virtuality.
According to Handy [13], the question is whether virtual work can function effec-
tively in the absence of frequent face-to-face interaction, given that “trust needs
288 G. Vaia et al.

touch” [13, p. 46]. Also that literature shows how trust is still a critical element that
characterizes successful projects. Jarvenpaa and Leidner [14] consider trust as “piv-
otal” in a global virtual team to reduce the high levels of uncertainty endemic to the
global and technologically based environment. This problem is amplified in ITO rela-
tions often developed on the basis of opportunism. If trust is identified as fundamental
for successful virtual interactions, no studies—to our knowledge—have investigated
if a virtual environment may help in sustaining trust development between parties
during the complex context of the partners’ selection phase.
In this research, we conduct an exploratory case study on the adoption of a digital
media tool to govern ITO processes, in order to contribute to the theory in this domain.
In particular, through our empirical investigation, we propose an inductive study on
the impact of a digital media tool on ITO relational governance, focusing on trust as
the most relevant dimension for virtual environments.

3 Methodology

3.1 The Empirical Setting

Our case study is based on an ITO project developed by Infocert, the first Certifi-
cation Authority in Italy, having issued and managed more than 4,500,000 qualified
certificates of digital signature. Infocert, started its business in 2007, and with 30 M
euros in revenues and roughly 150 employees, is a market leader for services like
electronic archiving and long-term storage, registered e-mail. Infocert designs and
implements IT solutions for document dematerialization. The company has clients in
several industrial sectors such as: banking, insurance, pharmaceutics, manufacturing,
energy, utilities, retail trade, environment, quality, security, healthcare, government,
trade associations and professional associations. The core business of the company is
represented by delivering projects and complex solutions on paper dematerialization,
where they have at competitive advantage.
Infocert’s business is largely based on technology exploitation in the collaboration
with its technology suppliers. Since 2007 Infocert’s technology suppliers have been
quite stable.1
In the first semester of 2012, Infocert decided to strengthen its strategic approach to
ITO, and in July set up a 6-month project with the aim of restructuring the outsourcing
lifecycle. The main goals of the project were to: standardize contracting and cate-
gories of outsourced services; improve the selection and monitoring of suppliers;
design a workflow for authorizations and document management; define clear criteria

1 During interviews, people reported that the number of suppliers ranged from 30 to 50, and over time

the rotation rate is roughly 10%. 10 suppliers are tagged as partners because are more proactive and
they share business goals and priorities with Infocert: “A partner is an external company with whom
I can share business intents, continuously, where everything is synchronized and fluid” (Infocert’s
Chief Information Officer).
Achieving Trust, Relational Governance and Innovation … 289

for negotiation and organizational levels to be involved. Results expected from the
project were a reduction of time spent in the whole process of about 30% and a cost
saving of about 15%.
In fact, Infocert’s ITO practices, at that time, could be characterized as follows:
• lacking a sourcing strategy;
• low use of advanced negotiation techniques;
• lacking Key Performance Indicators (KPIs) and supplier evaluation methods;
• lacking Service Level Agreements (SLAs);
• high transaction costs, due to the high effort required both to find the best supplier
for specific services, and to start and manage long negotiation processes; and
• lacking a structured outsourcing workflow with clear responsibilities, roles, and
goals.
Moreover, one of the main challenges faced by Infocert that motivated the decision
to restructure the outsourcing process was the loss of information and transparency
during the outsourcing lifecycle because 70% of the outsourcing activities occurred
outside the procurement office. Infocert noticed that ITO relationships were managed
mostly outside formal protocol and developed instead through informal interactions,
as is prevalent in the Italian business environment, causing communication and trust
problems).
The company started the outsourcing improvement project on November 2012
with the introduction of a digital collaboration tool for the management of supplier
engagement, evaluation and monitoring. By means of the tool they wanted to achieve
three distinct objectives:
• a more transparent process of information gathering about supplier rankings
from internal and external sources (for example, decision makers and influencer
communities);
• a better selection of suppliers through a self-application procedure, in order to
have the best match between competences needed by Infocert and offered by the
supplier;
• a strong collaborative relationship with suppliers during the early stage of service
design (through a flexible definition of the Request for Proposals, namely the
purpose of the bid in terms of products and services), in order to achieve superior
outsourcing outcomes.
The digital collaboration tool was designed to manage the internal workflow, the
process of scouting and ranking of suppliers, the supply specification and the eval-
uation of suppliers. The final digital collaboration solution was selected and imple-
mented by the end of 2012: it included all functionalities of social collaboration like
members’ profiles (to find and discover expertise), forums, activities (to view, manage
and organize tasks and tap into the professional network), files (to share documents,
presentations and other files with colleagues), etc. The tool enabled the involvement
of suppliers on the basis of a self-application and, for each tender, it created a new
collaboration environment where suppliers and Infocert could exchange information.
290 G. Vaia et al.

Our research observation began with the first ITO project that used the new digital
collaboration tool described above. The ITO project was started by Infocert to select
the supplier for a data storage.

3.2 Data Collection

The consideration of process-related and contextual features and the need to explore
an under-investigated area of research, and in particular the relationships between
different areas of investigation, called for exploratory and inductive research by
means of a case study [15, 16].
We followed Lincoln and Guba’s [17] guidelines for “purposeful sampling” in
choosing our informants. We initially selected interviewees from both Infocert and
the competing suppliers who actively participated in the bid process, and who would
be qualified to answer our main research questions concerning how the adoption of a
digital media tool influenced ITO relationships and performance outcomes. We next
used a snowball technique, asking each informant for his or her recommendations
as to who could best explain our topics of interest.
We made 19 interviews to key participants from both the client and the supplier
side (four suppliers, none of them was among Infocert’s “partners”, namely suppliers
with a long-term relationship with the client—see footnote 1) of the relationships, in
three different rounds of interviews developed across three years—2013, 2014, and
2015.
More than 20 h of interviews were carried out by the authors individually and in
various combinations, involving the IT Manager, Purchasing Manager and individ-
uals directly involved in ITO decisions on the buyer side, and the managers respon-
sible for the tender on the supplier side. Additionally, we collected archival data
regarding all ITO-project documents (initial request by the client, first offers by
suppliers, modifications and updates, up until the final winning offer), and chat logs
from the digital media platform (recording all the interactions between client and
suppliers, and between the client-firm’s members who took part in the ITO decision).
We recorded and took notes during interviews, and in those instances where data was
inconsistent we developed a new round of interviews.
Inconsistencies have been specifically confronted and resolved through triangu-
lation with archival data, and in some cases, they have been considered indicative
of different perspectives and used to better explain the very nature of supplier-buyer
relationships.
Given our main research questions, we focused our interview structure on the
governance of the relationship between Infocert and suppliers and on related ITO
outcomes. We asked our informants how the relationship was managed and devel-
oped, exploring in particular the use of relational governance. We investigated how
the digital tool affected trust, explicitly highlighting the differences between virtual
and traditional settings, and we tried to understand if our informants perceived that
the use of the digital tool also affected the ITO outcomes.
Achieving Trust, Relational Governance and Innovation … 291

4 Analysis and Findings

In the analysis of our data we adhered closely to the guidelines of Gioia’s method-
ology [18], recognized and accepted as a coding procedure, following a three-step
process: (i) recording emergent first-order concepts; (ii) identifying second-order
themes; (iii) defining aggregate dimensions. This methodology for qualitative anal-
ysis has been developed with the explicit aim of making the process of analysis more
transparent and rigorous. The methodology, in fact, makes researchers present explic-
itly the connection between evidence (raw data) and derived theoretical constructs
used for theorization processes. Thus, following the procedure:
1. We started our analysis by identifying initial concepts in the data (open coding).
With the progress of data coding, we started searching for similarities in order
to reduce the number of emerging categories. In this first phase we used in vivo
codes in order to adhere faithfully to informant terms whenever possible, or a
short descriptive phrase when an in vivo code was not available.
2. Then we started the second-order analysis, confronting our first-order codes
with researcher-centric concepts, themes, and dimensions. In this second phase
we assembled similar codes into several overarching dimensions, which we
then compared with those from our theoretical background in order to discover
whether they had adequate theoretical referents in the existing literature.
3. From this comparison, we extracted our final aggregate dimensions, which
constitute the core of our results.
The final data structure [18] is illustrated in Fig. 1, which summarizes the process
and highlights how we derived the final aggregate dimensions from the first-order
concepts.
As presented in our data structure (Fig. 1), the results of our analysis highlight
four aggregate dimensions: (1) Relational Governance, (2) Trust, (3) Collaboration,
and (4) Innovation in ITO.

Relational Governance Relational governance has been described in our data-

structure as composed by two second-order themes: (i) objectives alignment and
(ii) social relationships. Our data highlight that the two main issues that the ITO
participants had to face were (1) to align their (conflicting) goals and (2) to manage
social relationships between employees from different companies in a completely
different, virtual environment. The main mechanism at work to govern these two
challenges was trust, as we present at the following section.

The challenge of objectives alignment was solved mainly through relational mech-
anisms: all suppliers, in fact, describe their interactions with the client as character-
ized by a relevant process of sharing goals, since client and suppliers started working
together to reach the best solution, thus strongly based on cooperation and reciprocity.
We shared common business objectives. (Client—IT Manager)
Interactions were developed through dialogue. (Supplier 3—Bid Manager)
292 G. Vaia et al.

Fig. 1 Data structure—impacts of the digital tool

Even though the engagement process was developed virtually (through the digital
tool), it also allowed for the building of personal ties among the employees of both
the client and the suppliers. Human relationships were fostered by the initial virtual
interaction, and the cooperative attitude was the trigger for developing or reinforcing
valuable personal relationships.
The technical level of interactions developed through the digital tool generated
also a lot of curiosity by the client, that maybe thought “these guys know the subject
very well, they made a very interesting question, a good proposal, …” and thus
pushed the parties to a constructive dialogue. It gave birth to a professional, but also
personal relationship. (Supplier 1—CEO)
The value was in the relationship. (Supplier 2—Bid Manager)
The relationship with the client, also from the personal point of view, has been
reinforced. (Supplier 3—Bid Manager)

Trust The aggregate dimension of trust is composed by two second-order themes

regarding two distinct aspects of trust already identified in the literature: (i) personal
trust and (ii) competence-based trust. Weeks and Feeny [3] define personal trust as
the confidence one has that another person will work for the good of the relationship
based on their integrity and adherence to moral norms, whereas competence-based
trust exists when one party has confidence that the other will successfully deliver their
Achieving Trust, Relational Governance and Innovation … 293

allocated tasks and responsibilities (successful completion of projects and achieve-

ment of joint goals will enhance competence-based trust, while operational failures
will degrade it).

As pointed out above, trust emerged as the main mechanism of relational gover-
nance that was at work during the ITO process. Our results show how, during the
ITO process, all persons involved developed a personal trust in client-supplier rela-
tionships. Our informants talked about involvement, reciprocity, and continuity in
describing the relationship created with the client. Additionally, our data demon-
strates the development of competence-based trust, describing trustful relationships
based on the mutual recognition of others’ competences. Suppliers felt that the client
was willing to evaluate different solutions, basing its evaluation only on meritocratic
aspects. Cooperation in designing the IT service was sustained and in turn sustained
the development of trust between client and suppliers.
As a result the client demonstrated a predisposition to grow and to avoid a
monolithic approach to only one supplier. (Supplier 1—CEO)
There was a constant process of sharing information and motivations of certain
choices. (Supplier 2—Bid Manager)
From the competence side, we could show that we were reliable and competent.
Our image has improved, since the platform allowed to break the prejudice clients
have always against new suppliers. (Supplier 3—Bid Manager)
The demand specialist and supplier managers reported that before the introduction
of the digital collaboration, the relationship with suppliers was managed on the
basis of personal relationships and outside formal lines of communication, a typical
impediment in Italian business relationships. Affective trust was the main element
through which the company based outsourcing relations with suppliers. This led to
a low transparency within the company, due to the negotiation carried out “behind
the scenes”, and it had a detrimental effect on the level of trust among colleagues.
This level of internal mistrust had one main detrimental consequence: the company
preferred to look for standard IT solutions to allow no personal interest into bids,
thus limiting innovation opportunities.
From the internal point of view, during the digital tender the procurement office
and the top management adopted a more active role and were more committed to the
demand specialists and other employees who were involved in the tender. Infocert’s
employees had the chance to demonstrate their competences and ideas about tech-
nology innovation and IT service innovation to their managers, thus increasing their
reputation. They also experienced an improvement in relational trust lowering the
detrimental effect of low transparency, through the direct management of suppliers.
We need to remain unbiased but we need flexibility i.e. sometimes we need to move
beyond the requirements that we have … and this tool gave us the chance to achieve
a balance between transparency and innovation (Client—Demand Manager)
294 G. Vaia et al.

After the tender, all the bid offers received by Infocert were nearly the initial
price set by the client. Nevertheless, the client judged the higher price to be “reason-
able.” The process of interaction created competence-based trust between client and
suppliers. As a result, through the interactions with suppliers, the procurement officer
realized the complexity of the design process, and that the technical offers and their
corresponding prices were aligned with other solutions available on the market. In
July 2013 they signed a standard (template) contract, with a negligible involvement
of the legal office, because of the relationship they built through the virtual platform:
Now the relational impact with the supplier during negotiation is less difficult. We
shared the entire process from the beginning and now I know the effort involved
in reaching a solution. The supplier does not allow a saving just to recognize my
role, as was done in the past, but we agree on the project and a future target.
(Client—Purchasing manager)

Digital Collaboration Process This aggregate dimension described the impact

played by the digital tool on collaboration during the ITO process and is charac-
terized by: (i) efficiency and (ii) communication effectiveness. The first theme high-
lights the cost and time savings resulting from the virtualization and digitalization of
ITO processes. All informants underscore the relevance of the digital collaboration
tool in allowing a faster, more fluid, and less costly interaction between client and
suppliers. Additionally, the digital tool was recognized to have also very important
effects on transparency allowing more information sharing, and an easier and flexible
way of interacting between actors of ITO processes.
The digital collaboration tool increased interactions’ transparency. (Client—
Service Manager)
Through the digital media tool, the boss can see how you carry out your job.
(Client—Purchasing Manager)
Functionalities are clear and well-documented. (Supplier 1—CEO)
Personal dialogue is always preferable, when available. However, when there is
the need for transparency, it is preferable such a solution. Questions and answers
are public, and thus all competitors are on the same starting grid. (Supplier
3—Bid Manager)

The transparency fostered by the use of the digital tool played a fundamental role
during the whole ITO process, both within the client company and between client
and suppliers. In fact, thanks to more traceable and open communication developed
through the digital collaboration tool, all the participants involved in the ITO process
were able to consolidate their social relationships. The internal transparency at Info-
cert was based on the clarity of the process through which a “winning” supplier
was selected. In particular, no doubts about the role and the legitimacy of selection
decision were raised, since all information and actions were traceable, documented
and justifiable. The external transparency characterized the exchange between client
and suppliers in the specification of clients’ requirements and expectations. In partic-
ular, all communications were traced and all requirements documents were posted.
Achieving Trust, Relational Governance and Innovation … 295

All stakeholders had the opportunity to ask for clarifications and to receive prompt
answers, thereby easing interactions and consolidating personal relationships.
The two dimensions of efficiency and sociality were highlighted during several
phases of the project. The “Request for Proposals” was continuously shaped and
improved by client and suppliers through interactions. Different cycles of improve-
ment took place, during which all actors involved could observe, participate and learn.
The tool facilitated a continuous evaluation process developed through the collection
of feedback from the internal communities-of-practice and the external communi-
ties of decisions makers. This continuous evaluation process also continued during
the delivery phase. This digitally supported process made it possible to discuss any
problems or doubts in real time, thus reducing the necessity to formalize every detail
in contractual agreements.

Firm Performance: Innovation Through ITO The second-order themes related

to this dimension are (i) Business Process Innovation, (ii) IT Operational Innovation,
and (iii) Strategic Innovation. During the interviews, we looked for potential impacts
on performance outcomes. We uncovered additional and un-proposed findings from
the interview data.

Analyzing and conceptualizing these data we used the three categories developed
by Weeks and Feeny [3] who positioned ITO innovation “as the introduction of
strategies, business processes, or technologies that are new to the relationship and
are intended and expected to lead to new business outcomes”. Authors define IT
Operational innovations as advances that involve technology changes like new oper-
ating systems or hardware, while Business Process innovations change the working
processes of the organization and, finally, Strategic innovations are those that change
product/service offerings or enable the company to enter new markets.
Here Business Process Innovation refers to the outsourcing process itself devel-
oped through the new digital collaboration tool. Indeed, our results show how docu-
ments and informants recognized a significant process innovation in the management
of outsourcing relationships through the tool. For example, the tender was conducted
in a completely new way, especially in the definition of requirements. The possibility
of posing questions to the client (and to see all the questions posed by the other
suppliers) and receiving quick feedback on the first drafts of proposals was deemed
by informants to be a significant business process innovation.
Strongly linked to the process improvement outcome was IT Operational Inno-
vation. Infocert discussed with suppliers the physical segregation of two IT infras-
tructures—Datacenter and Certification Authority—and the types of backup and the
sizing of the repository. Through continuous interactions, suppliers proposed to the
client a new multi-tenant architecture, improved the security system, and the use of
the service through a new “single technology platform” This innovation in architec-
ture is able to handle heavier workloads than the previous solution and the database
uses only a fraction of the server hardware capacity.
Through continuous interactions the client understood what the available
solutions were. (Supplier 1—CEO)
296 G. Vaia et al.

The analysis of the initial Request for Proposals and the final service purchased by
the client, as well as the informants’ declarations, show how the IT service as initially
designed was significantly improved. In particular, the service was re-designed in a
collaborative way between the client and suppliers, and the resulting requirements
were considerably different. The result, in our informants’ opinion, was a more
efficient and cost effective IT architecture.
The information exchange that took place during the evaluation phase of technical
proposals had produced a final proposal of architectural modification relevant in
terms of operational innovation. (Client—IT manager)
The constructive dialogue with the supplier allowed us to introduce an incre-
mental innovation that, without this contribution, probably would have never
been implemented. (Client—Demand manager)
As reported by our informants, this improvement resulted in several benefits for
the client, including: (1) cost reduction in the long run (due the consolidation of
hardware and shared database memory and files, which reduced costs for hardware,
storage, availability, and labor); (2) easier and faster transfer of data and code; (3)
easier management and monitoring of the physical database; (4) simpler backup
strategies and disaster recovery; (5) secure separation of administrative duties; (6)
easier performance tuning process; and (7) fewer database patches and upgrades.
Additionally, two years after the conclusion of the tender, another important
outcome; namely, Strategic Innovation emerged. As a result, of the collaborative
procurement process and resulting competence-based trust, the client and one of the
suppliers (different from the firm winning the tender at that time) together developed
an innovative new commercial product. As reported by our informants, a strategic
innovation was jointly developed based on a new innovative business model. Focusing
on their respective core competences, which were discovered through interaction in
the virtual environment created for the tender process, the two firms discovered
a potential area for collaboration, and introduced a new information product to the
market. The client had the opportunity to study in depth the supplier’s sets of resources
and competences, thus launching a positive discussion and the emergence of new
and innovative ideas.
Since it was necessary to be very concise and incisive with our questions, we
tried to be very precise from the technical point of view. This, in turn, made the
client answer in a very precise way, to give answers that were at the level of the
questions posed. This generated a relationship that some time later allowed us to
develop together an innovative business model, going to the market in a completely
different way. We developed a common intermediation platform for managing
information for our business clients: and all of this was possible because we
both had the technology, and thus we were able to make our ideas real. (Supplier
3—CEO)
Based on these findings we discuss the primary contribution of our research in
the following section.
Achieving Trust, Relational Governance and Innovation … 297

5 Discussion

The analysis and findings of Infocert case study emphasizes the positive influence of
the digital collaborative media on trust as a component of relational governance and
more importantly on ITO firm performance, particularly operational and strategic
innovation outcomes.
In the Infocert case study the digital collaboration tool enabled relational gover-
nance during the ITO process and created a virtual environment that enhanced trust
between client and suppliers. In particular, collaborative relationships have been
developed on the basis of a competence-based trust, instead of an affective kind of
trust as found in the literature. In this case, governance of the relationship was not
focused on the level of trust between the parties. Jarvenpaa and Leidner [19], for
instance, highlight how trust in virtual teams can increase or decrease over time, and
then become a potential governance mechanism. In our study, the focus is on the type
of trust that makes the temporal dimension less important. As our analysis shows,
in fact, relational governance has been developed through a kind of trust that does
not require the development of interpersonal relationships, and thus significantly
reducing the necessary timeframe.
In line with Rai et al. [19] we noticed that the exchange of high quality information
and the use of effective communication tools are essential facilitators for process
integration and for building trustful relationships in collaboration agreements. The
process of trust development, in our case, followed a quite different path with respect
to ITO than found in non-digital settings. The bidding process lasted over 3 weeks
and led the team of client personnel and suppliers to cooperate and have an open
communication relying more on “cognitive” elements [20]. Meyerson et al. [20]
noticed that people working in a temporary system deal with each other in terms of
professional roles, instead of social relationships. In this context trust is conferred
ex ante. This is called swift trust [19, 21].
Early in the process, suppliers started to share information and ideas within the
tool to interpret the Request for Proposal and reshape its scope, i.e. the characteris-
tics of the outsourced IT service. Client and supplier personnel perceived reciprocal
professionalism and competencies and a willingness to share information in order
to complete the task in the best fashion. Nevertheless, the collaborative relation-
ship between suppliers and between client and supplier, was not based on interper-
sonal social relationships (personal/affective trust), as predicted by the ITO relational
governance literature and by common in Italian business relationships. In this case,
five (5) informants on the client side and four (4) persons from suppliers reported
changes in the type of trust before, during and after the virtual RFP. Trust shifted
from a pure relational base to a combination of competence and identification dimen-
sions. In the relationship between client and suppliers during the RFP process, parties
understood the problem to be solved and they supported each other. The environ-
ment in which internal employees and suppliers discussed the design of the service
(leaving out the discussion of contract terms) led to a mutual understanding of the
company’s objectives and processes. This is defined as identification based trust [22].
298 G. Vaia et al.

Moreover, inter-organizational coordination increases managerial complexities,

especially regarding aspects such as sharing information, developing a common
knowledge base, aligning risks and incentives, thus making it more difficult to exploit
innovation opportunities. The literature is mostly aligned in stating that it is not ITO in
itself that can ensure or negate innovation but rather identifies relational governance as
the main dimension that influences innovation [3]. Our empirical analysis shows that
the adoption of a digital collaboration tool to manage IT outsourcing relationships,
beyond the mere e-procurement system functionalities, can lead to innovation in ITO
through improved relational governance.
The outcome of the virtual design and negotiation processes has been a new inno-
vative and more effective architecture solution for the client (operational innovation).
The analysis of the initial Request for Proposals and the final service purchased by
the client, as well as the informants’ declarations, demonstrate how the client’s IT
services experienced significant improvements. The opportunity to pose questions
to the client (and the sharing of all questions posed by the other suppliers) and to
receive quick feedback on the first drafts of proposals was deemed by informants to
be a significant procurement business process and IT operational innovation.
Importantly, we discovered that, in the long run, the use of the digital tool for
governing interactions between client and suppliers during the procurement process
enabled the client and one of the suppliers to jointly develop a strategic innovation,
introducing to the market an innovative new information intermediation service.

6 Limitations and Future Research

There are limitations to this study that should be acknowledged. Our case study
focused primarily on the trust component of relational governance in an IT
outsourcing project, but not on other important components such as commitment,
relational norms, harmonious conflict resolution, mutual dependence [23]. Thus our
research does not provide insight as far as a comprehensive model of relational
governance in the ITO virtual relations in the different stages of the ITO lifecycle. A
second limitation regards the lack of analysis between the use of formal governance,
based on contracts, and relational governance, and the dynamic evolution between
them.
Future research should further study the relationship between digital collabo-
ration tools, trust and other relational governance dimensions and the impact on
firm performance outcomes, such as operational and strategic innovations, in IT
outsourcing context. Another interesting and important stream of research that could
be developed by future research regards the analysis of competitive and opportunistic
dynamics that can arise between suppliers, since the research here presented did not
explicitly tackled this point. This study has been influenced by the Italian context
where personal ties are critical to the development of business relationships, so ITO
governance is influenced by these cultural frames. Other studies should analyze the
Achieving Trust, Relational Governance and Innovation … 299

dynamics of governance in virtual ITO relations within different cultural business

environments.

7 Conclusions

Our findings show how digital collaboration can affect trust before and during the
engagement phase of the IT outsourcing process. The digital media tool increased
communication flexibility and supported temporary relationships based on explicit
rather than implicit agreements. This case, therefore, highlights how the use of a
digital collaboration tool can change relational governance in a short time frame
as trust among client and suppliers switched swiftly from affective attitudes to a
more objective relations based on competencies. Most importantly the trust and rela-
tional governance changes facilitated by digital collaboration resulted in significant
operational, business process and strategic innovations. These findings contribute to
our knowledge of the powerful impact that digital collaboration tools can have on
building competency-based trust relationships between clients and suppliers in ITO
that can produce operational and strategic innovations.

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In Vino Veritas? Blockchain Preliminary
Effects on Italian Wine SMEs

Roberta Cuel and Gabriella Maria Cangelosi

Abstract Transparency and traceability in the food industry have become two
central themes for both consumers and companies. On the one hand, consumer
awareness increases with more available in depth information, whilst food manu-
facturers try to mitigate food safety risks, reduce coordination costs and fraud by
improving their presence on the market. In this scenario, innovative technologies
and blockchain may have a major impact. The authors investigate the adoption of
blockchain in the Italian wine industry and, in particular, the effects of blockchain
on the complex inter-organizational supply chain systems SMEs are engaged in. A
qualitative approach was chosen to preliminary analyse the motivations driving small
Italian wineries to adopt blockchain technologies, and the advantages or drawbacks
managers identified during pilot experiments.

Keywords Blockchain · Supply chain · Traceability · Transparency ·

Certification · Wine industry

1 Introduction

In recent years, large organizations such as technology companies and financial

giants have invested heavily in blockchain-based technologies to radically transform
business applications and get considerable benefits. Blockchain would contribute
to the execution of secure business processes and the automation of transactions
between companies.
Blockchain technology can also be considered a huge opportunity for small and
medium organizations that do not have enough resources to invest in new technologies
and are thus often left behind when a technological leap forward occurs.

R. Cuel (B) · G. M. Cangelosi (B)

Department of Economics and Management, University of Trento, Via Inama, 5, 38122 Trento,
Italy
e-mail: roberta.cuel@unitn.it
G. M. Cangelosi
e-mail: cangelosigabriellam@gmail.com

© The Editor(s) (if applicable) and The Author(s), under exclusive license to Springer 301
Nature Switzerland AG 2020
R. Agrifoglio et al. (eds.), Digital Business Transformation, Lecture Notes in Information
Systems and Organisation 38, https://doi.org/10.1007/978-3-030-47355-6_20
302 R. Cuel and G. M. Cangelosi

According to some experts,1 SMEs can innovate and build an edge with blockchain
transformation by using blockchain-based services as well as creating their own apps
on top of blockchain such as decentralized apps, or DApps. SMEs can already use
different blockchain solutions. For instance, there are marketplaces for renting or
selling properties on blockchain-based P2P marketplaces (real estate); managing
claims (insurance); dealing with security (IoT), monitoring and tracking freight
movement (logistics), and ensuring food safety via IBM’s Food Trust Network to
link distributors, retailers, producers, and regulators in the food industry [1].
In this paper, the authors focus on SMEs in the Italian wine industry. These
companies represent 75–80% of the Italian production, which has a total turnover
of 13 billion Euros, with 310,000 companies involved and 46,000 wine-making
companies.2 In this scenario, innovative technologies and blockchain may have a
major impact that cannot be ignored: at present the impact is most evident on the
complex inter-organizational supply chain that SMEs manage and deal with.
A qualitative approach has been chosen in order to preliminary analyse the moti-
vations that drive small Italian wineries to improve their supply chain management
by applying blockchain technology [2]. The authors will also focus on the advantages
and drawbacks that managers identified during their pilot experiments.

2 Literature Review

The blockchain is a Distributed Ledger Technology (DLT), an unalterable database

of information related to each transaction carried out and shared between a network
of participants [3]. This technology is based on Disintermediation and Decentraliza-
tion principles, namely that data can be recorded, stored and updated in a distributed
manner by all network members [4]. This type of architecture allows actors to main-
tain and share records in a synchronized manner, ensuring their integrity via validation
protocols based on consensus and cryptographic signatures [5]. The governance is
based on a widespread and distributed system of mutual trust in which no actor can
prevail and where the decision process is built on consensus [6].

1 Blockchain Technology Applications for SMEs [Expert Roundup]—Written by Mindaugas on

September 17, 2018 and retrieved from https://blog.invoiceberry.com/2018/09/blockchain-techno
logy-applications-sme/.
2 Federvini—retrieved 10/8/2019 from https://www.federvini.it/studi-e-ricerche-cat/1273-ismea,-

fotografa-l-italia-del-vino-aumentano-produzione,-valore-ed-export-stabile-la-struttura.
In Vino Veritas? Blockchain Preliminary Effects … 303

2.1 Blockchain Based Supply Chain Principles

Blockchain is an integrative technology conceived with the aim of defragmenting

the supply chain through the synchronization of data recorded along the same. It can
be considered an integration of the existing information and legacy systems [7].
More specifically, each product is characterized by a processing cycle that involves
several actors. Each actor has a unique digital identity (provided by an accreditation
service) and the role of recording (tracking) all the key information regarding the
development processes of the product (or service) and its status within the network.
Each product is assigned to a digital identity using a specific tag (a barcode, RFID
or QR Code). This tag is a unique digital cryptographic identifier that connects the
physical good to its virtual identity on the network, enabling any actor to retrieve
all or any associated information. In order to protect the process from theft and
counterfeiting, blockchain involves the creation of a digital token associated with the
digital identity when the product/service is made or exchanged between the actors
in the supply chain [8]. The final product addressee can, therefore, authenticate the
token and follow the history of the article from its beginning [9]. When the product
is transferred (or sold) to another actor, both partners must sign a digital contract
to authenticate the exchange [10]. Once all the actors have signed the contract, the
details of the transaction will be stored. The actors’ privacy can be modified according
to the preferences of the subject involved: they can choose to remain anonymous,
but their identity must be authenticated by the certifiers who guarantee trust [8].
Thus the founding principles of the blockchain technology are:
• Transparency: each participant can view all recorded content at any time. This is
why blockchain is considered a reliable tool [11].
• Open source: the system is open to all participants as each registration can be
controlled publicly and everyone can freely use the technology to implement any
application [12].
• Autonomy: blockchain is a consensus-based system, open to all participating
players; it can be modified only once all members have given their approval. Using
blockchain, devices are able to interact with others without the involvement of a
server [13].
• Immutability: blockchain ensures absolute inalterability and incorruptibility of all
information. The only exception is the possession of 51% of the control of a node
[14].
• Anonymity: both the transfer of data and the individual transaction can be
anonymous, provided that the blockchain address of the person is known [12].

2.2 Governance and Blockchain Types

From a governance point of view, a blockchain can be permissioned or unpermis-

sioned. The permissioned, or authorized, option is the alternative evolution to the
304 R. Cuel and G. M. Cangelosi

unauthorized chain (one in which anyone can participate) [15]; examples are Bitcoin
and Ethereum [14]. In this case, transparency is only towards authorized participants,
which makes it difficult to process data that require some privacy [16]. Two types of
subjects can be distinguished:
• Participants who can only use the system and
• Validators who can use the system and hold a copy of the updated ledger. Validators
are responsible for the process of distributed consensus [17].
The unpermissioned blockchain does not require owners and allows all partic-
ipants to own a copy of the updated ledger. In this case, participants may also be
validators and are responsible for both the distributed consensus process and the
system integrity [18].
Three types of blockchain are classified, namely Public, Consortium and Private,
and affect [7]:
• Consensus: the consensus determination is gradual, passing from public, to
consortium and finally private. Everyone, in fact, can take part in the public
blockchain; in the consortium only a small group of nodes is responsible for the
validation of the block; in the private, the chain is entirely controlled by a single
organization that can define the final consensus. Moreover, a public blockchain is
an example of an unauthorized chain; the other two cases, however, are models
of permissioned blockchain [7].
• Transparency: blockchain transactions are entirely visible in the public, but this
visibility tends to fade when changing to the consortium and then to the private.
• Immutability: from the point of view of immutability, in the public blockchain
transactions are much more complex to manipulate since the number of partici-
pants who store the records is greater: the same information in a private or in a
consortium system might be easily tampered with.
The main difference between the three blockchain types is that the public is totally
decentralized, the consortium is partially decentralized and the private is completely
centralized and controlled by a single node.

3 The Italian Wine Supply Chain with the Use

of Blockchain

Various experiments have been conducted in Italy to introduce blockchain technolo-

gies into the agro-food industry and winery sector. Among others, the main goals of
these trials are to tackle problems of wine counterfeiting, guarantee the wine origins,
certify the product by providing the bottles of wine with a unique identity, track and
trace the wine production along the entire supply chain, and to exploit technology
innovations when conducting marketing campaigns.
In Vino Veritas? Blockchain Preliminary Effects … 305

3.1 Italian Wine Industry and Innovation

In a fast changing market, expectations and consumption dynamics change even

when the reference industry is typically traditional as is the case of the wine sector.
Diverse technologies have been introduced in various stages of the production from
the cultivation of grapes (harvesting and destemming) to the vinification process
(crushing, primary fermentation, cold stabilization, laboratory tests, blending and
fining), bottling, marketing, and to the distribution of the final product. These tech-
nologies are being implemented to create added value without diminishing the quality
that distinguishes Italian wine around the world. Research in 2017 by the Cisco
and Digital Transformation Institute showed that the Italian wine industry’s prin-
ciple investments in innovation took place downstream of the supply chain [19]. At
present, 77.3% of Italian wineries have not invested in ICT technologies nor spent
up to e5000 the last five years. Of the remaining 22.7% that invested more than
e5000 about half (49%) is represented by the largest companies. The technologies
that are most affecting the wine sector are mainly related to management and busi-
ness management (74%), traceability (57%) and the transmission of information in
electronic forms (53%) [20].

3.2 Blockchain in the Wine Supply Chain: How Does It

Work?

Ideally, since the wine supply chain commences with the vineyards, the winegrowers
should generate the first block in the chain (Fig. 1). This block is checked by the
majority number of miners in the system before the next block is created. All the

Fig. 1 Blockchain in the wine supply chain (authors’ elaboration)

306 R. Cuel and G. M. Cangelosi

participants in the chain receive an identification code and a batch number indicating
the quantity supplied by the wine producer. In the same way, the producer puts all his
recorded information in a further block and shares it with all the other participants.
Subsequently, the block is checked again and added to the chain. The procedure is
repeated until the final participant. In some cases information shared could be critical
and kept private, taking advantage of the cryptography keys that the technology
provides [21].
One of the main features of the proposed traceability system is the possibility
of tracing the origin of each individual bottle of wine. The consumer can trace the
complete flow of data and related information by scanning a tag, e.g. a QR code,
placed on the bottle label.

4 Hypothesis, Research Method and Sample of Analysis

The purpose of this study is to investigate the impact of blockchain technology in

the Italian wine sector. Through ethnographic interviews conducted on a sample
of companies, the authors explore both the benefits and limitations perceived by
developers and managers in pilot experiments where blockchain technology was
adopted to certify, track and trace the agro-food supply chain.
Two hypothesis are analysed:
• H1: blockchain technology allows effective and efficient control of inter-
organizational business processes and the supply chain flow.
• H2: blockchain technology it is a transparency vehicle, both inside the company
and in the relationship between the firm and the final consumer.
An exploratory and comparative survey was carried out by means of semi-
structured qualitative interviews with eight managers who were involved in the pilot
projects. In order to obtain a complete scenario, the authors also interviewed two
representatives of companies that develop and resell blockchain technology in the
agro-food sector.
The authors adopted the inductive “emergent” method where results derive from
the observation, analysis and comparison of empirical evidence, and particular mani-
festations of the companies’ experiences, facts and circumstances in the considered
context. A research model inspired by the Grounded Theory was adopted as the
main reference in the analysis of the text (coding). Through interviews focused on
coding, categories and subcategories were defined, compared during the analysis of
the interviews, and grouped into theme sets. The authors developed the latter through
a thorough reading of the interviews and examining long pieces of the reported texts.
The categories considered most important were used to explain the macro-themes
and the sub-themes identified. Using NVivo software, the categories are represented
by the nodes and the subcategories by the child nodes.
The sample of analysis contains SMEs operating in the Italian wine industry.
The authors contacted all the companies that are presently investing in technology
In Vino Veritas? Blockchain Preliminary Effects … 307

Table 1 “Sample
Respondent Position Project Project owner
respondents” features
(personal elaboration) Respondent 1 Co-owner MyStory DNV GL
Respondent 2 Biologist Wine EY
blockchain EY
Respondent 3 Export Wine EY
manager blockchain EY
Respondent 4 Owner eNology MIPAAFT
Respondent 5 Quality MyStory DNV GL
manager
Respondent 6 Quality MyStory DNV GL
manager
Respondent 7 Owner eNology MIPAAFT
Respondent 8 Owner eNology MIPAAFT

and adopting a supply chain system based on blockchain, but only seven answered
and were available for further contact and interviews. To obtain complete explo-
rative information, individuals with different organizational roles were interviewed
(Table 1). The companies joined three different pilot projects aimed at experimenting
with blockchain technology to track, trace and certify products. Three out of the
seven companies are part of DNV GL, one of the most important certification
authorities in Europe in the agro-food industry. One of the companies has joined
the Ernst and Young project in collaboration with the start-up technology devel-
oper, EZ lab. Three companies have been involved in the testing program supported
by the Italian Ministry of Agriculture and Forestry (MIPAAFT), in collaboration
with Almaviva (a developer), SIAN (National Agricultural Information System) and
AGEA (Agricultural Supplies Agency).

5 Result of Analysis

From an in-depth reading of the interviews, the authors identified 11 categories and
15 sub-categories. The coded nodes emerged from the most recurrent, sometimes
implicit, issues discussed during the interviews. Although a detail-oriented analysis
was carried out, the degree of abstraction of the conceptualization is quite high.
Using NVivo coding, macro-themes were distinguished from sub-themes (Table 2).
The purpose of the aforementioned subdivision between nodes and sub-nodes is to
clarify the multiple facets of each of the 12 themes that emerged. In the following
sub-paragraphs, the authors comment on each of them, once grouped by identifying
the boundary objects between each of them.
308 R. Cuel and G. M. Cangelosi

Table 2 Groups of macro-themes and sub-themes (authors’ elaboration)

Groups Macro-themes Sub-themes
Group 1 1. Certification Quality and sustainability; role of the certification body; role of
the blockchain
2. Transparency Company—consumer relationship
3. Traceability Tracing
Group 2 4. Communication Reputation and image
5. Strategy
6. Processes Supply chain management
Group 3 7. Collaboration Complexity
8. Safety Trust; inalterability of the data; privacy; regulation
9. Territorial
identity
Group 4 10. Training Skills; required roles
11. Dissemination

5.1 Group 1: Certification, Transparency and Traceability

All the respondents consider essential the registration in the blockchain of only the
information validated a priori by a certification body. In their opinion, being certified
by a third body protects the company from its own responsibility but also protects
the consumers.
[…] there is an impartial entity that testifies, guaranteeing that this data is true. I pay the
certification body to attest that my work meets the requirements of the standard for which I
certify my work. […] The certification body acts as my guarantor by promoting its brand.
[Respondent 5].

This consideration calls into question the usefulness of blockchain technology as

an autonomous and independent certification system in the agro-food supply chain.
It is not clear to the interviewees what differences there are between the operation
needed for traditional certification and that of the blockchain. In other words, the
procedure for blockchain seems almost repetitive.
All this, however, is already done by certification bodies that check me step by step in this
process […] So it makes no sense to do it twice also because […] with the blockchain no one
is verifying your data; you are the one who in good faith decides to load it into blockchain
and then make it unchangeable. [Respondent 1].

With regard to the issue of transparency, two very interesting aspects emerge from
the analysis: the desire to be completely frank and transparent with the consumers
and win him over or allow the consumer himself to easily understand the product
he/she is buying. In the first case, the blockchain is seen as a tool that can be used to
enhance the reputable image of the company. In the second, the reflection shifts to the
opportunity to offer consumers more information and a more interactive, engaging
In Vino Veritas? Blockchain Preliminary Effects … 309

and aware approach in evaluating the products he/she is purchasing. One of the
respondents defined this as “consumer empowerment”.
The topic is, as always, consumer empowerment. Do consumers freely choose the product?
Are their choices dominated by brands, distribution channels or industries? The blockchain
gives power to the consumer and we like it because consumers are able to acquire more
information than other certification mechanisms. These latter are usually find on the product
labels, but it is not clear what value they give the consumers. [Respondent 3].

As regard tracing, certifying the supply chain also means offering the consumer
the instruments to go back over the supply chain, even to the raw material. Equal
importance is given to both the traceability and the product certification profiles. This
is because if there were a problem with the quality/composition/state of the product,
it would be crucial to trace it back to its origin. For example, with blockchain, it
would be easier to identify a damaged batch number, thus avoiding an enormous
waste of resources on the part of the company.
[…] the person knows where that bottle comes from, otherwise he would only know that it
has been certified, namely that it satisfies the certification requirements. [Respondent 7].

5.2 Group 2: Communication, Strategy, and Processes

The internal motivations that drove managers to join the pilot experiments were codi-
fied into the following categories: “Communication”, “Strategy”, and “Processes”.
As for the first node, the authors returned to discuss the relationship between
company and consumer, recalling the previous “Transparency” category. The trans-
parency principle represents the first boundary object between the first two groups of
nodes. However, due to the short term of involvement in the pilot project, the compa-
nies did not fully discern the effects of the blockchain on consumer engagements.
In fact, while the information about values, history and certifications transmitted is
considered a guarantee for the consumer, not all have a real usefulness.
The interviewees declared that they would like to use blockchain to improve their
company’s reputation or visibility on the market, or to access new markets. Visibility
in the wine company arena is guaranteed by a good reputation on the market, but
also by knowing how to be ahead of competitors. In particular, a higher visibility is
required in new and foreign markets, where consumers, unlike the Italians, conceive
wine as a luxury products and are willing to pay more. In this more demanding
market, a more attentive approach to innovative technology might provide some
advantages.
[…]in my opinion it is first of all something that guarantees the consumer something extra
and it can also be used from the marketing point of view … so the origin of the vineyard,
the production and all these things are data that for the consumer become a sort of warranty.
[Respondent 7].

From the point of view of supply chain management, respondents stressed the
fact that the control procedures have remained unchanged, without any need for
reorganization.
310 R. Cuel and G. M. Cangelosi

We already have the issue of supply chain control with or without blockchain. The agriculture
sector is one of the most advanced and experimental. We check all our batches of grapes,
wine, and what ends up in every single bottle. These data are on paper. […] 30 years ago we
already had and published this information. [Respondent 4].

5.3 Group 3: Collaboration, Safety, and Territorial Identity

One of the results that pilot companies verified was that involved actors understood
the importance of the documentation provided. The authors did not discover any
internal resistance or hostility: what was reported was good team spirit and enthu-
siasm for the experimentation. The link between the second and third group of nodes
is therefore the “collaboration” between the players operating in the supply chain:
better supply chain management depends on the maximum cooperation between the
parties involved in every stage of the production chain. However, the extra work
required to retrieve precise information about a very long term process was found to
be the factor of greatest hostility.
[…]Perhaps it becomes more complicated for those who have lots of actors in the supply
chain and therefore when farmers, producers, transformers, bottlers and the distribution
crews have to coordinate/cooperate […]. [Respondent 8].

As regards safety, especially on the non-modifiability of the data, the debate opens
about the truthfulness of the recorded data and returns, once again, to the discussion
on the central role played by the certification body. When there is no certification
body mediation (the self-certification case) the problem exists.
The blockchain guarantees the immutability of information, but not its truthfulness. Truth-
fulness lies in the common sense of the people who upload and provide real data because in
this way they open themselves up. [Respondent 1].

Furthermore, the trust question relies not only on the good faith of those who are
uploading data to blockchain, but also on the guarantee of the reliability of a system
that, according to most experts, should protect against fraud and counterfeit products.
Not all respondents saw the absence of regulation and laws as a limit possibly because
they believe that the aspects of traceability and the information that the consumer
can actually read from the QR Code scan have a greater weight.
[…] This thing goes beyond any type of regulatory system. […] with the blockchain the end
user is able to realize things that fail with any other certification. [Respondent 3].

A last significant child node concerns the disclosure of more confidential data
and hence the management of privacy. In this case, attention is no longer paid to
information that intrigues the consumer but rather to what data the company can
load without incurring theft (plagiarism) from other competitors.
As regard the territorial identity, this issue is the subject of heated debate between
those who support the enhancement of Made in Italy and those who do not entirely
agree. In favour of the territoriality exaltation, the product geolocation is made visible
In Vino Veritas? Blockchain Preliminary Effects … 311

through the inclusion of maps, satellite photographs and films showing the origin of
the bottle of wine in the code on the label.
[…]Certainly it is a very direct system that shows the consumer the related cultivation and this
is very important because from there we can even get the satellite photo. […]. Compared
to what already exists about the territorial identity and the Made in Italy, the blockchain
solution provides great results. [Respondent 8].

5.4 Group 4: Training and Dissemination

The collaboration discussed in the previous sub-paragraph is also influenced by the

“Training” of those who contribute to the development of the supply chain activities.
In this case the boundary objects between the third and the fourth group are the two
micro-themes “Skills” and “Required Figures”. For this reason, the discussion shifts
to the need for trained and experienced figures in the use of advanced technologies.
Since both the organization and the supply chain managerial mechanism remain
unchanged, the skill required by the pilot companies was the ability to find accurate
and precise information. No external staff were hired because consultants had been
involved in the implementation of the solution. Many of the respondents felt the need
to gain a better understanding of how the technology functions, a greater ability to
disseminate the benefits of the blockchain applications to consumers, and the desire
to create awareness among other companies in the wine and agro-food industry.
It is one of those innovative and pioneering technologies. Let me explain… it is a technology
that is widely known and used, but in the application of supply chain it is certainly pioneering.
[…] So maybe in 10 years time all the products all over the world will come out in blockchain
because it will be what the market wants. [Respondent 3].

According to the interviewees, large-scale retailers or government institutions

(e.g. Ministry of Agriculture) would undoubtedly promote this new scenario.

5.5 Comparison of Wineries Versus Developers

The issues discussed with the pilot companies were undertaken with the two
developer companies (Table 3).
This in-depth analysis aims to allow the technology experts to clarify some aspects
neglected in the interviews with the pilot companies. It was decided to compare the
two perspectives only on the issues that were defined as boundary objects, or the

Table 3 “Out-of -the sample

Respondent Position Project owner
respondents” features
(authors’ elaboration) Respondent A Business developer Ambrosus
Respondent B Business analyst Food chain
312 R. Cuel and G. M. Cangelosi

link between the four groups of categories already identified and analysed, namely
“Transparency”, “Management of the supply chain” and “Training”.
Companies see the principal utility of blockchain in transparency: it is perceived
as a guarantee for the consumer, the company itself and the territory. Developers,
however, consider it to be secondary compared to the management benefits. Contrary
to what developers expected, companies did not significantly change any process
within their wine supply chain management. For both companies and developers,
blockchain is seen as a constant traceability guarantee, thanks to the use of a
management platform with a friendly-user interface.
[…] There is a conflict of interest between what the blockchain entails and what the activity
is because the blockchain […] provides more visibility than daily activities. For example,
information about the logistics process or company policy can be provided, even if not
everyone is obviously willing to give this kind of data to their customers. So if an operator
(let’s say one in logistic) who tends to have a 1-2% error by not respecting the declared
SLAs cannot deal with the blockchain because with the blockchain it becomes very difficult
to manipulate this information. [Respondent A].

Training is the only contact point between the two perspectives. Both wineries
and developers do not consider it necessary to employ any new IT-oriented staff
because the technology is developed by third parties and company workers will have
time to learn. Instead, more information on data security and privacy issues should
be disclosed.

6 Discussion

The authors have identified which positive factors and limitations experts perceive
during the experimentation of blockchain in the wine industry. According to the
results of the analysis the two hypotheses formulated above were not proven. A gap
was found between what was presented in the scientific literature and the actual state
of the art in the context examined. This was further supported by the discordant points
of view that emerged during the comparison between companies and developers. The
pilot companies seem to have taken into account only the communication aspects
linked to marketing and transparency. Empowering the final consumer or providing
more in-depth information to gain entrance to new markets is their main goal.
Developers, while confirming the importance of the previous point of view, are
more conscious that the real change is in the simplification and efficiency of the
business processes that are the basis of the correct development of the supply chain
and the improved awareness of the actors involved.
The only contact point seems to be training, which is perceived as the need for
greater dissemination and consciousness of what the blockchain is and how it should
be implemented. However, some considerations need to be made in favour of the
analysis of the pilot companies. Since the projects were carried out on only a small
group of wine producers and under a limited period of time, it is too early to observe
concrete changes in all the related business processes and, consequently, a tangible
In Vino Veritas? Blockchain Preliminary Effects … 313

evolution in the supply chain function. We do expect that the long-term adoption and
spread of the blockchain technology will have a stronger impact in the whole sector.
From the point of view of the consumer no result was found but this may be as a
consequence of the time factor required to launch blockchain certified products on the
market and understand what the real impact on consumers is. The answers given by
the pilot companies to the questions on the topic were based on expectations, hopes
and forecasts to be verified, once again, only in the long term. The most evident
benefit was the commitment at the organisational and supply chain level to a careful
search for the information to be recorded in blockchain. The possibility of tracing
the supply chain in detail has also given space to those players such as winemakers
whose work seems to stop once the harvest is over.
The perception of greater transparency for consumer protection has also increased.
The recording of information validated by a certification body in the first instance
has imparted more protection to companies encouraged by the fact that they do not
input data directly into the blockchain. A third body does it and usually is accredited
and recognized at national and international level (DNV GL in the case of MyStory
and Ernst and Young for Wine Blockchain EY). This reduces the autonomous nature
of blockchain technology because it is private, and the companies do not have full
control of the published data, resulting in the disappearance of two of the main
features of the technology, namely decentralization and disintermediation.
The exploratory analysis carried out has some research limitations. Despite a
group of sixteen companies participating in the three projects, only seven of them
made themselves available for interviews. The small sample on which the qualitative
analysis was carried out precludes the possibility of extending the results of the
research beyond the boundaries of the sample itself. Finally, the main limitation
was the lack of opportunity to also listen to the point of view of the companies that
provided the technology in the wine sector, of the EY consulting firm and DNV
GL certification body. Being aware of the perspectives of the three organizations,
for example, would have provided a deeper understanding of the reasons behind the
implementation of a private blockchain solution and a better analysis of the issues of
data recording through appropriate platforms created ad hoc. Listening and including
the point of view of all the actors involved would have opened up new research paths
and other aspects of the subject matter.

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Digital Competences for Civil Servants
and Digital Ecosystems for More
Effective Working Processes in Public
Organizations

Nunzio Casalino, Tommaso Saso, Barbara Borin, Enrica Massella,

and Flavia Lancioni

Abstract Advancements in digital transformation, artificial intelligence, cloud

computing, the Internet of Things (IoT), block-chain, big data, smart-working, infor-
mation systems’ interoperability, etc. are changing the nature of the link between
technology and employment in public sector. There is the potential that these changes
could bring also benefits beyond labour substitution, including higher levels of output,
better quality, and fewer errors that are achievable through automation. The increasing
introduction of automation and other digital technologies in public organizations
means information systems could progressively substituting traditional outdated
workers in performing routine, codifiable tasks while at the same time amplifying
the productivity of workers in supplying problem solving skills and adaptability. In a
specific report of 2018 PwC calculated that 5.1 million jobs, or 44%, were at risk of
digital disruption. A digital workplace value chain has becoming a revolutionary and
dominant part of the world economy. Each stage can occur in different countries and
under different regulatory conditions and be implemented wherever the necessary
skills and materials are available at competitive cost and quality. Digital transforma-
tion itself should not be seen as a negative for the workforce. If adopted successfully
and combined with successful organisational change and change management prac-
tices, they can help public organizations to be able to achieve and became more

N. Casalino (B) · T. Saso

Guglielmo Marconi University, Via Plinio 44, 00193 Rome, Italy
e-mail: n.casalino@unimarconi.it
T. Saso
e-mail: t.saso@unimarconi.it
B. Borin
LUISS Guido Carli, Viale Pola 12, 00198 Rome, Italy
e-mail: bborin@luiss.it
E. Massella
AgID—Agenzia per l’Italia Digitale, Via Liszt 21, 00144 Rome, Italy
e-mail: massella@agid.gov.it
F. Lancioni
SAS Italy, Public Sector, via Darwin 20/22, 20143 Milan, Italy
e-mail: flavia.lancioni@sas.com

© The Editor(s) (if applicable) and The Author(s), under exclusive license to Springer 315
Nature Switzerland AG 2020
R. Agrifoglio et al. (eds.), Digital Business Transformation, Lecture Notes in Information
Systems and Organisation 38, https://doi.org/10.1007/978-3-030-47355-6_21
316 N. Casalino et al.

competitive. This article aims to describe the main goals and the preliminary results
of a research that aims at analysing the digital technologies adoption rate in the
European public sector, in order to assess also the motivations about the adoption
as well as the no-adoption decision, the kind of technologies principally actually
adopted inside public organizations and the activities of value chains where the new
investments in these new technologies are focused.

Keywords Digital competencies · Digital public organizations · Civil servants ·

Digital ecosystems

1 Introduction

Digital transformation is becoming a key element of working procedures improve-

ment and there is a direct relationship between technological innovations and methods
for managing digital working processes and integrated digital working systems.
Besides several public organizations in their value chain lack seriously the capacity
to develop specific education programmes on their own. The European training
curricula in the public sector need to adapt these innovative requirements in effec-
tive changes to be able to train concretely the labour force. With our DigiWork
research we aim to identify the key skills required to create a qualified workforce
that digital transformation demands and to allow to equip the civil servants’ work-
force with suitable skills and competences. The target groups of the research are
the civil servants, decision-makers, policymakers involved in public organizations.
The European industrial and services organizations require also the raising of aware-
ness and transfer of know-how in order the extend the implementations of new
products and services, supporting individuals in acquiring and developing specific
skills and key competences. Both the OECD and the European Commission are now
recommending a turning point. The digitalization government is not only a process
reengineering through technology or moving services online, but an in-depth digital
transformation of all workplaces, a transformation that requires the early integra-
tion of digital technologies into services and in the decision-making processes [1].
It is time to prepare in the right way people to fully adopt the operational model
of the networked digital age so that it could increase efficiency and productivity,
establishing new working opportunities for EU citizens and enterprises.
The main three topics addressed by the research are:
• ICT—new technologies—digital competences;
• New innovative curricula/educational methods/development of training courses;
• Open and distance learning available platforms.
So, the urgent need is to transfer to civil servants all the needed contents on
digitalization and also Industry 4.0 pillars, their implementations in the services
sectors, and what operational changes have to be considered. The DigiWork research
is focusing on the new digital production approaches that are starting to be adopted
Digital Competences for Civil Servants … 317

in European market following the OECD recommendations, the EU’s strategy for
e-Skills in the twenty-first century and several European Commission Directives,
which imply a real digital revolution in processes and competences.
Digital competencies cannot be easily defined because of the changing nature of
the phenomenon [2].
Innovative digital ecosystems will impact on public ecosystems, designating a link
between physical assets and online business. It will be required the integration of
the ICT technologies, digitalization of workflows and innovative production systems
within a network with suppliers and the application of new technologies and methods
in various technical levels and systemic effects. Industry 4.0 knowledge will imply
low cost, space saving, low heat producing and high safety devices, operating tools
and software systems. It will also involve a network among different facilities for
information and data exchange. This new concept of facilities is requiring highly
qualified profiles, especially on advanced digital skills, problem solving, complex
decision-making, etc. So more qualified workforce is required in public organizations
at national and local level [3]. It is needed in EU a specific curriculum and, most of
all, a free course to improve specific and transversal skills for civil servants. So, we
are identifying a data analysis technique for our quantitative and qualitative research,
discussing the interpretation of findings using multiple data sources. The research is
involving several public administrations, but also other stakeholders as professionals,
industrial organisations, citizens and no-profit associations. All of them will carry out
surveys to assess the situation and contribute to the reporting of the research results.
We are considering also the AgID—Presidenza del Consiglio dei Ministri knowledge
base and specific experience analysing its recent strategic digitalization governmental
guidelines (2017, 2018 and 2019 years) as the “Plan for the Digital Transformation
of Italy”, the “Cloud computing guidelines”, “The e-payment system PagoPA”, the
“Italian Digital Agenda” connected to the “European Digital Agenda”, etc., giving
a solid contribution to support the research and define the right methodology of
analysis.

2 Digital Competencies Priorities in Public Sector

at National and Local Level

Digital technologies are transforming society and the economy faster and in new
ways, generating outcomes that are irreversible and unstoppable; social media, wear-
able devices, cloud computing, blockchain, sensors, big data, artificial intelligence
will change the work processes and the interaction between citizens, enterprises and
institutions. Professionals, enterprises and citizens require sophisticated, personal-
ized, on-demand services, easy to use and accessible. As pointed out by OECD
(Organization for Economic Cooperation and Development), the EU eGovernment
Action Plan 2016–2020, several EU Directives and Regulations, the on-demand
digital economy represents a challenge for private and public organizations. Digital
318 N. Casalino et al.

transformation is crucial to the growth, the development and the competitiveness

of the EU and its market. This implies a more and more urgent need of cross-
sectorial advanced competencies that will enable people and enterprises to compete
at a satisfactory level [4]. In particular, digital transformation involves the public
sector bringing about deep changes in the strategies, processes, and practices of
production and at the workplace. The DigiWork research is focusing on the new
digital production approaches and online services delivering that are starting to be
adopted in European market following the European Digital Agenda recommenda-
tions and the Industry 4.0 pillars, which imply a real digital revolution in processes
and operative working competencies. The term Industry 4.0 implies concretely new
production concepts in an innovative digital ecosystem, which involves the use of
digital technologies, designating a link between physical assets and a “virtual” enter-
prise. Digital transformation requires the integration of the ICT technologies, the fully
digitalization of workflows and innovative production systems within a network of
suppliers together the application of new technologies and methods in various tech-
nical levels and systemic effects. The working and production systems will imply
low cost, space saving, low heat producing and high safety devices, operational tools
and smart software systems. It will also involve a network among different facilities
for information and data exchange. This new concept of digital facilities will require
profiles of highly qualified personnel, especially in ICT but also in interdisciplinary
activities, problem solving, complex decision-making skills, etc. Taking in account
also the DigCompOrg framework (see Fig. 1) that includes seven key macro elements
and fifteen sub-elements that are common to all education sectors, the research is
evidencing that it is needed in public sector a specific curriculum and, most of all,
to improve specific and transversal skills on digitalization of working processes and
information systems.
Collecting the acquired feedbacks and including all specific analysis, DigiWork
research is identifying innovative training modules on the following topics: disrup-
tive technologies enabling digitization of the public organizations; managing digital-
ization; digital integration with physical production assets; rethinking the design of
classical production systems; manage, integrate, and analyse data inside and between
organizations; business data evaluation and big data management; Internet of Things;
document management systems and digitization of workflows; human machine inter-
action, touch interfaces and accessible GUIs; virtual and augmented reality; environ-
mental impact of production systems; smart factories. The training curricula in the
public context need to adapt these innovative requirements in effective digital skills
[5] to be able to train concretely the labour force. With DigiWork the determination
of key competences required to create the qualified workforce that the digital trans-
formation demands and concretely contributing to train the workforce equipped with
suitable skills and competences is being targeted. The European public organizations
are requiring also the raising of awareness and transfer of know-how [6] in order the
extend the implementations in a wider way. Digitalization influences mission-critical
applications in B2G and B2B processes and it is expected a transformation also in
companies long investment cycles, giving to EU people new employability opportuni-
ties. So DigiWork research is giving an advanced contribution by researches, reports,
Digital Competences for Civil Servants … 319

Fig. 1 The European framework for digitally competent organizations, DigCompOrg, JRC Science
Hub, European Commission, 2015

sharing good practices, making sectoral analysis and defining the most innovative
educational digital needs, working in close cooperation with the main institutions
and associations. Digital economy will be central for the growth, the development
and the competitiveness of Europe and its economy. It generates turnover of more
than 7 billion, accounts for 15.5% of the total Added Value, purchases more than
e5400 billion in goods and services each year, and still employs 14.2% of the total
workforce. Likewise, public sector has a significant weight in EU economy with
a 49.4% share and a total of more than 340 billion of euro. For this reason, Digi-
Work research could create an international synergy to integrate the actual European
limited open knowledge and experiences, sharing them and creating effective models
that will give benefits for the employability of thousands and thousands of people
in Europe. It could have a concrete impact at European level to contribute to the
development of the economy and the job market, by sharing the most innovative
training contents and preparing the European public workforce to the opportunities
of the digital change.
320 N. Casalino et al.

3 New Digital Work-Based Skills for Operational

Workflows, Administrative Processes and Integrated
Ecosystems

In the recent years, EU job market is undergoing a transformation that concerns a

full digitalization of working processes. Smart technologies, blockchain, big data
and cloud-computing, Internet of Things (IoT), augmented reality are some new
technologies are driving the rise of the new digital industrial revolution, known as
Industry 4.0. A greater flexibility of working processes and a greater attention to the
customers/citizens are necessary to face the increasing complexity. Recent literature
[7, 8] shows that new technologies of Industry 4.0 allow organizations reaching
such results and, specifically, achieving higher efficiency and productivity rates,
quickly customized products and time to market responses. To support the new digital
challenges, policymakers in several countries are planning a research and technology
agenda as also provided in a well know study made by OECD—Organisation for
Economic Cooperation and Development regarding the civil servants (see Fig. 2).
In business operational processes, digitalization refers to enabling, improving
and/or transforming business operations and/or business functions and/or business
models/processes and/or activities, by leveraging digital technologies and a broader
use and context of digitized data, turned into actionable, knowledge, with a specific
benefit in mind. It requires digitization of information, but it means more and at the
very center of it is data. While digitization is more about systems of record and,
increasingly systems of engagement, digitalization is about systems of engagement
and systems of insight, leveraging digitized data and processes.
The research is based on a needs’ assessment, baseline surveys and situational
analyses, collecting qualitative and quantitative data by the evidence-based decision-
making and programmatic learning methodologies. It is also evaluating the role of
public development policies at EU level in supporting Member States as regards the
transformation required to connect digital technologies with products and services
[9]. Then it is looking into the details of relevant digital transformation and Industry
4.0 aspects, considering three key dimensions of change that we are exploring:
technological, social and the business paradigm.
Finally, the policy implications will be outlined and effective recommendations
for public decisions making will be also made. An analysis of the main kinds of
production establishments (for example the concrete adoption of lean methods for
traditional or online services) will permit to evidence how it is possible to increase
efficiency by up to 50%. If public bodies will adopt digitization processes, there is a
further margin gain of up to 30%. The research is demonstrating how digitalization
can be the way to detect and measure processes data, providing information and
allowing to direct events on the production line in real time. It is demonstrating that
expected big investments are not needed, but the organization [10] and mentality of
civil servants must be changed.
A scientific methodological analysis has been held to analyse and discuss the
more updated training gaps and determine how to carry out them, obtaining the best
Digital Competences for Civil Servants … 321

Fig. 2 Skills for high performing civil services, OECD—organisation for economic cooperation
and development public governance review, 2016

impact and taking un account the national regulations in each country. After that the
research is determining and will propose the key and transversal competences, the
requirements for adaptation in training programs, the required sources and the new
training needs. The research is identifying the new digital work-based training for
operational workflows, administrative processes and integrated ecosystems, together
the determination of key competences (including vocational competences). Will be
also considered transversal competences for various vocational qualifications and
levels, and that will have an impact on the training programmes, arrangement and
procurement of the required equipment infrastructure or human resources.
322 N. Casalino et al.

4 Skills Gaps Analysis and Curriculum Design

The adopted methodology for curriculum development is giving several information

takings in account an innovative focused user-oriented approach [11] respecting the
following teaching primary principles:
1. to customize the training process, allowing learning to be adapted to the emergent
opportunities, characteristics and interests of each individual, so that the learner
himself become the manager of the learning process, thanks to a modular structure
of the training tools;
2. to enrich the training program with any valuable contribution from the single
Partners;
3. to promote the ability to apply the proposed contents, so that learners involved
in the training process can achieve immediate results in their practice;
4. to carry out a critical analysis to respond to emerging needs. It will include
also the results of the preliminary mapping of the existing knowledge in the
public field (articles, existing learning contents, scientific studies, economic and
social analysis, main implementation models, sector’s studies, previous projects,
statistics, etc.) and of models, etc.
It is including the relevant networks and stakeholders linked to the DigiWork
research target groups. The adopted methodology is including several fields and the
most relevant are:
• the state of the art of digitalization and innovative automation practices;
• a context analysis of the innovation in digitalization practices;
• an adaptation of the requirements to the research target groups features and needs;
• the best practices individuation, recognizing almost 5 successfully technology
cases and related digitalization practices in public organizations.
The actual educational profile for a typical digital transformation expert or worker
still needs to be developed and updated. Digitalization requires substantially not only
operational capabilities, but also must encompass ICT and managerial capabilities
being able to see the organization as a whole, understand industry, and how different
industries interrelate in terms of value chains and other processes, communication
skills and customer skills. It is not just a question of training a digital civil servant.
We also identified some auxiliary components to improve the needed training
activities. In particular:
• Multimedia tutorial, that will introduce the participants to the training activities;
• Data and report about context analysis and needs;
• Map of the transversal and distinctive competencies (attitudes, comportments,
skills, abilities and knowledge) related the fields of digitalization, innovation
trends, lean processes and managerial practices to develop the right change
management;
• Skills assessment tools to evaluate the initial know-how of the civil servants and
the knowledge acquired;
Digital Competences for Civil Servants … 323

• Case studies and best practices;

• Skills assessments to evaluate the know-how or gaps of the civil servants.
All of them include all feedbacks from the previous analysis by a participative
design approach [12] with all stakeholders.
A data base of questions has been set considering the main trend of concep-
tual, applied and operational aspects available in workplace digitalization, workflow
management, transparency of processes [13, 14], innovative online service delivering.
Taking in account the preliminary collected feedbacks we identified several
learning topics and decided to evidence 18 of them. In detail:
1. Disruptive technologies enabling digitization in operational processes. The
general analysis of innovation and disruption paradigms in operational
processes is a cornerstone of digital transformation.
2. Governance of the digitalization in the public sector. The digital transforma-
tion is a complex, multi-faceted process that involves every sector-specific
knowledge field, and thus requires a strong commitment in governance and
management.
3. Digital integration for production assets and online services. Consolidation of
physical assets through digital assets and smart contract allows automatic asset
management.
4. Document management systems and digitization of workflow. Integration of
traditional workflows in novel digital paradigms allows a gradual introduction
of disruptive technologies whilst safeguarding foregoing investments.
5. Rethinking the design of classical information systems. Information architec-
tures are moving toward a more and more decentralized configuration: cloud
computing, edge computing, distributed ledger technologies.
6. Managing, integrating, and analysing data inside and between organizations.
The analysis of data, both those produced by an organization and those produced
by its environment, is vital in order to gain a proper knowledge of a world that
is becoming more and more complex.
7. Business data evaluation and big data management. The sheer volume of data
produced by mankind is exponentially increasing, in each of 5 basic dimensions:
volume, velocity, variety, variability, and value. A successful approach to big
data requires good processes and adequate investments.
8. Internet of Things. IoT is the extension of internet connectivity to physical
devices and everyday objects. In combination with advanced connectivity (5G)
and smart computing technologies (AI, DLT), IoT is vital in building a fully
digital-enabled environment.
9. Human machine interaction, touch interfaces and accessible GUIs. Human
machine interaction and advanced interfaces are essential to improve acces-
sibility and usability of digital devices.
10. Virtual and augmented reality. Virtual reality and augmented reality (which is a
way of “enriching” reality by superimposing to it computer-generated imagery)
allow for advanced interaction with machines and products, allowing e.g. remote
operation in dangerous or small-scale production environments.
324 N. Casalino et al.

11. Additive manufacturing. Additive manufacturing describes technologies that

build 3D objects by adding layer-upon-layer of material (useful especially for
hospitals and other health organizations). In particular, it encompasses technolo-
gies including subsets as 3D Printing, Rapid Prototyping (RP), Direct Digital
Manufacturing (DDM), layered manufacturing and additive fabrication.
12. Advanced robotics and human-robot collaboration. New models of human-
machine interaction are essential to increase efficiency and quality of informa-
tion systems.
13. Energy savings and environmental impact of production systems. Measuring
environmental impact of digital system is essential in everyday operations and
performance evaluation.
14. Digital inefficiencies and risks in professionals’ environments. Risk mitiga-
tion and reduction of inefficiencies must be included from day zero in digital
integration projects.
15. Automation systems integration and smart factories. Through the identifi-
cation of main smart approaches, integrators can now show how solutions
directly impact the bottom line to help civil servants to achieve business
goals—especially those related to safety, profitability, security, reliability, and
productivity.
16. Data protection and privacy in public organizations. EU data protection rules
(such as also GDPR) guarantee the protection of personal data whenever they
are collected and apply to both companies and organizations in the EU and
those based outside the EU who offer goods or services in the EU. It is vital to
implement privacy by design in all digital processes and products, bearing in
mind that rules can be not only a constraint, but also an opportunity.
17. Artificial intelligence and expert systems. AI and expert systems are more and
more crucial in coping with advanced needs from customers and from the market
itself. AI is becoming the dominant digital technology through its extreme
flexibility.
18. Supply chain certification and automatic process verification/accountability.
Distributed ledger technologies and smart contracts make it possible to imple-
ment traceability, certification and accountability throughout a supply or
production chain.

5 Conclusions

Digital transformation and Industry 4.0 pillars are a new phenomenon aimed at
changing operational rules especially for the public. The peculiar feature of this
revolution is its higher degree of complexity compared to the previous ones. Essen-
tially, digital transformation considers the usage of new technologies with the aim
to integrate workers and machines across organizational boundaries to form a new
type of networked value chain. Organizations implement three-types of integrations:
horizontal, vertical and end-to-end integration, which allow them to improve the
Digital Competences for Civil Servants … 325

efficiency of production processes and maximize the customization of services. The

EU’s eGovernment Action Plan 2016–2020 “Accelerating the digital transforma-
tion of government” and “EU’s strategy for e-Skills in the twenty-first century” set
an ambitious target for all Member States. By 2020, public institutions and private
organizations should be efficient and inclusive, providing borderless, transparent,
personalized, user-friendly digital services [15]. But real innovative skills need to be
acquired by workers of public sector, applying them to design products and deliver
better services for the EU citizens, professionals and entrepreneurs. The DigiWork
research is making an in depth analysis on the main pillars and grounds of the mix
of digitalization and business processes (e.g. lean production, Internet of Things,
Internet of Services, blockchain, smart factories, smart-working, coding, informa-
tion systems integration, interoperability, etc.) and newly emerging requirements
especially for different public organizations such as digital work-flow technologies.
The DigiWork research is focusing on the new digital working approaches that
will be more and more needed in Europe and that imply a real digital revolution in
processes management and competences. Digitalization implies also new working
concepts based on the adoption of innovative digital ecosystems which will involve
all the most recent digital factors and expertise. The real and the virtual business
contexts will be seamlessly connected giving rise to what are known as digital inte-
grated systems. It will be required the integration of devices and online working
tools, the digitalization of workflows and several innovative production systems
within a network of suppliers together the application of new operational activi-
ties and methods in various technical levels. Digitalization will also consider the
strong relations among different facilities for information and data valorisation. This
new concept of advanced organization will require highly qualified profiles and
more qualified workforce to cover the requirements of new digital jobs. Digitisation,
archiving and electronic management of documents are having also a deep impact on
business practices in companies and public institutions. In this sense, digital trans-
formation and the consequent reorganisation of business work is certainly a central
point. So, there is the need in EU of a specific open curriculum to improve specific
and transversal skills for civil servants. The training curricula needs to adapt these
requirements in effective changes to be able to train concretely the labour force.
With DigiWork the determination of key competences required to create the quali-
fied workforce that the digitalization demands in the advanced business process and
concretely contributing to train the workforce, with suitable skills and competences,
is being targeted. DigiWork could give a contribution in researches, reports, sharing
good practices, making sectoral analysis and defining the most innovative educa-
tional digital needs, working in close cooperation with the main institutions and
associations. The urgent need is to learn more about the concepts of digitalization,
its implementations in public sector, and what changes this will bring for the future.
So DigiWork could create an international synergy to integrate the actual EU limited
open knowledge and experience, sharing it and creating effective results that will
give a benefit for the employability of thousands and thousands of people in Europe.
It is expected to create an impact on EU level to contribute to the labour force devel-
opment of EU by sharing the outputs and each time adding on the previous studies to
326 N. Casalino et al.

prepare the future changes [16]. The European public sector is requiring the raising
of awareness and transfer of know-how in order the extend its effectiveness. Digi-
talization influences mission-critical applications in B2G and B2B processes and
citizens are waiting and need of a public organizations real transformation to receive
effective public services.

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Author Index

A Gurrieri, Antonia R., 187

Albers, Jean-Paul, 137
Arkhipova, Daria, 285
H
Haghshenas, Mina, 251
B Heuvel van den, Ronald, 219
Beccalli, Elena, 19
Borin, Barbara, 315
Bos, Rik, 219 I
Braccini, Alessio Maria, 173 Iijima, Junichi, 237
Ikegami, Haruka, 237
Inghirami, Iacopo Ennio, 107
C
Caldarelli, Adele, 121
Cangelosi, Gabriella Maria, 301 K
Casalino, Nunzio, 315 Kamdjoug, Jean Robert Kala, 3
Cuel, Roberta, 301 Kazemargi, Niloofar, 47, 77

D L
DeLone, William, 285 Lancioni, Flavia, 315
Dossena, Claudia, 205, 269 Leewis, Sam, 31
Locoro, Angela, 63

E
Elliot, Viktor, 19 M
Esswein, Markus, 137 Margherita, Emanuele Gabriel, 173
Ezza, Alberto, 155 Marinò, Ludovico, 155
Massella, Enrica, 315
Mayer, Joerg H., 137
F Mochi, Francesca, 205, 269
Fadda, Nicoletta, 155 Morelli, Giovanna, 187
Ferri, Luca, 121 Moretti, Anna, 285

G N
Ginesti, Gianluca, 121 Nicolajsen, Hanne Westh, 93
© The Editor(s) (if applicable) and The Author(s), under exclusive license to Springer 327
Nature Switzerland AG 2020
R. Agrifoglio et al. (eds.), Digital Business Transformation, Lecture Notes in Information
Systems and Organisation 38, https://doi.org/10.1007/978-3-030-47355-6
328 Author Index

O T
Østerlie, Thomas, 251 Trienekens, Jos, 219

P
Pagels, Daniel, 137 V
Pischedda, Gianfranco, 155 Vaia, Giovanni, 285
Pozzi, Cesare, 187 Virili, Francesco, 19

R
Ravarini, Aurelio, 63 W
Wamba, Samuel Fosso, 3
Wamba-Taguimdje, Serge-Lopez, 3
S Wanko, Chris Emmanuel Tchatchouang, 3
Saso, Tommaso, 315 Wetering van de, Rogier, 219
Scupola, Ada, 93
Sedneva, Diana, 137
Smit, Koen, 31
Spagnoletti, Paolo, 47, 77 Z
Spanò, Rosanna, 121 Zoet, Martijn, 31