Digital technologies are transforming the global economy. In his pioneering book Being Digital (1995), technology futurist Nicholas Negroponte described how the old industrial economy would be eaten away by a new digital economy. Moreover, digital technologies make it possible for members of an organization to self-organize and thereby avoid the delays, distortions, and other damaging effects of hierarchically organized systems. Established companies recognize that digital technologies can help them operate their businesses with greater speed and lower costs and, in many cases, offer their customers opportunities to co-design and co-produce products and services. Many start-up companies use digital technologies to develop new products and business models that disrupt the present way of doing business and take customers away from firms that cannot change and adapt.

Digital technologies play a role in all aspects of operating, controlling, and coordinating the activities of organizations. Broadly speaking, they are used for automating and augmenting tasks, communicating internally among organization members and externally with customers and partners, and in collaborative decision-making among digital and human agents. At Tesla’s manufacturing facility in Fremont, California, technicians work alongside 185 robots made by the German firm Kuka Robotics to assemble the electric cars. By using artificial intelligence “reinforcement learning algorithms,” the robots are able to switch tools and perform certain tasks far better and faster than their human co-workers. Surgeons at the Mayo Clinic use robots to augment a variety of surgical procedures in heart, head, and neck operations. The surgeons perform those operations by controlling surgical micro-instruments attached to robotic arms.

Both intra- and inter-organizational transactions and communications have been performed digitally for a long time. Walmart exemplifies a highly digitalized supply chain connecting its stores, distribution centers, and suppliers. Currently, social media such as Facebook and Twitter are used by companies to communicate with their customers and other stakeholders, and digital platforms such as Facebook at Work and Microsoft’s SharePoint allow for internal communication and for collaboration with partners.

Digital technologies are also used for learning, decision-making, and design. E-commerce companies such as Amazon, Google, Airbnb, and Uber study the data trails of consumer behavior to design markets for greater efficiency and build new markets. Intelligent digital design tools such as Autodesk are used in engineering and creative industries. Those tools typically offer 3D representation of the objects under design, and they allow designers to simulate the operations and performance of alternative design choices. In semiconductor manufacturing, the designs are digitally transmitted to equipment that manufactures the product. With continuing development and wider adoption of 3D printing technologies, the design-to-manufacturing process will become fully digitalized across many more industries. The U.S. Army, for example, is currently experimenting with the 3D printing of food in order to feed troops as they mobilize across difficult geographies. Some companies employ digital design tools in collaborating with their customers. Lego provides toolkits on its website that enable entrepreneurs and customers to submit product ideas and start new Lego brick-based businesses.

Digital technologies are not only changing how organizations operate but also the way we think about organizing. A traditional organization is arranged hierarchically – that is, control and coordination are achieved through an authority (reporting) structure in which superiors plan and coordinate the activities of subordinates, allocate resources, and resolve problems and conflicts. A hierarchical organization can be effective in stable and predictable environments because the organization does not have to regularly innovate or adapt to change. Many of today’s environments, however, are not stable and predictable; they are volatile, uncertain, complex, and even ambiguous. Such environments are characteristic of knowledge-intensive industries like biotechnology, computers, healthcare, professional services, and national defense. Organizations operating in these types of industries must be agile and innovative, and their success depends heavily on the agency of their members. A hierarchical organization inevitably instills a hierarchical mindset among its members. Members understand that they are being paid to do a particular job, and they look to their managers to set goals, formulate plans, and approve the quality of their work. As a result, organization members become psychologically as well as economically dependent on the hierarchy. In addition to the friction created by “relay managers” who merely pass along information, hierarchical management styles tend to reduce intrinsic employee motivation to take initiative.Hierarchically managed organizations, in short, are constrained in their ability to innovate.

My colleagues and I (Strategic Management Journal, 2012) have developed an organizational architecture that is appropriate for knowledge-intensive sectors where organizations must continuously learn, innovate, and adapt. We call this architecture “actor oriented” because it places a premium on human capital: the organization members themselves and the other people and organizations with whom they interact. Actor-oriented organizations rely on self-organizing, with only minimal use of hierarchical mechanisms to achieve control and coordination. Our architectural scheme is composed of three elements: (1) actors who have the capabilities, mindset, and values to self-organize; (2) commons where the actors accumulate and share resources; and (3) protocols, processes, and infrastructures that enable multi-actor collaboration.

We believe that actor-oriented organizing is a new paradigm for designing and managing organizations. It is best used in situations where exploration and innovation are desirable or required. It enables actors to share knowledge and engage in collaborative problem solving. In actor-oriented organizations, control and coordination are based on direct exchanges among the actors themselves rather than on hierarchical planning, delegation, and integration. Although hierarchy is present in actor-oriented organizations, these designs mainly rely on lateral, reciprocal relationships among actors for control and coordination.

Dr. Charles Snow

Chairman, Organization Design Community

Professor Emeritus, Penn State University