The Digital Enterprise

Organization of a Digital Enterprise

As a social technology artifact, a digital enterprise is organized according to the principles described in Brian Arthur's book, The Nature of Technology:

1. 1. Combination principle. In Arthur's own words, the primary structure of a technology consists of a main assembly that carries out its base function plus a set of subassemblies that support this. The main assembly, the subassemblies, and the connections between them form the architecture of the resulting system.
2. 2. Recursiveness principle. This principle means that each component of a technology may also consist of a combination of other components. Therefore, concludes Arthur, technologies are built from a hierarchy of technologies.
3. 3. Phenomenon principle. In its essence, Brian Arthur argues, a technology is a phenomenon captured and put to use. He further extends this definition to include a collection of phenomena: a technology is a programming of phenomena to our purposes.

While these principles successfully describe the nature of technology and explain how technology evolves over time, they don't cover one important organizational aspect that is often overlooked by social systems designers: boundaries. A new technology forms as a combination of existing components. These components conduct their respective activities and interact with each other within the context of a meaningful process. In order to protect itself from the threats of the external environment, however, the composite must keep both its internal structure and operational behavior invisible to an external observer. A well-constructed boundary protects a system from threats while enabling legitimate interactions with the environment. A well-constructed boundary protects a system from threats while enabling legitimate interactions with the environment.

1. 4. Boundary principle. A boundary establishes a contract between a technology and its environment. It not only protects a system from environmental stress, but also performs such important functions as security, sensation, communication, and aesthetics.

Building Blocks of a Digital Enterprise

An enterprise is built from several types of building blocks:

• Organization. A conglomerate (which is often a multi-industry company) consists of entirely different businesses; each organization within a conglomerate may have a unique structure and a unique set of products, services, customers and competitors.
• Division. Enterprises that operate in complex multi-national/multi-regional environments, or have a complex product/service structure, or have complex market segmentation often create geographic, product/service, or customer-based divisions. The divisions are independent of each other and sometimes even have their own CEOs.
• Department. In order to improve coordination and streamline the exchange of information between organizational units, companies aggregate specialized functional units into departments. For example, Infrastructure, Platforms, and Software Development units may become parts of the Information Technology department.
• Function. The most familiar examples of specialized functional units are Human Resources, Accounting, Marketing, and Sales.
• Work group. A software development function may include project management, business analysis, implementation, and quality assurance work groups. The absence of a formal boundary differentiates a work group from a functional unit. In UOA, a work group is not considered to be a unit.
• Individual. Individuals typically play management roles in the units.

In UOA, an organizational unit can be implemented either as a functional unit or a control unit (organization, division, or department). Functional units do not contain child units; they contain work groups and individuals and perform all specialized work in the organization. Control units must contain 2 or more (functional and control) units and are responsible for direction, control, (event-driven) coordination, and the measurement of activities performed by the child units. As social systems, control units also contain work groups and individuals. Even though functional and control units have different responsibilities, their architecture is very similar. Coordination of work activities performed inside both functional and control units is process-driven.

The Hierarchical Structure of a Digital Enterprise

UOA simplifies the structure of an enterprise by hierarchically constructing it from digital units—the entities that share the same architecture—thus, forming a composite pattern. Application of the composite pattern in UOA lets business designers treat functional units (individual objects) and control units (compositions) uniformly.

Figure 3.1 shows the composite pattern class diagram for a unit.

A hierarchical organizational structure provides several substantial benefits to the enterprise:

• Effective organization. A hierarchical organizational structure creates a meaningful means-end hierarchy in which any activity can be traced to the highest-level purpose.
• Organic organization development. The components of hierarchies are themselves stable systems... said the Nobel laureate in economics Herbert A. Simon. The assembly of a large hierarchic system can proceed from the bottom up, by succesive mergers of subsystems as in the watchmaker metaphor, or from the top down, by successive splitting of units and the growth of the subunits. In both cases the resulting systems will be hierarchic.
• Reduced organizational complexity. Simon remarked that with hierarchic structure, the complexity of an organization as viewed from any particular position within it becomes almost independent of its total size...large organizations can only operate if task complexity is nearly independent of organizational level. Hierarchy dissolves the connection between complexity and size. Figure 3.2 illustrates this concept by hiding the structure of the divisions and showing the complexity of the organization from the CEO's perspective.
  
  Figure 3.2. Complexity of the organization from the CEO's perspective
  
• Reduced information processing. Based on Simon's observations, among systems of a given size and complexity, hierarchical systems require much less information transmission among their parts than do other types of systems.
• Decentralized governance. In a hierarchical organization, responsibilities, as well as related authority and ownership rights, are more or less evenly distributed between control and functional units at all levels, which means that decisions are made fast at the right level based on the right information, and each and every enterprise asset has the right owner.