Chapter 4

Operations Management
and Digital Transformation
Introduction
• This chapter will introduce the topics of business intelligence and data
analytics, with a section on operational analytics to demonstrate their
pragmatic application and use.
• Business intelligence is an umbrella term that includes the applications,
infrastructure and tools that enable the operationalisation of data –
turning it into information to inform decision-making.
• Technology transfer can be defined as the transfer of knowledge relating
to the design of processes, the provision of a service or the expertise of the
support services pertaining to the operation. It, therefore, relates not only
to the introduction of new hardware but also to the techniques and skills
to operate it. Industry 4.0 relates to the fourth industrial revolution – more
specifically, cyber-physical systems and their use globally.
• The application of digital technologies is a particular area of interest. All
these aspects have a place within any study regarding operations
management – especially with regards to digital disruption.
Business Intelligence
• Operations managers often try to make sense of data, create information, utilise
knowledge and leverage wisdom in order to positively influence and control
volume, variety, variation and visibility. Whether at the start of the operations
process design (e.g. deciding to make or buy), during the provision of the service
or product or indeed as part of the ‘after sales’ service support.
• Business intelligence accounts for the largest share of global business investment
in information technology (Ransbotham and Kiron, 2017). This interconnectivity
of data and information presents a strategic advantage for organisations and
external networks.
• In terms of the allocation of resources, business intelligence systems have the
capability to examine both organisational and technological perspectives, from
well-defined historical databases to technology architecture through sharable
platforms.
• The challenge is to create visibility of internal and external resources across the
product life cycle as well as make an impact across the product portfolio.
Business intelligence has become a critical foundation for informed decision-
making in creating greater operational flexibility, more transparent
responsibilities and ultimately reducing operational risk.
Digital Transformation
• The decision to invest in this form of business intelligence system is
referred to as digital transformation, which ideally creates seamless
connectivity of technologies and people.
• This can result in improved productivity for the organisation and
transparency across the network, but it can also potentially identify
problems, vulnerabilities and opportunities critical to the operational
decisions of the business.
• Digital transformation is crucial for sustaining competitive advantage
and creating new business opportunities. Companies such as Amazon,
Airbnb, Netflix and Uber have disrupted traditional business models
and opted to use business analytics and data science to become
nimbler in the connected, competitive digital world. The question is:
to what extent can digital technologies enhance our operations?
• This digital transformation is happening to both services and products via
new opportunities created through mobile technology, social media, data
analytics, artificial intelligence (AI), blockchain, additive manufacturing,
digital twins, autonomous vehicles, augmented and virtual reality.
• Organisations are now able to create digital operations, simulated through
virtual environments, predicting the behaviour of customers and suppliers
using forecasting models to create scenarios based on predictive analytics.
• Digital transformation requires organisations to continually challenge the
status quo as businesses pivot their operations through integrating new
digital technologies.
• There is a need to fundamentally change how individuals adopt
technology, how disciplines accept technology, how organisations adapt it,
and how policy integrates this technology transfer in order to change the
way we operate whilst improving overall operational performance.
• Whatever the scenario, the process of digital transformation is also a
cultural one, affecting individuals, business functions, organisations and
external networks. This especially applies to those networks that are
closely related to the state of an organisation’s network in levelling-up
operations through policy and practice.
Technology Transfer
• To actually operationalise business intelligence and digital transformation,
technology transfer must be considered and understood. Companies and
governments are the main (but not the only) agents in technology transfer, which
can be defined as the transfer of knowledge relating to the design of a service or
product, development, distribution, supported by the service provision or
expertise of the support services pertaining to the product/service, but also the
techniques and skills to operate and maintain it. Historically, there are two core
types of technology transfer: vertical and horizontal.
• The first of these, vertical is typical of domestic (single country based) and so-
called ‘in-house’ transfer of new technology. Second, horizontal transfers existing
technology from one context to another. In global operations, this is more
common when new technologies are being transferred from industrialised to
developing countries.
• Most transfers are hybrids of vertical and horizontal transfer: technologies
invariably need to be adapted and/or refined; there will need to be a link- age
between vertical and horizontal technology transfer.
• Technologies invariably need to be adapted and/or refined, and there will need
to be a linkage between vertical and horizontal technology transfer. But should
one always adapt/select technology to suit local needs or use a
standardised/established technology?
Vertical and Horizontal Transfer of
Technology
The Components of Technology Transfer
• The first of these is ‘hardware’: the physical process technology
people consider when thinking about technology (e.g. buildings,
assembly lines, equipment, tools, components and raw materials).
People and knowledge (humanware) reflect the fact that successful
technology transfer is very much a human process of interchanging
ideas and learning from them.
• To be successful (to achieve the set objectives in the transfer project),
product, operations, equipment ‘know-how’ and training all need to
be carefully considered.
• Finally, ‘software’, but not merely software in the computer sense; it
must include manuals, procedures, documentation, information, etc.
Technology Transfer Contexts
• Of course, technology transfer involves many more scenarios, principally
the transfer of technology: between industries, between functions, along
the value chain, between suppliers and acquirers (senders and receivers)
in different countries and international technology transfer. This foreign
technology supply can be represented as per next slide figure.
• The left-hand side of the diagram represents the acquisition of technology
through a one-off payment (licence fee, etc.) and perhaps the use of local
agents to contextualise the transfer. This is typically for short-term tactical
commercial gain.
• The right-hand side shows a degree of vertical integration with the
purchase of a subsidiary (buying the company that makes/provides the
required technology). This is commonly a strategic business decision for
the long term.
Theories of Technology Transfer
Traditional Theory
• When firms determine an appropriate mix of labour and capital, they
will transfer technology to lower or minimise their costs.
• But there are some assumptions with this: perfect competition;
homogenous products; a high number of firms; and economic
rationality.
• Contemporary theories attempt to overcome these limitations.
Contemporary Theory
• A high proportion of companies compete not only on price but also
through differentiation. Traditional theories are deficient in
addressing this reality. Technology transfer, first and foremost,
involves the transfer of expertise and knowledge, not just equipment
or product technology.
• Well-codified technological knowledge is easier/less costly to transfer
than new/unproven/disordered knowledge. Even well-ordered
technologies will require face-to-face contact and the transfer of
people from the sender to the recipient partner.
• Given the above, firms should attempt to transfer only those
technologies that are well understood, or else pay a high price for the
transfer.
Dimensions of Technology Transfer
• Technology transfer is rather an imprecise term that has several different contexts. For
our purposes, we identify four dimensions of technology transfer:
• International versus domestic TT: Transfer need not be only thought of as ‘international’
and national-boundary spanning. It goes on all the time between companies in national
economies (research institutes to commercial organisations) as well as at the micro-level
(from research & design/laboratory to operations).
• Commercial versus non-commercial: Commercial transfer of product/process know-
how, but also considerable non-commercial TT, especially in relation to health,
humanity, food and welfare (World Health Organization, Overseas Development
Administration, numerous non-governmental organisations, third sector charities, etc.).
• Tangible goods versus intangible know-how: TT is most usually thought of as the
purchase and/or installation of physical equipment. Of course, it can involve the transfer
of knowledge, management tools and techniques – the so-called ‘know how’.
• Free versus proprietary knowledge: Free in the public domain (e.g. journals, scientific
knowledge) versus more applied technological knowledge, which is within the domain of
commercial organisations, may be protected by patents, or may be trade secrets –
whose diffusion often has strings attached in monetary and contractual terms.
Elements in the Transfer Process
• There are a number of important elements to consider within the
transfer process:
• Transfer item: what exactly is being transferred – product, process,
know-how or combination?
• Who is the donor?: where is the technology coming from? Who has
the proprietary rights, and is that person or organisation willing to
grant access to the technology?
• Who is receiving the technology?: what is their existing knowledge
base or skill set? How might they receive it?
• How will the technology be transferred?: licensing, direct purchase
or how – there are many different ways, and combinations of these
ways, to effect the transfer. This goes some way to explaining why TT
is difficult to define.
The (Many) Mechanisms of Technology
Transfer
• These include Turnkey (build-operate-transfer) projects; technological
enclaves; licensing; joint ventures; patents; in-house transfers to foreign
subsidiaries; emulation of a product or process; the purchase of naked and
embodied technology; purchase of technological services; education
abroad; site visits and job training abroad; international collaboration in
research; published literature; meetings, seminars and conferences.
• Operations manager need to factor in the increasing levels of
commitment, potential return and financial risk involved within the various
formal agreements available for technology transfer.
• Amongst these, selling a ‘licence’ for the use of technology in exchange for
royalty payments is more common in later stages, and there are issues of
control. Wholly owned subsidiaries are used as a means of transferring
technology to gain or maintain access in foreign markets and retain
proprietary knowledge, whilst joint ventures reduce the capital cost and
investment risk of the transfer process and can often enable the firm to
acquire a wider range of technology.
• In terms of at what rate the technology can be transferred, there are many
different factors. These can be identified as being production, technology
and/or imitation effects, but demand from the market also influences this
as well.
• Of course, the absorptive ability of the recipient is also a critical factor; can
the technology be absorbed easily and quickly, or are the scientific and
technological (including human resources) and social infrastructures not in
place?
• Important considerations also include technology span, the proposed
number of users per technology application; technology scope, the spread
of user application; few actual users, with the process characterised by
‘point-to-point’ technology transfer; and many users, in which case the
‘diffusion’ of technology becomes a critical issue.
• In reality, most transfers are hybrids of vertical and horizontal transfers.
Technologies invariably need to be adapted and/or refined, and there will
need to be a linkage between vertical and horizontal technology transfer.
• But should one always adapt/ select technology to suit local needs or use
a standardised/established technology?
Formal Agreements for Technology Transfer
The Technology Transfer Process
Technology Acceptance Model
• One of the most influential models of technology acceptance is the
Technology Acceptance Model (Davis, 1989). The framework looks at the
predictability of information technology (IT/or digital) adoption through
the perceived usefulness and ease of use influenced by individuals.
• For example, an operations manager who perceives management systems
as too difficult to navigate will be unlikely to want to adopt new
technology, whilst an operations manager who interacts with technology
in their own time (via social media, apps, online gaming, etc.) and views
this as positive mental stimulation will be more likely to want to discover
how management systems can support their decision-making.
• This could be through the development of blockchain and digital ledgers or
trusting information within systems to manage resources and coordinate
responses in the organisation, factoring in external drives and changes in
business practices.
Technology Choice
Technology Acceptance Model (adapted from
Davis, 1989)
Student read
• Blockchain technologies
• Digital ledgers
• additive manufacturing
• digital twins
Industry 4.0
• Over the last three decades, interconnected processes of globalisation and
rapid techno- logical change have profoundly disrupted the way
organisations operate. Industry 4.0 (the fourth industrial revolution) is
really the digitalisation of operations.
• It emerged in 2011 from a high-tech strategy project led by the German
government, which positioned the following: Industry 1.0 relates to water
and steam power that enabled mechanical production at the end of the
eighteenth century;
• Industry 2.0 relates to the intensive use of electrical power and the
division of labour in assembly lines that allowed mass production at the
end of the nineteenth century and the beginning of the twentieth century;
• Industry 3.0 stems from the use of IT and electronics and the introduction
of programmable logic controllers that enabled automated production in
the second half of the twentieth century; and the goal of Industry 4.0 is to
encapsulate real-time data across businesses and extended enterprises,
from design to production, and to use between system elements to
enhance productivity.
• Industry 4.0 technologies include cyber-physical systems, additive
manufacturing, the Internet of Things (IoT) and smart factories. The
service sector is exploring and applying AI, big data analytics (BDA),
blockchain, the cloud and augmented reality and virtual reality
(known as extended reality).
• These technologies are focused on mass productivity and
performance, not only enhancing eternal factors such as customer
experience, the supply chain network, the product cycle and
servitisation, but also internally affecting business operations,
decision-making and organisational structures, and holistically, where
all business dimensions are involved (Kolagar et al., 2022).
• As these Industry 4.0 technologies are implemented, the
sociotechnical end-to-end of the operations requires higher levels of
human-technology interface to maintain the organisations core
values and business goals to ensure a sustainable outcome.
Industry 5.0 and Behavioural Operations
• Whilst Industry 4.0 focuses on improving mass productivity and
performance, through the provision of digital technologies between
devices and applications, Industry 5.0 really considers the human factor
(accountability, responsibility, wellbeing and job satisfaction) through the
mass personalisation of internal and external networks, creating a social
technological system.
• To enrich the predictability of data and create informed decision-making
through the leveraging of analytics, Industry 5.0 is geared to enhancing the
quality (fitness for purpose) of the operations by aligning technology with
the critical thinking of humans.
• It focuses on bringing back human intelligence to the operations, enabling
the ‘robots’ to share and collaborate with humans through intelligent
workflows and systems.
• Another interesting benefit of Industry 5.0 is the potential for the provision
of a more sustainable process, protecting the external and natural
environment,
• Behavioural operations management explores the human interaction
of operational systems and processes.
• Specifically, those behaviours that impact operational performance
and the ways in which controls, procedures and policy might impact
performance, such as job satisfaction, motivation, ability to adapt and
respond to individual differences.
• Of course, the goal of all this digital transformation is to provide
prosperity, bringing strategic advantage whilst also respecting the
boundaries of our society, our planet and the wellbeing of workers.
• These elements are at the centre of any operation and need careful
consideration and facilitation in order to create resource-efficient and
user-preferred solutions.
Summary
• Digital transformation and technology transfer are strategic issues
often omitted from both the academic and practitioner literature.
• They have long-term strategic consequences for both the sending and
recipient parties, as well as economic, social and political
implications.
• Digital transformation and technology transfer equal ‘CHANGE’, and
change is frequently difficult to implement in practice.
• For current examples, review the national and international press for
the high-profile examples of technology and digital transfer successes
and failures of Industry 4.0 and Industry 5.0 and the critical impact of
behavioural operations in operational systems and processes.