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What is a Data-Driven Organization?

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 What is a Data-Driven Organization?

What is a Data-Driven Organization?

Completed Research

Marius Hupperz Inan Gür

Fraunhofer ISST Fraunhofer ISST
marius.hupperz@isst.fraunhofer.de inan.guer@isst.fraunhofer.de

Frederik Möller Boris Otto

TU Dortmund, Fraunhofer ISST TU Dortmund, Fraunhofer ISST
frederik.moeller@tu-dortmund.de boris.otto@tu-dortmund.de

Abstract
Modern businesses rely on efficient management of their data assets. Data management and analytics have
become decisive success factors for enterprises and companies during the last decades. However, the
different aspects of transforming an organization into a data-driven one leave a lot of room for scientific
inquiry. There are various aspects to consider in the transition to a data-driven organization. The paper
investigates key elements and corresponding requirements of data-driven organizations to foster
consensual definition in the research field. The work is grounded in the theory of organizational design and
presents deductively generated results collected in a literature review. Key contributions of the paper are a
shared understanding and a proposition for key elements of data-driven organizations.

Keywords

Data-driven organization, structured literature review, data management, data analytics.

Introduction
The continuous development and penetration of digital technologies lead to disruptive changes in the
economy and society (European Commission 2020). These digital technologies enable novel ways to
leveraging data for optimizing business processes and finding new configurations for innovative data-
driven business models (Yoo et al. 2010). Data differs from typical resources as they enable reproducible
services at almost zero marginal cost and offer a plethora of utilization options independent from specific
devices (Veit et al. 2014). Organizations need to integrate analytics technologies (e.g., predictive or
prescriptive analytics) to leverage the potential of data to uncover previously undiscovered business insights
and opportunities (Berndtsson et al. 2018). Usually, papers employ the term “data-driven” to illustrate the
role of data as a central resource (e.g., see Hartmann et al. (2016)). Throughout our research, we found
several publications investigating the term data-driven. The oldest paper we found was from 1983,
exploring data-driven automation in manufacturing industries and recommended handling data smarter
to achieve substantial cost savings (Jurgen 1983). Nowadays, we know that the term data-driven is relevant
for manufacturing and all industries and society in general. Forecasts predict that the amount of data stored
worldwide will increase fivefold from 33 Zettabytes in 2018 to 175 Zettabytes in 2025 (Reinsel et al. 2018).
Subsequently, considering the economic value of data is an issue that can not be ignored. Organizations
must embrace this disruptive change process and integrate data into existing and new processes. Since there
is still no adequate description for this type of organization, we are trying to identify key elements and derive
conceptual requirements. Further, we describe those organizations as data-driven organizations (DDO).
Against this background and the growing importance of data in professional and social life, we want to find
out what this means for industrial organizations. Subsequently, we ask ourselves, “What is a data-driven
organization?”. To find an adequate answer, the paper investigates key elements of DDOs through a
structured literature review, following the approaches of Webster and Watson (2002) and vom Brocke et

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 What is a Data-Driven Organization?

al. (2009; 2015). According to Leavitt's (1965) diamond framework, we frame the study to find
requirements for establishing a DDO. Because of the above, our research questions read as follows:
Research Question 1 (RQ1): What are the key elements of a DDO?
Research Question 2 (RQ2): What are the conceptual requirements for establishing a DDO?
RQ1 focuses on the needs which should be considered on a scientific basis. Considering the results from
RQ1, RQ2 seeks to find strategic requirements for a DDO on a strategic basis. To answer the research
questions, we proceed as follows: 1. As part of our deductive research, we set up a structured literature
review to find relevant literature about the term DDO; 2. Based on the identified literature, we created a
joint map to show key elements of a DDO (RQ1); 3. We used the Leavitt’s (1965) Model to derive conceptual
requirements conceived of the variables from the joint-map to answer RQ2. Finally, our findings are
summarized in the conclusion.

Theoretical Background
Organizational Design
One of the primary intents of strategic management research has been to understand the contingent effects
of strategy on an organization’s performance. The contingency theory claims that there is no singular
optimal strategy for all organizations (Zott and Amit 2008). Hence, the main goal of a contingency approach
to organizational theory has been to adjust an organization's structure to external sources and its internal
abilities. Therefore, a contingency model of organizational capability effectively identifies decision variables
relevant to organizational design (Victer 2020). Organizational design is a highly pertinent theoretical
approach to understanding organizational performance (Levitt et al. 1999). It is a decision-making process
(Kates and Galbraith 2007) for differentiating and integrating units that constitute the primary drivers of
strategy execution (Hernaus et al. 2013). It affects the organization’s structure and performance as different
approaches to designing and structuring organizations lead to varying outcomes under varying conditions
(Tushman and Nadler 1978). Firms and organizations are fundamentally designed around the concepts of
specialization, interdependence, differentiation, and integration (Nahapiet and Ghoshal 1998). Because of
the above, we adopt organizational design as a theoretical lens for our study (Niederman and March 2019).
Over the past decades, there have been different frameworks and approaches to organizational design. For
example, Weisboard (1976) created a six-variable model to sort the activities – formal and informal – of an
organization that must be in good working order to succeed (Saeed and Wang 2013; Weisbord 1976).
Tushman and Nadler (1978) proposed a congruence model for aligning the goals and demands of specific
organizational elements (Saeed and Wang 2013; Tushman and Nadler 1978). Galbraith (2016) proposes a
five variable model for organizational strategy and execution (Falletta 2014; Galbraith 2016; Kates and
Galbraith 2007). First, the strategy (1), which determines the direction. Second, the structure, which
determines the location of the decision-making power (2). Third, the processes, which describe the flow of
information (3). Fourth, the rewards, which influence the motivation of the people in the organization (4).
Fifth, the human resource policies, which define the employees’ mind-sets and skills (Galbraith 2016). In
our approach to analyzing the organizational design and organizational data management, we resort to the
model of Leavitt (1965).

Leavitt‘s Model
Leavitt (1965) offers a four-variable model to analyze organizational functions and the relationships among
the variables “structure”, “technology”, “people” and “tasks” (Saeed and Wang 2013). Within the model, the
structure variable describes the system and location of authority, the organization's communication
systems, and the composition of tasks. The variable tasks refer to all tasks and functions that provide
products and services to generate value. The organization's technology view includes the hardware and
applications used for various tasks. The fourth variable, people/actors, refers to human resources within an
organization who carry out tasks (Falletta 2014; Saeed and Wang 2013). The diamond shape of the model
(see figure 1) emphasizes the interdependence among the four variables, as the change in one aspect affects
the other variables and hence the organization (Falletta 2014). Our study utilizes this model to analyze the
data management requirements for an organization to fulfill various requirements and challenges to
become data-driven and enhance data-driven value creation. We chose Leavitt’s model to offer a balanced

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 What is a Data-Driven Organization?

and logical view of the complexity of organizational change, design, and transformation. Furthermore, it
presents a strong and direct link between technology and the other dimensions. As a data-driven
organization can hardly be scientifically analyzed without the inclusion of technology in the analysis, we
opted to utilize Leavitt’s model. With this model, we aim to assemble conceptual requirements extracted
from the key elements which we derive from our structured literature review.

Research Design
Structured Literature Review
We chose a systematic literature review of the data management literature to address our first research
question and deductively derive key elements. To ensure the quality requirements of appropriate research
rigor, breadth, brevity, constituency, and clarity (Levy and Ellis 2006), we followed the approach of Webster
and Watson (2002) and vom Brocke et al. (2009; 2015). The scope of the literature review sets the focus on
theories and research outcomes in the research field of data-driven organizations with the goal to outline
central issues. We aim for a neutral representation of a representative coverage of the literature for general
scholars as well as practitioners (vom Brocke et al. 2009). We selected the four literature databases, “ACM”,
“IEEE Xplore”, “Scopus” and “AISeL”, as these databases include relevant Information Systems research
journals and conference proceedings. We searched the databases for pertinent keywords of December 2020
and identified 81 studies (table 1). The keywords used were “data-powered enterprise”, “data-powered
organization”, “data-driven enterprise”, and “data-driven organization”. In addition, we included different
spelling like with and without hyphen or distinction of American English and British English (e.g.,
organisation/organization).

Academic library Studies retrieved Studies excluded Studies included

ACM 5 3 2
IEEE Xplore 9 4 5
Scopus 40 26 14
AISeL 27 24 3
Total 81 57 24

Table 1: Sources and number of studies

Our initial set of 81 studies was found by searching the keywords in the titles. We selected studies that
mentioned data-driven innovation, big data, data science, data-driven business models, data analytics,
digital transformation, and data-driven culture (inclusion criteria). We excluded studies that fell into any
of the five exclusion criteria (EC), which were as follows:
- EC1: The study is not accessible on the web;
- EC2: The study does not present any type of findings or discussion about DDO;
- EC3: The study does not have one of the keywords in the abstract;
- EC4: The study is not written in English;
- EC5: The study is a duplicate.
After filtering the retrieved studies, 24 studies were included in our research. Using these studies, we
created a concept matrix following the guidelines of Webster and Watson (2002). Through the concept
matrix, we were able to discover the following key elements: Digital transformation, data science, data-
driven business model, data-driven innovation, and data analytics. In the following, we present our research
framework and our findings.

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 What is a Data-Driven Organization?

Research Framework

Figure 1: Research Framework adopted from (Leavitt 1965; Vidgen et al. 2017)
We adopt the diamond framework of Vidgen et al. (2017), which is based on the previous research by Leavitt
(1965) (figure 1). The diamond framework has a long and distinguished provenance in studying socio-
technical systems and DDOs (Berndtsson et al. 2018; Vidgen et al. 2017). We use this model to examine
challenges and provide an overview of DDOs. For that, we changed the diamond framework's general topic
from analytics capability to DDO. Berndtsson et al. (2018) changed value creation to business insight since
there is no guarantee that analysis will lead to business value. However, we decided to change this to
conceptual requirements because creating business insights is a goal of DDOs and conceptual requirements
have not been covered by previous studies.

Key Elements of a Data-Driven Organization

Figure 2: Data-Driven Organization joint map

We identified five major Key Elements (Kn) that describe DDOs at a high level. These are Digital
Transformation (K1), Data Science (K2), Data-Driven Business Model (K3), Data-Driven Innovation (K4),
and Data Analytics (K5), which we will explain below. The key elements were discovered through a logical
content aggregation of the concepts identified in each document. These key elements are highly aggregated
findings that subsume a host of lower-threshold concepts, which we visualize in a joint map (figure 2). That
relationship results in a link between key elements and more detailed characteristics (Cnm).

Key Element (K1): Digital Transformation

To integrate data into existing or new processes, organizations must set up a digital transformation
(K1). A clear vision must be worked out to digitize an organization, forming a digital transformation process
strategy (C11). To make this a success, goals have to be set up with clear success factors to measure
progress in the long and short term (Berndtsson et al. 2018; Klotzer and Pflaum 2015). Klotzer and Pflaum

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 What is a Data-Driven Organization?

(2015) emphasize that this is a race against time that must be supported by the establishment of a data-
driven culture (C12) (Storm and Borgman 2020). A supporting digitization department and
corresponding business ecosystem can tackle challenges that enable open, innovative digital transformation
culture (Klotzer and Pflaum 2015; Storm and Borgman 2020). That enables new product and service
innovations with a significant impact on the organization. In this context, the culture creates an awareness
among the employees to work together towards the vision and follow the strategy. The supporting business
ecosystem (C13) allows an organization to interact with other organizations and individuals, like
customers, producers, competitors, and other stakeholders (Oliveira et al. 2019).

Key Element (K2): Data Science

With the advent of significant technology changes, the way individuals and organizations produce, share
and consume data has changed (Oliveira et al. 2019). Data Science (K2) has found new ways to analyze
and gain value from data (Henderson et al. 2017). To turn data science prototypes into production
applications and data products, IT professionals (C21) are required (Vidgen et al. 2017). Processing,
analyzing, and integrating available data can produce beneficial and insightful information for the business.
More importantly, it would provide the competitive edge necessary for the business to survive in an
increasingly competitive environment (Kearny et al. 2016). According to Kearny et al. (2016), data science
can add value (C22) to organizations in many different ways: Providing transparency within the company,
discovering needs, marketing specific to a target market, replacing/supporting human decision making, or
reaching (automated) data-driven decision making, and innovating new business models, products and
services. All of this does not have to impact an organization's assets directly but can lead to a competitive
advantage (C23). Establishing a digitization department supports an organization's path to become data-
driven. However, Vidgen et al. (2017) and Schüritz et al. (2017) distinguish between business analysts, IT
professionals, and data scientists. To gain business insights from data takes more than merely setting up a
data science team (Vidgen et al. 2017).

Key Element (K3): Data-Driven Business Model

In order to create economic value, gained business insights must be transferred into business models.
Hartmann et al. (2016) developed a framework to allow a systematic analysis and comparison of data-
driven business models (K3) (DDBM). According to them, DDBM can be divided into six key
dimensions: key resources, key activities, value proposition, customer segment, revenue model, and cost
structure (Hartmann et al. 2016). To develop a new DDBM, a different approach must be taken. First, a
company needs to determine market demand (C31), second, a business model (BM) has to be developed
(BM development (C32)), including value discovery, value creation, and value realization, and third, the
business model has to be refined (Cheah and Wang 2017). A crucial part of this process is the value
creation (C33) of digitized information, which means that a DDBM explicitly focuses on seeing data as the
key resource for value creation (Guggenberger et al. 2020). For this purpose, organizations need to focus
on their dynamic capabilities, integrate processes to explore and exploit their big data resources and,
identify and measure value (Olszak and Zurada 2019). Additionally, organizations rely on market data and
operational data to refine their business model and secure future value gains (Cheah and Wang 2017).

Key Element (K4): Data-Driven Innovation

Nowadays, enormous amounts of data are generated and collected. Companies use this data to transform
their business activities into data-driven innovations (K4) (DDI) (Victor and Farkas 2018). Through
DDI organizations are enabled to use their massive amounts of data, which we further describe as big data
(C41). Big data can be characterized by the following ‘V’s: Volume, Variety, Velocity, and Veracity (Kearny
et al. 2016). This can be understood as large capacity, rapidly changing data formats, high frequency of data
generation, and the data with value must be verified. To make use of this data, organizations need to analyze
and discover data, predict and optimize through algorithms, and distribute the information through the
various company departments (Polzonetti and Sagratella 2017). Victor and Farkas (2018) developed a
general framework for enterprises to foster data-driven innovation in three steps: First, identify the data
type to be collected and their sources. Second, identify how data is transferred to the processing and storage
facilities. Third, data must be analyzed. That makes research and development (R&D) (C42) a
considerable part of data-driven innovations.

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 What is a Data-Driven Organization?

In contrast to DDBM, it is not purely focused on value creation. Moreover, companies use it to transform
their business activities into data-driven decision-making, data-driven marketing gambits, and data-driven
operational efficiency (Victor and Farkas 2018). Overall, this opens previously undiscovered business
insights (C43) to organizations that were not discovered previously.

Key Element (K5): Data Analytics

Organizations expect to gain information from their data generation and collection, whether they use it for
DDBM or DDI. Value can be created through data (e.g., process optimization, product or service
innovation), but organizations must be aware of their goals when considering using data to create value. It
is necessary to make a clear distinction between data, information, and knowledge to have a better
understanding of the concept of data-driven value creation (Victor and Farkas 2018). The decisive factor in
achieving this is data analytics (K5). Data analytics allows organizations to gain business insights
(Berndtsson et al. 2018). Saying this, analytics can be categorized into i) descriptive analytics, ii) predictive
analytics, and iii) prescriptive analytics (Berndtsson et al. 2018). Descriptive analytics (C51) is typically
supported by data collection and generation through data warehouses to identify what has happened in the
past (Berndtsson et al. 2018). Predictive analytics (C52) uses data mining to find previously unknown
patterns (Berndtsson et al. 2018). Data mining techniques can be categorized into three broad approaches:
predictive modeling (to include classification), clustering, and association (Chae et al. 2014). Prescriptive
analytics (C53) (e.g., mathematical optimization) is used to analyze data and useful information such as
predicting customers and sales, objective functions, business constraints, etc. (Chae et al. 2014). Overall,
data analytics can be understood as the incubator for data-driven organizations.

Conceptual Requirements for DDOs

Task
According to Leavitt, the variable task describes operations conducted for value-creation (Leavitt 1965;
Saeed and Wang 2013). Data and decision-making tasks can be classified into vertical and horizontal
processes. While vertical processes define resource allocation of funds and talent, horizontal processes
enable tasks and decision-making across functional boundaries (Sandrin et al. 2014). Cheah and Wang
(2017) and Victor and Farkas (2018) list challenges, like infrastructure and shortage of data (horizontal), as
well as human resources and investments (vertical), a successful DDO has to tackle. Integrating processes
and tasks is essential to reducing big data and data analytics costs. Integrating activities involved in the data
lifecycle into organizational routines improves data velocity and organizational data capabilities (Shamim
et al. 2019). Data analytics provides value to an organization through processes and tasks to transform data
into the most usable form to solve business problems and grant business insights (Anwar et al. 2018).
Developing and implementing data-driven patterns, tasks and processes cultivate an organizational data-
driven culture, which influences leadership styles, working climates, strategy, management, and
organizational behavior (Shamim et al. 2019).
From the previously established joint map, we divided between DDI and DDBM. Both are clear tasks for
DDOs. DDI is used to find previously unknown business insights, which do not necessarily create a
monetization. DDBM is established to realize value through data (Guggenberger et al. 2020). Whether or
not DDIs create value, we assume that successful DDIs and DDBMs impact an organization's overall
performance.

People
The variable people/actors refer to the human resources of an organization. In order to perform tasks
sufficiently, an organization requires an appropriate combination of human resource policies to acquire
talent, generate skills, and establish necessary mindsets to implement its chosen data management
direction and organizational data capabilities (Sandrin et al. 2014). Complex organizations require data
management skilled employees at all levels to hold adequate competencies for cross-organizational
interaction, decision-making, and communication (Kates and Galbraith 2007). Data-driven value creation
sets managerial challenges like leadership focus, talent harnessing, and technology management. Data
management capabilities are associated with leadership proclivity towards change and the perception of

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 What is a Data-Driven Organization?

opportunities to change existing routines and resources productively. As data becomes more and more
available for organizations, data-driven organizations need to recruit data scientists and data experts as
data management requires skills involved in cleaning, storing, sharing, and visualizing the data (Shamim
et al. 2019, pp. 2-3). According to Anwar et al. (2018), organizations need to have competent data scientists
to keep market and customer data up to date since 90% of enterprises fail due to a lack of skills to adequately
democratize, contextualize, investigate and implement data management comprehensions (Anwar et al.
2018, p. 8). Studies like Anwar et al. (2018) and Dubey et al. (2019) show the significance of human
resources for data-driven organizations, as human data skills are crucial for successful big data analytics.
Davenport (2006) elaborates the importance of human skills in analytics for data-driven organizations, as
“employees hired for their expertise with numbers or trained to recognize their importance are armed with
the best evidence and the best quantitative tools. As a result, they make the best decisions” (Davenport
2006). He further elaborates the positive effects of data analytics and modeling for organizational functions
like supply chain, pricing, or financial support (Davenport 2006). According to Shanks and Bekmamedova
(2012), stronger resourcing in terms of people and other funding increases the likelihood of success. Despite
the significant investments required, a well-educated and continuously trained workforce is a critical
success factor for a DDO.

Technology
The third variable in Leavitt’s model describes the technology used to perform the tasks in the organization
(Saeed and Wang 2013). Technology can be deceived as the software and hardware used to support the
processes and data-driven value creation in a DDO. To transform to a DDO, technology is needed to provide
the infrastructure enabling data processes and automated activities like data generation, analytics,
visualization, or warehousing (Ashrafi et al. 2019). Studies like (Devaraf and Kohli 2003) show IT
investment and IT alignment can be crucial for organizational performance. Particularly for DDO,
technology is required to use analytical tools and techniques (Chae et al. 2014) to support and perform data
science activities like processing, analyzing, visualizing, storing, and sharing data (Ashrafi et al. 2019;
Dubey et al. 2019). Berndtsson et al. (2018) summarize it as this puts pressure on the IT unit to enable easy
access to data. It also has implications for the decision process since employees will now more frequently
arrive at meetings with their analysis (Berndtsson et al. 2018). From a technology perspective, visualization
and data interaction are more than technical ways of presenting data to the business. They are an integral
part of the communication process in which non-technical business people can engage in discussions about
data (Vidgen et al. 2017).

Structure
The organizational structure describes the system and location of authority, the communication systems,
and the composition of tasks (Leavitt 1965; Saeed and Wang 2013). While organizations can develop data
management skills by hiring new talent or training their current employees, leadership acknowledging data
as a strong asset is vital to enhance the return of investment in data management talent (Anwar et al. 2018).
The organizational structure determines where formal power, leadership, and authority are located and is
formed around functions, products, geographies, or customers (Kates and Galbraith 2007). Therefore, the
structure sets a particular role of hierarchy and the location of decision-making (Grant 1996). Defined roles
set the hierarchy and decision-making within the organization. Schüritz et al. (2017) define several roles to
implement and perform data analytics in an organization like data architects, project managers, data
scientists, data analysts, and data engineers. The establishment of data roles and data-driven decision-
making fosters a data-driven organizational culture, which data-driven organizations need to develop
(Schüritz et al. 2017; Shamim et al. 2019).
To enable an organization to become data-driven, two factors must be considered. The organization should
establish a digitization department, which develops a strategy and measures the organization's progress
(e.g., metering and KPIs) to become data-driven. Additionally, this department can provide the investments
to hire a skilled workforce and invest in new technologies (Jurgen 1983; Victor and Farkas 2018). Second,
to structure the organization's analytics capabilities, an organization-wide analytics team should be
established (Berndtsson et al. 2018). This team performs the data analysis and distributes the information
through the various company departments (Polzonetti and Sagratella 2017). The roles mentioned above by

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 What is a Data-Driven Organization?

Schüritz et al. (2017) can define this team, and the progress of establishing the dedicated analytics team can
be measured by Berndtsson’s et al. (2018) maturity level.

Conclusion
Our article attempts to derive key elements of data-driven organizations and conceptual requirements. As
described by vom Brocke et al. (2009; 2015) and Webster and Watson (2002), we conducted a structured
literature review. To answer RQ1, we created a joint map illustrating key elements of data-driven
organizations and their individual characteristics. We constructed conceptual requirements, extracted from
literature, and grounded them on organizational design theory to answer RQ2.
Our study analyzes and structures a relevant research field and is accompanied by a plethora of research
implications. First and foremost, our study proposes an avenue to harmonize an understanding of what
a data-driven organization is and the key elements it is made of. Each key element presents an exceptional
opportunity for in-depth research projects, which are valid on their own, but connected and contextualized
through our framework. While our framework is high-level, it enables looking at data-driven organizations
with reduced complexity. That, naturally, both is a limitation through the abstraction of detail and a
contribution through its general and harmonizing scope.
Our results can guide managers in identifying relevant fields for action in establishing data-driven
organizations while still at a high level in terms of practical implications. Most significantly, our work
is a starting point that can act as a checklist for critical issues in that transformation process. Explicitly, the
framework addresses data-focused managerial positions (e.g., Chief Data Officer) to help shape that
transformation process more efficiently. Subsequently, we both offer descriptive value in depicting what
makes data-driven organizations and give a prescription in which areas should be shaped with intensive
care.
Naturally, the study has limitations, which first and foremost lie in the general nature of the results that
it produces. Yet, we argue for their value as they give initial structure into a highly relevant topic both for
academia and practice. While we opted to find a comprehensive sample, we may have missed articles in the
structured literature review. Additionally, our findings, at this point, solely rely on data found in the
literature corpus. Extending the methodological scope, for example, by integrating empirical inquiry into
data-driven organizations through qualitative interviews, questionnaires, or case studies in organizations
that have undergone that transformation, is both a limitation and an obligation for future research. By
collecting field data from organizations running through a transformation process, our key elements could
further be used to describe a flow between key elements that needed to be considered as antecedents and
consequences.

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