Corporate Governance Assignment: Research On Digitization Process Of A Firm

Question

Task:
Your task is to prepare a corporate governance assignment presenting a research paper on the topic “The digitization process of a firm and its impact on corporate governance”.

Answer

Abstract
The concept of digitization explored in the present context of corporate governance assignment can be considered as the continuing convergence of both real and virtual worlds by transforming data from analogue to electronic format. This has been the primary driver of innovation and change in various sectors of the economy. The exponentially growing amount of data has made it essential for firms to transform them into digital format for ensuring better flow and sharing of information across the organization. Digitization has been referred to as the process of converting various diverse forms of information like text, images, sound or voice into an electronic format that leads to improved operations and reduced costs for firms. The research paper has discussed about this digitization process of a firm and analysed its consequent impact on the corporate governance. In this regard, various articles have been explored for understanding how digitization can improve or threaten corporate governance of firms.

Introduction
When information is converted into digital format it is termed as digitization. Previously, the senior members of an organization used to keep handwritten documents and files in their offices. Those files were further used by the employees of the organization to accomplish their tasks but 21st century is currently experiencing integration of advanced technology. Thus, the process of keeping documents in the workplace is also changing. It is found that the traditional forms of employment and entrepreneurship is becoming obsolete and organizations are currently getting dependent on digitization of economy (Papadimitropoulos, 2019). Digitization is not only making the process of working easy and systematic within the organisation, it is also enhancing the satisfaction level of the customers and other stakeholders of firms across the world. It is found that digitization that is integrated in the process of a firm has an impact on the corporate governance. The aim of this research paper is to find out how digitization can impact the corporate governance.

Literature Review
Overview of Digitization
The concept of digitization can often be misunderstood as digitalization but there is a difference between these two terminologies. According to the study conducted by Ritter & Pedersen, (2020), digitization means the members of the organization are changing important information of the organization from analogue to digital. On the contrary, digitalization means technological transformation in the entire process of organizational activities. The author states that digitization is generally adopted by internal stakeholders of an organization because it has significant capabilities. It helps the internal members of the organization to generate, store, transmit and access data by using advanced technologies. Furthermore, data theft is one of the most discussed risks in the business environment. Hard copies or files are often stealing that causes major disruption within the workplace. Digitization helps in reducing this issue. Data can only be used or accessed with permission and legislations are attached when it comes to usage of data.

Digitization delighting customers
The demand and needs of the customers are constantly evolving. Organizations often find it difficult to meet these needs. Thus, it is the responsibility to automate the process of decision-making and enhance the operational excellence of the firm to overcome the challenges. According to the study conducted by Chatzopoulos & Weber, (2020), lean principles can be implemented with the help of Digitization. The objective behind implementation of this principles is to enhance the level of customer satisfaction. Digitization has the ability to transform the overall experience of the customers by managing the touchpoints of the customers, integrating advanced digital technologies in the core process of the organisation and by enhancing the interaction activities with the customers. The author also states that departments that deal with marketing and sales need to store large amount of customer data. Storing hard copy of data can bring major managing issues for the organisation. In such scenarios, digitization plays a major role. Digitization helps in storing soft copy of all customer data in the organizations’ system. Large data can be managed seamlessly with the help of digitization. On the other hand, as opined by Abdelhedi, (2021), digitization is focusing on empowering customers from different parts of the world with the help of innovation. The objective of digitization and innovation is to add value to the society. Adding value to the society and enhancing the level of customer satisfaction has also become important after the outbreak of corona virus. Digitization and innovation are helping the organizational members to the empower the customers. Different sectors across the world are also being reimagined with the help of digitization.

In addition to this, Arora & Kaur, (2018), has also agreed to the above point of view. The author states that the success of a business is only possible if customers of the organisation are satisfied with their service. Digitization of the business process and effective service to the customers can be termed as one of the customer satisfaction metrics. Digitization is responsible for creating a solid bond between the customers and the members of the organization. A strong relationship can only be maintained if customers are provided with high-quality services.

Impact of Digitisation on corporate governance
Corporate governance and its future are highly dependent on the process of digitisation and transparency. This digitisation can cause both positive and negative impact on the corporate governance of the firms.According to the study conducted by Moerel, (2021), digitisation is closely associated with innovation within the workplace and it also enhances rapid transformation in the entire process of the business. Furthermore, initiation of digitisation in firms also change the business model.This shows that while the firm experiences innovative business models and processes, it might also make it difficult for the employees in getting accustomed with them. It mainly occurs because of lack of technical expertise and knowledge. New privacy issues along with dilemmas come into action after digitisation and transparency is integrated in the functional departments of organisations across the world. This is how, corporate governance that focuses on the rules and procedures of the business gets impacted with initiation of digitisation in a firm. On the other hand, as opined by Sibanda, et.al., (2020). Digitisation helps in addressing the tastes and preferences of the customers. Spectacular shift in the business model has helped the organisation to become more responsible for their business decisions. The constant approach in enhancing the operational excellence of the firm is also marked as one of the responsible behaviours of the organisation. Thus, from the above discussion it can be said that digitisation and initiation of digital-based activities within an organisation create both positive and negative impact on corporate governance.

Additionally, as opined by Sibanda, et.al., (2020), organisational members are making sure to focus on great digitisation of information within the corporation. Efforts of digitisation in organisations across the world is increasing and board meetings are constantly focusing on discussing implementing digitisation in the core activities of the organisation. The author states that few major responsibilities of corporate governance include streamlining meetings, scheduling meetings and many more. It is found that digitisation makes the entire system automated that further can have a positive impact on corporate governance.Digitization has been generating impact on the corporate governance through different other ways. According to Daluwathumullagamage & Sims (2020), a newly digitized world of corporate governance framework can be formed with rising digitization of firm, which results in a decentralized autonomous organization. The authors have opined that such digitization would enable the stakeholders, blockchains, technologies, organizations and users for transacting and communicating with minimal friction, thereby enhancing the quality of corporate governance in the company. However, excessive decentralization arising from digitisation results in loss of control from the top management. Different units or departments might start working for fulfilling their own interests instead of focusing on the overall interest of the organization, thereby hampering the quality of corporate governance (Fenwick, et al., 2019).While this digitization might seem to be far away from reality, the outbreak of the pandemic has paved the way for such process in the firms. It is because digital representation of physical objects during such uncertain times because useful as organizational members had to work from their homes.

Digitization transforms various areas of a firm and its processes. In this regard, Moro Visconti (2020) has pointed out the role of digitization in the global supply chains of firms operating in the international market. The author has opined that digitization is growing rapidly in this area because of the shift in values observed from physical artifact to smart products data, growing importance of services, radical change in the competitive structures, displacement of industry borders, creative destruction of established structures, transformed business models and changing behaviour patterns. The author has further argued that digitization of supply chains helps in fast end-to-end integration of the supply chain members, enhances traceability and visibility of deliveries, generate cost-effective cloud solutions, standardized transactions, enhanced collaboration, increased networking and enable sharing of real-time information (Moro Visconti, 2020). All these help in increasing the transparency and information flow in the entire supply chain of the global firms, which in turn, contributes towards high-quality corporate governance. On the contrary, Scholz, et al. (2018) have opined that digitization creates various difficulties or problems as well because of the change in processes, systems and business models occurring within the organization. Employees often resist to this change because of the fear of either losing their jobs or embracing something new. Their lack of expertise in using digital toolsalso makes it difficult for them to undergo this change. Such resistance creates disruption of the corporate governance. However, Manita, et al. (2020) have argued that digitization of audit processes results in improved peer review and practice monitoring, which further enhances the quality of corporate governance through authenticity of the firm’s financial and operational performance. It also ensures proper use of data exhaustiveness, offering new services of real-time auditing, supporting firms in digital transformation and evolve their audit processes for meeting changing customer needs (Manita, et al., 2020). Thus, the audit quality can be enhanced from an overall perspective that further positive affects the corporate governance of the firm by making it more transparent and accountable to various stakeholders.

One of the essential elements of ensuring good corporate governance is the effective use of information. According to Brown & Toze (2017), in digitized public firms, information governance is one of the significant parts that enables the administration in efficient use of all information resources including records, published and electronically-held data present at the heart of governance and public administration. This shows that digitization enables the government in effective handling of information that is critical to both economy and society. These data are also sensitive to various individuals and corporations being of national interest. In this regard, dishonest people handing such data or information can use for their own benefits and advantages, which might negatively affect corporate governance and hamper transparency and authenticity (Trittin-Ulbrich, et al., 2021).Thus, alongside reducing complexity and ensuring better governance in the firms, digitisation can also decrease the governance quality.

Companies and businesses always try to seek out new ways of lasting and long-term solutions for ensuring corporate governance transparency and openness. In this regard, digitization and new technologies have become significantly important. This is because such digitization enables in fast communication and positively influencing the way in which companies operate in the business world (CECGA, 2016). Thus, it has created an impact in the area of corporate governance. One of the significant reasons identified for this is the faster, transparent and safer sharing of information across all the management levels and external partners of the corporate firms through digitization. Thus, it is evident that digitization indirectly enables the firms to undertake good corporate governance.

Furthermore, digitization has been supporting modern governance in corporate firms consisting of evolving leadership, board and operational practices. These practices constantly focus on driving sustainable performance and inspiring stakeholder confidence by combining technology, insights and processes(Hopper, 2021). These have improved with the introduction of digitization in corporate firms, thereby leading to organizational transparency and enabling businesses to effectively respond to the emerging pressures in the external environment. Digitization has ensured a better reporting infrastructure through digital data and tools for enabling smooth flow of information across business, board and governance teams. This further helps in delivering accurate and real-time data for facilitating better decision-making and then providing directors with an overall business view (Hopper, 2021). All these contribute towards good corporate governance of the firms. In this regard, the effectiveness of corporate governance depends largely on how leaders are able to embrace digitisation and technology for changing the way they lead in the organizations. Digitisation generates various challenges and developments that affect leadership in the modern organizations (GCG, 2021). They are now required to lead virtual teams, build new proper structures and facilitate employee development. However, failure to respond to these developments because of inadequate skills hampers the corporate governance. Thus, digitisation can also lead to negative impact on the governance because of its associated challenges.

Digitization has generated various effects into the boardroom alongside its digital transformation. The effectiveness of board functioning depends extensively on the communication and information exchange between members and with the management (Srinivas, et al., 2019). Digitization has been affecting this communication and interaction through the transformation of information into digital format by undertaking various digital tools and technologies. These technological advancements have supported the easy sharing of documentation and data between the management and board members that traditional depended on paper-based communications without coordination and centralization. Digitization has further eliminated the need for tracking multiple communications because of digital records, thereby reducing errors and duplicity of data and information (Dibb, et al., 2015). This helps in enhancing accountability, integrity and transparency leading to improved corporate governance. On the other hand, they also face challenges as all information cannot be accessible through laptops, tablets or smart phones. Besides, they also face lack of standardization about information being organized and present that further increases the time for processing data or information. Moreover, security becomes a major concern in digitization of information because of the varying features and functionalities of portals and information shared across them (Srinivas, et al., 2019).This often questions the integrity and authenticity of information sharing and dissemination, thereby generating negative impact on the corporate governance. However, from an overall viewpoint, it has been observed that digitization of communications alongside data enable managers to reduce their document review time and instead invest in complying with governance guidelines. Additionally, it also enhances information sharing, thereby improving the transparency and accountability at the board level of the organizations. Thus, this shows that digitization can both positively and negative affect the corporate governance of companies.

Digitization has also been evident to enhance governance effectiveness of governments. It increases the transparency of various government activities, improves the delivery of e-government services and enhances the provisioning of public education (Sabbagh, et al., 2012). This is because digitization makes a society more transparent through public participation. It further helps the government in disseminating information to the public in an accessible manner, thereby providing the population deeper insight into various government policies and functions. It also ensures efficient delivery of various government services by positively impact human development (Sabbagh, et al., 2012).This, in turn, encourages the government to enhance their governance. Furthermore, digitization also takes place in governance practices that help firms in improving their services, reducing costs and improve the quality of community people where they operate. Such practices are essential for ensuring long-term survival of the firms and creating greater value for the stakeholders (Sarrazin & Willmott, 2016). Modern governance practices take place through digitization of data and information making sharing more effective amongst the board members and management. Such enhanced information sharing further improves transparency and accountability, thereby enabling the firms to achieve good corporate governance (Sarrazin & Willmott, 2016). In addition, it also helps in better protection of the shareholders’ interests through effective corporate governance, thereby benefitting the firms.

It is essential for firms to operate effectively with good corporate governance. In this regard, digitization has been playing a significant role. While this transformation of data into digital format helps in smooth information flow across different organizational members, it also magnifies security, legal and reputational risks for the firms (Kannan, 2018). However, digitization improves the internal audit through effective monitoring and review, thereby ensuring effective corporate governance. Digital governance has gained widespread importance for firms to develop new business models, improve organization’s agility and enhancing customer engagement. In this regard, firms are also required to handle cybersecurity risks, regulatory requirements and brand reputation (Kannan, 2018). This has led to the setting up of digital governance model through a flexible system for ensuring accountability and transparency in the firm. In addition, a governance delivery structure through digitization is also important for ensuring good corporate governance of the firms. Corporate governance forms the basis of people, processes and performance. It is of utmost importance to ensure digitization and an effective digital strategy for gaining better control over the company’s direction (Tricor Global, 2020). The digital corporate governance model can enable the board to use digital tools and digitization for undertaking better strategic decisions, which consequently enhances transparency and accountability of firms. This impact of technology and digitization generate various effects on the corporate governance of the firms. They result in lower cybersecurity risks, high efficiency, guaranteed fairness, high interactiveness, guaranteed information symmetry and high transparency (Tricor Global, 2020). It also ensures improved and secured collaboration, improved information flow, increased participation, access to historical records and managed conflicts of interests. Thus, it indicates that digitization often ensures good corporate governance in the firms by transforming the business models in them.

Conclusion
The research paper focused on exploring the digitization of a firm process and its impact on the corporate governance. In this regard, the paper provided an overview of digitization as the process of changing analogue information into digital or electronic format. It then focussed on how digitization has been delighting customers through improved satisfaction and addressing various customer touch points through innovation. After then, the paper moved towards exploring the digitization of a firm process including its supply chains, board structure, business models, processes, systems and other elements to better understand the concept of digitization of a firm. Alongside exploring this across various areas of firms, the paper emphasized on how such change has been generating both positive or negative influence on corporate governance. In this regard, it was identified that despite possessing some security risks that can be managed through digital business model, digitization helps the firms in enhancing their corporate governance.

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