Organizations as Digital Enactment Systems: A Theory of Replacement of Humans by Digital Technologies in Organizational Scanning, Interpretation, and Learning

Abstract

Digital transformation has become a dominant phenomenon of interest among information systems scholars. To account for this phenomenon, it is imperative to develop a theoretical understanding of its processes and objects. We adapt a seminal organizational theory that conceptualizes organizations as interpretation systems to a possible future of organizations. We theorize digital transformation as a progressive replacement of humans by digital technologies in performing an organization’s fundamental activities underpinning the processes of scanning, interpretation, and learning that encompass an organization’s interaction with its environment. As a result, organizations cease to be human interpretation systems and instead turn into digital enactment systems, where digital technologies, instead of humans, nearly autonomously create and act upon information. We illustrate this digital transformation theory using the example of high-frequency trading. This transformation redefines the relationship among organizations, information, and the environment, changing the role of humans and reshaping strategic decision-making. Thus conceived, digital transformation offers a concrete way of theorizing and accounts for deep implications on the nature of organizations and organizing in the digital age.