Digitalisation, innovation and focus on quality are related to revenue growth

Important | 2023-04-06

Organisations can be lean, agile, or service-oriented, but not all at once, claim the Kaunas University of Technology researchers in a recently published monograph. According to the authors, digitalisation and innovation are the organisational capabilities related to financial revenue growth. The findings are based on empirical research of 500 industrial companies operating in Lithuania.

The organisational models or templates, such as lean and agile have become common terms in management literature and practice. In recent years, enabled by digital transformation, a new, service-oriented template for organising industrial companies emerged. Adherence to an organisational template can have a positive impact on an organisation’s finances and increase its symbolic performance in the eyes of stakeholders.

“You may think about the adoption of an organisational template as some kind of institutional logic. For example, if a company adheres to a sustainability institutional logic, it applies the practices related to sustainability in all its activities. The adoption of a trendy organisational template may increase the legitimacy of the company’s activities in the eyes of interested parties; this may result in attracting more orders, media attention, and more talented employees,” says Mantas Vilkas, professor at Kaunas University of Technology School of Economics and Business.

Are all organisational templates similarly impactful in the eyes of interested parties? Is it possible for companies to adopt several templates? Which of the templates is the most related to a company’s financial performance?

“Our study revealed that the companies, which are aimed at high quality in their production, achieve higher financial growth. You may know that quality and cost optimisation are major characteristics of lean organisations. However, which company would claim it does not seek high product quality? On the other hand, developing such capabilities as digitalisation and innovation, although associated with agile and service-oriented companies, is beneficial to all organisations,” says Vilkas, a co-author of the monograph Organizational Models for Industry 4.0.

The Pandemic highlighted the importance of the industry sector

In the recent monograph, partly based on pan-European industry research, the scientists focus on the Lithuanian industry landscape. According to Vilkas, although the industry is the largest sector in Lithuania, creating 22 per cent of the gross domestic product, there is still a lack of research in this field.

“Therefore, political and organisational decisions tend to be based on imitation and expert intuition rather than evidence, in Lithuania. We aim to grow the body of research, to push the frontiers of knowledge in this field further, which would lead to evidence-based decisions by organisations and policymakers,” says Vilkas.

There are around 8 thousand industry organisations in Lithuania, employing 20 per cent of the workforce. Around 65 per cent of production is exported. Also, the industry sector accounts for nearly 70 per cent of the country’s R&D spending.

KTU researchers based their findings on empirical research from 500 industry organisations, operating in Lithuania – a dynamic, interesting and very important sector, according to Vilkas.

“Pandemic highlighted its importance – while all activity in the services sector stalled, the industry continued generating stable income, both for the state and its employees,” says Vilkas.

Lean practices are the most popular

The monograph aimed to discuss the prevalence and potential benefits of popular organisational templates – lean (the main goal of this template – is to achieve high quality with low production costs), agile (ultimate goal – mass individualisation of products) and service-oriented (main focus of these organisations are not the products themselves, but supporting services).

The study revealed that lean methods are the most prevalent, with 50 per cent of Lithuanian industry organisations applying them. 20 per cent of the organisations adhere to the practices associated with agile, and less than 5 per cent have adopted service-oriented organisational templates. The majority of them were engineering companies.

“Lean practices are most often used by food companies comparing to other sectors; the size of the company is an indicator for using lean methods – larger organisations tend to use them more. Digital innovations are more frequently adopted by large engineering companies comparing with companies from other sectors and of different size. Services are more widely provided by engineering organisations, which customise their products,” says Vilkas.

Being lean does not mean that you cannot innovate

Despite being based on Lithuanian data, the monograph explores topics that are important in a global context. For example, the recent emergence of a service-oriented organisational model raised the question if it is possible for an organisation to adopt several models at once.

“Essentially, the answer to that question is no, it is not recommended. Although certain practices in the three models partially overlap, their goals are different and it may be very complicated to reconcile them. While it might be possible for a lean organisation to become agile in later stages of its development, the adherence to a service-oriented template is a choice that the organisation needs to make in its initial stage,” believes Vilkas.

Thus, relying on the findings, the authors of the monograph discourage companies from becoming lean-agile or lean-agile-service-oriented and choose a single model instead. However, being known as a lean company does not preclude the possibility of developing competencies related to other models, such as agile-related innovation or agile and service-oriented-related digitalisation. In contrast, research shows that innovative companies such as Toyota achieve unprecedented innovations without stopping being role models for lean, the authors claim.

“Our research shows that financial growth is related to an organisation’s quality performance, and its capabilities to innovate. Digitalisation competencies allow to achieve higher productivity across all organisational models,” says Vilkas, adding that the study revealed large companies being more prone to digital innovations.

Young countries adopt digital innovations faster

According to Vilkas, the Lithuanian industry’s digitalisation level is average compared to other European countries. However, evidence from other research suggests that organisations in young countries, including Lithuania, are acquiring digitalisation capabilities faster. While on average for, say, a German or a Swiss company it may take around 16 years to acquire certain digital capabilities, in Lithuania, this may take 11 years. Vilkas says that in some cases, international companies even establish their digitalisation departments in Lithuania, which then transfer their practices to the headquarters in other countries.

“That’s not to say that the Lithuanian manufacturing sector will prevail in Europe because certain countries are established producers of final products and have historically strong presence in different markets, but I believe that Lithuanian companies are adopting digital innovations faster,” says Vilkas, a researcher at Kaunas University of Technology, School of Economics and Business.

The above-described study is analysed in Organizational Models for Industry 4.0, by Mantas Vilkas, Jurga Duobienė, Rimantas Rauleckas, Aušra Rūtelionė, Beata Šeinauskienė, published by Springer Cham, which can be accessed on