Does digitalization necessarily flatten organizations? A transaction cost perspective on structural change

Purpose In the digital economy, digital transformation has become a strategic imperative for firms seeking to build core competitiveness. Yet how organizational structures adapt to digitalization remains insufficiently understood. In particular, the widespread claim that digital transformation inevitably leads to organizational flattening still lacks a systematic theoretical explanation and robust empirical evidence. This study therefore, examines whether and how digital transformation promotes organizational flattening and whether the resilience effects of flattening vary with firm size. Design/methodology/approach Drawing on transaction cost theory from a business process management perspective, this study uses panel data on Shanghai–Shenzhen A-share listed firms from 2008 to 2023. Two-way fixed-effects models and a dual-mediation framework are employed to test the effect of digital transformation on organizational flattening, the underlying mechanisms, and the resilience implications of flattening. Findings Digital transformation significantly promotes organizational flattening, and this result remains robust across multiple tests. The effect operates through two channels: reductions in internal managerial costs and external transaction costs, with the latter showing a stronger leverage effect. The flattening effect is more pronounced in large private firms. In addition, firm size positively moderates the relationship between organizational flattening and organizational resilience. Originality/value This study extends transaction cost analysis from firm boundaries to internal organizational design and reveals the dual-path mechanism through which digital transformation reshapes organizational structure. It also shows that the resilience value of flattening is contingent on firm size. Practically, the findings caution against indiscriminate flattening and support differentiated, scale-sensitive transformation strategies.