From Production Line to Segmentation of Production

Table of contents

Appendix ……………………………………………………………………………….17

1. Introduction

Competition has changed: Technical Innovations, globalisation of markets, cultural shifts within societies and new and efficient competitors put strain on the organisation of production within a firm. Many markets display a state of saturation that leads to a change in growth: Not quantitative growth is what firms are aiming at, but qualitative growth (Wildemann 1998:1).

The improvement of the production is one way to establish qualitative growth its means are twofold (at least): First, it is possible to change the production in order to produce a better output with less cost. Second, it is possible to synchronise production and market as to enable the production to react quickly to changes in the market, i.e. the consumer behaviour. One way to reach both aims is to reorganise the production, i.e. to segment the production: With the establishment of product oriented production units a cheaper production is possible (Maier 1993: 25).

Economics owe the focus on the segmentation of production with all its advantages to Wickham Skinner (1969, 1974 and 1986). With his book “The Focused Factory” he provided the ground for what is nowadays discussed under the headline: “segmentation of production”. Skinner did not develop a new insight in efficient ways to produce; he transferred to the American and European auditorium what has been practiced in Japan since the beginning of Industrialisation.

This paper deals with change; with the change in the way cars are manufactured. A car manufacturers production unit until now divided into different production lines has to be transformed into segmented production. This is a big change; a change, which has to be dealt with – in other words, it, is a case for change management. The scope of this paper is therefore not limited to displaying the advantages of a segmented production (which nevertheless will be done in chapter 2), but extends further to the management of the respective change. Chapter 4 is devoted to the change management: How should the new organisation of production be implemented? What problems may occur? What solutions to the problems can be provided? These and more questions will be put and answered in chapter 4. In chapter 3 a brief overview of change management within the (alleged) broader framework of project management will be given. Chapter 5 sums the results obtained in the previous chapters and evaluates the value of change management.

2. Efficient production with segmented production units

Segmentation of production is according to Wildemann a holistic approach, aiming at a better market- and product orientation of the firm (Wildemann 1998: 31). Therefore, it is necessary to link production units to a specific product. By that, the relation to Skinner is establish, who discovered the focussed factory for the Western Economies: “a company’s competitive strategy at a given time places particular demands on its manufacturing function, and, conversely (…) the company’s manufacturing posture and operations should be specifically designed to fulfil the task demanded by strategic plans” (Skinner 1969: 138-139). A focussed factory means accordingly flexible reactions to market changes and the cost efficient realisation of strategic plans, e.g. the development and introduction of new products.

The “focused factory” is not a big factory. It is rather a small one where the different production units are linked to a specific segment of the market – a specific product: “A factory that focuses on a narrow product mix for a particular market niche will outperform the conventional plant, which attempts a broader mission (…). Its [the factory’s with the narrow product mix] equipment, supporting systems, and procedures can concentrate on a limited task for one set of customers. (…) Such a plant can become a competitive weapon because its entire apparatus is focused to accomplish the particular manufacturing task demanded by the company’s overall strategy and marketing objective” (Skinner 1974: 114).

Given the fact (provided it is a fact) that smaller firms or factories are compared to bigger firms or factories and with respect to costs and production better off, it is not surprising that there is a considerable trend to segmenting the production. Furthermore, transaction costs within a small or segmented firm are smaller compared to the bigger ones. A transaction is the delivery of a property or good via an interface that can be technically divided. One activity ends – another starts (Williamson 1990:1). While crossing the interface a sample of costs is produced – costs that can be – at least in parts – avoided: The aim of a segmentation of production is to disentangle production units and capacity. Large units should be divided in small units. Teamwork should be establish – small teams – giving the individual employee more responsibility. This should result in more autonomy of the individual employee, and boost his or her motivation, thereby increasing the quality of the work done by the employees.

In Germany, it was Dietmar Tress who conceptualised for the first time smaller units as an organisational structure. Smaller Units, so his thesis, reduce the time that is needed to produce a product. The lesser time it takes to produce a good or a product, the better the competitiveness of a firm, the better its ability to deliver goods and the smaller the amount of capital needed to produce the respective good or product. While evolving his thesis Tress realised the reasons that stood against an effective production. The reasons mentioned by Tress are: division of labour, old patterns of reasoning and bureaucracy (Feser 1999: 19). Having carved out the problems, Tress submit his solution: He proposes that all necessary functions (for the production) and the aimed link between product and demand should be concentrated in a single hand and that the production flow should be kept within reasonable limits (Tress 1986: 184). According to Tress it is decisive that the production flow is clear, understandable, and transparent. A single employee should be able to single out his or her contribution to the product (Tress 1986: 185).

Segmenting the production further provides capacity utilisation – and to reach that goal teamwork is needed: Small groups of employees should work in a self-responsible way within decentralized teams. Furthermore, those teams should take over different tasks. At this point the interrelation between the discussion on segmenting production and the discussion on human resource management becomes obvious. According to Baron and Kreps (1999: 3) “Human Resources are the key to organizational success or failure”. Human resource management including the concepts of intrinsic and extrinsic motivation may be seen as the countermovement to the alienation of the worker form the product of his work, as observed by Karl Marx in the 19th Century: “Workers who contribute more broadly to a final product (…) are more apt to identify with a product and to reflect pride in its quality” (Baron & Kreps 1999: 317). Identification with a product raises the working morale, which means that the work satisfaction goes up. Worker or employees, who are content or satisfied with their work, work better. The determinants enabling this comfort are established by segmenting the production.

And that is, where the problem starts: How can a segmented production be implemented? How can a factory divided in production lines become a focused factory divided in small working units or teams? The question at hand is a question of change management or project management. In the next part, the project of change will be unfolded.

3. Projects for managing change

This is a preview of the whole essay

3. Projects for managing change

Change is something that happens all the time and everywhere. But change within a firm or – to put it more scientifically – change within economics appears to be a frightening prospect. Change cannot be left to itself; it has to be planned, controlled and coordinated. Problems, rising in the pursuit of change, have to be predicted, dangers for the project have to be identified and eliminated. All this is done by change management or within the (alleged) broader scope of project management. To put it differently, change management is the trial to direct change into the right channels. Project management is the trial to direct everything new within a firm into the right channels. It appears that there is not much difference between project and change management, one can almost say, they are different words meaning the same.

A project is considered to be something unique, something that will not be repeated (Schelle 1999: 11). Project management means the totality of executive functions, the techniques, and means necessary to carry out a project. Replacing “project” by “change”, change management can be addressed as the totality of executive functions, techniques, and means that are necessary to alter something old into something new.

At first it is – according to most authors – of the utmost importance for a change or project management to establish a structure plan, in which the implementation of whatever should be changed, is scheduled according to a time table connected with goals that have to be reached at a certain point in time. The structure plan is according to Schelle (1999: 93) a simple and useful tool. The structure plan is the meta plan. Apart from the structure plan there is the running order listing sub goals and so on.

Once a project is initiated the control of the project is of crucial importance. A constant control is necessary to identify deviations from the plan or goal as soon as possible and to steer against unwanted consequences (Nüchter 2003: 377). Project control in this sense means to identify problems, to solve the problems, to recalibrate the project after some deviations from the plan occurred and to rescue the goal in spite of serious problems.

Problems may emerge from different sources: Externalities may cause problems: Green activists may occupy the land that is designated to host the new factory, due to a seldom species of warbler. The construction of the new building itself may cause problems: A building contractor may file for bankruptcy. A delay in constructing the new factory may lead to an explosion of the costs and so on. Apart form those externalities there are sources that nurture problems within the firm: Employees may fear for privileges, for their job or for loosing power. Resistance to the change may arise from different sources all linked to the fact, that men is unwilling to change what seems to be good and worked well until now. And to convince employees of the benefits that come along with the new way of producing one thing is needed: change management.

4. From production lines to segmented production: An example

Company R wants to segment its production. Being a car manufacturer organized in different product lines the company wants to become a “focussed factory” by establishing two production units each producing a specific type of cars. While segment A is chosen to produce the “mini” from start to end, segment B should produce the sport car. At the start of the change, company R is organised as follows

in part 1 of the company the car body is being build,

in part 2 the car body is being varnished and

in part 3 the different parts of the car are being assembled.

In the future company R shall be structured as follows:

in line A the car body of the mini is being build, varnished and furthermore, the mini is being assembled;

in line B the car body of the sport car is being build, varnished and assembled;

At the moment three interfaces exist within company R: Between the car body builder, the varnish, and the assembler. Between these three parts of the company a steady flow of material has to be ensured. Furthermore, all three parts of the company depend on different suppliers. In the past a bottleneck between car body builder and the varnish has become a rule resulting in a temporarily standstill. So the new structure of the firm should guarantee a full capacity utilisation, by reducing the logistic efforts necessary to provide each of the three parts of the company with its amount of supply to avoid a standstill of machines and employees.

Moreover, the link between company R and its markets should become closer. At the moment the company produces a monthly number of cars irrespective of the demand. If the demand goes up, the employees have to work overtime to satisfy the demand. If the demand goes down, the employees do their daily stint and the cars that cannot be sold were stored – causing storing-costs. And this is where the project “change” comes into being.

4.1. Planning the change

There are a lot of variables that administer a certain influence on the project deciding whether it is going to be a success or a failure. According to Eckrich (2003) two of those variables can be dubbed as structural and cultural conditions imposed by the environment within the firm or company. Structural conditions relate to the hierarchy within the company, while cultural conditions describe the way the employees within a company treat each other. Eckrich distinguishes cultural conditions into behaviour, attitudes and values, a distinction that reminds at concepts indigenous to social psychology. While social psychologists quarrel with each other on the relation between attitudes and behaviour (some of them even asking if there is any relation between both, cf. Six 1975, Bierhoff 1993: 280-288), Eckrich holds the opinion, that the behaviour of people is influenced if not determined by their attitudes, and by knowing the attitudes one can deduce the behaviour. Consequently, he recommends a questionnaire at the beginning of the change management project to discover the attitudes of the employees concerning the change of their working environment.

Company R is a rather small company, employing 803 employees. It is best described as a company with flat hierarchies, stratified in management, departmental managers and masters. While the aim of this paper is to show the problems associated with the project “change” (or at least those that may be associated with the project “change”), I assume that the employees of company R take a critical stance to the change of the production, some of them even form a sort of resistance. Especially among the masters resistance is widespread. They fear they might loose responsibilities and some of them think they might even loose their job. The core of this paper is therefore concerned with what is called by Uebel and Helmke (2003: 415) “escalations caused by individuals” (personenbedingte Eskalationen). Escalations caused by individuals have to be distinguished from quantitative escalations and from qualitative escalations at least according to Uebel and Helmke (2003: 416). Of particular interest for this paper are escalations caused by individuals. (One might wonder if there are escalations which can be though of as being not caused by humans.)

4.2. Controlling the change

Control is a matter of plan. To evaluate the progress of the project, the project manager has to look at the structure plan. He has to compare whether what has been reached is identical with what should have been reached. According to Nüchter (2003: 395) this is crucial, since it is the only possibility to identify deviation from the plan. To serve the purpose of “early warning system” the structure plan must be enriched with data, with the amount of time worked on a particular (interim) goal of the plan, with the state of the art and so forth.

With respect to company R these rather general advices come to life: Important for the success of the segmentation in the company is an additional qualification of the employees. Furthermore, their work after the segmentation will be varied, i.e. they will have more different tasks to fulfil. This is in accordance with the results of the human resource management saying that employees that are not tied up in their daily routines, but kept busy with a bunch of different tasks show a higher degree of motivation and in the end do a better job than employees tied up in their daily routine. Independently from the results of the human resource management the change in company R is more than some can bear. For some employees the additional qualifications they are expected to achieve are a heavy burden and for the masters it becomes clear that the new structure of the company can only be reached by taking away the responsibilities from the masters. And in the end, “Angst” (fear) arises, and “Angst” (fear) is the widespread cause for resistance.

4.3. The problems of change

“Angst” (fear) has been identified as the main reason of those showing resistance to the project of change. Following Uebel and Helmke (2003: 424), “Angst” (fear) can be subdivided into “fear for power” and “fear for subject”. While those with “fear for power” oppose the project due to their expectation that they will loose power, which means in the first place influence within the company, those with “fear for subject” oppose the project due to their expectation that they will loose responsibilities. The distinction is not a sharp, but rather arbitrary one. It is not obvious that the loss of responsibilities is not accompanied by a loss of power. However, those with “fear for subject” are anxious that they might loose reputation, end up with a smaller budget and so on.

It has to be mentioned that “Angst” is a rather peculiar word for what is meant by Uebel and Helmke. They describe the common place that change has its pros and its cons. While change brings some advantages, some advantages of the old times will be lost. In other words, change may become a trade-off or worse, change might mean redundancy. Therefore, it is obvious from the very beginning that change management has to deal with problems. Problems are not something that arises as a matter of bad circumstances. Problems are the natural companion of change.

In company R there are problems. The change of the production modus has been scheduled for spring and that was a mistake. In spring the demand for sport cars is high and a high demand and a different work environment is too much. The employees faced with frequent delays and the necessity to work overtime is dissatisfied. Resistance rises to protest. It starts with unofficial meetings held be employees and ends up in strike. The production stands still and so does the project. Change, it seems, has stopped.

Uebel and Helmke write a lot about “Angst” (fear) and the different shapes it may use, and the risks “Angst” holds for the success of the project. But, as is the fact in company R, what can one do, if the problems are that massive that the project can be doomed to failure? Uebel and Helmke provide no answer. Instead they pronounce the value of plans for the crisis. One has to formulate “worst-case” scenarios within those plans (Uebel & Helmke 2003: 428). Worst-case scenarios may be back or forward oriented. Backward orientation means that the problems can be solved and the goal of the project can be reached. Forward orientation means the contrary. The project is a failure and the plan has to include the “plan X” the withdrawal with as less causalities as possible. This provides no solution for company R. Is the change from line production to segmented production a failure? Is there a possibility to carry on?

Hansel and Lomnitz (2003: 131-134) mention that there are no possibilities to reduce resistance with respect to specific goals of projects: An employee who will lose his job will not act in favour of the proposed change. To expect that, is out-of-touch. Furthermore, there are employees for whom it is dubious whether they will win or loose in the course of the project. So: resistance is natural and the only way to deal with resistance is communication and information. Transparency is the golden rule. The employees should know what change would bring, why change is necessary (Hansel & Lomnitz 2003: 134-135).

Maybe information can lead to a good end for company R. Rumours are the cause for concern in company R. Rumours about the real aim of the project – being a job killer. Other rumours concern plans to reduce salary – suspecting the hidden intention behind the plan to segment production is to cut down salaries. Those rumours may be dealt with in an agency theoretical framework: “The relationship of agency is one of the oldest and commonest codified modes of social interaction. We will say that an agency relationship has arisen between two (or more) parties when one, designated as the agent, acts for the other, designated the principal, in a particular domain of decision problems” (Ross 1973: 134).

Starting from here it has to be considered that both sides face some information shortcuts, with the employees having no distinct knowledge of the goals pursuit by the management and the management having no accurate assessment of the behaviour of the employees during the course of the project and thereafter: In the course of the action some problems may arise due to the fact that information is not fully spread. The problems are labelled within the Agency theory as averse selection, meaning that one cannot be sure, if what the principal or the agent claims to provide is in fact what he can provide, moral hazard, which means that an agent or an principal can defect after the contract is established and hidden intention, speaking for itself (Krapp 2000).

This excursion trip into the fields of agency theory results in the knowledge that Hansel and Lomnitz are right: The solutions to the problems the agency theory analysis is usually a form of information included in a contract. (Leaving the monitoring of the agent by the principal and the bonding of both to given promises aside.) So information, i.e. the spread of information may be a possible escape from the deadlock for the project “change” of company R.

First, as a signal of confidence the project manager has been dismissed. He has proven to be unable to manage conflict. Under his rule rumour mill flourished and the actual state of the (project) art is much behind the expected state. The new project manager’s first act was to hold a meeting with all employees and to tell every single employee what he has to expect. In the end he succeeds in cranking the project.

4.4. The change or the end of the project

In the course of the project experiences and knowledge should be collected for further or future change management, so as to learn from the errors made. The end of the project is marked by stocktaking. What has been reached is confronted with what should have been reached.

Company R is nowadays a car manufacturer with a segmented production and therefore able to adapt its production in short time to the demand of the market. The segmented production started some weeks later than it has been scheduled, which is owed to the problems reported above. But the policy adapted by the new project manager has proven to function. He has succeeded in creating a common spirit and calming down the moods. The fact that work will be much more varied after the change has increased the motivation of most employees, the success of the project has become the intrinsic motivation for those employees: “According to this survey, a large percentage of employees seem motivated at work by something other than the compensation received. (…) 72% responded that they’d continue to work even if they were already financially comfortable for the rest of their lives. Half the survey respondents agreed with an item stating that ‘what I do at work is more important to me than the money I earn’” (Baron & Kreps 1999: 101).

There is a specific quality inherent to work, a quality that is different from the motive “to make a living”. Intrinsic motivation stands for the fact that some or many or most of the workers want to do a work that is interesting, sophisticated, and provides a certain amount of reputation. Some of the employees of company R realised that a segmented production goes along with new job opportunities, with more responsibilities, with a flexible work scheme and so forth. Those employees made the change to their own project, a project they wanted to support and did support.

5. About change and its management

The aim of this paper is twofold: on the one hand the subject is change management. But change management is a general concept, which one can describe in general terms as did Uebel and Helmke (2003). The problem is, that general terms despite sounding good have nothing to say about the management of change. Therefore, an example have been chosen to elucidate what change management really is. Change of a car manufacturer’s production from production lines to a segmented production, has been chosen as an example.

The segmentation of the production is expected to be a project of change management that can often be found in reality. This is due to the advantages a segmented production provides its users with: a more flexible reaction to the demands of the market and a less costly production.

Having established the example used to exemplify the change management it was necessary to describe what is known as “project management”. Thereby, it could be shown that the topics of “project management” and “change management” are not different as they both deal with new things that should replace old things. So it has been decided to treat them as equal.

Then company R has been introduced. Company R is a medium sized company with flat hierarchies and massive problems occurring during the course of the change from production line to segmented production. The problems or escalations as some dub them are related to individuals, individuals or employees who resist for different reasons the proposed change. To deal with resistance and to provide the ground for the new organisation of the production is the task of change management. And, it appeared, that the best way to manage change is by adapting an open communication policy. This is what Hansel and Lomnitz propose and what has been derived from a brief look at the agency theory: Both sides trying to establish a deal have an information deficit on their side. Both do not know, if their counterpart is opportunistic in the sense of Williamson (1990), i.e., that he is trying to cheat. This is what the rumour mills in company R produced: the segmented production is a fake used by the management to cut down salaries, sack employees and rationalize the company. In the end, the project manager had been sacked and the segmented production had been established. The key to the solution was information and intrinsic motivation. Information had been provided by the new project manager, telling the employees that no one will be sacked and that salaries go if anywhere than up. Furthermore, the hint that a new organisation of the production provides new opportunities for qualification and new responsibilities raised the intrinsic motivation of many employees. They made the change to their project and supported it.

And at the end of the paper a rule for change management can be derived: For a successful management of change it is necessary to involve the employees and to improve intrinsic motivation.

6. Literature

Baron, James N. & Kreps, David M., 1999: Strategic Human Resources. Frameworks for General Managers. New York a.o.: John Wiley.

Beer, M., Eisenstat, R.A. and Spector, B., 1990: The Critical Path to Corporate Renewal. Boston, Massachusetts: Harvard Business School Press

Bierhoff, Hans-Werner, 1993: Sozialpsychologie – ein Lehrbuch. Stuttgart: Kohlhammer.

Burghardt, Manfred, 2002: Projektmanagement. Leitfaden für die Planung und Steuerung von Entwicklungsprojekten. Erlangen: Publicis Corporate Publishing.

Feser, Björn, 1999: Fertigungssegmentierung. Strategiekonforme Organisationsgestaltung in Produktion und Logistik. Wiesbaden: Deutscher Universitäts-Verlag.

Hansel, Jürgen & Lomnitz, Gero, 2003: Projektleiter-Praxis. Optimale Kommunikation und Kooperation in der Projektarbeit. Heidelberg, Berlin, New York: Springer.

Krapp, Michael, 2000: Kooperation und Konkurrenz in Prinzipal-Agent-Beziehungen. Wiesbaden: Deutscher Universitäts-Verlag.

Lewin, K., 1947: Frontiers in Group Dynamics: Concept, Method and Reality in Social Science; Social Equilibria and Social Change. Human Realtions, 1 (1); 5-41

Maier, Denis, 1993: Einführungsstrategien für Fertigungssegmentierung. Eine empirische Untersuchung. Universität München: Dissertation.

Marshak, R.J., 1993. Lewin Meets Confucius: A Re-View of the OD Model of Change. Journal of Applied Behavioral Science, 29 (4): 393-415

Mintzberg, H., 1978: Patterns in Strategy Formation. Management Science, 24 (9): 934-948

Nüchter, Norbert P., 2003: Projektkontrolle. S. 375-392 in: Bernecker, Michael & Eckrich, Klaus (Hrsg.): Handbuch Projektmanagement. München, Wien: R. Oldenbourg.

Nüchter, Norbert P., 2003: Projektsteuerung. S. 393-411 in: Bernecker, Michael & Eckrich, Klaus (Hrsg.): Handbuch Projektmanagement. München, Wien: R. Oldenbourg.

Rinza, Peter, 1998: Projektmanagement. Planung, Überwachung und Steuerung von technischen und nichttechnischen Vorhaben. Heidelberg, Berlin, New York: Springer.

Ross, Stephen A., 1973: The Economic Theory of Agency: The Principal’s Problem. American Economic Review 63 (2): 134-139.

Schelle, Heinz, 1999: Projekte zum Erfolg führen. Projektmanagement systematisch und kompakt. München: dtv.

Skinner, Wickham, 1986: The Productivity Paradox. Harvard Business Review 64, 55-59.

Skinner, Wickham, 1974: The Focused Factory. Harvard Business Review 52, 113-121.

Skinner, Wickham, 1969: Manufacturing – Missing Link in Corporate Strategy. Harvard Business Review 47, 136-145.

Six, Bernhard, 1975: Die Relation von Einstellung und Verhalten. Zeitschrift für Sozialpsychologie 6, 270-296.

Tress, Dietmar W., 1986: Kleine Einheiten in der Produktion: “Wer wachsen will, muss kleiner werden. Führung und Organisation 55, 181-186.

Uebel, Matthias F. & Helmke, Stefan, 2003: Eskalationsmanagement in Projekten. S. 413-429 in: Bernecker, Michael & Eckrich, Klaus (Hrsg.): Handbuch Projektmanagement. München, Wien: R. Oldenbourg.

Wildemann, Horst, 1998: Die modulare Fabrik. Kundennahe Produktion durch Fertigungssegmentierung. München: TCW-Transfer-Centrum GmbH.

Appendix 1

Theoretical Framework

Phase Models of Organizational Change

Any change process can be thought of as going through distinct phases or stages. The purpose of this section is to provide theoretical background information of phase models of change.

Linear Models

Linear models see the change process as linear, progressing from a present state, through a transition state to a future state. The implicit assumption is that the future state is more desirable than the present state.

Lewin provided one of the early fundamental linear models of the change process. He observed that any living system is always in a state of change, but will tend toward a “quasistationary equilibrium”. (Lewin 1947: 15-16). The level of behaviour of the system at any moment is the result of two sets of forces: those striving to maintain the status quo and those pushing for change. When both sets of forces are equal, current levels of behaviour are maintained. In order to change the equilibrium, one can either increase those forces pushing for change or decrease those forces maintaining the current state.

Lewin viewed the change process as consisting of three phases or stages (Lewin 1947: 34-35):

1. Unfreezing. This step involves the forces maintaining the system’s behaviour at the

current level. Unfreezing is accomplished by introducing information that shows discrepancies between behaviours desired by group members and those behaviours

they currently exhibit.

2. Moving. This step shifts the system to a higher level of group performance. It involves developing new behaviours and attitudes through changes in structures and processes.

3. (Re-)Freezing. This step stabilizes the system at a new state of “quasi-stationary

equilibrium”. It is accomplished through the use of supporting mechanisms that reinforce the new state, such as systems, structures and policies. The new equilibrium can thus be made “relatively secure against change” (Lewin 1947: 35).

Circular Models

While the linear models follow the European science, East Asian and Confucian traditions offer a very different theory of change. The model of change underlying Confucian philosophies was summarized by Marshak (1993). As shown in Figure 1, there is continual cyclical movement among the five elements that make up the universe. Movement is a natural process and occurs in a specific sequence.

When it is out of balance or out of order, unfortunate consequences result. Thus in this model everything and everyone is interconnected and part of continuous cycles of change.

Figure 1: Five agents cyclical change according to East Asian philosophy

(source: Marshak 1993:399)

Appendix 2

Theoretical Framework

Overview of the Three “Forces” for Change

In the literature of organizational change, there is a widespread disagreement whether change should be implemented top-down or bottom-up.

Top-Down Direction Setting

Top-down change is seen to have the advantage of a clear direction towards an end state, to provide the integrated perspective that only top management can provide and to promise rapid change. However, top-down change can often lead to resistance and lack of commitment from middle managers and employees who might feel that top management does not really understand the problem.

With regard to the “RM” Division, it becomes clear that management follows a top-down approach. “RM`s” general managers take major decisions on new technology an workers are not included in the decision-making process. The result is a lack of commitment and machine operators use any means they could to beat the system.

Bottom-Up Performance Improvement

The other line of argument favours a bottom-up approach to change, as this seems to address many of the shortcomings of top-down change by actively involving employees in the change process. But also a pure bottom-up approach has its problems. It often lacks direction and a link to corporate strategy, it can lead to costly duplication of effort, it often leads to little transfer of learning’s and it can be slow to get results (Beer et al. 1990: 68).

The “RM” Division did not follow a bottom-up approach for implementing the change. It is worth mentioning at this point that the “RM” management missed, as a result of not actively involving the employees into the change process, to address the disadvantages of a top-down approach. In addition, the above-mentioned advantages of a bottom-up approach were not realized during the change process.

Horizontal Process Redesign

Recognizing the limits of the pure top-down or bottom-up approaches to change, some authors have therefore argued that the solution is to combine the two approaches (Beer et al.1990). A combination of the two approaches holds the promise of obtaining their respective benefits while minimizing their disadvantages.

However, it is argued, that fundamental change requires not only top-down direction and bottom-up performance improvement, but also a third force for change: horizontal process redesign.

Horizontal process redesign views organizations as made up of key processes that produce a result for the customer. It attempts to bring the benefits of process thinking to the whole organization and emphasizes the importance of redesigning a small number of core business processes that cross the traditional functional boundaries. Likewise, it can occur at three levels: across organizations, across functions and within functions (see Figure 2).

Horizontal process redesign sees reengineering as a key activity at all levels of the organization. However, in order to avoid sub-optimisations, one should start at the top management by mapping out the high-level processes first. In this way, once the subprocesses are considered, their role within the higher level processes are clear.

This was not being realized at the “RM” Division: Instead of defining and explaining the new processes to the workforce, only immediately prior to the introduction of the new technology management had explained to the workforce the basic principles behind automation, disregarding the need for understanding the new processes. Particularly a proper introduction of the new core processes across functions was neglected. These mainly included the fact that previously, operators were involved in setting and adjusting machinery and now were simply operating their machines. At the same time, the process control department was to take greater responsibilities, and to be expanded.

Would management have explained the new processes properly, operators would have been clearer about their role in regard to the process control department. Instead they found themselves in a favourable position, performing wider functions than management expected of them. In addition, they could use non-optimum methods to achieve the best possible piecework rates for subsequent production and only reluctantly gave up any rights to use the controls. This all can be seen as a result of a missing explanation of the redesigned core processes to the workforce.

The second major problem was that of re-establishing piecework rates on the new machinery, because operators were enjoying average earnings and resisted this move. At this point it would have been helpful to establish a detailed timeframe in which the phases of the change process are listed, in connection with the procedure of handling the piecework rates during and after each phase. The basic agreement, which was being made, did not serve this purpose.