Big Data as a Key Driver of Change Management. The Importance of Culture Change in Transformation Processes

Master's Thesis , 2020 , 84 Pages , Grade: 94/110

Business economics - Business Management, Corporate Governance

This thesis deals with Big Data as a key driver of Change Management and the importance of Culture Change in transformation processes. It aims to answer the following questions: What is the Fourth Industrial Revolution’s enabling technology that companies need to concentrate on extraction value in the phase of volatility and uncertainty? How can companies use change management theories and practices to stay competitive and agile? How do companies deal with the resistance to change? What is the role of Culture Change?

Throughout the research, the Industry 4.0 as the background and central statue behind der study is examined. Change Management and Big Data are explored broadly in primary academic sources. This research contributes to the literature by providing a comprehensive picture of the essential determinants of successful change management that connects the gab between the different aspects raised in the literature.

The world is transforming every day: customer needs are changing; technology is advancing, and the economy is evolving. Businesses who fail to embrace change can easily wind up as dinosaurs. This study analyses decisive change drivers coming with Industry 4.0, particularly Big Data. The core to effectively proceeding Industry 4.0 is to move from a traditional waterfall concept to an agile manner. Effective change management is crucial.

Big Data transformations require an innovative way of thinking about how change impacts people, culture, organisations, processes and more. While resistance is the normal human reaction in times of change, Culture Change is critically essential to transformation and can mitigate much of the resistance. Digital transformation is not mainly about technology, it is about agility – organisations’ culture plays a decisive role in the digital transformation of every business.

Table of Contents

Abstract

Acknowledgements

INTRODUCTION

Chapter 1. Change Management in Industry 4.0
1.1. Disruption of Industry 4.0
1.2. What is Change Management
1.3. Organizational Change: Approaches and Practices

Chapter 2. Big Data Transformations
2.1. Big Data in Industry 4.0
2.2. Challenges in Big Data Implementations
2.3. Big Data Transformations

Chapter 3. Culture change
3.1. Culture change management
3.2. Data-driven culture

CONCLUSIONS

REFERENCES

Abstract

The world is transforming every day: customer needs are changing, technology is advancing and the economy is evolving. Businesses who fail to embrace change can easily wind up as dinosaurs. We will analyze decisive change drivers coming with Industry 4.0, particularly, Big Data through our research. The core to effectively proceeding Industry 4.0 is to move from a traditional waterfall concept to an agile manner. So effective change management is crucial.

Big data transformations increasingly require an innovative way of thinking about how change impacts people, culture, organizations, processes, and more. While resistance is the normal human reaction in times of change, culture change is critically essential to transformation and can mitigate much of this resistance. Digital transformation is not mainly about technology, it’s about agility – organizations’ culture plays a decisive role in the digital transformation of every business.

While we study Change management to transform business models, it is vital to identify how we can deal with the resistance; how culture change is significant in big data transformations is our main research question in this whitepaper. To sum up, we will analyze the needs for change in Industry 4.0, principally, Big Data, and define strategies and methods to survive in today’s world through Change management practices. The critical point to demonstrate during the research is how Culture Change may affect change management for data-driven enterprises.

Keywords: Change Management, Industry 4.0, Digital Transformation, Culture Change, Big Data, Fourth Industrial Revolution

Acknowledgements

I would like to express my deeptest gratitude to Prof. Corrado Cerruti for his invaluable and constructive instructions during the planning and development of this thesis. His remarks and engagement have been very much appreciated.

I would also acknowledge the support and help by the staff of the University of Tor Vergata throughout the entire process.

Finally, I would also like to thank my family and deliver my gratitude for their care and love during my journey.

INTRODUCTION

The leading technologies of The Fourth Industrial Revolution (Industry 4.0) enhance further connectivity and customization. These technologies generate, use, and store a huge quantity of data. Technology may impose threats for businesses as it enables companies to provide higher personalization and relevant experiences. It leads to more choices for customers, and as a consequence, it may diminish customer loyalty. Although the fourth industrial revolution enjoys the growing popularity, there is still a lack of systematic review elaborating on the state of this wave of digital transformation.

In today’s fierce competition, companies need to both adapt to such technological advances and also maintain profoundly personalized market demands. Companies pursue new channels for value creation, and in this matter, they stay alerted for further changes in the market to remain competitive and conform with them as fast as possible. In such circumstances, businesses would be required to display a great deal of agility – the ability to coordinate diverse activities and competences and promptly become insiders of particular strings and networks with team members equipped with a new set of critical skills. It is a matter of survival to execute change applications due to tremendous pressure from the turbulent business environment.

1. Literature review. The pace of today’s technological development evolves exponentially; hence, it constitutes new opportunities as well as threats for firms. Managers and businesses tackle more complex and fierce market environments ever. The obscurity of future advancement and the means of adaptation can be the substantive hurdle to upgrade capabilities and enhance productivity for corporates. Nonetheless, a structural approach linking Industry 4.0 with clusters has been gradually developing in the academic literature, and our research promises a unique experience in this regard.

Companies are striving to change to stay flexible and to adapt to market changes accordingly. Change Management is delineated as “directing and enforcing change successfully in an enterprise or corporate toward a specific objective.”¹ In the literature, scholars define various change management theories according to the type, duration, and phases of Change. Theories of Change Management evolved in the aspect of uncertain, volatile, and ever-changing environments too. The agile method would be preferable over “planned” approach or culture change can be applicable in comparison to structure changes according to the source of the change.

One of such change initiatives is Big Data transformations. A recent study has been conducted targeting dominant corporates in the USA. It reveals that “84% of enterprises have launched advanced analytics and Big Data initiatives to bring greater accuracy and accelerate their decision-making”, over a third of these companies indicated the sphere is their top priority for advanced analytics and BD investment². As Big Data promises higher market value, businesses are willing to implement such technologies and applications. McKinsey’s (2016)³ recent survey inferred that the organizational culture deficiencies are the main hindrance in the success of transformations. The literature review provides relevant findings regarding the significance of Culture Change concerning successful Big Data transformations⁴.

2. Problem Statement. Whereas whitepapers touch primarily upon the technical outlooks, there is still little realization of market evolution and, the necessity and prosperity of change management practices in the Industrial Revolution period. The findings of a recent study revealed that “most companies in Germany do not have a clear understanding of what Industrie 4.0 is and what it will look like”⁵. That was the primary rationale driving the research to draw a framework comprising the overview of the industrial revolution and the arrangement of businesses.

Nowadays, many companies undergo change management practices due to increasing technological advancements, production techniques, new customer trends, and business world changes. Even though data is a valuable resource to stay competitive in the market and produce and upgrade innovative products and services, around 80% of big data applications did not succeed⁶.

Due to relatively fewer studies focusing on the Change Management practices related to Big Data initiatives, we are proud to conduct this research to provide a solid background for academic grounds. Taking aforementioned conclusions into account, we set off to explore the following questions throughout our research:

Q1. What is the Fourth Industrial Revolution’s enabling technology that companies need to concentrate on extracting value in the phase of volatility and uncertainty?

Q2. How can companies use change management theories and practices to stay competitive and agile?

Q. How to deal with the resistance to change? What is the role of Culture Change?

3. Thesis outline. The thesis consists of several chapters for the course of exploration and analysis of the research questions. Throughout our research, we examine the Industry 4.0 as the background and central statue behind the study. Change Management and Big Data are explored broadly in primary academic sources. However, the combination of them is relatively less explored in academic literature. We start conducting the relevant review of literature in Change Management and Big Data. This research contributes to the literature by providing a comprehensive picture of the essential determinants of successful change management that connects the gap between the different aspects raised in the literature.

In Chapter 1, we broadly analyze the profound technologies of the Fourth Industrial Revolution and its effect on future business environments. In addition to that, we study the current practices and main domains of Change Management theories to define major literature reviews for businesses.

In Chapter 2, we present and discuss the Change Management studies for Big Data Transformations. We research the structure, process, people, and technology changes for data-driven enterprises. Furthermore, this part investigates a non-technical stance to big data, instructs the approach of executives, and illustrates how their competent management ends up with a relevant and positive correlation with co-innovation and therefore in a competitive advantage for the company.

In Chapter 3, the two main elements of Change will be explored: resistance to change and Culture change. Our primary objective is to define certain advantages of Culture Change to minimize resistance. We argue that Culture Change may enable organizations to take one step ahead in the implementation of Big Data initiatives.

4. Research method. Our thesis project serves as a conceptual background for future empirical studies. We present a structural framework for Big Data Change Management based on a comprehensive literature review. Our main research question is “How can novel Change Management initiatives be applied in the context of Big Data transformations”. Our objective is to allow both academicians and practical workers to exploit particular aspects of Big Data initiatives and to provide them with the understanding of profound challenges, certain focus areas and relevant theoretical solutions.

Our research is mainly qualitative rather than quantitative, as it is a comprehensive review of relevant literature. This thesis has a qualitative approach where we define a conceptual background from existing studies and theory. It leads to an exhaustive assessment and critical interpretations which provide a platform for our contributions. We used purposive sampling, where we choose the most recent and relevant literature and academic sources.

Chapter 1. Change Management in Industry 4.0

1.1. Disruption of Industry 4.0

Revolutionary change is on the way to capture our lives. Our lives, work environment, and even our perception about us as humans will be altered notably by The Fourth Industrial Revolution. This is spreading across the world at an incredible pace without boundaries. A research conducted by Dóra Horváth and others (2019)⁷ unveils profound facts related to Industry 4.0, its components and critical features that significant companies in today’s market are not fully aware of the coming technological revolution. Companies need a proper outline of the concept to define future objectives and goals within digitization. Therefore, it is critical to better understand the future revolution, and then explore how to prepare plan of actions to survive.

1.1.1. Overview of the Fourth Industrial Revolution.

Germany was the first country to introduce “Industrie 4.0” to enhance the German industry for the role of an innovative global leader under the national policy, and referring to the term Industry 4.0. “The initiative was launched in 2011 and included in the German government’s High Tech 2020 Strategy.”⁸ Nowadays, the 4th Industrial Revolution (4IR) is becoming phenomenal globally therefore in Europe; Germany (Industrie 4.0), Spain (Industria Conectada 4.0), France (the Nouvelle France Industrielle), Italy (Fabbrica Intelligente), Belgium/Holland (Made Different), Sweden (Produktion 2030) and Austria (Produktion der Zukunft) are all actively shaping a political stance about it. Chinese production industry and the United States (namely, Industry Connected 4.0) are also making themselves ready for this change, driven by various policies and tactical objectives.

It does not affect only the industry and manufacturing, but also all aspects of our lives. The processes are getting developed not in a linear, rather exponential pace. Researches concluded that Moore’s law, which states that the capacity of microchips and computers doubles every 18 months, explaining exponential growth – also applies to other emerging technological developments⁹. It is a marriage of innovation in technologies, although the invention of some of these technologies dates 20 or 30 years ago. Due to the increasing computing power – that Moore’s law explains, and the cost reduction in production they are leaving their linear growth track and will grow rampantly in upcoming years, which will shape the Fourth Industrial Revolution.

Industry 4.0 generally attributes the Fourth Industrial Revolution. It is a disruptive technological development that will bring a novel generation of production systems entirely different from the previous ones. However, we need to examine carefully as the Fourth Industrial Revolution is the one for the first time was disclosed in advance, and not when it was already entirely in place. Understanding today’s particular evolution and studying the upshot of Industry 4.0 might require us to look at the predecessors.

The First Industrial Revolution: In Britain, the Industrial Revolution resulted from the advent of mechanization and mechanical power and machinery applied in manufacturing since the end of the 18th century (1760-1840). Manual production was replaced with the steam-powered engines, and the source of power was water. It was first implemented by the textile industry and benefitted a lot, and it led people to become increasingly urbanized.

The Second Industrial Revolution: It dates between 1870 and 1914 (although some of its elements predate to 1850). Electrification was the main element of this part, and mass production became prominent during this phase. Nevertheless, World War I halted the revolution.

The Third Industrial Revolution: We are more familiar with technological advances as the third industrial revolution is a more recent one - it dates back between 1950 and 1970 and generally mentioned as Digital Revolution. Computers and the digital environment and resulted from the blossomings in information technologies concluded in a new revolution.

1.1.2. The Fourth Industrial Revolution: technologies and design principles.

Today’s technological advances are first described as a new industrial revolution by Klaus Schwab, Founder and Executive Chairman of the World Economic Forum in his book titled “The Fourth Industrial Revolution”¹⁰. Although “Industry 4.0” is the prevailing term specifying the Fourth Industrial Revolution, in academic sources, it is scuffling to define main components of it. We can conclude that to carry out a higher level of operational effectiveness, productivity, customization and a higher level of automation are the main objectives in Industry 4.0 for enterprises. Cyber-Physical Systems, Internet of Things, Smart Factory, and Internet of Services are the most prevalent four terms pointed out in research publications related to the revolution¹¹. We will dive into examining other concepts related to it.

Cyber-physical systems: It means computers and networks can observe and regulate the physical processes at exact points through real-time communication.

Internet of Things (IoT): In the next few years, 50 billion things or objects will be connected¹². It means things will be a part of the internet – shaping the Internet of Things. The internet of things connects devices globally. Now researchers are considering how bacteria can join the network creating Bio Internet of Things¹³. The Internet of Bodies (IoB) is another extension of the IoT and connects the human body to a network through devices that are ingested, implanted, or connected to the body in some way¹⁴.

Internet of Services (IoS): Service providers benefit from the Internet of Services (IoS) as they can offer their services via the internet. The combination of the Internet of Things (IoT) and the Internet of Services (IoS) in the manufacturing process form the Fourth Industrial Revolution.

Smart factories: it is the crucial feature of Industry 4.0 and refers to manufacturing with automatic and autonomous bodies.

Artificial intelligence (AI) technologies can complete mental tasks like humans — understanding compound patterns, processing information, coming into a conclusion, and recommending. Increasing computing power allows us to apply machine learning techniques with growing big data, and it is changing how we live and connect with technology.

Blockchain is a more reliable, decentralized, and explicit way of recording and sharing data, with no need to rely on intermediary organizations.

Cloud computing and Quantum computing: Cloud-based computing enabled businesses to store data and use it securely. Quantum computer is quicker and million times powerful than today’s computers.

Virtual reality (VR) amplify digital experiences via simulating the real world, while augmented reality (AR) integrates the real objects with the digital environment.

Biotechnology and innovative materials will be broadly used for cleaner and renewable energy purposes in sustainable and environmental manufacturing.

- is the mass production, utilization, and design of robots for various purposes, including daily life and business aims with the help of highly-developed microprocessors and AI methodologies.
- : Surprisingly, academic literature did not include 5G or 6G technologies as core technological advances of Industry 4.0. However, we consider that 6G will enable Industry 4.0 to fully realize the revolution started with 5G.

3D printing is the manufacturing technique helping businesses to print their parts or even entire products, with lower costs and faster than traditional processes.

Companies need to foresee and plan the future to prepare, and by understanding profound trends in future business environments, we can draw guiding postulates. Concluding from above-mentioned technological developments, it is possible to take out design principles of Industry 4.0 as followings¹⁵:

- Interoperability - machines, objects, sensors, and people can connect and collaborate with each other.
- Virtualization - the physical world through sensors to contextualize information can be created in a digital environment for systematic mass production.
- Technical assistance - includes the capability of the systems to support humans in decision-making, dealing with problems, and customer-orientation. The Internet of Services becomes vital at this point.
- Decentralized decision-making - the cyber-physical systems are able to decide on their own and become as autonomous as possible.
- Real-time capability - to gather real-time data, store or analyze it, and make decisions according to new observations. Smart objects can diagnose the flaw and re-delegate tasks to other operating machines.
- Modularity –Smart Factory is highly-flexible to adapt to the market changes.

One of the main features of the Fourth Industrial Revolution is data¹⁶. During production processes, a massive amount of data is obtained. By processing this data, enterprises can gain great competitiveness, including support in decision-making. New digital technologies can also maintain customer insight (e.g., based on extracted data from websites). We will study the significance of Big Data for businesses in Chapter 2.

1.1.3. How to survive in the turbulence of Industry 4.0.

As Klaus Schwab said, "The changes are so profound that there has never been a time of greater promise or potential peril from the perspective of human history. My concern, however, is that decision-makers are too often caught in traditional, linear (and non-disruptive) thinking or too absorbed by immediate concerns to think strategically about the forces of disruption and innovation shaping our future."¹⁷

Every country experiences a disruption effect in almost all industries. It leads to the drop in transportation and communication costs, and as a result, logistics and supply chains will become more efficient globally. Trade costs decrease, all in all, this will launch new markets and enhance economic growth. “Sousa Jabbour was the first to note that Industry 4.0 can positively affect environmentally-sustainable manufacturing, with the development of green products, manufacturing processes, and supply chain management”¹⁸. Companies undergo several changes brought by The Fourth Industrial Revolution, which is related to the technological, organizational, and management aspects. However, stakeholders and investors are reluctant to invest heavily in those technologies, and lack of experience and workforce to implement these systems are causing general inconveniences. Nevertheless, companies today must become more innovative and agile to thrive. By its very nature, innovation, and agility result in constant, ongoing organizational change and managing that change well is part and parcel of attaining business results¹⁹.

As a whole, the Fourth Industrial Revolution has four main effects on business: customer expectations, product improvement, innovative production, and organizational matters. To solve these concerns, organizations need to implement several change management practices to meet the requirements in this digitalization. Companies have to keep the pace relevant with the Fourth Industrial Revolution technologies and meet the demands of personalized customer needs. In this process, change management helps them deal with the digital revolution. “Change management is a comprehensive, cyclic, and structured approach for transitioning individuals, groups, and organizations from a current state to a future state with intended business benefits. It helps organizations to integrate and align people, processes, structures, culture, and strategy”²⁰.

Industry 4.0 induces shorted production processes; development periods and innovation phases need to be shortened. Growing competition forces many enterprises to improve higher innovation capabilities. Secondly, individual production meaning that there is an increasing trend of unique products, and in higher capacities, personal products for customers lead to more heterogeneous markets. Therefore, in this framework, higher flexibility in product development, notably in production, is paramount. It, in turn, required decentralized decision making in manufacturing. It leads to organizational hierarchies to be reduced. Furthermore, it has technological aspects to be reviewed, which is related to more mechanization and automation. Technical aids will be used to support physical work. It brings autonomous manufacturing in various steps. With the help of digitalization, the technical environment becomes digitalized, and previous production is outdated because of environmental damages. With the trend of miniaturization, new applications in logistics and production processes are enabled.

Considering the aforementioned trends and changes, the driving forces for the change drawn from the literature are as follows:²¹

- Intense market competition and pressure from competitors
- Increased innovation capacity and productivity
- Expectations of customers
- Efforts to save energy and improve sustainability
- Financial and performance factors
- Support for management activities
- Opportunity for business model innovation

As we can conclude, the entire organization will be affected by digitization. During this process, companies should not only regard technology, but also people management, technological processes in the fast-changing environment should receive a due consideration.

There are six main peculiarities outlined, which should be a central point in framing change management projects. They can be summarized as the alignment of leadership and strategy, technology and politics, financial aspect, mobilizing firms, structural changes, and sustainability. In the next chapters, we will analyze main change management approaches, theories, and practices to cope with challenges experienced in this profound epoch.

1.2. What is Change Management

Heraclitus, the Greek philosopher, states that change is the only constant in life. Those changes may be due to social, economic, political, and technological domains, and corporates need to respond to those changes. Effective change management may bring out several advantages. By this, companies are able to structure an approach to deliver changes in a feasible way and implement all the necessary goals. In this process, successful change management reduces the reluctance and resistance to change by effective communication, and it also eliminates chances for any conflicts. It sets out the principles for continuous learning, expands capacities and strategies for organizational development.

Industry 4.0 will odds-on change how we manufacture items, but it could also affect how those things are distributed (through autonomous logistics), the way customers interact with industries, and customer preferences. Beyond that, it could drive changes in the workforce, requiring new skills and roles.²² Due to all reasons mentioned above, effective change management is considered a must in today’s entrepreneurial agendas.

1.2.1. Concept of change management

David Swanson, the American manager from Procter & Gamble, argues that change management must be a matter of survival. There are some notable examples of the failure to adapt to change, such as Kodak’s overconfident management about innovation or Nokia’s disproportionate responses to new business trends presented by Apple or Android markets.

In today’s world, new organizational change management methodologies are required, and businesses need to implement those principles as complementary, not contracting. One of the most challenging elements of change management is uncertainty and volatility. In the next paragraphs, we will evaluate those approaches to exploit to overcome those challenges.

Driving forces behind the change . The fundamental driving forces for change identified in the literature are various internal and external factors such as social, cultural, political and economic factors, technological advances, competition, globalization, new markets, new customers, and customers’ expectations²³. Throughout this journey, effective management of change is determining the failure or success of companies. It is noteworthy that our business environment is interconnected, complicated, and technology-driven in the phase of Industry 4.0.

In this industrial revolution (Industrie 4.0) these factors are interrelated such as mobile technologies connect people, thus modifying cultural and social interaction, technological developments increase competition and emerging technologies become disruptive in the market, therefore altering customer expectation. As a result, the internal and external layouts of an organization need to react to such changes by becoming flexible and responsive and being able to implement such technologies and deliver new values for customers.

1.2.2. Change management approaches

Organizational change can appear at various layers which requires different change strategies and techniques:²⁴

− changing the individuals who work in the organization,
− evolving organizational structures and systems,
− directly altering the organizational climate.

In the process of change management, strategic, structural, and technological changes are encountered as well as behavior and attitudes will change to adjust to the new circumstances. Businesses that do not hold on with the latest technological developments will phase out sooner or later.

Therefore, change management is an essential skill for managers and leaders. “It is a structured process of managing people, processes, and technology in response to the changing environment so as to align business strategies with external changes and stay competitive.” ²⁵ During this undertaking, people face diverse emotions from starting, such as disbelief and later on, anger, depression, and at the end, acceptance. While implementing change, leaders and managers need to support employees with accurate information, clear vision, and persuasive communication. At all stages, executives need to convey the vision, the anticipated change and the expected advantages.

Depending on the radical viewpoints to change management, we can describe two contrasting approaches: evolutionary and revolutionary. These approaches are based on the way the structural changes are handled. In evolutionary change management, the organization evolves gradually and adapts to new indicators and solutions. On the contrary, in a revolutionary way, we approach the change as a radical process, and the organizational structure changes fundamentally in foundations.

Here, change conceptually developed in two forms. “The first approach sees change as a rational, strategic process where the organization chooses a new course of action and adapts to change.” ²⁶ Evolutionary selection: the second viewpoint - evolutionary selection, where organizations typically resist the change happening around them. In this sense, organizations either adapt, or fail to see the need for change and become wiped out. Nevertheless, revolutionary change is not an everyday action: a change in strategy, leadership, and culture – is rare. Virtually, change in organizations is gradual and unplanned. Planned and in a large scale, organizational change is not ubiquitous.

There are different outlooks to change management issues. Change management as a project or a stance in an organization. If change management is considered as a project, then it is implemented based on several objectives, and the aim is to attain a better structural model or organizational developments. Its benefits can be drawn as it defines the goals and evaluates the results at the end. On the contrary, if change is managed as an element of a component, then the organization may lose the connection in the path and may not deliver the desired results.

“One of the presiding standpoints within “planned approaches” to change is Lewin’s model of change, which argues that change involves a three-stage process:²⁷ − unfreezing current behavior − moving to the new routine − refreezing the new behavior.” In the first stage, employees need to be flexible to adjust to new changes and practices. It required agility and proper support in leaving comfort zones and embracing a new way of roles and processes. In the second stage, people learn and perform in various ways. Patience is very vital in this step. Because in this period, despair and overload are common, and people need hope and excitement to overcome the chaos. In the refreezing phase, new practices are integrated into the processes. It becomes routine, and employees embrace the recent practices.

Lewin’s analysis includes the driving and resisting forces for change, and he concludes that the change may occur in an organization if driving forces are more influential than opposing forces.²⁸ It includes forces that are from the internal or external environment of the organization. Today, the volatility of organizations makes Lewin’s postulate insufficient, as consistency during the freezing phase is hard to fulfill due to the dynamic nature of the global business environment.

As an alternative to planned methods, “emergent approach” was developed for the organizational change management practices. Today’s technological advances and higher competition require organizations to have a sustainable competitive advantage. An emergent approach to organizational change handles change as rapid and unstable phenomena that cannot be managed from the top down. It suggests that change should be considered as a process of learning, where the organization responds to the internal and external environmental changes continuously. As change represents a valuable learning opportunity, learning itself is a kind of change practice. Over past decades many scholars suggested that building a learning organization is the only source of competitive advantage.²⁹ Being able to build a learning organization is a challenging task for managers as it aims to form an organizational climate that grants human capital to grow and innovate.

1.2.3. Change management theories and strategies

Yang and others (2009) argue that changing the vision and mission statements, organizational strategy, structure and culture, systems and technology of production, and leadership styles are some of the targets of organizational change.³⁰

Kotter produced an eight-step model for organizational change management³¹:

− enacting a sense of urgency,
− generating a guiding coalition,
− developing a vision and strategy,
− communicating the change vision,
− granting employees with broad-based action,
− creating short-term wins,
− consolidating gains and producing more change,
− anchoring new approaches in the culture

Here, the first step is critical because the transformation programs require a great deal of collaboration with many parties, and without motivation, people are reluctant to help change. The reason why people need a sense of urgency is that humans are not willing to get out of their comfort zones. Capable managers should build coalitions between different stakeholders, develop a strong vision, and communicate it through them, and empower employees; by this, they may deliver the short-term gains and make the change happen. Even so, the essential point is timing. Providing short-time benefits and celebrating it is welcome, but declaring the victory earlier can be disastrous because the last step requires the change to be embedded in the culture of an organization. After all, new approaches are fragile and take time to be progressive.

To explore the internal layouts of an organization, we can use McKinsey’s 7S framework, which is classified into two elements: soft and hard. The hard parts are strategy, structure, and systems, while the soft details are shared values, skill, staff, and style.

There are other change management theories as well, such as Lippitt’s 7 steps approach and Prochaska’s change theory in the literature³².

Leadership during organizational change. Organizational leadership and change stand together, and one completes the other. Change, by definition, requires a new set of systems and which in turn always demands leadership.³³ Leadership is a kind of power where one person has the ability to influence or change the merits, faith, behavior, and attitudes of another person³⁴. Leaders are expected to deliver the change by promoting the vision. Kotter (1995)³⁵ states that the process of renewals demands the removal of the barriers. You may have the vision and clear communication channels. However, as a leader, they need to help the organization and people remove blockers. Of those blockers, it can be an organizational structure or the mindset of people. Successful leaders have the ability to spot difficulties and troubles and provide with a clear vision. Leaders are characterized as persons to direct people or a group of employees in the desired path. As change management is the transition from the status quo to the desired state, leadership is the most required aptitude to manage the change.

There are four leadership styles identified in the literature: laisses-faire, transactional, transformational, and change-oriented. “In the change-oriented leadership style, the key elements of transformational leadership are playing a crucial role as it has idealized influence, inspirational motivation, intellectual stimulation, and individualized consideration.”³⁶

It should be recalled that tomorrow’s leaders genuinely need to decide for the interest of the many rather than the few, and avoid abusing the faith and freedoms that they enjoy. Here, the focus must be on the ethical aspects of leadership and change management. It is a must to evaluate leaders’ ethical principles and their actions and measure if they are suited with broader interests of stakeholders.

1.2.4. Agile change management

One of the central concepts in Agile is flexibility. Change management designs need to be flexible enough to deal with unpredictability. Those challenges previously have been addressed by software development projects that traditional plan-driven actions were not able to manage the problem, and Agile or agile methodologies are concerned with admitting and embracing uncertainty and performing together with it.³⁷

Companies should take a comprehensive view of the Fourth Industrial Revolution and the ways in which it alters the business cycle. Digitization became one of the most crucial drivers of organizational change for almost the last two decades.

Thus, Industry 4.0 is about more than just technological advances: it is about the ways in which those technologies are aggregated, and how organizations can exploit to drive organizational growth. Industry 4.0 can transform organizations’ processes and operations.³⁸

Nowadays, one of the buzz topics in change management is agility. As the transformation in organizational operations and processes expands, the agile concept is formalized to riposte to changes quickly. It is first formalized to manage the projects in software developments. However, it can help organizations develop flexibility in change management tasks. To remain competitive, enterprises need to harness some basic features of agility. Those can be swift response and pliability to change, openness to new possibilities, and capability to learn fast. Nevertheless, it requires flexibility and decentralization of autonomy in such organizations. Industry 4.0 puts pressure on companies to exploit and extract valuable information through “big data” and offer personalized customer services. Those challenges and opportunities require new organizational structure, business cycle, and operational management strategies.

We will explore the edges and adaptability of agile concepts in change management undertakings. “Agile change management is based on the concept that in order to deal with abrupt events and changes to the change process, one must be able to amend the plans and goals of the change process underway.”³⁹ On the contrary to planned change management, in agile concepts, there is a need for continuous readiness for change or learning from change while maintaining daily operations - which covers also developmental change.

Autonomy is broadly discussed in agile change management postulates by Kristoffer V. Årvik and Kristoffer Karud ⁴⁰. They argue that while designing and implementing change management, it should be assigned to an autonomous team by involving top management to define goals, evaluate short-term results, and provide feedback after each iteration. In this regard, agile is a bundle of planned and emergent change management approaches. The leaders and top management set the objectives and goals, but throughout the path after each iteration, it can be modified and altered.

Here the most crucial point is a reflection after change processes. Post-change analysis of lessons and sharing them throughout the organization are the core parts of Agile. A proposed way of learning is through feedback: organizations need to gather inputs from employees during different phases (before, during, and after any event), discuss the lessons and incorporate lessons as knowledge assets (e.g., in a document).⁴¹

Agile can be efficient when organizations need to adapt to new technologies or customer preferences. Learning requirements define the use of change management type. In such cases, agile is more efficient. On the contrary, companies may need planned or Lean approaches (exploitation change management) in order to stay profitable. As a result, planned procedures are about exploitation and better performance, yet continuous learning makes enterprises to adopt agile methodologies and organizational knowledge to stay competitive in Industry 4th. In particular, coaching, cooperation, coordinating, and management support are recognized as significant challenges when adopting Agile⁴². In order to tackle these challenges, managers need to strengthen cooperation and communication.

While dealing with uncertainty and fast-paced environments during the Fourth Industrial Revolution, companies need to cultivate an organizational culture for collaboration and cooperation and to explore new developments. In this process, agile change management might help businesses.

Kristoffer V. Årvik implies that Agile is both sided as it can be used to set a specific change practice, then it can be used as revolutionary; on the other hand, if a company decides to experiment with doing somethings better, then it is evolutionary. We need to separate the concepts of organizational learning and agile. Agile is a change management project; here organizational learning sets principles and notions to implement change and stay competitive.

Before the adoption of agile methods, companies need to consider obstacles that they may face. The scope of change in agile is so vast that almost every part of an organization will be affected, and people need alterations in attitudes and approaches. It is a change management process, and people, management, technology, and processes will be modified or adjusted to new transformation. Without an environment that stimulates change and both supports and enables employees who strive for self-renewal and are willing to take risks and to pioneer, the rate of innovation in a company is likely to remain low and too slow to cope with the fast-moving environment and client needs.⁴³ That is organizational culture. Organizational Culture will be broadly discussed in the next chapters.

1.3. Organizational Change: Approaches and Practices

We thoroughly discussed that Industry 4.0 delivers tumultuous volatility and acme of uncertainty in business environments. We also explored dominant outlooks to manage change in enterprises to come through uncertainty. Nevertheless, change happens faster than ever we experienced, and planning and executing change management initiatives fail due to the unpredictable nature of the future, which is getting more complex and ever-changing.

Successful change management practices cannot be universal, and it has to be implemented for each enterprise individually. It might be that particular aspects should be inserted in the list as primary ingredients. Some of the elements are less relevant or applicable than others, depending on the fields of operation. We will investigate some characteristics of successful organizational transformation practices in the next paragraphs.

1.3.1. Organizational structure change

Traditionally, enterprises are structured according to functional expertise such as IT, marketing, finance, etc. That is called the Silo structure. Silo structures tend to be too tightly focused on functions rather than process outcomes, slow down important decisions that today rarely affect only one function, and often duplicate efforts⁴⁴.

The insight that in today’s world, the pace of adoption of new technologies and the need for a high degree of flexibility to cater to the clients’ needs, which are also faster changing, has induced many companies to start breaking up the old silo organization⁴⁵. It clears up that companies set up to form around projects, client need rather than functions, and they have a cross-functional workforce. In turn, that leads to more elasticity and dynamic organizational structure with cross-functional teams. In such organizations, it would be useful to build a community of practices and implement community-based decision making to allow rapid decision making with fast feedback.

Tatjana Puhan (2019, p.2) claims that top-management is the brain of an organization, and they need to spread this culture through role modeling and reinforcement mechanisms.

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² Bean, R. (2018), “How Big Data and AI are Driving Business Innovation in 2018”, MIT Sloan Management Review, available at: https://sloanreview.mit.edu/article/how-big-data-and-ai-are-driving-business-innovation-in-2018/ (accessed 26th April 2020)

³ Goran, J., LaBerge, L. and Srinivasa, R. (2017), “Culture for a digital age”, McKinsey& Company, available at: https://www.mckinsey.com/business-functions/mckinsey-digital/our-insights/culture-for-a-digital-age (accessed 26th April 2020)

⁴ Karamjeet Singh et al. (2012), “Key Factors Influencing Employee Response Toward Change: A Test in the Telecom Industry in India”, Journal of Management Policy and Practice, Vol. 13(3)

⁵ Hermann, Mario Pentek, Tobias Otto, Boris (2015), “Design Principles for Industrie 4.0 Scenarios: A Literature Review”, Business Engineering Institute St. Gallen, No. 01/2015, available at: https://pdfs.semanticscholar.org/069c/d102faebef48fbb7b531311e0127652d926e.pdf (accessed 01st Feb 2020)

⁶ Asay, M. (2017), “85% of big data projects fail, but your developers can help yours succeed”, TechRepublic, available at: http://www.techrepublic.com/article/85-of-big-data-projects-fail-but-your-developers-can-help-yours-succeed/ (accessed 20th May 2020)

⁷ Horváth, D. and Szabó, R. Z. (2019), “Driving forces and barriers of Industry 4.0: Do multinational and small and medium-sized companies have equal opportunities?”, Technological Forecasting and Social Change, 146 (September), pp. 119-132

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¹⁰ Klaus Schwab (2016), “The Fourth Industrial Revolution”, World Economic Forum

¹¹ Hermann, M., Pentek, T. and Otto, B. (2015), “Design Principles for Industrie 4.0 Scenarios: A Literature Review”, Business Engineering Institute St. Gallen, No. 01/2015, available at: https://pdfs.semanticscholar.org/069c/d102faebef48fbb7b531311e0127652d926e.pdf (accessed 01st February 2020)

¹² Statista, “Internet of Things (IoT) connected devices installed base worldwide from 2015 to 2025”, available at: https://www.statista.com/statistics/471264/iot-number-of-connected-devices-worldwide/ (accessed 25th March 2020)

¹³ MIT Technology Review (2019), “The scientists who are creating a bio-internet of things”, https://www.technologyreview.com/s/614629/the-scientists-who-are-creating-a-bio-internet-of-things/?utm_medium=tr_social&utm_campaign=site_visitor.unpaid.engagement&utm_source=Twitter#Echobox=1573228825 (accessed 25th March 2020)

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¹⁵ Hermann, M., Pentek, T. and Otto, B. (2015), “Design Principles for Industrie 4.0 Scenarios: A Literature Review”, Business Engineering Institute St. Gallen, No. 01/2015, available at: https://pdfs.semanticscholar.org/069c/d102faebef48fbb7b531311e0127652d926e.pdf (accessed 01st February 2020)

¹⁶ Horváth, D. and Szabó, R. Z. (2019), “Driving forces and barriers of Industry 4.0: Do multinational and small and medium-sized companies have equal opportunities?”, Technological Forecasting and Social Change, 146 (September), pp. 119-132

¹⁷ Klaus Schwab (2016), “The Fourth Industrial Revolution”, World Economic Forum

¹⁸ Horváth, D. and Szabó, R. Z. (2019), “Driving forces and barriers of Industry 4.0: Do multinational and small and medium-sized companies have equal opportunities?”, Technological Forecasting and Social Change, 146 (September), pp. 119-132

¹⁹ Garfein, S., Horney, N. F., and Nelson, M. (2013), “Managing change in organizations”, available at: https://www.pmi.org/learning/library/managing-change-organizations-5872 (accessed 25th of February 2020)

²⁰ Ibid.

²¹ Horváth, D. and Szabó, R. Z. (2019), “Driving forces and barriers of Industry 4.0: Do multinational and small and medium-sized companies have equal opportunities?”, Technological Forecasting and Social Change, 146 (September), pp. 119-132

²² Deloitte (2017), “Forces of change: Industry 4.0”, available at: https://www2.deloitte.com/content/dam/insights/us/articles/4323_Forces-of-change/4323_Forces-of-change_Ind4-0.pdf (accessed 30th March 2020)

²³ Todnem, R. (2005), “Organisational Change Management: A Critical Review”, Journal of Change Management, Vol. 5, No. 4, pp. 369–380

²⁴ Goodstein, L. D. and Burke, W. W. (1991), “Creating successful organization change”, Organizational Dynamics, Vol. 19, Issue 4, pp. 5-17

²⁵ Ibid.

²⁶ Teczke, M. Bugubayeva, R. O. and Sansyzbayevna, E. B. (2017), “Approaches and models for change management”, Jagiellonian Journal of Management, Vol. 3, No. 3, pp. 195-208

²⁷ Kritsonis A. et. al (2005), “Comparison of Change Theories”, International Journal of Schorarly Academic Intellectual Diversity, Vol. 8, No. 1

²⁸ Aravopoulou, E. (2016), “Organisational change: A conceptual and theoretical review”, available at: https://www.researchgate.net/publication/324561899_Organisational_change_A_conceptual_and_theoretical_review, (accessed 01st April)

²⁹ Ahonen, M. and Kaseorg, M. (2008), “Learning Organization – Theory and Practice: Case of Estonia”, available at: https://www.researchgate.net/publication/295079759_Learning_Organization_-_Theory_and_Practice_Case_of_Estonia (accessed 20 th February 2020)

³⁰ Odor H. O. (2018), “Organisational Change and Development”, European Journal of Business and Management, Vol. 10, No. 7

³¹ Ibid.

³² Kritsonis A. et. al (2005), “Comparison of Change Theories”, International Journal of Schorarly Academic Intellectual Diversity, Vol. 8, No. 1

³³ Kotter, J. P. (1995), “Leading change: Why transformation efforts fail”, Harvard Business Review, (May –June), available at: https://hbr.org/1995/05/leading-change-why-transformation-efforts-fail-2 (accessed 22th April 2020)

³⁴ Hao, M. J.and Yazdanifard R. (PhD) (2015), “How effective leadership can facilitate change in organizations through Improvement and Innovation”, Global Journal of Management and Business Research: Administration and Management, Vol. 15, Issue 9

³⁵ Ibid.

³⁶ Akinbode, A. I. & Al Shuhumi, S. R. A. (2018), “Change Management Process and Leadership Styles”, PEOPLE: International Journal of Social Sciences, Vol. 4, Issue. 2, pp. 609-618

³⁷ Dingsøyr, T.and others (2012), “A decade of agile methodologies: Towards explaining agile software development”, Journal of Systems and Software, Vol. 85, No. 6, pp. 1213-1221

³⁸ Deloitte (2017), “Forces of change: Industry 4.0”, available at: https://www2.deloitte.com/content/dam/insights/us/articles/4323_Forces-of-change/4323_Forces-of-change_Ind4-0.pdf (accessed 30th March 2020)

³⁹ Gandomani T. et al. (2013), “Effective factors in agile transformation process from change management perspective”, https://scinapse.io/papers/12676697 (accessed 03rd April 2020)

⁴⁰ Karud, K. and Årvik, K. V. (2016), “Agile Change Management - How agile concepts can be used to manage change processes”, https://www.academia.edu/30531344/Agile_Change_Management-How_agile_concepts_can_be_used_to_manage_change_processes (accessed 8th April 2020)

⁴¹ Srivastava, A. and Sushil, P. (2017), “Alignment: The Foundation of Effective Strategy Execution”, International Journal of Productivity and Performance Management, Vol. 66, No. 6

⁴² Dikert, K., Paasivaara, M. and Lassenius, C. (2016), “Challenges and Success Factors for Large-Scale Agile Transformations: A Systematic Literature Review”, Journal of Systems and Software, Vol. 119 (September), pp. 87-108

⁴³ Puhan, T. X. (2019), “Managing Change and Innovation”, available at: https://ssrn.com/abstract=3371800 (accessed 01th January 2020)

⁴⁴ Dell, R. D. (2005), “Breaking Organizational Silos: Removing Barriers to Exceptional Performance”, Journal - American Water Works Association, Vol. 97, No. 6

⁴⁵ Puhan, T. X. (2019), “Managing Change and Innovation”, available at: https://ssrn.com/abstract=3371800 (accessed 01th January 2020)

• College: University of Rome "Tor Vergata"
• Grade: 94/110
• Author: Parvin Abdurahmanov (Author)
• Publication Year: 2020
• Pages: 84
• Catalog Number: V924972
• ISBN (eBook): 9783346320278
• ISBN (Book): 9783346320285
• Language: English
• Tags: big data, digital transformation, change management, culture change, management consulting, industry 4.0, the fourth industrial revolution, organizational change, agile change, 7 zero, management challenges, resistance to change, managing change