Master Thesis Lean and Industry 4.0: How can lean organizations prepare their employees for the transition towards industry 4.0?

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Master Thesis

Lean and Industry 4.0: How can lean organizations prepare

their employees for the transition towards industry 4.0?

MSc Supply Chain Management

University of Groningen/Faculty of Economics and Business

Author: Weilin Yang Student number: S3340015 E-mail: W.Yang.11@student.rug.nl

Supervisor/University of Groningen Dr. Ir. Thomas Bortolotti

Co-assessor/University of Groningen Prof.dr.D.P. (Dirk Pieter) Van Donk

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Abstract

Purpose: The purpose of this paper is to investigates how lean organizations with various maturity levels can enhance the change readiness of their employees for the transition towards various adoption levels of industry 4.0 from the lens of the five change message model at the individual level. Hereby, this study examines how the general model can be applied in the specific change context, from lean to lean industry 4.0. Is it still effective?

Design/Methodology/Approach: The multiple-case study is conducted in the form of semi-interview in the manufacturing sector of organizations which have their headquarter or subsidiary locate in the Netherlands.

Findings: This study found that if lean organizations do not have an urgent need to implement I4.0, training would be the most effective method to make employees embrace the change. In addition, leaders at middle-management of high lean maturity organizations could involve their employees at all levels at the beginning of the change process to make employees embrace the change if they regard I4.0 as the evolution of lean. And leaders at middle-management of low lean maturity organizations can better to ask employees about their needs if they regard I4.0 as a supporting tool. Otherwise, they’ll encounter major resistance.

Originality/Value: This paper adds content to the limited literature stream on the employee preparation of lean organizations which are transforming into lean industry 4.0 organizations. As industry 4.0 is a recent approach, there are barely any insights provided to guide organizations in the preparation of employees from the change readiness perspective and combine the specific context of various lean maturity level and industry 4.0 adoption level. This paper tries to fill this gap.

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1. Introduction

Lean production (LP) has been paradigm prevalent for several decades for its operational excellence (Crute et al., 2003; Shah & Ward, 2003). It is constituted by lean tools and lean philosophies. The seamless integration of the technical side and soft side has been considered a metaphor as sociotechnical system by many scholars, which also represent the highest lean maturity level (Cua et al., 2001; Flynn et al., 1995; Shah & Ward, 2007). In recent years, a new paradigm has been emerging. Industry 4.0 (I4.0) is characterized by advanced technologies, such as cyber physical system, internet of things and cloud computing (Rüttimann & Stöckli, 2016). Those advanced technologies are expected to improve the operational performance, which is aligned with the objective of lean (Rossini et al., 2019). Scholars claim that I4.0 technologies are able to bring lean to a higher level of operational excellence through technologies incorporation (Kolberg et al., 2015; Müller et al., 2018).

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3 The extant literature stream of lean and I4.0 puts the bulk of attention on preparing organizations from the technical side. The effect of I4.0 technologies on lean technology tools (Hambach et al., 2017; Khanchanapong et al., 2014; Satoglu et al., 2018). A minor amount of literature mentioned the effects of implementing I4.0 on employees (Bal & Satoglu, 2018; Sanders et al., 2016). However, none of them mention how to prepare employees for the digital transformation, especially under the context of various lean maturity level and I4.0 adoption level. For organizational change, change readiness is the precursor of successful transformation since it’s a critical factor that influences change resistance (Holt & Vardaman, 2013; Stevens, 2013). Lewin (1951) stated that “unfreezing” employees’ current work behaviour is helpful to shape the new behaviour which benefits sustaining the change. Employees who have a higher level of change readiness at the initial stage are more inclined to support change initiatives in the post-implementation stage (Jones et al., 2013). Hence, as the change readiness grows, the success rate of organizational change increases(Cunningham et al., 2002; Madsen et al., 2005). I4.0 is expected to bring massive change to lean organizations. How to prepare the change readiness of employees is critical for organizational transformation. Therefore, this study raises the following questions “How can lean organizations prepare their employees for the

transition towards industry 4.0?” This study has been conducted from the lens of the

popular five message model developed by Armenakis, Harris & Mossholder (1993) since this model takes the perspective of employees, specifies the critical messages that concern employees and that they need to receive explicitly at the initial change stage. Combined with the context of various lean maturity level and I4.0 adoption level, this study intends to review whether the general model is effective in this specific context. The contribution of this study is twofold. Academically, it examined whether the general change message model is effective in the specific context of various lean maturity levels and industry 4.0 adoption levels, which fills the gap of the preparation of employees of lean organizations for the I4.0 transformation. Practically, this study provides insight for those lean organizations with different maturity levels planning for the different level of I4.0 adoption on how to effectively create change readiness of their employees.

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4 maturity level and I4.0 adoption level, and the effects on employees. The concept of change readiness and the five change messages model are reviewed. Why this study borrows the lens of the five change messages and also why this study studies at the preparation of individual-level are argued. The reason for this study to adopt multiple case studies, the method of data collection, and case selection criteria are elaborated. Following is the data analysis and discussion of the empirical data. Finally, this study ended with a conclusion.

2. Theory Background

This section comprises two subsections 2.1 presents lean maturity level, I4.0 adoption level, the association between the lean maturity level and I4.0 adoption level, and the effects of I4.0 on employees. 2.2 describes the key definition of change readiness, the critical five change messages that change recipients need to explicitly receive through different strategies to enhance change readiness at the individual level. The five change message model is the framework that this study has used to guide the empirical examination of the application of this model in the context of lean and industry 4.0.

2.1 Lean & Industry 4.0

2.1.1 Lean

A “sociotechnical” system is the incorporation of technical tools and management philosophies of LP, which represents the highest maturity level of LP (Birdi et al., 2008; De Menezes et al., 2010; Shah & Ward, 2003). Hines (2010) gives an analogy of LP as an iceberg and use “waterline” to differentiate the low and high lean maturity level. Below the waterline are tools and standardized processes; above the waterline are leadership and employee engagement.

The maturity level of lean

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5 management, as it is a systematic approach aimed at continuously reducing the waste. CI needs to be achieved by employees’ commitment for participative problem-solving (Imai, 1986; Imai, 1997). Employee engagement is the main driver of employee commitment (Kompaso & Sridevi, 2010). Employee engagement could be defined as giving employees the opportunity to be highly involved in the process and empowered for decision making and problem-solving (Jones et al., 2013; Konrad, 2006). With involving and empowering employees, they sense their contribution to organizations and hence have emotional attachment to organizations (Jones et al., 2013; Kompaso & Sridevi, 2010). The leader is indispensable in enabling employees to be involved and empowered (Nogueira et al., 2018). Employee engagement requires leadership commitment (Nasomboon, 2014). Thereby, employee engagement and leadership are the two interactive factors that influence the effectiveness and the successfulness of CI (Alefari et al., 2017; Angelis et al., 2011). Moreover, CI requires employees to continually think about the process and their actions in order to achieve continuous incremental improvements (Bessant & Caffyn, 1997; Jørgensen et al., 2007). Such process-oriented thinking requires employees to have the mindset of striving for perfection (Bhasin & Burcher, 2006). Hence, the leader needs to provide not only training of analytic skills but also the educating of the process-oriented and continuous thinking mindset to shop-floor employees (Laohavichien et al., 2011; Macduffie, 1995; Matsui, 2007). Coaching leadership is suggested by many scholars as the domain leadership style for CI sustainability (Dombrowski et al., 2017; Netland, 2016; Smalley & Isao, 2011). As the three most representative attributes of coaching leadership style are employee empowerment, employee involvement and employee motivating (Angelis et al., 2011; Dombrowski & Mielke, 2013; Womack & Jones, 1996). Therefore, it is the collaboration between shop-floor employees and leaders at middle-management to achieve and sustain CI (Marodin & Saurin, 2015). Nevertheless, LP is a low-tech continuous approach and it seems to have reached its limits (Tortorella & Fettermann, 2018a). The advantage of LP can be expanded through the proper incorporation of digital technologies (Tortorella & Fettermann, 2018b).

2.1.2 Industry 4.0

What is industry 4.0?

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6 (Alcácer & Cruz-machado, 2019). IoT is the key enabler of I4.0; it allows people, machines and resources to interact and cooperate (Bortolini, et al., 2017) through connected RFID, wireless sensor networks and IoT applied software (Alcácer & Cruz-machado, 2019). CPS is defined as the convergence of the physical and digital world (Dworschak & Zaiser, 2014; Lu, 2017). The embedded computers monitor the physical world and provide feedback through the user interfaces to humans and vice versa to form an information loop (Mrugalska & Wyrwicka, 2017). Those advanced digital technologies represent the high adoption level of I4.0, which enable organizations to simultate the future scenarios and predict events that have not happened (Martawirya et al., 2018). Moreover, they could bring the isolated, optimized cells to the integrated, automated, and optimized production flow across borders (Mayr et al., 2018). Low adopion level of I4.0 is the connection of systems and installtation of sensors, which enable organizations to capture data to increase the visibility or transparency of the data (Martawirya et al., 2018).

The maturity level of Lean & The adoption level of Industry 4.0

Rossini et al. (2019), Tortorella & Fettermann (2018) and Tortorella et al. (2019) examined the overall effect of the integrated implementation of LP and I4.0 over operational performance improvement through survey. They suggest that it is difficult for organizations with less extensive implementations of lean practices, for example, no established continuous improvement practices, to accept the higher adoption level of I4.0. This is because they can’t benefit from the operational improvement, and face the loss of a vast amount of capital investment. Regardless of the adoption level of I4.0, the technological solutions are the combination of technology and corresponding knowledge to generate actions and delivery value (Müller et al., 2018; Wagner et al., 2017). Considering the low adoption level of I4.0, the technology incorporation would result in a certain degree of process redesigning and new capabilities of employees (Buer et al., 2018; Glass et al., 2018). Organizations which adopt the low I4.0 level have only low I4.0 maturity level (Bal & Satoglu, 2018). For such organizations, I4.0 exist in organizations. However, organizations have not implement digital technologies to all operations (Bal & Satoglu, 2018). The readiness of equipment infrastructure is low as well (Bal & Satoglu, 2018).

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7 management than low adoption level of I4.0 (Braña, 2019; Kotnour et al., 2015). It is the redesign of the whole system and reorganizing of employees both of which necessitate organizational transformation (Braña, 2019; Schumacher, Erol, & Sihn, 2016). Thus, although I4.0 technologies may enable LP to pursue extreme operational excellence, as the higher the adoption level of I4.0, the deeper the change required in organizations’ habits of working which raises an additional challenge for its acceptance (Rossini et al., 2019; Tortorella & Fettermann, 2018; Tortorella et al., 2019). The high adoption level of I4.0 would result in the jump of maturity level of I4.0 from processes are ready for decentralization and interoperation in few areas in organizations to process are capable of being decentralized and interoperated in lots of areas in organizations (Bal & Satoglu, 2018).

The effects of industry 4.0 on shop-floor employees

As scholars and consultancy indicate, with the automation of simple and repetitive work the demand for high-skilled labor will increase in the next ten years (Buer et al., 2018; Weyer et al., 2015).The growing technology complexity requires employees to deal with highly complex jobs (Djumalieva & Sleeman, 2018). The primary function of employees in I4.0 is to steer the production strategy and monitor the self-organizing process, which assumes that employees have more responsibility in the operation area (Glass et al., 2018). Mrugalska & Wyrwicka (2017) and Müller et al., (2018b) state that employees take the role of creative problem solver and strategic decision-maker when confronted with complex problems.Technologies can assist employees to fulfil those roles better and take responsibility better in the gradually growing technical complexity through the availability of real-time data and context-sensitive user-interface (Dworschak & Zaiser, 2014; Gorecky et al., 2014). In addition, the operator can also gain a higher level of protection. Sensors could detect the blades of the machine while the operator in the setup process (Gorecky et al., 2014).

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8 and prepare them for the changing workplace (Sanders et al., 2016). How can organizations create change readiness of employees for the organizational change?

2.2. Change readiness

Change initiatives could be undertaken under the condition of low change readiness; however, the success rate of organizational change would be reduced (Cunningham et al., 2002). Readiness is an antecedent of resistance or support (Armenakis et al., 1993). With low change readiness, employees lack motivation or generate anxiety, for example, job insecurity (Thakur & Srivastava, 2017). For the organizational change, resulting in both psychological and behavioural change resistance (Madsen et al., 2005). Studies empirically examining organizational change with low change readiness show that change resistance is the main cause that leads to organizational change failure (Neves, 2009). Readiness has been considered as the prerequisite of successful organization change (Bernerth, 2004).

Holt & Vardaman (2013) define change readiness as “the degree to which those

involved are individually and collectively primed, motivated and technically capable of executing the change”. Individual readiness is the precursor of organizational readiness

(Choi & Ruona, 2011; Rafferty et al., 2013). For an organizational change, individual employees must be willing to change and ready to change (Eby et al., 2000). Individuals are not receiving change passively but interpret and respond to the events that happened in the organizational environment (Holt et al., 2007; Stevens, 2013). Individual’s commitment is represented by supportive behaviour through cooperation and championing (Meyer et al., 2007). Jones, Latham, & Betta (2013) demonstrated that individuals with higher level of readiness in the early phase of change implementation were more likely to support change practices in the latter phase of change implementation.

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9 of the current work attitude and behaviour of employees and cultivates the supportive attitude of adopting new initiatives (Armenakis, Bernerth, Pitts, & Walker, 2007; Eby et al., 2000). Lewin’s change model provides the general change processes and the importance of the first phase among all three phases, yet it stops at discussing dynamic and detailed elements of this phase (Cunningham et al., 2002). Armenakis et al., (1993) developed the five change messages model, which describes what change messages need to be received by employees explicitly at the beginning of the process.

2.2.1 Five change messeages model

According to Armenakis, Harris & Mossholder (1993), those five change messages are (1) discrepancy, (2) appropriateness, (3) self-efficacy, (4) principal support, and (5) personal valence. Definitions of five change messages and representative contextual questions are listed in Table 1 below.

Table 1

Message Definition Question

Discrepancy The clear gap between the status quo of the

organization and the desired state of the organization

Why do we change?

Appropriateness The approach adopted by the organization is helpful for the organization to reach its goal

Why this specific approach?

Self-efficacy Individuals recognizes the capability of themselves to implement the change successfully

Can I do this?

Principal support Managers provide support in the form of resources and information

Will managers help with us? How?

Personal valence Organizational change is a benefit to employees whether in an extrinsic or intrinsic way

What is in it for me?

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10 To activate the motivation of employees to change is to make them believe that something needs to change. The contextual factors, for example, competitive environment, have been emphasized to justify the need for the organization to change. When employees realize that it is necessary for organization to change, it is also essential that they believe the organization would implement the “right” change approach. Otherwise, they think it is meaningless to put change effort into this change approach. Discrepancy and appropriateness could be classified as “the need to change” (Bommer et al., 2005). Employees worry whether they have the ability with the particular change approach to successfully implement the change. They will avoid activities if they don’t have confidence. Therefore, managers need to communicate with employees, provide support to cultivate employees’ confidence. In addition, if employees perceive the organizational change is a threat to them, they are likely to resist the change.

2.2.2 Strategies to convey the change messages

There are three strategies used to convey the five change messages and influence an individual’s cognitive perception and create awareness for organization change (Choi & Ruona, 2011; Meyer et al., 2007). Persuasive communication is the main source convey the explicit information for individual employees to recognize the need for change (Worley & Doolen, 2006). Communication effort needs to be made by management (Worley & Doolen, 2006). According to Armenakis & Bedeian (1999) and Armenakis & Harris (2002), there are three forms of active participation: enactive mastery, vicarious learning, and participation in decision making. Enactive mastery refers to individual employees gaining skills and knowledge by involving them and training them. Vicarious learning is individual employees observing and learning from each other through teamwork. Persuasive communication is suitable to convey messages of discrepancy and appropriateness. Active participation is suitable to convey messages of self-efficacy and principle support. The last strategy, the management of information, is using internal and external sources, for example, consultants, to provide information regarding the change. Those three strategies are generally suitable for conveying change messages.

2.2.3 The level of readiness and urgency

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11 urgency could be defined as the organizations’ belief that something need to be dealt with immediately (Cawsey et al., 2016). Readiness is affected by the undertanding of new approach and the past change experience (Cawsey et al., 2016). Organizations under the condition of low readiness and urgency have ample time to prepare their employees. Therefore, persuasive communication, active participation, and management of information are all suitable strategies. Organizations under the condition of low readiness and high urgency are in quite a dangerous situation, they have little time to “wake up” their employees. Therefore, the primary strategy under this condition is to persuade them and demonstrate the need for change. Organizations under the condition of high readiness and low urgency can apply any of the three strategies, for the reason they are not in a hurry. In the last situation, in which organizations are under the condition of high readiness and high urgency, organizations need a quick response to the change. Persuasive communication is the most effective one.

Therefore, it is critical for organizations to assess their change readiness (Holt & Vardaman, 2013). The five change messages model and the corresponding strategies are a general model and strategies which can be applied in general organizational change. The general model applied in the specific issue (from lean to lean industry 4.0) hasn’t be studied. How can this be applied in the context of various lean maturity level and I4.0 adoption level? As the framework of this study, this model guided this study to examine the synergy effect of this model and this specific change context empirically. In addition, it is important to note that this study argues that all individuals perceive readiness along with the same set of dimensions (Klein & Kozlowski, 2000).

3. Methodology

3.1 Research design

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12 generalizability of conclusions. Eisenhardt (1989) suggested that 4-10 cases usually work well. This study has 5 cases, which is in the range of Eisenhardt’s suggestion.

3.2 Case selection

In total five Dutch companies in the manufacturing sector having lean experience and implementation of I4.0 in production, were interviewed. Two out of the five organizations are small and medium enterprises (SME). SME companies, in general, have less extensive lean practices implemented and limited understanding and awareness of lean thinking (Yadav et al., 2019). Since this study was intended to investigate lean organizations that have different maturity levels as background, three multi-national enterprises (MNE) which have implemented lean for years and are aware of lean thinking were needed for this study. Moreover, the manufacturing sector was selected since the implementation of I4.0 has the main impact on the production process and is expected to bring fundamental change as the I4.0 adoption levels increase. Companies U and Z are low lean maturity organizations and intend to adopt lower level of I4.0. They regard I4.0 as a supporting tool for them. Company V is a medium lean maturity organization that also regards I4.0 as a supporting tool for its lean implementation. Companies W and Y are high lean maturity organizations and regard I4.0 as the next evolution of lean. The various lean maturity levels and various intentions of the I4.0 adoption level are the important contexts of the five change message model. Therefore, as the prerequisites of this study, those five organizations had been selected. Companies U and V are both operating in the steer and plastic market. Companies W and Z are manufacturers for the semiconductor industry. Company Y is operate in the automotive market. Apart from those five selected companies, one consultant in the operation sector was interviewed for the better reliability of the findings.

3.3 Data collection

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top-13 down process that needs to be pushed forward by leaders. Therefore, interviewees who are a leader in the department and involved in the change process were selected. Moreover, interviewees who are not a leader but change recipients were also selected to avoid the bias of leaders. One to four employees from each company have been interviewed for the purpose of triangulation and also stronger substantiation of constructs (Voss et al., 2015). Detailed information, for example, occupation, of interviewees displayed in Table 2 presented below. Interviews were conducted face-to-face; the average length of interviews was 1 hour. All interview processes have been recorded. To guarantee the confidential information, organizations have been anonymized in Table 2.

Table 2. Overview of companies and Interviewees Company Company

Size

Industry Interviewee Position

U SME Manufacturing U1 Supply chain

manager U2 Quality Manager U3 Process improvement employee U4 Intern

V MNE Manufacturing V1 Manufacturing

director

W MNE Electronic W1 Engineering

manager

W2 Lean engineer

Y MNE Automotive Y1 Vice. President

Y2 Director of CI

Z SME Electronic Z1 Innovation

manager

X Consultancy X1 Director

X2 Sr. Consultant

3.4 Data analysis

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14 delineate the internal patterns with emphasis on each companies’ situation, strategies applied, the change process and the change agent involved. Within-case analysis contributes to the internal validity of the study. Then by cross-case analysis, the contrast and similar patterns emerging from the in-depth within-case study. The similar patterns are further analyzed and discussed in the fifth section of this study. In order to assure the internal validity and reliability, Atlas.ti was used to conduct the coding process and to assure consistency and efficiency. The coding tree can be found in Appendix B.

4.Findings

In this section, the descriptions of the changing context, including the urgency level of implementing industry 4.0 and the initial readiness of employees of each company, are presented below. The changing context is important for organizations to take different strategies suggested by Armenakis & Harris (2002) to convey the five change messages to their employees in a certain priority. Hence, strategies and the five change messages presented following by change context. In addition, since Bommer et al., (2005) classified the message “discrepancy” and “appropriateness” as the “need for change”, those two messages have been combined as “the need for change” in the following description. Some of the change messages might be incorporated in the description. The messages have been summarized in Tables 3.1 to 3.5, which can be found in Appendix C. The corresponding information of the following description of the changing context of each company can be found in the column in Table 4 presented in the analysis and discussion section.

4.1 Company U

Urgency and Initial readiness

For company U, industry 4.0 is at the starting phase. In other words, it has digitalized some of the paperwork, and it is focusing on an industry 4.0 technology project. Competitive advantage is the reason for them to start the implementation of I4.0. As U3 stated, “I think it’s the competitive advantage, we want to stay competitive.” And interviewees they agreed with each other that the implementation of I4.0 technologies is a learning process for them; they feel no urgency about it “And industry 4.0 is very

new, it’s a learning process for us and I believe it’s also learning process for our competitors. We are not in a hurry, it’s incremental change” (U1). Because of the low

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15 technologies introduced to shop-floor employees, for example, tablets for picking lists, instruction of setting parameters of folding machines, simplified their work. Shop-floor employees are generally willing to use supportive technologies. Although the I4.0 technology project is also aiming at simplifying the work of shop-floor employees, they are afraid of the difficulty of the knowledge. As U4 illustrated, “When I actually

mentioned to them. Have you ever heard about the [Industry 4.0 technology] project, or what do you think about it? They were like that’s too hard for me to understand. I don’t know what it does and how to work with it”. The company only takes lean tools

that are useful for them, for example, the Plan-Do-Check-Act cycle. Employees in this company were confused with I4.0, “We don’t really say the word “Industry 4.0” to

them, because they don’t know what it is. And I think Industry 4.0 is a big word” (U1).

Therefore, employees have low readiness.

Strategies and Five change messages

The main strategies they applied to prepare employees are persuasive communication and enactive learning (training). The cross-functional team is set up for this change project, “You're right about that (the cross-functional team is especially supporting the

change)” (U4), and completely responsible for the communication plan of employees

from top to bottom for the I4.0 technology project. “He [U4] also made a

communication plan and a schedule for meetings with cross-functional teams” (U1).

The team also applies the PDCA to assess and analyze the current readiness of employees from the process data “So they [cross-function team and employees] will

actually have a meeting every week in which they will talk about the problems and how to fix those problems and what they learn from it as well. So keep it evolving as well. To do that they've been given a PDCA cycle. With the help of that tool they will keep on evolving this [I4.0 technology project]” (U4). The company itself hasn’t provided

training to employees regarding I4.0 technology. It is the producer of this I4.0 technology that provides training to their employees. “They will have two days visit

from the company which delivers machine as well and they will work with him to get to know the machine firsthand” (U4). The change process hasn’t involved shop-floor

employees; it is mainly the responsibility of the cross-functional team formed by senior managers and middle-level managers. “The team is from the different departments and

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4.2 Company V

For company V, industry 4.0 is implemented as a supporting technologies for lean to achieve the next level of lean, continuous improvement. As V1 said, “I would say

always kept me although so far to the assistant though, what is Industry 4.0 you have different elements…”, and interviewee continued onto say,“But I would say as you correctly said it's lean, it's a continuous improvement culture and it is implementing systems that support continuous improvement and other supporting IT systems. We are currently in the process of starting to implement the next level of our software support in our factories.” It is the intrinsic motivation for company Y to adopt I4.0. Thus, the

urgency level is low. The readiness is low, mainly because of the average age of their shop-floor employees, who tend not to accept new change. “In a production company,

a lot of people are quite aged. So, resistance to change in this group is bigger than when you have young people” (V1).

The main strategies this company applied are persuasive communication and enactive learning. Instead of a cross-functional team, the company hired the consultancy for the change communication. “That's not possible for this kind of industry 4.0 because as we

have done it’s a completely different world. So it took quite a while with even the external consultants to get that aligned” (V1). Interviewee V1 emphasized the

importance of training, “We invest in training people and we tried to create a system

where people get support and do good things. You have to go from top to bottom all through the organization before you clearly can tell the benefits and then training of people is essential.” The company also provides IT support for employees. “There is I.T. support and we have educated some experts in the company for first line question.”

The leadership style is stressed by the interviewee who thinks the leader is the most critical factor in communicating with and preparing employees. “The key in the whole

exercise is leadership. What type of people do you have in your factories leading these change. Because it's a lot about change management and not just implementing software. I would say implementing new software is difficult but it's absolutely not the more difficult path. That's making people use it and changing the organization” (V1).

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shop-17 floor level. “I don’t think it’s feasible [involving shop-floor employees] for us. Our

people want to know what they should do, they follow the instructions. And if they have any problem, they can tell their leader, and we ask leader for feedback” (V1). There

is resistance from both middle-management and shop-floor level for the transparency of data disturb the freedom. “People that they do everything you can see not the system

that's done for one hour base or you can ask the question but did you really do things get more transparent and people, in general, don't like that because they feel more observed and that's freedom” (V1). In order to decrease the resistance, the company

changed some of the direct leaders. “It's very important that your shift leader and unit

leaders are on board because they directly influence people. So management has to be on board. I'm sure we sometimes replace direct management to support it” (V1).

4.3 Company W

This company has not only supportive technologies but also reached a higher level of digitalization. As W1 stated, “The complete organization is paperless.” For this company, I4.0 is the next evolution of lean, the next step for this company is to have automated reports and warnings. “So the next step is we analyze our processes in the

background and we get automated reports or warnings” (W1). This company has

implemented I4.0 a few years ago. At that time, the pressure from the competition was not high, and the main reason for them to implement I4.0 was because of the pursuit of operational efficiency. “It's competition. And cost. Efficiency, flexibility. I think

flexibility is the most prominent” (W1). The urgency level of company W is low. On

the technical side, the company is able to become flexible in a short time period. However, it is at the expense of the loss of a lot of shop-floor employees. The company decided to implement step by step. “If we change for example from a very static

production facility to a very flexible Industry 4.0 facility, we will lose a lot of operators. We are now going step by step and letting the operators feel how Industry 4.0 can help them in that process and then expand those activities so that everyone can adapt”

(W2). The interviewee mentioned that employees have a confusion of what I4.0 can do,

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18 in the electronics industry, and innovation capability is important to satisfy customer demand. The readiness of employees is low to medium.

The main strategies the company applied are persuasive communication, enactive learning, and decision making. The cross-functional team uses the metaphor “ambassador.” It communicates with employees from different departments and spreads communication among employees. “Because they're in an improvement team

and implementing the change they are the ambassador for that team to really spread the words on their improvement so to speak” (W2). Employees on the shop-floor have

been involved in the change process from the beginning. The workshop is the main approach of involving employees for developing ideas together, gathering feedback from employees, and making decisions together. “We built up a workshop from

management to operations. Any employees having any idea could go to the workshop. And they can also tell engineers what their ideas are, engineers would evaluate those ideas and try to develop those ideas which have potential. And then they test tehm with operators creating feedback and improving from this feedback again before implementing.” (W1). This company also stated that the leaders who are open and allow

employees to participate and also make the decisions together are more effective in preparing employees. “The team leader of the unit has to be open for that and give

people a chance to participate” (W2). In general, the transition is smooth in company

W at present. “So we think it is good to involve them and now we are going through a

smooth transition. We really want employees to become comfortable with the industry 4.0” (W2). Interviewees attribute this to their early involvement of employees at all

levels in the change process.

4.4 Company Y

For company Y, Y1 stated, “We didn't start thinking about this before two years ago,

the growth of this company and the pressure of delivering was that high that we had only one chance to survive.” The crisis that the company encountered raised high

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19 officially.The past change experience of lean implementation did not help the company to face a sudden change to a certain extent. As Y2 said, “Everything is too fast. People

don’t even know what happened. They are afraid, but we invest a lot in people, in their mindset like Toyota does, at least they think we can survive. But employees think the lean implementation is suffering, and it asks them to do a lot, to solve problems by themselves as much as they can.” Apart from this, it does not have a culture of

innovation. The readiness of employees, in general, is low.

Persuasive communication and enactive learning are the primary strategy for the company to prepare its employees. The cross-functional team is responsible for persuasive communication. “Cross-functional working is that we have now this product

all over the business but it should evolve as soon as possible to get the whole user community behind it, because that the success and acceptance of such a project will increase as much” (Y1). The first thing shop-floor employees worry about is whether

they will lose their job. “It is very important to realise that it is innovation automation

that’s a threat. Of course it's felt like a threat at least for people” (Y1). The readiness

of employees increased in terms of their recognition of the need for change. As Y1 stated, “The company crisis threatened their job, of course. They don’t want to lose

their job.” The benefits of change outweigh the risks of not changing; employees are

motivated by this. Enactive learning is intended to prepare technical capability and also the mindset of employees. “More and more in production we start building a training

mindset. Especially important is talking with each other so you have to arrange time where people can focus on the subject” (Y2). Company Y has two programs targeting

employee’s preparation. As Y1 said, “We have a leadership program and coaching

program for employees.” and Y1 continued onto state that the leadership style required

for the change is coaching. “And for middle management, the leadership should be

coaching because middle management directly face up to shop-floor. Coaching means addressing the two elements respect for each other, and let people learn.” Employees

at the shop-floor level have been involved in the I4.0 vision development process. “My

colleague is responsible for the communication with operators. We do think it’s very important to know what operators think about the plan because it’s a long-term thing. They need to know what will happen in the company in the future” (Y1). In addition,

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“Yes, so you have to tell them [middle-level employees] all those control rules so that we can still produce tomorrow and next year and in a few years. Also tell the guys that we have a secure job and that they should not fight against this change or complain even if they don’t understand it” (Y2).

4.5 Company Z

For company Z, as Z1 stated, “I think our urgency is quite high.” Customer demand and competitive pressure are the main reasons that drive the company to adopt I4.0. Since this company is in the electronics industry, the high-end product requires high standards and the continuous innovation ability of the company. Employees are in the small continuous change environment, although employees do not have a lean mindset. As Z1 said, “Our company is not fully lean. Our employees do not have a lean mindset.

We only take lean tools that are useful for us.” The changing culture of this company

encourages employees to be open to change. As Z1 also said, “The operations

manager, the guy he is really into this, and employees in the related function, they are quite ready as well.” The competitive pressure made employees perceive the need for

change. On the technical side, shop-floor employees are lack digital skills and employees above shop-floor lack data analytics skills. “The analytical knowledge that's

most important. And we are not ready for that. Yes. So that's for next year we have to train them.” (Z1). In general, the readiness of employees is low to medium.

Strategies and Five change message

Persuasive Communication is the primary strategy for company Z to prepare employees. The management of the company hired an external consultancy to have persuasive communication with employees. External consultancy is the main force to communicate with employees so that they perceive the need for change. “We had an

external consultant. They discussed what each work-cell and everybody within the company had discussions with that person. And so, to get everybody in the kind of thinking mode” (Z1). It is difficult for employees to translate I4.0 into “what can it do”. “it's still about employees at different level, their concern is mainly that they cannot translate the industry 4.0 into a strategic plan” (Z1). Shop-floor employees’ concerns

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21 perspective, “No, it’s too abstract for them. We move [I4.0 technology]to the

shop-floor to train them. They could know what it is exactly.” Only senior managers and few

employees at the middle level are involved at the beginning of the change planning. The company hasn’t encountered any significant resistance on the employee side, “No,

now it is more from a technological point of view” (Z1).

5. Analysis and Discussion

The cross-case comparison is presented in Table 4 below. The similar pattern derived from the cross-case comparison are discussed below. Table 4.1, 4.2 & 4.3 summed the outcomes of the interaction of factors. Tables can be found in each subsection.

Table 4. Cross-case comparison

Company U Company V Company W Company Y Company Z

Industry Manufacturing Manufacturing Electronic Automotive Electronic Country Netherlands Netherlands Netherlands Netherlands Netherlands Maturity level

of Lean

Low Low to Medium Medium to High Medium to High Low Maturity level of Industry 4.0

Low Low Low to Medium Low to Medium Low

Perspective (adoption level of I4.0) A supporting tool A supporting tool The next evolution of lean The next evolution of lean The next evolution of lean

Urgency Level Low Low Low High High

Initial readiness

Low Low Low to medium Low Low to medium

Cross-functional team

Yes No Yes Yes No

Involve employees at all levels in the change process

No No Yes Yes No

Involve shop-floor employees

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22 as early as

possible Resistance Level

Low High Low Medium Low

External consultancy

No Yes No No Yes

5.1 Strategy (the need for change & benefits)

As described in the within-case analysis, three companies (U, V & W) were under the condition of low urgency level of implementing industry 4.0 technologies. By contrast, the remaining two companies (Y & Z) were under the condition of high urgency level of implementing industry 4.0 technologies. All companies were situated in the range of low or low to medium level of readiness. In principle, there’s no specific sequence of the five messages, based on the situation of the company, however, there is a certain priority of the five messages. Companies under the situation of low urgency and low readiness are free to apply persuasive communication, active participation, or/and management of information to make employees perceive the need for change (Armenakis & Bedeian, 1999; Armenakis & Harris, 2002). Companies under the situation of high urgency and low readiness are highly recommended to apply persuasive communication (Armenakis & Bedeian, 1999; Armenakis & Harris, 2002). This study found that those two categories of companies all applied persuasive communication and active participation. The effectiveness of each strategy, however, varies under the situation of different levels of change urgency. Table 4.1 present the outcomes generated by the interaction between first row and colum. Why the interactions generate such outcomes described in the description following by the Table.

Table 4.1 The overview of the outcomes

Low urgency level of implement I4.0

High urgency level of implement I4.0 Low initial readiness Active particiaption

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23 Under the low urgency level. It is difficult to motivate employees by applying persuasive communication. As U1 said, “I remember two weeks ago, we had an event

and I told them we are going to have this change project, and why we have this project. Some of employees were quite enthusiastic, but most of them seemed reluctant. For them, of course, staying the same is the easiest thing.” Interviewee V1 also said, “I would tell them that I don’t believe in running projects without telling the people why. And there is quite some resistance to doing things differently. And because you don't allow people for example to change the button based on just feeling you have to tell the people to do it based on fact. They don’t like this, they like their own way.” Employees

tend to ignore the need for change. They stucked in their own way of doing things, and refuse to act in the other ways which are possible and sometimes more appropriate (Pardo Del Val & Martínez Fuentes, 2003). Such individual change inertia is partly derived from employees’ fear of the uncertainty of change (Neves, 2009; Tripsas & Gavetti, 2000). Such fear is because of employees are afraid of losing their benefits in the change process (Neves, 2009; Tripsas & Gavetti, 2000). This is supported by Interviewee W2 who claimed that employees don’t understand what is I4.0 and what can it bring to themselves. “So it's mainly that I think the big challenge is if you do not

see the need of coaching at specific milestones in implementing it. Because then you will get resistance or people that do not understand what it can do. And then you have a very big risk” (W2). Literature says organizations have problems to grasp the overall

ideas of I4.0 and in determining the I4.0 vision development (Schumacher et al., 2016). Counsellor X1 further supported this, “For senior managers, they also don't know how

to translate I4.0 into what can be done. And also for middle-level employees and shop-floor employees, they don’t know what it is and they think it's kind of threat to them.”

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24 context, employees could perceive the benefits of training. It is not because of training per se, it is because employees could have a clear sight of the benefits during the training. As W2 stated “And trusting the new system is quite tricky sometimes. But you

really have to gain confidence by showing what it can bring. And if they see it and they understand it they quite willingly to use it.” This is further confirmed by V1, “You have to go from top to down all through the organization before you clearly can tell the benefits, and then training people is essential, letting them see the benefits is much more convincing than telling them” (V1). It is important to note that in this specific I4.0

change context because the companies’ I4.0 maturity level is low, the complex job is not presented as literature predicted at present. Currently, I4.0 simplified the work of shop-floor employees. Employees are able to sense the benefits by training and are willing to embrace the change. This could be represented by interviewee V1’s answer, “These kind of thing [supportive I4.0 technologies] people are happy on that. I think it

did need some training but if it's very supportive to work”. Employees perceive the

change will depend upon their assessment of the situation (Al-Maamari et al., 2018). If they see the organization and most importantly themselves benefiting from the change, they are more likely to embrace the change (Stevens, 2013). Interviewee U4 supported this, “As I said before when I introduced them this (I4.0 technology), if they think it’s

too difficult for them they can never know how to work with it. But they are gradually open to it after training, they know it’s quite simple, it can help them with their work”

(U4). Therefore, active participation is more effective to motivate employees to embrace the change than persuasive communication under the condition of low urgency level. This leads to the following proposition:

Proposition 1: When a company is in the situation of low urgency level, and low

readiness level of Industry 4.0 implementation; active participation is more effective than persuasive communication to make employees embrace the change.

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25 general, supported the change through communication. “We didn’t broadcast this to all

people, it would only cause panic among people. We have our managers and some of our employees at middle-level knew we had problems and we need to change. They support this, it is very important that they provide those supports, and also to operators” (Y1). Literature also suggests that a company which is under the low

urgency level could create a “crisis” and hence awaken employees in short-time (Rafferty et al., 2013). Therefore, due to the nature of the crisis, persuasive communication is effective to raise employees’ awareness of the need for the company to change. Therefore, the above discussion leads to the following proposition:

Proposition 2: When a company is in the situation of high urgency level, and low

readiness of Industry 4.0 implementation; persuasive communication is effective to make employees embrace the change.

5.2 Principle Support: Employee engagement & Leadership

Principle support is defined as the support provided by the management to employees in the form of information and resources(Armenakis & Harris, 2002). According to the definition of employee engagement that employees have the opportunity to feed their opinions from bottom to top (Truss et al., 2006), this autonomy of expression is one kind of resource support. And this opportunity is provided by leaders. The leadership is critical to the change transformation (Hussain et al., 2018). Therefore, both employee engagement and leadership could be categorized as principle support.

5.2.1 Shop-floor employee engagement in the change process

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26 Table 4.2 The overview of outcomes

High lean maturity level Low lean maturity level

Low I4.0 adoption level Employee Disengagement

High I4.0 adoption level Employee Engagement

Engagement or Disengagement

All companies agreed that having feedback from employees is one of the most effective ways to assess the readiness of employees and also the progress of the change process. However, only Companies W and Y involved employees at all levels, specifically shop-floor employees in the change process. And they also involved their shop-shop-floor employees at the beginning of the change process, starting from the I4.0 vision development process. Company W built up a workshop where all employees have access to and could create the vision together. As interviewee W2 emphasized, "We

already mentioned that we built up a workshop from management to operations and together create the vision of where we are going.” Company Y did not have a

workshop. Middle-management walked down to the lower-level to communicate with employees about their needs, and also scheduled the fixed meeting with the team leader of the work unit for the communication, and then reported information back to the top-management level. This could be summed up by the description of both interviewees of company Y. “As I mentioned that Toyota invests a lot in people, […] We invest in

our people also, we go to them to ask them what they need, we want to provide things that we can provide” (Y2). “My colleague is responsible for the communication with operators. We do think it’s very important to know what operators think about the plan because it’s a long-term thing. They need to know what will happen in the company in the future.” (Y1). Either way, both companies gave the opportunity to their employees

to express their ideas by involving them in the development process. And for both companies, vision development is very strategic-oriented, as both of them expressed their willingness to put a lot of effort into the I4.0 development in the next five to ten years. This could be summed up by interviewee W1, “We are very future-oriented,

Industry 4.0 brings us a lot. We’ll have the tour later that you can see we’ve achieved.”

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27 as employees then have a sense of security. The information employees received could enable them to assess the performance of the company, and they also have a sense of contribution that they help their company achieving certain goals (Brajer-Marczak, 2015; Kompaso & Sridevi, 2010). In addition, as mentioned in the previous section that employees of company W were confused by Industry 4.0, involving them in the development process is a natural learning environment for them to help them have a better understanding of I4.0. Thus, employees are more willing to embrace the change. By contrast, companies U and V disengaged their shop-floor employees in the change process. The change implementation in those three companies is completely top-down. Only the top-management and middle-management have been involved. As V1 said, “It's the management layer, we dedicate the strategic plan.” And this interviewee continued to say that it is more efficient to gather feedback from shop-floor employees than involve them in the development process. “I don’t think it’s feasible [involving

shop-floor employees] for us. Our people want to know what they should do, they follow the instructions. And if they have any problem, they can tell their leader, and we ask the leader for feedback” (V1). Although employees of all three companies are

disengaged in the development process, they emphasized the significance to gather feedback from their shop-floor employees during the change process to push the change forward. This could be summed by interviewee U1, “I mean if they can follow what

you say or have been doing you will elaborate on that. And if they have some resistance against some new development. then maybe there will be a signal that you will know they like it or not. I don't have the knowledge to go back and try to facilitate everything you can do to make the change happen. I think that will be the pragmatic assessment”

(U1).

The potential reason that companies W and Y engage employees and companies U and V disengage employees in the change process might be because of their different perspectives on the role of I4.0 for lean. Companies U and V regard I4.0 as a supporting tool for lean. “I would say always kept me although so far to the assistant though […]

you have production line and you put a lot of sensors in it and based on the sensors you start measuring. We have introduced maintenance modules we have introduced manufacturing monitors for the manufacturing execution systems and the next step will be to run more to use more sensors in line to see that again” (V1). Both interviewee

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28 the sensor. “I based it on the feedback I get from the people and you can see that from

my management and all the things where you can clearly see it is in the quality of the data in your system” (V1). “Like you saw in the tour we have tablet, the automatic lasering machine, and we are going to install sensors soon, in the next three months.”

(U3). Therefore, both companies perceive I4.0 as a supporting tool for lean. In contrary to those two companies, companies W and Y regard I4.0 as the next evolution of lean. They are pursuing to be proactive, to push the boundaries of lean. As interviewee W1 described “And now you have to prevent mistakes before they happen. So the next step

is we analyze our processes on the background and we get automated reports or warnings.” And this is further underlined and explained by interviewee Y2, “The self-supporting of a team is very high. They should solve the problems the first time and I think Industry 4.0 can help, especially to have dedicated information because most of the problem is if you have a combination where to start the faster you find it and the better the solution will be […] and I think industry 4.0 can enable lean to predict to see, it is proactive instead of reactive”. Therefore, both companies regard I4.0 as the

next evolution of lean to equip the predictive capacity and pursue operational excellence.

Regarding I4.0 as the next evolution of lean is more complicated than as a supporting tool for lean, since the higher adoption level of I4.0 is not only related to the connectivity of technologies but also relate to the redesigning of the whole system, and most importantly reorganizing of employees (Karre et al., 2017; Mayr et al., 2018; Radziwon et al., 2014). Interviewee W1 stated that technology incorporation is difficult, changing the mindset of employees, however, is way more difficult than technology incorporation. “As you said preparation is very important. You have to deal with this

technology and that means open mindset that people should not afraid of new technology. New technology a new generation drives you to complete different way you're working. We need to invest a lot in the mindset of people and let the people off the shop floor do it” (W1). With involving shop-floor employees, the high commitment

of employees is the main driving force of change (Buer et al., 2018). Integrating lean and I4.0 needs the effort not only from employees at the management level but also employees at the shop-floor level (Thakur & Srivastava, 2017). Interviewee Y2 confirmed this saying “Employees are always skeptical if it’s top-down. We need to

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to do.” Directly go to employees like company Y did or allow employees directly go

to middle-management like company W did could create a deeper understanding of I4.0 and greater acceptance among employees. In addition, the higher adoption level of I4.0 leads to a more complex job. As literature says with the growing complexity, employees are expected to be creative solvers and strategic decision-makers (Mrugalska & Wyrwicka, 2017; Sivathanu & Pillai, 2018). In accordance with the statement of literature that continuous improvement emphasises the empowerment and engagement of employees, stressing employees to be problem solvers (Jørgensen et al., 2007). Therefore, employees within continuous improvement cultures are able to adapt to a higher adoption level of I4.0 and need to be involved in the change process. This leads to the following discussion.

Companies have different perspectives on the role of I4.0 for lean might associate with their lean maturity level. Companies U and V perceiving I4.0 as a tool rather than the next evolution have low and low to medium lean maturity level.Company U only takes lean tools that they need, for example, the PDCA circle. “To do that they've been given

a PDCA cycle. With the help of that tool they will keep on evolving this [I4.0 technology project” (U1). Company V is heading to the next level of lean, continuous

improvement, “We are still implementing. So, it is the need for continuous

improvement. That’s the main need to continuously improve the company” (V1). By

contrast, companies W and Y regard I4.0 as the next evolution of lean and have medium to high lean maturity level. Companies W and Y have the complete continuous improvement system, for example, the managerial action of A3, A4, and A5 report. This could be summed up by the interviewee W2 “We have an A3 sheet which is

actually an entry sheet here which is put at the department where the improvement is being done. So all employees are also encouraged to look at the sheet to know what the team is working on and what the changes are going to be and sometimes even a specific team or production meetings someone from the team comes and presents what they are doing so that everyone knows what they are doing and either can provide feedback or ideas so that at the end of the product process and when those three months are done and the changes being implemented that then someone says I do not approve that we try to prevent that by also informing everyone what process is done” (W2). Few recent

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30 Tortorell et al., 2019). A company that has designed a robust process and established continuous improvement is easier to achieve a high level of I4.0 implementation than not a well-established company (Rossiniet al., 2019; Tortorella & Fettermann, 2018; Tortorell et al., 2019). I4.0 draws on lean’s foundation in continuous improvement for lean to evolve into lean industry 4.0 (Sanders et al., 2016; Wagner et al., 2017).

Built upon the foundation of above discussion, leading to the following ideas:

Proposition 3: If company has high maturity level of lean implementation, it is more

likely to regard I4.0 as the next evolution of lean and engage shop-floor employees in the I4.0 development process.

Proposition 4: If company has low maturity level of lean implementation, it is more

likely to regard I4.0 as a supporting tool for lean and disengage shop-floor employees in the I4.0 development process.

5.2.2 Leadership at middle-management level (self-efficacy)

Table 4.3 gives an overview of the outcome generated by the interaction of factors. The description following by described the interaction between factors.

Table 4.3 The overview of outcome

High lean maturity level Low lean maturity level Low I4.0 adoption level

High I4.0 adoption level Coaching leadership

Three out of five companies emphasized the importance of leadership at the middle-management level in the change process. Those three companies are companies W, Y, and V which have a continuous improvement mindset. The emphasis could be summed up by interviewee V1 who stated the key to preparing employees is leadership. “The

key to the whole exercise is leadership. What type of people do you have in your factories leading these changes? Because it's a lot about change management and not just implementing software. I would say implementing new software is difficult but it's absolutely not the more difficult path. It's making people use it and change the organization” (V1). During the change, leaders have a tremendous impact on the