The impact of energy transition on operations strategy in industry: a conflict perspective

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The impact of energy transition on

operations strategy in industry: a conflict

perspective

The impact of energy transition on operations strategy in industry: a conflict perspective

Master Thesis

Word count 13,980

Version April 5, 2019 (final version) Supervisor prof. dr. J. (Jan) de Vries Second supervisor dr. ir. S. (Stefania) Boscari Student Marten Dubbelboer – s3267601

Program MSc Supply Chain Management

Tel +31610821014

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ABSTRACT

Firms in industry are faced with increasing pressure from regulatory bodies and other stakeholders to decarbonize their operations. As a result, firms need to realign their operations resources with changing market requirements in order to remain competitive. Using an in-depth single-case study approach at a technical service provider in industrial supply chains this paper explores the effect of the energy transition on potential operations strategy related conflicts between internal stakeholders. Each from their own frames of reference, internal stakeholders may have conflicting views on operations strategy, with specific outcomes. This paper adds to the unexplored area of empirical studies on the process of operations strategy, by studying the emergence of operations strategy related conflicts in the context of influence from increased uncertainty through energy transition. Results offer insights in how the energy transition impacts operations strategy in industry, what types of conflicts arise and what the outcomes are of these conflicts. For managers this paper may serve as background material in understanding how the energy transition affects their organizations and how they may be able to improve internal strategic consensus.

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MANAGERIAL SUMMARY

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regarding the perceived misfit by stakeholders between organizational structure and operations strategy. Also conflicts were reported, mainly in operations, with the control structure, which was found to inhibit learning and innovation. Task conflicts were found to mostly consist between the operational unit and other internal stakeholders. OS-related conflicts were found to be a combination of multiple typologies, as well as have the capacity to influence other conflicts as well as evolve over time in other types of conflicts. As such, OS-related conflicts were found to be dynamic and influence each other. Mainly, two dominant mechanisms were found which may contribute to perceived business uncertainty. One, a short-term time orientation in decision-making within operations was found to frustrate long-term time orientations of managers who are concerned with commercial and marketing tasks. This may, over time, contribute to increased uncertainty and complexity. Second, higher management’s choice to not formulate and communicate a detailed operations strategy was found to contribute to a decreased degree of strategic consensus, and in turn was found to contribute to task conflicts between internal stakeholders. As a result, the efforts of internal stakeholders may not be fully aligned with the goal to improve in specific competitive priorities.

Recommendations to managers

Formulate and effectively communicate operations strategy so that it becomes clear how products and services need to be developed to achieve specific competitive priorities. Formulating a clear vision in which the organization clearly sets out what it wants to become and how it wishes to deliver value to which particular customers may form a starting point. Including internal stakeholders in these discussions will increase employee buy-in to this strategy, but a few conditions need to be met:

employees need to expect a positive experience from their participation, their background should allow them to succesfully participate, and in participating in these discussions involves employees to take risks, so a culture must be created in which employees feel that risk-taking will be awarded. A shared and supported strategy may be translated in specific KPIs as a roadmap, and will contribute to strategic consensus and reduce task-related conflicts between internal stakeholders, as internal stakeholders better understand how they collectively add to realizing specific strategies.

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ACKNOWLEDGEMENTS

First of all, I wish to thank Tomas for giving me the opportunity to perform this case study within the firm and for his support during the challenging process of writing a master’s thesis in a very dynamic and technical environment, which was new to me but which I experienced as highly

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1 INTRODUCTION

For a long time the US retailer Blockbuster reigned the American on-demand video market with 9,000 video rental stores and a massive 60,000 employees. Competition, at the time, did not stand a chance. When in 2016, within ten years of its inception, Netflix achieved a global turn-over over $7bn, Blockbuster was down to 50 stores as all its expensive real estate had become the rope on its neck (McCarthy, 2018). It appears that firms may be as mortal as the employees who work for them. The situation of many firms in industry in the current transition to a low-carbon economy is similar to the case of Blockbuster. Resources may lose value, costs rise, and stakeholder pressure and uncertainty about future regulatory regimes are a growing headache to senior managers. Firms in fossil industries may need to realign their resources with requirements of a rapidly changing market in their operations strategies. Following this realignment, conflicts may arise between internal stakeholders within firms. This study aims to explore how firms, using top-down strategic planning and bottom-up learning, respond to these uncertainties in their new operations strategy, and which internal conflicts might arise.

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Still, higher, middle, and frontline or operations management each may have different frames of reference in which they view OS, and as a result conflicts may emerge among these internal stakeholders. For firms it is key to understand which conflicts exist among which stakeholders to be able to take effective measures. Therefore a conflict framework will be used to analyze conflicts resulting from this decision-making process in further detail. Exploring conflicts between internal stakeholders in operations strategy has not gained much attention in both operations strategy process and content literature and has, to the author’s knowledge, not been studied in the context of the energy transition. Yet, the energy transition may pose significant reason to realign operations resources with market requirements. To this end, the goal of this paper is twofold: (1) to investigate the effects of the energy transition on OS in industry, and (2) to study any conflicts which may arise in this context resulting from the decision-making process of top-down with bottom-up strategy. Together, this paper will contribute to literature through addressing the following general research question:

How does energy transition result in OS-related conflicts, and if so, what are the outcomes of these conflicts?

Through applying an in-depth, exploratory single-case study of a firm providing services to industrial supply chains, this paper contributes to OS research by exploring how internal stakeholders perceive the influence of energy transition from their frames of reference. Moreover, through using a unique approach in OS research by applying a conflict framework, the existence and outcomes of conflicts are studied, and as a result causal relationships may be shown between conflicts. Ultimately, using analytical generalization, a generic theory regarding the existence of OS-related conflicts and their outcomes may be proposed which may, possibly, apply to a wider range of contexts.

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2 BACKGROUND

2.1 Operations strategy

In literature it is widely held that operations strategy (OS) is one of the functional strategies within a firm and is the response to corporate or business strategy (Adamides, 2014). It is integrated with the other functional strategies and corporate strategy to ensure strategic fit. As such, OS largely deals with “managing the resources and processes that produce and deliver goods and services” (Slack & Lewis, 2011, p. 6).

Over the years, influential work on operations strategy is the work of Skinner (1969) and Hayes and Wheelwright (1984) which have demonstrated the importance of the operations function to a firm’s competitive advantage (Barnes, 2001). Following a commonly held definition in literature, operations strategy may be considered the “total pattern of decisions that shape long-term capabilities and their contribution to overall strategy, through reconciling market requirements with operations resources” (Slack & Lewis, 2011, p. 6). Lacking a universal agreement about what OS is, within literature four perspectives emerge: (1) a top-down perspective in which business strategy is translated to operations strategy, (2) a bottom-up perspective where improvements are made to operations based on day-to-day learning, (3) an operations resource perspective in which operations strategy should build valuable operations capabilities, (4) and a market perspective, in which operations strategy should satisfy organization’s markets (Slack & Lewis, 2011).

In OS research, a division is made between the content of OS and its process. The content of operations strategy has received ample attention in literature, and may be described as the set of “strategic decisions that shape and develop the long-term direction of the operation and form the ‘building blocks’ of an operations strategy (Slack & Lewis, 2011, p. 22). These decisions are made in a number of decision areas, and they are made regarding a number of specific competitive priorities (e.g. cost, quality, speed, dependability, flexibility). The content of an operations strategy comprise of a number of decisions which are supposed to lead to improved excellence in a selection of these competitive priorities.

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TABLE 1 PROCESS DESCRIPTIONS OF OPERATIONS STRATEGY

Literature Process descriptions

(Barnes, 2002) A deliberate (top-down) and emergent (bottom-up), cultural, political, command and enforced choice process

(Rytter et al., 2007)

Dialogues followed by action (talk-action-talk) occurring in three key dimensions: technical-rational, political, and cultural

(Slack & Lewis, 2011)

The process of OS “concerns the ‘how’ to reconcile market requirements with operations resources over the long-term, and consists of operations strategy formulation, implementation, monitoring and control

(Kim et al., 2014)

The process of OS comprises the activities and dynamics of strategy formation and implementation

The process of OS “concerns the ‘how’ to reconcile market requirements with operations resources over the long-term, and consists of operations strategy formulation, implementation, monitoring and control” (Slack & Lewis, 2011, p. 280). The process of operations strategy is described as a complex and chaotic process taking place in multiple dimensions (Rytter et al., 2007). The frequency of formulating and implementing an operations strategy may be related to the life cycle of its products/services or the perceived need to re-align operations resources with market requirements. A starting point of formulating OS may either be the operations resources of the firm or the market requirements of the markets in which a firm operates, and as a result it involves analysis of market requirements as well as analysis of resource capabilities (Slack & Lewis, 2011). Some models include the alternative, or emergent or bottom-up means of strategy building within OS (Kim et al., 2014; Kiridena, Hasan, & Kerr, 2009; Pun, 2004) and the influence of an internal and external environment (Kiridena et al., 2009; Pun, 2004; Rytter et al., 2007). The process may consist of technical-rational, cultural, and political processes (Rytter et al., 2007). Within the firm, an operations strategy can be influenced by organizational inertia, the firm’s resource profile (its sunk investments), their investment bias, its organizational structure and internal political forces (Slack & Lewis, 2011). Moreover, OS processes may be contingent on a number of contextual factors including the nature of business operations, level of competition, firm size, stage of firm development and personal attributes of decision-makers involved (Rytter et al., 2007; Barnes, 2002; Slevin and Covin, 1997; Mills et al., 1995 IN Jagoda & Kiridena, 2015).

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2015; Slack & Lewis, 2011). Following now is an analysis of the external effects of the energy transition on industry, after which a background on top-down and bottom-up strategy processes is given.

2.2 The energy transition and operations strategy in industry

Across the planet, governments have expressed the need to reduce carbon emissions. With industry accounting for over 30% of global emissions (Wesseling et al., 2017), there is growing pressure on industry to reduce its carbon emissions. The so-called ‘energy transition’ needs further specification: in this paper it is viewed as a transition towards a low-carbon economy and society, the process of decarbonization. When this transition has begun or when it is complete is subject to debate, still this transition results in significant changes in the environment of industrial firms. As a result from pressure from stakeholders as well as regulators, firms adopt strategies such as carbon management practices in response, even though total output of global emissions continue to rise as growth of industry offsets carbon efficiency gains (Doda, Gennaioli, Gouldson, Grover, & Sullivan, 2016).

The energy transition reflects the type of environmental change which may be similar to previous technological innovations, creating both threats and opportunities in its disruption and requiring fast and effective strategic change (Yi et al., 2017). A prime source of this uncertainty may come from regulatory risk and other stakeholder pressures (Böttcher & Müller, 2015). New strict environmental regulation may reduce uncertainty as it reduces risk of future regulatory regimes, but leads to a number of new challenges in terms of compliance and changing customer attitudes (Damert & Baumgartner, 2017). Threats of the energy transition may come outside the firm, as well as inside the firm as organizational inaction may arise from uncertainty avoidance and short-termism (Slawinski, Pinkse, Busch, & Banerjee, 2017) and organizational resistance may even become a barrier for a strategic realignment of operations resources with market requirements (Slack & Lewis, 2011). Firms might have an investment bias towards technology or resources which have proven successful in the past (Slack & Lewis, 2011) leading to a so-called ‘competency trap’ (Cawsey, Deszca, & Ingols, 2007).

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opportunities and threats the energy transition poses to operations strategy in industry, as found in OS literature as well as business strategy literature.

TABLE 2 OPPORTUNITIES & THREATS OF ENERGY TRANSITION IN INDUSTRY

Opportunities Threats

Growing consumer demand enabling investments (UNETO-VNI, 2018)

Increase in uncertainty about future regulatory regimes (Cadez, Czerny, & Letmathe, 2018)

Enhanced image and profitability as a result of low-carbon practices (Kleindorfer et al., 2005)

Increased complexity: more variables need to be processed by a limited information processing capacity by higher management (Demeester, De Meyer, & Grahovac, 2014) New product/market combinations backed by regulatory

support/government investments (Böttcher & Müller, 2015)

Financial risk in losing rents on investments in operations resources which lose market value (Pinkse & Kolk, 2010) New product-market combinations leading to product

differentiation and first mover advantage (Kleindorfer et al., 2005)

The sunk cost argument: for incumbents more difficult to switch technology given prior investments than new entrants (McCarthy, 2018)

Existence of focal firm in the supply chain with large financial resources (Böttcher & Müller, 2015)

Risk in too early investment in unproven business case of new technology: “irreversible green mistakes” (Pinkse & Kolk, 2010)

Scarcity in technical expertise (Delta-LLoyd, 2018; UNETO-VNI, 2018).

Organizational resistance becoming a barrier for strategic change (Slack & Lewis, 2011)

Internal organizational inaction caused by short-termism and uncertainty avoidance of managers (Slawinski et al., 2017).

Extra financial burden through extra taxes (Cadez et al., 2018; Furlan Matos Alves, Lopes de Sousa Jabbour, Kannan, & Chiappetta Jabbour, 2017).

Lower life cycle of products and services (Slack & Lewis, 2011)

Future resource scarcity (Furlan Matos Alves et al., 2017) Employee health and safety increasingly part of stricter regulations (Kleindorfer et al., 2005)

Scarcity in technical expertise (Delta-LLoyd, 2018; UNETO-VNI, 2018).

These threats and opportunities will lead to extra uncertainty within a business environment. Uncertainty may be viewed in objective metrics, but the attribute ‘perceived level of business uncertainty’ may be more interesting, as this drives investment and implementation of improvement plans among managers (Lee & Klassen, 2016). Following the typology of Lee & Klassen (2016), perceived business uncertainty may be measured through assessing unpredictability of the market, its complexity, and the difficulty of the firm responding to changes.

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explicitly and adapting implicitly, or a mixture of both (Größler, Grübner, & Milling, 2006). Adapting explicitly refers to adjusting strategic goals while adapting implicitly means that built-in flexibility of the organization responds and explicit guidance is not needed. Especially firms which have not dealt with complexity and uncertainty in the past may need to start large restructuring processes as their internal structures are not sufficiently prepared for greater complexity, as opposed to firms experienced with environmental complexity (Größler et al., 2006). Given that dealing with this uncertainty and complexity is difficult, conflicts between internal stakeholders may arise.

2.3 Conflicts in reconciling top-down and bottom-up views

Continuing on the four perspectives to OS described earlier, this paper will study in-depth the decision-making process between the top-down perspective and bottom-up perspective to operations strategy. In firms there is, in general, a hierarchical distance between middle and lower management and higher management creating a gap between managerial intentions and organizational actions, or between intended and realized strategies (Mintzberg 1978 IN Kim et al., 2014).

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These OS-related conflicts, which may be referred to as “the process which begins when one party perceives that another has frustrated, or is about to frustrate, some concern of his” (Thomas, 1992, p. 265), may follow from different frames of reference of internal stakeholders when they reconcile top-down strategy with bottom-up strategy. These may refer to content and OS process.

In earlier research to the existence of conflicts within the context of information systems (Boonstra & de Vries, 2015) conflicts have been divided on impact of conflict (cognitive vs affective) and reach of conflict (direct effect vs wider context). Conflicts have a topic, occur in a specific context and follow certain processes, and may differ in duration, intensity, behaviors, management and outcomes (Boonstra & de Vries, 2015). As such, conflicts may not resemble conflicts as outright escalations: they may resemble more latent, subtle concerns too. Moreover, it has been found that in earlier studies in different settings (implementation of inventory management systems or information systems) that conflicts may not necessarily belong to one specific group of conflicts any that these may transcend to other types of conflicts over time (Boonstra & de Vries, 2015).

A number of causes may be antecedent to the existence of conflicts in this decision-making process. First, information asymmetry across multiple stakeholders may cause poor or inconsistent implementation and execution of strategy in response to energy transition (Yi et al., 2017). Second, the different time perspectives which stakeholders use in decision-making may lead to varying degrees of attention to long-term sustainability concerns (Slawinski et al., 2017). Third, the operations function needs to overcome a naturally reactive role as it operates within the constraints of rigid resources and processes which makes it difficult to be flexible (Demeester et al., 2014). Also personal ideas and perceptions about organizational or strategic priorities in the context of energy transition may differ among internal stakeholders (Boyer & McDermott, 1999). Finally, to have internal stakeholders join the implementation phase of operations strategy actors must be allowed the opportunity to participate, they must feel confident that their participation will be successful, and have education that will allow them to contribute (Slack & Lewis, 2011). Therefore, OS-related conflicts may appear regarding the content of operations strategy as well as the process of operations strategy. The functionality of conflict is a different research topic and therefore this paper shall adopt a neutral position on this subject. Conflicts may exist at a group level as well as individual level (Boonstra & de Vries, 2015): this paper measures and presents conflicts at stakeholder level.

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managers balance their day-to-day work with selling their initiatives with improvements to existing processes, new products, and structures (Kim et al., 2014). Typical outcomes of task-related conflicts may be frustration of employees (Boonstra & de Vries, 2015).

Conflicts may also appear during the process of implementing an operations strategy. These conflicts may follow from top-down control without consultation with other stakeholders (Boonstra & de Vries, 2015), the pushed-down-the-throat effect, or some parties having a larger vote in the process than others (Boonstra & de Vries, 2015). The scope and speed of implementation may be perceived to be inadequate to the needed realignment to market requirements, as short-termism by managers may lead to organizational inaction on sustainability efforts (Slawinski et al., 2017). Moreover, due to information asymmetry top-down plans may not be fully understood by middle- and lower-level management (Yi et al., 2017). Therefore, including people to whom change would happen in the design and implementation phase may improve employee buy-in to operations strategy (Slack & Lewis, 2011) as they may feel more responsible for the outcome of this process (Boonstra & de Vries, 2015). Especially middle-management plays a large role in implementing operations strategy, and mobilization of this stakeholder is key (Rytter et al., 2007).

Structure conflicts are conflicts which relate to the perception of incompatibility of a stakeholder regarding operations strategy as a whole and its fit with the actors’ held perceptions of strategic priorities, as these may differ from realized operations strategy (Boyer & McDermott, 1999). Moreover, organizational structure may lack fit with operations strategy as firms often find it difficult to change existing structures or processes (Slack & Lewis, 2011). For instance, the organizational structure may not fit the desired balance of top-down with bottom-up strategy (Kim et al., 2014). Moreover, control and power structures may be incompatible with operations strategy, as operations strategy consists of political processes which may result in undesirable shifts in power (Rytter et al., 2007). Often wider contextual issues may be antecedent to organizational resistance and typical behaviors may be expression of complaints and negative attitudes, threats of sabotage, and lack of cooperation (Boonstra & de Vries, 2015).

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It is expected that conflicts do not purely belong to one specific type; they may encompass multiple types and evolve over time in type and intensity. Conflicts during design and implementation process may transcend to the other three types (task, structural and value) (Boonstra & de Vries, 2015). Hence, it appears that conflicts may exist between internal stakeholders. Higher management: in general has limited information processing capacity, and is responsible for overall strategic direction (Kim et al., 2014) but needs rich data from middle management and the operations function.

In this paper a framework (Figure 1) has been adapted from earlier research to conflicts (Boonstra & de Vries, 2015) and is used to categorically analyze the conflicts arising from reconciling top-down strategy with bottom-up strategy by the involved stakeholders (higher management, middle management, staff management, and employees in operations).

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2.4 Conceptual model

The importance of creating consistency and avoiding conflicts related to operations strategy between internal stakeholders clearly has been demonstrated. OS-related conflicts may result in inconsistency between allocation of internal stakeholders to priorities as conflicts may lead to a diminished shared understanding and support to work towards common goals, as well as frustrations and decreased collaboration between stakeholders. Understanding the causes of conflicts is important in order to successfully avoid conflicts, if possible. Still, to date, OS-related conflicts between internal stakeholders as a result of energy transition have not been studied in operations management literature and deserves further, and in-depth examination.

As a result, this paper will follow a conceptual model in which the relevant concepts in literature have been depicted (Figure 2). The energy transition has been found to create uncertainty for firms in industry. It may impact the various internal stakeholders differently (1). It is expected that the energy transition has an impact on the behavior of these actors and the OS decision-making process, which may be formal or informal, explicit or implicit process (Barnes, 2002; Pun, 2004; Rytter et al., 2007). The effects of the energy transition on internal stakeholders may be measured as the extent to which a manager perceives markets have become less predictable, the perceived difficulty of responding to market trends, and the degree of market complexity (Lee & Klassen, 2016). Of course, not all uncertainty arises directly or indirectly from energy transition. Therefore this study recognizes its limitation in failing to prevent exogenous market factors explaining variations in perceived business uncertainty. This study uses validated constructs from the work of Lee & Klassen (2016) which may improve research quality of this paper. This forms the basis of the first sub research question: (SQ1) what are the effects of energy transition on operations strategy in industry?

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Second, it is expected that the internal stakeholders each influence the decision-making process of OS (Slack & Lewis, 2011) from their own frames of reference (2). It is expected that higher management has a different perspective on operations strategy as they likely take business strategy as their point of departure, whereas the operation may take experiences from the work floor as their reference. Interests, influence, perspectives, form this frame of reference.

The internal stakeholders together in an informal process create an implicit or explicit operations strategy. This paper adopts the view that the top-down view belongs to higher management and staff management, and the bottom-up view to middle-management and operations.

Third, the decision-making process may lead to OS conflicts (3), as the outcome of this process may be in conflict with the frames of reference of a number of internal stakeholders and based on this process actors “draw conclusions as a basis for further dialogue, action, or inaction” (Rytter et al., 2007, p. 1097). OS-related conflicts will be categorized as task conflicts, implementation process conflicts, structure conflicts, and value conflicts. Arrows (2) and (3) form the basis of the second sub research question: (SQ2) in the context of energy transition, what, if so, are OS-related conflicts

following from reconciling top-down strategy with bottom-up strategy, and what are their outcomes?

Furthermore, it is expected that any OS-related conflicts have an effect on the decision-making process of OS (4) as this process has been described as an iterative, implicit process (Slack & Lewis, 2011). Finally, OS conflicts may also influence behaviour of the internal stakeholders: stakeholders may expect conflicts based on their previous experiences and conflicts from the past (5), and in response, alter their behaviour based on these expectations, as was found in the context of IS implementation (Boonstra & de Vries, 2015).

3 METHODOLOGY

3.1 Research design

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processes and its outcomes (Barnes, 2001). The choice was made for an inductive approach because the intended contribution of this paper was not to empirically test hypotheses but to propose a generic theory or mechanism about what has been observed. Second, a choice was made for a retrospective case study about decision-making processes and conflicts occurring in 2018. Drawbacks of applying case study design may be limited generalizibility of its findings, misjudging a single event and exaggerating available data (Karlsson, 2016). To address these risks a number of measures were made to ensure research quality (3.5). A specific disadvantage of a retrospective case study may be that informants may have recalled events differently, and as a result give different interpretations (Leonard-Barton, 2008). This effect has been addressed by investigating a recent year (2018) which has aided the researcher in researching relevant documents and informants in retrieving their memory of processes, and reduces the likelihood of bias in their interpretations. Finally, although difficult to separate, a choice must be made regarding variance theory and process theory (Langley, 1999). Variable theory needs defined variables, whereas a process view may lead to challenges with open-ends. This paper has adopted a variable view (perceived business uncertainty impacting internal stakeholders leading to a number of internal conflicts) with research questions and a clear conceptual model to avoid a so-called ‘fishing expedition’ (Karlsson, 2016).

3.2 Case selection

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TABLE 3 CASE DESCRIPTION

Activities Engineering, decommissioning, maintenance services on project-based operations Markets Oil/gas, energy, chemicals, food/bev

Revenue +/- 20m

3.3 Data collection

A number of data collection techniques were used to collect data. First, informal conversations were held with employees to develop an overview of the processes within the firm and its organizational structure. Second, secondary data collection was carried out through systematic revision of literature on relevant concepts and of company documents to gain insight in business operations and strategy. Third, primary data was collected through semi-structured interviews with internal stakeholders to the operations strategy process and related conflicts. The protocol has been appended to this paper. First, secondary data was collected through a systematic literature review. A literature review was carried out in traditional OM literature, to develop the background of operations strategy. Moreover, conflict literature was searched, using a paper from Boonstra & de Vries (2015) as starting point in this search. Third, in literature within environmental management, literature was searched on energy transition and the effects of environmental uncertainty. Second, conversations were held first, to identify, whether the case would meet the case selection criteria (3.2) and whether the firm is willing to participate in this research project. When this was believed to be met, conversations were held to describe the purpose of the researcher and the followed rules on data management were discussed. Anonymity of employees was guaranteed. Conversations were held to determine whether employees are a relevant stakeholder to projects deliver in industry. The criteria here is whether they participate in activities which are connected to projects in industry. Company documents were revised in order to understand business processes and the relevant stakeholders. These documents concern strategy documents on the top management meetings at national level, annual reports, and minutes of employee council meetings. These documents were reviewed prior to primary data collection to serve as background material on processes, strategy, and potential OS-related conflicts within the firm. The researcher will therefore have sufficient knowledge on what initiatives take place within the firm which enables the researcher to actively ask for these if the informants fail to mention these, to study more in-depth interpretations, outcomes and effects of OS-related conflicts.

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Semi-structured face-to-face interviews were held with key internal stakeholders to the strategy process. First, given the potential sensitive nature of the research topic (conflicts), anonymity of the informants was deemed of key importance. To this end, three specific decisions were made during data collection: 1) the choice was made to separate informants in stakeholder groups rather than in their specific roles or jobs within the firm, (2) the tenure of employees with the firm is not given, and (3) the transcripts of interviews or codebook will not be shared with the firm. It was also made clear that their participation is voluntary and that their participation is known to researcher only and will not be communicated to other informants. To ascertain that informants have sufficient knowledge to discuss events and conflicts occurring in 2018, it was decided that employees who have been with the firm for at least two years so (since February 1 2017) were adequate informants. The results of interviews of two informants with insufficient tenure were not used in the coding process, but aided as background material to the researcher.

The interviews were prepared and the informants received the interview questions two days in advance to ensure that the interviewees had time to prepare and were capable of adequately answering the questions. The conceptual model of this research formed the basis for the case study protocol. The protocol followed the themes within the conceptual model closely: perceived uncertainty of energy transition, their role in the OS decision-making process, and their experience with OS-related conflicts. The case study protocol has been appended for further details (8.4).

The interviews were audio recorded to enable the researcher to focus on the interview instead of making notes. The interviews have taken place at the firm’s office but in a separate meeting room to enable interviewees to speak freely. Transcribing was performed within 24 hours of interview to comply with the 24-hour rule (Eisenhardt, 1989). To improve validity of the measurement instrument mock interviews were held with two business professionals. Interview questions were adapted to make the instrument suitable for informants who have no background in operations management. An overview of the research participants who were found to be key stakeholders to the operations of the unit of ‘projects industry’ has been appended (8.3).

Awareness of data limitations is crucial to ensure fit between research questions, methods and data. First, the informants may be reluctant to share conflicts with the researcher, but sufficient measures were taken for this limitation. Second, company documents did not always describe OS-related conflicts and decision-making processes accurately. As such, informal conversations were held with internal stakeholders to provide extra background information.

3.4 Data reduction & analysis

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1990 IN Karlsson, 2016). Proper data documentation and coding was used to demonstrate that data collection procedures may be repeated showing similar results. Software package ATLAS.ti was used in the coding process. Coding was performed following a pre-defined set of codes based on the literature review. The types of conflicts studied were used as themes, (structural, task, implementation process, and value), and within those themes a number of codes were used for conflicts which were expected based on the literature review. A list showing which codes were based on the literature background (pre-defined) and which codes were emergent during the coding process has been attached (8.6). The intended contribution of this paper is to provide meaninful insights in causal relationships between events (conflicts). Therefore, a causal network is constructed in the analysis chapter which will display ‘relevant relationships between independent and dependet variables in a field study and of the relationships among them’ (Miles and Huberman, 1994: 153 IN Karlsson, 2016).

3.5 Research quality

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transcribed within 24 hours. As such, the measures which were taken to ensure validity and reliability of this research project have been given in Table 4.

TABLE 4 MEASURES FOR RELIABILITY AND VALIDITY

Construct validity Multiple sources of evidence are used (company strategy documents & intranet, and semi-structured interviews with key internal stakeholders) with the goal to minimize effects of bias Internal validity Pattern-matching will be applied in data analysis phase to existing theory

External validity Research framework was based on existing theory.

Reliability Case study protocol is used transparently, research steps have been documented properly.

4 FINDINGS

4.1 Case context

Firm ALPHA was formerly a group of smaller technical services providers, with each their own offices and specializations. Over the years it has merged and is currently a regional office of an energy and technical service multinational. It delivers technical services, such as construction and maintenance work for large, industrial players. The markets to which it supplies within industry are food/beverage, (petro)chemicals, and oil/gas/energy. It’s national vision is to be the leader of the energy transition, through (1) delivering integral solutions which reduce carbon emissions, (2) contributing to circularity in supply chains, and (3) digitization. The firms’ local business strategy may be described as developing intimate relationships with larger industrial firms (customer intimacy), preferably in the (petro)chemicals and food and beverage industry. Also, the development of high-value propositions in renewables is one of the goals, as a means of shifting turnover and developing capabilities in renewable markets.

As it is a service provider ALPHA’s main operations resources are considered its company reputation, its supplier network, technical knowledge and experience of their people, and their training. The firm works partly based on regular service provisions as well as project-based, and also has based its organizational structure on this distinction. The firm operates different departments which with each their own specialization and profit and loss responsibility (profit center), such as industrial automation, or fire and gas security. These are supported by a number of supporting staff roles (finance, human resources, quality assurance, contract management, and sourcing).

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firm ALPHA, in which positions were scrapped, and a number of people were let go. A conflict with the unions led to a dispute in court, which was ultimately won by a number of employees.

Second, in 2018 the market further worsened in industry as fewer projects were available and a number of bids for projects were not won further deteriorating financial performance. Third, upon closer inspection failure costs were too high in a number of departments and the hygiene of ERP data was not in order: as a result expected income was inaccurate. As a result of these factors, a ‘code red’ or crisis was declared in Q2 of the year 2018. Higher management decided to act by addressing a number of priorities which needed to be improved. A strategy was implemented containing a number of strategic priorities.

In the markets in which the firm choses to operate order winners is mainly cost as shown in Table 5. Also reliability of the service provision is important as the cost of a project failure may mean loss of production and high costs for industrial customers. Especially in oil and gas safety is very important, as oil and gas requires extensive health and safety training and quality management systems as compared to the other industrial markets. Partly as a result, cost is not as important in oil and gas as in chemicals and food/beverage.

TABLE 5 MARKET OVERVIEW

Markets Oil/gas Chemicals Food/bev Order winners Reliability Cost Cost

Qualifiers Safety Hygiene

The order winners are expected to shift from cost to quality and reliability, as higher management expects a shortage in employees with a technical background, making the capacity the firm offers more scarce. ‘I think that there will be a shift from cost towards quality and dependability

because of a large scarcity of specialized technical knowledge and experience: we have less people entering these jobs, and more people retiring’. (HM1). Nevertheless, industry is very cost-driven: ‘I am pretty sure we can say that the industry is very traditional overall, and is cost-driven, it’s focused on price’ (HM1). Therefore, one of the implications for firm ALPHA is that it intends to shift its

activities from a market in which cost was not an order winner, to markets where this is the case. At firm ALPHA, there is no explicit operations strategy in which resources are allocated to competitive criteria as one higher manager states: ‘we haven’t defined a specific strategy which aims

specifically in improving in a set of competitive priorities’ (HM2).

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shown in Table 6. The realized operations strategy also comprises decisions made by the internal stakeholders based on their day-to-day experiences. The decision-making process is explained in further detail in 4.3.

TABLE 6 TOP-DOWN OPERATIONS STRATEGY DECISIONS

Q2-2018 Key Top-Down OS priorities

Failure costs Reduce failure costs in mid-size projects (100k – 500k)

Productivity Improve productivity of departments (i.e. number of work hours billed to customers) x% extra EBIT x% extra profit added on bids

Economies of scale in sourcing

Establishing economies of scale when sourcing at national level

Insourcing and outsourcing of employees

Insourcing and outsourcing of expertise based on expertise needed and cost-efficiency

So, the case background shows that firm ALPHA offers a wide variety of service, that there is a strategy to diversify to multiple markets in industry and that there is no explicit operations strategy.

FIGURE 3 CASE CONTEXT TIMELINE

4.2 Influence of energy transition on internal stakeholders

For many years firm ALPHA has had a large, local customer in the oil/gas industry, which scaled back their investments as a result of a change in regulatory regime. As a result, firm ALPHA has decided to expand their services in the chemicals and food/beverage industry. It also aims to provide sustainable and renewable solutions to these customers in industry (such as solar parks).

Higher management deals with increased uncertainty at a strategic planning level, and encounters difficulty in planning for market trends, analyzing markets, and encounters difficulty in responding to market trends: ‘to us a large part of the market is much more unpredictable than the

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were not spending time with customers in the market who were served by other firms, as a result it takes time to fight for a good position in the market’ (HM2).

Staff management experience uncertainty from their positions as it is found complex to remain a customer-of-choice for suppliers, as a manager explains: ‘from my role, I experience uncertainty and

risks being cut out by our supplier, this supplier is also looking for distinct value regarding his own competences. If the supplier has the idea that we will not successfully sell his products, then he will cut us out and start selling it himself and then he will look for a firm to install it for them, so the roles have turned then really. This is already happening, this is a concern to us’ (SM4). Also, availability of

key technical competences is perceived as a source of uncertainty to staff management: ‘this may

cause the problem that employees start looking around and start developing a good relationship with that customer. Also that customer know precisely which ones from us they want and need so they just pick and choose. Ultimately, it’s about the customer offering more holidays and more benefits: this will continue to become more problematic over the coming years’ (SM2). Therefore, for staff

management, a source of uncertainty arises from the firm competing with its customers and suppliers too.

Middle management experiences similar sources of uncertainty as higher management. Managers quote the reactive stance of the firm as a source of uncertainty they perceive from their roles: ‘Well, I think this was predictable, this uncertainty. But, you know, we’re a service-oriented

company, we’re not very good at working with long-term plans. If you have a problem in your CV kettle then we’re going to fix that for you. It’s simply not in our DNA to act proactively in uncertainty’

(MM4).

Within operations it is found that there exists a source of uncertainty from the previous reorganization for the next reorganization, and that resources must be reconfigured to meet the demands of new markets and technology: ‘the other industries are quite different: chemicals,

food/beverage: they all require different knowledge and experience. Moreover, we still have this direct/indirect proportion which is suitable for oil/gas. A transformation is necessary: me and my operational colleagues have to get used to this, our commercial apparatus has to get used to this. So, it’s difficult to respond to these new markets’. (OE3).

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4.3 Decision-making process of operations strategy

Within projects in industry, a number of internal stakeholders are involved in the primary process. The primary process usually follows a standard process and is simplified below.

1. Commercial department (MM) or operations (OE) creates/follows-up on lead 2. Bid/no-bid decision made by higher management (HM)

3. Planning/sales support (MM) prepare bid/tender 4. Go/no-go decided by higher management (HM)

5. If won, operations collaborates with sourcing (SM) in ensuring that material needed is on-time-in-full. Operations also works together with HR (SM) in order to have the right employees available.

6. Operations carries out project and delivers to customer

Higher management is responsible for strategic planning, allocating resources to projects, ensuring fit with national strategy, and have a profit-and-loss responsibility to the national office. Staff management (sourcing and HR) assists higher management in strategy formulation and implementation. Also, staff management plays a role on a national level, where they confer with similar roles in other regional offices. An important note to add is that staff management roles report to the country head office instead of to the higher management of the regional office. Middle management is responsible for strategy execution and is also involved in marketing, commercial, and engineering processes for industrial customers. The employees in operation are directly responsible for primary processes. They perform planning and ensure that the project is performed on site and that this is done against the determined level of quality and within the constraints.

The OS decision-making process of is an implicit process, occurring between multiple internal stakeholders. First, it contains a number of strategic priorities from higher management: ‘I think

within our strategy there is a lot of space to maneuver for our people. If you look at our yearly plan cycle that’s quite bottom-up, because all the heads of the departments within our office together with commerce build a general plan’ (HM2). Moreover, one manager in middle management points out

that ‘there is no formal plan, our operations strategy develops organically. It’s really a pattern of

decisions of people together: making a trade-off between the cost of having people sit idle on the couch and doing profitable work’ (MM4). How and which work is being done follows a process. As

one higher manager explains: ‘do we have the knowledge to do this project? Does it fit our market

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Also higher management notes that sometimes realized strategies are not fully in line with what was intended, as higher management states that the firm as whole is very good in deviating from plans and procedures. As a result, higher management is sometimes worried about which projects are selected: ‘sometimes we have to learn to not do things’ (HM1). This statement refers to the freedom operations and middle management has in making decisions too. Still, operations feels that they should be involved more in making decisions: ‘If you look at plans from the top, what I noticed is that

higher management develops a plan with the top 30 managers here at this office, but that this process did not include any consultation at middle-management or from operations. So from top-down the dialogue is not searched with us and I think that is a shame because that way we are not utilizing the experience and knowledge from this firm. (OE3).

4.4 Operations strategy-related conflicts

In Q2-2018 higher management noticed problematic low firm performance, which was deteriorating quickly. This problem was diagnosed by higher management as a combination of too low project intake as well as a number of internal affairs not in order (e.g. hygiene of SAP data). Higher management responded by addressing a number of priorities and implemented a strategy: ‘what we did

is by pointing out a couple of aspects we tried to put all the noses in the same direction. That is what happened, and I think that worked well’ (HM1).

Conflicts began to appear among internal stakeholders soon after implementation: internal stakeholders did not share the same diagnosis of the problem: operations claims that they were involved too late in identifying what the problems were, and middle management and operations believed that the measures led to too much interference in their autonomy as the measures were focused on control, as one manager states: ‘well there were departments which were doing fine, but

they received the same treatment with all these increased control and checks, and this had a negative influence on them. They thought: ‘what did I do to deserve this?’’ (MM4). Within operations and

middle management the increased control led to frustration, irritation, and feelings of distrust among managers.

During the crisis period the employees did not dare to take any risks, given the uncertainty experienced throughout the organization: ‘there is a disadvantage of very tight control: people don’t

dare to take risks anymore, we saw this happen’ People stayed in their safe zones, no risks’ (MM3).

As a result, organizational units were working hard to improve how they score on these KPIs ‘especially when uncertainty becomes high because once we perform badly, everyone is concerned

with cleaning their own houses’ (MM4).

The increased pressure to improve productivity and profitability led to resentment and a lack of understanding within operations: ‘the focus on KPI productivity makes no sense in my eyes:

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the margins on projects. This may happen because of the increased focus on this from the top, and also because people still have some fear from the last reorganization: they don’t want to be the ones who have to pack their stuff the next time’ (OE4). There was also lack of understanding on efforts to

improve profitability, by adding a mark-up to project bids to customers, this caused irritation and frustration: ‘I think the most ridiculous rule was that we were supposed to add 1% extra profit to our

prices, in order to improve our margins. This is a crazy idea: we make ourselves needlessly more expensive as we may end up losing a project on that 1% extra’ (OE4).

The intervention by higher management was also criticized as being ‘too late’ (OE3), ‘should

be part of normal management’ (OE4, MM5), and ‘could have been anticipated better’ (MM4).

Moreover operations and middle management report that communication during and after implementation from higher management should have been more effective: ‘a crisis was declared, a

number of efforts were made: but then a couple of projects are won, is then code red finished? There was no specific feedback to employees about which things have been changed structurally. (..) When orders started coming in, the problem was apparently solved. I expected some more communication’

(OE1).

Examining more closely the work processes between internal stakeholders, it appears that a

number of conflicts were mostly found between operations and the other internal stakeholders. Operations is said to inadequately coach and review performance of individual employees: ‘HR is

doing a lot of the tasks our managers should actually be doing (..) our managers are very busy and these are mostly people with a technical background: coaching and making employees reflect on their work is not their top priority, because of lack of skill or interest’ (SM1) and does not respect lead time

of sourcing department sufficiently: ‘a purchaser does not get the opportunity to do his work properly.

I proposed that we could go to a standard lead time of 5 days (..) what I want to achieve is understanding among our internal customers that they understand that they will need to give us time to do our work’ (SM4).

Moreover, operations is said to go back too often to customers and projects they know well in order to be better able to manage risks adequately, and do fewer projects which are in line with what higher management intends: when we tell project leaders/managers: ‘hey, we should not be serving

this customer because they will be selecting based on price’, then their reply is: ‘well we’ve always made good margins there – I all know these guys – they still count on us’ (HM1) Operations is said to

work with a strong short-term view, commercial/marketing department more concerned with long-term view, and this makes work for the commercial/marketing department (MM) more difficult, as one manager explains: ‘I have ideas about how we should develop capabilities so that we can lead the

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notice, I adopt the same short-term view as I stop initiating these ideas because I won’t be successful in convincing them anyway’ (MM4).

Operations, in turn, conflicts with staff management as they report that they do not feel supported: ‘they limit our effectiveness’ (OE4), ‘there is always pressure in operations, but staff

management hides behind procedures’ (OE4), and ‘staff should be located closer to us’ (OE3).

Moreover, they report that the energy transition and performing new projects demands flexibility from them in their direct work processes: they have to learn new markets, new competences, manage new sources of project risk, new customers with each their own ways of working. This takes time, money, and flexibility. What it also takes is training of employees. What is stated is that they feel that too little attention is spent on training within operations, as ‘we always end up in a discussion about money’ (OE3). Also, energy transition may lead to outsourcing and redividing tasks internally, and this has implications for job motivation: ‘I see a trend: normally I do a bit of (..) these jobs were put back to

(..) – the cherry on the cake of my work was suddenly given to other departments: this harmed my motivation and the overall agreeableness of my job. I experienced this multiple times’ (OE2).

What stands out is that especially human resources (SM) experiences a number of conflicts: it has to limit freedom of other internal stakeholders to keep benefits fairly distributed, and that this leads to employees threatening to leave the firm. Under the current operations strategy, planning which competences are needed over a longer term is needed for successful in- or outsource decisions but are not adequately initiated by operations and middle management: ‘we need more input from both

middle management and operations about which competences they think they will need and how they see their departments develop in future’ (SM1). Moreover, a task conflict of HR is that employees are

not thinking for themselves how they see themselves their job doing in future, as the firm has been very social to them and has cultivated a passive attitude to employability. This has led to a reactive stance in employment, and this makes the task of HR more difficult.

Conflicts were also found between internal stakeholders in a wider context. Internal stakeholders appear to be confused about what the strategic direction is of their service offering. All stakeholders except for higher management express the need for a clearly communicated strategy. An example is that the firm is considered too expensive to be delivering ‘simple’ projects, so that the knowledge and expertise of the firm should be brought more forward in its value proposition. Also the degree of strategic planning is a concern which is held among middle management and operations: ‘we

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As a result, stakeholders have difficulty understanding which strategy is taken. Also in operations this is felt, as one employee states: ‘I think our current strategy is not clear which direction we are taking

(..) I expect a clear choice from higher management: which way are we going to go?’ (OE2). A lack of

communication on strategy contributes to the confusion: ‘I also told my supervisor in higher

management that we should discuss what kind of company we want to be in future . We don’t have a strategic plan for our regional office. Who do we want to be in five years? I have an idea of what it should be, but nobody stood up and has said: ‘this is the route we are going to take, these are the things we are going to do and everything else we’re not going to do’ (MM5).

Conflicts also appear to relate to the resources within the firm, and how they are allocated to priorities. Specifically, organizational structure is a source of conflicts and frustration: it is unclear

what outcomes of roles are’ (MM5) and ‘the number of indirect employees in supporting roles is too high’ (OE3). This was found to attribute as well to the lower firm performance as ‘it really was mostly a revenue problem, but in the end we did quite well, because the margins were ok. However, if the indirect group is accounting for so much costs, then we end up in trouble’ (OE3).

Related to the organization, were concerns about how KPIs were used: operations believes that the structure in which they operate is focused too much on short-term goals and that it does not incorporate learning and growth measures: ‘They (higher management) only look at finance; how

much do you make, failure costs, only financial KPIs. So then investing in new talent becomes less attractive. But no discussions about how are we training our people, how do we improve our customer satisfaction, and about whether we are successful in attracting and training talent’ (OE4). Moreover,

operations believes that training should be less seen as an expenditure, it is an opportunity: ‘if I can

sell my guy to a project for twice his hourly rate then that sounds to me like a good investment’ (OE3).

Finally, a number of employees point out in middle management and staff management that the lack of focus on coaching and reviewing performance by supervisors is a problem in retaining and attracting employees, especially with growing scarcity to highly-trained technical expertise. Moreover some stakeholders report a culture in which there is insufficient sufficient support for change and improving processes or strategy a part of employees: ‘let’s stick to the things we have done in the

past, let’s not change things: as a result we will create, on the long-term, a delay and a worsening of our competitive position’ (MM4). It is reported that across the firm two groups of employees can be

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5 ANALYSIS

5.1 Summary of conflict themes per conflict type

A selection of OS-related conflicts arose in this research that were discussed most often by internal stakeholders. Based on their dimensions, these conflicts may be grouped into conflict types following the conflict framework (Figure 4) as introduced earlier in the background of this paper.

FIGURE 4 CONFLICT FRAMEWORK

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TABLE 7 OVERVIEW OS-RELATED CONFLICTS PER CONFLICT TYPE

Conflict type Conflict themes Topics, outcomes & relevant stakeholders

Implementation Process Conflict (actors' perceived incompatibility with regards to the implementation process of the OS) OS implementation inadequate to problem perceived

‘Too late’, ‘normal management practice’, ‘we should simply have our internal affairs in order’ (MM, OE)

‘Employees not aware enough/don’t care enough’ (MM, OE) Too much focus on

control

Measures were not focused on changing processes to work differently (MM) Increased bureaucracy led to frustration and feelings of distrust (OE) Insufficient

communication from higher management

Insufficient communication of higher management prior to and after implementation (MM, OE). Outcomes were that employees have been insufficiently aware about situation, frustration.

Task Conflict (actors’ incompatibility between operations strategy and individual tasks, work processes, or job design) Task conflicts of operations

Operations feels no support from staff management: ‘they slow us down’ (OE)

Operations feels insufficient support in training/education needs from SM and HM (OE)

Task conflicts within SM

Staff management conflicts with middle management and operations as they give insufficient input about which competences they think they will need in their departments (SM)

Operations frequently does not respect lead times within sourcing (SM) Task conflicts

within MM

Middle-management has more long-term view on market than operations, frustrating tasks of middle-management (MM)

Structure Conflict (perceived incompatibility between OS and actor’s perceived strategic priorities, organizational structure, control structures, power structures) Unclear what strategic priorities are being pursued by higher management

‘We should make strategic choices’: ‘we’re trying to do everything and as a result we need huge capacity of different specialized people’, ‘if we want to be more profitable we have to make choices in what we do’. Leads to less collaboration and confusion among internal stakeholders (SM, MM, OE) Conflicts with

organizational structure

‘Who is doing what? Outcomes of processes unclear’. ‘Staff and line not aligned properly’. ‘Too much indirect people/overhead’ ‘Too many profit centers’ Outcome frustration, poor collaboration between departments. (SM,OE,MM)

Control structure conflicts

Use of KPIs by higher management found by operations too short-term/too financial. Learning, training, customer satisfaction insufficiently part of KPI structure. Leads to frustrations in operations. Outcome was irritation within higher management as ‘productivity’ measure was wrongly used lowering margins on projects. Value Conflict (actors’ perceived incompatibility between the effects of OS on the actors’ beliefs, values and culture)

Feelings of distrust Following increased checks and balances, employees experienced less trust in them (OE)

Culture of improving processes missing among part of firm

Culture in which monitoring and improving performance/processes is missing, leading to frustration among a group of employees (SM, OE, MM)

5.2 Case analysis

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Staff management each from their own responsibility, are also concerned with more long-term considerations as they aim to strengthen the firm’s competitiveness on the labour market as well as in the supplier network. Middle-management may be involved with everyday operations as well as assisting higher management in strategic planning. Operations mainly deals with short-term uncertainty which translates to ensuring that employees have projects to work on and that the risks and costs of projects are managed adequately. Also within operations fear for a reorganization was found to be most prevalent compared to other internal stakeholders, which may be explained by operations losing many positions in a recent reorganization (2016).

The OS decision-making process is implicit and iterative, but mainly it is held by internal stakeholders that strategic decisions are made by higher management assisted by staff management. Still, the case shows that operations perceives that they have a reactive role regarding operations strategy (Demeester et al., 2014). Also staff management believes that operations and middle management should be more actively involved in providing input on a strategic level, for instance for the strategic planning of competences needed in 3 or 5 years time. The implicit OS decision-making process as a result becomes a potential source of conflicts.

The impact of energy transition on operations strategy in industry: a conflict perspective