Advances in Information Systems and Business Engineering

Advances in Information Systems and Business Engineering Edited by U. Baumöl, Hagen, Germany J. vom Brocke, Vaduz, Fürstentum Liechtenstein R. Jung, St. Gallen, Switzerland

The series presents current research findings based on diverse research methods at the interface between information systems research, computer science, and management science. The publications in this series aim at practical concepts, models, methods, but also theories which address the role of information systems in the innovative design and sustainable development of organizations. Contributions are selected which on the one hand propose innovative approaches how modern information and communication technologies can enable new business models. On the other hand, contributions are eligible which present considerable improvements to existing solutions. The publications are characterized by a holistic approach. They account for the socio-technical nature of work-systems and suggest that the development and implementation of information systems need to consider the multifaceted organizational context driven by people, tasks, and technology. Edited by Prof. Dr. Ulrike Baumöl FernUniversität Hagen, Germany Prof. Dr. Reinhard Jung, Universität St. Gallen, Switzerland Prof. Dr. Jan vom Brocke Universität Liechtenstein, Vaduz, Fürstentum Liechtenstein

Tor Tønnessen Managing Process Innovation through Exploitation and Exploration A Study on Combining TQM and BPR in the Norwegian Industry

Tor Tønnessen Center for Industrial Production Aalborg University, Denmark Dissertation, Center for Industrial Production, Department of Business and Management, Aalborg University, Denmark, 2012 ISBN 978-3-658-04402-2 DOI 10.1007/978-3-658-04403-9 ISBN 978-3-658-04403-9 (ebook) The Deutsche Nationalbibliothek lists this publication in the Deutsche Nationalbibliografie; detailed bibliographic data are available in the Internet at http://dnb.d-nb.de. Library of Congress Control Number: 2013955551 Springer Gabler Springer Fachmedien Wiesbaden 2014 This work is subject to copyright. All rights are reserved by the Publisher, whether the whole or part of the material is concerned, specifically the rights of translation, reprinting, reuse of illustrations, recitation, broadcasting, reproduction on microfilms or in any other physical way, and transmission or information storage and retrieval, electronic adaptation, computer software, or by similar or dissimilar methodology now known or hereafter developed. Exempted from this legal reservation are brief excerpts in connection with reviews or scholarly analysis or material supplied specifically for the purpose of being entered and executed on a computer system, for exclusive use by the purchaser of the work. Duplication of this publication or parts thereof is permitted only under the provisions of the Copyright Law of the Publisher s location, in its current version, and permission for use must always be obtained from Springer. Permissions for use may be obtained through RightsLink at the Copyright Clearance Center. Violations are liable to prosecution under the respective Copyright Law. The use of general descriptive names, registered names, trademarks, service marks, etc. in this publication does not imply, even in the absence of a specific statement, that such names are exempt from the relevant protective laws and regulations and therefore free for general use. While the advice and information in this book are believed to be true and accurate at the date of publication, neither the authors nor the editors nor the publisher can accept any legal responsibility for any errors or omissions that may be made. The publisher makes no warranty, express or implied, with respect to the material contained herein. Printed on acid-free paper Springer Gabler is a brand of Springer DE. Springer DE is part of Springer Science+Business Media. www.springer-gabler.de

Preface and Acknowledgements Managing processes is important for driving enterprise performance. In order to stay efficient companies need to improve their business processes on a continuous basis. To ensure competitive edge companies need to change radically when new business opportunities occur and when external demands change. Exploitation is about continuous improvement of the existing. Exploration is about radical change. Companies need to do both. However, experience and research show that companies have difficulties managing exploitation and exploration in the same system at the same time. Why is this so difficult, and how can the two development logics be integrated in a mutually supportive manner? This is theme of the book. To operationalize exploitation in an industrial setting, I use TQM as an approach to continuous process improvement. To operationalize exploration I use BPR as an approach to radical process change. The question of how to integrate the business development approaches that the quality movement and BPR represent is an important enabling factor in the further development and success of other current and actual change concepts such as Business Process Management (BPM). The book contributes to the understanding of the challenges of this integration and ways to accomplish it. The point of departure for the book is my PhD study at Center for Industrial Production at the University of Aalborg and case study research in Norwegian industry. Many people have given their contributions to this book. First of all I thank my PhD advisor Professor Dr. Harry Boer for all his good comments, discussions, encouraging support, patience and guidance. His approach to Continuous Innovation made me see how many business development puzzles can fit together into an adequate way. I thank Associate Professor Dr. Bjørge Laugen for important contributions in discussions about theoretical and methodical issues, and for having given me quick and good comments along the way. My colleagues for many years, Professor Dr. Tor Claussen, Dr. Trond Haga, Senior Advisor Ove Gandrud and Senior Advisor Rolf Sjursen have contributed in important ways to develop my skills as a researcher and to widening of my theoretical perspectives. Many years of close cooperation with Pål Lynne Hansen from LO has made me see the importance of employee participation in change. I thank my case companies, Aker Stord, Serigstad and Titania for opening their doors to my research. I also thank my former employer IRIS for the opportunity to start up and carry out the work with my PhD, and my present employer Statoil for the opportunity to finish it. Dr. Sturle Næss at Statoil has supported me refining and clarifying my theoretical discussions and contributions. I thank Professor Dr. Jan vom Brocke for important contributions to the process of transforming my PhD thesis into a book. Finally, I thank my wife Sigrunn and my children Espen, Marianne and Ellen for their patience with a husband and father who spent too many hours at the computer the last years. Stavanger 15.07.13 Tor Tønnessen

Résumé Maintaining an appropriate balance between exploration and exploitation is a primary factor in system survival and prosperity (March 1991:71). Both exploration for new possibilities and exploitation of the existing are necessary development strategies for organizations to survive and prosper (March 1991). According to March, this balancing is not easy, and the two strategies compete for scarce resources as a trade-off. In other words, they are considered mostly antithetical, where investing more resources in one of these development strategies may result in having less to invest in the other. This way of balancing can be accomplished by separating the two in time, at organization levels or by departments (Volberda 1998). Lately, some scholars have questioned whether March s theory of balancing the two mostly as a trade-off is always correct, and argue for a synergistic approach as a better alternative in many situations (Sutcliffe et al. 2000, Cole 2002, Boer & Gertsen 2003, Osri et al. 2005, Boer et al. 2006, Greve 2007, Isobe et al. 2007, Un 2007). More empirical research and evidence are needed to give insight into and further develop the theory on the balancing of exploitation and exploration (Sutcliffe et al. 2000, Cole 2002, Oshri et al. 2004, Boer et al. 2006, Andriopoulus & Lewis 2009, Fang et al. 2010, Raisch et al. 2010). My research contributes to current knowledge through exploratory empirical research. In order to make the theoretical constructs exploitation and exploration operational in an industrial setting, and to discuss and further develop March s balancing theory, I have chosen to use two business development concepts to represent forms of exploitation and exploration: Total Quality Management TQM (Deming 1986, Juran 1989) and Business Process Reengineering BPR (Hammer & Champy 1993), respectively. TQM and BPR have a strong influence on the way in which organizational development and the striving for business excellence are being carried out in Norway. In particular was this very visible in the decade before the turn of the century (Røvik 1998, Rolfsen 2000, Neerland 2000, Moltu 2000). TQM and the quality movement is very much associated with continuous incremental improvement. It is important to keep costs and production under control, and to eliminate mistakes and reduce variability and other elements related to the idea of exploitation (March 1991). BPR is associated with radical change. As the name indicates it focuses on processes, like TQM does as well. However, it is not continuous incremental process improvement that is in focus. It is thinking fundamentally new, seeing things in new ways and searching for dramatic changes, new possibilities and other aspects related to March s idea of exploration. Even if processes are in focus, the goal and the outcomes of change processes can also be radically and dramatically directed towards other innovation areas such as technology, markets, raw materials and organization. I use BPR to represent explorative process innovation.

VIII Résumé The specific setting that I am referring to is Norwegian industry. Prevailing management traditions and concepts of business excellence are international and have been developed elsewhere within other industrial traditions. Norwegian companies are being exposed to these international concepts and use them to achieve business excellence and innovation. A challenge both from an academic as well as a managerial perspective is to see whether these international management concepts can be combined synergistically. Where do TQM and BPR conflict? What do they have in common? Do we have to choose between them, or can they work in a reciprocally reinforcing manner to increase companies innovation capability? If adjustments are needed, what kinds of adjustments and what enabling factors seem to be important? My specific contribution is to propose theory on the balancing of these two concepts. Over the last two decades, these two approaches to process improvement have gradually merged and constitute important elements in Business Process Management (BPM). BPM is a concept for managing business performance by managing end-to-end business processes for successful enterprise performance (Hammer 2010). Consequently, BPM can be considered as one approach to the integration of forms of exploitation and exploration. This book contributes with insight in the challenges of integrating TQM and BPR, provides examples of how to do it and with knowledge of enabling factors. Managing the integration of the kinds of approaches that the quality movement and BPR represent is decisive for successful BPM, which is still in its infancy (Hammer 2010). My research is part of the two Norwegian national research programs Business Development 2000 and Value Creation 2010. These two programs are action research programs, and have been the most comprehensive research efforts related to combining international management concepts and Norwegian industrial traditions over the last decades. Through my involvement in these two research programs, I have facilitated and participated in development processes in a large number of individual companies and in companies cooperating in networks. The exploratory research reported here is based on three of those projects, one of which is best characterized as a longitudinal case study, while the other two are forms of action research. In the longitudinal case study I describe and analyze a company s efforts to combine TQM and BPR into one development process. Various methods of data gathering have been used, such as observations, field notes, interviews, reports from meetings and company conferences, analysis of documents from the participating companies and statistics. The results from the case study are discussed in relation to and compared with the results from a national survey on quality management that was carried out together with the University of Stavanger and Norsk Forening for Kvalitet og Ledelse NFKL (Norwegian Association for Quality and Management). TQM and BPR are analyzed in relation to where and how they conflict with and/or support each other. After having identified conflicting and reciprocally supporting elements, I will

Résumé IX present my efforts to combine these two management concepts into one approach in Norwegian industrial context. An important question is whether this kind of combination in the same system is advisable. And if so, what further developments of TQM and BPR practices are necessary in order to promote both incremental and radical innovations, and which enabling factors seem to be important? How can this contribute to the further development of the theory of exploitation and exploration? Thus, my research objective is to contribute to the further development of the theory of exploitation and exploration through proposing theory on the balancing of TQM and BPR. More specifically, my research question is: Can TQM and BPR be combined synergistically, if so, how? After having discussed and presented my approach, I will give examples of the kinds of change techniques and methodologies that I believe are needed to pursue a new approach to combining characteristics of TQM and BPR synergistically. I will try out some steps towards this new approach and also show the practical use of what I regard as the most important elemens and change techniques. Two of the new techniques that I developed to pursue my approach will be discussed and analyzed in detail. The Enterprise Development Conference is a technique for enabling employee participation in higher-level strategy discussions and innovation. This will be followed by a presentation and discussion of a technique that I have developed to strengthen employee participation in process innovation, the Actor-Process Diagram. These two techniques and my approach to combining TQM and BPR synergistically are tested through action research. The results from the action research projects are presented and discussed in relation to theory. My main findings are that exploitation capability can support exploration capability, and thereby support exploration, and that TQM and BPR can work reciprocally supportive in the same development process. An industrial democracy (ID) context and a strong management commitment seem to be important enabling factors, and support the synergistic combination of characteristics of exploitation and exploration, thereby promoting both incremental and radical innovations in the same system at the same time. Thus, March s (1991) mostly antithetical theory of balancing exploitation and exploration should be modified. Finally, important limitations of my research design are summarized, and directions for further research identified.

Contents 1 Introduction 1 1.1 Combining exploitation and exploration 1 1.2 Research question 3 1.3 Structure 3 2 Theoretical departure and approach balancing exploitation and exploration 5 2.1 Process models 8 2.2 Exploitation and exploration capabilities. Trade-off or mutually reinforcing? 10 2.3 Summary 16 3 Total Quality Management 17 3.1 Background 17 3.2 Definitions 18 3.2.1 Quality defined 18 3.2.2 Total Quality defined 19 3.2.3 Total Quality Management defined 19 3.3 TQM as a complete management concept 20 3.4 The EFQM Excellence model 22 3.5 Some challenges 24 3.6 TQM as one approach to the building of exploitation capability 24 3.7 Summary 25 4 Business Process Reengineering 27 4.1 The process hierarchy 29 4.2 Some challenges, contradictions and vagueness in the BPR concept 30 4.3 Common stages in BPR processes 31 4.4 BPR as one approach to the building of radical process exploration capability 32 4.5 Summary 33 5 Is a synergistic approach to the combining of TQM and BPR appropriate? 35 5.1 The interdependence between radical innovations and continuous improvement 36 5.2 Slow or fast growing economies different needs at different times, or? 38 5.3 Learning as a driving force to a synergistic combining of continuous improvement and radical innovation 39 5.4 Business Process Management (BPM) 41

XII Contents 5.5 Summary 42 6 Research model and definitions 43 6.1 Research Model 43 6.2 Clarifications and definitions 43 6.2.1 Innovation 44 6.2.2 Exploitation and exploration 45 6.2.3 Incremental and radical innovation 46 6.2.4 Contrasting characteristics of TQM and BPR 46 6.3 Summary 48 7 Research design 49 7.1 Background and historical lines. The Norwegian Action Research tradition and the national research programs this research is part of 49 7.1.1 The heritage from Kurt Lewin 50 7.1.2 Enterprise Development 2000 52 7.1.2.1 The RF module and the cooperation with the industry network in Sunnhordland 53 7.1.3 Value Creation 2010 54 7.1.3.1 The VC 2010 main project in the Development Coalition Hordaland & Rogaland 55 7.1.4 Overall research objective for the action research at IRIS 55 7.2 Methodological choice; case study design 56 7.2.1 Advantages of choosing a case study design in my research setting compared to alternative methods 57 7.2.2 Research challenges and case study strategy 58 7.2.2.1 Intrinsic or instrumental? 60 7.2.2.2 The choice of a single compared to a multiple case study design? 60 7.2.2.3 Exploratory, descriptive and explanatory purposes 61 7.2.3 The components of my case study designs 61 7.2.3.1 The study s questions 62 7.2.3.2 The study s propositions 63 7.2.3.3 Units of analysis 64 7.2.3.4 Linking data to propositions 66 7.2.3.5 The interaction between research phases 67 7.2.4 Validity and reliability challenges 68 7.2.4.1 Construct validity 69 7.2.4.2 Internal validity 72

Contents XIII 7.2.4.3 External validity 73 7.2.4.4 Reliability 74 7.2.5 Additional and specific aspects of doing case studies through action research 74 7.2.5.1 Action Research as a co-generative process 76 7.2.5.2 My role as the friendly outsider in the co-generative process 78 7.2.5.3 Where does action research differ from consulting? 78 7.2.6 The case study comments to common criticism 79 7.3 Summary 82 8 Combining TQM and BPR synergistically, Aker Stord a case study 83 8.1 Start-up of TKA at Aker Stord and timeline 84 8.2 TKA: The basic philosophy and strategy. The importance of employee participation 85 8.3 Interpreting employee participation in TKA 87 8.3.1 Theoretical definition 88 8.3.2 Operational definition 88 8.3.2.1 Three stages of participation in the TKA process 89 8.3.2.2 Two ways to participate 89 8.3.2.3 Five organizational levels of participation in TKA 90 8.3.2.4 Employee participation in general 94 8.3.2.5 TKA activities at Aker Stord 94 8.3.2.6 Departmental Committees (DC) as the coordination body for local improvement activities at Aker Stord 96 8.4 The practical carrying out of the audits Employee participation in TKA 98 8.5 Results from the first audit. Employee participation in TKA at Aker Stord in 1996 99 8.5.1 A summary of the results of the 1996 audit 99 8.5.2 Observations 100 8.5.2.1 Direct information from own manager 105 8.5.2.2 Introductory training in TKA for all employees 105 8.5.3 Recommendations from the 1996 audit Employee Participation in TKA 106 8.6 The Aker Stord EFQM Self Evaluation 110 8.7 Introducing BPR at Aker Stord 112 8.7.1 The BPR project Procurement Personnel 118 8.8 Time series repeating the audit Employee Participation in TKA in 1997 and 1998/9 120 8.8.1 The 1997 audit on employee participation in TKA. Important changes. 120

XIV Contents 8.8.1.1 The situation at Aker Stord in 1997 121 8.8.1.2 Observations 123 8.8.1.3 Changes from 1996 to 1997 summarized 135 8.8.1.4 The 1997 audit conclusions 135 8.8.2 Important changes the BPR project The Future Workplace and the Prefabrication of Pipes reengineering project 136 8.8.3 The 1998/99 audit on employee participation in TKA and important changes 142 8.8.3.1 Information/training 143 8.8.3.2 Participation in problem identification and idea generation 144 8.8.3.3 Participation in implementation and follow-up of improvement projects 147 8.8.3.4 Changes from 1997-1998/99 summary 149 8.9 The challenges of combining TQM and BPR synergistically empirical analysis 150 8.9.1 TQM and BPR. Trade-off or reciprocally supportive? 151 8.9.1.1 The importance of organizational learning 152 8.9.1.2 The importance of leadership 154 8.9.2 Employee participation in TKA 155 8.9.2.1 Factors explaining employee participation in TKA 155 8.9.2.2 TKA and arenas for company-union cooperation 156 8.9.2.3 What to choose The individual-oriented suggestion box system or the collective-oriented DC system? 159 8.9.2.4 The change of focus from TQM to BPR 159 8.9.2.5 Autonomy 160 8.9.2.6 Aker Stord s participatory TKA practice in relation to quality management practice in Norway a national survey 161 8.9.2.7 Direct employee participation in quality management 163 8.9.2.8 Indirect employee participation in quality management 164 8.9.2.9 The relationship between indirect and direct employee participation in quality management 165 8.9.2.10 Summarizing the national survey 166 8.9.3 Summarizing the Aker Stord experiences and way forward 166 8.9.3.1 Main findings and conclusions from the Aker Stord case study discussion briefly summarized 167 8.9.3.2 Some important shortcomings of today s participatory practice that need to be researched 171

Contents XV 9 Towards a synergistic combining of TQM and BPR in a Norwegian industrial setting 175 9.1 Approach to the synergistic combining of TQM and BPR 175 9.2 Industrial democracy 176 9.2.1 Employee participation defined 177 9.2.2 Industrial democracy, definition and limitations 179 9.2.3 Industrial democracy in Norway a practical approach 180 9.2.3.1 Democratic dialogue 184 9.2.3.2 Characteristics of Industrial Democracy in Norway and my approach summarized 185 9.2.4 ID as an enabler for TQM and BPR 185 9.3 A framework for the organizing of employee participation in the further development of an approach to the synergistic combining of forms of TQM and BPR 189 9.3.1 Basic conditions for employee participation in a synergistic combining of TQM and BPR motivation, ability and opportunity 189 9.3.1.1 Motivation to participate 190 9.3.1.2 Employees ability to take part in innovation processes 192 9.3.1.3 Employees possibilities to take part in innovation processes 194 9.3.2 Coordination between direct and indirect participation in innovation 194 9.3.2.1 Direct employee participation in innovation 195 9.3.2.2 Indirect participation in innovation 197 10 New tools to support a synergistic combining of TQM and BPR 201 10.1 Tool 1. The Enterprise Development Conference 201 10.1.1 Background The ED Conference as a tool for planning incremental and radical innovation synergistically 202 10.1.2 The Titania case identifying future challenges 203 10.1.2.1 Background and planning 203 10.1.2.2 The Titania conference 205 10.1.2.3 Results and following up 210 10.1.3 The ED Conference basic principles and methodology 212 10.1.4 Developing incremental and radical innovations synergistically through the ED Conference empirical analysis 219 10.1.4.1 The ED Conference at different stages in a strategy process 219 10.1.4.2 Identifying innovation initiatives for the development and the concretization of the company s strategy 219

XVI Contents 10.1.4.3 Improvements in the companies ability to continuously innovate through employee participation 220 10.1.4.4 Success criteria for achieving employee participation in innovation 225 10.1.4.5 The combining of direct and indirect employee participation in innovation 226 10.1.4.6 Initiating incremental and radical innovations synergistically 227 10.2 Tool 2. The Actor-Process Diagram and the combining of TQM and BPR characteristics synergistically. 228 10.2.1 Business process redesign and the combining of TQM and BPR synergistically at Serigstad 229 10.2.1.1 Background: Productivity challenges at Serigstad Iron Foundry 230 10.2.1.2 Organizing the redesign project at Serigstad 231 10.2.1.3 Mobilizing for the redesign process 233 10.2.1.4 Starting up the redesign process at Serigstad 235 10.2.1.5 The Actor-Process Diagram background 236 10.2.1.6 The Actor-Process Diagram for mapping, evaluating and redesigning work processes basic principles. 237 10.2.1.7 Following up the results from the Actor-Process Diagram analysis of the existing production process at Serigstad 238 10.2.1.8 The redesign process and widening the scope 239 10.2.1.9 Important changes 241 10.2.1.10 Results 243 10.2.1.11 Marketing and sales problems 243 10.2.2 Empirical analysis: The Actor-Process Diagram and the combining of TQM and BPR characteristics synergistically 244 10.2.2.1 Building a process oriented organization. How much employee participation? 244 10.2.2.2 The comprehensiveness of the participation 246 10.2.2.3 A new world of work and organizational performance 247 10.2.2.4 Lessons learnt for ensuring employee participation in business process redesign and for the reciprocally reinforcing combining of direct and indirect employee participation 248 10.2.2.5 Towards the synergistic combining of TQM and BPR 249 11 Discussion and conclusion 253 11.1 Discussion 253 11.1.1 Combining TQM and BPR 255 11.1.2 TQM, BPR and ID 256 11.1.3 The need for adaptations and further methodological development 258

Contents XVII 11.1.4 The synergistic approach 261 11.1.5 Propositions 265 11.2 Methodological reflections and limitations 266 11.2.1 The quality of a single case study design. The question of validity and reliability 266 11.2.1.1 Action research and the bias challenge 268 11.2.1.2 Case studies and scientific knowledge 270 11.3 Further research 271 11.4 Main findings and conclusion 274 References list 277 Appendices Appendix 1 The VC 2010 regional partnership Hordaland & Rogaland and the local networks 297 Appendix 2 Employee participation in TKA. Interview guides Aker Stord 1997 298 Appendix 3 Survey. Quality Management in Norway 312