Evaluation of change environment at CQIKC

June 2006

Pontus Andersson

Department of Industrial Management and Logistics Engineering Logistics

Lund Institute of Technology

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Preface With this thesis my exciting and eventful life as a student comes to an end. These last twenty weeks have been an amazing way to end five years of hard work and I am most grateful for everyone who has played a part in this thesis. The thesis has been carried out at ABB Chongqing Transformer Co. Ltd. in cooperation with the Department of Engineering Logistics at Lund Institute of Technology. During these weeks I have learned a lot about change management and the complexity of implementations and how tightly connected to all aspects of an organization they are. Most importantly I learned and experienced how big the Chinese hospitality is. It is all the �hot pot� dinners, outings and endless nights in Chongqing that has made these weeks unforgettable. I would like to take this opportunity to thank those persons that have been extra valuable and important for the completion of this thesis: Piotr Blasczcyk, my tutor at ABB CNCTC, thanks for your guidance. Without your knowledge and enthusiastic interest in change processes this research would never have been possible. Everth Larsson, my tutor at Lund Institute of Technology. Before the thesis even existed until the very end, by the pool during your vacation in Malaysia to early mornings at the office in Lund, you have always spared a moment for my questions. Thank you for all your support. Furthermore I would like to thank all the employees of the IKC and ABB CNCTC who has been interviewed and answered my sometime annoying questions. Especially I would like to thank Jery and Kevin for all the fun times both at work and in the evenings. Finally, I would like to thank Maria, my affectionate spouse, for your faith, hope and charity. Without you my days in China would have been long and grey. I am happy and satisfied with what I have accomplished. I hope that you, as a reader, will find it interesting and useful. Enjoy! Ludvika, June 2006

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Abstract Problem In Chongqing, in the middle of China, ABB is currently operating the world�s largest transformer plant. Apart from producing large power transformers they also support all other transformer factories in China and neighbouring countries with insulation material. In order to cope with the increasing demand of transformers they have been forced to increase their output of insulation. Future forecasts indicate a continuous increase in market demand why it has been decided to build a totally new factory for insulation production. Apart from building this new Insulation Kit Centre (IKC) it has also been considered necessary to further develop the current processes. This in order to reach their desired output by 2008. When they started with their first process improvement programs in the end of last year, the progress was not as good as expected and they lacked a holistic picture or map of the current change environment. Purpose The purpose of this thesis is therefore to evaluate the current change environment and create a comprehensible picture of the organization from a change perspective. This picture should be good enough to bring forth some suggested solutions for improving the existing change environment. Methodology To do this it first had to be investigated which parts of an organization that affects the change environment and in which way it affects it. This framework has been based on previously written literature in change management as well as by using action research while actively participating in the implementation of 5S. The action research has both been used to create the framework and also when later using the framework for evaluating the existing change environment at the IKC. Results This thesis shows that the change environment can be evaluated by looking at 5 components of an organization: internal environment, systems, processes, structures and external environment. These components are then specified for this specific case, i.e. implementing a new production philosophy at the Chongqing IKC. When using this framework for evaluating the change environment at the IKC it shows that there is plenty of room for improvements. It is mainly parts of the systems and structures of the IKC that are not aligned with the change process. Even though employees in many ways are willing to change they are limited by a centralized as well as a functionally and occupationally differentiated structure with a salary system that inhibits anything but production. Apart from looking at needed changes in systems, process and structures it also clarifies the existing internal as well as external environment in terms of level of experience, existing culture and so on which hopefully can be used for planning future change projects. Conclusions This research introduces a framework for evaluating the change environment of an organization. It outlines which parts of an organization that should be given the greatest focus from a change perspective. It can further be used as a template when evaluating change environments with specific change projects in mind. This thesis further clarifies three main aspects of the organization that needs to be altered in order to improve the change environment. Firstly it is very few initiatives among workers in particular, but also in some extent among office employees. Secondly, a centralized and functionally oriented structure creates interdependencies that slow down processes and inhibit empowerment of broad based action. Thirdly it is in many

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ways poor cooperation between different �groups�. Apart from pointing out these aspects the thesis also contains some suggested solutions on how to improve these aspects. Keywords ABB, change management, change environment, China, implementation, leading change, organizational change, organizational culture, organizational structure

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Abbreviations 5S Sort, Set in order, Shine, Standardise, Sustain 90 GVAPT 90 Giga Volt Ampere Project Team ABB Asea Brown Boveri ABBCNCTC Asea Brown Boveri Chongqing Transformer Co. Ltd AME Association for Manufacturing Excellence BA Business Area BAA Business Area Area BU Business Unit BUU Business Unit Unit CP3 Common Pull Production Processes GVA Giga Volt Ampere IKC Insulation Kit Centre IRP Inventory Reduction Program LPT Large Power Transformer MIT Massachusetts Institute of Technology MVA Mega Volt Ampere TPS Toyota Production System

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Table of contents 1 Introduction......................................................................................... 1

1.1 Background.................................................................................................. 1 1.2 Problem discussion ....................................................................................... 2 1.3 Purpose....................................................................................................... 3 1.4 Project deliverables....................................................................................... 3 1.5 Focus and delimitations ................................................................................. 3 1.6 Target Group ............................................................................................... 3 1.7 Disposition................................................................................................... 4

2 Methodology ........................................................................................ 5 2.1 Research approach ....................................................................................... 5

2.1.1 Explorative ......................................................................................................5 2.1.2 Descriptive ......................................................................................................5 2.1.3 Diagnostic .......................................................................................................5 2.1.4 Explanatory .....................................................................................................5 2.1.5 Evaluative .......................................................................................................5 2.1.6 Normative .......................................................................................................6 2.1.7 Induction, deduction and abduction......................................................................6 2.1.8 Approaches in this thesis....................................................................................6

2.2 Research designs.......................................................................................... 7 2.2.1 Survey............................................................................................................7 2.2.2 Action research ................................................................................................7 2.2.3 Literature study................................................................................................7 2.2.4 Case study.......................................................................................................8 2.2.5 Experimental design..........................................................................................8 2.2.6 Interviews .......................................................................................................8 2.2.7 Research design in this thesis .............................................................................8

2.3 Sources of Information.................................................................................. 8 2.3.1 Primary and secondary data ...............................................................................8 2.3.2 Quantitative and qualitative data .........................................................................8 2.3.3 Data in this thesis .............................................................................................9

2.4 Assessments of sources................................................................................. 9 2.4.1 Objectivity.......................................................................................................9 2.4.2 Reliability ........................................................................................................9 2.4.3 Validity ...........................................................................................................9 2.4.4 Assessment of this research................................................................................9

2.5 Methods for analysing data .......................................................................... 10 2.6 The principal�s influence .............................................................................. 11

3 5S and Common Pull Production Practices ................................................13 3.1 Introduction to 5S ...................................................................................... 13 3.2 Introduction to CP3..................................................................................... 13 3.3 Lean production.......................................................................................... 14 3.4 Pull production ........................................................................................... 14 3.5 Continuous flow.......................................................................................... 16 3.6 Supply chain integration .............................................................................. 16

4 Change Management............................................................................17 4.1 Change processes....................................................................................... 17 4.2 CP3 Project Implementation Guide................................................................ 17

4.2.1 Gates............................................................................................................ 18 4.2.2 Phases .......................................................................................................... 18

4.3 The Eight-Stage Process of Creating Major Change ......................................... 19 4.3.1 Establishing a sense of urgency......................................................................... 19 4.3.2 Creating the guiding coalition............................................................................ 20 4.3.3 Developing a vision and a strategy..................................................................... 21 4.3.4 Communicating the change vision...................................................................... 22 4.3.5 Empowering employees for broad-based action.................................................... 22 4.3.6 Generating short-term wins .............................................................................. 23

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4.3.7 Consolidating gains and producing more change................................................... 23 4.3.8 Anchoring new approaches in the culture ............................................................ 24

5 Organizational culture...........................................................................25 5.1 Defining organizational culture ..................................................................... 25 5.2 People....................................................................................................... 25 5.3 Processes .................................................................................................. 25 5.4 Structures ................................................................................................. 26 5.5 Environment .............................................................................................. 28

6 Impact of cultural and behavioral differences............................................29 6.1 Culture matters .......................................................................................... 29 6.2 Five dimensions of culture ........................................................................... 29 6.3 Chinese culture .......................................................................................... 30 6.4 Five dimensions of Chinese culture ............................................................... 31

7 Company description ............................................................................33 7.1 ABB .......................................................................................................... 33 7.2 ABBCNCTC................................................................................................. 33 7.3 IKC........................................................................................................... 33

7.3.1 Financial situation ........................................................................................... 35 7.3.2 Products........................................................................................................ 35 7.3.3 Customers ..................................................................................................... 35 7.3.4 Suppliers....................................................................................................... 35 7.3.5 Production ..................................................................................................... 36 7.3.6 90 GVA Project ............................................................................................... 36

8 Creating a framework ...........................................................................37 8.1 Theoretic approach ..................................................................................... 37 8.2 Lessons learned while implementing 5S......................................................... 39 8.3 Suggested framework ................................................................................. 40 8.4 Framework specification .............................................................................. 41

9 Empirics .............................................................................................43 9.1 Internal environment .................................................................................. 43

9.1.1 Office employees ............................................................................................ 43 9.1.2 Workers ........................................................................................................ 45 9.1.3 Current state ................................................................................................. 47

9.2 Structures ................................................................................................. 48 9.2.1 Functional...................................................................................................... 48 9.2.2 Occupational .................................................................................................. 48 9.2.3 Spatial .......................................................................................................... 49 9.2.4 Vertical ......................................................................................................... 49 9.2.5 Centralization................................................................................................. 50 9.2.6 Formalization ................................................................................................. 50 9.2.7 Administration................................................................................................ 50 9.2.8 Interdependencies .......................................................................................... 51

9.3 Systems .................................................................................................... 51 9.3.1 Salaries......................................................................................................... 51 9.3.2 Incentive bonuses........................................................................................... 52 9.3.3 Rewards........................................................................................................ 53 9.3.4 Employee turnover.......................................................................................... 53 9.3.5 Measurement system....................................................................................... 53 9.3.6 Information system......................................................................................... 54

9.4 Processes .................................................................................................. 55 9.4.1 Employee suggestion process............................................................................ 56 9.4.2 WIP measurement system................................................................................ 56 9.4.3 Purchases process........................................................................................... 57

9.5 External environment.................................................................................. 57 9.5.1 Stakeholders.................................................................................................. 57 9.5.2 Culture.......................................................................................................... 59

10 Analysis............................................................................................61 10.1 Internal environment................................................................................. 61

10.1.1 Office employees........................................................................................... 61 10.1.2 Workers ...................................................................................................... 62

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10.1.3 Current state................................................................................................ 63 10.2 Structures................................................................................................ 63

10.2.1 Functional differentiation ................................................................................ 63 10.2.2 Occupational differentiation............................................................................. 63 10.2.3 Spatial differentiation..................................................................................... 64 10.2.4 Vertical differentiation.................................................................................... 64 10.2.5 Centralization ............................................................................................... 64 10.2.6 Formalization................................................................................................ 64 10.2.7 Administration .............................................................................................. 64 10.2.8 Interdependencies......................................................................................... 65

10.3 Systems .................................................................................................. 65 10.3.1 Salary system............................................................................................... 65 10.3.2 Incentive bonuses ......................................................................................... 65 10.3.3 Rewards ...................................................................................................... 65 10.3.4 Employee turnover ........................................................................................ 66 10.3.5 Measurement system..................................................................................... 66 10.3.6 Information system ....................................................................................... 66

10.4 Processes................................................................................................. 66 10.5 External environment ................................................................................ 67

10.5.1 Stakeholders ................................................................................................ 67 10.5.2 Culture........................................................................................................ 68

11 Conclusions and recommendations........................................................71 11.1 Conclusions.............................................................................................. 71 11.2 Recommendations..................................................................................... 72

11.2.1 Modify the existing salary system..................................................................... 72 11.2.2 Improve communication................................................................................. 72 11.2.3 Re-establish the Employee Suggestion Program.................................................. 72 11.2.4 Create and communicate a vision..................................................................... 73 11.2.5 Simplify the purchase process ......................................................................... 73 11.2.6 Introduce rotation between production groups ................................................... 73 11.2.7 Create a less functionally structured organization ............................................... 73 11.2.8 Training in cultural differences......................................................................... 74

12 Generalization and future studies..........................................................75 12.1 Generalization .......................................................................................... 75 12.2 Future studies .......................................................................................... 75

References ............................................................................................77 Books ................................................................................................................... 77 Articles ................................................................................................................. 77 Websites ............................................................................................................... 79

Appendices............................................................................................81 Appendix I Problems met while implementing 5S ............................................... 81 Appendix II Summary from IKC survey.............................................................. 83 Appendix III Interviews.................................................................................... 85

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1 Introduction This chapter aims at giving the readers an introductive understanding of the background to this research. Furthermore, it is meant to give a clear picture of what the author wants to achieve with this thesis in terms of purpose, deliverables, delimitations, focus and target group.

1.1 Background In the beginning of the 20th century Henry Ford, one of mass production�s most famous pioneers, started producing T-fords in his factory in Dearborn. In 1925 the lead-time for one of his cars was 3 days; this is shorter than any car manufacturer of today can manage1. After the Second World War, when most of the world�s industrial capacity was shattered, there were two general views of why Ford�s factories had been so efficient. It was because of the very large batches that kept price per unit low. The American car manufacturers adopted this view. Or, it was because of continuous flows of products without any unnecessary stock being held. This view was adopted by several Japanese companies and can be seen as the precursor to Lean Manufacturing or similar manufacturing philosophies such as Toyota Productions System (TPS). The last few years, or even decades, it has been a lot of �lean talk�, but it has been much less �lean action�. Association for Manufacturing Excellence (AME) surveyed senior leaders in North American manufacturing companies. Of the respondents only 59% really knew what lean was and only 3% of the total group pointed out that they were conducting a lean transformation and achieved the great results they expected. Many more, 22% of the total group, said they had tried to implement lean but were not getting the results they expected2. In order to become even more competitive and further improve their services at the same time as reducing costs, ABB Ltd. (from here on referred to as ABB) have realised that they could benefit from a change. Often their factory personnel know that they need to change, but have not always known how to accomplish it. Therefore ABB Corporate Research Center and MIT Leaders for Manufacturing Program developed Common Pull Production Practices (CP3). CP3 is a reserved project name for specific factories in ABB. In a few years time the ABB Group aims at implementing it in all their factories. It consists of a combination of tools and practices that are related to Lean Manufacturing. Main practices are continuous flow, pull production, supply chain integration and change management. General goals for CP3 projects are:

• Reduction of inventory levels by 50% • Reduction of lead-times by 50% • Continuous improvement culture • Achieving a winning mindset

ABB is a global leader in power and automation technologies that enable utility and industry customers to improve their performance while lowering environmental impact. The ABB Group of companies operates in around 100 countries and employs about 103,000 people3. ABB Chongqing Transformer Co. Ltd (from here on referred to as ABBCNCTC) is a joint venture between ABB China Inc. and government owned Chongqing Transformer Co. Ltd. The joint venture started operating in 1998 and as of today it is the largest transformer plant in the world with over 800 employees. It focuses on two main areas: manufacturing large-scale power transformers and shunt reactors and producing insulation materials for all ABB transformer factories in China, Thailand and Vietnam. 1 Aronsson et al., Modern logistik, p. 80 2 Koenigsaecker, Leadership and the Lean Transformation, Manufacturing Engineering, p. 8-11 3 ABB website, www.abb.com, 2006-02-01

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At ABBCNCTC a new Insulation Kit Center (from here on referred to as IKC) is currently being built in order to double the output of insulation material by 2008. The new building will be finished in June 2006 and is planned to be fully equipped in September 2006. To reach their goal of doubled capacity, the organization, production processes and the mind-set that exist at the old IKC also will need to be improved. In order to prepare the employees for the shift, with new facilities, and the requirements needed for increasing the capacity some change projects have been undertaken. In September 2005 they undertook two programs, Inventory Reduction Program (IRP) and 5S. An aspiration at the IKC is also to later on implement CP3 and other process improvement programs. But since it is felt that the implementation of 5S is somewhat struggling and implementing CP3 will be an even bigger challenge they would like to thoroughly evaluate the change environment before starting any more implementations.

1.2 Problem discussion Implementing any program or project is a very complex task. Only 12% of those companies that participated in the survey and had tried to implement any kind of Lean Production managed to get good results4. Project leaders and employees involved with implementing IRP and 5S at the IKC have felt that the first program (IRP) is running along quite smoothly but the second one (5S) is progressing real slowly. This lack of progress is felt to be partially due to cultural and behavioural differences as well as lack of knowledge of these differences. Furthermore it is also possible that the present organisational structure creates barriers to the change process. Therefore the management wanted the organisation, culture and behaviour to be evaluated from a change readiness perspective. Even though ABB has developed a standardised approach for implementing the change needed there is no universal way that will work for all factories within ABB. Despite the wide knowledge and available resources many companies struggles to stay lean5. For the IKC at ABBCNCTC to succeed with the implementation of CP3 in their factory and to be able to create a good foundation for future implementations the change environment needs to be thoroughly analysed. During this analysis it is paramount to reflect upon the following issues:

• Are change processes considered to be an urgent issue? - Is complacency high among management and other employees? - Is change considered unnecessary since they are going to move soon

anyway? • Are there enough proven leaders and managers to lead the implementation?

- Can a guiding coalition with credibility, power and motivation enough be found?

• Does the existing culture affect the implementation process? - How should change processes be initiated? - What should the guiding coalition look like?

• What are the major organisational obstacles for change? - Are the structure well aligned with the goals for the change process? - Are the systems such as measurement systems, human resource systems

and so on aligned with CP3 and receptive towards changes? - Are departments too dependent of each other to effectively promote

change? To find some of the information necessary and to better understand the problems that are connected with implementations in this specific environment a big part of this thesis will also be to participate in the ongoing implementation of 5S. Lessons learned from this

4 Koenigsaecker, Leadership and the Lean Transformation, Manufacturing Engineering, p. 8-11 5 Taj, Applying lean assessment tools in Chinese hi-tech industries, p. 3

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implementation as well as data gathered from interviews, surveys and other observations will be the foundation of the results reached in this thesis.

1.3 Purpose The purpose for this master thesis is to analyse how the IKC at ABBCNCTC is prepared for major process changes, i.e. implementing CP3, with regards to the current state of the organization of the company as well as cultural and behavioural differences.

1.4 Project deliverables My aim with this thesis is to create a comprehensive picture of the existing environment for change processes at the IKC. Further goals are that the conclusions of this thesis will lead to a good foundation for successful implementation of CP3 at the IKC. Hopefully it will also create a guiding framework for organisations in similar situations.

1.5 Focus and delimitations A research like this could become endless without clear delimitations. All organizations contain an enormous amount of data and are also a never-ending source of new data. To be able to finish this research within 20 weeks some data has necessarily been excluded in this thesis. The main thought has been to focus on parts of the organization that will affect and be affected by the implementation of a change project, rather than focusing on those parts of the organization that only will be affected by the actual implementation. This limitation has not been fully satisfactory in all cases and therefore continuous discussions have been held to sort out which parts of the organization that is of most importance for this research. During these discussions its been decided that �processes� in this thesis will be studied from a somewhat old fashioned way. This will be explained more in detail in chapter 5 but generally the processes of an organization will be considered as something that transforms an input to an output in a repetitive manner. Not as a holistic approach which highlights customer orientation and a positivistic view of mankind. This decision was made due to the existing constraints. With the language barrier and the available time in mind it was decided that this thesis would benefit from a stronger focus on structures and systems rather than processes. Apart from our own decided delimitations the research has of course also been affected by the surrounding circumstances. It is a research carried out during 20 weeks, without any real financial support, and in a foreign country where most of the data only is available in a language the researcher do not understand. Therefore it�s been decided to neglect some information and focus on other, which will be explained more in detail in connection to each case during the empiric chapter. Even though this thesis mainly will focus on the change readiness of the organization rather than specific employees; examining and evaluating behaviour, cultural norms and values of people leading as well as participating in present change projects is still needed in order to assess the readiness of the whole organization. The purpose however, is of course not to point out mistakes or inadequatenesses of single employees. Furthermore this thesis will not assess the readiness from a production perspective, i.e. it will not assess any planned layouts, material flows or the like.

1.6 Target Group The target groups of this thesis consist of the employees at ABBCNCTC, with the employees responsible for or participating in the implementation of CP3 at the IKC in particular. Furthermore it is aimed to be useful for other companies within or outside ABB as well as people in the academic world that have an interest in implementation preparations and change management. An assumption made is that the readers already have some basic knowledge in the areas covered in this thesis.

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1.7 Disposition The outline for this thesis can be seen in figure 1.7.1 below.

Chapter 1Introduction

Chapter 4Change

management

Chapter 10Analysis

Chapter 7Company

description

Chapter 35S and Common Pull Production

Practices

Chapter 2Methodology

Chapter 6Impact of cultural

and behavioraldifferences

Chapter 5Organizational

culture

Chapter 8Creating aframework

Chapter 11Conclusions and recommendations

Chapter 9Empirics

Chapter 12Generalization and

future studies

1: Introduction

2: Methodology

3: Theoreticalstudies

4: Empiricalstudies

5: Analysis andsynthesis

Figure 1.7.1 Disposition of the thesis

The thesis consists of five parts that are divided into twelve chapters. The first part is a presentation of the underlying reasons to this research as well as its goals and focus. Thereafter, different methodologies and their approaches are discussed in order to explain how this research has been carried out and why it has been carried out in such a manner. The third part aims at giving an understanding for the theories that are used in this research. With these theories in mind the current situation is investigated and presented in part four. In the fifth and final part the theories presented in part three are used to reflect upon and analyse the reality presented in part four. This leads to some conclusions and recommendations that will be presented both from a specific and general perspective. Part four, or chapter eight in particular, is a little bit unusual. Chapter eight describes how the framework that is later on used in chapter nine and ten is created. It includes empirics, analysis and conclusions for this framework and its creation. In other words it is a pre-analysis that was necessary in order to proceed with the main research.

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2 Methodology This chapter aims at giving the readers an understanding of the platform from which this research will be conducted. It covers both theories that have been discarded and theories that have been chosen in order to motivate and form an appropriate way of collecting and analysing data in a scientific way. If a researcher does not spell out his or her procedures in great detail, the research will be of little value, as a source, for future researchers.

2.1 Research approach Research approach can be seen as a general orientation to the conduct of research. A research always has various goals and ambitions and depending on these, different approaches or strategies can be more or less suitable.

2.1.1 Explorative Explorative studies are used in order to gain an understanding for the fundamental environment, this in order to formulate and frame the nature of the problem. Explorative studies can also be used as a first contact with problems that later on will be given a closer look6. In other words, the explorative study deduces a hypothesis that can be validated and tested through an explanatory investigation (see 2.1.4 below).

2.1.2 Descriptive Descriptive investigations are applied in order to describe a problem in detail. Relations are investigated without explaining their emergence in any greater detail. Descriptive studies can describe historical and contemporary events as well as backgrounds to, consequences of, or relations between different phenomenons7.

2.1.3 Diagnostic Diagnostic investigations aim at finding underlying factors that cause earlier noticed symptoms8. These symptoms could be either positive or negative. In other words, could the establishment of a diagnostic investigation be either a wish to better understand parts of a successful system or a wish to better understand dissatisfying results or situations. A good diagnostic investigation should result in some suggested solutions of how to solve the problem. A diagnosis that does not even imply any solution can be considered a bad diagnosis9.

2.1.4 Explanatory Explanatory investigations are somewhat the opposite of descriptive investigations, since they are focused on why relations emerge and why relations look like they do. Further more a big emphasis is put on synergies within systems as well as finding conclusions that are valid from a general perspective. Explanatory investigations often verify earlier deduced hypotheses with statistical tests10.

2.1.5 Evaluative Evaluative investigations often aim at measuring the results caused by specific changes. For example, have last year�s focus on quality generated less faulty products?

6 Andersen, Den uppenbara verkligheten, p. 19 7 Ibid, p.18 8 Lundahl and Skärvad, Utredningsmetodik för samhällsvetare och ekonomer, p. 48 9 Ibid, p. 48 10 Ibid, p. 48

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2.1.6 Normative Normative investigation is one step further than diagnostic investigations. It aims at adopting new theories from which solutions to earlier defined problems can be found. Furthermore these solutions and their consequences should be understood in order to propose which solution that is most suitable for the specific environment11.

2.1.7 Induction, deduction and abduction Apart from the above-mentioned approaches a research is usually carried out with an inductive or deductive approach, or perhaps one or more combinations of these. If a research starts with the deduction of a hypothesis, which is then followed by planning of an investigation, collection of data and analysis of data it is said to have a deductive approach. Deductive theory represents the most common way to investigate the relationship between theory and reality 12 . Based on theoretical knowledge the researcher deduces a hypothesis that then needs to be verified and translated into a practical context. Put frankly, the inductive approach is reversed from deductive. Instead of, from a theory deduce a hypothesis and observe findings it observe findings and create a hypothesis from that. As mentioned before these approaches can be combined as is shown in figure 2.1.7.1 below. This is called an abductive approach

Facts Facts

Theories Hypothesis

Induct

ion

Deduction

Verifica

tion

Theory

Fact

Figure 2.1.7.1 Illustration of induction, deduction and verification13

First a theory is formulated from identified patterns, induction. Then conclusions are drawn from these theories, deduction, and finally these conclusions are proved to be true (or false), verification.

2.1.8 Approaches in this thesis This thesis will be based on different approaches throughout the research. The general approach of this thesis will be of diagnostic nature. However, in the beginning it will need

11 Andersen, Den uppenbara verkligheten, p. 21 12 Bryman and Bell, Business Research Methods, p. 9 13 Lundahl and Skärvad, Utredningsmetodik för samhällsvetare och ekonomer, p. 41

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an explorative approach in order for the author to gain necessary knowledge in those areas covered by the thesis. It will further use an abductive approach. At first facts are studied in order to learn more about the theories behind change management. These theories are deduced into a hypothesis, a suggested framework, which is later on verified by the lessons learned from an implementation of 5S. At this stage a framework for assessing the change readiness of an organization have been created. The last stage of this thesis is of inductive nature. Using the created framework, data is collected, the findings are analysed and from this analysis conclusions will be drawn.

2.2 Research designs A research design provides a framework for the collection and analysis of data14. The previous section introduced different approaches to research. However, to decide what approaches to focus on is only a first step in researching. This section will introduce a few research designs such as survey, case study, action research or experimental design.

2.2.1 Survey Survey is a research conducted on a large but still limited group with help from interviews or prepared questionnaires. The purpose of a survey is to gather information that will be analysed in order to find patterns. It answers questions like what, where, when and how, but not why 15 . An opinion poll is a good example. Public opinion regarding political parties can be studied and any changes can then be examined in terms of what, where, when and how. For instance, where; which ethnographical and demographical groups have caused the change and how; which parties have gained support on behalf of which. This can be found through comparisons with earlier surveys, but why? That cannot accurately be determined through a survey. Of course it can be assumed that it is related to a controversial statement or the like, but that would merely be an assumption.

2.2.2 Action research Action research is a research design that aims at giving practical solutions for practically oriented problems that exist in a contemporary environment16. This is normally achieved by using a cyclic process that alternates between action and critical reflection. In its later cycles; methods, data and interpretations should be continuously refined in the light of the understanding developed in the earlier cycles17. Hence, an important feature of action research is the emphasis on continuous improvement. The practical and problem solving nature of action research makes it very suitable when new methods are to be implemented in already existing systems.

2.2.3 Literature study A literature study is often a somewhat necessary phase in most research. Literature is all kinds of written material; books, articles, reviews etc. Before the real research work can start most researchers need to gather information on special areas in order to reach a full understanding of the problem and its environment. An advantage with literature study is that a lot of information can be examined in a short time. The disadvantage is that the information is likely to have been gathered for another purpose, than the one of the undertaken research.

14 Bryman and Bell, Business Research Methods, p. 32 15 Bell, Introduktion till forskningsmetodik, p. 19 16 Cohen and Manison, Research Methods in Education, p. 178 17 Dick, What is action research?, http://www.scu.edu.au/schools/gcm/ar/whatisar.html, 2006-01-26

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2.2.4 Case study Case studies are a coalition of research methods that focus on the investigation of specific events18. It includes more than a mere description of an event or condition19. Case studies are used to obtain a deeper understanding of detailed problems. Since only a single or few cases within a specific and narrow field are studied it is hard to reach any general conclusions. A big advantage with case studies is the possibility to focus on a specific event or activity in order to understand which parameters that affect the event or activity and how it is affected.

2.2.5 Experimental design The purpose of experiments is to find causal connections between variables. Altering one of the variables concerned and comparing the results from two groups achieve this. One example could be that a researcher would like to determine if the length of the employees� lunch break affects plant efficiency. One group, the control group, continues to work with unchanged working hours and the other group, the experiment group, gets perhaps five minutes longer lunch break. Except from the manipulated variable, in this case length of lunch break, all variables should be as similar as possible, in order for the result not to be biased.

2.2.6 Interviews Interviews are a method to collect data that is based on a dialogue between an interviewer and an interviewee. In scientific circles an interviewee is normally referred to as a respondent. The respondent�s answers during the interview are the collected data.

2.2.7 Research design in this thesis This thesis will use different research designs but its main design will be action research. At first a literature study will be conducted in order to increase the knowledge in relevant fields. Thereafter an action research will be used to participate and learn from the current implementation of 5S as well as to obtain a deeper understanding of the readiness for change at the IKC. During this action research other designs will be used to gather data, for instance a very small survey will be used to gain an initial understanding of the current situation at the IKC. This survey is later followed up by several interviews to get a deeper understanding of the current change environment.

2.3 Sources of Information

2.3.1 Primary and secondary data Data collected by the researcher, or his co-workers, with the purpose of being used in their specific research is called primary data. If someone else has collected the data it is called secondary data. When using secondary data some important aspects need to be considered. Who collected the data, how was it collected and what was the purpose of it?

2.3.2 Quantitative and qualitative data If the purpose of the research is to describe specific patterns or activities, measurements need to be conducted. For instance, how high is the unemployment rate in Sweden? Quantitative research generates numbers; the unemployment rate is 8%. By contrast to quantitative research, qualitative research aims at giving results and conclusions in other terms than numbers. For instance a question like, why is the Swedish unemployment rate 8%, needs a qualitative research. Put simply, quantitative researches employ measurements and qualitative researches do not.

18 Adelman et al., Re-thinking case study, p. 140 19 Bell, Introduktion till forskningsmetodik, p. 24

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2.3.3 Data in this thesis This thesis uses both primary and secondary data as well as both quantitative and qualitative data. The first part of this research will first and foremost be based on reading already published material, qualitative secondary data. When these learned theories have been turned into a framework it will be verified by findings during action research, mostly primary qualitative data. When the framework is created and verified it will be used to assess the change readiness of the organization using mostly primary qualitative data but also primary and secondary quantitative data.

2.4 Assessments of sources

2.4.1 Objectivity It is often hard for researchers not to let their own opinions, values and beliefs influence the conclusions of a research. Nevertheless it is important to somehow verify that personal values or theoretical inclinations have not swayed the conduct of the research. In most qualitative research it is impossible to guarantee complete objectivity.

2.4.2 Reliability Reliability denotes to what extent results are affected by random variations or how accurately measurements are conducted 20 . With high reliability the results will be repeatable, even though the surrounding conditions may vary. Some authors argue that reliability is particularly a concern in connection with quantitative research. An alternative term used for qualitative research is dependability. Dependability is very similar to reliability but focuses more on an auditing approach21. However, this has not become a very popular approach since qualitative research often generates very large datasets, which are very demanding to audit.

2.4.3 Validity Validity is in many ways the most important criterion of a research. It is concerned with the truthfulness of the conclusions that are generated from a piece of research22. Validity can be divided into four sections23. Measurement validity mainly refers to whether �you are observing, identifying, or measuring what you say you are�24. It is likely a correlation between measurement validity and reliability. If a measure of a concept is unstable in that way that it fluctuates and therefore is unreliable, it simply cannot be providing a valid measure of the concept in question. Internal validity concerns the validity of the results within a specific environment on the contrary to external validity, which is concerned with the validity from a more general perspective. In this case, are the results from this research also valid for other companies who find themselves in a similar situation? Ecological validity refers to if the findings are based on data collected from its natural habitat. This research is for instance to some extent based on interviews and a survey. Are the opinions, values and attitudes expressed in these interviews honest and does it represent the respondents� daily life? If yes, the ecological validity is high.

2.4.4 Assessment of this research Most of the theory in this research has been found in different scientific articles as well as some books. It is important to keep in mind that there is always a purpose behind every article or book. This purpose needs to be considered in order to evaluate the

20 Andersen, Den uppenbara verkligheten, p. 85 21 Bryman and Bell, Business Research Methods, p. 289 22 Ibid, p. 33 23 Ibid, p. 34 24 Mason, Qualitative Researching, p. 26

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appropriateness of the source. This has been done throughout this research and since most articles used are university literature the objectivity is considered to meet the requirements. To further limit the risk for use of biased data, several sources have been used in most fields. One exception is the �Change management�-chapter, where most data has been gathered from one source, Leading Change by John P. Kotter. This book is considered to be highly accepted and widely used why the risk of using mainly this book is felt as low. When evaluating some of the primary data used in this research it might be criticised. The research itself questions some of the data given from respondents especially in the survey. There is a risk that some of the respondents have not answered all questions entirely truthful. This might be deliberately or unconsciously, in whichever case the validity of the survey might be low. This has been considered and the result of the survey has mostly been used to create an initial understanding, which then is followed up by interviews.

2.5 Methods for analysing data When data has been gathered it needs to be analysed and preferably also visualized. There is usually a big difference between analysing qualitative data and analysing quantitative data. It is generally known that methods for analysing qualitative data is far more time-consuming than methods for analysing quantitative data, furthermore the result is less reliable. This is of course not always the case. The best researches often combine qualitative and quantitative data, but then the mix should be modified according to the principal�s demand and the validity of the data25. One method that has been used in this research is the Ishikawa diagram, also known as fishbone diagram or cause-and-effect diagram. It is a method used in a root cause analysis. Its main purpose is to visualize the data in an organized way.

M anagem en t M ach ines

M a teria lsM anpow er

E ffec t

Bones

Figure 2.5.1 Ishikawa diagram

The causes for the wanted or unwanted effect are divided into different categories. The standard categories are the 4M�s: management, machines, manpower and materials. 25 Andersen, Den uppenbara verkligheten, p. 48

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Sometimes three more M�s are added, which makes it 7M�s: management, machines, manpower, materials, measurements, methods and milieu. Which categories that are used are not very important as long as they cover most of the causes related to the effect. Main causes for each category, as well as causes for the main causes and so on are scribbled down until the root causes for the effect is found. A finished Ishikawa diagram should be crammed with causes that make it look like a fishbone in the end.

2.6 The principal�s influence When an external party requests a specific topic for a research, as in this case, it will most likely affect some parts of the work. These affects are both good and bad but as a researcher it is important to be aware of them. The company who has requested the research is sometimes referred to as the principal. A thesis, initiated by a principal often has a shorter start-up phase since there is currently an existing problem that needs to be investigated. If the start-up phase is too short there is a risk for the problem not being fully understood when starting the research. In other words the explorative part of the research may be shortened in order to more quickly find some results. This is not felt to be a problem in this case. Since the explorative phase was started one month before arrival in China, most of the needed theory as well as the problem were fully understood upon arrival in China. A master thesis that is carried out at an industrial company, rather than at a university, might become less general. This is both good and bad but from an academic perspective it is not good. The topic of this thesis is however felt to be of such character that the risk of becoming specific is small. The conclusions of this research are broad and considered applicable for most other organizations.

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3 5S and Common Pull Production Practices This chapter aims at introducing 5S and CP3 as well as the manufacturing and quality philosophies it is based upon. It will give a short introduction to manufacturing �terms� like pull and lean production as well as continuous flow and supply chain integration. Change management, which is one of the practises CP3 is based on, is considered to be of such importance for this thesis that it will be described separately in the next chapter. The practices of 5S and CP3 are not very important for this thesis but since both of them will be frequently mentioned throughout this thesis it is found necessary to give a brief introduction to them.

3.1 Introduction to 5S 5S can be seen as a rather simple method, at least in theory, to create a more organized and clean workplace. It is based on five steps or pillars; Sort, Set in order, Shine, Standardize and Sustain26. Exactly what is included in each of these steps usually varies from case to case but the normal foundation is usually the same. SORT: Remove all items that are not needed for the current production operations. Keep only what is needed, in the quantity and condition that is needed. SET IN ORDER: Arrange all needed items so that they are easy to use and label them so that anyone can find them and put them away27. SHINE: Keep everything swept and clean28. Connect cleaning with maintenance in order to reduce safety hazards, machine breakdowns and so on. STANDARDIZE: Turn the 3 earlier steps into a habit by using short, clear and visual instructions and schedules for different responsibilities and operations. SUSTAIN: Anchor newly adopted procedures in the existing culture and strive for continuous improvements by group meetings, progress evaluations and rewards.

3.2 Introduction to CP3 Many factories still operate on push principles, which can generate long lead-times, high inventory, quality problems and high overhead costs. In order to stay competitive in today�s increasingly competitive market the way some factories operate needs to change. CP3 is a standardized approach to implement this change29. CP3 is developed by ABB Corporate Research Center and MIT Leaders for Manufacturing Program and is based on well-known and proven methods. Companies like Toyota, Boeing, Dell and Ford have achieved impressive result when transforming their companies with the Lean Manufacturing Techniques that are the underlying philosophy behind these practices30. During the last few years similar practices as those used in CP3 have been implemented in minor parts of ABB, CP3 is developed through learnings from both successes and failures in those implementations. The vision is to implement CP3 throughout the entire company. General objectives for CP3 projects are to minimize cycle times by reducing inventories and releasing hidden capacity by eliminating non-value added work, while embedding continuous improvement culture. Expressed more in numbers the goals are:

• Reduction of inventory levels by 50% • Reduction of lead-times by 50%

As said before CP3 is a mix of different philosophies and practices. These philosophies and practices are not discrete; they interact and align with each other in many different

26 The Productivity Press Development Team, 5S for Operators, p. 13 27 Ibid, p. 46 28 Ibid, p. 68 29 CP3 Project Implementation Guide, p. 8 30 Ibid, p. 8

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ways that makes it a bit hard to describe them on their own without repeating the same facts over and over again. Roughly, CP3 can be seen as a defined approach to lean thinking, why the mindset and processes of lean production will be described first.

3.3 Lean production The term �lean manufacturing� or �lean production� was first by used Womac et al. in their book �The Machine That Changed the World�. It describes the almost revolutionary philosophical approach that was initiated by Toyota. The Toyota Production System (TPS) is the Toyoda family�s development of the Ford mass production system. The aim was to eliminate all kinds of waste and keeping the continuous flow of products without holding any unnecessary stock and without producing very large batches. Waste is everything but the minimum amount of equipment, space, material, parts and working time that is absolutely necessary to production. The seven types of waste identified in lean manufacturing are31:

1. Overproduction: Producing something before it is needed. 2. Waiting time: Every time something or someone is waiting. 3. Inventory: Every time something is stored the risk for it becoming obsolete or

damaged increases. 4. Transportation: Moving a product more than is necessary. 5. Unnecessary processes: Processes that do not add value to the customers and not

are required by any other reason. 6. Unnecessary motions: Motions that do not add value to the customers and are not

required by any other reason. 7. Defects: Every time a product is not made satisfactory at the first try.

Most companies waste 70 to 90 percent of their available resources, even the best lean manufacturers probably waste 30 percent32. When first introduced, lean production was considered a technique, but it is much more. It is more of a mentality, mindset or philosophy of continuous improvement equipped with several practices and tools for manufacturing. This philosophy is in many ways the total opposite of how things have been done before, which makes it so hard to really grasp and implement. For instance continuous improvement, it is hard to see improvements from any other view than on a step-by-step basis. Many ask themselves; �Can improvements really be continuous?� The idea of one-piece flows may sound uncomplicated but how often are actually operations carried out in a one-piece-flow fashion? To implement a mentality that can be hard to even imagine, is not easy. Fortunately, as mentioned above, CP3 rests on some pillars. If these are considered one by one it is a bit easier to grasp, i.e. to reduce these wastes CP3 uses several different practices.

3.4 Pull production Pull production is a production management mindset that strives to eliminate overproduction and inventory. It is based on that downstream operations signal their need to upstream operations. This way products are not made until the customer asks for them. The customer does not need to be the end user. Every downstream activity can be seen as a customer that should not receive anything else than what he wants when he wants it. The opposite to pull production is push production. Push production focuses on optimising inventory control through forecasting future demand. This normally generates waste in terms of longer lead-times, increased overproduction and increased inventory. The benefits with push production are that it normally results in shorter delivery times and less risk of not being able to deliver to customers in sudden peaks of demand.

31 Carreirea, Lean manufacturing that works, p. 45 32 Taj, Applying lean assessment tools in Chinese hi-tech industries, p. 2

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Pull production generates simplified scheduling, reduced inventory, less quality problem and shorter lead-times33. Imagine a product that needs 3 operations. First A, set-up time is 20 minutes and run time is 2 minutes per unit, B, set-up time is 15 minutes and run time is 5 minutes and finally C, set-up time is 3 minutes and run time is 2 minutes. Lets say an order for 100 products is received. In classic push production department A finishes their 100 products and then delivers them to department B and so on. Simple calculations show that the total lead-time with this method is 15.6 hours. Furthermore the work in progress (WIP) is 300 units since the departments are working with three separate orders. Figure 3.4.1 below illustrates this.

Set-up A20 minutes

Operation A200 minutes

Set-up B15 minutes

Operation B500 minutes

Operation C200 minutes

Set-up C3 minutes

Total lead-time = 937 minutes = 15.6 hours

Push production

Set-up A20 minutes

Operation A200 minutes

Set-up B15 minutes

Operation B500 minutes

Operation C200 minutes

Set-up C3 minutes

Total lead-time = 539 minutes = 9.0 hours

Pull production

Figure 3.4.1, Lead-times for push and pull production

Using a pull production instead, similar calculations result in a lead-time of 9.0 hours and the WIP is only 100 units. This is still the same process; the imbalances between the operations or the long set-up times for operation A and B are still the same. Only that it now is much more obvious that there are imbalances. Operation B slows down the entire process and operation A and C have to wait, before everyone would work continuously, but maybe not with the right things. This example is a bit biased, showing the advantages of pull production and the disadvantages of push production. Naturally both systems have their pros and cons and many researchers have lately pointed out the benefits that can be found in a combination of these systems34 . In a hybrid system the two production philosophies meet in a junction point. This point is normally referred to as the customer order decoupling point (CODP). All production upstream from this point is performed to forecast and placed in inventory and all production downstream from this point is performed to order. Where this CODP should be, depends on a lot of different parameters such as delivery time to customer, order variation, order volumes, level of integration with customer and number of orders35. For a company like ABBCNCTC who makes large power transformers with

33 Carreirea, Lean manufacturing that works, p. 172-173 34 Razmi, Rahnejat and Khan, Use of analytic hierarchy process approach in classification of push, pull and hybrid push-pull systems for production planning, p 1 35 Mattson and Jonsson, Produktionslogistik, p. 41

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delivery times often longer than a year, very high product variation, low volumes and high customer integration the CODP would be very early in the production process.

3.5 Continuous flow Pull production reduces overproduction and lead-times but without taking any concern to waiting times between operations. Every product that has to wait between any operations has throughput times that are longer than needed. As can be seen in the previous example there can be big imbalances between operations. Continuous flow focuses on linking sequential operations with each other in order to align the steps needed to get the job done in a continuous manner36. This requires focusing on the total processes instead of optimising each operation. In other words, there is no real point in improving run times for operation A or C in the previous example, since they would only make a minimal contribution to the total lead-time of the process. If instead the run time for operation B is reduced, or if two parallel stations could handle operation B the total lead-time would be largely reduced. Process layout and functional layout both have their good sides, but from a perspective of reducing waste, process thinking is very important. Process layout is basically when operations are positioned in order to correspond with the sequential needs of a product family. Functional layout is when operations are positioned depending on their function, i.e. drills at one place and saws and gluing machines on another. Process layout reduces production flexibility since operations are aligned with a special type of products in mind. But it severely reduces wastes such as transportation, waiting time and unnecessary motions and it makes planning much easier. Functional layout generates the total opposite.

3.6 Supply chain integration In order to reach the goals of a CP3 project, reducing inventory levels and lead-times with 50 percent, lean practices needs to be applied to both internal as well as external processes. Supply chain integration is developed from theories about vertical integration and can be divided into three principal elements37:

• Information systems: Management of information systems and financial flows • Inventory management: Management of product and material flows • Supply chain relationships: Management of relationships between trading partners

A more integrated cooperation with suppliers often leads to a more stable environment that can generate greater knowledge between both parties. This knowledge can be used to improve the efficiency and level of collaboration across the company borders which in the long run results in reduced inventory, shorter lead-times and better service to the final customer38. Apart from the above mentioned benefits that integrated supply chains yields, it can also generate some disadvantages. In any team or relationship that exist within a competitive environment it is important that there are some amount of conflict. If supply chain integration leads to too friendly relationships there is always a risk for complacency, which will not benefit any part of the cooperation. It is also a risk that too strong or friendly relationships will negatively affect the flexibility. Offers from other suppliers that are more profitable may be rejected out of complacency or pity. Furthermore there is always a risk in sharing knowledge, information classified as secret may, through the supplier, leak out to competitors.

36 CP3 Project Implementation Guide, p. 45 37 Power, Supply chain management integration and implementation: a literature review, p. 2 38 Ibid, p. 2

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4 Change Management In this chapter theories about managing and leading change will be described. Different frameworks for change processes provide descriptions of how phases in change processes proceed and what they should include. This is often a sort of dream scenario. In theory they are carried out like this but in reality it might look a bit different. That is why change management is important knowledge. The major part of this chapter is very much based on John P. Kotter�s book Leading Change. There is always a risk in relying too much on one source, but the theories presented in this book are very much accepted in this field of research.

4.1 Change processes Along with a more global competition came the increasing need for change, and recently it has developed into an aspiration for continuous change. A few decades back the motto was: �If it ain�t broke, don�t fix it.� This culture may still be very much alive in many parts of a company and is a strong source of inertia in many change processes. In order to create power and motivation to overwhelm all the sources of inertia, change processes needs to be well planned, managed and led. There are several frameworks and theories on best practices of implementing change, all of them with different emphasis on different processes. This thesis will focus on two; one is ABB�s Project Implementation Guide and the other is Kotter�s Eight-Stage Process of Creating Major Change. These theoretical structures chosen are quite different from each other, since one is created with the specific needs of a single company in mind and the other is more of a broad guide for most kinds of major change.

4.2 CP3 Project Implementation Guide ABB presents their framework in a Project Implementation Guide, which divides the implementation in 4 phases with a total of 8 gates to pass along the way. This framework is naturally very focused on implementation of CP3 and gives a detailed description of which tools that are meant to be used during each phase and which steps that needs to be considered before passing each gate. Figure 4.2.1 below illustrates the procedure.

A n a ly s is

( 1 mo n t h )

P la n n in g

(1 - 2 mo n t h s )

E x e c u t io n

(2 - 4 mo n t h s )

S u s t a in

( 3 +3 m

o n t h s )

0 1 2 3 4 5 6 7

P h a s e s

G a t e s

Figure 4.2.1, The change process of CP339

As can be seen above the change process includes phases and gates. Normally it is a gate in the end of each phase or sub-phase. In order to be allowed to continue the change process the requirements of the gate need to be fulfilled.

39 CP3 Project Implementation Guide, p. 21

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4.2.1 Gates ABB�s Gate model is a project decision support model. It aims at closely following the project�s progress and supply support for decision making. By clearly outlining certain criteria expected at each stage it is meant to be easier to evaluate achieved as well as unachieved accomplishments. With this knowledge gained, each gate meeting should result in decisions on how to continue, i.e. cancel project, change scope, change plan40.

• Gate 0 � Project Start Agreement: A kick-off meeting where available resources and main issues at the factory are discussed and defined in order to see how CP3 can fit into the company�s long-term strategy.

• Gate 1 � Project Scope Definition: Marks the end of the analysis phase. Created training plans, value stream maps and short-term wins etc. are assessed. The knowledge gained so far outlines the scope for the project and the team moves on into the planning phase.

• Gate 2 � Project Execution Plan: Assessment of the plans created for all main practices of CP3 as well as the progress of the implementation for short-term wins. The scope, targets and plans should now be fully defined and expressed in a Project Execution Plan.

• Gate 3 � Final Solution Agreement: Monitors that suitable piloting areas are identified and that processes and employees are prepared for the implementation by development and training.

• Gate 4 � Pilot Results: The feasibility of the implementation plan is verified by evaluating the results of the pilot implementations.

• Gate 5 � Project Handover: After all major implementations are complete the outside experts leave the project and the local team continues to work with continuous improvements.

• Gate 6 � Close project: Verify that goals in terms of layouts and continuous improvement culture are reached.

• Gate 7 � Validate Results: Validate results through customer and employee feedback. Furthermore assess improvements in KPI:s and learning outcomes.

Furthermore, the Gate model identifies several roles for the project implementation41:

• Gate owner: Normally this is the person who has most to gain from the project. Responsible for the project from a business perspective and has a final say about starting, changing or stopping goals of the project. In most cases this is the BAU Manager�s role.

• Gate Assessor: Ensures that all information needed for decision-making is available and assessed at gate meetings. Normally an outside expert in CP3.

• Gate Meeting Participants: Team members that help to evaluate project performance at gate meetings. Should include key persons from each of the major work areas concerned with the implementation. Should also include a representative from the union.

• Project Manager: Like all other projects there needs to be a project manager responsible for the overall implementation of the project.

4.2.2 Phases As mentioned earlier the planned change process for CP3 is divided into four phases. The first phase of the implementation is analysis of the factory�s current state and the existing need for improvements. Studies are carried out to assess the change readiness of the organization, the feasibility of CP3 and the factories current KPI: s. Current and future value stream maps are created to help defining the scope of the project.

40 CP3 Project Implementation Guide, p. 18 and 20 41 Ibid, p. 19

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The second phase is planning. The data collected and analysed in the previous phase are created into a rough plan for the entire implementation. Goals are defined and risks and benefits are calculated. The third phase is execution. This phase is divided into three sub-phases; development, piloting and implementation. First the environment needed for implementation is developed. People involved with the implementation receive training and processes that need to be altered are improved. Second, pilot projects are implemented and the results are evaluated to verify and refine the implementation plan. Third, full-scale implementations as well as creation of a continuous improvement plan to make the change efforts sustainable. The fourth phase is sustain. Processes are continuously improved in order to anchor the changes and the new mind-set in the corporate culture. Results are reviewed to verify that the new ways to operate, in fact are superior to the old ones.

4.3 The Eight-Stage Process of Creating Major Change In order to succeed with any change project it needs to be both well managed and well led. Most frameworks and educations focus on the earlier, how to manage change, but lately a bigger and bigger emphasis have been put on the importance of leadership. As mentioned before, implementing any kind of change is a complex task. The common assumption that it is human nature to resist any kind of change may be seen as a proof of the complexity of implementations. Luckily this assumption is not entirely true. It is not in people�s nature to resist change, who would for instance reject a lottery win even though money is known to change many important areas in one�s life. But people do resist change they think will affect their environment in a negative way. This is one of many reasons why change management is important and requires careful planning and analysis. Any kind of change project can be divided into eight steps or processes 42:

1. Establishing a sense of urgency 2. Creating the guiding coalition 3. Developing a vision and strategy 4. Communicate the change vision 5. Empowering broad-based action 6. Generating short-term wins 7. Consolidating gains and producing more change 8. Anchoring new approaches in the culture

These steps should be carried out in the same order as they are presented above. However, since change projects are so diverse time and emphasis put on each process will vary depending on the environment and purpose of each project.

4.3.1 Establishing a sense of urgency To gain cooperation, from all levels, it is very important to establish a sense of urgency. This can often be quite hard even if the company is on its knees and major change is the only way for the company to survive. Often when executives think that all of the people in their management team recognize the need for major change, half of that �team� actually thinks the status quo is not really so bad43. There can be several reasons for such complacency44:

• The absence of a major and visible crisis • Too much �happy talk� from senior management • Human nature, particularly its capacity for denial • A kill-the-messenger-of-bad-news culture

42 Kotter, Leading Change, p. 21 43 Ibid, p. 38 44 Ibid, p. 40

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• Lack of sufficient performance feedback from external sources • Internal measurement systems that focus on the wrong performance indexes

However, today change projects are not only undertaken as a last measure. It is often also necessary to undertake change at well performing companies in order to stay in the lead. At these environments it is even harder to establish a sense of urgency. In theory it is quite easy to increase the sense of urgency, simply remove the reasons for complacency. In reality this requires bold decisions and leadership. Bold means cleaning up the balance sheet and allowing a huge loss for the quarter. Or selling corporate headquarters and moving into a building that mostly looks like a battle command centre45.

4.3.2 Creating the guiding coalition The speed and competitiveness of today�s business environment makes it impossible for a single individual to manage and lead an entire major change project. Even though the past is filled with monarch-like CEO�s that single handed have guided their companies throughout many difficult times it has been proved to no longer be possible. Therefore it is important to create a managing team with the right blend of competences and positions. An effective guiding coalition have four key characteristics, they are:46

1. Position power: Does the team include enough key players with enough power and motivation to overrun opposition?

2. Expertise: Are the competences, i.e. discipline, work experience, managerial skills and so on, needed for the task represented within the group?

3. Credibility: Do members of the group have good enough reputation in order for their pronouncements to be taken seriously by other employees?

4. Leadership: Does the group include members with enough proven leadership abilities to be able to drive the change process?

It is important to include both members with good management expertise and members with good leadership expertise. Management skills are used to control, plan, sustain and verify change processes. Leadership skills are used to inspire, develop, empower and execute change. In order for teams to find their composition of leadership versus management they can plot their members in a grid as shown in figure 4.3.2.1 below.

45 Kotter, Leading Change, p. 43 46 Ibid, p. 57

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Leader

ship

Management0 +

+

X

X X

XXX

X

X

X

X

Figure 4.3.2.1 Profile of a guiding coalition47

As can be seen members with better leadership skills than management skills dominate the guiding coalition represented above. This is rarely the case though, since it usually are more managers than leaders in today�s companies. A team like this would probably face some difficulties since the lack of management skills increases the risk for the team to become unorganised and somewhat ignorant for needed phases, such as short-term wins48. A team with plenty of managers but no leaders will most likely fail as well since visions and inspiration is created from leadership. In other words, a team that does not include both experienced managers as well as experienced leaders is likely to fail.

4.3.3 Developing a vision and a strategy Developing and communicating a vision is the easiest way to initiate sustainable change. People can be told in an authoritative manner to do this and that, but that will most likely not initiate any long-lasting change, probably only increase possible existing resistance. Or people can be given hundreds of narrow and detailed descriptions on how to reach a specific change, but they will probably still not know why. These different methods to initiate change can be defined as by vision, by authority or by micromanagement. Imagine the following scenario. You are on your way home from work; in a crossing a police officer stops you. With a loud voice he says: �Turn left!� When you ask why, he screams: �LEFT!� Or the police officer can say: �Turn left, drive 200 metres, look to the right, look to the left, look to the right, turn right, drive 300 metres�� Or the police officer can say: � There has been an accident 200 metres down the road, it is totally blocked, turn left here, follow the signs for Queensborough and you�ll be on the right track again� This example highlights three important purposes of a vision:

1. It clarifies the general direction, making hundreds of detailed descriptions unnecessary.

2. It explains why, which is utterly important in order to motivate change when it is not in people�s short-term self-interest.

3. It aligns people�s actions and reduces unnecessary friction. 47 Kotter, Leading Change, p. 55 48 Ibid, p. 119

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In order to fulfil these purposes a vision often needs to include some specific characteristics. First, it needs to present a picture of the future, a rather distant future that appeals to all stakeholders. Second, it needs to be realistic and feasible, comprising realistic and achievable goals. Third, it needs to be focused yet flexible. �We shall become the best in the World� is not a very useful vision. But visions that are too precise often become obsolete and needs constant readjustments that reduce its credibility. Fourth, it should be communicable. All employees must be able to understand it and it should be possible to explain it in a few minutes. To make up a vision that comprises all these characteristics is not a simple task and its creation should not be expected over a cup of coffee. It often starts with a draft from a single individual that then has to be revised and refined by the guiding coalition and sometimes an even larger group of people49.

4.3.4 Communicating the change vision During three months time, the analysis and planning phases, the total amount of communication going to an employee is 2,3 million words or numbers50. If a change vision is presented in a 30-minute speech, a one hour-long meeting, a 600-word article in the company newspaper and a 2000 word memo, that would be equal to 13, 400 words51. 13,400/2,300,000=0.58%. This example shows the importance of the earlier three phases. If complacency still is high or if the guiding coalition is not trusted, or if the vision is bad there is a very big risk that employees will not take much notice of the planned changes. Further more the example also highlights the importance of communicating the vision and, if possible, reducing redundant communication. When communicating a vision, there are a few guidelines52. First, it should be kept simple; all �techno-talk� which makes the vision harder to understand must be eliminated. I.e., it should be communicated in a language understandable to all employees, instead of using technological terms; use metaphors, analogies or examples that everyone can understand. Second, use as many forums as possible and repeat the message over and over again. If every member of the guiding coalition find five opportunities per day to discuss the vision, in the long run it will be a big contribution to the total communication of the vision. Third, lead by example. Behaviour has a great impact on people�s consideration of the vision. If the guiding coalition or other key players behaves inconsistent with the change vision it will strongly undermine the entire change project. Inconsistencies that still exist should be addressed in a straightforward and honest way. It would probably not change the minds of cynics but for those who want to believe in the company and its vision it is probably appreciated. Fourth, be open for useful feedback. If the vision for some reasons is not as good as it can be, it is better to adjust it at this stage than risking an unsuccessful implementation later on.

4.3.5 Empowering employees for broad-based action Major change rarely happens unless many people assist it. This is why empowerment is crucial to all implementations. If people feel that they are without power or knowledge, they normally will not or cannot help. If the four first phases are carried out successfully, a great deal have been done towards empowerment53. The purpose of this phase is to remove barriers that are reducing the possibilities for employees to actively participate in the implementation. Four particularly important barriers are structures, skills, systems

49 Kotter, Leading Change, p. 81 50 Ibid, p. 89 51 Ibid, p. 89 52 Ibid, p. 90 53 Ibid, p. 102

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and supervisors54. In order to allow broad-based action these needs to be aligned with the change vision.

• Structures: The organisational structure may be very functional, which separates resources and responsibilities that aim at operating in a more process oriented way. If the change vision is to become more customer oriented by focusing on processes rather than functions, structures like this is a big barrier.

• Skills: Have employees been given proper training and education to support the change process? Some sort of training or education is almost always provided. But is it enough and is it at the right time? As mentioned before, people will most likely resist change, or at least not actively participate as long as it makes them feel inadequate or powerless.

• Systems: Earlier systems need to be aligned with the new vision. For instance, if the vision is to increase the quality of the products. Then, human resource systems and measurement systems should appraise and measure quality rather than productivity, which might have been the case before.

• Supervisors: Almost every organisation includes supervisors or middle layer managers who do not see any reason or joy in change processes. They can often be dragged along the four first phases. But in this phase their refusal to let go and empower their employees can bring an end to the change process55. A problem like this has no simple solution. To simply cut them off and pretend as they do not exist is rarely a good solution. Honest and open dialogue is usually the best recipe. If they are willing to change but feel blocked, the dialogue may result in some solution or if they need to be removed, it often becomes clear at an early stage.

4.3.6 Generating short-term wins Short-term wins are important in order to keep the momentum up and resistance down. It is needed both to convince employees and particularly top management that it is on the right track There have been examples of change projects that have been well permeated with all employees and had a good momentum to later on be abandoned due to no short-term wins. The first results of any short-term wins should be visible after around six months56, of course the time frame depends on the scope of the change project, for really large projects it might take a little longer. These short-term wins are not something to just sit back and hope for. They should be as thoroughly planned as every other part of the implementation. Accounting wizardry can often create short-term wins, this is not always a bad thing but there are a few substantial risks connected to it57. First, it can become slightly addictive, and that is not a very good long-term solution. The first wins needs to be covered up by new ones and it goes on and on. Second, it can easily increase resistance among those who are clever enough to see what is really happening and alienate people who find this practice unethical.

4.3.7 Consolidating gains and producing more change After achieving the first short-term wins there is a risk for once again falling back into complacency. The most crucial and complex parts of the implementation is considered to be over and people start patting each other�s backs for all the good job they have done. When in fact, it is now that the implementation should take more spin, additional people should be brought in to tackle additional and bigger change projects. Whenever you let up before the job is finished, critical momentum may be lost and regression can follow.

54 Kotter, Leading Change, p. 102 55 Ibid, p. 113 56 Ibid, p. 122 57 Ibid, p. 128

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Once this has happened it is very hard to rebuild the momentum again58. It is similar to a huge boulder that has started to roll back down the hill. The reason for why this part of the implementation is so difficult is often because of interdependencies. Old production philosophies, using large buffers and inventories, lead to little dependency between departments. Large inventory of supplies protected purchasing departments from actions in the manufacturing process. But today�s bigger focus on shorter lead-times, reduced costs and bigger customer focus requires more complex coordination between various departments. This interdependence makes the later stages of any implementation very complex. Especially since needed changes in one department may need changes in another department, changes which are of no gain to that department. Therefore it is important to increase the work, rather than decreasing the work in this phase. This needs to happen in all organizational levels. Senior management needs to focus on maintaining clarity of shared purpose for the overall effort as well as keeping the urgency levels up59. Middle and lower level managers need to support the change processes with both leadership and management. Furthermore unnecessary interdependencies need to be removed. All organizations have some redundant interdependencies that exist because historic events rather than the current situation. In order to make change processes easier, in both the short- and long-term, these interdependencies need to be identified and removed.

4.3.8 Anchoring new approaches in the culture There are two schools regarding managing change and culture. The first one, stresses that since culture is the biggest impediment to creating change the first step in every major transformation should be to alter the norms and values. The other, stresses that since culture only can be changed after changed behaviour have resulted in some group benefits, that are sustainable, and these benefits are clearly connected to the changed behaviour, culture will change as a final phase of an implementation60. However, this does not mean that during the first implementation phases, culture is not important. Culture needs to be considered throughout the process, and behaviour needs to change at an early stage, but still, culture will not be changed until the very end of the process. This thesis will be based on the latter school of theory. To make the change efforts last, to actually change the culture there are some things that needs to be considered61. First, as already mentioned, change in a culture comes last, not first. Second, it is based on real results. It needs to be absolutely clear that the new ways to work, in fact are better than the old model. Third, present as well as future managers need to be aligned with the norms and values of the new culture. Hence, it is important to consider the new culture when promoting or hiring employees.

58 Kotter, Leading Change, p. 133 59 Ibid, p. 143 60 Ibid, p. 156 61 Ibid, p. 157

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5 Organizational culture This chapter aims at giving an introduction to the term organizational culture. It starts with a definition and then each component of organizational culture is explained. The chapter also aims at introducing the connection between organizational culture and the change environment.

5.1 Defining organizational culture Organizational culture can be explained, divided or defined in many different ways or dimensions. One theoretical example is to divide it into two dimensions: sociability and solidarity. These two dimensions can create a grid that is divided into four main types of organizational culture: communal, fragmented, networked and mercenary culture62. This can give a good indication of the corporate culture but it is not detailed enough for a deeper investigation of all aspects of an organization and its culture needed for evaluating the change environment. To better understand all facets of organizational culture and the impact it can have on change processes, organizational culture can be determined by four components: people, processes, structures and environment63. This is the definition of organizational culture that will be used in this thesis.

5.2 People All organizations and cultures are based upon abilities, needs and values of people. In history, the biggest focus has been on managers, experts and other often highly educated employees. Their opinions, knowledge and ambitions have been considered to have the greatest impact on organizational culture. But lately companies have more and more emphasised the value and opinions of all their employees. One major factor that has created this change in focus is more complex work tasks. Some decades ago people were an ingredient of production. Jobs were broken down in to simple tasks; a worker became someone who either put in bolts or someone who tightened the nuts. Today, work tasks are often less detailed and workers are trained to operate several different machines or carrying out several different tasks. Experience, know-how and the like are far more valuable than before when employees easily could be replaced by another person. The recent focus on continuous change makes the ambitions, behaviours and opinions of all employees even more important. Cross-training and in-depth knowledge from many organizational and departmental areas are very important from a change perspective. This knowledge is often a result of many years experience, why human resource management is becoming more and more important.

5.3 Processes Many change projects and other improvements are based on improving processes. Processes are the part of the operation that is repeated over and over again64. The fact that it is repeatable makes it measurable. Hence, the processes of an organisation can create a connection between the past, present and future. This connection makes it possible to evaluate the progress and continuously make improvements. Generally a process transforms resources into some sort of result; an optimised process carries out this desired transformation in an as effective way as possible using the minimum amount of resources. In older literature business processes were roughly divided in three different types65:

62 Rashid et al., The influence of organizational culture toward organizational change, p. 4 63 Balzarova et al., How organisational culture impacts on the implementation of ISO 14001:1996, p. 9 64 Bergman and Klefsjö, Kvalitet fran behov till användning, p. 272 65 Ibid, p.273

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• Individual processes: Processes that are carried out by one single individual. • Vertical processes: Processes that are related to operations connected to a

specific department or unit • Horizontal processes: Processes that spans over the entire company, their end

results generate the company�s income. A business or an organization was considered to be a network of processes. Vertical processes interacted with horizontal processes and they were both based on individual processes66. In history it has been a very clear focus on improving individual and vertical processes; time for single operations, profitability of departments and so on. Lately it has been a growing interest in horizontal processes and bigger focus has been put on customer need and customer satisfaction. The customer has no real interest in optimised individual processes as long as optimised horizontal processes cannot support them. This focus has created a somewhat different view of processes and process thinking that can be found in more recent literature. A process is still defined as a repetitive network of linked activities that uses resources to transform an input into an output that shall meet the customer�s needs67. But today�s �process� has become almost synonymous with what was earlier referred to as a horizontal process. Modern process thinking often includes a holistic and customer focused view. A road can be used as a metaphor, a road between customer need and customer satisfaction68. If the road is studied from a functionally oriented perspective, i.e. with focus on what was earlier referred to as individual or vertical processes, it will most likely always look straight. Even if you are standing in the middle of a sharp turn it will still look straight if you focus on very short part of the road. If the road is studied with a more holistic approach, which is seen as a necessity in today�s process thinking, curves, bends and other obstacles will become clear. As mentioned in chapter 1.5, this thesis will use the older definition of processes. When the need for studying processes is expressed, it means that operations that are repeated over and over again are studied; only the operation and not from a holistic or customer oriented point of view.

5.4 Structures The structures of an organisation are the formal mechanisms that are designed to channel behaviour and efforts toward organisational goals 69 . It can be detailed descriptions of specific operations, tables of authorization, internal communication methods and much more. In general, organizational structures can be characterized by seven parameters. The first four ones are types of structural differentiation in how to divide labour. The three last ones are structural control mechanisms: 70

1. Functional differentiation: The degree to which tasks are broken down into functionally distinct units. For instance the number of departments that exist in a specific organization.

2. Occupational differentiation: The extent to which an organization uses specially

trained workers. In other words the number of employees that are hired to carry

66 Bergman and Klefsjö, Kvalitet fran behov till användning, p. 274 67 Ljungberg and Larsson, Processbaserad verksamhetsutveckling, p. 44 68 Ibid, p. 47 69 Balzarova et al., How organisational culture impacts on the implementation of ISO 14001:1996, p. 9 70 Maguire et al., Structural change in large police agencies during the 1990s, pp. 253-255

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out specific tasks. For instance one person could be hired for cleaning machines, one for dismantling machines, one for repairing machines and one for assembling machines instead of hiring four persons for doing maintenance of the machines. The latter represents low occupational differentiation.

3. Spatial differentiation: The degree to which an organisation is spread

geographically. 4. Vertical differentiation: The hierarchical structure of an organisation. It is divided

into segmentation, the number of command levels, concentration, the percentage of employees at different levels and height; the difference in social status between levels. This thesis however, will focus on segmentation and height. Concentration will not be measured since recent research has shown that it is not a reliable indicator for vertical differentiation71.

5. Centralization: To which extent the decision-making authority is concentrated in a

single individual. The opposite is decentralisation or shared decision-making. 6. Formalization: The extent to which actions in an organization are monitored by

certain rules or policies. When measured it is often divided in two parts: codification and enforcement. Codification is the extent to which an organization has decided and documented its policies and procedures. Enforcement is the extent to which this documentation is followed.

7. Administration: To which extent organizational resources are committed to

administration. An organisation can be divided into two components; one producing component that performs the core processes of the company and one administrative component that support the producing component.

A functionally oriented organization is characterized by high values in all of these structural parameters. Tasks are broken down in to as many distinct units as possible, positions as well as departments are specialised in small and narrow fields, different areas are allocated to different departments and no real concern is given to physical distance between them, high specialisation requires several command levels and so on. Traditionally it has offered clarity and security for workers, clerks and managers since tasks and responsibilities are clearly defined. Today this security is considered deceitful since a functionally oriented organisation is not aligned with external demands72. Seen from a change perspective it could be said that the four first parameters, types of structural differentiation in how to divide labour, should be as low as possible. Functionally oriented structures create boundaries and obstacles between different parts of the organization and lock employees in narrow professions that inhibit knowledge sharing and other similar and fruitful communication 73 . The fifth parameter, centralization, should also be as low as possible. High centralization creates little trust and communication, which of course is not good from a change perspective. When it comes to the two last parameters of organizational structures, their relation to the change environment is more complicated. In some extent formalization is usually needed to provide the employees with a psychologically safe foundation from which they can operate effectively. On the other hand there is a risk that job descriptions becomes an insurance against being asked to take on additional and unknown duties instead of a source for motivational contents in terms of task or objectives74. Administration is often

71 Maguire E.R et al., Structural change in large police agencies during the 1990s, p. 266 72 Ljungberg and Larsson, Processbaserad verksamhetsutveckling, p. 70 73 Walczak, Organizational knowledge management structure, pp. 332-333 74 Jackson and Bak, Foreign companies and Chinese workers, p. 289

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considered as something unnecessary or perhaps as a necessary evil. From a change perspective it is generally considered to slow down processes and create unnecessary complicated procedures. Nevertheless it is a fact that knowledge intensive organisation that often are considered developed from a change perspective often have high administrative intensity. The recent trend in management theory strives towards organizational structures with less vertical command structures in favour for more horizontal and collaborative structures. The goals of these organizations are often to create a better environment for cross-functional processes and to unleash workers� initiative. Organizational structures like these are more frequently associated with knowledge-intensive firms75.

5.5 Environment The environment is the external conditions that the organisation must operate in. It includes their market, existing technology, stakeholders, social culture and so on. Included in the term stakeholders are all bodies, firms and persons that in some way affect the company or in any way are affected by the company. Examples are customers, suppliers, environment agencies, health and safety executives and so on. Cultural and behavioural factors have a big impact on organizations as well as countries� financial success76. Since implementations and change processes to a large extent are based on reaching a new way of thinking it is important to understand cultural backgrounds, which have a big impact on present behaviour. One of the purposes for this thesis is to analyse the change readiness with the cultural environment in mind, why some extra effort has been put on describing culture and its connection to change processes.

75 Briand et al., A structurationist analysis of post-bureaucracy in modernity and late modernity, p. 1 76 Harrison and Huntington, Culture Matters, p. 2

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6 Impact of cultural and behavioral differences This chapter will present a theoretical background of the impact of cultural and behavioural factors that affects organizations as well as countries� financial success. Since implementations and change processes to a large extent are based on reaching a new way of thinking it is important to understand cultural backgrounds, which have a big impact on present behaviour.

6.1 Culture matters The interest in understanding the connection between cultural factors and prosperity emerged a long time ago but was given increased emphasis during the early 1980�s as an attempt to understand Japan�s economic performance. Was the Japanese culture a competitive advantage or was their success only due to other factors? It is in many ways difficult to study cultures� effect on prosperity since the result may be biased by so many other factors. The interest in Japanese culture resulted in several famous books, The Art of Japanese Management (Pascale and Athos, 1981), Corporate Culture (Deal and Kennedy, 1982), and In Search of Excellence (Peters and Waterman, 1982) that all stressed the competitive advantage of organizations with deeply embedded shared values77 . In today�s increasingly global environment, organizations as well as entire states are facing more diverse cultural communities. This has often been considered as a problem and attempts in aligning cultural values have often been rather unsuccessful. Lack of knowledge and experience has often been highlighted as a major barrier for diverse cultures to coexist why the interest for foreign cultures have been highly promoted. Lately, a wide variety of cultural values have been considered as a competitive advantage. Even though some researchers still question culture�s importance with statements like; �If culture is so essential, why does it not work consistently?� China has been an old favorite example. Chinese emigrants have since long been well known for their productivity and entrepreneurship and are considered to have played an important role in the recent industrial development of many countries in South East Asia78,79. But yet at home, they were so unproductive and China stood still while many neighboring countries left the Third World. Today the imbalance between Chinese performances abroad and at home is rapidly disappearing. However, even if this example no longer can lessen culture�s importance it should still not be seen as all that matters, but its impact on productivity and financial prosperity is evident. This thesis mainly concerns the interest in culture from a change management perspective. Depending on the cultural environment things will be interpreted differently. Many companies in China are joint ventures between the Chinese government and western corporations. In these companies, expatriate westerners often hold management positions. Complications of language as well as cultural differences often make communication somewhat problematic. To minimize the problems and initiate changes as effectively as possible it is important to understand the culture one�s working in. But, even if some cultural training have been carried out before starting with a international assignment the expected culture is often not the same as the experienced culture80.

6.2 Five dimensions of culture �Culture� is a rather wage word which can house many different interpretations. Normally it is seen as an all-embracing word including attitudes, values and beliefs. To make

77 Garg and Ma, Benchmarking culture and performance in Chinese organizations, p. 3 78 Poutziouris, Wang and Chan, Chinese entrepreneurship: the development of small family firms in China, p.7 79 Harrison and Huntington, Culture Matters, p.3 80 Schermerhorn Jr. and Bond, Cross-cultural leadership dynamics in collectivism and high power distance settings, p. 3

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culture a bit more scientific it can be divided into five discrete dimensions, often referred to as Hofstede�s five dimensions81,82:

1. Individualism - Collectivism: Are people oriented towards self-interest or towards the interest of a wider group, of which they are a part?

2. Power distance: Are relationships between different organizational levels, i.e. manager and worker, distant and formal or close and informal?

3. Uncertainty avoidance: To which extent do people tolerate uncertainties; do they seek to minimize uncertainty or are they tolerant of uncertainty?

4. Masculinity � Femininity: Is success defined and measured in terms of assertiveness, ambition and challenge rather than caring, nurturing and benevolence?

5. Long term orientation � Short term orientation: Are people oriented towards reaching short-term goals or towards reaching long-term goals?

These five dimensions have been defined as an attempt to find differences between countries and in particular, difference between organizations in these countries. They do not cover all aspects of culture or all differences that exist between national cultures but they have been proven related to many aspects of management and organization83. Studies that have been made with these dimensions show that cultural differences clearly exist between the participating countries. The two first dimensions are normally the ones considered to have the strongest connection with management. But from a change management perspective all of these dimensions play an important role. Many change projects often requires a somewhat uncertain future, or at least it often feels more uncertain and insecure than what is normal. Therefore, it would be easier to initiate change in cultures where uncertainties are tolerated. Change processes often require some effort in the beginning that later on hopefully will result in anticipated benefits, why long-term orientation would be to prefer when initiating change processes. Masculinity vs. femininity concerns the importance of ones work. Change projects often requires efforts that are greater than the usual workload, why cultures where masculinity is high should be good from a change management perspective. Generally western management and leadership styles are considered to be team oriented, accountable and effective focusing on individualism, certainty, masculinity and low power distance. Chinese management and leadership styles normally seem to exhibit a more authoritarian style with high power distance and a greater sense of uncertainty84.

6.3 Chinese culture Chinese culture is considered highly influenced by Confucian values. Of course there is a danger in referring to �Chinese� values. China, as a geographic unit is huge. There are probably big differences between values in Hong Kong or Shanghai and small villages in Inner Mongolia or Tibet. However, some general conclusion on Chinese values can still be made, as long as it is done with the knowledge of possibly needed local changes in mind. Confucius was born of poor family around 550 BC. He always strived to become a high officer within the government and to reorder society by administrative measures. The patterns of obedience and codes of conduct he defined have affected the Chinese culture since then. Confucianism states that individuals should be a part of interdependent groups, that people should strive to become righteous and that only those who have been thoroughly educated to exercise power should do so85.

81 Garg and Ma, Benchmarking culture and performance in Chinese organizations, p. 3 82 Kolman et.al, Cross-cultural diferences in Central Europe, p. 1 83 Ibid, p. 2 84 Garg and Ma, Benchmarking culture and performance in Chinese organizations, p. 8 85 Verburg et al., Managing human resources across cultures, p. 3

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In some aspects the literature on Chinese values contradicts each other. Chinese character is often described as being �insensitive to monotony� and having a capacity for �uninterrupted hard work�. On the other hand Confucianism scorns hard work while idealizing effortlessness, why many Chinese wear long fingernails to prove that they do not need to work with their hands. Taoism reinforces this view by the principle of wu-wei, non-effort, which emphases the importance of accomplishing things with the minimum use of energy. An example of this can be found in Chinese military thinking, where the ideal was to win battles not by exerting impressive effort but by compelling the opponent to exhaust himself 86 . In other words, Chinese culture refers to hard work as an imperative dictated by necessity, not as a prime value in itself. An important ingredient in Chinese ordinary life is harmony. This harmony should not be disturbed, why the emphasis of overcoming one�s individual concerns for the sake of the group, the family, is important. The phenomenon of face, to not lose one�s face, is also considered to be critical to harmony. A study conducted among 102 Chinese managers in Hong Kong showed that all of them considered the preservation of face as very important for their job87. A basic Chinese view is that external forces, forces that not really can be affected by the actors involved, determine much in life. Some are considered more skilled than others in flowing with the current, thus being blessed with good luck. Others foolishly buck the tide and are therefore considered as being born losers88. This view, that one should follow the current, and the importance of not losing one�s face or in any other way disturbing the harmony can result in that Chinese workers are more likely to listen and to comply, rather than taking own initiatives. Changes on shop floor level are even more likely to be disruptive, since stability is very vital for remaining harmony in unequal relationships89.

6.4 Five dimensions of Chinese culture Chinese culture has several times been expressed in Hofstede�s five dimensions. Even though Hofstede�s study is a few years old and too much focus not should be put on his result; the dimensions are still often used to describe the culture. Generally China is seen as a collectivistic country with the main group of reference being the family90. The increasing economic prosperity of China have somewhat weakened collectivism which can be seen in areas such as Hong Kong and Shanghai. An experienced impact of this collectivism is the difference between in-group and out-group members. Relationships tend to be very intimate and supportive within the group, but there is little trust and sometime even hostility toward out-group members 91 . In Hofstede�s research individualism index for China was 15, which indicates very low individualism. The USA received an individualism index of 91 92. Power distance is normally seen as high in China, particularly the unapproachable top stratum. Distances between middle management, foremen and workers are often somewhat smaller. A person who works his way up from worker to supervisor and finally middle manager will gain comparatively little power influence93. Apart from respect for hierarchy and authority there is also great respect for age.

86 Harrison and Huntington, Culture Matters, p. 249 87 Verburg et al., Managing human resources across cultures, p. 4 88 Harrison and Huntington, Culture Matters, p. 249 89 Verburg et al., Managing human resources across cultures, p. 4 90 Jackson and Bak, Foreign companies and Chinese workers, p. 286 91 Triandis, The self and social behaviuor in different culture contexts, p. 516 92 Voelpel and Han, Managing knowledge sharing in China, p. 58 93 Jackson and Bak, Foreign companies and Chinese workers, p. 286

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The level of uncertainty avoidance is a rather unclear chapter in Chinese culture. In western cultures laws are normally used to avoid uncertainty but Chinese people has traditionally been ruled by authority instead of laws. However, recent studies indicate a strong avoidance of uncertainty among Chinese people, much based on a strong desire to maintain social order, i.e. harmony, with a degree of predictability94. Masculinity vs. femininity is also a dimension for which it is little information to be found in the context of China. In other eastern countries like for instance Japan, work is considered to be very central in one�s life and the concept of masculinity is much higher than in China. China was given a medium value in Hofstede�s research. Chinese culture is generally seen as characterized by long-term values such as carefulness and determination 95 . In Hofstede�s research China�s index for long-term orientation was 114 96, which indicates very high long-term orientation. Normally eastern countries such as China and Japan are considered very long-term oriented when related to western countries. The USA for instance received a long-term orientation index of 29.

94 Jackson and Bak, Foreign companies and Chinese workers, p. 286 95 Ibid, p. 287 96 Voelpel and Han, Managing knowledge sharing in China, p. 58

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7 Company description This chapter aims at giving the reader an introduction to ABB Ltd. (ABB) as well as ABB Chongqing Transformer Co. Ltd. (ABBCNCTC) with a strong focus on their Insulation Kit Center (IKC). However, it will be kept rather small since the empirics of this research are more or less a detailed description of this company.

7.1 ABB ABB is a merger between two long-time rivals; Swedish power-engineering firm ASEA and Swiss electro technical firm Brown Boveri and Company. After the merger in 1988 ABB focused its growth strategy on Europe, Asia and America. Through a number of investments, joint ventures and acquisitions it became an international conglomerate with more than 200 000 employees in many different fields. Today ABB as many others has experienced a corporate structural transformation resulting in a slimmer corporation with some more than 100 000 employees and a clear focus on two core competencies; power and automation technologies. A result of ABB�s early growth strategy is one of the world�s most global companies that operate close to their customers in around 100 countries. ABB is divided in five divisions; Power Products, Power Systems, Automation Products, Process Automation and Robotics. These divisions are further subdivided into several business units (BU). One of these BU:s is ABB Transformers that has around 75 production facilities around the world and 13000 employees (2004). ABB Transformers produce power transformers, distribution transformers and reactors. Both power and distribution transformers are used to, by electromagnetic induction, transform a system of alternating voltage and current into another system of voltage and current usually of different values and at the same frequency for the purpose of transmitting electrical power 97 . The difference between power and distribution transformers is that power transformers support long distance transmissions, normally between 72.5 kV and 800 kV. Distribution transformers support the distribution networks that are below 72.5 kV.

7.2 ABBCNCTC ABBCNCTC is a joint venture between ABB China Inc. and government owned Chongqing Transformer Co. Ltd. The joint venture started operating in 1998 as a production base for 500 kV power transformers to support the Three Gorges project as well as other big power generation and transmission projects in China98. Since the operations started, ABBCNCTC have utilized the land and production facilities from a former state-owned transformer factory in Chongqing. The facilities were upgraded and employees carried out training at ABB�s transformer factory in Ludvika, Sweden. Since then it has been a continuous transfer of technology and production has skyrocketed from 800 MVA in 1999 to more than 30000 MVA in 2005 making it the largest power transformer manufacturing company within ABB as well as the largest ABB factory in China with over 800 employees. Accept from manufacturing power transformers and shunt reactors, which were added to the production in 2003, ABBCNCTC also produce insulation materials for all ABB transformer factories in China, Thailand and Vietnam.

7.3 IKC The Insulation Kit Centre (IKC), one out of two profit centres within ABBCNCTC, the other one being the Large Power Transformer Plant (LPT), was set up in 1998 to supply the transformer producing part of ABBCNCTC with insulation material. Before the joint venture it was only a small group but in 2001 it expanded to supply all ABB transformer 97 IEC Standard 60076-1 Power transformers Part 1 98 Wang and Lindroth, ABB�s power transformer factory in Chongqing, p. 1

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factories in China, Vietnam and Thailand with insulation materials. Its planned maximum capacity at that time was 40 000 MVA. As can be seen in figure 7.3.1 this capacity was exceeded during 2004 and in 2005 it was further increased to more than 65000 MVA. Forecasts of future market demand show an increasing need of insulation material which will reach over 90 000 MVA by 2008. Further expansion in existing facilities was felt impossible why a totally new insulation kit centre is being built.

112 21459975

1820527583

3563450000

6540075000

85000 93000

0

20000

40000

60000

80000

100000

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

Figure 7.3.1 Production at the IKC

Its present organisational structure was more or less created along with the joint venture and only minor changes have been done since then. Of course it has been forced to grow with the rising demand and in 2003 it was made in to a profit centre of its own99.

Material Management

Maria Ma

QualityManagement

Sherry Wang

Engineering& Maintenance

Simon Wang

Production

Quain Ren

Sales & Planning

Grace Liu

Dept. Mgr.Carol Du

(Guan Chao)

Foremen

Sam ZhowChun Liu

Safety Engineer

Mark Liu

Order handling2 persons

Planning1 person

Work preparation2 persons

Programming2 persons

Spacer & Edge Collar 14 persons

Spacer Ring 12 persons

Carpenter 6 persons

Yoke Collar 8 persons

Snouts 7 persons

Shield Ring 6 persons

House keeping 6 persons

End Support 6 persons

Cutting 6 persons

CNC & Cleats 16 persons

Strip 8 persons

Cylinder 8 persons

EquipmentAdministration

Engineering 1 person

Operating3 persons

Production Engineering2 persons

Tooling 4 persons

Purchasing2 persons

Warehousing2 persons

Material Engineering2 persons

Quality Engineering 1 person

Inspection & Packing 6 persons

Figure 7.3.2 Organization chart for the IKC

99 Interview with former IKC Manager Guan Chao, 2006-03-28

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Today, the IKC employs 142 persons that are divided in five departments. The biggest department, as can be seen in figure 7.3.2, is the production department, which employs 107 persons.

7.3.1 Financial situation The IKC is currently a financial success. Exact numbers will not be published but the net income is high and increasing and the budgeted figures are well succeeded by the actual outcome.

7.3.2 Products Insulation material from the IKC are used in both power and distribution transformers but with a clear focus on power transformers. All the insulation needed for one transformer is normally referred to as a �kit�. It consists of winding insulation, active part insulation, cleats, cover and final assembly. Almost all these kits are unique for each transformer. The details of each order are fully specified by the customer so no product development is done by the IKC100. These kits are manufactured in different production groups and finally inspected and packed before shipped to different customers.

7.3.3 Customers The IKC has only five customers. As mentioned before it is an internal supplier, therefore it is only allowed to sell their products to other companies within ABB. It was set up to supply these companies with insulation material and for now there are no plans to expand to any other customers. It almost exclusively manufactures insulation for the Chinese market. However, there are two customers outside China, in Thailand and Vietnam, but their purchases only represents 7% of the total revenue of the IKC. The IKC�s biggest customer is the large power transformer plant of ABBCNCTC in Chongqing. It is located in the same factory area and after the completion of the new facilities there will be an indoor connection between these two factories. It is both the biggest and oldest customer and its purchases represents 48% of the total revenue of the IKC101. Second biggest is ABBCNHTC in Hafei, nearby Shanghai about 1760 km away. Its main products are medium power transformers between 110-220 kV and its purchases represent 25% of the total revenue. The third biggest customer is ABB�s small power transformer factory in Zhongshan (CNZTC). Zhongshan is nearby Hong Kong and roughly 2030 km away from Chongqing. It has been a customer of the IKC since 2000 and its purchases represents 20% of the total revenue of the IKC.

7.3.4 Suppliers The IKC has rather few suppliers, as with the customers the choice of main suppliers is also very limited102. Its single biggest supplier is ABBPTPR/FI, which also is a part of ABB BU Transformer. It is commonly known as ABB Figeholm and it manufactures insulation material for all Insulation Kit Centres within ABB and is located outside Oskarshamn on the Swedish east

100 Interview with IKC Production Manager Quain Ren, 2006-03-23 101 Interview with IKC Sales and Planning Manager, Grace Liu, 2006-05-08 102 Interview with ABBCNCTC SC Manager Charlie Wang, 2006-03-22

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coast. About 70% of all purchased supplies are estimated to be from Figeholm and the delivery time is 10 to 12 weeks. Of these, 3 to 4 weeks are the lead-time and 7 to 8 weeks are transportation. The second biggest supplier is ABBPTPLA, commonly known as ABB Plast. This is also a company within the same BU and it manufactures high performance components made of fibre composite materials. It is located in Pitea in northern Sweden and about 10 % of all purchased supplies are estimated to be from ABB Plast. 4 weeks lead-time and 7 to 8 weeks transportation time result in a total delivery time little shorter than 3 months. Other big suppliers are Alihe, a local company that manufactures laminated wood and Weidmann, a Swizz company that produces corrugated board. They have agreed to keep a small stock of finished products to keep average lead-times to 2 weeks. In general the IKC strives to localize as many suppliers as possible, e.g. Alihe, has recently replaced Roechling as their laminated wood supplier. In total the IKC has less than 20 raw material suppliers and out of them more than half are Chinese and at least one quarter are situated in Chongqing103.

7.3.5 Production The IKC is organised in 11 different production groups that are supported by other groups such as maintenance, carpenter, tool shop etc. These production groups finish their operations and then transports the finished products to the inspection and packing departments. All groups have a group leader who is responsible for coordinating the operations within each group. The working hours of each group differs according to the existing need. It is a so-called flexible workforce that leaves the factory when they are finished with their orders. This can result in that some groups work 24 hours in 3 shifts while others perhaps are working 10 hours per day in 1 shift104. There is no scheduled rotation of workers between production groups, but within the group workers rotate on a monthly basis. The production groups are led by 2 foremen that work in 2 different shifts from 8 in the morning to 10 in the evening. They are responsible for coordinating the different production groups, and requesting purchases of consumables, tools and other material that is necessary for the production groups to operate. The foremen in their turn report to the Production Manager as can be seen in figure 7.3.2.

7.3.6 90 GVA Project In order for the IKC to increase its production output and widen its product scope an expansion project was started in 2005. The name of the project, 90 GVA, simply stands for the desired minimum production output after the project has been finished. GVA stands for giga volt-ampere, which is the standard measurement for power products such as transformers. The 90 GVA Project Team (from here on referred to as 90 GVAPT) is managing the project. This team is not really a part of the operational IKC organization, instead it answers to a steering committee that is made up of managers of different levels within the BU and the business area (BA). The 90 GVAPT consists of 5 persons working full time with this project and then a lot of the ordinary employees of the IKC works part time within the project. Apart from defining and supervising the construction of the new facilities this project also include several process improvement programs like inventory reduction program, 5S, CP3 and so on.

103 Interview with IKC Material Manager Maria Ma, 2006-04-13 104 Interview with IKC Production Manager Quain Ren, 2006-03-23

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8 Creating a framework Since assessing organizational readiness was something new for the author as well as the employees of the IKC there was a need for creating a framework. This chapter aims at describing how this framework was created; which theories it is based upon, why some aspects are considered more important than others and so on. It first describes a theoretic approach and then focuses on conclusions found in an action based research while implementing 5S. Finally these two are compared and the results are composed into a framework. In other words this chapter is like a thesis in its own. It starts of with an introduction that explains the outlines (this), it then proceeds with studying already written literature (8.1 Theoretic approach), then data is collected and presented (8.2 Lessons learned while implementing 5S), then theory and data is analysed (8.3 Suggested framework) and finally conclusions are drawn and presented (8.4 Framework specification).

8.1 Theoretic approach As mentioned, evaluation of change environments was something the author had very little previous knowledge about. In order to receive the necessary knowledge books and articles on mainly change management was studied. After some review it was decided to focus on Kotter and his described eight stages needed for succeeding with major change projects105. His theories are much accepted in this field and since they are mostly used to define a framework, which is later on verified by own research, it is not considered risky to focus on just this one book. In each of these eight stages he addresses different issues that are of great importance for succeeding with major change projects. One way to evaluate an organization�s change environment would be to investigate the conditions of these issues within the organization. This however would probably be a rather unorganised investigation that perhaps not would be well suited for all occasions and it would also rely totally on one man�s previous research. In order to find a more structured and general way to assess the change readiness of an organization the proposal of this thesis is to connect Kotter�s different issues with the definition of organizational culture; people, processes, structures and environment. If this is possible it would be seen as evidence that an evaluation of these four components would be the same as an evaluation of an organization�s change readiness, without limiting the evaluation to any specific change environment. In table 8.1.1 below these issues from each chapter is listed and the connected with a suitable component. For instance, in the first chapter, establishing a sense of urgency, Kotter describes the importance of measuring the right processes. If an organization says it is highly customer oriented it should focus on measuring customer satisfaction instead of perhaps focusing on measuring product deviation. This issue, measuring the right processes, is hard to clearly connect with any of the four given components. It is not people or environment. Maybe it could be connected with processes, but it is not really the quality of the process that is important for this issue. Perhaps it is most connected with structures, but then again it is not directly related to the hierarchy or centralization of an organisation. Discussions like these were held for one and each of these issues and in most cases a satisfactory connection was found to one of these four components. In table 8.1.1 a summary of these issues and which component it is related to has been presented.

Table 8.1.1 Origin of Kotter's issues connected with organizational culture

People Processes Structures Environment Establishing a sense of urgency

Measuring the right processes ? ? ? ?

Measuring the processes right X

"Kill the messenger of bad news"-culture X? X?

Absence of visible crisis X?

105 Kotter, Leading Change, p. 21

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Amount of necessary resources ? ? ? ?

Human nature's capacity for denial X

Happy talk from senior management X

Level of autonomy for middle management X

Level of courage within middle management X

Creating the guiding coalition

Leadership skills within the company X

Management skills within the company X

Credibility level of managers X

Operational expertise among managers X

Decision-making process X

Level of trust between departments X X

Developing a Vision and Strategy

Leadership skills within the company X

Management skills within the company X

Communicating the Change Vision

Appropriateness of existing vision ? ? ? ?

Existing communication systems ? ? ? ?

Existing communication processes X

Empowering Employees�

Formal structures X

Information system ? ? ? ?

Discouraging bosses X

Lack of skills X

Personnel system ? ? ? ?

Generating Short-Term Wins

Management skills within the company X

Commitment among managers X

Information system ? ? ? ?

Measurement system ? ? ? ?

Consolidating Gains and Producing More...

Interdependencies X X

Anchoring New Approaches in the Culture

Norms of behavior X

Shared values X

Aligned HR-systems ? ? ? ?

Respectful managers X

An �X� indicates that there is a connection between that issue and a specific group. For instance the last issue, respectful managers, is clearly related to the people of the organization. The second last issue, aligned human resource system, has no satisfactory connection to any of the four components, why it instead is marked by question marks. Mainly it was issues like this, regarding different systems like human resource systems, measurement systems and so on that seemed hard to place in any of these components. This could easily be addressed by adding a fifth component, namely systems. Apart from this there were also some problems with placing some issues related with the company�s situation but not were directly connected with people, e.g. absence of visible crisis, �kill the messenger of bad news� culture. This led to a suggested expansion of the component people to cover everything about people within the company as well as the company�s present situation. This expanded component was named internal environment. In order not to mix this new component, i.e. internal environment, and the old component called environment, the old component was given the new name external environment. To summarize; the suggested components of the framework for evaluating change readiness are the internal environment, systems, processes, structures and external environment of an organization. The next step was then to verify these five suggested components by grouping found issues from an implementation of 5S within the IKC with the five suggested components.

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8.2 Lessons learned while implementing 5S The implementation of 5S was not progressing as fast as it was first hoped and it was a continuous struggle against different problems that arose. Met problems were continuously documented and after roughly two months participation in this implementation they were summarized in a fishbone-chart, appendix I. The slow progress was considered to be due to 5 different main reasons: few initiatives from workers, little support from management, bad planning and documentation, little cooperation between functional groups and long purchasing processes. In the fishbone chart the underlying reasons to these five main problems were identified and grouped according to the five components suggested before. The grouping followed the same procedure as before and the �X� still indicates a connection between the component and the reason for the problem. The result is summarized in table 8.2.1.

Table 8.2.1 Problems met during the implementation of 5S connected with the components of the suggested framework

Internal environment

Systems Processes Structures External environment

Few initiatives from workers No real incentives

Don't see any real benefits X

Salaries are very focused on prod. X

Suggestion program not well est. X X

Afraid of loosing face

Lack of knowledge X

High power distance X

Don't like to be told by youngsters X

No results from earlier initiatives

Long delivery times X

Slow purchasing process X

Not always taken seriously X

Not expected to be creative

Management's opinion X

Workers opinion X

Heavy workload X

Little support from management Heavy workload

Producing 50% more than planned capacity X

Tied up in unnecessary procedures X X X

90 GVA Project X

Lack of knowledge

No real training X

No benchmark X

Little internal knowledge X

Enough support was not requested

High power distance X

Implementers were new X

Everyone seemed very busy X

Bad planning and documentation Several changes over time

Little previous 5S experience X

Short preparation period X

Little initial support from more exp� X

No management experience

Main implementers just graduated X X

Lack of 5S knowledge

Hard to find books in Chinese X

Short preparation period X

No previous experience X

Language barriers

Insufficient language skills X

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More available material in English X

Little cooperation between functional groups Group centered

Social culture X

Many new employees X

Promoted by salary system X

Salary system promotes competition between production groups

To much overtime X X

Low efficiency X X

Limited cross-functional training

Not a priority X X

Many new employees X X

Salary system focus on productivity X

Slow purchasing processes Little support from purchase dep.

Enough support was not requested X

Poor cross-functional connections X X

Heavy workload X

What was needed was not always known

Poor dialogue with workers X

Inexperienced implementers X

Uncertain future with the new facilities X

Often long delivery times

Requirements on suppliers are low X X

National growth is very high X

Poor infrastructure X

Complex requirements

High centralization X

Afraid of "kick offs" X

Not continuously updated X X

As can be seen above some reasons to the problems are related to more than one component. This is probably due to that the real origins to the problems not have been found. Even though the main problems have their origins spread out in all components they have been found to have most of their origins in the internal environment. This may probably also be explained by the fact that, due to the limitations in time, the final root causes to these origins have not been investigated. If that would have been done more origins would probably have been found in the other components and the frequency of origins related to two components would most likely been lower.

8.3 Suggested framework Both the theoretic approach as well as the action research indicates that there is a connection between the existing change environment and the five suggested components. In other words; evaluating the internal environment, systems, processes, structures and external environment of an organization could be the same as an evaluation of the change environment of the organization. To be of any greater use these components needs to be defined. The definitions are as follows: Internal environment: Levels of skills, ambitions and expertise among the organization�s human resources as well as the organization�s current state in terms of complacency, workload, existing technology, financial conditions and so on. Structures: The compatibility of organisational and decisive structures with visions, goals and implementation procedures of the change project. Systems: The alignment and quality of existing systems within the organization. Processes: The degree of developed processes as well as the quality and alignment of those processes.

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External environment: The influence of the surrounding conditions, which the organization must operate in. It includes their market, stakeholders, social culture and so on. These definitions are clearly expressed from a change perspective. It can be seen as a summary of the issues found in the theoretic approach as well as the underlying reasons to the problems met during the implementation of 5S. The general idea of the framework is explained in figure 8.3.1.

Skills and ambitions of human resources and current state in terms of workload and financial results

The degree of developed processesthat are in line withvisions and goals of the change project

The alignment and quality of existing systems, such as measurement and

bonus systems

The compatibility of organisational and decisive structures

with vision and goals of the change project

InternalEnvironment

Structures

SystemsProcesses

External Environment

The conditions which the organisation must operate in. It includes their market, existing technology, stakeholders, social culture and so on.

Figure 8.3.1 Structure of suggested framework

The internal environment affects and is affected by an organization�s systems, structures and processes. These four components are the core of any organization and it they should be studied in order to receive a picture of an organization�s change readiness. All these components operate in a specific external environment. This environment is usually not as easy to affect as the other components but it is none the less very important to study. Even though it might not be easily affected, it must be well known in order to adopt the implementation to the specific environment the organization exists in. And of course, in the long term perspective the external environment can be changed as well.

8.4 Framework specification As presented in figure 8.3.1 the framework is still very vague. A research looking at all aspects of these five components would most likely last for a very long time. In order to be useful these components need to be further specified in order to focus on evaluating the organization from a change readiness point of view. A natural first specification is to

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focus on aspects of these components that may affect an implementation rather than focusing on aspects that will be affected by the implementation. For instance studying different production processes in detail will give little value to a change readiness evaluation, but they will probably be highly affected by a future implementation of CP3. To specify this framework, the knowledge gained during the theoretical approach and the lessons learned from the implementation of 5S is used once more. If the issues in table 8.1.1 and the problems presented in table 8.2.1 are studied, some aspects of each component will show more important than others. The internal environment for instance could be divided into two main categories: human resources and current state. Important aspects within human resources are leadership and management experience, operation expertise, willingness and credibility of managers, willingness, cross training and educational level of workers and so on. The same for the current state could be financial results, visibility of crisis and level of complacency and so on. These main categories might be a bit misleading; the current state should not be seen as the current state of the human resources. It should be seen as the current state of the internal environment of the organization, apart from the human resources; in other words everything that is related to the internal environment and not is considered as a human resource. If this is specified for all components it can look like table 8.4.1.

Table 8.4.1 Framework specification Internal environment Systems Processes External environment Human resources Measurement system Suggestion process Stakeholders

-Candidates for GC- Focus Purchase process Owners Management experience KPI:s Measurement process Suppliers Leadership experience Importance Customers Operation expertise Availability Degree of process view Regulatory Authorities CP3 knowledge Alignment Mapped and defined Change experience Process improvements Culture Willingness HR system Individualism

-Workers- -Compensations- Power distance Cross-training Salaries Structures Uncertainty avoidance Power of initiative Bonuses Masculinity Team-work abilities Rewards Functional Long term orientation CP3 knowledge -Turnover- Occupational Willingness to change New recruits Spatial Accountability Promotions Vertical Releases Centralization Current state Formalization

Complacency Information system Administration

Workload Communication between departments.

Interdependencies

Visible crisis Communication between levels.

Cross-functional behavior

Short term wins

Financial results

This specification naturally needs to be somewhat designed for each case. Even though most of the criteria above are general for most change projects some additional criteria have also been added for specially looking at the change readiness from a CP3 perspective. For instance WIP is strongly connected with CP3 and Lean Manufacturing, why the measurement process for WIP is an interesting criteria when evaluating the change readiness from a CP3 point of view. If the focus of the change readiness would have been more related to quality issues it would have been more interesting to investigate the measurement process for defects per million opportunities (DPMO) instead.

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9 Empirics This chapter will present the empirics of this research, the foundation for future analysis and conclusions. The data has been collected using several different methods as are described in chapter 2. The data will be presented in five different groups, based on the new framework: internal environment, structures, systems, processes and external environment. The aim has been to present this data in an as objective manner as possible in order not to affect the reader and her or his conclusions in any way. Due to the time constraint, some of the suggested aspects in table 8.4.1 have not been investigated. This is considered to have little impact on this research since they to some extent is covered by other aspects that have been investigated.

9.1 Internal environment

9.1.1 Office employees Among the office employees, twelve persons were consciously chosen as candidates for the guiding coalition (GC). The GC consists of the most conceivable persons within the current organization. The chosen candidates in this thesis does not necessarily have to take part in any future implementation, they are selected because they have a clear connection to previous change projects or CP3 and in order to have a group to study. In other words, they are chosen to represent the level of knowledge and expertise that currently exists within the IKC and the neighbouring organizations. The candidates consist of persons from different organizational levels as well as different departments.

Management and leadership experience

As a part of this thesis the candidates were asked to plot themselves as well as the other candidates in a management-leadership grid (chapter 4.3.2). The result is illustrated in figure 9.1.1.1 below.

Lead

ersh

ip s

kills

Management skills0 +

+

X

XXX

X

X X

XX

X

XX

Figure 9.1.1.1 Management-Leadership grid of the IKC

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The result shows that skills in management and leadership are very evenly spread. No real signs of lack in neither leadership nor management can be found in this study. However, the study has its clear limitations. Even though it was carried out anonymously there is normally a great respect for hierarchy in China and it is possible that some persons have filled in the grid in a formal rather than an honest way. The consequence of that would be that persons at management positions might be given higher grades than what they actually deserve. Furthermore the result may also be somewhat biased by the language barrier and the difference in social culture. The western definition of leadership and management does not necessarily have to be the same as those used in eastern countries. The definitions used for this grid was: Change Management: Systematically targeting objectives and budgeting for them, creating plans to achieve those objectives, organizing for implementation and then controlling the process to keep it on track. Change Leadership: Creating and communicating a view of a desired state. Clarifying the current situation and by challenge, guidance and empowerment inspire to commitment for an even better future. These definitions might not always have been followed when filling in the grid. Firstly, the English might be a little hard to understand. Secondly, China has by tradition mostly been governed by power rather than rules and regulations. This is felt to have been the case at the IKC as well and many may have created a connection between authoritative leadership and good leadership, which likely have affected the result of this study. Apart from this grid, the training records of these candidates were also studied. A summary of the training record is presented in table 9.1.1.1.

Table 9.1.1.1 Educational background of candidates106

Training records (1999-2005) University education 9 of 12 Management course 9 of 12 Quality course 4 of 12 Leadership course 3 of 12 Other education related to CP3 2 of 12

As can be seen above most candidates have some sort of university degree and most of them have attended internal or external courses in management but only few of them have attended any courses in leadership. How to preferably initiate change is an unclear chapter among the guiding coalition107. Most say it should be done by vision, but almost as many would prefer micromanagement or by authority. The method that currently is in use is, according to the author, micromanagement. Even though they themselves say they are equally good at leadership as at management the experience during these three months is that management is much more preferred. The idea to motivate workers by vision is not nearly as common as to instead force them by plans and deadlines. During the implementation of 5S there was a great lack of both management experience and leadership experience. However this is not a very representative case for the level of experience of the IKC since only one of three persons actively participating in the implementation is a part of the operational organization of the IKC.

106 Summary from ABBCNCTC training records between 1999 and 2005 107 IKC Survey, completed 2006-04-07

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Operation and CP3 expertise

Most of the members of the GC have many years of experience from different positions within the IKC. The two foremen for instance, both have worked at the IKC for several years and know the production processes very well. CP3 is not well known to most members of the GC and only two have any previous education related to CP3, university education excluded. Lean manufacturing, which is rather similar to CP3, is much better known but generally only at a fundamental level.

Change experience and change willingness

The English-speaking employees of the IKC were asked to participate in a small survey. A summary of the questions and the result from this survey is presented in appendix II. The participants are both people suggested as candidates for the guiding coalition and a few others who understand English. In total it is 11 respondents from different departments and different organizational levels. Even though the respondents are not only candidates for the guiding coalition the candidates are in clear majority, 9 out of 11, why parts of this survey also is considered to be used for representing the existing level of education, experience, ambition and willingness within the guiding coalition.

Table 9.1.1.2 Summary from IKC survey, complete version in appendix II

QUESTIONS Answers - Summary Have you ever heard of CP3 or Lean manufacturing before? Yes=9, No=2 If yes, do you think you know what it is? Yes=6, N/A=5 Do you think it is important for the IKC to implement CP3 or lean? Yes=10, N/A=1 Can you see yourself as a part of a team implementing change (i.e. CP3 or Lean)?

Yes=10, N/A=1

Have you actively participated in any other change project? Yes=9, No=2 Do you think the competences needed for implementing change (i.e. CP3 or Lean) exist within the IKC and 90 GVA project group?

Yes=9, No=1, N/A=1

Do you think authority, micromanagement or vision best initiates sustainable change?

Vision=3, Micromanagement=2, Authority=2, N/A=4

As can be seen in table 9.1.1.2 the survey indicates a genuine interest for implementing CP3 or any other version of Lean Manufacturing and that most of the respondents would like to take active part in this implementation. Most of the respondents have previous experience from earlier change projects and think that the competences needed for an implementation of CP3 exist within the IKC and the 90 GVAPT. The experience from the implementation of 5S shows a different picture, why this study is felt likely to have some uncertainties. During the implementation of 5S a lot of people participated in the implementation on paper, but in reality most of them never ever really participated in the actual implementation.

9.1.2 Workers Data about the workers of the IKC have mostly been gathered by interviews with office employees of the IKC and through countless observations during the implementation of 5S. Unfortunately the author�s skills in Chinese are very poor, the English skills of blue-collar workers of the IKC are almost as poor and the time constraints of this research are very limited why there was very limited possibility to interview workers in order to verify observations or interviews.

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Cross training

The workers work in production groups that are led by group leaders. These groups are divided in different amounts of shifts; some work only in 1 shift and others are divided in 3 shifts depending on the current workload. Within these groups people rotate between different workstations on a monthly basis. Even though there are no scheduled rotation between different production groups some workers, roughly 50%, know the operations in two or more groups108.

Power of initiative

During the implementation of 5S, the lack of initiatives from workers has been a big problem. Almost no suggested improvements have their origin in the workers. This has several different reasons that will be discussed during this thesis but one is a very low power of initiative among workers of the IKC. Apart from the experiences from the implementation of 5S, the low power of initiative is also verified by the amount of suggestions that has been handed in to the Employee Suggestion Program. During two years time, totally four suggestion have been handed in by employees of the IKC. Companies that are really good at this receive about 20 suggestions per employee per year. That would be almost 3000 suggestions per year for an organization of the IKC�s size.

Team-work abilities

The teamwork within the groups is often good but sometimes there is a lack of cooperation and trust between members of different production groups109. During the implementation of 5S it was more a rule than an exception that group leaders refused to leave some tools they were currently not using in the red-tag area, since someone from another group or department might steal it. Due to the same reason all tools had to be locked up in the end of each shift. This is also clearly reflected in the communication and cooperation between different production groups; cooperation within the groups is much better than the cooperation between groups. This may sound obvious but the difference at the IKC is bigger than what the author consider normal.

CP3 knowledge

Overall the knowledge about different production philosophies among workers is low. Most likely none of them have ever heard about CP3 and very few, probably none, have ever heard of Lean Manufacturing110. However, at the time writing information meetings about the new factory, machines that will be used and future process improvements are given to all the workers111. If attention is paid during these meeting most workers will probably obtain a slight knowledge of what Lean Manufacturing could be.

108 Interview with IKC Production Manager, Quain Ren, 2006-03-23 109 Interview with IKC Production Engineer Kevin Liu 2006-04-18 and ABB CN Trainee Jery Luo 2006-04-24 110 Interview with IKC Production Engineer Kevin Liu 2006-04-18 111 Interview with ABB CN Trainee Jery Luo 2006-04-24

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Willingness

Even though there has been a great lack of initiatives among the workers there has still been a high willingness to change 112 . Of course there have been exceptions, but generally people rather happily carry out many of the suggested improvements 113 . During the implementation of 5S the groups that have their work areas in the main building have been much more willing to change than the production groups in the other two buildings. Why this is, is not certain. It could be because they are more exposed for management visits why they feel the pressure to change. If the willingness to change of the workers should be compared with the willingness to change of the office employees; the workers are overall felt to bee slightly more willing. Willingness can sometimes be mixed up with fear. Employees quickly carry out what they are told since they are afraid of penalties if they do not obey. That this could be the case here is very unlikely. Firstly it would probably have been noticed during three months time, secondly the implementers were young and without any possible power to penalize anyone. It is probably more likely that they would be reprimanded if they prioritised 5S in favour of production.

Accountability

Even though improvements usually are carried out they are seldom carried out within the first set out deadlines. If this is due to naively set deadlines in the first place or due to lack of respect for the actual deadlines can always be discussed. One aspect that indicates the latter is that the deadlines in question usually were set in accord between workers and managers. This should not be seen as a problem only existing among the workers, many of these decided improvements have been delayed due to office employees that miss their deadlines as well.

9.1.3 Current state As mentioned before the IKC had really good financial results during 2005, it is currently expanding its business both in terms of production capacity and product range, there are no signs of any visible crisis and the entire country, China, is growing at extreme pace. This could very well lead to large amount of complacency among the employees but that seems not to be the case114. What instead is very high is the workload. Every time you visit the factory you are astonished by intensity of work. During 2005 workers had an average of 37% overtime; among office employees however, it was much lower115. Now when the 90 GVA project is running at full speed many of the office employees are tied up with activities that normally are outside their scope, this will most likely lead to an increased amount of overtime among office employees. The heavy workload was also visible during the implementation of 5S, where the standard reply when questioning why deadlines have not been met was; �We don�t have time, we have too much work to do.� The IKC is currently recruiting new employees but initially their contribution will not really decrease the workload of others and the demanded production output is continuously increasing. If the IKC has a vision or not is a rather unclear chapter; when top management is asked they say it is: To be the best IKC in the world. When other employees are asked most of them say there is a vision but very few states the same vision as was given by the top

112 Interview with IKC Production Engineer Kevin Liu 2006-04-18 113 Interview with ABB CN Trainee Jery Luo, 2006-04-24 114 Interview with IKC Department Manager Carol Du, 2006-04-27 115 Interview with IKC Production Manager Quain Ren, 2006-03-23

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management116. The changes and projects that are currently being implemented are usually instead initiated by giving an extreme amount of detailed descriptions; sometimes less descriptive and more authoritative management styles also are being used117.

9.2 Structures

9.2.1 Functional The organizational structure of the IKC is divided into 5 functional departments. Each and every one of these has their specific manager who is responsible for the department and reports to the manager of the IKC. All but one of these departments are really small with only 6 to 7 employees in each. The production department, which is the biggest one, is divided into 12 different groups depending on the products they make. Many of these products have some similarities, why this is considered to be an unnecessary high number of groups. If each group is studied it can be further divided into substations. For instance, sawing, gluing, pressing and so on.

9.2.2 Occupational At the IKC the departments are further divided into occupational positions. For instance in the Sales and Planning department seven employees are divided into four different work tasks; work preparation, order handling, planning and programming. Either you do work preparation or order handling, not both. A result from this high differentiation is that order requests from customers often need to be processed by several persons within the same department as well as by several different departments.118 Within the office 26 employees are working with 18 different tasks, in the shop floor 115 employees are working with 28 different tasks. In total this means that 141 employees are working with 46 different tasks as presented in table 9.2.2.1.

Table 9.2.2.1 Occupational differentiation of the organization of the IKC

Department No. of different positions Number of employees Office Department Manager 1 1Section Manager 5 5Sales and Planning 4 7Production 2 3Engineering and Maintenance 2 3Material 3 6Quality 1 1Total: 18 26Shop floor Production 24 103Engineering and Maintenance 2 6Quality 2 6Total: 28 115TOTAL: 46 141 The total ratio would be 46/141= 32.6%. Comparative figures from an IKC in Canada are 82 employees working with 31 different tasks, which would make their total ratio 31/82=

116 IKC survey, completed 2006-04-07 117 Interview with former IKC Department Manager, Guan Chao, 2006-03-28 118 Interview with IKC Sales and Planning Manager, Grace Liu, 2006-05-08

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37.8%. However, it is probably normal that smaller organizations have higher occupational differentiation than larger organization within the same business.

9.2.3 Spatial The IKC is currently divided into 3 different buildings. All office employees and most of the production groups are occupying the main building. The office employees are all sitting together in what could almost be considered as one big room. The production groups that are occupying the main building are spread out in two bays with no real walls between the different groups. The other production groups are spread out in two smaller buildings that are situated next to the main building. One of these smaller buildings is also internally much differentiated which makes it feel like several small buildings under the same roof. The construction of new facilities will generate one building that house all the production as well as all office departments. The only groups that will not be housed in the new building are the warehouse and the tool shop, which will occupy a neighbouring building. During the implementation of 5S a very natural pattern has been noticed. Groups that are somewhat isolated, like the carpenters or the tool shop, have less knowledge about activities and processes carried out in the other production groups. The physical distance to other groups also seems to inhibit communication and cooperation.

9.2.4 Vertical The vertical differentiation at the IKC has been measured in two separate components: segmentation and height. The third existing component, concentration will not be measured as explained in chapter 6.4. Segmentation: The organization of the IKC can be divided into a different amount of separate command levels. At its most it is five levels: Department Manager, Production Manager, Foreman, Group Leader and Worker. In other departments than the Production Department the number of levels is less. Height: The amount of social space between different organizational levels at the IKC is hard to measure. In a small survey among the English-speaking community at the IKC an equal amount of the employees considered the relationship between workers and managers to be �close and informal� as �distant and formal�. However this survey was very small and due to the limitation in English among workers at the IKC all participants of the survey were managers or other white-collar workers. During the implementation of 5S it has been rather clear that one�s superior is not very often questioned. The respect for age and positions is strong, especially when it comes to the department manager. This might however more been the case before the IKC received a new department manager in April 2006. The old manager was more focused on an authoritative leadership and saw clear distinctions between office employees and workers. The new department manager seems to have another perception that is more aligned with western leadership styles. A simplified way to measure the amount of social space between top and bottom is to compare salaries. This does not give an exact picture of the truth but it gives some clear indications. If the average salary for a worker is seen as 1, the ratio between the different command levels can be created. If this is done, based on the total salary, it indicates that the four lower levels are quite close to each other and then it is a jump to the top level119. If overtime and other contributions are not included it shows a much higher distance, especially for the higher levels.

119 Any exact numbers can not be published due to company policy

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9.2.5 Centralization In theory almost all decisions are made by a very limited few of ABBCNCTC. For instance every single purchase has to be signed three times by both the General Manager and the Financial Manager. First they are required to sign the purchase order, secondly they need to sign the invoice and finally they have to sign the payment check120. Another example is the recruitment procedure. Before initiating any recruitment procedure it needs to be approved from four different managers. First it needs to be approved by the General Manager (GM), second it needs to be approved by the Business Unit Unit (BUU) Manager, third it needs to be approved by the Country Human Resource Manager and fourth and final it has to be approved by the Country Manager, this process usually last for at least half a month121. There are several more similar examples that indicate a very strong centralization. In reality the actual decision-making is sometimes made at lower levels and these signing requirements then becomes more of a charade than an actual decision. At the IKC the procedures are the same and also there, for some issues of more operational concern the actual decision is made before the papers is signed122.

9.2.6 Formalization Most persons asked, believe that procedures, policies and processes are mapped and documented but they do not seem to know where they are. When managers are asked they state that all employees have work guides, which include job descriptions, responsibilities and so on. These work guides are also easy accessible for all employees at the company�s internal network123 . In the production very few groups have job descriptions or the like at their actual workplace. When job descriptions were required to be stored at each workplace it was found that most of them were obsolete and needed an update in order to be aligned with the operations currently being carried out. This is currently being done and the current implementation of 5S will probably also further improve the documentation of procedures such as cleaning and the like.

9.2.7 Administration A simple way to measure the administrative intensity within an organization is to measure the producing and the administrative components of the organization as can be seen in table 9.2.7.1.

Table 9.2.7.1 Production and administration components of the IKC

Producing component Administrative component Spacer and Edge collar 14 Managers 6Spacer ring 12 Sales and Planning 7End support 6 Production 3Cylinder 8 Housekeeping 6Cutting 6 Engineering and Maintenance 6CNC and Cleats 16 Material 6Strip 8 Quality 7Carpenter 6 Yoke collar 8 Snouts 7 Shield ring 6 Tooling 3 Total: 100 Total: 41

120 Informal talk with 90 GVA Project Manager, Piotr Blaszczyk 121 Interview with former ABBCNCTC Human Resource Manager, Carol Du, 2006-03-14 122 Interview with IKC Department Manager, Carol Du, 2006-04-27 123 Ibid

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In total, the producing component of the IKC employs 100 persons, and the administrative component employs 41 persons. The administrative intensity in this organization would then be 41/141= 29%. When calculating this number, only those who actually produce products are grouped in the producing component. This means that all supportive functions occupied by foremen, maintenance engineers, packers and so on are regarded as administrative components. It may be discussed whether the Tooling group should be considered as a production or administration component. Since it only produces moulding tools for other production groups it may be argued that they are not adding value to the final customer. This is however, not considered to be of great relevance for this specific measurement. The focus here, are on administration contra production not value adding contra non-value adding. When calculating the administrative intensity of the IKC it perhaps should be considered that the IKC has no product development, human resource or salary department. Another IKC of ABB in Canada had an administrative intensity of 21%124. During the implementation of 5S the administrative intensity of the IKC has not been felt as a major problem. Even though much of the information is paper based and signatures and permissions often is needed it has had very little impact on this specific change project. The problems met are more felt to be due to other aspects than the administrative intensity.

9.2.8 Interdependencies As in most centralized and functionally focused structures there are an almost unlimited number of interdependencies within ABBCNCTC as well as the IKC. Apart from the ones already described in chapter 9.2.5 some more examples will be given. Before workers can bring any raw material into the work shop they need to fill in a Material Requisition Form that needs to be approved by the foreman, before any tool can be scrapped it need to be authorized by at least the foreman, sometimes it needs the department manager�s signature, if a quote is higher than the budgeted figure not even negotiations are allowed without the General Manager�s permission125. Interdependencies like these exist in all departments but there have been no further investigation of which are necessary and which are not. Generally most of them exist due to a strong lack of trust between departments and individuals as well as due to a strong fear of bribing scandals and of business transactions that are carried out in ways that not fully comply with ABB regulations.

9.3 Systems

9.3.1 Salaries In 2003 a new salary system was introduced for the workers of the IKC. Its main goals were to increase the efficiency and reduce overtime but the idea was to also promote teamwork126. The system includes some rather complex calculations but in brief it is based on that production groups are paid for each product they make. Each product has a certain value that is calculated on prior production and material costs of this product. When the system was new and when new products are introduced the price is more based on assumptions

124 Meeting with 90 GVA Project Manager, Piotr Blaszczyk, 2006-04-27 125 Ibid 126 Interview with ABBCNCTC Supply Chain Manager, Charlie Yang, 2006-03-22

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and the value is updated several times per year. For older products the value is normally updated once per year127. Since the productivity is measured for entire production groups, and not for each employee, the group is awarded the salary. This sum is then divided within the group according to some predetermined formula. This formula has to be agreed to by all members of the group as well as the Production Manager. Normally this formula is based on experience, working pace, responsibility and so on128. The effects of this system were a clear increase in efficiency and reduction in overtime work. There was no clear change in the quality of the products129. To promote the importance of quality, as well as cleanliness and safety, factors for these parameters was added to the system. Adding these factors have probably contributed to an increased overall quality. Quality, safety and cleanliness are evaluated and each group is given a score on a monthly basis. The average for all groups is calculated and each group�s value is divided by the average. This value represents 60% of the total factor. The other 40% are given as a minimum salary. The final salaries are then calculated by adding these together and multiply them with the amount of manufactured pieces and the price for each piece. Group salary = (amount of manufactured pieces x piece price) x ((quality factor x cleanliness factor x safety factor) x 0.6 + 0.4) This formula is actually not entirely true. To complicate things further, quality, safety and cleanliness all have different weightings that have not been included in the formula above. Even if the system now includes several different parameters, i.e. quality, safety and cleanliness it is still very strongly focused on productivity. The calculated total factor for quality, safety and so on normally is close to 1, which makes its affect on the total salary rather little. The average impact, caused by good or bad performance related to safety, quality and cleanliness during March and April 2006 was 0.54% 130 . This impact is equivalent to less than two hours work. Office employees have another system. Since it has been found hard to measure and evaluate the performance of white-collar workers in the same way as blue-collar workers and due to the big difference in working procedures they have a fixed monthly salary.

9.3.2 Incentive bonuses ABB China has an employee incentive plan that is meant to promote profitable business growth and motivate each operating unit and its employees to achieve the key financial performance targets131. The individual bonus entitlement (IBE) is based on 3 parameters: Average Bonus Entitlement (ABE), Individual Performance Factor (IPF) and Individual Monthly Base Salary. ABE represents the financial success of the local operating unit, in this case ABBCNCTC. It integrates three financial performance parameters: Operating Cash Flow (OCF), Earnings before Income Tax (EBIT) and Orders Received (OR). IPF is based on individual, or sometimes group performance and development during the year. Key targets for each individual or group should be set up in order for the employee to know what the expectations are.

127 Interview with IKC Production Manager, Quain Ren, 2006-03-23 128 Ibid 129 Interview with former IKC Department Manager, Guan Chao, 2006-03-28 130 Material posted at the IKC whiteboard 2006-04-10 and 2006-05-08 131 ABB China Employee Incentive Plan 2005

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Individual Monthly Base Salary is simply the employee�s individual salary. At the IKC, where some employees are paid according to the piece-rate system (as described in chapter 9.3.1.1) the Individual Monthly Base Salary is based on a fixed nominal salary. The total value of the bonus may not exceed three months� salary and can of course not be lower than 0 months� salary.

9.3.3 Rewards Within ABBCNCTC there are some reward systems to promote key characteristics of the company such as quality and innovation. Quality and innovation is seen as key characteristics in Vision 2009 of ABB 132 . Innovation at ABBCNCTC is promoted by rewarding really good suggestions. The Employee Suggestion Program was introduced in April 2004 as an attempt to encourage new ideas and improvements. This suggestion bonus was handed out to 4 persons during 2005 and these persons were both office and shop floor employees. Since it was introduced employees of the IKC have handed in four applications. Employees that have discovered or reduced severe quality flaws are also rewarded. Normally rewards like this have been handed out once or twice every year.

9.3.4 Employee turnover ABB has a very good reputation as an employer in China. It has been chosen as one of the top ten �Best Employers� by Fortune China magazine in 2003 and in 2006 Chinese university graduates named ABB as one of their favourite companies in China133. During 2004 and 2005 a total of 41 persons left ABBCNCTC. Of these 41, 29 left on their own request, mainly due to offers with better salary for a similar position. The other 12 were company-initiated separation. 6 of these 12 were made to leave due to different types of misconduct such as, driving forklift drunk, not showing up at work and so on. The other 6 were made to leave due to poor performance, i.e. working too slow. Out of these 6 that were forced to leave due to poor performance 4 was on their try-out time134. Even though employee satisfaction has not been measured it is felt that employees at ABBCNCTC in general are satisfied with their employer. Even though there are no stated vision or future aspiration that makes the IKC look for specific characteristics in its new recruits they are using a Candidate Assessment Form. It is used to evaluate the candidate�s skills and traits. It is divided in two segments; Background and Competence Rating and Personal Traits Rating. Two out of seven personal traits that are considered important are initiative and energy. There is no form like this to evaluate the candidates for a promotion. Here it instead depends from case to case and there are no specially announced characteristics that are considered more important for promotions apart from necessary skills in English135.

9.3.5 Measurement system The IKC uses a horde of different measurements to create their measurement system. Most of the measurements are ABB requirements but some are local initiatives. Table 9.3.2.1 shows the most important measurements currently being used by the IKC136.

132 ABB�s website, www.abb.com, 2006-04-28 133 ABB�s internal website, http://inside.abb.com, 2006-03-21 134 Interview with former ABBCNCTC HR Manager, Carol Du, 2006-03-14 135 Interview with former ABBCNCTC HR Manager, Carol Du, 2006-03-14 136 Interviews with IKC Production Manager, Quain Ren, 2006-03-23, with former IKC Department Manager,

Guan Chao, 2006-03-28 and with IKC Department Manager, Carol Du, 2006-04-27

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Table 9.3.2.1 Different measurements used at the IKC

IKC Measurements Measuring Measurement Process measured

Workload Overtime Individual

Product deviation Defects per million opportunities (DPMO) Vertical

Product deviation Non conformance report (NCR) Vertical

Operational efficiency First pass yield (FPY) Vertical

Customer satisfaction Customer complaints resolution process (CCRP) Horizontal

Future invoices Trade receivables Vertical

Assets tied up in material Inventory Vertical

Future costs Trade payables Vertical

Operational cost Average net operating working capital (AvNOWC) Horizontal

Cash flow Days of sales outstanding (DSO) Vertical

Cash flow Days of purchase outstanding (DPO) Vertical

Manufacturing times Throughput time (TPT) Vertical

Lead times Total throughput time (TTPT) Horizontal

Delivery times On-time delivery (OTD) Horizontal

Consequences of poor quality Cost of poor quality (COPQ) Horizontal

Overall quality Quality performance index (QPI) Horizontal

Material flow Work in progress (WIP) Horizontal

Cleanliness Housekeeping index Vertical

Workload Machine utilization Individual

Productivity MVA/hour, kg/hour, pieces/hour Vertical

Most of the above presented measurements measure vertical processes and very few measure individual processes. The frequency and importance of these measurements varies. Some of them are measured continuously and strongly connected to operational issues such as salaries, incentive bonuses and so on while others are measured on for instance a yearly basis and more intended for business reviews. Most of these measurements are never published for the employees apart from OTD, DPMO, NCR and some others that are related to the salary system. From the workers� perspective these are also the most important measurements, since they directly influence their salaries.

9.3.6 Information system The information system of the IKC is somewhat old fashioned. Of course there are computers, local networks, and support from an IT department and so on covering what is necessary to run a company of our time. Communication between the IKC and its customers and suppliers are as any other company but the communication within the IKC is still very much paper based. During the implementation of 5S a general feeling of clear distinction between the need of information was shown. Office employees are considered to have a greater need of information. Workers are not paid to be creative or question or discuss what they are doing and therefore they do not need the same amount of information. This is of course not the expressed opinion of all employees but many seem to have these beliefs, not least the workers themselves.

Communication between organizational levels

Communications between the higher organizational levels are very frequent since it is a rather small organization and they are all working in the same office landscape that is basically one big room. Much of the communication is verbal but since all office employees have their own computer, communication is also largely done by emails. None of the workers have access to any computer or any company email of their own.

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Computers simply do not exist within the working area apart from one exception, the CNC group that needs one to program their CNC machines. Production related information is very much paper based and high piles of paper can be found almost everywhere. The workers main source of information is the foremen. They work as a bridge between higher and lower organizational levels and verbally pass information on in both ways137. Apart from the foremen, the workers receive information through the company whiteboard, located in the entrance of the main building. On this whiteboard, statements from higher levels and results from previous months in terms of productivity, quality and so on are communicated. At the moment of writing, the first company newspaper was under production138. An e-version will be published every month and a paper version every quarter. The e-versions will be printed and posted on the whiteboard in order for the workers to be able to read it. In this first issue the IKC and the 90 GVA project team contributed with one article each. Apart from the above-mentioned communication the IKC also runs monthly information meetings for all office employees. Within the operational activities of IKC there are no such meetings for the workers. The 90 GVAPT however, is currently running monthly information meetings for all the employees of the IKC.

Communication between departments

As mentioned before all office employees are working together in the same landscape. This renders very easy communication between the different departments. Apart from the daily communication monthly information meetings are held for all office employees and the company newspaper is intended to always include one article about the IKC. Within the production communication and information is much less organized and much less frequent. Firstly the production groups are spread out in three different buildings, where, as mentioned, one of them gives the feeling of being several buildings under one roof. The different production groups have no whiteboard of their own where other groups can find out about their current activities and there are no regular meetings held between the production groups. Most of the communication between the production groups is handled by the foremen and by the company whiteboard. On the whiteboard all the different groups� results for the lasts months are published. The only other department that currently run regular information meetings for the other departments are so far the 90 GVAPT. They present current activities and inform about future changes on a monthly basis. During the implementation of 5S it was made very clear that the communication between different production groups was very poor. Group members generally had little knowledge of other groups� activities. Several times material, lockers or tools were found in a production area and no one knew whom it belonged to. Some other group had put it there but they did not know why.

9.4 Processes Process improvements are often the core of many change projects. Many processes also have a big impact on change projects. Unfortunately process studies are very time consuming and time is limited in this research. Furthermore the language barrier also limits the extent of process studies in this research. In order to study a process it is almost necessary to observe it and talk with the actual operator of the specific process.

137 Interview with IKC Department Manager, Carol Du, 2006-04-27 138 Interview with ABBCNCTC Marketing and Sales Assistant, Meggan Yang, 2006-04-26

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Speaking with managers responsible for the process may sometimes give a rather subjective version of the truth. Unfortunately the actual operators of most processes of the IKC speak only Chinese, why it in many cases would be necessary to study the process together with a translator. This kind of resources has not been available for this research why only a very limited number of processes have been investigated.

9.4.1 Employee suggestion process The Employee Suggestion Program can be divided in two steps. In the first step the operational manager makes an evaluation and decides if the suggestion is qualified for the second step. In the second step suggestion is investigated more thoroughly by a committee.

EmployeeAdministrator

OperationalManager

Within onemonth�s time

No further investigationneeded; pay out possiblecompensation

Suggestion worth furtherinvestigation, pay outcompensation

Administrator of the Committee

Within twoweek�s time

Archive Investigation by the Committee

Statistics

No rewardneeded

Rewardneeded

Archive Publishreward

Within threemonth�s time

Figure 9.4.1.1 Process map of the Employee Suggestion Program

Before a suggestion can be handed in it must be registered with an administrator, within one month�s time after the registration it should be handed to the Operational Manager. The operational manager makes a first evaluation of the suggestion and decides whether further investigation is needed and if any compensation should be paid out. If the suggestion is considered to be very important, compensation is paid, and it is passed on to the Committee. The Committee consists of the top management of ABBCNCTC and they make an investigation of the suggestion, follow up the implementation and decide upon a suitable reward. When the case is closed the rewarded suggestion should be implemented, published, archived and put into the statistics. The maximum total throughput time for this process can be calculated to 4,5 months. How quick the total process is, is probably not of great importance. The most important phase of the process is the Operational Manager�s evaluation. When a suggestion has been handed in it should be dealt with quickly. According to the Employee Suggestion Program this phase needs to be carried out within two weeks time, which feels quick enough.

9.4.2 WIP measurement system At the IKC, work in progress (WIP) is measured automatically by their ERP-system and then the measurements are controlled by one of the foremen. All material that once has

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entered the production area and not been completed is said to be referred to as WIP139. This is not entirely true, at least not if the material group is considered to be a part of the production area. The material group is located in the middle of the main building and they supply the other groups with material. Some material needs no preparation before being delivered to other production groups but most material needs to be cut into specific shapes. The material group has a big stock of material which is not measured as WIP. The material group also have a stock of off cuts. Off cuts is material that has been left over when they prepared material for earlier orders and saved in order to be used for another order later on. This is also not considered as WIP. Otherwise material that is inside the production area is considered as WIP. And it continues to be WIP until it is shipped. In other words they do not have any finished goods; all is seen as WIP. In order not to store excessive material in the production area groups also need to fill in a Material Requisition Form before bringing material into the work shop

9.4.3 Purchases process The purchases process for material other than raw and production material can basically be divided into two distinct groups: Purchases with a previous contract and purchases without a previous contract. The latter is a very slow and rather complicated process that roughly looks like this: An employee initiates a purchase by looking for a supplier and specifying his requirements for them. When that supplier has delivered a quote the employee passes it on to the purchase department. The purchase department receives this quote and starts looking for other suppliers. When two other suppliers have delivered their quotes the purchase department usually selects the cheapest one140. The purchase then has to be approved by the Department Manager of the IKC, the Financial Manager of ABBCNCTC and the General Manager of ABBCNCTC. In total this process requires at least three weeks but usually longer. If delivery times from the suppliers are to be included the total purchase process usually takes months. Apart from being a very slow process, purchases are also often vulnerable for poor communication. Since the purchase department usually selects the cheapest supplier without always communicating with the initiator of the purchase it sometimes leads to purchased products that do not meet the expectations of the initiator. If there is a previous contract the purchase process is much quicker since the quotation part can be excluded.

9.5 External environment Many parts of the external environment, such as customers and suppliers are already described in the company description in chapter 7. In this chapter however, the external environment will be described a little more from a change perspective.

9.5.1 Stakeholders

Owners

ABBCNCTC is owned to 62% by ABB China Inc. and the rest is owned by Chongqing Transformer Co. Ltd. The latter one has a rather small influence on how the business is run in comparison to their ownership. Within the management team, the Deputy General Manager who presently is responsible for safety issues within the company represents them. This is of course not the same in all joint ventures between ABB China Inc. and the

139 Interview with IKC Material Manager, Maria Ma, 2006-04-13 140 Interview with IKC Production Engineer Kevin Liu 2006-04-18

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government. In some joint ventures the representative is the General Manager of the company and highly affects how things are run. ABB on the other hand has a very big influence on how the business is run. Especially from a change perspective since most training in these areas are run under their own auspices and within ABB there is an almost endless source of skilled managers and leaders that are connected to each other through business reviews and other management meetings. Furthermore, expatriates that previously have been working for ABB in Europe or some other western country where production systems generally are more developed often hold management positions. This is also the case at ABBCNCTC were the General Manager is a Swede, the Financial Manager is British, the Technical Expert is Swedish and the 90GVA Project Manager is Polish. What can be interesting from a change perspective is that none of these persons undertook any kind of cultural training before going to China. ABB also has a big impact on everyday operations through all the set up policies and procedures within the ABB Group. For instance certifications are needed in terms of quality, audit reports, environmental issues and so on. Apart from this ABB has had a few bribing scandals within its organization and in order to lessen the risk for further such misrepresentations it has tightened the net in terms of limited authorization to lower level managers.

Suppliers

The major suppliers of raw material to the IKC are mentioned in chapter 7.3.4 and any further research about them is not felt to be necessary. They are simply not considered to affect the change environment to any greater extent. What instead might be interesting to mention from a change perspective is their different suppliers that deliver non-standard articles such as shelves, carriers and different tools that are ordered without any previous contract. The delivery times from these suppliers are often incredibly long. A simple carrier that is little more than a piece of steel with four wheels might take 6 weeks to manufacture and shelves that are ordered from a catalogue might need a month before they are delivered141.

Customers

The customers of the IKC have previously been mentioned in chapter 7.3.3. Customers can normally influence the change environment by raising their demand of products, quality and so on. For other organizations, which are not internal suppliers, the continuous threat of losing its customers also may work as a catalyst of change. The customers of the IKC have been the external initiators of some changes in the past. Normally, their main priority has been to ensure future deliveries, in other words insulation output142. Apart from productivity; on time delivery and quality are important aspects for the customers of the IKC. Presently, the main reason for building a new factory is to meet the future demand of their customers. Since the IKC, for most of its customers, is the only supplier of insulation material it needs to increase its output according to their demand. Apart from this the IKC utilizes customer surveys to create a picture of the level of their services. These surveys could of course also lead to smaller process improvements of various sorts.

141 Interview with IKC Production Engineer Kevin Liu 2006-04-18 142 Interview with IKC Sales and Planning Manager, Grace Liu, 2006-05-08

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Regulatory authorities

The government naturally restricts everyday work with its regulations and requirements but in China the government is very anxious to rapidly develop China and therefore strongly support most investments. Sometimes regulations such as building permits and the like can be temporarily eased in order not to interfere with any new investments143. Furthermore, ABBCNCTC is a success story of the Chongqing municipality and therefore also highly appreciated by the local authorities that show their appreciation to the company with yearly gifts. Activities forced by local authorities are often also connected with an option to pay instead of actually carrying out the asked activities. For instance, 500 of the employees of ABBCNCTC were asked to participate in a two-day tree planting session or paying 5000 RMB (almost equal to 5000 SEK). Some quick calculations makes it obvious that closing down the factory for two days, arranging transport, food and shelter for 500 employees would cost way more than 5000 RMB.

9.5.2 Culture The five dimensions of culture introduced in chapter 6.2 will here be used once more in order to describe the culture within the IKC. It will to some extent be based on what is already said in chapter 6.4 with some additions that differs from the specific culture within the IKC.

Individualism

The individualism of the IKC is quite low even though it is felt to be somewhat higher than in the average Chinese organization. Finding cultures with slightly higher values on individualism in joint ventures and foreign owned companies is very common. The closer connection to the western cultures with higher rates on individualism reflects upon the existing culture in the joint venture. An impact of this low individualism is the clear distinction into groups. Where people set their boundaries for the group varies throughout the organization but during the implementation of 5S it has been quite clear that many production groups have problems cooperating with each other144.

Power distance

The power distance at the IKC is rather high, but still lower than in most Chinese organizations. Also here the greater exposure to western cultures in terms of expatriate managers, business trips to Europe and so on shows in the existing culture. The big difference between middle management and the top stratum, which is usually very clear, is not as obvious as one could expect at the IKC. The only really noticeable difference is the difference in salaries; where the four lower levels are quite gathered and then there is a jump to the top stratum145. The respect for age is often very clear. Older workers are sometimes not really interested in recommendations from younger employees and younger employees often show a clear reluctance to instruct older employees. During the implementation of 5S little support from management was a major problem. This was partly due to that none of the

143 Interview with former IKC Department Manager, Guan Chao, 2006-03-28 144 Interview with IKC Production Engineer Kevin Liu 2006-04-18 and ABB CN Trainee Jery Luo 2006-04-24 145 Material given by ABBCNCTC HR Department

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implementers really requested any assistance. This could be either because of a desire to do it on their own or because of the distance to higher managers.

Uncertainty avoidance

As expressed in chapter 6.4, uncertainty avoidance is a rather unclear chapter in Chinese culture. Even though recent studies indicate a strong avoidance of uncertainty among Chinese people, there is little concrete evidence of that this strong avoidance of uncertainties is connected to the ways business is run. The IKC do have forecasts, job descriptions, scheduled measurements and set deadlines to reduce the amount of uncertainties but they are in many ways not used. Job descriptions are obsolete and kept on the internal network where the workers cannot access them. Quite precise forecasts are given 3 months ahead but anyhow the average overtime among workers is 37%. Deadlines are often set, in accordance among the parties, but usually seldom held. The experience received during these months is that strong avoidance for uncertainty is more connected to family life; belongingness to the family should in no way be uncertain. But when it comes to uncertainties of more job related nature the avoidance is not at all that strong.

Masculinity

The level of masculinity within the IKC is considered to be little higher than medium. People at the IKC work a lot and their job seems to be an important part of most employees� life. Many employees are for instance very satisfied with working long hours every day. This is of course not only because they are proud over their position or employer, many are also in great need of the extra money it gives. But nonetheless, many employees identify themselves with the company and the job is a central part in many employees� life. That the IKC is found somewhat more masculine than the average Chinese organization is also probably due to the extra exposure of western cultures that comes along with the joint venture.

Long term orientation

In chapter 6.4 it was stated �Chinese culture is generally considered to be characterized by long-term values such as carefulness and belongingness�. This is the total opposite of what this research has found at the IKC. 9 out of 10 respondents of the IKC survey thought Chinese people were oriented towards short-term goals. The clear difference in the values found in this research and values found in Hofstede�s research is probably due to a clear difference in focus. Hofstede focused his research on values related to family life while this research instead is focused on goals and values from a business perspective.

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10 Analysis This chapter aims at analysing the collected empirics described in the previous chapter. Each component will be analysed separately but since the components as described in chapter 8.3 all affect each other some connections will be drawn between the components. This analysis has been done using the suggested framework specified in chapter 8.4. All the components of the framework will not be described under its own header. For instance the components belonging to �Current state� or �Measurement system� are summarized under one heading in order not to make this chapter to fragmented.

10.1 Internal environment

10.1.1 Office employees

Management and leadership experience

The ML-grid and the training records both indicate that the level of management experience is rather good. Even though the ML-grid indicates that the level of experience is equal in management and leadership the training records and the experience during the implementation of 5S show that the need for leadership training is larger than the need for further management training.

Operation and CP3 expertise

The operation expertise within the IKC is good and considered sufficient for a future implementation of CP3. The CP3 or lean manufacturing knowledge on the other hand needs improvement. Even though many of the candidates know the basics of these philosophies a more wide-ranging theoretical knowledge is needed. Since it is the members of the GC that later on will train all the other employees they need to be secure in their knowledge.

Change experience and change willingness

As expressed in chapter 9.1.1 several employees was a part of the implementation of 5S on paper but not in reality. There might have been several reasons for that, but none the less it could imply that previous change experiences on paper might have little value in reality and that people sometimes sign up for tasks they don�t really have time for or that the interest in change project is not that great as it looks on paper. If the little support experienced during the implementation of 5S is due to heavy workload, little confidence in 5S or low willingness to changes is hard to say. As mentioned before the IKC is currently producing 50% more than its initially planned capacity and recruitment of new employees have not followed the increased demand. The construction of the new workshop is in its most work-consuming phase and most employees have to spend some of their time with that. The workload is high and this is probably the main reason but the overall feeling is that the willingness would not be as good as the survey is indicating even if the workload was lower. Overall the willingness to change and previous experience from change projects is considered to be quite high, but not as high as the survey would indicate. If the workload

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would be lowered the experienced willingness would most likely be higher. The high willingness among all employees, and perhaps workers in particular, has a very positive impact on the change environment.

10.1.2 Workers

Cross training

The level of cross-trained personnel is rather high; especially within the different production groups were they have scheduled rotations. If rotation between different production groups also were made on a regular basis this would improve the change environment. It would improve the cooperation and communication between the production groups and most likely create a stronger unity around the company.

Power of initiative

The low power of initiative has been a major concern during the implementation of 5S and it must be improved in order to create a better change environment. More and more change theories like for instance Kaizen, is based on the creativity and involvement of all employees. There is no single answer for why there are so few initiatives from the workers. It is most likely related to the power distance of the culture, the few incentives that are given for being creative, the workload they are currently under and so on. One major reason is probably the expectations from themselves as well as the management. If you are not expected to do something it feels very natural not to do it. This attitude needs to change if this company wants to stay ahead of its competitors in the future.

Team-work abilities

The cooperation within different groups, such as a production groups, is good but the cooperation between the productions groups need to be improved. An organization were trust, communication and cooperation between different groups are low is not performing at is best, especially not from a change perspective.

CP3 knowledge

The low level of knowledge about production philosophies and modern quality thinking among the workers is not good for the change environment. Even though courses have been given the last years about quality, productivity and so on there is still a long way to go. The recently started information meetings given by the 90 GVAPT and the company newspaper improve the consciousness of the workers. To further improve the change environment it is only to continue on this track and improve the communication as well as raising the expectations between all members of the organization.

Willingness to change

The high willingness to change among the workers is a very positive contribution to the change environment. Since high willingness is a prerequisite for successfully initiating change by vision, which is the easiest way to reach sustainable changes, it is somewhat a cornerstone for successful change projects. To further increase the willingness there

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should be some more incentive than the actual change, some sort of reward for good changes in other words.

Accountability

Maybe it is not directly connected with accountability but the fact that deadlines are not respected damage the change environment. It is most likely more related to their uncertainty avoidance than their accountability. Things simply are not as scheduled in China as in many western countries and the respect for time might be a little lower.

10.1.3 Current state Overall the current situation of the IKC has both positive and negative impact on the change environment. Good financial result makes changes possible, employees could be sent to training sessions in both leadership and CP3, there is plenty of short term wins with an implementation of CP3 or lean manufacturing and the level of complacency is rather low. On the other hand is the workload very high, which makes changes very slow even though the willingness is said to be high. Overall however, the current state of the IKC has a positive influence on the change environment.

10.2 Structures As a quick summary; the IKC could be described as a very centralized and functionally oriented organization with high occupational differentiation among office employees. It is spatially quite gathered and has a somewhat normal vertical differentiation. All the above creates an enormous amount of necessary interdependencies that slow down everyday work and creates a poor change environment.

10.2.1 Functional differentiation Having five highly functional departments in an organization of the IKC�s size is not good from a change perspective. Each department focus on their own function; planning, material, quality and so on and the communication between them is quite limited. Several of the small departments of the IKC should be able to be consolidated into a bigger department focusing more on horizontal processes rather than vertical functions. If this was done an order request could easily be processed by one department instead of two as it is now. During the implementation of 5S it was made clear that the cooperation within production groups is far better than the cooperation between production groups. A rather simple way to improve the poor cooperation between members of different production groups would be to unite some of the groups. Another way would be to start rotate members between different production groups; this has successfully been done within the groups. The more an employee knows about different processes in the production, the better the change environment would be. If someone only knows his own process, he has very little knowledge of how the changes he makes will affect other down- or upstream processes.

10.2.2 Occupational differentiation Within each department the employees of the IKC is further divided into narrow occupational positions. This high occupational differentiation is also not good from a change perspective. Employees focus on their own narrow tasks and communication on how to improve processes is therefore not encouraged. If employees instead worked with broader tasks on a horizontal level communication and knowledge sharing would be more stimulated and lead to a better change environment.

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The production department is not as highly differentiated from an occupational perspective since all the workers in a production group rotate between different positions within the production group. This has lead to improved communication and team working skills within the groups.

10.2.3 Spatial differentiation The spatial differentiation of the IKC is currently low for office employees and rather high for workers. The noticed importance of the nearness to other groups indicates that the new workshop will create a better change environment. When all office employees and the majority of all production groups are working together in one building a low spatial differentiation which promotes communication and cooperation will most likely have been created.

10.2.4 Vertical differentiation The vertical differentiation of the IKC is probably rather low if it should be compared to many other Chinese organizations. But if it should be studied from a change perspective it is still way too high. Five different command levels in organization of the IKC�s size are high. However it would most likely be hard to remove any of the levels. In theory the role of the foremen could easily be removed. Instead of operating as a link between the production manager and the group leaders they could be allocated as some sort of horizontal resource focusing on synchronizing different orders. This way the groups could receive their production orders directly from the planning department and on their own arrange the work. But if this actually would lead to lower vertical differentiation is uncertain. One benefit however is that it would require the production groups and specially the group leaders to cooperate more closely with each other and in the long run it would probably reduce the differentiation between office employees and workers. The height between the different command levels of the IKC is also low if it should be compared with most other organizations in China. But ones again, if it should be seen from a change perspective it is high. However it is felt that it is the new department manager�s intention to lower it and that intention is a great leap forward.

10.2.5 Centralization The IKC is extremely centralized. Even if sometimes the final signature is more of a charade than an actual decision it does not in any way promote trust, creativity or flexibility for the employees of the IKC. It is quite obvious that improvements will be repressed when all employees need permissions for pretty much everything. There is of course a need for a balance between control and flexibility but from a change perspective an extremely centralized organisation, as the IKC, is bad.

10.2.6 Formalization As mentioned in chapter 5.4, the impact of formalization on the change environment is not as straightforward as the other six components of the structure of an organization. At the IKC however the formalization is low, especially when it comes to the enforcement. Even if most employees have some sort of work guide it feels not to be entirely followed. A slightly higher formalization that clarifies responsibilities without repressing creativity and flexibility would improve the change environment.

10.2.7 Administration Even if the IKC here in Chongqing, China, had an administrative intensity of 29%, which is higher than the IKC in Guelph, Canada, it is hard to really say anything from these numbers without comparing them with more similar organizations. What instead could be said is that in centralised organizations where much of the information is paper based, as the IKC, the administrative intensity naturally becomes quite high. This has however had

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little impact on the implementation of 5S why the administrative component will not be analysed any further.

10.2.8 Interdependencies The amount of necessary interdependencies within an organization is strongly related to its degree of centralization and how high functional and occupational differentiation it has. Since the IKC is a highly centralized organization with high functional and occupational differentiation it also has a lot of necessary interdependencies that creates a very poor change environment. All these dependencies between different departments and organizational levels complicate everyday work and inhibit change efforts. If the organization became less centralized, with lower functional and occupational differentiation many of these interdependencies would become unnecessary and could be removed. Signatures for every single purchase would no longer be necessary and fewer employees would have to await approvals from other departments.

10.3 Systems

10.3.1 Salary system From a change perspective the current salary system is a nightmare. Firstly it creates an extreme focus on high productivity. Employees are paid almost solely depending on the amount of products they make. It is quite obvious that under these circumstances it is not easy to make people interested in change efforts that do not immediately pay back the money they loose from every non-producing minute. If the impact of quality, safety and cleanliness had been bigger than what it currently is, it would promote change efforts in these areas. But since it has such as small impact on the total salary its influence on the change environment is almost not noticeable. Secondly it also creates competition between the production groups. As mentioned in chapter 9.3.1 all the groups are given scores related to their performance in quality, cleanliness and safety. Then the group�s score is divided by the average of all the groups� scores. This means that the groups compete against each other for their salaries. In order for one group to perform well, another group has to perform worse. If all groups would perform equally well, no one would be rewarded and in the same way no one would be punished if the groups performed equally bad. This does hardly promote better cooperation between different production groups. Solutions to these problems would be to increase the importance of these three factors and to stop making the groups compete against each other. If they instead competed against preset targets for one and each of these factors it would not create any competition between the groups. If the salary also included some sort of organization wide factor, if the average score for all production groups was above a certain level, maybe even cooperation could be promoted.

10.3.2 Incentive bonuses The incentive bonus system is much better than the salaries from a change perspective. It is based on the performance of the entire organization as well as groups and individuals and most importantly it is based on previously set targets. Overall, the incentive bonus system should have a positive influence on the change environment. If the possibility to promote creativity and innovativeness would be used by the IKC it would have an even better influence on the change environment.

10.3.3 Rewards The IKC has no reward system of their own but since they are a part of ABBCNCTC all their employees are eligible participants of their reward system. The fact that these rewards actually exist is of course good from a change perspective. It shows an

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awareness of the importance in rewarding things like quality and innovation from the top management. Unfortunately, extremely few of the employees of the IKC use this opportunity to earn some extra money so the actual contribution that these rewards give to the change environment is quite low.

10.3.4 Employee turnover The employee turnover of ABBCNCTC is very normal and the only thing that could be commented is that half of all the company-initiated releases were made to leave due to poor performance. This could further create a strong focus on productivity; a sort of �If you�re not working fast, you are not welcome� mentality. But since most of these employees were on their probation time it is not felt that it have had any greater influence on the change environment. Overall, most of the employees seem very satisfied with their employer. An aspect that is not good from a change perspective is that there is no real long-term strategy behind promotions. For new recruits characteristics, which are good from a change perspective, are considered important and it would be good if the same were considered for promotions. Creating a good change environment is very much a management issue. If employees that do not really see the need for creating a change friendly organization were appointed management positions it would be very bad from a change perspective.

10.3.5 Measurement system The measurement system of the IKC feels rather complete. It covers all different types of processes; individual, horizontal and vertical. What is noticeable from a change perspective is that there are no measurements for innovation or creativity. There is a saying that: �What you measure is what you get�. If this is true it could be good to introduce some measurements for innovation and creativity. A simple way would be to measure and publish the amount of suggestions handed in to the suggestion program.

10.3.6 Information system A well functioning information system that covers all employees is very important from a change perspective. The information system of the IKC can be divided in two halves, communication at white-collar level and communication at blue-collar level. The white collar have a much more easy accessible information system with scheduled meeting, nearness to all employees, company email and so on. For the workers the situation is highly different; no email, spread out groups, no scheduled meetings and so on. In order to succeed with any change projects it is important that all parties receive the necessary information. Probably all the previous change projects of the IKC have been run from the top to the bottom. While implementing 5S it was an aspiration to create change from the bottom. In order to succeed with this the workers are in an as big need of a well functioning information system as the office employees. There are several ways to improve the current situation. At first a more comprehensive information structure needs to be created. Some improvements have already been started, like a company newspaper and 90GVA information meetings. Other ways to improve the workers information situation would be to run monthly information meetings for them, arrange sessions where all the group leaders can meet and discuss, whiteboards for each group and so on. Apart from these structural improvements the mindset needs to be improved on all levels. Workers as well as office employees need to be expected to communicate and cooperate more with each other.

10.4 Processes As mentioned in chapter 9.4, different processes of the IKC have been given little focus in this research. Not because they are not interesting or important from a change

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perspective; but because the time have been very limited and when choosing what to focus on it was decided that focusing on systems and structures would generate a better result. Both the employee suggestion process and the WIP measurement process were found to be of good enough quality to not damage the change environment. The purchase process on the other hand is way too complicated and slow. A process that normally takes almost a month before the purchase is made is not acceptable from a change point of view. That it apart from being slow also sometimes generates faulty purchases due to poor communication does of course not improve the change environment. The restrictions are normally there to reduce the number of frauds and purchases that are made based on relations rather than what is best for the company. Of course it needs to be some balance between control and flexibility but as it is now it is too controlled from a change perspective. Instead of having the purchase department looking for more quotes the actual initiator could do it at the same time as he requests the first one. This way he could decide which supplier that has the most competitive quote, not just from a price perspective, and send his motivation along with the quotes to the purchase department who approves and makes the purchase. A process like this would be a little quicker and the risk of getting insufficient products is lower.

10.5 External environment

10.5.1 Stakeholders

Owners

The owners of ABBCNCTC have their pros and cons. The major owner, ABB China Inc., and indirectly the ABB Group, has the biggest impact on how everyday business is run. Apart from creating a lot of requirements it also makes a large amount of resources in terms of knowledge and expertise available. Most requirements are introduced in order to improve the control, and usually inhibit change efforts, but some requirements set minimum standards. If these standards are not met the requirements can initiate change processes by increasing the urgency rate. The other owner has very little impact on daily operation, and therefore also little impact on the change environment. Overall the owners, then ABB in particular, have improved the change environment. It is hard to imagine that the change environment would be better if the joint venture would never had been created.

Suppliers

The long delivery time of many local companies slows down changes. It is not only the delivery time of the producer that slows down the change process. A rather poor infrastructure condition prolongs transportations and makes delivery times unnecessary long. Both the delivery times of local companies and the infrastructure condition will improve as the country develops.

Customers

The continuous strive for increased profit, shorter lead times, higher quality and so on from the customers of the IKC indirectly influences the existing change environment. It makes the organization know that it always needs to become better. In other words it keeps the urgency level from getting to low. The higher demand and more frequent

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requirements the customers have, the more changes are necessary and the more important is the change environment. The customers of the IKC do not have any extraordinary high requirements, but the one they have positively influences the change environment.

Regulatory authorities

Like most authorities, the Chinese authorities have their benefits and drawbacks. Their overall impact on the change environment is hard to say. What definitely is positive is their �flexibility�. Changes, at least when it comes to investments, is seen very positively why the authorities sometimes can bend the rules a little.

10.5.2 Culture

Individualism

The low individualism, in other words high collectivism, is probably not good from a change perspective. The main problem is that it creates clear difference between group members and non-group members. Most workers clearly make a distinction between members of their production group and other employees of the IKC. In the same manner some office employees clearly differentiates themselves from the workers. If the boundaries for these small groups could be extended to include the entire IKC the change environment would be much better and the high collectivism would be an asset instead of a problem. Simple ways to solve this problem would be to promote increased communication and cooperation between departments as well as between organizational levels. If the production groups for instance were made fewer and larger the boundaries would most likely also be extended. If salaries in some aspect were related to all groups� performance it would be an incentive to improve the cooperation.

Power distance

The power distance of the IKC is not very high but overall it still negatively affects the change environment. The benefits of high power distance, that employees initially are more likely to do what they are told, are not as many as the drawbacks. In order to create a very good change environment all employees� opinions and creativity are needed. This will not happen when the power distance is high. To reduce the power distance it is important to have a good level of transparency within the organization. Some mysterious mist that makes the persons that hold top positions unapproachable or untouchable should not cover higher management positions. The easiest way to improve the transparency is to increase the communication between different departments and in particular between different organizational levels. This could be done by �Letters from the management� in the company newspaper, monthly information meetings and so on. It is also very important that the management work with this issue and clarifies their opinions as well as their expectations in this area.

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Uncertainty avoidance

The uncertainty avoidance is as expressed in chapter 9.5.2 rather uncertain. The findings of this research are that the uncertainty avoidance for job related issues are low. This negatively affects the change environment since it complicates the planning of a change project.

Masculinity

The level of masculinity at the IKC is quite high, at least when seen from a local perspective. That people value their work is of course good from a change perspective. Change projects often require efforts that are more than the normal operational load.

Long term orientation

As with the uncertainty avoidance the findings of long-term orientation in this research is the opposite from most other previous research. According to the employees of the IKC the average Chinese is more focused on short-term goals. This is in many ways bad from a change perspective since the financial results are not visible until several months after the actual implementation. In 5S for instance, the level of orderliness and cleanliness is usually quickly improved. But before the more organized workplace shows any real financial improvements in terms of for instance increased productivity the new mindset, to always keep your workplace nice, organized and tidy, has to settle in. If the culture is very short term oriented change projects are more likely to be abandoned before they actually bear fruit.

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11 Conclusions and recommendations This chapter aims at summarizing the findings of this thesis as well as formulating future suggestion of how the current change environment could be improved. It is very hard to summarize the change environment in a few words. Some things are good and others are bad and like always there is plenty of room for improvements.

11.1 Conclusions At the IKC there are three main problems that negatively affects the change environment. First it is very few initiatives among workers in particular, but also in some extent among office employees. Second, a centralized and functionally oriented structure creates interdependencies that slow down processes and inhibit empowerment of broad based action. Third it is in many ways poor cooperation between different �groups�. Throughout the implementation of 5S there were very few initiatives from workers and during two years time only four suggestions have been handed in. In slow and stable business environments where changes are not very frequent the lack of initiatives from workers is not a very big concern. But in more rapid and continuously changing business environments there will always be a need for changes. These changes cannot always be forced from the top; many of them will need to have their origin in the bottom. In order for changes to occur from the bottom it is very important that everyone knows what is expected. The overall mindset, the salaries, the communication, the management style and so on must all be aligned with this expectation. This is not entirely the case at the IKC. Some still live with the opinion that workers should produce products and others should deal with improvements and changes. Salaries and rewards are clearly focused on the productivity of the group and the incentives for creativity are very few. Communication and information is clearly seen more as an office employee privilege, workers are mainly given information on a need to know basis. However it should be mentioned that some steps already have been taken in the right direction and more and more information is shared over the entire company. If more steps like these are taken it will result in a more creative work force and also a much better change environment. The current structure is very centralized and highly differentiated from a functional and occupational perspective. Employees are often only working with a few functional tasks that give little possibility to knowledge sharing or process improvements discussions in any way. The high centralization restrains initiatives and combined with the high functional and occupational differentiation it creates both vertical and horizontal interdependencies. In other words, employees often need to get approvals from both neighbouring departments on the same organizational level and from the management in higher organizational levels. These authorization processes slows down everyday work and also creates an unnecessary administrative intensity. The purchase process has been given as an example where this high centralization as well as the high functional and occupational differentiation slows down change efforts and creates an atmosphere where previously given initiatives are not being used to leverage change projects. Between different �groups�, usually different production groups, there are often poor communication and consequently also poor cooperation. This is not only existing among the workers but it is much more evident there. The different production groups have so far had little need of cooperation between each other. Many products are finished within one production group and then delivered for inspection, packing and shipping. This way groups have been rather independent from each other and little communication or cooperation have been needed. This low level of knowledge about the other groups� operations creates problems and is a waste of resources from a change perspective. Ideas and methods used in one group are seldom transferred to other groups due to the poor communication. Not all employees consider their production group to be the

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boundary of their �group�; some may refer to their shift within the production group as the �group� and some may refer to all workers as their �group�. To improve the change environment these boundaries need to be widened, or preferably eliminated. Apart from these three main issues there are also several smaller issues that have been discovered during this evaluation such as focusing training on leadership, little respect for deadlines, no measurement for innovativeness, short-term orientation and so. These are all connected to these three main issues and should of course also be considered when planning for improvements of the change environment.

11.2 Recommendations There are many recommendations that could be given for improving the current change environment. This thesis will focus on presenting a few of them but many others are more or less already given throughout the earlier chapters. The main goal of these recommendations is to create a more innovative and cooperating organization where changes are considered more important than today.

11.2.1 Modify the existing salary system The existing salary system promotes competition between the groups and supports the clear difference between members within and outside the group. It further more creates a very strong focus on productivity. The small incentives that exist are not enough to really promote the importance of quality, cleanliness and safety. These incentives should be made more extensive and most important the groups should not compete against each other. If the groups� score is compared with previously set targets, instead of being compared with the groups� average, the salaries will no longer be any source of increased competition. If some sort of organization performance aspect were included in the salary it would promote cooperation between groups instead of promoting competition.

11.2.2 Improve communication Currently communication between different departments and command levels are very low, particularly for workers. Information is considered to be more on a need to know basis where employees not directly involved with a process is considered to have little need of knowing anything about it. The first step to improve the current situation is to create a more all-embracing communication structure. Monthly information meetings should be held by the management of the IKC, not only to office employees but also to all the workers. The group leaders should have monthly meetings in order to discuss problems and positive experiences that might be relevant for other groups. All groups should have a white board of their own so other groups know which orders they are currently working with and so on.

11.2.3 Re-establish the Employee Suggestion Program The existing employee suggestion program has been given far too little attention. If it is managed properly it is a very powerful tool. Organizations that have put some effort into developing these programs have often received high increases in the amount of suggestions handed in by all kinds of employees. Apart from being a good source of ideas it would also reduce the focus on productivity and show that other things count as well. This is felt as utterly important at the IKC where many of the employees are not expected to be creative, or at least not felt expected to be creative. It would be a big step in the right direction if it was made clear, through different statements such as local visions, that employees are not only expected to carry out processes but also according to their abilities improve the processes. This expectation would need to be very clear and some incentives for doing continuous process improvements are also necessary.

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11.2.4 Create and communicate a vision Kotter and many others stress the importance of a vision. ABB has it own vision for 2009 but it is not very well known among the employees of the IKC. In times like these, when many changes are underway it is important to clarify the future. A vision that expresses the desire of becoming not only the biggest IKC but also clearly states that creativity, safety and quality are essential for staying at the top. Even though the IKC is a small organization it is highly differentiated and a vision is needed to unite and guide the organization in the future. The small size of the IKC makes it easy to spread the vision to all employees within the organization. If it is posted on the whiteboard, mentioned in information meetings, referred to in different discussions it should not take long before everyone knows the vision in rough details.

11.2.5 Simplify the purchase process The purchase process is currently very slow and complicated. The root cause for this slow and complicated purchase process is most likely the high centralization as well as the high occupational and functional differentiation. If the structure was less centralized and less differentiated the purchase process is likely to be improved automatically. But since it is far more complicated and takes long time to change the organizational structure it is suggested that the purchase process is altered in order to quickly improve the change environment. How the process should be improved in detail is not known but a simple change of responsibilities could have a big impact. If the actual initiator of the purchase, instead of the purchase department, is responsible for finding quotes from two or three different suppliers and then suggests which one that is most suitable for the purchase it would save weeks. It would also reduce the risk of buying products that do not meet the requirements.

11.2.6 Introduce rotation between production groups One of the three main problems has been the poor cooperation between different �groups�. To promote cooperation, communication and knowledge sharing between the groups it would be good to rotate employees between different production groups. This way the boundaries of many employees� groups would be widened to hopefully include more than their original production group. It would also improve the change environment since more and more employees would know more about the whole production process instead of only focusing on a few functional tasks within one group.

11.2.7 Create a less functionally structured organization The high functional structure has a very big impact on the change environment but it is also complicated to change. This suggestion needs some more research before it can be implemented. It is important to find the right balance between the focus of horizontal and vertical processes. However, some departments as well as some production groups should be able to be merged into bigger departments were the focus is more on horizontal processes than, as it is now, functional tasks. For instance the Materials management department could be integrated with the Sales and planning department since they often needs to cooperate a lot anyway. Apart from uniting some departments the high occupational differentiation within the existing departments could also be lowered. For instance the Sales and planning department, where two persons work with work preparation, two with order handling, one with planning and two with programming could be much less differentiated. If all seven worked with all four of these tasks and focused on orders instead of separate tasks it would require an improved communication and knowledge sharing among the employees. This would make process improvements much easier and improve the change environment a lot.

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11.2.8 Training in cultural differences Cultural and behavioural differences will always exist. Even though the long-term goal of some change projects might be to change the existing organizational culture in one way or another, the project needs to be planned according to the existing culture. Therefore it is important to know the differences between the existing culture, planned future culture and existing culture in other organizations or other parts of the world. Especially since cooperation and knowledge sharing between different cultures is increasing by the day. To promote and smoothen this cooperation expatriates working in Chongqing should be given some sort of cultural training as an introduction to the new environment and the new organization.

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12 Generalization and future studies The purpose of this chapter is to explain the use of this thesis as well as to give suggestions for future studies in this field and in particular for future improvements of this thesis.

12.1 Generalization The framework suggested in this research is rather general and could be used in most environments. It clarifies the main directions and what to focus on when evaluating change environments. Some parts of the specification of the framework need to be adjusted according to what kind of change project that is planned or if it is only a general evaluation of the change environment. The specific study, evaluation of the change environment at CQIKC, that has been carried out in this research can be used as a template on how to specify the framework for specific environments.

12.2 Future studies It is generally known that case study action research lacks external validity. In this research, action research has been used to verify ideas based on previously written literature in this field. To confirm the framework created in this study it would be good if some sort of empirical study could be carried out that covers more than one specific environment. The main intention of this research was never to create a fully verified framework but to examine the change environment as well as providing a theoretical vehicle for evaluating change environments of other organizations. Some of the suggested solutions also need some further research. Some of them are presented in a brief manner and do not allow instant implementation. In this thesis the suggestions are presented from a change perspective. A change friendly organization of course is very important if an organization is to succeed in the future. Nevertheless the organization also needs to consider other aspects of more operational nature in order to find the proper balance before implementing these suggestions.

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83

Appendix II Summary from IKC survey QUESTIONS Answers - Summary Urgency rate Urgency rate Have you ever heard of CP3 or Lean manufacturing before? Yes=9, No=2 If yes, do you think you know what it is? Yes=6, N/A=5 Do you think it is important for the IKC to implement CP3 or lean?

Yes=10, N/A=1

Can you directly point out some short-term wins that an implementation of CP3 or lean manufacturing would generate?

Yes=9, N/A=2

Guiding coalition Guiding coalition Can you see yourself as a part of a team implementing change (i.e. CP3 or Lean)?

Yes=10, N/A=1

Have you actively participated in any other change project? Yes=9, No=2 Do you think it is a good idea to have people who don't understand Chinese in the guiding coalition?

Yes=9, N/A=2

Do you think it is a good idea to have people who don't understand English in the guiding coalition?

Yes=6, No=3, N/A=2

Do you think the competences needed for implementing change (i.e. CP3 or Lean) exist within the IKC and 90 GVA project group?

Yes=9, No=1, N/A=1

Initiation of change Initiation of change Do you know if the IKC have a vision or any specified goals? Yes=9, N/A=2 If yes, do you know what this vision or these goals are? Yes=10, N/A=1 If yes, do you think this vision or these goals are compatible with CP3?

Yes=9, No=1, N/A=1

Have you ever heard about or read ABB Group's vision for 2009?

Yes=3, No=8

Do you think authority, micromanagement or vision best initiates sustainable change?

Vision=3, Micromanagement=2, Authority=2, N/A=4

Empowerment Empowerment Do you think the shop floor workers of the IKC have ever heard about any production or quality "philosophy"?

Yes=8, No=2, N/A=1

Do you think workers are eager to learn more about 5S, six sigma, IRP and so on?

Yes=4, No=5, N/A=2

Do you feel that you are given the time and resources needed to read and learn more about information related to your work?

Yes=7, No=4

Do you know what the incentive bonus is based on? Yes=9, No=1, N/A=1 Do you think workers should be able to affect layout, working conditions and so on in a larger extent than today? Yes=11

Culture Culture Do you find people at the IKC more collectivistic than individualistic?

Yes 4, No=3, N/A=4

Are relationships between workers and managers felt to be close and informal or distant and formal?

Distant=5, Close=5, N/A=1

Do you think people at the IKC are tolerant of uncertainties? Yes 6, No=4, N/A=1 Is ambition and challenge more related to success than consideration and caring?

Yes=7, No=3, N/A=1

Are people generally oriented towards long or short-term goals?

Short-term=9, Long-term=1, N/A=1

Do you think Chinese culture (i.e. values and behaviour) in any way (positive or negative) will affect an implementation of CP3 or Lean?

Yes=10, No=1

If yes, in what way? Varies: Positive=1, Negative=3, N/A=7

84

85

Appendix III Interviews

Former ABB CNCTC Human Resource Manager Carol Du, 2006-03-14..................... 86 IKC Production Manager Quain Ren, 2006-03-23.................................................. 88 Former IKC Department Manager Guan Chao, 2006-03-28.................................... 91 IKC Material Manager Maria Ma, 2006-04-13 ....................................................... 93 IKC Production Engineer Kevin Liu, 2006-04-18 ................................................... 95 ABB CN Trainee Jery Luo, 2006-04-24 ................................................................ 97 IKC Department Manager Carol Du, 2006-04-27 .................................................. 97 IKC Sales and Planning Manager Grace Liu, 2006-05-08 ......................................101

86

Carol Du 2006-03-14

1. What are salaries and bonuses based on? Are they directly connected to productivity? In that case productivity per individual, group or entire workforce and per shift, week, month or year? Is there any financial incentive for making high quality products? Salaries are divided in two parts. One that are based on the company and the local environment in order to offer competitive salaries in regards to neighboring companies. And another part that are based on the individual employees experience, knowledge, education and so on. Bonuses are divided in two different segments: company based and employee based. The first is based on the performance of the company in terms of revenue, received orders and cash flow. The latter is based on individual performance and what is measured is related to the tasks of different positions. E.g. an engineer working for the design department may be measured by the amount of finished drawings and the quality of those drawings.

2. What qualities do you look for in new employees? Any pronounced characteristics such as education, age, creativity, and loyalty? No, real pronounced characteristics. Depends from case to case.

3. When people are interviewed for positions, which are the interviewers present? Are any representative from the IKC present when hiring people to work there? Yes, the department where the employee will be positioned carries out the second interview, and make hiring decision. HR conducts physical examination, salary discussion and so on.

4. Is employee satisfaction ever measured? In that case how often and what is it that employees appreciate most? No, not locally. The company is still young and there have not been any time for such investigations yet. Further more it is felt that there might not be any time available for solving any discovered problems.

5. What are promotions normally based on? E.g. performance, age or experience, characteristics? All above, there are no specific stated characteristics that will lead to promotion. For higher manager positions, test in English is required. Expatriates are employed centrally by ABB China Inc.

6. How many employees have resigned, been fired or in any other way left the company during the last five years? How many were blue/white collar workers? What have been the main reasons?

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2004: 14 persons left, 7 on their own initiative and 7 was fired. Of these 7, 5 were fired due to misconduct and 2 were fired due to poor performance. 2005: 27 persons left, 22 on their own initiative and 5 was fired. Of these 5, 1 was fired due to misconduct and 4 were fired due to poor performance.

7. Are human resource systems aligned with the company vision or goals? ABB�s vision states that innovation and quality are key characteristics; does that go well along with HR policies? Yes. Innovation is rewarded by suggestion bonuses, which during 2005 was issued to around 4 persons; both blue and white collar workers. Quality is rewarded by once or twice every year recognize employees that have discovered or reduced severe quality flaws.

8. In which ways are human resource systems dependent on other functions within the company? E.g. whose authorization is needed when hiring new employees, short or long term? Before initiating any recruitment procedures it needs to be approved from four different managers. First it needs to be approved by the General Manager (GM), second it needs to be approved by the Business Unit Unit (BUU) Manager, third it needs to be approved by the Country Human Resource Management and fourth and final it has to be approved by the Country Manager. This process usually last for at least half a month. When allowance been given for initiating the recruitment procedures the final hiring contract only needs to be signed by the local HRM and GM.

9. Can any of these dependencies be considered as unnecessary? The first one mentioned above is felt to be a bit disturbing.

10. Are there any training, conference or course records of your employees?

Are they given certificates of some sort when completing internal training? Yes, all employees have some sort of track record.

11. Is it possible for employees to receive funding for literature that is related to their work? Yes.

12. Are employees encouraged to increase their knowledge within and outside the scope of their current position? Yes.

88

Quain Ren 2006-03-23

1. How big is the production area and how many buildings does it occupy? 5700 m2 in 3 buildings

2. Which are the different production groups? Totally there is twelve different production groups: Snout, Yoke collar, Strip, Edge collar, Spacer, Cleats, Cylinder, End support, Spacer ring, Inspection & Packing, Shield ring and Active parts.

3. Which are the different support groups? Maintenance, carpenter, tool shop, warehouse and logistics.

4. Which are your different products? The IKC produces insulation kits, one insulation kit is all the insulation needed for one transformer. It can be divided in 6 different product groups. Winding insulation, Active parts insulation, Cleats and leads, Cover, Core and Final assembly? The IKC produces about 300 kits per year and each kit is unique. The customer designs and specifies what product it wants and attaches the drawings to the order. Even though each order is different, molding tools and the like can be used for more than one kit.

5. What is the normal delivery time for these kits? It varies depending on the product. Normally it is about 15 days for kits for 500 MVA transformers and about ten days for kits for smaller transformers.

6. Is there a layout over the workshops? Yes.

7. How is the production staff organized? Foremen, group leaders and so on? How many are they? Any organizational chart over the production staff? Two foremen work in 2 different shifts from 8 - 22. They are responsible for coordinating the different production groups, and requesting purchases of consumables, tools and other material that is necessary for the production groups to operate. Group leaders are responsible for coordinating the operation of the group. The amount of people in each production group varies from 4 � 12. The schedule varies depending on demand. Sometimes groups work 24 hours per day in 3 shifts, other times groups work 10 hours per day in one shift or even less. It is a so-called flexible workforce who leaves the IKC when they finished their orders. If someone changes production group it is for a longer time than a single month.

8. Is production staff cross-trained? If yes, do they circulate according to a specific schedule or is it only used if necessary? Some of them, roughly 50%, can work in two or three different production groups. It of course depends on the similarities between the groups. Within the

89

groups workers normally rotate between different operations on a monthly basis. There is no scheduled rotation between different production groups.

Urgency rate

1. What are the IKC�s results in terms of revenue, turnover, market share and productivity during the last years? Revenue = 150 000 kRMB, Productivity = 60000 MVA Market for PT = 30-40%

2. When do you think it would be a good idea to implement CP3? End of 2006 or beginning of 2007

Visions

1. The production vision, how well known is that vision among workers? To produce 90 000 MVA in 2008. They should know but its nothing that has been controlled.

Systems

1. Which different measurement systems are used at the IKC?

• DPMO is used to measure product deviation? • NCR (internal) and CCRP (external) are used to measure customer

satisfaction? • Housekeeping index is used to measure cleanliness in the production

areas? • MVA/hour or kg/hour is used to measure productivity? • WIP is measured through Baan IV • Overtime is measured in Baan IV • Utilization of machines • Production space, just did 3700 m2, but its only a guess • Utilization of material? • Expenses, measured by sections • Inventory, measured by hand

2. Are salary or incentive bonus based on any of these measurements, and in that

case to which extent? The salary is mainly based on productivity. The workers are not paid by how many hours they spend in the IKC, instead they are paid for every product they make. An edge collar is for instance worth 2 RMB for the group. Apart from productivity the salary is also based on quality of the product and cleanliness of the production area. Salary package = Piece price x quality factor x cleanliness factor. This determines the salary for each group. The group receives a lump sum that then is divided within the group according to a previous agreed formula. This formula has to be agreed upon by all parties in the group as well as the production manager. Parameters included in this formula can be experience, working pace, responsibilities and so on.

3. Are there any statistics of how big part of the total salary that are contributed by incentive bonuses?

90

Normally about 80% reaches their targets and receives a bonus worth 3 months nominal salary. This would imply that about 17% (0.8x3/(0.8x3+12)=0.1667) of the total annual salary is contributed by the incentive bonus. In reality it is a bit lower than this value, since the nominal monthly salary upon which the incentive bonus is calculated is a little lower than the actual monthly salary.

4. What is the average amount of overtime hours per person per month? (For both blue- and white-collar workers) Don�t know exactly but roughly 30% for blue-collar workers and about 5% for white-collar workers.

Structures

1. How is the IKC organized? How many works at the different departments, how many departments are there and how are they related to each other? Production, Planning & Sales, Purchasing, Engineering & Maintenance

2. Have the production processes and facilities ever been mapped and measured in terms of value adding activities or the like? No

3. Is there a local Table of authorization or Organizational chart for the IKC?

No local TOA but there is a chart over the organization

Interdependencies

1. Departments are often dependent on each other. Can you think of any interdependencies that slow down, annoy or limit your or others daily work?

For instance, if I understand it correctly, all purchases above 5000 RMB must be compared with 3 different suppliers, where you suggest one, and the supply chain department suggests the two others. This procedure usually takes very long time and slows down the process. Sometimes there are problems with deliveries to the LPT at ABBCNCTC. If they make an order that later on is changed due to delays in their production the IKC is required to store the products. Even if they are already finished when LPT makes their change.

91

Guan Chao 2006-03-28

1. When was the IKC founded? If it was founded before 1998, did the joint venture require large organizational changes? Before the joint venture was created there was only a small group producing insulation for the transformers manufactured in Chongqing. The present organization was more or less created along with the joint venture. The production of insulation increased and the IKC was founded. During the first three years it still only produced insulation for the factory in Chongqing but after three years, in 2001 it started producing insulation for all ABB factories in China, Vietnam and Thailand. At 2003 it became a profit centre of its own.

2. Is there a map of all or some of the processes of the IKC? E.g. procurement procedures, shipping procedures, production procedures? The procedures of most processes are described and the descriptions can be found on the local network.

3. Are any of these processes measured? For instance product deviations are measured and summarized in defects per million opportunities. Is this done with any other processes such as purchasing, planning and so on? Yes, almost all processes are measured in some way. Purchasing and planning are measured by NCR, sales, engineering and production is measured by FPY.

4. If any processes have been measured, have there been any standard procedures on how to follow up these measurements? Within the BU there are directions on how quality should be assessed and how to manage results.

5. Have the information or material flow ever been mapped and measured? Yes, material flow has been mapped and it is measured through Baan in terms of WIP and others. If information flow ever been measured is uncertain.

6. Have any of the IKC processes been compared with other IKC within ABB or similar factories outside? Production layouts are often compared through benchmarking trips to other companies. Has this been done with any other processes? Ideas and results are often exchanged and discussed between departments at different IKC: s within ABB but there has been no real full-scale benchmarks. However, as parts of ABB they all have processes based on the same main procedures and the continuous exchange of ideas makes the differences small, why the benefits form large full-scale benchmarks are believed to be rather small. Benchmarks outside ABB have not really been considered, mainly due to the

92

restrictions in suppliers and customers and the small possibility to share knowledge with companies outside ABB.

7. If I understand it correctly, the IKC is organized in five departments: Sales & Planning, Production, Engineering & Maintenance, Materials Management and Quality Management. Are the connections between these departments mapped and documented in any way? These connections can be divided into formal and informal. There are formal detailed procedures accessible for everyone at the local network. But so far it is more written descriptions than maps and it is unknown how updated these are and how well they are followed. Informal connections are more based on teamwork. Generally office employees at the IKC are good at teamwork but they have problems reaching any final conclusions. To unite the group in one final conclusion often requires an authoritative leadership style.

8. The workers salaries are very much based on their productivity. Is this the case for office people as well? No, office people have a fixed monthly salary. This is due to the big difference in working procedures. Blue-collar workers are more expected to follow procedures and not generate ideas in the same way as white-collar workers. Therefore it is found hard to measure and evaluate the performance of white-collar workers than blue-collar workers.

9. Were there any visual effects on quality, productivity and so on when changing salary and bonus systems? Productivity rapidly increased after introducing the �piece rate� salary system. However, product quality was less affected and if anything it was a little lower than before. Including some more factors than just productivity has later on modified this.

10. Does the external environment (such as investors� requirements, government regulations, and local community) influence the business in any special way? Investors: ABB has a big influence on how business is handled. Most of the supplies are only allowed to be bought from other ABB companies and the final products are only allowed to be sold to other companies within ABB. The government�s role as an investor is fairly negligible. Government regulations: The government is very anxious to rapidly develop China and strongly supports new investments. Why sometimes regulations such as building permits and the like can be temporarily eased in order to not interfere with any new investments. Local community: ABBCNCTC is so far a success story of the Chongqing municipality and very much appreciated by the local community. They have shown their appreciation by yearly gifts to the company.

93

Maria Ma 2006-04-13

Company description

1. Which are you�re main suppliers? How much is purchased from each supplier, roughly and what are lead-times and delivery times for orders from these companies? Its single biggest supplier is ABBPTPR/FI, which also is a part of ABB BU Transformer. It is commonly known as ABB Figeholm and it manufactures insulation material for all Insulation Kit Centres within ABB and is located outside Oskarshamn on the Swedish eastern coast. About 70% of all purchased supplies are estimated to be from Figeholm and the delivery time is 10 to 12 weeks. Of these, 3 to 4 weeks are the lead-time and 7 to 8 weeks are transportation. The second biggest supplier is ABBPTPLA, commonly known as Plast. This is also a company within the same BU and it manufactures high performance components made of fiber composite materials. It is located in Pitea in northern Sweden and about 10 % of all purchased supplies are estimated to be from ABB Plast. 4 weeks lead-time and 7 to 8 weeks transportation time result in a total delivery time little shorter than 3 months. Other big suppliers are Alihe, a local company that manufactures laminated wood and Weidmann, a Swiss company that produces corrugated board. Weidmann has agreed to keep a small stock of finished products to keep average lead-times to 2 weeks.

2. How many suppliers does the IKC have in total? In general the IKC strives to localize as many suppliers as possible, e.g. Alihe, has recently replaced Roechling as their laminated wood supplier. In total the IKC has less than 20 raw material suppliers and out of them more than half are Chinese and at least one quarter are situated in Chongqing.

General questions

1. Can you briefly describe the purchasing process? When material is purchased, how is it purchased, what are the requirements for a purchase, what is done when it is purchased and so on�? When an order has been received, sales department is given a forecast from all customers continuously which normally covers the coming four months, which is made into a material forecast, the detailed design is ready in an early state from ABBCNCTC but the other customers can only give model type. Material engineer creates material requisition which is made into a purchase request and sent to the supplier, after is has been signed by Carol, Charlie and Alan, if the purchase is above a certain sum Matti has to sign as well. The supplier confirms, price, delivery time and so on.

2. Is this process mapped or in any other way described? Yes, there is a work guide available on the company network.

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3. Is this process measured or in any other way evaluated? Yes, it is measured in many ways.

4. How is WIP measured and who measures it? WIP is measured automatically by our ERP-system and Sam controls it. All material that has entered the production area and not been completed is referred to as WIP. It continues to be WIP until it is shipped. In order not to store excessive material in the production area groups need to fill a Material Requisition Form before bringing material into the workshop.

Readiness assessment

1. Can you see how the suppliers of the IKC could affect or limit an implementation of CP3? For instance they might be unreliable when it comes to OTD, or delivery-time for orders from Sweden must be quite long which perhaps can affect the compatibility with Lean Manufacturing Complicates the implementation, for instance European suppliers are less flexible and have holidays that don�t exist in China during summer and Christmas. Once an order is placed it is hard to change.

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Kevin Liu 2006-04-18

1. During the implementation of 5S, do you think that the workers have been a big source of initiative? No, so far most initiatives have come from me, Jery or someone else outside the production groups. In order to make workers a bigger source of initiative in the future they need to learn more about 5S, by training, benchmarking and so on.

2. How do you think the teamwork abilities are? Have you noticed any difference between teamwork among group members and teamwork outside the production groups? Don't really know, some groups have better leaders that promote teamwork in a better way than others; some groups are good some are not. Teamwork inside the production groups is better than between different groups because of small connections between the different groups.

3. How many of the workers do you think know anything about CP3? Do you think any of them have heard anything about �Lean Manufacturing�? Most workers don�t know anything about CP3 or �Lean Manufacturing�, I would say about 99% don�t know.

4. In general, what is your opinion about the workers willingness to change? Most workers want to change, make the workshop shine, more organized etc. but they are limited due to the heavy workload and insufficient training.

5. Could you briefly describe the purchasing process? What�s need to be done before any purchase can be completed? When there is no previous contract: First you must know you�re requirement and find a supplier. The supplier gives a quote, which if it meets the requirements, is made into a Purchasing Form that is handed on to Maria. Maria finds two more suppliers and compares the given price. After the comparison they normally choose the supplier that offers the lowest price. When the supplier is chosen the purchase has to be approved by Carol and then by the ABBCNCTC Purchase Department. From the first quote has been approved by me, until the purchase has been approved takes at least two weeks, not unusually up to a month. Since the price is of major concern when choosing the supplier it sometimes results in products that are not as good as first expected. If there is a previous contract: Fill in a form, send it to Maria who then, after Carol�s approval contacts the supplier. All purchases needs Carol�s signature.

6. Do you know how work in progress (WIP) is measured? Could you briefly describe how it�s done? No.

7. During the implementation of 5S, is it any organisational structures that have limited the implementation? For instance if all your decisions have to be verified

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by some manager which slows down the process. The purchasing process as mentioned earlier.

8. What do you think have been the biggest barrier for implementing 5S? What have caused you the most problems? Lack of experience in 5S, management and processes. Workers are to busy. It is hard to find suppliers.

9. Sometimes during the implementation of 5S group leaders have refused to put things in the red-tag holding area since they think other workers might steal them. Do you think that workers of the IKC generally have a hard time trusting workers outside their own production group? Yes, of course there are exceptions but generally workers trust their co-workers in the group more than members from other groups. There have been thefts in the past, which may be the reason for this lack of trust between groups.

10. According to most literature on Chinese culture there is a huge gap between the relations between worker and top managers and the relations between workers and middle management. Is this something you have noticed at the IKC? Yes, the relationship between the workers and Sam are closer than the relationship between the workers and Carol.

11. In Japan work is an extremely central part of people�s life. Do you think work is equally important in China? Not as important as for the Japanese but work is still very important for most Chinese people.

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Jery Luo 2006-04-24

1. During the implementation of 5S, do you think that the workers have been a big source of initiative? No, not really.

2. How do you think the teamwork abilities are? Have you noticed any difference between teamwork among group members and teamwork outside the production groups? Better within the group since the group members are familiar with each other. Sometimes there are even some arguments and complaints between different groups.

3. How many of the workers do you think know anything about CP3? Do you think any of them have heard anything about �Lean Manufacturing�? Yes, its one of the goals with the monthly information meetings we have with the workers.

4. In general, what is your opinion about the workers willingness to change? Some of them want to stay with the old �style� but many are willing to change.

5. During the implementation of 5S, is it any organisational structures that have limited the implementation? For instance if all your decisions have to be verified by some manager which slows down the process. Little communication between different departments.

6. What do you think have been the biggest barrier for implementing 5S? What have caused you the most problems? To change the working and thinking habits of everyone in the workshop.

7. Sometimes during the implementation of 5S group leaders have refused to put things in the red-tag holding area since they think other workers might steal them. Do you think that workers of the IKC generally have a hard time trusting workers outside their own production group? Yes, several group leaders have mentioned this, not only between different production groups but also between other departments.

8. According to most literature on Chinese culture there is a huge gap between the relations between worker and top managers and the relations between workers and middle management. Is this something you have noticed at the IKC? Yes there is some difference, top managers probably don�t visit the workshop as often as middle management, and they don�t have so many chances to communicate with the workers in the workshop.

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9. In Japan work is an extremely central part of people�s life. Do you think work is equally important in China? In young years work is most important but after one got married or have children, they will balance the family life and the working life.

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Carol Du 2006-04-27

1. Do you think that last year�s good financial results as well as the current expansion have led to any complacency within the IKC? No one is 100% satisfied with the current situation, there is always need for improvements.

2. What are the KPI: s of the IKC? I�ve been told they are the following, are that correct and in that case are all equally important? Average Net Operating Working Capital as % of revenue Trade receivables as % of revenue Inventory as % of revenue Trade payables as % of revenue Days of sales outstanding (DSO) Days of purchases outstanding (DPO) Total throughput time (TTPT) Throughput time (TPT) On-time delivery (OTD) as % of revenue Cost of poor quality (COPQ) as % of revenue Customer complaint report program (CCRP) Defects per million opportunities (DPMO) First pass yield (FPY) Quality performance index (QPI) Yes that is correct.

3. How does the communication between departments look like? How are different departments informed about other departments projects, how frequent are it, how much of the communication is formal and so on? Monthly information meetings for all office employees. Articles in the company newspaper. One for each group.

4. How is communication between organisational levels managed? Is there any IKC newspaper, how are workers informed of what is currently happening in higher organizational levels and so on? Communicated through whiteboard, foremen and group leader.

5. How many of the main processes of the IKC do you think are mapped or described in any other way? How well are these descriptions followed? Everyone has a work guide, including job description, responsibilities and so on.

6. Do you consider the IKC to be focused on vertical or horizontal processes? Currently the production is mostly focused on vertical processes. Perhaps it should mostly be focused on horizontal processes but also on vertical processes.

7. Is there any standardized way to improve processes at the IKC? It is more based on each situation. Usually if any values are low we analyze and then act accordingly, some steps are predefined but there is no entire regulation on how

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to do this.

8. In theory ABBCNCTC is extremely centralized. For instance every single purchase has to be authorized by both the Financial Manager and the General Manager. Is the IKC as centralized in theory and do you think it is the same in reality? Yes, we follow the same procedures as all of ABBCNCTC. In reality it is a little less centralized. Some cases that are not very important might be decided on a lower level.

9. How do you think cross-functional behaviour is at the IKC? Is cooperation good between different departments and is there any difference from departments outside the IKC? Normally the cooperation is good between departments both inside and outside the IKC.

10. Does the external environment (such as investors� requirements, government regulations, and local community) influence the business in any special way? No big impact, of course we have to follow the regulations, sometimes few exceptions been given.

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Grace Liu 2006-05-08 Company description

1. Who are the customers of the IKC? How much do they purchase, where are they situated, what kind of product do the purchase and so on�

! ABBCNCTC Biggest customer, its purchases represented 48% of the total revenue of the IKC in 2005. It is situated in the same factory area. Produces LPTs and Shunt Reactors.

! ABBCNHTC Second biggest customer, its purchases represented 25% of the total revenue of the IKC in 2005. It is situated in Hafei, nearby Shanghai roughly 1760 km away from CQ. It became a customer of the IKC in 2000 and mainly produces MPT at 220 kV.

! ABBCNZTC Third biggest customer, its purchases represented 20% of the total revenue of the IKC in 2005. It is situated in Zhongshan, nearby Macau roughly 2030 km away from CQ. It became a customer of the IKC in 2000.

! Thailand Fourth biggest customer, its purchases represent 4％ of the total revenue. It is situated in Bangkok, the capital of Thailand and their main products are MPT and LDT.

! Vietnam Fifth biggest, or the smallest customer, its purchases represents 3% of last year�s total revenue. It is situated in Hanoi, the capital of Vietnam and they mainly produce LDT

2. Is there any plan to expand to more customers? So far, no. According to ABB policy, we are not allowed to sell products to any 3rd part customers. However, ABB is currently starting up a new joint venture in Datong, but for now nothing has been said about future deliveries to them.

3. When do you receive your orders? Do you get them as soon as they have received an order for a transformer? How long is their design phase? For external customer it is at the latest 13 days before their requested delivery time. But usually we receive the order 1 to 1,5 months in advance. For CNCTC we receive the order at the same time as they get an order for a transformer. Regarding their design phase, it is hard to say, it depends on what kind of transformer it is and how many designers they have assigned to that specific project.

4. How long are the forecasts? What are they based on? Forecasts are given three months in advance but they are not as accurate as we require.

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5. What happens when an order has been received? Are they handed over to planning? As soon as it is a firm order it is handed over to planning and work preparation as soon as possible, usually through paper based communication.

6. Who decides how much you can produce? Is there a limit or is it only to utilize overtime to increase capacity? Have you ever turned down orders? We base our planning on man-hour calculations for each order. Orders are never rejected; if necessary they are rescheduled before the order is confirmed. Since the forecasts are given in advance there is enough time to plan and adopt the production without utilizing unnecessary overtime.

7. What happens when the Planning department receives and order? How is it processed? How is Planning and Material departments connected? When planning receives a requested order from sales they calculate the needed man-hours and control that it lies within the planned capacity. They forward the requirements to the material department who calculates the needed material and gives their approval. When both planning and material have approved it, the sales department confirms the order and the delivery date with the customer.

Affect on change

1. Do you think the customers of the IKC in any way will affect an implementation of CP3? Yes, we have a customer survey form where they let us know what they think about our services.

2. Have any of the customers previously demanded any major changes to be carried out at the IKC? Quality certifications, environment certifications or the like? It is the continuous growth in their forecasted demand that initially have required our higher production output as well as shorter delivery times.

3. Are any of these processes or procedures carried out within the Sales and planning department mapped or described in any way? Each position has an own work guide, its updated when necessary.

4. Are any of these processes or procedures carried out within the Sales and planning department measured or in any other way evaluated? All employees have individual targets; therefore most processes needs to be measured. For instance work preparation employees� needs to deliver the work card at least five days before production finish time.