Managing a Lean-Agile Leadership Transformation in a Traditional Organization Master Thesis in Supply Chain Management and Management and Economics of Innovation GUSTAF BRINCK JOHANNA HARTMAN Department of Technology Management and Economics Division of Supply and Operations Management CHALMERS UNIVERSITY OF TECHNOLOGY Gothenburg, Sweden 2017 Report Number: E2017:065 2 MASTER’S THESIS E2017:065 Managing a Lean-Agile Leadership Transformation in a Traditional Organization GUSTAF BRINCK JOHANNA HARTMAN Supervisor Chalmers: Ola Hultkrantz Supervisors Company: Eric Landén Fredrik Westin Department of Technology Management and Economics Division of Supply and Operations Management CHALMERS UNIVERSITY OF TECHNOLOGY Gothenburg, Sweden 2017 3 Managing a Lean-Agile Leadership Transformation in a Traditional Organization GUSTAF BRINCK JOHANNA HARTMAN © GUSTAF BRINCK, JOHANNA HARTMAN, 2017 Master’s Thesis E2017:065 Department of Technology Management and Economics Division of Supply and Operations Management Chalmers University of Technology SE-412 96 Göteborg Sweden Telephone + 46 (0)31-772 1000 Cover: [The picture describes the 12 principles in the agile manifesto (Murman, 2014)] Chalmers Reproservice Göteborg, Sweden 2017 4 Abstract For a long time, many of the mainstream leadership principles have originated from scientific management, created by Frederick Winslow Taylor during the industrial revolution. These management principles rely on a high level of command and control from managers, and little, or no, thinking from employees in the organization. However, in the early 90’s, businesses started to move faster, which made organizations experience new requirements of shorter time to market and constant demand for new innovations. In addition, the organizational context also changed. Today, organizations must adapt to a situation of more educated workers, disruptive technology and a complex market situation. One way of meeting the new requirements set on organizations is called lean-agile, which derives from the lean and agile principles. Lean-agile aims to address the issues of shorter product development lead times and encourage constant innovation, with respect to people and focus on flow. With these new requirements at hand and a new organizational context, organizations can not be managed in the traditional tayloristic way anymore. This thesis investigates the area of lean-agile leadership from two different perspectives. To start with, the thesis investigates what barriers that exists, and what change that is required, in an organization when transforming a traditional leadership style to a lean-agile leadership style. Secondly, it examines how the leader role change, in terms of strategic and operational activities, when transforming the leadership. To conduct the data, an inductive approach was used to be able to combine observations with theory to get an in-depth understanding of lean- agile leadership. It also contributed to an exploratory approach, where the findings guided the continued direction of the study. The research consisted of 11 interviews at GTT, 4 benchmark interviews, and 2 expert interviews. The results of the investigation showed that there exists five main barriers to lean-agile leadership at GTT. These are the combination of project and lean-agile structures, HR policies, decision-making process, organizational culture, and leadership mindset. The required change are related to these barriers and further explained in the report. The investigation also showed that due to the change of the function of the manager, the strategic and operational activities will be changed. There exist nine activities that are considered to be the most important activities of a lean-agile manager. These concerns motivation of teams, empowerment, aligning constraints, creating ways of sharing competence, creation of a suitable structure, creation of flow, encouraging innovation, managing the backlog, and having direct communication with employees Keywords: Agile, Lean, Tayloristic organizations, Traditional leadership, Agile leadership, Lean leadership, Change theories, Culture, Disruptive market, Motivation. 5 Acknowledgements The master thesis work at Volvo Group Trucks Technology is our last step before graduating. It has been a really interesting and fun journey this spring, and we are so grateful for all the inspiring people that we have met. The area of research, lean-agile leadership, was new to us before the investigation. The master thesis work has really sparked our interest for both leadership, and lean-agile methodologies. We believe that lean-agile will be increasingly relevant in the future, and that many organizations will benefit from this type of leadership and methodology. First of all, we would like to thank Volvo Group Trucks Technology, and our supervisor Fredrik Westin for letting us conduct this thesis. We really appreciate the opportunity and all the support that we have got during this spring. Thank you! We would also like to thank Knowit and Eric Landén, who initially took the initiative to conduct this thesis with Volvo GTT. Eric has also been one of our supervisors, and has given us great insight into the subject of lean-agile and supported us during the work with the thesis. At Chalmers University, we would like to thank our supervisor Ola Hultkrantz. Thank you for all the advices and the great support in the work, both concerning the report and the area of research. We really value all the time you have set aside for us. Additionally, we would like to thank the benchmark companies: Ericsson and Delaval. To be able to perform a benchmark study was really valuable for the result of the master thesis, and therefore, we really appreciate that you have taken your time to meet us. Finally, we would like to thank all the participants that we have gotten the chance to interview during the spring. We would like to thank Fredrik Woxblom for providing us with contacts to one of the benchmark companies. A special thanks to Jennie Pettersson and Thomas Riddarstråle, who provided us with great knowledge in the subject of lean-agile. The thesis would not have been possible to conduct without the help from you. So thank you for taking your time. Best Regards, Gustaf & Johanna 6 Table of Contents Abstract 4 Acknowledgements 5 Table of Contents 6 1. Introduction 10 1.1 Background 10 1.2 Purpose 14 1.3 Problem Analysis and Research Questions 14 1.4 Delimitations 15 2. Theoretical Framework 16 2.1 Traditional Organizations 16 2.1.1 Traditional leadership 16 2.1.2 Traditional Organizational Structure 17 2.1.3 Project management 17 2.1.4 Line management 18 2.2 Why Leadership Change is Needed? 20 2.2.1 Complex systems theory 20 2.2.2 The Cynefin Framework 21 2.2.4 Knowledge Workers 23 2.2.5 Motivational Theories 24 2.2.6 Changed market conditions 25 2.2.7 Summary - Why Leadership Change is Needed? 26 2.3 Agile 26 2.3.1 Concepts and Tools 27 2.4 Lean 28 2.4.1 Concepts and Tools 29 2.5 Connection between Lean and Agile 31 2.6 Lean-Agile 31 2.6.1 Respect for people and culture 32 2.6.2 Flow 32 2.6.3 Innovation 33 2.6.4 Relentless Improvement 33 7 2.7 Lean-Agile Leadership 33 2.7.1 Unlock Intrinsic Motivation and Energize People 34 2.7.2 Empowerment of Teams 34 2.7.3 Aligning Constraints and Setting Boundaries 35 2.7.4 Develop Competencies 36 2.7.5 Grow Structure 36 2.7.6 Creation of flow and Applying Systems Thinking 36 2.7.7 Encourage Innovation 37 2.7.8 Summary - Lean-Agile Leadership 37 2.8 Lean-Agile and HR 38 2.8.1 Embrace the new talent contract 39 2.8.2 Foster continuous engagement 39 2.8.3 Hire for attitude and cultural fit 39 2.8.4 Move to iterative performance flow 39 2.8.5 Support impactful learning and growth. 40 2.9 Culture 40 3. Methodology 42 3.1 Research Strategy 42 3.2 Research Approach 43 3.3 Research Process 44 3.4 Data Collection Primary Data 44 3.4.1 Interviews 44 3.4.2 Sampling 46 3.4.3 Survey 47 3.5 Data Collection Secondary Data 48 3.6 Data analysis 48 3.7 Research Quality 49 3.8 Quality Secondary Data 51 3.9 Ethics 51 3.10 Outline 52 4. Empirical Data 54 4.1 Interviews Managers - GTT 54 4.1.1 What managers spend their time on 54 8 4.1.2 View of leadership function 55 4.1.3 Decision making 56 4.1.4 Internal Structures 57 4.1.5 Measurements and KPIs 58 4.1.6 Effectiveness and customer value 59 4.1.7 Motivation 60 4.1.8 Competence development and Innovation 61 4.1.9 Culture 62 4.2 Survey Result - Culture 63 4.3 Interviews Managers Benchmark 63 4.4 Delaval 64 4.4.1 What managers spend their time on 64 4.4.2 View of leadership function 65 4.4.3 Decision making 65 4.4.4 Internal Structures 66 4.4.5 Measurements and KPIs 66 4.4.6 Effectiveness and customer value 67 4.4.7 Motivation 68 4.4.8 Competence development and innovation 68 4.4.9 Culture 69 4.4.10 Changing the Leadership 70 4.4.11 Barriers and Enablers 71 4.4.12 Higher Management 72 4.5 Ericsson 72 4.5.1 What managers spend their time on 73 4.5.2 View of leadership function 74 4.5.3 Decision making 74 4.5.4 Internal Structures 76 4.5.5 Measurements and KPIs 76 4.5.6 Effectiveness and customer value 77 4.5.7 Motivation 78 4.5.8 Competence development and innovation 79 4.5.9 Culture 80 9 4.5.10 Changing the Leadership 81 4.5.11 Barriers and Enablers 82 4.5.12 Higher Management 82 4.6 Areas Covered in Interviews with GTT, Ericsson and Delaval 83 4.7 Survey Result - Work tasks 83 4.8 Interview HR - GTT 85 4.8.1 HR measurements and KPIs for leaders 85 4.8.2 Competence 85 4.8.3 Motivation and feedback 85 4.9 Expert Interviews 86 4.9.1 Expert Interview 1 - Adaptive Leadership 86 4.9.2 Expert Interview 2 - Agile HR 87 5. Analysis 88 5.1 Identification of barriers and required change 88 5.1.1 Project and Lean-Agile Structures 88 5.1.2 Decision-Making at GTT 89 5.1.3 Existing HR-Policies 90 5.1.5 Existing Culture 91 5.1.6 Business Environment 92 5.2 Traditional Leadership vs. Lean-Agile Leadership 94 5.2.1 Function of the Manager 94 5.2.2 Strategic and Operational Activities 100 6. Results 103 7. Recommendation 106 Research Question 1 106 Research Question 2 107 8. Discussion 111 References 112 10 1. Introduction Volvo Group Trucks Technology (henceforth GTT) is the second largest heavy-truck brand in the world. The vision of GTT is “To be the most desired and successful transport solution provider in the world” with the mission of driving prosperity through transport solutions (Volvo Group, 2017). In line with this vision and mission, this chapter will introduce the concept of lean-agile leadership, its relevance to GTT and how this master thesis aims to investigate this further. 1.1 Background Most of the mainstream management theories of today is based on what Frederick Winslow Taylor called Scientific Management, which emerged during the industrial revolution (Grönroos, 1994). The focus of scientific management was to produce high-volume, relatively inexpensive and standardized products to achieve economies of scale (Spender & Kijne, 1996). This also corresponded to the definition of efficiency at the time, which was to produce as much goods as possible at the lowest cost (Peaucelle, 2000). The manager's responsibility in scientific management was first of all to be responsible for planning the work and how it should be executed to achieve maximal efficiency (scientific management, 2016). When industries and markets evolved, it was no longer sufficient to have as much goods as possible produced at the lowest cost, as an efficiency measure. In today's market context, just-in-time, quality, diversity and flexibility must be incorporated in the evaluation of how efficient an organization is (Peaucelle, 2000). The new efficiency measures created new demands on how organizations were managed and how their resources were utilized. Therefore, many organizations tried to reduce the polarization between elite and routine workers to achieve higher involvement and respect between workers (Pruijt, 2000). In today's organizations, many of the Tayloristic behaviors are still present (Peaucelle, 2000). One example of this is that many organizations are organized in different forms of project structures, with a project manager who is planning all the work to be executed (Maylor, 2010). This was also the case in the software industry, where most of the development was executed in different kinds of projects according to the waterfall model (Hughey, 2009). The waterfall model is a sequential model that describes the process of software development, divided into different phases in the project. However, the model is not a single-pass sequential model, but instead iterative where each phase in the model is passed at least twice as described in figure 1.1 (Royce, 1970). 11 Figure 1.1: The Waterfall Model (Royce, 1970) Many project managers have misinterpreted the model to be a single-pass sequential model, where work is not iterated with the customer. This have caused some problems in the product development phase, since all customer requirements must be known from the start for the project not to change scope. However, this is seldom the case which is also why the model have received critique for being inflexible and having long delivery times when customer requirements change (Hughey, 2009). In the 1990s, businesses started to move faster, and leaders were becoming frustrated because of the long lead times and lack of flexibility in software development. Decisions made early in a project were difficult, or even impossible, to change (Varhol, 2017). In the mid 90’s, Bower and Christensen (1996) introduced the concept disruptive technologies, which describes technologies that presents a package of different performance attributes. These technologies damaged many established companies and their strong position in the market. Established companies suddenly became threatened by new entrants, that were able to gain market share by quickly embracing new technologies, and deliver them to the market (Bower and Christensen, 1996). In addition, the amount of technology increased in the 20th century, while the number of industrial workers decreased (Drucker, 1994). The industrial era that were characterized by predictability and best-practice solutions, were replaced by a knowledge society, characterized by technology, and complexity in the marketplace (Appelo, 2011). Furthermore, the educational level in societies across the globe increased, and in 1994 the term knowledge workers were coined. The term knowledge workers describe educated workers whose main capital and asset is knowledge (Drucker, 1994). The rise of the knowledge workers brought new challenges to organizations, since the productivity of these workers were not easy to measure. Moreover, there were no perfect way to define and describe the knowledge worker's duty and summarize them in a set of repetitive and standardized tasks to perform. Instead, knowledge workers had the requirements of being creative and innovative when solving problems, which required a space were skills and talent 12 were utilized in the best possible way (Medinilla, 2012). With a new organizational context of both more educated workers, disruptive technology and a complex market situation, organizations can not be managed the same way anymore (Snowden & Boone, 2007; Vesterby, 2008; Dekker, 2011; Cilliers, 1998). From a management point of view, this means that the Tayloristic view of constantly investigating cause-and-effect relationships in the market place and thereafter developing best-practice solutions as countermeasures, must be challenged (Kurtz & Snowden, 2003). In this context, it is considered almost impossible to predict future events and outcomes due to the large number of elements that are interacting with each other. As a manager, it can therefore be devastating to set business goals and outcome in advance, due to the low accuracy of the plans made. Managers must therefore be patient and apply a flexible mindset for the path forward to reveal itself by trials and experiments, which is the opposite of the Tayloristic management style of command-and-control with heavy front load planning (Kurtz & Snowden, 2003). In early 2000s, the agile principles emerged as a response to the dysfunctional project models with inflexible working conditions and long delivery times. Instead of focusing on project related matters such as heavy front load planning, phase gates, resource allocation and budgeting, agile development focuses on shorter planning horizons to be able to respond to quick market changes and changed customer requirements (Abbas et al., 2008). From an employee perspective, it was realized by the IT-industry that IT-projects that succeeded were performed by self-organized small teams, that produced working software in short iterations. This way of working allowed frequent feedback from the customer, which made it possible to adapt and extend requirements during the development. This situation allowed for both speed and quality to be improved, which made this type of software development process extremely popular (Medinilla, 2012). When agile first came, it was developed for small companies with smaller development teams (Heusser, 2015b). However, complex market situations and the need for responsive development did not only apply to small software companies, but larger organizations in other industries as well. Therefore, the industry expressed a need for ways to scale agile development to larger enterprises. Today, some of the most widely used frameworks for large scaled agile development are SAFe (Scaled Agile Framework) and LeSS (Large Scaled Scrum). These frameworks are engineered to keep the benefits of the agile principles with increased innovation and speed, without sacrificing synchronized alignment, collaboration and delivery of product development initiatives (Heusser, 2015b; Scaled Agile Framework, 2016). The case company GTT is currently organized in a so called matrix structure, where projects are combined with line management. The project's main responsibility is to make sure that the customer demands are met but also to estimate resource consumption. The lines responsibility in this context, is to provide projects with the capabilities and competence necessary to accomplish the work. One such competence is the electrical competence provided by the line 13 organization Electrical & Electronics Engineering department (henceforth E&EE). In 2014, an initiative called EvolvE was taken by E&EE to achieve the goals of reducing product development cost and lead time at the E&EE department, but also increase flexibility and innovation in the company. In 2016, it was proposed that a lean-agile transformation, according to the framework SAFe, should be implemented. The E&EE department at GTT, was in the initial phase of implementing SAFe when the master thesis was written. During the spring of 2017 they started to operate according to the principles of the agile manifesto and SAFe. The implementation was executed from a bottom-up perspective, which meant that the team and program levels of SAFe started the implementation, as described in Figure 1.2. However, GTT had not yet decided the extent of the transformation horizontally or vertically in the existing organizational structure. Figure 1.2: Scaled Agile Framework (Scaled agile, 2017) GTT was currently using a traditional model for their product development initiatives (Volvo Group, 2017). In this context, the traditional model was a combination between phase-gate and V-model techniques. The phase-gate model is comparable to the waterfall model where the steps in the development process is divided into stages and gates, where the criteria for passing through a gate is decided in advance. When applying gates between the different phases, project progress can be reviewed and decided upon whether the project is allowed to continue forward or not (Maylor, 2010) The V-model can be seen as an extension of the sequential waterfall model where a development phase and the corresponding testing phase of the product is planned in parallel, therefore it is called the V-model (Powell-Morse, 2016). This means that the traditional organizational structure was operated in some parts of the company, while the lean-agile structure was operated in other parts. One of the reasons why the lean-agile methods were not implemented to a greater extent, was that there existed a high uncertainty of how to translate SAFe and the lean-agile methods into the traditional 14 organizational structure and vice versa. Additionally, there was an uncertainty among both knowledge workers and managers about how their daily work were going to be affected due to the introduction of SAFe and the lean-agile methods, and what consequences lean-agile will bring to the daily work. Therefore, it is important to educate the employees in both how the agile methods work and how this will affect their daily routines (Moravec, 1999). This especially applies to the managers in the company, since lean-agile leadership constitutes the foundation in the framework SAFe (Scaled Agile, 2015). At the same time, management is stated to be the biggest obstacle to a lean-agile transition (Apello, 2011). Therefore, the barriers towards lean-agile leadership must be investigated to make the transition as smooth as possible to provide the right conditions for E&EE managers and their expected new activities and function. 1.2 Purpose The purpose of this master thesis is to investigate how the leader role change in a company that goes from working in a traditional organization to working lean-agile, and what change that is required in order to create lean-agile leadership. The investigation will analyze the existing leadership structure and current roles of the leaders, which will be compared to the requirements of lean-agile methods and how other companies have shaped the leader role. This will include how the leader role will change, in terms of both strategic and operational activities, but also the required mindset. The goal of the investigation is to provide GTT with a picture of the future lean-agile leadership, and present the characteristics of the activities performed by lean-agile leaders. In addition, the master thesis will also provide GTT with a recommendation of what change that is required, in order to achieve this future state. 1.3 Problem Analysis and Research Questions A management style used for many years in traditional organizations is command -and- control management, which is based on a strict hierarchy of authority. This management style works well in non-innovative projects that do not require much creative thinking (Appelo, 2011). Medinilla (2012) states that a different skillset and mindset is required when leading in a competitive and highly innovative environment. When adapting a new leadership style, it is interesting to examine how the surrounding environment and organizational structures affect the new type of leadership. If conflicts between the new leadership style and the surrounding environment exists, these conflicts needs to be addressed to successfully change the leadership style. Therefore, it is interesting to investigate what barriers and structural changes GTT must consider in the change process when transforming to lean-agile leadership, which leads to the first research question: What are the barriers and the required change when transforming traditional leadership to lean-agile leadership? 15 Agile methods have become an appealing alternative for many companies, but the philosophy was originally designed for small teams in smaller companies, which should self-organize around a problem (Dikert., et al 2016). A self-organized team can be described as a self- regulated group of people who manage and plan their daily activities under no, or reduced, supervision from management. However, in many cases organizations find it difficult to transform from a hierarchical structure to an environment where smaller teams have responsibility for their own decisions. This structural change is often met by resistance and misunderstandings (Parker et al., 2015). Resistance can first of all emerge from a new way of working, but also new attitudes and behavior that has to be applied to make the self-organized team succeed. The misunderstandings are often rooted in the fact that management no longer know what they should and should not do when teams self-organize. In order to overcome the resistance and misunderstandings, it is important that managers participate in the transformation to raise the understanding of lean-agile methods, so that resistance can be broken (Moravec ,1999). Through this, managers will get a better picture of what the lean- agile concept means in their own context. Hence, it is interesting to investigate what function managers should have when teams self-organize in lean-agile environments, which leads to the second research question: How will the leader roles change, in terms of strategic and operational activities, when a traditional organization transforms into a lean-agile organization? 1.4 Delimitations The study will be limited to group manager (GM), group technology manager (GTM) and vice president (VP) levels at GTT. The study does not suggest any specific leadership activities and changes for each level, but should be considered general for GTT in the lean- agile environment. Furthermore, the thesis main focus of the thesis will be on the required change, not the specific change process itself. However, suggestions of how to proceed with the change are proposed in the recommendation. The recommendations provided will only concern GTT and none of the benchmark companies. Finally, no changes in the organizational structure will be proposed in this study. 16 2. Theoretical Framework This chapter summarizes the theory that were found during the literature study. The theory that is presented describes traditional organizations, the changed industry, lean and agile theories, culture theories, and finally, change theories. 2.1 Traditional Organizations In this section, the context of traditional organizations will be described, but also why the leadership styles of today is shaped as it is and what roles traditionally managers have in the context of our case company. 2.1.1 Traditional leadership Most of the mainstream management theories of today is based on what Frederick Winslow Taylor called scientific management, which emerged during the industrial revolution (Grönroos, 1994). Therefore, will this chapter start with a presentation of the Tayloristic view of management and follow the development of leadership through times. Taylorism and scientific management The twentieth century has been known as the mass production century, due to its focus on producing high-volume, relatively inexpensive and standardized products, with the aim of achieving economies of scale. When scientific management was implemented in full, it consisted of five corner stones: time studies by stop-watch, a central room for tools, one department specialized in planning, a differential piece rate system, and a functional foreman as a supervisor (Spender & Kijne, 1996). From a managerial point of view this means that the managers should have all responsibility for planning the work, using scientific methods to describe exactly how the work should be executed to achieve maximal efficiency. The workers should be monitored and controlled in terms of following the specification of best practice (Scientific management, 2016). The planning department, could from these best practices anticipate the number of parts produced per time unit and calculate return on invested capital, which aimed at providing management with a sense of control of how the business was running (Spender & Kijne, 1996). Post Taylorism The main objective in Taylorism was to produce more goods at the lowest possible cost, which at the time was also the definition of efficiency. However, since markets evolved these efficiency measures have grown old. Nowadays, measures such as quality, diversity, flexibility and just-in-time must be incorporated into the old efficiency measure as well (Peaucelle, 2000). The fact that the old definition of efficiency was insufficient, made the managers rethink how to use their resources and especially the human resources connected to the organization. A higher respect and involvement of workers was needed, which was also why a decreased polarization between the elite and routine workers had to be implemented in 17 many companies (Pruijt, 2000). However, even though the efficiency measures of today have changed and more companies realize that they need to use their human capital better, there are still plenty of Tayloristic behaviors in many organizations (Peaucelle, 2000; Pruijt, 2000). This can be explained by two main attractive views which the Tayloristic management philosophy promises. The first promise provided by Taylor, is that the best possible method will be used, which consequently asks the question, does one best possible method to work exists in our company? The second promise made by Taylor was named “Systematic soldiering”, which today connects to standardized work sheets and processes. Taylor meant that when workers are given autonomy, they do not put in maximal effort when they are operating in a mass production context, which will reduce productivity and efficiency (Pruijt, 2000). One of the major drawbacks of Taylorism, which also hindered Taylor in his efficiency measures, is that this management philosophy involves the creation of a high number of jobs for non-value adding supervisors. This since as much thinking as possible should be done by supervisors and bosses (Peaucelle, 2000). This is also something that exists in many companies even after the Taylorism, where organizations have a high number of bosses and supervisors, which are responsible for different matters in the organization (Pruijt, 2000). 2.1.2 Traditional Organizational Structure When examining the existing organizational structures, there are three structures which stands out as the most used of today: functional structure, project structure and matrix structure. The fundamental idea of having organizational structures is that it help the organization with the authority and reporting relationship within the organization (Maylor, 2010). In highly technical organizations it is common for organizations to apply a matrix organizational structure. The matrix organization is defined by the fact that most workers in the enterprise have two bosses, one project manager and one line manager. The project manager's responsibility is first of all to have contact with the customer and make sure that customer demands are met. But also to manage and organize work so that these demands are met. The line manager's main responsibility is to provide the projects with the capabilities to accomplish the work, i.e. to make sure that the right competencies are in the right projects etc (Baroff, 2006) But also to be responsible for production related matters such as operations and manufacturing (Siugzdiniene, 2008). 2.1.3 Project management The role of the project manager is often described by being responsible of the process of initiating, planning, executing, monitoring/controlling, and closing the project (Lewis, 2006). Since numerous articles and books have been written about the project manager's role, one have been chosen to create coherence in the description of project management. The description described below is provided by Maylor, (2010) with the definition of the project process as Define it, Design it, Do it and Develop it which is described below. 18 Define it Maylor (2010) explains that this phase normally starts with collecting and agreeing on the project’s objectives with all stakeholders involved. This means setting up requirements of the project and expected outcome. Furthermore, measures to be able to determine whether the project have been successful or not, must be set in advance. The next step of a project is to create an initial plan of what is supposed to be executed, but also what process that are supposed to be used during the project (Maylor, 2010). Design it The design phase starts with breaking down the initial plan into a more detailed plan. This means that all the component of a project is broken down into smaller pieces that are time- estimated. This is also called a work break-down structure (WBS). Furthermore, scenario planning must be conducted to determine what is most likely to happen in different phases of the project. The WBS is often translated to a Gantt-chart, which aims to explain what and when different activities should take place. In this phase, the constraints of the projects must be determined to have a better understanding of what parts that might take longer time, increase costs or reduce quality and performance of the projects. But also, the desired level of quality in the projects different parts must be planned and communicated with the stakeholder (Maylor, 2010). Do it When the project faces the execution part, the project manager’s role as a manager is vital to the project success, where numerous leadership styles exists and is thoroughly discussed in academia (Maylor, 2010). This includes, both motivating project team members, managing organizational structures and culture, and having the right skillset and education. Moreover, Maylor (2010) states that smaller projects with low complexity might be possible to run without any control mechanism, but for medium and high complexity projects it is paramount that the PM keeps and maintains control of the project. In addition, the PMs need to take a significant portion of strategical and operational decisions during the execution phase, but also solve problems and hindrance that are in the way for the project team (Maylor, 2010). Develop it When the project is executed and delivered it is of significant importance that the organizations is learning from what was successful and less successful in the project. This often means a comparison between the procedural conformance and the actual project performance. This naturally means documentation of the project process and all the steps included. 2.1.4 Line management For line managers, not as many articles and books have been written on how to execute the work in a matrix organization, which is why multiple authors will be used. However, the literature review concluded a few over-all responsibilities within line management: Managing 19 people, resource management, performance management, developing people and managing reward, which are all described below. Managing people It is often the line manager's responsibility to handle the people management issues, which are all matters related to the work environment, both physical and psychiatric issues, and also to motivate the subordinates and improve the environment (Gilbert et al., 2011). Furthermore, it is also the line manager's responsibility to delegate authority to subordinates in the organization to execute the work. It is often considered a key challenge in many organizations to determine how much authority that can be delegated to be able to maintain and keep control (Nagar, 2002). In connection to delegation, it is also the line manager's role to determine what and how much information the subordinates should have regarding their work and the organization as a whole. This implies that effective communication channels and skills are required by the line manager (Maddox, 1990). Moreover, the line manager has the responsibility to organize the work in terms of who does what, but also to synchronize the workflow between the different elements (Armstrong, 1998). Resource management Even though it is often HR that sets recruitment and selection frameworks for hiring new employees, it is often the line manager who makes the final decision about recruitment or not for the available position. This naturally involves analyzing and producing role descriptions with HR, investigating and analyzing the need of competence etc. But also, to conduct and hold interviews with candidates (Whittaker & Marchington, 2003). Performance management As stated earlier it is the line manager's responsibility to enable a high level of motivation among the manager’s subordinates. It is also shown that with a higher level of motivation the individual performance will increase, which is why this area cannot be stressed enough (Alfes et al., 2013). When examining the performance of both teams and individuals below the line manager, it is the line manager's responsibility to make sure that they have the best possible environment to succeed within their roles. This means setting up processes and structures to enable continuous performance management. Furthermore, it is the manager's responsibility to have performance reviews and goal setting with employees to make sure there is continuous improvement of performance in place (Armstrong, 1998). Developing people When developing people from a line manager's perspective there are two main areas which stands out as having significant impact on how subordinates learn, excluding courses and different training programs, which are coaching and team-working (Hutchinson & Purcell, 2007). First of all team-working is seen as a good way to learn on the job, since the team can learn each other shortcuts in how to perform the tasks, the line manager is here vital since they both create the team but also make sure that the team functions effectively. Secondly, there are a strong correlation between coaching and employee commitment, satisfaction, 20 motivation and learning if coaching is provided by the line manager. This is preferably executed on a one-to-one basis (Hutchinson & Purcell, 2007). Managing reward Since almost all profit driven organizations develop strategic plans that call for new product introductions, organizational structures and introduction of new technology etc. These plans must naturally become operational in order to succeed. Setting goals and strategies are often necessary means but must be followed up with performance review, explained earlier. The performance must be measured and followed up to be able to identify ‘what counts’ in the organization. This is also the line manager's opportunity to make what the organization values explicit and reward such behaviors (Schneier, 1989). Furthermore, it is also the line manager's responsibility to manage the pay system in terms of salary for the individuals. This often means connecting back to the personal development plan, and the performance review of the individual to set a fair celery (Armstrong, 1998). 2.2 Why Leadership Change is Needed? The sections in this chapter, “Why leadership change is needed?”, deals with complexity theory, the concept of knowledge workers, motivational theories, and changed market conditions. When performing the literature review, these areas were all pointed out by different authors as reasons why a leadership change is needed in more complex organizational environments. The relevant theory is furthered explained below. 2.2.1 Complex systems theory Complex systems and it corresponding theory have been used at several occasions and studies throughout history with various definitions and interpretations (Saurin et al., 2013). However, a few general characteristics can be found that have been used to describe complex systems: A large number of dynamically interacting elements Dynamically interacting elements means that the system is changing over time with nonlinear interactions between elements. Such a system is exemplified by a small change in cause but a significant change in the outcome of the system. In many cases the interactions between the elements are tightly coupled, which means that there are interdependencies between i.e. teams, production sequences, and different tasks. This allows for fast reproduction of errors, and the isolation of the root cause of the problems becomes difficult (Snowden & Boone, 2007; Vesterby, 2008). Wide diversity of elements The relationship among the elements display a variety in terms of information exchange, co- operation degree and level of shared objectives between elements in the system. Furthermore, the elements are separated in terms of inputs and outputs, hierarchical levels, 21 specialization and division of tasks (Dekker, 2011; Vesterby, 2008) Unanticipated variability The system experience a high level of uncertainty originating from the high number of interactions between elements, the uncertainty is further extended through the receiving of indirect information sources. These complex systems often interact with their environment, which means that they are constantly changing to adapt to their environment, which naturally cause for variability. Finally, these systems often experience emergence phenomenon from the previously mentioned interactions between elements, which is a well-known cause of variability (Snowden & Boone, 2007; Kurtz & Snowden, 2003; Cilliers, 1998) Resilience/elasticity Resilience or elasticity refers to a system’s ability to change its function in advance, during or according to changes and disturbances in its environment with the underlying aim of sustaining its operation when both unexpected and expected new conditions occur. This means that the system must adjust its performance when there are gaps in the existing procedures i.e. too little specifications for an expected situation or too much for an unexpected situation. These performance adjustments are in many cases guided by feedback from organizational history and current or recent events, which means that complex systems theory assumes that the organizational history is co-responsible for its current behavior. To enable the resilience and elasticity, complex systems often self-organize to spontaneously or adaptively change internal structures when needed, or the existing environment requires it. (Dekker, 2011; Cilliers, 1998) 2.2.2 The Cynefin Framework The Cynefin Framework was derived from several years of research from the use of complex systems theory, organizational knowledge sharing, decision-making, strategy and policy making. The framework can be described as a way to consider the dynamics of a situation in order to reach consensus for decision-making. In other words, the framework help executives to sense what situation they are currently in, so they can make better decisions of how to manage their teams and avoid problems related to the context specific situation (Snowden, 2007). As can be seen in the Cynefin Framework (Figure 2.1) there are five different areas, where four of them are named as Simple, Complicated, Complex and Chaotic. The areas to the right are classified as those of order and the areas to the left, classified as un-order. In the middle is the area of disorder (Kurtz & Snowden, 2003). 22 Figure 2.1, The Cynefin Framework (Kumar, 2015) Managing Simple The simple environment is characterized by clear cause-and-effect relationships with high levels of stability. The cause-and-effect relationships are easily recognizable by everyone and the right answer is often obvious in its nature. Therefore, decisions made in a simple context are often undisputed since all parties involved share an understanding of the problem and decision. A typical example of simple a context is order loan payment processing. This context often experience little or no change in problem formulations, which means that problems of same nature often occur (Snowden, 2007b). The management of simple contexts is relatively straightforward. The manager assesses facts of the situation, categorize them and respond to the situation on established best practices. Since managers often have the same amount of information as the employees in simple contexts, command-and-control leadership style works best to set the rules of how the situation should be handled. The directives given to the employee are straightforward, and the possible decisions can easily be delegated (Snowden, 2007a). Managing Complicated In the complicated context, a stable cause-and-effect relationship exist. However, this relationship may not be fully known to everyone. In this context, several right answers may occur, which requires a sense-analyze-respond approach. This is considered as a more difficult process compared to simple contexts and often requires expert’s involvement (Snowden, 2007 a). The management of a complicated context often contains several options, which all can be considered excellent solutions. A typical complicated situation is the search for oil. This situation often requires a group of experts, where several locations may be subject for drilling with several variables affecting the best place to drill. This situation often requires extensive analysis to gain understanding and evaluate consequences of the drilling (Snowden, 2007 a). 23 Managing Complex In the complex domain, the relationship between elements are described by the complex systems theory and the interactions of numerous agents (Kurtz & Snowden, 2003). When comparing the complicated context to the complex, the first difference is that the complicated have at least one right answer whereas in the complex, the right answer cannot be seeked out. An exemplification is to compare a Tesla with a rainforest. A Tesla car is a complicated product, but an expert in the field of mechanics can take the Tesla apart and assemble it again without changing its function. The Tesla is described as static and the function of the car is the sum of its ingoing parts. The rainforest on the other hand, is constantly changing. Weather conditions change, species die and water streams reroute to new places. But the function of the rainforest is far more than its ingoing parts. From a management point of view, it is important to not set the course of action for their business, and instead be patient for the path to reveal itself from experiments. A good example of a complex situation solved in this way was the Apollo 13, where the astronauts experienced a problem. The team on the ground was introduced to a problem, set with the resources available and a leader who explained the context to them. None of the group members in the expert team knew how to solve the problem in advance, instead they had to probe-sense-respond and let the path reveal itself (Snowden, 2007 a). Managing Chaotic In the previous mentioned domains, there has been some or clear relationships between cause and effect. In the chaotic domain, no such correlation exists. The system itself is turbulent and there is no time to investigate different changes that may occur. A leader must first of all stop the chaos and start to establish order, which means that the situation is preferably handled in an act-sense-respond way. (Snowden, 2007 a) From a management point of view it is important that the manager's first response is an action towards establishing order due to the time constraint, which often occur in these types of situations. In this context, a direct top- down leadership approach is preferable since there is evidently no time for input or further analysis of the situation. Unfortunately, most of the descriptions of a successful leader comes from the chaotic domain where good crisis management has been applied. Most business try to avoid the chaotic domain at all cost. However, the chaotic domain is considered to nearly always be the best domain to increase innovation. An excellent technique to master crisis is to manage the crisis in parallel with innovation, since people in general will be more open to new ideas to resolve the issue (Snowden, 2007 a). 2.2.4 Knowledge Workers The term knowledge workers were coined by Peter Drucker and can be described as workers whose main capital is knowledge and their main job is to work with information (Appelo, 2011). Examples of knowledge workers are software engineers, architects, analysts, lawyers and accountants. The number of knowledge workers has increased a lot the past half-century, due to a greater presence of information and increased number of computers (Davenport, 2013). In contrast to the industrial worker, who was a socially dominating class during the 24 19th century, the knowledge worker acquires specialized skills by education (Drucker, 1994), and a common attribute of this type of workers is that they appreciate autonomy (Davenport, 2013). In order to, convert the skills of a knowledge worker into performance, an organization must provide the knowledge worker with the right conditions (Drucker, 1994). Knowledge workers are paid for their education and expertise and they do not like to be micromanaged. Instead, a manager should tell the worker what needs to be done and when it needs to be finished and the knowledge worker will figure out how to do it (Davenport, 2013). A different kind of management style is required, which focuses on understanding team dynamics since productive knowledge workers require teamwork (Drucker, 1994). In a knowledge-intensive organization, which is an organization with many knowledge workers, the manager become more of a facilitator and a coach to the employees (Appelo, 2011). 2.2.5 Motivational Theories Motivation is the activation of goal-oriented behavior, and motivation is needed in order to make people do all the activities that is needed to achieve a certain goal (Appelo, 2011). According to “Medinilla’s Principle of Motivation” (Medinilla, 2012), every great product that has been developed, and made huge difference in the market, has been created by a highly-motivated individual, or a team. Therefore, motivation is essential for knowledge workers (Medinilla, 2012). Studies have shown that motivated employees have great impact on company results, culture and performance. Therefore, motivation and motivational strategies should be an issue for management (Medinilla, 2012). Different motivational theories and views are presented below. Extrinsic Motivation Extrinsic motivation can be referred to the behavior when an activity or task is performed in order to attain some external outcome. External outcomes can both be financial benefits such as bonuses or a pay raise, or nonmonetary rewards such as praise or fame (Ryan and Deci, 2000). While external rewards can motivate individuals in some cases, it also comes with unwanted side effects. In an organizational setting, these side effects can be sub-optimization, destroyed intrinsic motivation, reduced performance in problem solving and unintended competition between colleagues. (Appelo, 2011) Intrinsic Motivation Intrinsic motivation can be referred to as the doing of an activity for its inherent satisfaction, rather than for achieving an external reward. In contrast to extrinsic motivation, where the external reward is the driving force, intrinsic motivation is personally rewarding. (Ryan and Deci, 2000) Creativity is an example of a process that is based on intrinsic motivation, which can even be inhibited by external rewards. In the case of intrinsic motivation, the things we do are themselves the reward. Unlike extrinsic motivation, intrinsic motivation does not suffer from unwanted side effects (Appelo, 2011). 25 Theory X and Theory Y In 1960, Douglas McGregor presented groundbreaking ideas about human motivation and management styles. Theory X and Theory Y describe two contrasting views of motivation in the workplace and how these different views affect the manager’s actions and behaviors. According to McGregor (1960), the past conception of the nature of humans were in many ways incorrect and he believed that there was much left to learn about social science in order to make organizations truly effective. Furthermore, McGregor (1960) states that management’s perception of human behavior in industrial organizations has a strong effect on the actual behavior of employees in the workplace, which makes McGregor question the idea of the conventional approach of management, that McGregor choose to call theory X. Theory X assumes that individuals are passive, lack ambition, dislike responsibility and prefer to be led. Individuals are also self-centered, resistant to change and not very bright. This perception of employees in the workplace causes the managers to exert an authoritarian style of leadership, since it is believed that employees must be controlled and directed, otherwise, no work would be done. (McGregor, 1960) Theory X says that a certain amount of extrinsic motivation is needed to make individuals perform (Appelo, 2011). In contrast to theory X, theory Y assumes that individuals are internally motivated and find their work enjoyable. They also have the ability to take personal responsibility and are capable of exercising self-control and self-direction. The best way for individuals to achieve the organizational objectives is to let them direct their own efforts. The main tasks of a manager are to arrange organizational conditions for the employees. A manager’s focus should be on providing guidance rather than controlling the employees. (McGregor, 1960) Theory Y is all about internal motivation and individual’s inner desire to do well, and is therefore strongly connected to intrinsic motivation (Appelo, 2011). 2.2.6 Changed market conditions Disruptive technologies were a concept introduced by Bower & Christensen (1996) in the mid 90’s. It was discovered that many leading companies failed to stay at the top of the industry when the market changed and new technologies emerged. The technology changes that damages established companies the most has two important characteristics. They present a package of performance attributes that are not valued by existing customers at the outset, and secondly, the performance attributes that the existing customers value improve so quickly that established markets becomes threatened by the new technology (Bower & Christensen, 1996). The truck industry is listed as a potential disruptive technology (Manyika et al., 2013). This due to the developing technologies related to autonomous driving and the many benefits that exists related to this innovation. Technologies that make autonomous trucks possible are machine vision, artificial intelligence, sensors, and actuators, and these technologies are rapidly improving. Benefits that comes with autonomous trucks are increased safety, reduced 26 emissions, and increased productivity in the truck industry (Manyika et al., 2013; Hsu, 2017). Drivers account for 33 % of trucking operating cost, and it is believed that driverless trucking can halve the industry cost eventually (Hsu, 2017). 2.2.7 Summary - Why Leadership Change is Needed? In table 2.1 below are the most important aspects why a leadership change is needed summarized. Context/View of Organization The context of which the organization operates in must be challenged and analyzed, where the assumption is that not all situations can be classified as simple. Level of education The level of education and knowledge has increased the last decade, and workers have become knowledge workers and are therefore more capable of understanding and making more decisions. Motivation The underlying view of what motivates workers must be challenged and analyzed, where the assumption is that intrinsic motivation is both stronger and more preferable from a company perspective. Changed market conditions The truck industry is listed as a potential disruptive market due to developing technologies related to autonomous driving. Table 2.1, Summary why leadership change is needed. 2.3 Agile The agile manifesto emerged in 2001 and consists of four values and twelve principles that constitutes the core of agile methodologies. The four core values are: “Individuals and interactions over processes and tools” “Working software over comprehensive documentation “ “Customer collaboration over contract negotiation” “Responding to change over following a plan” (Agile Alliance, 2015a) In high-performing teams, individuals and interactions are essential. Studies have shown that teams can perform up to 50 times better than the industry average if no communication problems exist. In agile methodologies, interactions are facilitated through increased frequency of feedback and communication, transparency of data, respect for people, honesty, trust, and commitment. The first value also states that processes and tools are important, but 27 only as long as the teams engage in positive conflict. The second value highlights the importance of working software, which is one of the big differences that agile methodologies bring. What is meant by “working software” is up to the team to decide and define. In agile, this is called definition of done, and can be a set of predetermined requirements that a team decides upon to determine when a task is completed (Sutherland, 2013). Frequent customer collaboration and feedback is crucial during the development process in agile, and essential to success. Customer involvement allows for changes of requirements and prioritizations during the development, which makes the agile team continuously work with what is most important to the customer. Finally, the last value suggests that responding to change is more important than sticking to a plan. The reason why this is one of the core values in agile is simply because teams must respond to change to be able to please the customer. Therefore, the initial plan is reviewed and updated during the development process. Agile teams plan to change and are prepared for it. Tools such as retrospectives are specifically designed to shift priorities, to ensure that they are aligned with that the customer currently want (Sutherland, 2013). The twelve corresponding principles in agile are meant to support teams when working with agility, and can be seen as an extension of the four values presented (Agile Alliance, 2015b). 2.3.1 Concepts and Tools Since numerous books and articles have been written about the concept and tools of Agile, only the most relevant to this study will be brought up in this section, corresponding to the lean-agile philosophy. Self-Organization Self-organization is used in agile environments, and can be described as the process where a structure or pattern appears in a system without a central authority. (Appelo, 2011) In a self- organized team, the team itself chooses how to perform their work instead of letting predetermined roles or titles decide who does what. (Adkins, 2010) Self-organization is suggested in agile development since it is believed that the team itself, consisting of knowledge workers, understand their tasks and problems better than any central authority or manager can every do. (Appelo, 2011) It is the people closest to the problem who knows how to solve the problem best, and that is why self-organization is important in an agile environment. (Adkins, 2010) T-shaped Competence T-shaped people, or generalizing specialists, are people who have specialized skills in one area and have the interest and ability to develop skills in other connected areas. These types of people are valuable in agile teams since they have the ability to view things from different perspectives (Appelo, 2011). T-shaped behavior can be described as the behavior where every member of a team steps out of their role in order to get more tasks completed. A team’s ability to deliver results will be less restricted with multidisciplinary skills in the team and it 28 could also be a strong motivator for individuals since they will be more useful in their team when they can take on different types of tasks (Adkins, 2010). Cross-functional teams There are two main options to choose from when people in an organization are grouped into teams; group people by similar business or by similar function. Grouping people based on functions means that people in the same functional unit, for example testing, are put together in a team. Grouping people based on business means that people in different functional units, working to deliver the same business value, are put together. This is also called cross- functional teams (Appelo, 2011). In cross-functional teams, people with different and complementary skills are working together. Cross-functional teams are central in agile, and the benefits are faster delivery times, improved information sharing and rapid response to new requirements (Leybourn, 2013). According to Appelo (2011), cross-functional teams also comes with benefits in coordination and communication. When grouping people according to their function, it requires a lot of coordination and communication across teams to deliver any business value, due to the many dependencies between the different functions. Backlog A backlog can be defined as a list of all the tasks waiting to be done in a project (Agile Alliance, 2017). The backlog is continuously changed and reprioritized during projects, in order to adapt to changing requirements (Appelo, 2011). According to agile performance measures, delivering the product according to plan is never as important as delivering the business value to the customer (Adkins, 2010). Business value is achieved through close collaboration with the customer together with continuous reprioritization of the backlog. A functionality is more extensively explored and documented at first when it is selected for immediate implementation. This allows for a flexible approach where it is possible to change the functionalities with lower priority in the backlog later during the development (Appelo, 2011). Sprints and Increments A sprint is a set period of time during which a number of tasks should be completed. Usually, a sprint is 2-4 weeks long in a project (Rouse, 2015). A working version of the product is produced after each sprint, and functionality is added continuously. The highest-ranked tasks are prioritized first and broken down into smaller modules. The modules are valuated based on how long time it takes to implement them and a clear “definition of done” is developed for each of the modules. The evaluation of the modules gives the team a clear picture of how many modules that will be implemented in the coming sprint (Rigby et al., 2016b). An increment is simply the sum of several sprints, usually 8-12 weeks long (ScaledAgile, 2016). 2.4 Lean The original house of lean consists of the basic principles of lean and illustrates how these principles work together (Figure 2.2). The foundation of the house consists of standardization 29 and stability, which are two enablers for continuous improvement in lean (Liker & Meier, 2006). The two pillars of the house, JIT (Just-In-Time) and Jidoka, are two important tools in lean. JIT is about optimizing flow with the right part, the right amount, and the right time and place. Whereas, Jidoka is about to build in quality in the production system by stopping the machines and production when a problem occurs within the system. This will reduce productivity momentarily, but enhance it in the long run since the problem will be fixed permanently (Liker & Meier, 2006). The inside of the house, which consists of involvement includes both employee and supplier involvement. As an employee, it is important to understand the broader value stream of the company, and therefore it is needed that employees at all levels are involved in the development. Furthermore, Liker & Meier (2006) emphasizes the involvement of the supplier and supplier partnering, which is meant to improve the cooperation with the supplier and also improve quality, cost and delivery. This is done through e.g. interlocking structures, joint improvement activities and information sharing. Finally, the roof of the house consists of customer focus, which is the most important measure in lean. Achieving the highest level of customer satisfaction while maintaining the lowest possible cost is the number one goal (Liker & Meier, 2006). Figure 2.2, House of lean (Lean Six Sigma.com, 2016) 2.4.1 Concepts and Tools Since numerous books and articles have been written about the concept and tools of lean, only the most relevant to this study will be brought up in this section, corresponding to the lean-agile philosophy. Creation of flow When implementing lean in organizations, many tend to focus on the flow of material and information within the organization. Mostly since these are easier to visualize, making necessary actions needed clear and direct for people within the organization. However, 30 improving these areas neglects the critical focus of smoothing organizational flow, which is stated to be the flow of people and processes (Ruffa, 2010). The author (ibid) explains that organizational flow is the means of optimally engaging the workforce, extending the workers insight into the organization across business areas so that workers can understand a broader spectrum of steps and work tasks to finally optimize the way of working (Ruffa, 2010). To understand flow one must understand the concept of value streams, which easiest is described as the linkage of tasks that ultimately delivers value to the customer. From an organizational perspective, this often means that value streams crosses functional silos and organizational boundaries. However, a value stream does not concern all the supporting activities to produce a product or service, only the value adding ones (Melton, 2005). Therefore, it is important to see an organization as a whole system consisting of resources, connected by different processes to produce a product or service. The main causes for the lack of flow is described to be different sorts of constraints in a system i.e. bottlenecks (Melton, 2005; Ruffa, 2010). In line with this, measures have been created to test and optimize the flow in the organization: ● Throughput: is defined as the rate of which the organization generates money from sales. An important differentiation here is that throughput is not the pace of which something is produced, since if it is not sold it will create waste in terms of inventory when the customer not “pull” for it. ● Inventory: can be defined as all the money which has been invested in different purchases the system intends to sell to a customer. ● Operational expenses: Is defined as the money which the system requires to turn inventory into throughput. ● Bottlenecks: Is defined as that one process or activity which determines the throughput of the whole system. Therefore, efficiency improvements with a value stream perspective means working on the whole, not the ingoing parts of the system. In other words, the efficiency improvement must concern the whole supply chain not only one part of it, optimizing these four ingoing measurements together (Melton, 2005). Kaizen, Continuous improvement Continuous improvement, or Kaizen as it is expressed in Japanese, is a central concept of the lean philosophies, which when applied to the work place means continuous improvement for all human resources, workers and managers alike. However, since kaizen can be applied to several areas within the organization, numerous definitions of what it actually means is to be found (García-Alcaraz, 2017). Kaizen is also considered to be a management philosophy that generates small incremental changes or improvements in the work process. By doing so, the concept has its aim of reducing waste, improve work performance in terms of more efficient processes and enhanced innovation (Suárez-Barraza & Ramis-Pujol, 2010). Gemba Gemba is a Japanese word meaning “a precious place to work”. A “Gemba walk” is a walk 31 through the place where employees work with value-adding activities. This walk is simply a way for the manager to engage the workers in their environment, to learn their job and challenges in their daily environment (Gesinger, 2016). The most obvious benefit of Gemba walks comes from the fact that when information is transferred through the hierarchical levels of an organization, it gets filtered, which often distances the high-level managers from the current reality of the workers (Petruska, 2012). 2.5 Connection between Lean and Agile The principles of lean are in many ways similar to the fundamentals of agile methodologies. Both methodologies are customer focused, flexible, encourage learning, value quality and people (Dogru, 2010). The core idea of agile is that we live in a world that is constantly changing, and we have to organize ourselves and our ways of working in ways that allow us to respond to these changes (Rigby et al., 2016b) Agile can be used in other industries than software, but works best when the conditions are similar to the ones found in software development. In software development projects, the problem to be solved is complex, the product requirements change during the project and close collaboration with the end user is feasible (Rigby et al., 2016a). When examining the lean principles, the core idea is to eliminate non-value-adding activities and maximize the process flow within the organization. Today, lean is a well-known mindset that is applied in many different industries, and not only in manufacturing (Lean EnterPrise Institute, 2017). Due to the many similarities of lean and agile, new frameworks have been created that combines these two methodologies. Examples of frameworks using both lean and agile principles are Large Scaled Scrum (LeSS) and SAFe (Scaled Agile Framework), which are frameworks used for scaling up lean-agile development. The frameworks are specially designed to manage complex development projects, and increase innovation and speed in large enterprises (Heusser, 2015). 2.6 Lean-Agile As explained earlier, the development of a product is not characterized by stability. Therefore, the assumption of stability and standardization which is the foundation in the house of lean, must be challenged in this context (Snowden, 2003). This is recognized in the SAFe House of Lean (Figure 2.3), which is a framework that combines the concepts, tools and principles of both lean and agile. Instead of stability and standardization, lean-agile leadership is the foundation of the house. Leadership is the ultimate enabler for a team’s success. To be able to implement lean-agile in an organization, leaders, managers and executives must exhibit the principles and behaviors of lean-agile leadership. Otherwise, the implementation will not be successful (Scaled Agile, 2015). Therefore, the ingoing parts of the house of lean-agile will be described below. 32 Figure 2.3, House of lean-agile (Scaled Agile, 2015) 2.6.1 Respect for people and culture Both the principles of lean and agile does not perform any actual work, it is the people within the organization which performs and do all the work. Therefore, one of the most fundamental value of lean-agile is respect for people and culture. Due to the empowerment of knowledge workers, they will be able to evolve their way of working and improve processes etc. (Scaled agile framework, 2015). Management's role in this is mainly to challenge the knowledge workers in what way they may change, but also indicate areas of improvement. But the team's itself are the ones making the actual improvement or change, learning how to solve problems and reflect upon their way of working. For this behavior of continuous improvement and problem solving to be applied, a cultural change is often needed. The cultural aspect is handled in chapter 3.9, but what can be stated is that the cultural change will start with the leaders and the managers in the organization, and that both managers and the organization must change before the teams will start the cultural change (Scaled agile framework, 2015). 2.6.2 Flow The fundamental goal of introducing lean-agile ways of working is to improve the value delivered to the customer. Therefore, “value” is placed on top of the lean-agile house, which can be compared to the house of lean which is similar with its “customer focus” on top of the house (Liker & Meier, 2006). The establishment of continuous work flow is critical to fast value delivery, continuous improvement and effective evidence based governance. From a manager's point of view this means, understanding the value stream in full, from innovation to finished products, limiting and visualizing the work in process, reducing batch-sizes of work and managing the queue lengths of different work tasks and initiatives (Scaled agile framework, 2015). Furthermore, the lean philosophies also have its primary focus on built-in- quality, fast feedback loops and constant reduction of non-value adding work and delays (Liker & Meier, 2006). Therefore, it is essential that the managers apply a holistic view of the production process and understand its ingoing parts to be able to optimize the outcome and 33 flow of the work performed (Scaled agile framework, 2015). 2.6.3 Innovation Creation of optimal flow within an organization's work processes, is a key aspect of delivering value to the customer. However, without innovation of both the working processes and the product itself the value delivered to the customers will stagnate. From a leader perspective, this mostly relate to innovations in the work processes, and how they can be improved (Scaled agile framework, 2015). To enable the innovation in the working processes, it is important that leaders go out in the organization where value is created to see for themselves how the processes and production is working, which the lean-philosophies refers to as Gemba (Gesinger, 2016). Furthermore, since management often decides what the knowledge workers should spend their time on and prioritizing the work, it is important that managers provides the time and place for knowledge workers to be innovative. When a team is utilized 100 %, there will be no time for developing innovations, which can have a positive impact on the company's product. Concerning product innovations, it is also the manager's duty to validate the innovation with the customer to establish whether the innovation is of any value and if it can be improved in any way (Scaled agile framework, 2015). 2.6.4 Relentless Improvement Another significant similarity with the lean philosophy is the mindset of always wanting to become better, which is explained in the lean philosophy as Kaizen or continuous improvement (Suárez-Barraza & Ramis-Pujol, 2010; García-Alcaraz, 2017). This is driven by the constant sense of competitive danger, and sense of urgency for following up and reflecting upon areas of improvement. Managers work together with their teams within this area by constantly optimizing the whole, not the parts, of both the development process and the organization, applying the tools of lean to find the root cause of inefficiencies and problems. Furthermore, to improve, managers and teams must reflect upon their performance and milestones achieved to be able to address the shortcomings of the process at all levels (Scaled agile framework, 2015). 2.7 Lean-Agile Leadership Literature has been written about both lean leadership and agile leadership, but not much literature has been written about the combination of the two leadership styles. However, some theories have been written about lean-agile leadership in the framework SAFe. The concept lean-agile leadership is presented above as the foundation of the SAFe house of lean (Figure 3.3) When trying to summarize agile leadership, the term servant leader is often used (Adkins, 2010). Servant leadership differs from project management leadership in the sense that the manager is serving the team, and not vice versa. A servant leader responds to any problem by listening first, and the core of servant leadership is developing others, giving space, and 34 offering acceptance (Adkins, 2010). According to Medinilla (2012), servant leadership applies to both agile and lean leadership. Both leadership styles stress that a manager should serve the team by removing impediments, providing the resources needed, and discussing boundaries and constraints (Medinilla, 2012). Both Appelo (2011) and Adkins (2010) has written books that focuses on agile leadership, Medinilla (2012) has written mostly about agile leadership but also about lean leadership, and Liker & Meier (2006) has written theory about lean leadership. These sources, together with the lean-agile principles in SAFe (2015), are the main theories used when defining lean-agile leadership. Based on these theories, the main functions of a lean-agile leader are to: 1. Unlock Intrinsic Motivation and Energize People 2. Empowerment of Teams 3. Aligning Constraints and Setting Boundaries 4. Develop Competencies 5. Grow Structure 6. Creation of Flow and Applying Systems Thinking 7. Encourage Innovation 2.7.1 Unlock Intrinsic Motivation and Energize People It is important to energize people as an agile manager, since people are the most important part of an organization in a complex environment (Appelo, 2011). As stated before, it is of high importance that knowledge workers are motivated and energized to be able to develop great products and solutions (Medinilla, 2012). To be able to energize employees, a couple of criteria must be met according to Appelo (2011). The author (ibid) states that managers should provide the employees with a creative environment to work in and highlights the importance of diversity in connectivity of people. The manager should focus on intrinsic motivation rather than extrinsic motivation, which comes with unwanted side effects. In addition, it is also important as a manager to highlight the personal values that exists in teams, so that people and teams can learn about themselves. Adkins (2010) concerns the subject of energizing people in connection to innovation. The author (ibid) states that it is important that managers identify a team’s necessary and energizing ingredients for innovation, and that the team itself discover these ingredients. Medinilla (2012) states that an agile manager should be responsible and accountable for motivating the employees, to ensure that the employee's’ maximum capacity is released. 2.7.2 Empowerment of Teams Menon (1999) defines psychological empowerment as a cognitive state of perceived control, competence, and goal internalization. Empowerment is different from delegation in the sense that it includes more than only the delegation of a task or responsibility. Empowerment also includes support of risk taking, personal growth and cultural change (Appelo, 2011). Bowen and Lawler (2006) have found multiple benefits with empowerment of employees, e.g. that 35 productivity, profitability and competitiveness have improved due to empowerment initiatives. In many organizations, a cultural change is needed to achieve empowering leadership. According to Appelo (2011), empowerment is a necessity in self-organized systems, which agile teams are. This because a good mental model is needed to fully understand these types of systems. The members in a self-organized team must therefore aggregate their mental models to be able to together control the system. To make this work, the control of the team should be distributed and delegated to all team members instead of one manager, which can also be referred to as the term decentralized decision-making. By not escalating all decisions to higher levels of authority, the lead times can be shortened. This due to the lack of local context among higher managers when making decisions that concerns the daily work of knowledge workers (Scaled agile framework, 2015). Both Appelo (2011) and Adkins (2010) expresses that it is important as an agile leader to let the team be accountable for their results, which is also a part of empowerment. Committing to a task or a project, and making the team accountable for it, creates peer pressure. It becomes visible to the team that one team members undone work become someone else’s impediment (Adkins, 2010). According to Appelo (2011), it is equally important that the manager commit to tasks and keep that promise. Building trust is important when it comes to accountability and empowerment, and the manager can more easily get the teams to commit to tasks by showing good example. 2.7.3 Aligning Constraints and Setting Boundaries Aligning constraints is a key task, both as a lean and agile manager. Appelo (2011) stresses the importance of a shared goal in a team. The goal could be assigned by the manager, but should be heavily influenced by the team and their autonomous goal. If the extrinsic purpose imposed by the manager is in conflict with the team’s autonomous goal, it is highly important that the manager compromise to not oppose the team’s will. To define a goal that is both in line with what the organization want and the team want, and then communicate it, is an important task as an agile manager (Appelo, 2011). Adkins (2010) mentions that a shared goal is beneficial for the team since it puts the team members “in each other’s business”, which makes them converse about the best ways to reach the goal. Liker and Meier (2006) expresses that, as a lean manager, one must communicate the vision and, even more importantly, get others to buy into it and actively help to achieve it. The leader must have a clear sense of direction and make employees understand the direction. Medinilla (2012) also highlights the importance of a long-term view as a lean manager, since that is a core principle in lean. The manager should focus on long perspective, while teams focuses on short-term deliveries (Medinilla, 2012). Aligning constraints also involves setting boundaries and protecting the people in the team (Appelo, 2011). Giving the team clear boundaries of authority in different key decision areas guides them in their work and helps them avoid getting the blame for taking decisions that they were not authorized to take. It is the manager’s responsibility to provide the team with 36 these boundaries, in order to protect the team and keep them motivated (Appelo, 2011). Since agile managers uphold an environment of experimentation and risk taking, the manager need to ensure that the environment is accepting and allowing failure. The teams need to be free to be creative and make mistakes, otherwise, it is impossible for brilliance to emerge (Adkins, 2010). 2.7.4 Develop Competencies Another important ability that lean-agile manager should possess is the ability to teach (Liker & Meier, 2006; Appelo, 2011; Adkins, 2010). Liker & Meier (2006) explains that it is important to possess teaching abilities as a lean manager to be able to pass on skills and knowledge to others. No matter how knowledgeable a manager is, without teaching abilities, the knowledge will not be able to generate as much value for the organization. According to Appelo (2011), managers should teach their employees the working techniques, creative techniques, management techniques, and understanding the importance of communication. This to make employees and teams more empowered and independent. Adkins (2010) stresses that it is important to teach during the early phases in an agile team, when there exist insecurities about the way to work. However, it is important that the management style flows from teaching to coaching when the team is ready. 2.7.5 Grow Structure Growing a suitable structure for a team, or the organization, is beneficial in several ways. Structure facilitates communication between employees, and it also increase efficiency (Appelo, 2011; Medinilla, 2012). A manager can structure the organization and teams in many different ways, no best practice solution exists, since structure in a complex environment depends on environment, product, size, and people (Appelo, 2011). However, some principles generally apply in agile. For example, projects are assigned to teams and never to individual employees, teams are cross-functional, and teams consists optimally of 5 people, which means that instead of creating bigger teams, more teams are created. 2.7.6 Creation of flow and Applying Systems Thinking From the lean philosophies, it is stated that; when the value stream is understood, i.e. what are the things that brings value to the customer, the first step that managers has to take is to create stable processes which can meet customer demand. When flow is created within the stable processes and connected to other processes, the situation will force problems to surface within the system. Therefore, it will be the manager's responsibility together with the team to remove these problems and continuously improve the processes (Liker & Meier, 2006). Also in agile, it is agreed upon that the managers, together with the team, should work to remove the impediments of the process in order to create a better flow of the work processes (Moe et al., 2008; Cervone, 2011). Therefore, it is important that a lean-agile leader applies a facilitating and collaborative leadership style to both listen to the teams impediments, but also the rest of the management-organization to not sub-optimize the workflow and the value 37 stream (Moe et al., 2008). This implies that having a system thinking mindset is important for the manager to not change things which makes it better for the individual department, but worse for an interdependent department. Therefore, it is also the manager's responsibility to synchronize the teams. Synchronization causes multiple perspectives to be understood, but also resolved and integrated with other teams. Synchronization is therefore used to: put the different competencies of system together to assess the solution-level feasibility, align teams and business towards a common mission, but also to integrate the customer in the development process (Scaled agile framework, 2016) 2.7.7 Encourage Innovation The last task of a lean-agile leader found in the studied literature is encouraging innovation. Enabling innovation in an organization is in the hands of the manager since management often decides what the knowledge workers should spend their time on, and what tasks that should be of highest priority. It is important that the manager both allow, but more importantly, encourage the workers to free up time for innovation. If 100 % of the time is utilized for value-adding activities, no time is left for innovation. The manager is also responsible for measuring innovation in the organization, and apply suitable metrics for it (Scaled agile framework, 2015). According to Adkins (2010), it is important that managers encourage team to work with innovation, however, how they choose to do it is up to the team. The manager should take a step back to let the team discover their own energizing ingredients in their pursuit of innovation together. Although, it is beneficial that the team collaborate, since it is the most direct way if innovation is needed in an organization. But as long as the team members collaborate and work together, the manager should let them find their own way to be creative and experimental (Adkins, 2010). 2.7.8 Summary - Lean-Agile Leadership In table 2.2 below are the most important functions of a lean-agile manager summarized. Unlock Intrinsic Motivation and Energize People To ensure the knowledge workers maximum capability, the lean-agile manager is responsible for the motivational level within the team. This includes providing an innovative environment, but also finding what intrinsically motivates the team members. Empowerment of Teams Empowering employees by distributing and delegating the control to the team is one of the most vital tasks as a lean- agile manager. In higher management, empowerment is achieved through decentralized decision-making in the whole organization. Empowerment also includes support of risk taking, personal growth and cultural change. Aligning Constraints and Setting Boundaries Aligning constraints and setting boundaries is important as a lean-agile leader. This can be done by creating an inspiring goal for the team, where the goal of the team is aligned with the organizational goal. Setting boundaries 38 means that the manager should create visible boundaries of authority for the team to protect them. Develop Competencies To be able to develop competencies in a team, it is required that the manager possess teaching abilities, so that knowledge can be passed on to others. Some examples of what a lean-agile manager should teach are working techniques, creative techniques, and the importance of communication. Grow Structure Growing structure is a task of a lean-agile manager that can be done in many different ways. It is important that the manager creates a suitable structure for the team, so that communication and interaction can be facilitated. Creation of flow and Applying Systems Thinking To be able to create flow, the manager in lean-agile must together with the team remove impediments which are in the value of the value stream. Furthermore, it is the manager's responsibility to have systems thinking while synchronizing these activities to not suboptimize the flow. Encourage Innovation It is important as a lean-agile manager to encourage innovation and create the right conditions for it. However, the team should discover how to do it themselves, but it is beneficial if the team collaborate when working with innovation. Table 2.2, Summary Lean-agile Leadership 2.8 Lean-Agile and HR Since both lean and agile is largely focused on the people working in the system, the human resource (HR) cannot be neglected in an agile transformation (Eyholzer & Leffingwell, (2016). Accenture states that the future role of HR will be, equally or more, involved in the creation of general work environment and fostering specific cultures. HR’s responsibility might therefore include changing the extrinsic motivation to intrinsic, by redesigning the incentive system. Broaden the job descriptions from previously narrow responsibilities, to a more holistic responsibility (Silverstone et al., 2016). Furthermore, HR should establish training and competence requirements of the employees, which must change towards the T- shaped competence necessary in lean-agile. But also refocus the personal review process, due to the new demands of a team environment established in lean-agile (Eringa, 2014). As stated earlier it is often the line manager which operationalize many of the HR activities, but the underlying strategies, policies and processes are often created by the HR department (Whittaker & Marchington, 2003). Therefore, Eyholzer & Leffingwell, (2016) have developed five areas within lean-agile HR which are likely to change, when an organization transforms from a traditional setup to a lean-agile setup. These are described below: 39 2.8.1 Embrace the new talent contract The main driving force behind the lean-agile organization is stated by Eyholzer & Leffingwell, (2016) to be the knowledge workers, which has earlier been described as one of the fastest growing workforce section in today's society (Davenport, 2013). In contrast to the industrial workers, the knowledge workers acquire specialized educations and therefore often appreciate autonomy in their work (Drucker, 1994). Knowledge workers therefore thrive on these kinds of environments with higher levels of responsibility, but they also seek purpose and meaning in their work in order to innovate and be involved. This inevitably, also changes the way in which HR interacts with both management and the workforce. The HR-policies can no longer be dictatorial, and must instead be shaped in collaboration with the knowledge workers who are affected by them. This indicates that the general HR-policies must be more flexible and adapt to changing circumstances (Eyholzer & Leffingwell, 2016). 2.8.2 Foster continuous engagement To keep knowledge workers deeply engaged in the organization's purpose and products, have never been more important (Eyholzer & Leffingwell, 2016). This means tapping into the knowledge worker’s intrinsic motivation. Ryan & Deci, (2000) explains that intrinsic motivation is when a person does an activity for its inherent satisfaction, rather than achieving external rewards such as salary. This is explained to increase engagement among the workers which in turn increases satisfaction within the workplace. Therefore, Eyholzer & Leffingwell, (2016) states that the best way to lower the turnover rate among employees is to invest in the people working in the organization. Actively developing people is stated to take away their need to switch job to a competing company. The development of people, and how this is executed within the organization, is often a policy created by the HR-function (Eyholzer & Leffingwell, 2016). 2.8.3 Hire for attitude and cultural fit Technical experts are important in any technical environment. However, lean-agile is a team sport, working in fixed teams completing the daily assignments. Therefore, candidates with the right attitude and cultural fit must be considered when hiring new employees. This is evident, since the performance of the team depends on the team effort, not individual performance. In this case, attributes such as heroism and over specialization must be avoided when hiring the right people (Eyholzer & Leffingwell, 2016). 2.8.4 Move to iterative performance flow Eyholzer & Leffingwell, (2016) states that performance management is by far the most criticized HR-process of today. These performance reviews often occur on a yearly basis, where the manager gives both positive and negative feedback to the employee. In most cases these performance reviews make the employee nervous, since it impacts both future compensation and promotion chances. Therefore, the authors suggest a few ways which performance management can be changed to better suit both lean-agile and the employee 40 perception of performance review. Firstly, it is suggested that performance cycles should be aligned with the iterations in lean-agile. Since the pace of today's technology change in an increasingly speed, it is almost impossible to set goals on a yearly basis and keep them relevant in the end of the year. Secondly, the authors suggest a continuous inspect and adapt policy. Which is explained to take place during the retrospectives, in this case both the individuals and teams can receive feedback on performed work. However, since lean-agile is founded on teamwork the main emphasis should be on the team performance. This is also a good occasion to reward behaviors which are in line with the lean-agile values, again it is important to emphasize rewards given to the team not the individual (Eyholzer & Leffingwell, 2016) 2.8.5 Support impactful learning and growth. Finally, Eyholzer & Leffingwell, (2016), explained that when markets increase the speed of development, it is important that the organization continues to evolve and learn. Therefore, a learning organization must be created, where people at all levels, managers and employees, continuously adapt and learn new things. In this scenario, relevant and useful mechanisms of creating knowledge must be in place. In addition, it is equally important to have ways of sharing already existing knowledge within the company, so that knowledge can be transferred between both managers and employees (Eyholzer & Leffingwell, 2016). 2.9 Culture Culture can be defined as what a group learns during period of time to solve its problems, both internal in the group and to survive in the external environment that surrounds the group. Organizational culture is difficult to define since, for a culture to form, it is required that a set of people has had sufficient time and stability to allow it. Therefore, an organization with long history can be considered to have a strong culture, while no overall culture exists in an organization with no common history (Schein, 1990). Various culture models have been developed during the years. One of them is Schneider’s Culture Model, which is a tool for assessing culture in organizations. The model is especially developed for agile coaches to determine an organization’s current culture (Lal Patary, 2015) and is described in Figure 2.4 below. Schneider (1994) defines culture as “How we do things to succeed”. The model is particularly useful to create awareness for change in management and leadership style. Four cultural aspects are considered in the model, namely; Control, Competence, Collaboration and Cultivation. 41 Figure 2.4, Organizational culture (Schneider, 1994) Control - The control culture prize objectivity and predictability. Organizations succeed by keeping control and maintaining stability. A control culture is characterized by hierarchical structures, standardization, power, and processes. An organization with this type of culture are reality and company oriented (Schneider, 1994). Competence - In an organization with a competence culture, one succeeds by doing better than others, and being the best. This type of culture is defined as company and possibility oriented, and is characterized by expertise, craftsmanship, professionalism, and achievement (Schneider, 1994). Collaboration - An organization with a collaboration culture succeeds by working together. Therefore, this type of culture is created by putting a collection of people tog