Ambidexterity as the Response of Smart Industry 4.0 – Towards Better HR Practices

Abstract

Translate Article

Abstract Due to the global labor market challenges, international companies react and adjust fast to these circumstances by implementing digital solutions into all business processes. Organizational ambidexterity is seen as the response of digital transformation and it can be divided into structural, contextual, and sequential dimensions. In this context, organizations representing the smart industry will need employees with specific competencies which let them meet technological challenges.This chapter aims to clarify the state of opinion on expectations towards, and preparedness for, the impact of Industry 4.0 on human resources management and the implementation of various types of ambidexterity in these companies. We have conducted interviews with key HR informants from manufacturing companies operating in Germany and Poland. We have found that Industry 4.0 has a significant impact on HR practices. In both international companies, various digital solutions in employee recruitment, development, and performance, have been implemented. There have also been mature examples in both companies of structural, contextual, and sequential ambidexterity. Keywords Ambidexterity Smart industry HR management Digitalization HR challenges Industry 4.0 Citation Przytuła, S., Rank, S. and Tracz-Krupa, K. (2022), "Ambidexterity as the Response of Smart Industry 4.0 – Towards Better HR Practices", Bondarouk, T. and Olivas-Luján, M.R. (Ed.) Smart Industry – Better Management (Advanced Series in Management, Vol. 28), Emerald Publishing Limited, Bingley, pp. 51-67. https://doi.org/10.1108/S1877-636120220000028006 Publisher: Emerald Publishing Limited Copyright © 2022 Sylwia Przytuła, Susanne Rank and Katarzyna Tracz-Krupa. Published by Emerald Publishing Limited. This work is published under the Creative Commons Attribution (CC BY 4.0) licence. Anyone may reproduce, distribute, translate and create derivative works of this book (for both commercial and non-commercial purposes), subject to full attribution to the original publication and authors. The full terms of this licence may be seen at http://creativecommons.org/licences/by/4.0/legalcode. License This work is published under the Creative Commons Attribution (CC BY 4.0) licence. Anyone may reproduce, distribute, translate and create derivative works of this book (for both commercial and non-commercial purposes), subject to full attribution to the original publication and authors. The full terms of this licence may be seen at http://creativecommons.org/licences/by/4.0/legalcode. Introduction The fourth industrial revolution is known as Industry 4.0 in most German-speaking countries. Different terms for this concept can be found in other countries, such as Smart Industry in the Netherlands or the Industrial Internet in the United States of America. Industry 4.0 is the production of goods and services with the help of technical components such as Big Data, Cyber-physical systems, the Internet of Things, social components like attractive workplace conditions and production components such as smart factories to increase the competitiveness of a country (Bulte, 2018). 50% of German companies are planning industrial networks, while 20% have already transitioned to the smart factory of Industry 4.0 which means that machines, people and production resources are in interaction (Bayraktar & Ataç, 2019). In Poland, digitalization of business process and automation in various sectors is in its infancy. The Polish industry is between reality 3.0 and 4.0. Specific solutions are introduced ‘locally’. A comprehensive approach is rare when the introduction of culture 4.0 simultaneously covers various levels and areas of the company's operations (Polski Przemysł 4.0, 2018). Thus, in a time of rapid, dynamic and unexpected social, economic and political changes affecting the global labour market (Przytuła, 2018), the companies must react and adjust fast to such challenges as Industry 4.0 which brings increasing automation and digitalization into management. Automation is the second most important strategic priority: 36% of companies plan to increase automation over the next 12 months through leveraging cloud computing and 13% by investing in RPA – Robotic Process Automation (Deloitte, 2016). The HAYS (2018) forecasts prove that nearly half (47%) of existing jobs are bound to be performed by machines within the next 25 years. Additionally, it is estimated that approximately 57% of jobs are at risk of automation in highly developed countries, while in the EU market it is about 54%. Digitalization is changing the organizational and functional structure of each company. This term means an ever-increasing use of technology and corresponding substantial changes in numerous domains of business and society. This notion is also true for human resource management (HRM) (Strohmeier, 2020). In this context, ambidexterity can be seen as a solution for digital transformation. ‘Ambidexterity’ comes from Latin and means ‘both (hands) right’, in other words being equally adept in the use of both hands. It is a concept that often comes up when companies restructure themselves to embrace digital transformation. Studies have shown, however, that organizations have to continuously reconfigure their activities to meet changing demands in their internal and external environments (Raisch & Birkinshaw, 2008). Organizational ambidexterity refers to the ability of an organization to both explore and exploit-to compete in mature technologies and markets where efficiency, control and incremental improvement are prized and also its competing in new technologies and markets where flexibility, autonomy and experimentation are needed (O'Reilly III & Tushman, 2013). Exploitation is associated with activities such as ‘refinement, efficiency, selection and implementation’, whereas exploration refers to notions such as ‘search, variation, experimentation and discovery’. Exploitation and exploration therefore require fundamentally different organizational structures, strategies and contexts (Raisch & Birkinshaw, 2008). In this context of digital transformation in companies, ambidexterity is considered as a modern organizational concept managing current strategical requirements as such innovation for new digital solutions vs. efficiency in existing processes in fast developing smart factories as Garaus et al. (2016) pointed. According to Andriopoulos and Lewis (2010), Schnellbacher and Heidenreich (2020) and Uotila (2018) the organizational ambidexterity long-term success depends on the ability to explore new opportunities and to exploit existing capabilities. A lot of research has been done on Industry 4.0 from a technical point of view, but there has been little research done on what it is meant for the workforce or society as a whole (Habraken & Bondarouk, 2017). According to Habraken et al. (2018), HRM research mainly focuses on how the HR function can acquire digital competencies or make use of technology in HR domains, such as using new technologies for administration (e-HRM), recruitment (video interviews, CV scanning systems), training (virtual reality glasses, or serious gaming) or performance appraisal (continuous feedback apps). However, the impact of technology on the future of work and consequently the role of HR is much broader and may lead to downsizing, restructuring the content of jobs, teams, or departments, decreased quality of work, working conditions, or employment relations. Also, a growing body of literature suggests organizational ambidexterity is influenced by companies' HRM practices (Malik, Sinha, Pereira, & Rowley, 2019) especially concerning individual knowledge and organizational capabilities. Schnellbächer and Heidenreich (2020) showed that ambidextrous knowledge offering (exploration) leads to higher performance in settings where radical innovations are required; in contrast, ambidextrous knowledge seeking (exploitation) leads to increase in performance where settings required incremental innovation. Fourné, Rosenbusch, Heyden, and Jansen (2019) revealed in their meta-analysis that high technology companies benefit from a special type of ambidexterity, that is structural one, which is discussed in the next section. Therefore, there is necessity for smart factories focusing on ambidexterity to balance the need of innovation vs. efficiency. Two transformation paths are under consideration for companies: organizational vs. individual ones (Mom, Chang, Cholakova, & Jansen, 2018). The central issue is how to transform the ‘context’ for ambidexterity in companies by changing their capabilities, that is organizational structure, culture, IT, processes/routines, leadership or employee competencies and behaviour. For building an ambidextrous organization, Stelzl, Röglinger, and Wyrtki (2020) identified these capability areas. These areas could be applied for running a situational analysis and defining the maturity level as a starting point for the transformation journey on the organizational level. For the employee level, Rosing, Frese, and Bausch (2011) argued that the leadership behaviour for implementing ambidexterity requires ‘two complementary sets of leadership behavior that foster exploration and exploitation in individuals and teams: opening and closing leadership behavior’. Zacher, Robinson, and Rosing (2016) showed in a field study that opening leadership impacts exploration behaviour of employees, whereas closing leadership influences their exploitation behaviour. Therefore, the HR is in charge of assessing the maturity level of ambidexterity and guiding through this transformation on organizational vs. individual levels. This requires, for instance, redefining the new role of HR to be fully engaged in running ‘old processes’, but facing new, digital and technological challenges. Kang and Snell (2009) propose that each component of intellectual capital (human, social and organizational) resides in both approaches of ambidexterity, creating unique configurations that are set to align the objectives and purposes of the organization. In ambidextrous organizations, this allows to seek co-existence of explorative and exploitative approaches and the management of several layers of intellectual capital. These processes require proper handling and effective interventions. Several researchers have highlighted the importance of HRM in assessing, developing, monitoring and influencing an organization's intellectual capital, Kang and Snell (2009) provide several configurations of how HRM can enable this in ambidextrous companies by promoting the practice areas of development (e.g. training, job rotation), employee relations (e.g. advancement, career planning) and performance systems (e.g. job design, performance appraisals) to achieve both stability and continuity. From an organizational point of view as Garaus et al. (2016) stressed the necessity for an integrated, ambidextrous HRM system which focuses on the exploration path, on employment practices and on the exploitation path, on work practices ending up in collaboration, knowledge integration and learning. The authors provide evidence that these practices do not need to be distinct or even conflicting, to accommodate ambidexterity, and argue that practices should be evolved in an integrated fashion to allow both approaches to connect and ensure the ability of the company to integrate knowledge. Similarly, Malik et al. (2019) illustrate how efficiency can be achieved by simultaneously adapting HRM practices seeking both continuity and adaptation. In doing so, HRM ensures that the intellectual capital can be re-aligned or re-configured through various practices at different levels to accommodate the explorative and exploitative requirements of the company simultaneously, especially in the context of global competition. Thus, we focused on the direct impact of Industry 4.0 on the HR function (recruitment, performance, talent management, development) through the lenses of the ambidexterity concept (Schnellbächer & Heidenreich, 2020) because the mandate of HRM is to guide and support organizational and individual transformation (Garaus et al., 2016; Stelzl et al., 2020). Best Practices for an Ambidextrous Organization Smart companies (companies with Industry 4.0, German term, see Pfeiffer, 2017) apply digitalization by implementing artificial intelligence (AI) for their business products and solutions. For the management, this means to think twice about optimizing established business processes with automation, artificial intelligence as well as creating new, disruptive innovation for new digital products in the digital age. On the one hand, digitalization helps to increase the process efficiency of these established business processes and core business competencies developed in an existing pattern. On the other hand, innovation is created by applying digitalization or even AI to invent new products and services via disruption (O'Reilly III & Tushman, 2013). What solution could we think of to integrate both aspects in working processes? This dual pattern of management in the current digital age is an important key aspect to add business value by applying organizational ambidexterity (O'Reilly III & Tushman, 2013). Ambidexterity focuses on both aspects of exploration (process efficiency) and exploitation (innovation) either within the teams along the business process or by defining separate teams for exploration and exploitation (structural ambidexterity). This creates a management perspective for driving digital transformation within the company. O'Reilly III and Tushman (2013) differentiate between three patterns of ambidexterity: structural, contextual and sequential. First, applying the most common pattern, structural ambidexterity means separating exploration and exploitation into independent business units. Beyond the business units for existing processes, an innovation hub is created to explore new disruptive business ideas in flexible units. Then, there is evidence of a positive impact on company's performance (Jansen, 2005). His study revealed that the structural differentiation on ambidexterity is mediated through informal senior team and cross-functional interfaces (Jansen, Tempelaar, van den Bosch, & Volberda, 2009). Fourné et al. (2019) emphasize this type for high technology companies. Second, contextual ambidexterity balances exploration and exploitation by making team members capable of creating a potential for efficiencies and be innovative at the same time, for example through simultaneous activities in one organizational unit. The success factors for implementing contextual ambidexterity pointed out by Birkinshaw and Gibson (2004) are the social support of the management and the high-performance organizational context with high achievement motivation of the staff. Third, sequential ambidexterity covers a temporal sequence of exploration and exploitation (e.g. one follows the other) which is applied in the new digital business opportunities. Less evidence for the increasing impact on performance was given (He & Wong, 2004), but Chou, Yang, and Chiu (2017) showed that sequential ambidexterity, as a temporal switching capability, is positively related to new product performance. The type of business strategy and absorptive capacity moderated the impact of the sequential ambidexterity on new product performance. The added value of different ambidexterity patterns depends on the organizational context in the light of industry 4.0 (see Pfeiffer, 2017). Based on the best practices in the literature of the subject, we illustrated this with three company cases from Germany. The first business example from ‘Munich Re’ goes for the structural pattern, the second case from ‘Trumpf’ focuses on the contextual pattern of ambidexterity, whereas the final example of the ‘BMW’ company presents sequential ambidexterity. ‘Munich Re’ as an Example of Structural Ambidexterity This re-insurance company with 40,000 employees and 52 billion Euro revenue in 2019 was founded in 1880. Dietl (Dietl, 2020) described in his article the case study of why the re-insurance company Munich Re has chosen structural ambidexterity: Munich Re offers insurances for catastrophes which are very rare, risk calculation is the essential mandate of everyday work which might limit creative thinking and innovation. The innovation for new products was limited because of some structural and cultural barriers. Therefore, the top management decided to set up cross-functional teams with up to 300 employees who were upskilled in agile working methods to understand customer demands. They worked in a very dynamic environment within an innovation hub close to the board. This structural ambidexterity ensures service excellence in existing business processes in the large corporation and resulted in a new organizational entity Munich Re Ventures, a new digital unit in a startup setting, and special technological units for the Internet of Things. Finally, a new spin-off stands for focusing on a niche, evaluating market opportunities, fast iterative processes (‘build, measure and learn’) and customer-centric focus. Beyond these structural changes, Dietl (2020) summarized the following success factors for more innovation at Munich Re: top management focus, freedom for disruptive innovation, long-term resource allocation and budget for innovation even in times of revenue losses because of COVID-19. The final management lessons learned are to acquire skilled employees, establish a culture for innovation and passion to experiment although the outcome is not yet predictable. ‘Trumpf’ as an Example of Contextual Ambidexterity The Trumpf company for machine tools, laser technology and electronics for industrial applications was founded in 1923 (Trumpf, 2021). The company is a market and technology leader in machine tools and lasers for industrial manufacturing. Software solutions pave the way to the Smart Factory. Hönl (2021) pointed that contextual ambidexterity has the advantage over structural ambidexterity to integrate the old and the new business perspective (traditional mechanical engineering practices vs. artificial intelligence) in heterogeneous, cross-functional teams in parallel for maximizing customer benefits. He also explained this type of ambidexterity as a dynamic, iterative, so-called agile development; the new role of ‘product owner’ within an agile team focuses on managing the technical content side and feasibility, while agile managers (former line manager) create the appropriate organizational framework, essentially by making it adaptable and facilitating continuous learning and collaboration across boundaries in the light of contextual ambidexterity. In Hönl's interview (2021), Duwe argued that new capabilities need to be combined with existing knowledge; therefore training on these capabilities is essential. Finally, Duwe (2018) summarized that this contextual ambidexterity is a key success factor for digital transformation, thus leadership behaviour should encourage thinking in both patterns in parallel. In consequence, the current business leaders apply contextual ambidexterity by flexibly switching their and their employees' mindset and capabilities between exploration and exploitation in the business processes, enabling the necessary frame for new work behaviour, tools and collaboration for their teams and employees, as in agile project management. The lesson learned from this case is to increase capabilities by developing skilled employees in interdisciplinary fields combined with an agile approach. ‘BMW’ as an Example of Sequential Ambidexterity Bayerische Motoren Werke AG, commonly referred to as BMW, is a German multinational corporation that produces luxury vehicles and motorcycles. The company was founded in 1916 as a manufacturer of aircraft engines. Birkinshaw, Zimmermann, and Raisch (2016) identified BMW as an example of sequential ambidexterity: ‘BMW's successful sequential alternation is its culture that encourages employees to critically reflect on their strengths; in the phase between 2006 and 2010, when front-line managers were working hard to optimize BMW's continuous profitable growth in its established model range, top executives began to meet with customers, industry and researchers to the future of This is a example of how different internal with sequential ambidexterity. Birkinshaw et al. (2016) exploitative front-line managers on capabilities, whereas top executives emphasize their capabilities to the and the organization for the an focus. explorative front-line managers their capabilities, while top executives emphasize capabilities, to the organization for a to In a BMW the sequential pattern within a team and more with on different organizational levels. and (2018) that ambidexterity is not the best solution for strategical because this could in activities by the management dynamic, external in the environment are not into et al. (2018) a of with resource in the long-term companies should on processes balance exploration and and processes this balance to the changing In a current et al. (2020) revealed in the product service industry that sequential company performance, but the pattern across all the is the contextual ambidexterity company performance. In contrast, et al. (2020) showed in a study in German engineering companies how ambidexterity, exploration and exploitation the They an exploration strategy of innovation processes with new products and this with strategic as exploitation has not whereas an ambidextrous strategy on its could impact the However, best practices focused more on structural ambidexterity which is an point for the first implementation of ambidexterity on organizational structural level. on the individual level, the leader and employee behaviour requires a transformation in the of sequential or contextual ambidexterity by agile working These agile working methods the radical innovation like it was revealed by et al. (2020) and Trumpf we argue that a pattern of contextual and structural ambidexterity with flexible and job between organizational project teams, is for a smart on structural ambidexterity with an independent innovation hub is not organizational ambidexterity is there is a issue of capability in terms of either the resources to flexible business demands or developing employee capabilities on the ambidexterity maturity level et al., 2020). HRM practices need to be flexible for both patterns of working along a et al., 2018). HRM practices should their services with for the flexible explorative working In a several HR practices are highlighted to the necessity for HRM to digital transformation & & & 2017). This research field is developing is more an a Beyond this focus, HRM practices have to foster current challenges for digital transformation within their companies. and (2017) the ambidexterity with the HRM strategy and system in to within a which HR system is needed on current strategic requirements of vs. and argued that different HR systems are required within the same vs. systems for exploitation or vs. HR systems for exploration ambidexterity in HR systems should apply the solutions. for HRM There is a to be in building HRM systems to and help the of ambidextrous organizations, and the of challenges to companies that seek ambidexterity are well ambidextrous organizations require parallel that may often much time and resources are required to the of HRM practices that can be integrated to achieve company continuity and development In HRM should be with a specific and mindset that will allow them to from approaches or even in one approach. Therefore, and the frame of is required et al., 2021). an HRM system in an ambidextrous environment and with more to Therefore, HRM need to and HRM systems to support work that requires dual capabilities, to allow the company to achieve ambidexterity & 2019). management support is required to enable a of and that is required for employees to explore new of while efficiency at work & resource are with the HR of organizations, through Industry 4.0, will be by technological tools and innovative technology 2017). and automation to jobs 2019). The increase in technological capability will not an increase in but will also the of work and the workforce because of the in technology that job automation & 2020). have various challenges of human resources management organizational ambidexterity, leadership & Jansen et al., & top management & & Tushman, & employee motivation & 2019) and organizational culture & In a of ambidexterity, companies need to different activities over time and and this brings challenges for in the of management et al., 2021). 2017) there is a global work for new capabilities of the either or employees, on the specific job O'Reilly III & Tushman (2013) argued to on dynamic capabilities and these organizational capabilities by all three types of ambidexterity: must be to the allocation of resources between the and new business There has also been research on human resource development as a for HRM in the context of ambidexterity and smart research in and exploitative learning & & Thus, is focused on and new competencies required in an ambidextrous organization. These from digitalization of various processes in an organization. On the one hand, digital technologies are to support HR such as recruitment or On the other hand, the of digital technologies a of HR from the and them on strategic activities of HRM (Strohmeier, 2020). of Industry 4.0 will new challenges for in the need to employees with competencies that are in the current labor In the strategic for & den the the importance of digital competencies with key such as and to to and digital and and collaboration to through digital technologies while being of cultural and digital content to create and digital to and in digital and