Board of Directors and Major Organizational Change Programs: An empirical review of implementation of Scania Production System and TQM

Paper i proceeding, 2009

The importance of top management commitment for the success of major change initiatives such as Toyota Production System and TQM has been emphasized in literature, while the role of boards, has been in less focus. The purpose of this paper is to analyze how the board of directors affects the long-term sustainability of major organizational change. This study is based on three case studies of the diffusion of complex organizational innovations such as Scania Production System (SPS) and Total Quality Management (TQM). The first case is from the health care industry in the public sector, the second from the automotive industry and the third from the steel industry. Findings from these case studies were then compared to literature on success and failures of major change programs. As Beer (2003) commented, a TQM transformation is a long-term process requiring a fundamental shift in management practice and culture. In the best of all worlds, a committed high quality management can contribute to sustain such change processes. In our case studies, top management commitment was key for the adoption, implementation and sustainability of complex organizational innovations such as SPS and TQM. However, a committed top management does not “last for ever” – in the ‘world of organisations’ leaders are replaced and the very units that are in focus are being restructured, merged or sold, which deeply affect the long term change processes. One of the cases studied have been able to keep stability in leadership and has successfully developed their organization to best practice in the world (the company in the automotive industry). The other two cases, however, have ceased to exist the way they “used to be” when they started their implementation of the innovation TQM – At the down-turn of a business cycle a new CEO was hired to the steel company, with the task of cost cutting and turning the company more profitable. The hospital became part of a merger leading to the formation of the largest hospital in Northern Europe. The managing director and key personnel left the hospital and today the present management has put up ambitious goals for processes (e.g. the fractured thigh-bone operation process) which are identical to the ones that were reached already 10 years ago, but through the turmoil of reorganisation the way to reach these goals was partly forgotten and the competences needed for process improvement had been dispersed. This pattern is however not unique (cf. Book, 2006) and the issue of sustaining change long term falls back on the governance structure – on boards and owners. If they don’t understand the essence and complexity of organisational changes such as Scania/Toyota Production System, Lean Production, Six Sigma och TQM, (all ‘organisational innovations’ consisting of essentially the same ideas and practices) – then the risk is that committed leaders are replaced with new ambitious leaders who are given new directions by boards, which basically leads to the destruction of ambitious change processes before their full potential benefits have been realized. This study focus on the role of the Boards in sustaining major organizational change programs. As the importance of the board has not been emphasized in literature about organizational change, this study provides additional insights into the conditions for long- term sustainability of organizational change.