IN THE FIELD OF TECHNOLOGYDEGREE PROJECT INDUSTRIAL ENGINEERING AND MANAGEMENTAND THE MAIN FIELD OF STUDYINDUSTRIAL MANAGEMENT,SECOND CYCLE, 30 CREDITS

, STOCKHOLM SWEDEN 2018

Organized to digitizeA new approach on collaboration and structure

JONATHAN GUNNARSSON

MARCUS KJELLBERG

KTH ROYAL INSTITUTE OF TECHNOLOGYSCHOOL OF INDUSTRIAL ENGINEERING AND MANAGEMENT

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Organized to digitize A new perspective on collaboration and

structure

Jonathan Gunnarsson Marcus Kjellberg

Master of Science Thesis INDEK 2018:06 KTH Industrial Engineering and Management

Industrial ManagementSE-100 44 STOCKHOLM

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Digital organisering Ett nytt perspektiv på samarbete och

struktur

Jonathan Gunnarsson Marcus Kjellberg

Examensarbete INDEK 2018:06 KTH Industriell Teknik och Management

Industriell Ekonomi och Organisation SE-100 44 STOCKHOLM

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Abstract This master thesis was conducted at a large Swedish manufacturer, where the perception on and challenges regarding digital transformation were studied. Digital technology is a gateway to numerous possibilities, simplifying production, altering products and creating new value offers. This study is focused on commercial digitalization, such as digital services and solutions that challenge or strengthens existing business models.

A manufacturing firm, accommodated with the development of physical products is not adapted for the speed, flexibility and cross-functional collaboration which digital development requires. Though, the digital business area for a manufacturing firm is somewhat unresolved, with limited knowledge and guidelines as well as uncertain profitability. Reallocating resources from existing business towards digital development can thus be risky. Evidently, development of digital initiatives within a manufacturing firm requires high pace, support, structures and clarified roadmaps. Synergies from cross-market collaboration are important, but it can also increase complexity and tardiness in a large organization.

Based on findings from this study, a manufacturer should alter its organizational structure to benefit their digital transformation. Speed should be prioritized over collaboration and traditional development should increasingly focus on business and consumer contact rather than technology. A common back end function should be increasingly utilized, developing digital technology for the whole organization, to ensure unanimity and simplifying development of similar initiatives. Digital initiatives tightly connected to products or existing business models should be developed within the corresponding functions. Support and inspiration towards digital development should derive from a holistic function that can aid and guide the whole organization. This function should also be responsible for digital initiatives that differentiate from traditional business. Increasing experience and proactively develop digital solutions will be important to stay ahead of competition and fulfill customer demands. Keywords: Digitalization, digital manufacturer, digital servitization, digital transformation, organizing digital, structure for digital

Master of Science Thesis INDEK 2018:06

Organized to digitize: A new perspective on collaboration and

structure

Jonathan Gunnarsson Marcus Kjellberg

Approved

2018-06-05Examiner

Anna JerbrantSupervisor

Anna JerbrantCommissioner Contact person

!

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Sammanfattning Denna masteruppsats utfördes hos ett stort svenskt tillverkningsföretag, där uppfattning om och utmaningar kring digital transformation studerades. Digital teknik öppnar upp för otaliga möjligheter, förenklar produktion, förbättrar produkter och skapar nya värdeerbjudanden. Denna studie fokuserar på kommersiell digitalisering, så som komplementerande tjänster och lösningar som utmanar eller stärker existerande affärsmodeller.

En produkttillverkare, van vid utvecklingen av fysiska produkter är inte anpassad till den snabbhet, flexibilitet och det samarbete mellan affärsfunktioner som digital utveckling behöver. Det digitala marknadsområdet är dessutom osäkert, med begränsningar i erfarenhet, riktlinjer och osäker lönsamhet. Omdisponering av resurser från existerande affärsverksamhet kan därför vara farligt. Bevisligen behöver digital utveckling inom ett tillverkande företag snabbhet, stöd, strukturering och tydliga mål. Synergier från samarbete mellan kundgrupper i en organisation är viktigt, men kan också öka komplexitet och tröghet i ett stort företag.

Baserat på studiens resultat bör ett tillverkningsföretag anpassa sin organisationsstruktur till fördel för digital transformation. Snabbhet bör prioriteras framför marknads-överskridande samarbete och mer traditionella instanser borde öka fokus på utveckling av affärsmodeller och kundrelationer. En gemensam back end instans borde användas i större grad genom att utveckla digital teknologi för hela organisationen. Detta skulle skapa enighet, minska duplicering och förenkla utvecklingen av likartade projekt. Digitala initiativ som är kopplade till fysiska produkter eller nuvarande affärsmodell borde utvecklas tillsammans med dessa. Stöd och inspiration för digital utveckling borde komma från en holistisk instans som kan stötta och ledsaga hela organisationen. Denna instans bör även vara ansvarig för att utveckla mer radikala digitala initiativ. Att öka erfarenhet och att proaktivt arbeta för digital utveckling kommer vara mycket viktigt för att motstå konkurrens och uppfylla kundkrav. Nyckelord: Digitalization, digital manufacturer, digital servitization, digital transformation, organizing digital, structure for digital

Examensarbete INDEK 2018:06

Digital organisering: Ett nytt perspektiv på samarbete och

struktur

Jonathan Gunnarsson Marcus Kjellberg

Godkänt

2018-06-05Examinator

Anna JerbrantHandledare

Anna JerbrantUppdragsgivare Kontaktperson

!

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Table of contents

List of figures and tables IX

Foreword X

Abbreviations XI

1. Chapter one - Introduction 1

1.1. Background 1

1.2. Problematization 2

1.3. Purpose 3

1.4. Research questions 3

1.5. Expected contribution 3

1.6. Limitations 4

1.7. Delimitations 4

2. Chapter two - Theory and literature 5

2.1. Digitalization in manufacturing industries 5

2.2. Digital servitization 7

2.3. Exploitation and exploration 9

2.4. Radical innovation vs incremental innovation 10

2.5. Ambidextrous organizations 11

2.6. Organizational separation 12

2.7. Temporal separation 13

2.8. Contextual ambidexterity 13

2.9.Innovation in collaborative networks 14

2.10. Process innovation 15

2.11. Organizational change 16

3. Chapter three - Method 19

3.1. Research design 19

3.2. Case studies 21

3.3. Literature review 22

3.4. Interview methodology 25

3.5. Observations 29

3.6. Method for data analysis 29

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3.7. Validity and reliability 32

4. Chapter four - Results and analysis 35

4.1. Firm perception and digital initiatives 35

4.2. Holistic analysis 49

4.3. Key findings 51

5. Chapter five - Discussion 53

5.1. Culture and perception of digitalization 53

5.2. Organizational structure 56

5.3. Digital development 59

5.4. Collaboration 62

5.5. Structuring digital initiatives 64

5.6. Structural proposal 67

6. Chapter six - Conclusions 71

6.1. Conclusions 71

6.2. Limitations and future research 74

References 75

Appendix I - Interview guide 78

Appendix II - One pager (first phase) 79

Appendix III - One pager (second phase) 80

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List of figures and tables

Figures

Tables

Figure 1 - Diffusion of innovations (Roger, 1983) 6

Figure 2 - Framework for exploitation & exploration (Lavie et al., 2010) 10

Figure 3 - Technology innovation 11

Figure 4 - Overview Organizational separation 13

Figure 5 - The road to commitment (Koller & Loup, 2005) 16

Figure 6 - Maturity in digital transformation (adopted from Andervin & Jansson, 2016) 17

Figure 7 - Process overview 19

Figure 8 - Organizational overview of the case company 35

Figure 9 - Simplified Organizational structure including forums and digital initiatives 38

Figure 10 - Customer centered INNOVATION 60

Figure 11 - Proposed Organizational Structure 67

Table 1 - Study keywords 24

Table 2 - Interviews in the case study (Corbin & morse, 2003) 25

Table 3 - Interviews in phase one 27

Table 4 - Interviews in phase two 28

Table 5 - The five stages of data analysis (Denscombe, 2010) 30

Table 6 - Categories for cataloging interviews 31

Table 7 - Project Alpha 40

Table 8 - Initiative attributes Project Alpha 41

Table 9 - Project Bravo 42

Table 10 - Project attributes Project Bravo 44

Table 11 - Project Charlie 45

Table 12 - Project attributes Project Charlie 46

Table 13 - Project Delta 47

Table 14 - Project attributes Project Delta 48

Table 15 - Possible attributes of NBI, PCI 66

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Foreword

This study has been conducted as a Master Thesis during the spring of 2018 on behalf of KTH, Royal Institute of Technology and the case company. The thesis is the final part of a Master of Science degree in Industrial engineering and management from KTH.

There are many of whom we owe gratitude to for their knowledge, feedback and guidance to this thesis. First of all, we want to thank our two supervisors for their time, inspiration and support throughout the semester, Anna Jerbrant, Associate professor at the Department of Industrial engineering and management, KTH and the Director of innovation management at the case company.

We would also like to extend a warm thank you to Marin Jovanović, Beatrice Björk as well as all interviewees and the rest of the employees at the case company, whom with their participation, insights and support made this thesis possible.

Jonathan Gunnarsson Marcus Kjellberg

5th of June 2018 Stockholm

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Abbreviations

B2B Business to Business

B2C Business to Consumer

CD Construction divison

DOT Group digital operations and technical development

IoT Internet of Things

MD Mass market consumer division

NBI New business innovation

OD Outdoor professional division

OEM Original equipment manufacturer

PA Project alpha

PB Project beta

PC Project charlie

PCI Product centered innovation

PG Project delta

RD Residential garden division

USP Unique selling points

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1. Chapter one - Introduction

1.1. Background Production growth in the Swedish manufacturing industry has had a weak development during the 21st century (SCB, 2018). In a study conducted on mature markets under similar conditions , one can also see that the global productivity growth has declined and is at 1

historically low levels (Bughin et al., 2018). While this is an outcome of many variables, one of the most present reasons for the business stagnation is believed to be an uncertainty for digital implementation and development (Beltagui et al., 2018).

The Swedish industry is commonly associated with quality, innovation and expertise, aiming to improve and simplify life (Bergström et al., 2016). Historically, Swedish original equipment manufacturers (OEMs) have successfully utilized new technologies (ibid), creating competitive advantages and unique selling points (USPs). They are also deemed to have good prerequisites for acquiring and developing new business segments and continue their development (ibid).

However, the introduction of digitalization doesn’t solely demand a technological adaption (Davies et al. 2006). The new technology is accompanied by new business models, value offerings and strategic choices which require a larger collaboration between business functions (ibid). Digitalization acts as a glue, binding together different units, products and services that normally wouldn’t operate together (Sundström, 2017). This ultimately puts increased pressure on the organization, its structures and affects the everyday business. ”Traditional structures and capabilities have to be transformed and continuously refined.” (Davies et al. 2006, p.40).

Digitalization as a concept is widely known, and its importance for business’ can hardly be argued with (Digitaliseringskommissionen, 2016). Jan Gulliksen, a professor at KTH and head of the Swedish state-appointed digitalization committee between 2012 and 2016, called the impact of digitalization on manufacturers as ”the most socially disruptive process since the industrialization” (ibid). Digitalization has revolutionized many industries, mostly evident in music and media, but it is also affecting the more traditional manufacturing industry. It challenges companies to evaluate their business models and forces them to experiment with the new technologies to stay ahead of competitors. The new technology is mainly centered around digital tools to improve production, act as stand-alone products or as services, which complements or substitutes existing business models.

Involving France, Germany, Sweden, Italy, Spain, The UK and the US1

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This study involves digital servitization, an increasing trend within the manufacturing industry. While services vary in complexity and offerings their function can usually be stripped down into two categories, to increase customer satisfaction or differentiation. Services are used to create competitive advantage, strengthening existing products or by creating a substitute for existing business models. Different types of services have their own demands on the organization, its flexibility and structure. It is widely suggested that manufacturers should be prepared to modify their organization to promote the development of digital services. (Beltagui, 2018)

The digitized market within the manufacturing industry has been acknowledged for a long time, but due to uncertainty and restraint, it can still be seen as unexplored (Mauborgne & Kim, 2005). The business area lacks both experience as well as supporting tools and frameworks, resulting in a vast majority of unsuccessful projects (Schilling, 2017). This explains why organizations, despite advocating a digital transformation, hesitates and postpones the process (Mauborgne & Kim, 2005). Though despite having its risks, digital innovation projects are necessary to conduct and develop in order to maintain a competitive advantage (EY, 2011).

The case company, a Swedish OEM has undergone many transformations during its long history. However, these transformations have always been centered around physical products, testing new segments or radically changing production. This time they are faced with the challenge of introducing a new type of offer, seeing past the physical product and elaborating with digital solutions and new business models. Now services, application-based data handling and processes involving an increased collaboration are important. In this study, a case company has been used to represent the Swedish manufacturing industry and examined to explore the challenges which the whole industry faces. While the firm has many strengths within e.g. human capital, supply and experience, it isn’t accustomed to developing digital initiatives. The ongoing digital transformation is a challenge for companies like the case company, but the exploration of new business models, concepts and structures are vital for its continuous success.

1.2. Problematization Digitalization is constantly increasing the speed of change and development (Holmström & Nylén, 2015), creating a larger demand for adaptability and flexibility within the organizations (Birkinshaw & Raisch, 2008). When new markets and technologies emerge, smaller incumbents often take the lead due to their advantage in speed and ability to adapt. Larger companies, on the other hand, struggles to keep up, due to traditional processes and tardy structures. There are many theoretical solutions, advocating the innovation and collaboration required but their usability in practice varies. Many theories focus on different forms of ambidexterity, creating explorative instances or tools to develop digital projects (Shapiro, 2013). This strategy could avoid the resistance of old structures and routines creating agility and increased growth (Rosen, 2017). Though, there are many

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trade-offs to be accounted for when creating structure and strategies. While separation increases flexibility, it also aggravates communication and collaboration, possibly decreasing customer satisfaction (Baines et al., 2015).

As earlier stated, digital products and solutions aren’t yet profitable for a manufacturing firm and while many advocates digital development, the financial demands of a listed organization lingers. When resources are reallocated and used in digital initiatives instead of traditional business it can weaken the firms’ financial results. It can therefore be both unappealing and dangerous to prioritize digital development.

Speed and synergies are also underlying factors for digital development in any firm. While the extraction of synergies from cooperative development is very attractive for an organization it can also be very complex depending on structures and organizational size. Possible synergies can be omitted by traditional processes and complex cooperation can lead to tardiness for the initiative. The question arising is, to what extent synergies from collaboration are valuable and when they should be neglected to prioritize speed and development. Naturally, this is affected by many parameters such as environment, type of market, customer behaviors etc., but finding the optimal level is a challenge for all companies, with multiple strategies at a time (Gjelstrup et al., 2015).

1.3. Purpose The purpose of this study is to investigate how digitalization is perceived within a manufacturing company, by collecting data on how past and present digital initiatives have been developed. This will increase understanding of how organizational structure and collaboration between business units effects digital transformation. Ultimately this will thereby contribute to research regarding organization in relation to digital transformation.

1.4. Research questions R1: What is the perception of digital transformation from the perspective of a Swedish original equipment manufacturer (OEM)? R2: How does organizational structure and collaboration affect an OEMs readiness for digital transformation? R3: How can an OEM be organized to proactively cope with the digital transformation of the business environment?

1.5. Expected contribution As stated above, there is a knowledge gap in how to optimize an organization for the digital transformation. The digitalization has preceded the existing academic foundation, due to its speed of development. The importance of digitalization is becoming increasingly evident and therefore the need to catch the trend and understand the effects and what strategies are needed is vital.

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We aim to create an understanding of how digitalization affects a large OEM, with data on how this transformation can be handled. This would contribute to the development of companies in their transformational journey and enable them to make informed decisions based on more than internal opinions and outdated experience.

1.6. Limitations Time is a clear limitation in this case. Given the boundaries of a thesis proposal, there is only a certain amount of time, thereby limiting the extent of the study. Further, only one company is thoroughly investigated, as a consequence of the time restraint.

1.7. Delimitations For this study, four projects within the case company have been chosen. They are diversified and of variable strategic importance. While applying our conclusions to a generalized industry, it isn’t necessarily applicable to every Swedish manufacturer. Similarly, given the structure of the case company, acting as a constraint, the conclusions are mostly applicable to product manufacturing companies operating in silo structures.

We have also chosen to limit the study to value-adding projects with digitalization as a foundation, e.g. complementing services and business enhancing initiatives tied to digital technology. Therefore, when discussing digitalization, we are excluding topics such as automatization, digitization and stand-alone digital services. We also distinguish between organizational innovation, changes to organizational structures, administrative processes, and technological innovation.

The manufacturing industry investigated is defined as the Swedish product manufacturing industry. In other words, companies producing for an end customer either engaging directly with the customer, or using retailers and dealers as distribution or selling channels. The business could be both business to business (B2B) or business to consumer (B2C) but must be product centered.

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2. Chapter two - Theory and literature

The theory has been chosen both in order to give the reader a thorough understanding of the issues to be discussed, as well as provide a research-based foundation on which to base discussions and conclusions. First will we introduce general innovation and concepts which are important to understand when discussing digitalization. We will then move on to one of the major challenges, as well as opportunities for manufacturing firms in regards to digitalization by introducing and explain digital servitization. In order to utilize e.g servitization, which is a new business area for many of these product centered companies, both core business as well as new business must be focused on. This leads into how to conduct both exploitative and explorative initiatives at the same time. In relation to digitalization, exploration and exploitation can be seen as radical and incremental innovation, therefore this definition is explained to further cement the understanding of the new concepts. One way to handle exploit and explore is by implementing ambidextrous organizations, where three different ways are mentioned in this study. Initializing more explorative business, and implementing an ambidextrous organization, requires process innovation. Another interesting aspect which can be used to enhance discussions and conclusions in this thesis is collaborative networks. While this is commonly discussed as technological collaboration between organizations, it can also be applied to discuss internal collaboration. Ultimately an alteration of an organization has to be undergone and the organization’s ability to handle these changes properly will be an important factor in the digital transformation.

2.1. Digitalization in manufacturing industries Digitalization and automation are transforming the manufacturing industries in several different ways. In a study published by the Nordic Council of ministers (IRIS Group, 2015) four different effects were stated: • The use of digital technologies to communicate with each other and/or report back to

users or producers. This in order to optimize use, maintenance and energy consumption, resulting in greater control and larger levels of independence for the units.

• Using digital technologies to bridge companies, suppliers and customers, enabling a closer collaboration with e.g. innovation, inventory control, adjustment for demand patterns etc.

• Digitalizing the production and introducing a high level of automation by the use of robotics and computer-aided manufacturing systems that increase labour productivity performance.

• Automating administrative tasks as well as communication within the value chain.

Digitalization is a broad term with multiple interpretations depending on both field and market. When discussing digitalization it is therefore important to define the term for the specific context. Bylund et al. (2016) points toward two meanings of the term, digitization

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and digitalization. Digitalization, which is covered in this report, refers to changes in processes, organization and systems by the usage of digital technology (ibid).

Companies can, according to the Nordic Council of ministers (IRIS Group, 2015) be divided into three groups in relation to digitalization and automation. This classification is a simplified model of Everett Roger’s Diffusion of innovations first published in 1962. • Innovators - a small group of advanced companies highly involved in developing the

digital technologies for the future, working in fast, agile and adaptive ways. • Early adopters - companies that are the first to adopt the new technologies, and are first

movers in developing and exploring new business models. • Followers - companies that wait until technologies become more mature before they

apply and invest in them.

FIGURE 1 - DIFFUSION OF INNOVATIONS (ROGER, 1983)

It is important to understand that all three parts are vital to the development of new technology. While the innovators create and develop the new technologies, early adopters are vital to start the diffusion and increase the general knowledge for this new development. They also serve as inspiration and establishes case examples for others to follow. Lastly, the followers are crucial for the big uptake and general dispersion of the technology. It is they who make an impact on the overall level of digitalization for a sector or a country. (IRIS Group, 2015)

Digital maturity is an umbrella term, trying to visualize the level of an organizations readiness to embrace digitalization. An article in MIT Sloan management review defines it as ”a psychological definition of ’maturity’ that is based upon a learned ability to respond to the environment in an appropriate manner” (Bucley et al., 2017).

Internet of things (IoT) and digital maturity have grown into two of the most crucial topics in the business world (Bucley et al. 2017) and Sweden is considered as one of the best countries at utilizing the possibilities of digitalization (Digitaliseringskommissionen, 2016). In general terms is the Swedish manufacturing industry digitalized to a higher extent when compared to the rest of the EU (IRIS Group, 2015) enabling the use of new types of offers and services.

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2.2. Digital servitization With digitalization as a foundation, servitization has grown as a complement, creating additional value to existing products. Servitization has been an important topic for many firms the last two decades and while some businesses have had their digital transformation, the manufacturing industry’s is yet to come (Baumgartner et al., 1999: Baines et al., 2015). There are important benefits offered by the downstream market including revenues, higher margins and a reduction of assets compared to traditional product manufacturing (Baumgartner et al., 1999). Due to the intimate connection to their products, manufacturing firms are well positioned to broaden their business model and develop their downstream activities (ibid). Though, doing so will require an expanded definition of the value chain, a shift in focus and new ways of thinking strategy (ibid). Emerging and rapidly developing digital opportunities puts extra pressure on existing business models advocating changes for traditional OEMs (Khanagha et al., 2014). ”Technological change or other exogenous forces triggers the discovery of emergence of new business models” (Khanagha et al., 2014. p. 324).

Servitization represents an alteration of a business model with a transformation from selling goods to selling an integrated combination of both goods and services (Baines et al., 2015). ”Overall, research generally agree that moving to a service focus can provide long term advantages for manufacturers” (Baines et al., 2015. p. 54). Locking competitors out of the market and increase profits are the main drivers of servitization, it frees competitors from competing with solely cost and allows greater differentiation. Baines et al. (2015), similarly to Beltagui et al. (2018) categorize servitization within three areas: • Base - Spare part provision, equipment provision • Intermediate - Helpdesk, training, maintenance • Advanced - Customer support agreements, outcome-based contracts. The addition of services or solely the service as product allows manufacturers to create value across the entire product lifecycle, a strategic alternative that may generate superior performance (Bianes et al., 2015).

While it is important to participate in this transformation, it is equally dangerous to be too early as too late (Khanagha et al., 2014). When the market is not sufficiently developed, it is not advisable to be a first mover (ibid). Adapting for servitization with new internal processes and structures can be very risky, diverting resources from the traditional manufacturing to uncertain initiatives (Beltagui et al., 2018). ”Choosing the right approach to manage services can reinforce competitive advantage” (Baines et al., 2015. p. 57)

As earlier stated, a transformation for services advocates changes in organization and strategy. Since the manufacturing strategy traditionally has been based on the physical product with focus on vertical integration, delivery processes and value streams, a transforming firm has to create new processes and structures to undertake new challenges (Baines et al., 2015). This reconfiguration is also aggravated by the lack of empirical

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research that describes how a transformation could or should be conducted (Beltagui et al., 2018).

The main strategies for an OEM’s servitization are competitive differentiation and customer satisfaction (Baines et al., 2015). The ability to realize these strategies does depend on your position in the value chain, where only a top positioned firm can create competitive differentiation through additions for, complements to, or alterations of the product (Baines et al., 2015).

Depending on what kind of service the firm wants to develop, the recommended structures vary. For example, high contact activity requires interpersonal skills and should therefore be located close to the customer, whereas simpler services closer related to the product need more contact with the product developers (Baines et al., 2015). Different configurations can exist concurrently within one organization, or even within one division but it can be hard to implement and flexible processes and structures will be necessary (Beltagui et al., 2018).

Overall, theory advocates some sort of ambidexterity for service initiatives (Khanagha et al., 2014: Baines et al., 2015: Beltagui et al., 2018). Though, functional separation leads to challenges within experience, labour and processes and the extent of the separation should be deliberated. Beltagui et al. (2018) state that more complex initiatives, intermediate or advanced, should be structured with a separation of back- and front end activities. Thereby, the back end retains the product ”core” and a sealed of front end can focus on innovation and efficiency. The extent of the separation depends on the initiative and its requirement of product development. Baines et al. (2015) state that the structural strategy can be based on the goal of the service, whether it should result in differentiation or customer satisfaction. When differentiation is key, a specialized unit or external partner should develop the initiative, whereas customer satisfaction could be developed directly by business functions. Khanagha et al. (2014) are more reserved in advocating ambidexterity since a business model disruption can be harmful to a company, overturning core value creation and requiring lots of resources. While realizing the risks from separating business functions, they acknowledge that new business models through servitization need a separated platform to prioritize the required exploration. The optimal approach according to Khanagha et al. builds on a separated function while allocating tasks to members of the existing organization, keeping experience while creating a unified organizational development (ibid). The development could be described as unfolding, influencing future moves of the organization.

The most common structures for servitization are (Baines et al., 2015. p.58): • Creating a new business function to oversee all service responsibilities • Create a new business function to handle specific services • Allow service operation to run in parallel with existing structures. • Outsource some services and allow internal business functions to manage the others.

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When attempting servitization and thereby entering a new domain of business, it is important to simultaneously focus on both old and new businesses, and bear in mind that they can require different processes and structures (Beltagui et al., 2018). There is a challenge to develop business and yet maintain focus on core competencies (Lavie et al., 2010).

2.3. Exploitation and exploration When sustainably developing a business two key concepts are exploitation and exploration. Dovev Lavie with colleagues (2010) explained it very simply. Exploitation is the ability to enhance productivity, incrementally innovate and improve existing products, whereas exploration engages individuals in search for new products, using more disruptive and radical innovation. Tushman and Smith (2002) connected the concepts within technology innovation, and defined incremental innovation to be exploitative, whereas radical innovation is explorative. Studies since have adopted the same view and developed it further (Birkinshaw & Reisch, 2008). As a business, it is important to be able to efficiently use your core business, and ensure stable revenue streams and sources of income from them. At the same time, without challenging models and existing products you are at risk of being disrupted by incumbents or competitors, presenting new solutions, potentially stealing market shares. Research has shown that companies operating in dynamic market environments need to exploit existing business while simultaneously exploring new opportunities (Rafiq & Wang, 2014).

Most companies today agree that both activities are vital for a companies learning and success on both short and long term. Though, they come with their own inherent challenges, in addition to the complexity of achieving both simultaneously (Rafiq & Wang, 2014: Benner & Tushman, 2003: Birkinshaw & Gibson, 2004). Researchers believe that a well balanced combination of explore and exploit is essential for long term success (Birkinshaw & Raisch, 2008).

Researchers have, when studied the concept, showed that tensions arise when organizations try to pursue exploitation and exploration at the same time (Birkinshaw & Raisch, 2008). Naturally, given the highly competitive environment of today’s business, there is a constraint in resources and trade-offs will be present. Organizations could be faced with trading short term productivity for long term innovation, potentially risking liquidity. However, doing the opposite and only allocating resources to incrementally improve existing technologies render the company with the risk of becoming obsolete (Lavie et al., 2010). Similarly, whereas exploitation stands for a more stable organization, exploration is often associated with flexibility and change (ibid). Thus, organizations focusing on exploitation to a large extent develop structural stability and effectively trade stability for flexibility. The framework developed by Lavie et al. (2010) provides an easy overview of the complexity in relation to explore and exploit, seen in figure 2.

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FIGURE 2 - FRAMEWORK FOR EXPLOITATION & EXPLORATION (LAVIE ET AL., 2010)

Exploitation and exploration have different effects on the outcome of the organization. One must be aware that even though the importance of exploration is established and agreed upon, the rewards are less certain and effects are distant, providing arguments for an increased leverage towards exploitation. For this reason, explorative units are often smaller, while the exploitative parts constitute the majority of the organization (Benner & Tushman, 2003). However, as can be seen in large firms who in recent years gone into decline due to a lack of innovation, it is of the highest importance to find this balance. This, in order to be adaptable in the short term and adequately prepare for the future.

2.4. Radical innovation vs incremental innovation Important concepts to thoroughly understand exploration and exploitation are radical and incremental innovation (Birkinshaw & Raisch, 2008). Even though commonly used, they play an important role in describing the differences between explore and exploit. Incremental innovation, defined as minor adaptations to existing products within existing markets, is improving the business. Radical innovation however, no longer builds on existing knowledge but introduces new technologies and a switch from current products. This often leads to new market opportunities, thus creating new demand and product offers.

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FIGURE 3 - TECHNOLOGY INNOVATION

Tushman and Smith (2002) later connected these to explore and exploit, and showed a clear correlation between the two. Incremental innovation is described as exploitative and radical as explorative.

2.5. Ambidextrous organizations Ambidextrous organizations, as defined by Raisch and Birkinshaw (2008) is ”an organizations ability to be aligned and efficient in its management of today’s business demands while simultaneously being adaptive to changes in the environment”. The origin is derived from the word’s original meaning, ”both favorable”, referring to the ability of using both hands equally well. It is perhaps an even better explanation using the metaphor of a jongleur, constantly keeping multiple balls (representing two different focus areas, exploit and explore) in the air at the same time.

The concept was coined and first used by Robert Duncan in 1976, but it was Jim March’s article in 1991 that is seen as the catalyst for the term (Birkinshaw & Rasch, 2008). It has today developed into an essential perspective for interpreting behaviors and outcomes, and a vital concept to consider when preparing the organization for the future (Lavie et al., 2010). The concept’s inherent trade-off, the difficulty to focus on existing business and yet also have structures and processes exploring and preparing for the future, were considered unsurpassable but recent research has presented a variety of solutions to support ambidexterity (Birkinshaw & Rasch, 2008). The positive effects of ambidexterity have been

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empirically proven (Birkinshaw & Raisch, 2008; He & Wong, 2004), enforcing its importance when developing any business, but also within technological innovation (He & Wong, 2004). What seemed as an impossible task has developed into an increasingly important business concept, to find a balance between exploitation and exploration (Benner & Tushman, 2003).

2.6. Organizational separation Organizational separation is perhaps the most obvious solution to the balance dilemma (Lavie et al., 2010). Research acknowledges the importance of designing organizational forms that are able to provide a good match between the companies existing activities and processes as well as allowing for its changing context (ibid). Using organizational separation this is achieved by structurally designing separate organizations, each with its own focus on either exploration or exploitation. The units would be highly differentiated and within each unit there is a coherent strategy, tasks and culture which would not be the same across them (ibid). This would be classified as a structural ambidexterity (Birkinshaw & Gibson, 2004). Prior research has often regarded trade-offs, due to resources and internal tensions, to be insuperable. However, recent research has presented a variety of organizational solutions to counter these and support organizational ambidexterity, including but not limited to structural mechanisms, organizational context and leadership characteristics (ibid).

However, even though both exploration and exploitation are equally important, structurally ambidextrous organizations tend to be structured in a specific way. The exploitative unit is larger and more centrally governed, with cultures designed to increase efficiency and incrementally improve products through process management (Lavie et al., 2010). The exploratory unit is significantly smaller, and more loosely constructed (ibid). These more decentralized units are designed to generate innovation through experimentation, using a looser culture and are able to operate more flexibly (ibid). Due to the difference in culture and processes, they must remain separate in order to avoid any cultural or procedural spillovers, negatively affecting the purpose of the other. Using this loose integration of separate units, organizations are able to simultaneously perform both exploitative as well as explorative activities and maintain a balance between them through active integration from the senior management (Jansen et al., 2009).

Recent research points towards the need for separation not only at lower levels but also across higher hierarchal levels (Lavie et al., 2010). The solution to become ambidextrous by dividing the organization in two is plausible, however not trivial. Inevitably, the challenge of coordinating efforts and maintaining a coherent organization culture shifts to the senior management team (ibid). They will be charged with conforming and synchronizing the different teams and ensuring that the goals are met both individually as well as on group level.

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FIGURE 4 - OVERVIEW ORGANIZATIONAL SEPARATION

2.7. Temporal separation Temporal separation is also about splitting up and separating exploitation and exploration. However, instead of doing this by structurally creating two separate organizations or units, Laviel et al. (2010) describe it as an approach where time is used to alternate the focus. The idea is to cycle exploitation and exploration within each existing unit, at a given cycle rate (ibid). This means that focus is either on exploitation or exploration at any given time, which ensures that both processes are occurring. Constantly changing focus enables the organization to avoid problems of conflicting pressures (Lavie & Rosenkopf, 2006) though they will inevitably be faced with other issues (Lavie et al., 2010). The transitions are crucial, and also the most difficult. The concentrated focus can lead to a path dependence making it difficult and delaying the switch, resulting in loss of productivity (ibid). For that reason, efficient processes that manage the transitions are required.

Due to the nature of temporal separation, with alternating cycles of changed focus, it puts a lot of stress on the organization. Hence an agile organization is required, which is skilled in changing and maintaining the desired focus (Lavie et al., 2010). Achieving temporal separation is no easy task, and requires a lot of coordination between units and tasks, as well as carefully tending to the transition phases in order to conduct these properly (ibid).

2.8. Contextual ambidexterity Contextual organizational ambidexterity, defined as the capacity to simultaneously achieve alignment and adaptability at business unit level (Birkinshaw & Gibson, 2004). By combining insights from earlier research Birkinshaw and Gibson created this concept, linking structure and processes, and adding a system perspective into what they called the organizational context. Alignment is defined as coherence among all patterns of activity within the business unit while adaptability is the capability to reconfigure activities in order to meet changing demands. They argue, in contrary to earlier suggestions that ambidexterity is achieved not through the separation with dual structures or temporary cycles. Instead, it is done by creating a set of processes and systems enabling each individual to make their

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own decisions on how to best divide their time between conflicting demands for alignment and adaptability (ibid). Their concept, building on previous research, characterizes the context as a combination of discipline; inducing members to strive towards expectations, stretch; inducing members to strive for ambitious projects, support; induces members to assist and help each other, as well as trust; inducing members to rely on the commitments of others, these in turn facilitates contextual ambidexterity (ibid).

Their study (Birkinshaw & Gibson, 2004) conducted on 41 business units spread across 10 different industries and included over 4000 individuals they showed a strong correlation 2

between adaptability and alienability, indicating that both can be achieved simultaneously. Also, ambidexterity (the combination of the two) had a strong correlation with performance, strengthening the argument for ambidexterity and dual capacity. Perhaps the most important remark from the study, which is also supported by a later study by Rafiq and Wang, indicated that there isn’t necessarily a trade-off between alignment and adaptability (Birkinshaw & Gibson, 2004: Rafiq & Wang, 2014). Further, the systems used to achieve alignment around adaptability were found to be quite simple and often decreased formality (Birkinshaw & Gibson, 2004).

However, even though its positive effects can be proven, contextual ambidexterity is very difficult to implement thoroughly (Rafiq & Wang, 2014). Creating effective mechanisms which integrate exploitation and exploration are not straightforward, and this implementation is key to succeess. Given that research has been focused on organizational separation more research is needed to better understand how this should be done (Rafiq & Wang, 2014: Birkinshaw & Gibson, 2004).

2.9.Innovation in collaborative networks Collaborative networks are defined as multiple entities, collaborating together to achieve common goals (Fang et al., 2016). Schilling (2017) states that there is a growing recognition of the importance of collaborative research, the market environments are developing rapidly and firms does not keep up. The term is most commonly used when the collaborations are conducted between multiple firms, forming collaborative relationships sharing information and strategies (Fang et al., 2016). Innovative networks are helpful in achieving optimal allocation of resources and promoting knowledge transfer performance (ibid). The key mechanism of the innovative network is the collaborative relationship, setting the boundaries of the networks outcome (Freeman, 1991). While goals might differ between the entities, the collaboration may still be preferable for the actors. For example, a small firm A, might need the financial support from a larger one, B, whiles B requires the creativity and innovation from A given by the flexibility of a smaller organization (ibid). A functioning technological network spreads knowledge throughout the cluster creating

Including industries such as industrial products, automotive engineering, electronic equipment and 2

heavy engineering

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spillovers, enabling technology and knowledge from one area to be applicable in another (ibid).

2.10. Process innovation It is important to clearly distinguish between product innovation and process innovation, even though they are intertwined and dependent on each other. Process innovations are defined as innovations in the way the company is conducting business, for example how they are processing products and services (Schilling, 2017). Product innovation on the other hand is connected to the actual products, new or enhanced products emerging onto the market.

Despite being different, they are interconnected with each other. New processes might lead to new products, or new products might require new processes (Schilling, 2017). Depending on the business, what is considered a process innovation for one company could at the same time be a product innovation for another. To exemplify, when the global United parcel service (UPS) helps a customer to establish a new distribution system, what would effectively be considered a product innovation for UPS and a process innovation for the customer. That is why it is so important to establish a clear distinction between them, and also thoroughly decide what a certain product/process is considered for your business.

While more important for some businesses than others, innovation is a crucial part of a manufacturers development. Usually, this innovation is centralized around incremental innovation, altering existing products to enhance its capabilities. The current market environment does, as earlier discussed, put pressure on increased exploration emphasizing the importance of an adaptable organizational structure. The structure of the organization its usage of formalized procedures and controls can significantly influence a firms innovativeness (Schilling, 2017). Commonly its argued that smaller, more flexible firms have an advantage in a strive towards innovation. Larger firms on the other hand have benefits from well-developed procedures resulting in better development investments and experience in implementation (ibid).

According to Schilling (2017), the main factors to take into consideration when discussing the influence of structure are; formalization, standardization and centralization. There is no golden rule that fits for all organizations, the exact proportion of these factors vary between firms and businesses. The conclusions that can be drawn however are that formalization and standardization are necessary, contributing with increased effectivity while utilizing them too much can result in a stiff organization unwilling to explore. Centralization on the other hand can enable significant innovation to occur more rapidly while decentralization can create broader exploration. Some firms have attempted to divide their organization into a more specialized division that can behave like smaller entrepreneurial firms, with a structure similar to the ambidextrous organization discussed earlier.

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2.11. Organizational change Organizational environments are dynamic where both direction and speed of change are difficult to anticipate (Zimmerman, 2011). While theory might easily advocate fast alterations of organizational structure and business models, the actual execution of these changes are difficult and complex (Khanagha et al., 2014). Though, in order to survive in the long term, organizations need to be adaptable and cope with the changing environment (Zimmerman, 2011).

The road to commitment, as presented by Koller and Loup (2005), describes the transformation process from the perspective of the affected. The two authors state that a successful change isn’t easily achieved but demands a lot of time and processing to be conducted properly. The process of transformation wanders through multiple steps starting with understanding and resulting in commitment. This model argues that a resistance can be avoided proactively by creating clear goals, kinship and communication. Though ”if they believe that change will not help and could hurt the organization, they do not fully believe in that change” (Koller and Loup, 2005 p. 76). Usable tools to encourage participation and build commitments are to engage in cross-functional teams, large group meetings, embrace failures as learning and continuously integrating change efforts. They also state that resistance might be a part of the journey and that some people will react differently than others on their road to commitment.

FIGURE 5 - THE ROAD TO COMMITMENT (KOLLER & LOUP, 2005)

Goodman and Loh (2011) emphasize the importance to include people as a strong parameter in organizational change. They state that people don’t resist change but resist begin changed and that the biggest challenges in an organizational transformation involvesthe employees (ibid).

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Andervin and Jansson, in their book To lead digital transformation, divided the digital transformation into three maturity phases: mobilizing, coordination and acceleration (2016), see figure 6. Their approach is similar to Loup and Koller, but rather than handling a generic transformation change, applied the knowledge directly on digital transformation. In the first phase, the focus is on mobilizing force, engaging the organization and create an interest in the transformation. During the coordination phase, an understanding of what is happening within the company is established, what works and what doesn’t. Here the focus lies on how the organization should work with digitalization. In the acceleration phase, having created an interest and understood how the company should approach digitalization, focus is now on what, finding suitable value offers and revenue models. It is also in this phase where the two prior separate operations, digital and core business, are consolidated and benefit each other. (Andervin & Jansson, 2016)

FIGURE 6 - MATURITY IN DIGITAL TRANSFORMATION (ADOPTED FROM ANDERVIN & JANSSON, 2016)

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3. Chapter three - Method

3.1. Research design When designing this research, it was decided on an abductive approach in order to overcome specific weaknesses connected to the inductive and deductive approach separately, mostly due to a lack of general scientific hypothesis within the area. Abduction is inferring a case from a general rule and result (Svennevig, 2001) and therefore require both a result and a rule. Given that the area of investigating is rather unexplored, and that there is a lack of general rules on how to address the situation, first of all, such a rule or hypothesis must be formulated. For this, an inductive approach is suitable (ibid), applied in the first phase, see figure 7 for a visual overview. Then, in the second phase, a deductive approach was used with the aim of construing a result, testing the hypothesis from phase one. Though there is a lot of documented theory surrounding organization and digitalization, not much research has been conducted within this specific field. As the research questions and area of investigation are hard to quantify, it was settled on a qualitative method in order to gain insights from people actually dealing with these issues on a daily basis and collect their experiences as a foundation for discussions and conclusions (Blomqvist & Hallin, 2015). This, in combination with existing theoretic material, was used to analyze and create a broader understanding and provide conclusions on how to approach stated research questions.

Due to the complexity of digitalization and the speed of its development, there are few, if any specific theories related to the investigated area. Hence, the open mind of the inductive research is required to construct a valid hypothesis to be thoroughly investigated and tested using a deductive approach. By using elements from both approaches and applying an adductive mindset it is believed to generate the required outcome in terms of generalizability and result.

FIGURE 7 - PROCESS OVERVIEW

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For several reasons, continuous writing was used throughout the report. Foremost due to time restraints where it was necessary to ensure deliverance. Also, viewing the writing as an important part of the process, writing continuously resulted in constant thinking and iteration, rewriting and questioning conclusions (Ely et al., 2005).

Project initiation includes administrative work underlying the study. This included understanding and learning about the case company, gaining access to necessary documents, getting familiar with the surroundings and introducing/being introduced to certain people. This also involved understanding criteria from KTH, what we were expected to produce, ensuring the study would be sufficient and satisfy all requirements.

To ensure proper understanding of the problem and sufficient theoretical knowledge the work was divided into two phases. The arrows in figure 7 represent an analysis being conducted, where gathered material was summarized and concluded. An overlap between the theoretic reading and interviews in phase two was settled upon, largely due to time restriction and the need to be flexible and efficient, therefore using time in-between interviews to read and gather knowledge. As stated earlier, this initial part of the study was conducted with inductive research in order to create a data foundation to further analyze. It consisted of a qualitative study, starting with theoretical research, reading and expanding our knowledge. This was conducted mainly via journals and articles, as well as internal material given from the case company, further explained in section 3.3.

A first, smaller round of interviews was conducted, with six interviewees with mixed experience from digital initiatives at the case company, an overview is provided in section 3.4.3. The selected group of interviewees was chosen in close collaboration with our supervisor from the case company. A mix between open and semi-structured interviews was used for this, in order to ensure discussion within current areas and avoid the risk of excluding valuable information, interesting remarks and potential important side-tracks. More on how the interviews were conducted in section 3.4. The interviewees were chosen for having great knowledge within the different areas of investigation, from digital initiators to project leaders and management planners.

Phase one was followed by an extended literature review, closely tied to the data collected from the conducted interviews. This approach enabled certain hypothesis to be formulated as a foundation for the rest of the study. The first interviews and the theoretic reading was summarized and used to create the interview guide which was used for the rest of the interviews, see Appendix I.

In phase two a second data collection for the study was conducted, complementing the theoretical research. This was done using semi-structured interviews through a deductive approach, using information from the pre-study as a foundation of what to obtain. An overview of the people used for this collection of data can be found in table 4. Findings collected from interviews were gathered within multiple case studies. By studying several

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projects we were able to obtain information from different types of initiatives and interact with people with various views and opinions. All participants were carefully selected in order to ensure proper coverage of different projects, establishing a profound foundation for conclusions.

3.2. Case studies Case studies are commonly used as a basis for theories within social sciences (Yin, 2003). The case study method allows investigators to retain the holistic and meaningful characteristics of real-life events such as managerial processes, individual life cycles and the maturation of industries (ibid). The main benefits from conducting a case study include the opportunity to establish a complete view, facilitating usage of method combination, efficiently using existing framings and structures, allowing a flexible method of approach (Denscombe, 2017). The case study research is appropriate when asking questions such as how and why (Yin, 2003; Gillham, 2000).

In this study, a combination of an exploratory and comparative approach (Yin, 2003) will be used in multiple case studies. This, in order to explore a broad data foundation and conduct comparative discussions and analysis, reaching for interesting findings and conclusions. As explained in the research design, the aims are slightly different for the two phases; the first acting as the foundation for the other, to ensure that no important information or parameter gets overlooked.

Four cases within the case company were studied, designed as a multiple case study (Yin, 2003). A multiple case study was deemed necessary due to the complexity of the research setting and question. One case is simply not enough to be able to understand and to draw any conclusions from, which is where the inherent increase in robustness and validity from the multiple case study is achieved (ibid). Single case studies are also more vulnerable (ibid), due to the face of you putting ”all your eggs in one basket”, which is lessened by using multiple cases. It also provides substantial analytic benefits comparing to a single case study (ibid). Gillham (2000) states that multiple sources of evidence are a "key characteristic of case study research" because "all evidence is of some use to the case study researcher: nothing is turned away” (Gillham 2000, p. 20).

Every case in this study was initiated through innovation built on digitalization, albeit differently. These initiatives were in different phases, from prior to launch, in operation and discontinued projects. Studying these allowed the gain of an overview of different levels of success as well as strategic plans and process development. This information, used as a foundation for the study, was further analyzed generating conclusions and contributions. The cases were chosen to gain this holistic understanding of different projects within the company.

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Each case will be considered as its own study, in which convergent facts is sought in order to provide conclusions for the case. The other cases will then need to replicate those conclusions in order to be viable (Gillham, 2000). This is where themes and circumstances are important to consider in order to determine general conclusions and identify anomalies influencing a specific situation (Denscombe, 2010), further discussed in section 3.4. If analytic conclusions can be proven using cases that are similar but under varied circumstances, they will have immeasurably increased the external generalizability of the findings (Yin, 2003).

Even though the four projects constitute the majority of the gathered information and were the main focus in the study, we chose not to limit ourselves to only discussing these when we came across the opportunity of valuable information in connection to other projects. This arose when the case company’s employees found an interest in our thesis and willingly shared information informally, or approached us wanting to share their thoughts and experiences.

We also chose not to limit us to only completed or launched projects, as this would restrict us to only ”successful” projects and potentially hinder important information which could be found in projects that for different reasons were discontinued or where information regarding its future is uncertain.

3.3. Literature review In order to gain a deeper understanding of the field, a literature review was carried out in this study. This theoretical foundation is a crucial component of research that justifies the chosen approach and demonstrates its contribution (Ellis & Levy, 2006, Collins & Hussey, 2009). The theoretical insights gained from this review has been used to analyze and discuss empirical data in order to reach conclusions in the study.

3.3.1. Literature overview The literature review consists of academic material, such as published academic papers as well as reports, information gained from the case company and other trusted organizations. In order to allow usage of non-academical sources and deem them as trustworthy, a critical discussion regarding both statements and source was conducted with the studies supervisors. Peer-reviewed literature from academic journals has been the main foundation of the theoretical data in order to ensure the quality of the knowledge (Ellis & Levy, 2006). Information gained outside of academia has been separately audited in order to gain relevant and unbiased information. The literature used in this study has undergone three steps of assortment; an input stage including a systematic selection of the literature, a processing stage based on a framework by Denscombe (2017) followed by an output stage where information has been meticulously selected, summarized and retold.

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Written materials gained from the case company was mainly supplied by our supervisor from the company. This material is mainly tied to the four cases which this study examines but also includes general information regarding organization and strategies. This information has been used to establish scope boundaries and acts as theoretical background for the different cases. It has also been used as material for interviews, creating questions, structure and discussions regarding results.

At a smaller scale, non-academical literature has been used to substantiate discussions and arguments. While these sources can be questioned in terms of reliability (Denscombe, 2017) they have been thoroughly audited and discussed in order to avoid a validity loss. No non-academic literature has been used unless it correlates to academical findings and usage of this data is separately discussed past its statement.

The qualitative data, gathered in the literature review has then been examined through a multi-step process based on ”The five-step model of data analysis” presented by Denscombe (2010 p. 240), see section 3.6.

3.3.2. Literature phases In order to collect sufficient literature, the research has been an ongoing process throughout the study (Collins and Hussey 2009). Though besides the recurrent sporadic searches, the research has undergone two major phases connected to the workflow of the interviews. The first phase was conducted prior to the first interview phase with the main goal of creating fundamental knowledge within the field. During this phase, literature searches were conducted freely, thus without the use of specific search tools. Neglecting these provides problems regarding repeatability and validity (Aylward et al., 2012), which were acknowledged and deemed acceptable. We considered free searches as a proper method to use in order to collect the broad knowledge requested, despite its shortcomings in repeatability. A more structural approach would have been accompanied by restrictions in search results or demanded an extensive pre-study which time limitations didn’t favor. The lack of repeatability in this phase was later complemented by a second more extensive and structured phase, upholding the necessary validity for the qualitative data in the report. Gathered information from this phase was used to elaborate the background of the study and acquire necessary knowledge as preparation for the first interview phase. Acting as foundation for questions, interview approach and study context.

The second phase was executed as a theoretical inductive study, searching for qualitative data in the area of the research. During this phase, multiple tools were used in order to create repeatability and validity to the study. These tools can be found in section 3.3.3. The second phase was initialized after the first interview phase was conducted. This phase was the major research phase where the majority of the data was gathered. Data collected from the second phase, combined with previous and sporadical findings constitute the theoretical data used for discussion and further analysis. This phase was conducted as a

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deductive study, searching for further knowledge to justify and question information gathered from the first literature and interview phase. Gathered theoretical data are amalgamated and presented in chapter two.

3.3.3. Search tools Information chosen for the research review and analysis has been selected through a multi step process in order to systematically find relevant literature for the study (Aylward et al., 2012). KTH:s search tool ”KTH Primo” has been our main search tool, complemented by ”Google Scholar” and ”Google” for further findings. While using multiple search engines might entail issues in inconsistent interpretation of search terms (ibid), we judged it necessary in order to gain the extensive searches necessary to uphold validity to the study. Search terms used in this study was therefore chosen with care and consideration for the specific search engines.

Keywords were used as the foremost search tool in this study which, combined with backwards and forwards references were used to create a systematic study (Ellis & Levy, 2006). Keywords imply the use of strict search words, creating systematic searches and validity to the literature study (ibid). The process of acquiring keywords included testing search terms through free searches, partly in the first literature phase as well as prior to the second. In accordance to Aylward et al. (2012), the keywords were also chosen by examining and testing keywords found in relevant articles. A weakness with this tool is the use of words that might be temporary or slang which risks being forgotten or rarely used in the future. While not changing the repeatability of the study, keywords and the systematic approach might lose credibility with time. This issue is also precluded with carefully chosen terms.

TABLE 1 - STUDY KEYWORDS

Backward and forward referencing are used as complementing tools to find relevant data in a systematic way and fully exploit already gathered literature (Ellis & Levy, 2006). These tools entail the use of existing literature, searching either through the references of i.e. an academic article or searching for future work of the same author/authors (ibid).

Digital Innovation Servitization

Digital Manufacturing

Exploration Exploitation

Digital Organization Organizational Change

Ambidextrous Organization

Digital collaboration

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3.4. Interview methodology 3.4.1. General methodology To overcome the academic knowledge gap that currently exists regarding the structure of digital transformation we have deemed that interviews with actors on the market is the best approach. It allows for an efficient and good understanding of problems affecting a large organization transformation its business. When conducting interviews, there are several approaches to choose from, which will affect the outcome of the data collection.

TABLE 2 - INTERVIEWS IN THE CASE STUDY (CORBIN & MORSE, 2003)

When selecting participants in the study, both in the first and second phase a pool of interesting people were identified and asked to participate via email (see appendix II & III). Selection and initial communication to participants was mainly conducted in close collaboration with the case company supervisor. All participation was out of own interest and multiple interviews within the same target area were conducted in order increase the reliability of the findings.

The interviews were led by one of the authors while the other was actively taking notes, which is important even though the interviews were recorded (Opdenakker, 2006). The

Dimensions Unstructured Semi-structured Quantitative/Closed-Ended

Power relations Agenda is set by the participant through the stories/events they choose to tell. Researcher may enhance the data collection process by active listening and ask- ing questions.

P —> r

Researcher determines the structure of the interview and agenda through the questions asked. The participant controls the amount of information provided in responses.

R —> P

Researcher determines what information will be gathered. Participant may respond or refuse to respond.

R —> ?

Control over interaction

Participant has control over the pacing of the interview, what will be disclosed (the amount of detail, scope of the interview, etc.), and the emotional intensity.

P —> ?

Participant may withhold important information because the relevant question was not asked, may answer in a perfunc- tory manner, or fully cooperate.

P —> r

Researcher has most of the control. The participant may only choose whether to respond (correctly or incorrectly) or to refuse to respond (i.e., to comply, sabotage, or not to play the game).

R —> p

Direction of interaction

P —> r R = P (Initially the searcher may control the direction. This shifts as the participant becomes more comfortable with the interview and commences narration.)

R —> p (May be undermined by the participant by withholding information)

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interview conduction was different between the two phases, structure, themes and questions are described in the two sections; 3.4.3. Interview phase one and 3.4.4. Interview phase two. All interviews but one were recorded. Due to time limitations, the recordings weren’t transcribed but instead, the integrality of the findings is thoroughly presented in the results. Findings from the interviews were separately analyzed between the authors and later discussed and categorized in order to widen our interpretations and create deeper analysis. If discordance emerged regarding the interpretation of specific empirical data, the findings were further discussed with the study’s supervisors.

We tried to conduct all interviews face to face, in order to make the most of social cues. These, such as voice, intonation, body language etc. can provide valuable information which can be added to the verbal information (Opdenakker, 2006). It is also beneficial as the interviewer can create a good interview ambiance, increasing the chances of the interviewee being truthful and disclosing more information (ibid). When it wasn’t possible to have a face to face interview we resorted to videoconferences, set in proper conference rooms with appropriate equipment.

3.4.2. External perspective As an additional step to validate data, results and early conclusions were discussed with a consultant, external to the case company. The outcome of the analysis was mainly a review of results, discussed conclusions and preparation for following steps in the study. The analysis was conducted through two, two-hour discussion sessions together with both consultant and supervisor from the case company. A semi-structured interview approach was prepared based on results and important topics. Before each session, a pre-read of results was created, examined by the supervisor and sent to the consultant as material for preparation. This validation of data was conducted after each interview phase.

The main reason for the inclusion of a consultant as part of the methodology was to increase generalizability and validity. Since the study aimed to understand the perception of digital transformation within the Swedish manufacturing industry, a single case study was deemed as limiting in applicability. Therefore, in order to reach an understanding of solutions generally applicable, a consultant with vast experience of the area was included in the study. This methodology stage does damage the repeatability of the study, due to the semi-structured discussions and the rather unscientific approach of including external experience in such a manner. Though, while this methodology step might have decreased repeatability and reliability, it has increased validity to our conclusions and data analysis. This was considered a necessary trade-off in order to improve the study and its results.

3.4.3. Interview phase one As stated above, the goal of the first interview phase was to create a profound understanding of the problem to further develop and analyze issues, scope and findings. An inductive approach is suitable when existing research will be combined with collected

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empirics from the interviews made (Svennevig, 2001). Therefore, the benefits are deemed greatest with a combination of unstructured and semi-structured interviews, in order to be able to allow for interesting remarks from interviewees but at the same time ensuring the goal of the interview is met. Whereas an unstructured interview would be preferable to broaden discussions, it can be difficult to ensure that the interview covers the needed aspects and thus important topics could be completely left out. The interview was led by one of the authors, while the other took notes on important remarks to be investigated further.

Even though in this phase, an explorative case study was conducted, a common interview setup was necessary in order to be able to compare the interviews and form a hypothesis from them. Therefore four areas were chosen for which the interviews to be centered around, though conducted without specific questions or interview guide. • Organizational structure and implementation • Execution of the initiative • Benefits • Drawbacks

The interviewees for the first phase were, with the help of the supervisor from the case company, chosen for their expertise within different projects and ability to provide a good overview and understanding. They can be seen in table 3. One participant from all the chosen case studies was selected as they deemed to be able to transfer the knowledge needed to fulfill the goal set up for the phase.

TABLE 3 - INTERVIEWS IN PHASE ONE

Index Position Interview type Length

1 Junior level product management and development Video 60 min

2 Director level service management and development In person 60 min

3 Senior level after sales In person 60 min

4Director level product and service management and development

Video 30 min

5 Senior level product management and development In person 60 min

6 Director level service management and development In person 90 min

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3.4.4. Interview phase two Interviews in the second phase have higher demands on a structural approach as they will conform to a comparative analysis and thus have to be adequately comparable. Improved structure in this phase also balances the unstructured approach of the initial phase in terms of repeatability. The interviews will be the main data collection of this study and therefore need a high scientific validity. For these two reasons, it is important that we as researchers are able to control the sessions, but still want to remain open and not enclose the discussions. Therefore a semi-structured approach was chosen which allows for follow up questions when coming across interesting topics, while still following a complete interview guide containing specific questions to be covered. When conducting semi-structured interviews and using them as a foundation for conclusions, the data handling and sorting is of the highest importance. Qualitative analysis’ are harder to draw conclusions from than quantitative, due to the unconformity of information and difficulty to compare information from different sources. The methodology for data analysis can be seen in section 3.6.

The interviewees were chosen from different levels within the company, in order to gain a complete understanding of different aspects and can be seen in table 4. Together they had insights in each initiative examined and every interviewee had knowledge within several of the projects which allowed the wanted triangulation, as mentioned in section 3.6.

TABLE 4 - INTERVIEWS IN PHASE TWO

Index Position Interview type Length

A Director level group support In person 60 min

B Vice president level global design In person 60 min

CVice President level product management and development

Video 45 min

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3.5. Observations Participation observations (Denscombe, 2017) has been noted and taken into consideration in the discussion and analysis of the study. These observations include noticeable insights, such as employee behavior, office culture as well as internal collaboration and communication. These observations were gathered mainly from time spent at the case company’s office in Stockholm as well as from meetings and workshops. The observations have frequently been noted and applied to the study and previously gathered material. The observations have mainly been a complementary tool used to achieve a deeper understanding and receive an unbiased impression of the case company by bypassing the shallow surface from reports and simple statements. Results from gathered observation are presented in section 4.1. Firm perception and digital initiatives. Since the majority of the examined initiatives haven’t been run from the office where we have been situated during the majority of the time, the gathered data is somewhat limited. Though during interviewees in other locations we have been able to observe different areas within the organization and thus gained a broader perspective.

Observations have been unsystematically gathered depending on what we deemed as interesting. This type of data gathering lacks all form of repeatability and is rather weak in terms of validity (Denscombe, 2017). Usage of these observations has therefore been very selective and only used to develop arguments, never as foundation. The decision to include observations in this study was based on its exploratory nature, where additional interpretation could be useful to increase understanding (Blomqvist & Hallin, 2015).

While taking part in interviews and internal reports there is a possibility that the observer can be biased or not preserve the full picture (Denscombe, 2017), this has, in as large extent as possible, been avoided by discussing the material both among the authors as well as the study’s supervisors. Observational data have been similarly analyzed as data gathered from interviews, see section 3.6.1. for further information.

3.6. Method for data analysis Qualitative data was categorized and processed, based on the five-step model, presented by Denscombe (2010 p. 240). The model was differently interpreted for each of the different methods of data gathering; interviews, observations and literature review. The different interpretations were mainly centered around the first steps, with cataloging and initial exploration and can be viewed in the following sections.

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TABLE 5 - THE FIVE STAGES OF DATA ANALYSIS (DENSCOMBE, 2010)

The five-step model was mainly used as a framework for structure and was therefore complemented with a logic model, Firm or organizational-level logic model (Yin, 2009) for analysis and interpretation of findings. A logic model is useful when analyzing correlating events in case studies over a specific period of time (Yin, 2009). It is especially helpful for projects and implementations by evaluating visions and goals as well as refining the actions to reach them (Yin, 2009). This specific model for this study since it focuses on tracing events or projects in a specific firm, such as a manufacturing firm (Yin, 2009). The analysis is conducted by finding correlations between categories, functions and decisions, mapping cause-effect relationships within the case. The model advocates tracing events over time in a chronological sequence, breaking them down and analyzing them individually.

The gathered data was also examined through triangulation (Denscombe, 2017). This method is used to break down data and determine its reliability through three steps; critically examine the information by crosschecking statements with other sources, take the occupational position of the informant in account and give the informant the opportunity to examine the results to confirm interpretation.

Using the above stated models and tools the data was collected, analyzed and used in this study for context analysis, discussions and conclusions.

Steps Quantitative data Qualitative data

1. Data preparation Coding (which normally takes place before data collection) Categorizing the data Checking the data

Cataloguing the text or visual data Preparation of data and loading to software (if applicable) Transcribing the text

2. Initial exploration of the data

Look for obvious trends or correlations Look for obvious recurrent themes or issues Add notes to the data. Write memos to capture ideas

3. Analysis of the data Use of statistical tests (e.g. descriptive statistics, factor analysis, cluster analysis) Link to research questions or hypotheses

Code the data Group the codes into categories or themes Comparison of categories and themes Look for concepts (or fewer, more abstract categories) that encapsulate the categories

4. Presentation and display of the data

Tables Figures Written interpretation of the statistical findings

Written interpretation of the findings Illustration of points by quotes and pictures Use of visual models, figures and tables

5. Validation of the data External benchmarks. Internal consistency. Comparison with alternative explanations

Data and method triangulation Member validation Comparison with alternative explanations

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3.6.1. Qualitative data from interviews and observation After each interview, the recording was thoroughly listened to individually by the authors. As earlier stated, the interviews were not transcribed, which increased the importance of nicety in the perusal in order to avoid important loss of interview data. As part of this, cataloging of the information was done, as recommended by Denscombe (2010). The data, including quotes, was categorized into three main categories with a set of sub-categories:

TABLE 6 - CATEGORIES FOR CATALOGING INTERVIEWS

These categories were settled upon based on their simplicity and transparency. Within these categories, the gathered data was stored along with a timestamp from the audio recordings, in order to simplify backtracking of data if discussion of interpretation would arise.

As earlier described, the initial cataloging process was done individually. Thereafter discussions and collocation were conducted in order to determine value, interpretation and usefulness of the data. This was mainly conducted between the authors but sometimes further discussed with supervisors as an additional step if an agreement couldn’t be reached.

If the authors agreed on both category and interpretation, the processed data was deemed as qualified and further analyzed. Other data was re-processed and discussed before being included or excluded. Structured documenting of interviews is very important in order to simplify backtracking of data, relying only on recordings without any kind of categorization and transcription is not sufficiently reliable (Blomqvist & Hallin, 2015).

Empirical findings from observations were similarly structured. While this gathered data was collected as notes and not as recordings, it was discussed and evaluated just as the interviews were. Since gathered observations were initially categorized, the evaluation process therefore consisted of a re-categorization, where the data was extracted, evaluated and re-installed if it was deemed as important.

Organizational Structure General Information Project Structure

Benefits Organization Benefits

Drawbacks Workforce Drawbacks

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3.6.2. Qualitative data from theory The gathering of empirical data from theory has been strictly structured in order to uphold repeatability. Qualitative data is naturally harder to structure and repeat which emphasizes the requisite of an explicit procedure (Blomqvist & Hallin, 2015). Before a piece of literature was chosen and further processed, it had to go through multiple levels of examination. Initially, the literature with interesting titles was sorted in a list based on used keyword. Thereafter the abstract or introduction of the literature was further read and non-relevant literature was sorted out. Remaining literature went through a third review, where it was read in its entirety. This method entails the risk of missing interesting findings, where important statements or theories might hide in an article which gets excluded based on its title. While this could be unfavorable for the study, we considered this methodology as necessary due to time limitation and in order to avoid an otherwise overwhelming amount data. Following this assortment, chosen literature was thoroughly read, summarized and recategorized based on content instead of keyword. These categories are also our final rubrications.

When several sources of data were collected within one category, trends and correlations between these were discussed and further analyzed, following the second and following steps of the five-step model, see Table 5. Data gathered for this study consists solely of theoretical findings and not on statistics of any sort. The data could therefore not be statistically tested, but instead questioned by other sources and findings. During the collecting and analyzation phase, the data was therefore compared to, and combined with other sources of information to uphold validity to the findings.

3.7. Validity and reliability The quality of scientific work is closely linked to the concepts of validity and reliability (Blomqvist & Hallin, 2015). Validity is ensuring that the right thing is studied, while reliability entails studying it the right way (ibid). These concepts are fundamental in order to be able to draw conclusions from any scientific study.

When conducting a qualitative study it is impossible to control the research environment in the same way as a quantitative study could. This is mainly because the study is of a social context which is constantly changing and evolving, making it difficulty, almost impossible to replicate. When doing a quantitative study, this can be controlled by increasing the number of repetitions, measuring accurately comparable data in large quantities and draw conclusions from that. Therefore, to achieve validity and reliability in a quantitative study puts an increased pressure on the research design. There is a high need to make certain that the data is collected and produced in good practices and that everything is well documented and transparently displayed (Denscombe, 2017). Using multiple case studies increases the validity of the conclusions, due to variations in circumstances and environment (Yin, 2003) compared to a single case study. However, due to the qualitative

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nature of this study and ever changing environment, it is conducted within, the reliability is lowered.

When using interviews as data it is important to ensure that the answers are honest and complete. There is always a risk when doing an interview that the interviewee doesn’t want to share information which could make that person look bad and instead alters events or reasons for certain decisions to make it sound better. To counter this, follow-up questions were used, asking for examples and elaborations when necessary. The purpose of the interview and study was also clearly expressed, and that pitfalls and failures were as important as successes in order to gain a proper understanding of the circumstances. The fact that all participants agreed to the interview themselves, and therefore participated out of own interest also increases the reliability of the study. When actively wanting to share knowledge to improve, and understanding the aim of the study the probability of altering circumstances in the answers are lowered.

Social science research, which this report qualifies as, is inherently difficult to fully legitimize. Due to the complexity of describing real-world situations, and the difficulty of repeating the study, a well-performed case study will find it harder to draw decisive correlations and conclusions compared to a similarly executed quantitative study. However, a case study is able to capture a more holistic view (Yin, 2003) and create a fuller understanding and handling the complex reality (ibid) of the problem studied.

There is a risk, that when theoretic reading overlaps an interview process, as was decided on in phase two, there is a risk of damaging the results, as our knowledge had increased throughout the interview process. However, as an interview guide had been settled upon, and this was used for this second interview phase, all participants were given the same prerequisites, regardless of our increased knowledge.

When attempting social science research, there is always a discrepancy between what results can be conclusively presented and hypothesis which cannot be decisively proven. Given the complexity of real-life applications and the impossibility to enclose and discard affecting dimensions will conclusions be somewhat of qualified guesses, which seem to be correct within the application.

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4. Chapter four - Results and analysis

4.1. Firm perception and digital initiatives This section includes findings and analysis from the two interview phases combined with data gathered from observations. It aims to increase the perception of the firm and examined initiatives as well as weaknesses, strengths and challenges tied to digital development. The interviewees are project leaders and product owners as well as strategically responsible managers within the case company, a more detailed description of each interviewee can be found in sections 3.4. and 3.5.

4.1.1. Case company The case company is a large Swedish firm with a long history of manufacturing. During the firm’s progression, they have manufactured a vast array of different products. The case company is a global firm, active within multiple sectors with a number of well-known brands. While a lot of production is located in Sweden, several products are produced in factories all around the world.

FIGURE 8 - ORGANIZATIONAL OVERVIEW OF THE CASE COMPANY

The case company is a large organization with 10.000+ employees and a net sales in the range of 30-40 million SEK as of 2017. The case company is divided into four division, each responsible for their own brand/brands. They are self-governed in terms of profit and loss and are in large taking their own strategical and business decisions. This means that apart from adhering to the firms overall goals they each have their own goals and targets to fulfill. In this study we have chosen to present the divisions as follows; Outdoor professional Division (OD), Residential garden Division (RD), Mass-market consumer Division (MD) and Construction Division (CD). Hierarchically above the divisions are the group functions, such

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as Finance, Legal etc., operating for the entire organization. There are in total eight heads of group staff functions and group strategic functions, see figure 10. Four of these were as of February 1st 2018, consolidated under Group digital, operations and technical development (DOT) function. The aim for the DOT group is to ”consolidate the group strategic functions in order to support the divisions in the digital transformation and ensure synergies between them”.

The case company offers about 15.000+ unique products, across markets in over 100 countries. In order to maintain control over the vast variety and large volumes the established divisional structure is key. Before the current CEO entered the organization, the firm was organized as one single unit. The CEO altered its structure to the divisional organization visible today. This alteration was, according to a manager and development director, financially successful, increasing transparency, responsibility and profit within the firm.

Each division is aimed towards its own, specific customer segment which, according to a management and development director, results in an organization that doesn’t compete internally. The outdoor professionals division has the ”pro-grade” user as its customer. Pro-grade user includes professionals, using the tools as profession or someone with high demands on quality and performance. The residential garden division is aimed towards non-professional consumers, simplifying life by introducing smart solutions and well-designed products. Unlike OD, RD is more focused on simple, efficient products helping with everyday work. The mass market consumer division is targeting a mass market consumer, operating under strong competition. Using a variety of different brands, the offering is broad with customers emphasizing price as an especially important factor. Lastly, the construction division develops and manufacture products exclusively for professionals with high demands on performance, reliability and technical superiority.

4.1.2. Digitalization in the organization Common for all interviewees in the second phase is that they believe that digital tools will have a large impact on a Swedish manufacturer. Digitalization is described as both a huge challenge as well as a fantastic opportunity. It was further discussed how complementary services are established and common in many businesses. The group support director believes that, in a matter of time, all products will be tied to a digital service and that digitalization eventually will affect every market world-wide.

Similarly to the findings from the first phase, the interviewees from phase two described the case company as a traditional firm with main strengths within products, supply chains, product development as well as its global position. They all agreed that the firms biggest challenges included the ability to adapt, reorganize and react to the changing environment. The organization will need increased speed and agility combined with a more extensive

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back-end to handle competition on the market. The need for exploring new business areas and increase informational exchange within the organization was also emphasized.

The case company is highly accustomed to incremental and radical innovation of physical products. Though, new possibilities through digitalization is an unresolved area. There are routines and structures supporting physical production, but experience, knowledge and leadership surrounding digital transformation are scarce. Since digital initiatives can be seen as a disruptive transformation for the manufacturing industry, leadership will ultimately be essential. Among others, the vice president of global design emphasizes the need towards increased digital leadership within the organization. The firm today still relies on their traditional business but sooner or later, the existing leaders have to challenge themselves to advocate digitalization.

The acknowledgement from the organization towards digital initiatives is, according to interviewees, low in comparison to market recognition and could be improved to better advocate digital development. While the case company is seen as an experienced organization in terms of innovation and change, the rapid development of the business environment today might be the biggest challenge yet for the organization.

Given the case company’s large organization, it is difficult to make rapid changes affecting structure or culture. Each change must be carefully thought through, with extensive plans for how this will be conducted for any negative effects of change to be lessened. As with any large organization, it is necessary to have processes and structures for how things are supposed to be performed, as well as set communication channels and plans for how to use them. This however, also makes a company slower relative to a smaller company, where often there aren’t as many set structures and forums to go through before an idea or change has been carried out. For the case company, there are many set processes and structures regarding product development that are tailor-made and well adapted to the organization’s needs. When attempting digitalization and the development of products that aren’t what the organization is accustomed to, these processes become ill adapted and act more as an obstacle rather than helping the development.

During 2015 a program under the name Next was launched, with the aim of investigating and appointing digital prioritized projects within the organization. The initiative was based on the previous forum, Connectivity Hub, an extensive examination of the organization’s digital possibilities and a platform for development and knowledge sharing. By systematically investigating projects within the organization, assessing future trends and identifying core areas, three projects within digital servitization were chosen. In this report, they are called Project Bravo (PB), Project Charlie (PC) and Project Delta (PD). The preliminary digital exploration conducted through Next and the connectivity hub was both well conducted and useful. It gave a unified vision of digital development through the firm, creating mutual goals and understandings. In addition to the projects initiated through

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Next, a fourth project was initiated by DOT, Project Alpha (PA). These four were the frontier of the organization’s digital development.

In order to create cross-divisional communication, there are multiple forums on different levels within the organization. Each forum has a specific purpose ranging from informational exchange to strategical decisions on multiple hierarchical levels, see figure 9 below. While these forums are important for the company, the director of service management and development states that the lower ones haven’t reached their full potential. It could also be beneficial to improve cross-divisional forums in order to avoid latching knowledge within a division. • Market Council - Top management with heavy strategical decisions • Group Technology Forum - Group level decisions, often regarding technology • Connectivity Network - Cross-divisional communication, knowledge and information

exchange • Special Interest Group - Cross-divisional collaborating teams, sharing experience

The vice president of global design advocates overlapping forums or functions on group level that supports communication and creates a desired level of common visions within the organization.

FIGURE 9 - SIMPLIFIED ORGANIZATIONAL STRUCTURE INCLUDING FORUMS AND DIGITAL INITIATIVES

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The specific placement of the digital initiatives and current important business functions tied to digital transformation are displayed in figure 9 above. PB and PC are placed in a semi-integrated structure, run on a group level but tied to OD through workforce and resources.

Today the responsibility of initiating and developing digital initiatives is rather unclear. It isn’t stated when and whether a project should be developed centrally on a group level or within a division. Also, the support from group functions towards divisional digital development is too low, creating a hesitation to initiate digital development. The group support director advocates a clarified organizational position for digital initiatives. The interviewee agrees that the hardware and customer contact should be within the divisions, but that a hierarchically higher positioned digital leadership would benefit the organization in terms of unified visions and collaboration. There is a drive for digitalization happening throughout the company today, however it is mainly driven by a few very dedicated and competent persons and would need to be given more attention and resources of it is to be successful and reach the entire organization.

Development of digital projects puts pressure on existing functions and processes since it differs from traditional product development. Instead of a few engineers within a closed forum, digital development demands cross-functional collaboration and regularly recurrent alterations. The cross-functional development aggravates responsibility for- and ownership of the digital project, aspects that unsuccessfully have been dealt with, creating insecurity within the case company.

There are, as earlier stated, many challenges deriving from digitalization where both strategy and business development are two especially challenging areas. A senior product and development manager from the Outdoor professional division states that there is a shortage of elaborated strategies for the future of a digital project, their roadmaps are too short, creating disputes and divergence. While receiving the status of a prioritized project the progression of some digital initiatives had to work countercurrent against old routines and structures. One hesitation towards digital projects originates from financial risk. Though, as mentioned by most and especially emphasized by the director level interviewee within service management and development, the case company needs to increase focus on digital possibilities and proactive development.

Resources for digital initiatives within the case company is an intense debate throughout the whole organization. Due to the position of a listed company with profit expectations from the stock exchange, budgets for uncertain projects are limited. These demands strengthen exploitation of the traditional scope but limit exploration and long term projects. Another aspect which directly affects digital development is that every division has a separate budget and responsibility for their own profit and loss. Collaborative initiatives between multiple divisions will therefore require bargaining for resource usage and

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responsibility. While this can be seen as easily solved through increased resources on group level, the resource-restricted divisional structure is firmly set and enforced. Furthermore, resources received for a project is based on budget years, where they can be added but also taken away. This creates an uncertainty for the project, hampering ambition and development.

Three of the interviewees from phase one advocates an integration of digital initiatives within the divisions. This, since a lot of important knowledge used to develop a well functioning service or product is tied to them, such as product knowledge, customer relations, and development competence etc. An integration could harm the speed of a project, however it is believed that close contact with the customer is key to develop a desired product or service. Further, it was argued that even though an initiative is integrated, it should keep its prioritized status due to its importance for the organization.

4.1.3. Project Alpha FINDINGS Project Alpha (PA) was a digital transformation project planned for and conducted by the case company between 2016-2017. The project stands out as a first of its kind, partly due to its actual end product, but also through the project progression process, involving rapid development and a lot of partner collaboration.

TABLE 7 - PROJECT ALPHA

The case company, as an innovation and market leader wanted to explore how digital tools combined with a sharing economy arena could be utilized as a business model. The product of the project was publicly introduced in a very small scale and operational for a six month period between May and October 2017. The project was not further developed due to a lack of interest from management as well as shortcomings in experience and profitability.

Organizational placement Goal Management Progression

The project was located and

developed on group level through the group technology

office.

The goal of the project was to explore a new

business segment and to increase the

experience of the development of a

digital service

The project was managed and

developed by a hand full of people in close

collaboration with external partners and

affected functions within the

organization.

The project was partially successful.

The actual progression was fast and well conducted with

learnings in procedures and

processes but the initiative didn’t turn

into a profitable product.

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PA was adopted as a prioritized project, meaning it was given priority over other projects and managed on a group level. No previous project at the case company had ever been conducted in this pace with such a small team and with so many partners involved. The project was conducted with limited resources, deemed suitable by management due to the size and uncertainty of the project. Collaboration between units wasn’t excellent mainly due to the lack of resources but also due to the project’s status as rather unacknowledged by the organization.

This type of radical innovation project is overall seen as very important for the organization. While incremental development is focus for the case company, it is, based on observations, believed that these initiatives will be en necessity for future development.

ANALYSIS The project was considered a success due to learnings from process development and by visualizing what digitalization can contribute to. This perception could though, to some extent be slightly questioned based on financial aspects and customer contact. The project was expensive for such a small scale initiative and the amount of customer data that was collected was rather low. Though, if one would solely focus on learnings from the development pace and partnership, it could be seen as a success for the firm.

The project developers aimed to create a business model that would cooperate and be able to survive in a long term perspective though other factors held it down. While the project probably could have been developed on a bigger scale it wasn’t deemed as a long term project for the organization, resulting in low recognition and less resources. This did hold the development back throughout its process. It is believed that the project would have been improved with more resources and increased acknowledgement. It would also have needed a proof of concept on a larger scale for its future to be thoroughly investigated. Now there were few conclusions that could be drawn on what the success might have been and its importance for the future.

TABLE 8 - INITIATIVE ATTRIBUTES PROJECT ALPHA

High

Interm.

Low

Business innovation

Product contact

Technical complexity

External Collaboration

Internal Collaboration

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Based on our perception of the projects attributes, see Table 8, the separated structure suited the project development in multiple aspects. The digital technology used in the project wasn’t considered as high tech but the project development demanded innovation in terms of processes and business development. This was satisfied by the separated structure on group level. Product contact and internal collaboration was rather low which advocate a separation. Also, the need for external collaboration was high, which is more easily maintained from a separated function which isn’t tied to the contacts and resources from a division. Since it was designed to run alongside the organization, it wasn’t held back by unsuitable, traditional processes and it wasn’t conflicting with other projects in terms of prioritization.

Though, the separated position might have contributed to the perception of the project as a conceptual test, decreasing acknowledgement from the organization. It also created difficulties regarding further development of the project due to a lack of resources, processes and structures to continuously develop the product separately. Today, the case company lacks experience regarding integration of a project within a division which ultimately closed further development of the project.

4.1.4.Project Bravo FINDINGS Project Bravo (PB) is a digital project regarding data visualization for customers to understand product usage better. Usage of this data would thus optimize their businesses. It is mainly aimed for products within the Outdoor professional division and the Construction division. The product/service developed through the project is now active on 17 different markets and affects numerous tools from the case companies supply.

TABLE 9 - PROJECT BRAVO

Organizational placement Goal Management Progression

The project was located and

developed on group level but connected to

OD through workforce, resources

and product applicability.

The goal of the project was to develop a complementing

service to physical products, increasing customer satisfaction through usability and

information.

The project was managed and

developed by a team from OD with a low

level of collaboration with CD. Development

was run through workstreams to

specific functions in the organization.

The project successfully

developed a product launched on multiple

markets. Due to collaboration struggle, the applicability had to

be reduced and functions for CD was not fully developed.

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The project was based on an already existing initiative, under the same name, launched as a prototype pilot in 2014, but never going commercial. In 2016, following the Next-program, the old project was deemed as outdated but strategically important and was thus re-imagined, with increased attention and support on group level. While parts of the older foundation were reused, many functions and priorities changed. This project was established as a prioritized project, aiming for a product launch during 2018.

During the development of PB, there was a recurring collaboration with PC. The collaboration was rather limited, restricted to cases of dependence or development that directly affected both initiatives. This included some level of software development as well as adaption of physical products.

The cross-functional collaboration between OD and CD did not work as initially planned. The project was open for collaboration but due to a shortage of resources, CD could not take its part in the development. Despite the current shortcomings, the service management and development director wishes to increase collaboration to create synergies between the divisions.

ANALYSIS There are shortcomings in the organization’s ability to collaborate between divisions, which ultimately affects the project. While the separation doesn’t necessarily create any territorial conflicts, the organization isn’t accustomed to the sort of collaboration. Shared roadmaps, increased transparency and functional collaboration would benefit the whole organization. It is believed that collaboration between projects is important but it is incentivized in the organization.

While processes and experience are scarce within cross-divisional collaboration, the cooperation between the divisions during the development of PA was mainly hampered by resources. While being an interesting project for CD, it was conducted during a turbulent time period for the division and resources in terms of both money and workforce was limited.

Time spent on project development between the two divisions wasn’t initially set and though CD did invest financial resources, equal to one third of the development cost, they could not participate in the development towards their own applicable solution. Due to workforce limitations CD only had one position out of 20 active in the project team. The result of this was that the developed connectivity solutions weren’t as applicable for the products in CD. Though it won’t require an extensive amount of resources to make them functional for CD as well.

Based on our perception of project attributes, see Table 10, the group level position of the project could be analyzed. Important to say is also that while the project position was stated as separated, it was mainly developed by workforce from OD, both by project leaders but

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also as workforce through work streams. So, while being officially separated, it was still heavily tied to OD.

TABLE 10 - PROJECT ATTRIBUTES PROJECT BRAVO

While business innovation thrives in a separated structure where old business models won’t hamper its development, other attributes have different needs. The high demand for product contact, advocates an integrated structure, collaborating between product and project development. Since the digital solutions were complements to existing supply, the targeted customers are the same as the ones within the division. The separated structure thus increased distance between project development and customer experience which could have weakened the project.

During the project development, technical challenges were seen as a first priority. This is a rather interesting observation since the project definitely had big challenges regarding business model and cross-divisional collaboration which probably should have been initially prioritized. This decision is easily traced to the organization, being a traditional manufacturer with strengths in technical development advocates technical development.

External collaboration and resources were avoided during the development of this initiative. Instead, internal resources were used as much as possible in order to create and keep knowledge within the organization. However, using internal resources created issues when teams weren’t performing as expected, either due to a lack of volition but also a lack of experience of digitalization. Given the organization’s tradition to prioritize internal resources it will be difficult to integrate partnerships and other external resources, even though it might benefit the development of a digital project.

4.1.5. Project Charlie FINDINGS Project Charlie (PC) was set up in 2016 and released its service during 2018, as a digital tool for aftermarket business. Initially, the aim of the project was to support all four divisions but it resulted in a service solely for division one. This reduction of scope was set due to internal

High

Interm.

Low

Business innovation

Product contact

Technical complexity

External Collaboration

Internal Collaboration

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constraints, as well as limited interest from other divisions to prioritize the initiative as it wasn’t deemed as important for their customers.

TABLE 11 - PROJECT CHARLIE

This project, as well as PB was set as a prioritized project through the Next program on group level. Initially, the project development focused on IT and hardware capabilities to establish possibilities with the developed tool. When the technical foundation was set, strategies, market evaluations, customer contact and internal discussions between the divisions were conducted.

PC was, similarly to PA, especially interesting for the case company due to the new business model it enabled. PC built a direct link to end users and customers, instead of using the established and otherwise preferred network of retailers. This raised many questions regarding e.g., business strategies, financial aspects, changes in existing business models and challenges within logistics and supply.

The aim of providing a cross-functional service was during the project progress omitted due to varying interests and needs from the divisions. Only OD had the resources and interest from management to further develop the project. However, PC was built on generic micro-services, designed to be modular and scalable. Parts of this project are likely to be integrated into similar services for other divisions.

As earlier described, there has been a collaboration between the projects PB and PC. The collaboration was narrowed down to the common technology, tied to physical products or the software platform.

ANALYSIS Evidently, a division's ability to develop digital solutions is hampered by its resources and thus its ability to both participate and develop digital initiatives. This is a natural limitation

Organizational placement Goal Management Progression

The project was located and

developed on group level but connected to

OD through workforce, resources

and product applicability.

The goal of the project was to develop a

platform for aftermarket business

exploration, increased market share and knowledge. It was supposed to be

utilized by the whole organization but was

downsized to OD.

The project was managed and

developed by a team from OD.

Development was run through workstreams

to specific functions in the organization.

The project successfully

developed a product utilized through

equipments from OD. The initial aim of cross-divisional applicability was omitted, but the application was built to be easily adapted for other divisions.

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deriving from the organizational structure which in many aspects might be successful but likewise aggravates digital development for less affluent divisions.

Similarly to PB, it is believed that the organizational position of PC was good for its development. Being partly detached from the divisional structure increased speed and flexibility while the remaining connection through workstreams and workforce kept ties to the customers and their experience. Based on our perception of the projects attributes, see Table 12, there are issues regarding the separated structure. If the project would have been developed within the division it would have received closer contact with the customer and product, creating an improved customer experience as well as simplified cross-functional collaboration within the division, increasing development speed.

TABLE 12 - PROJECT ATTRIBUTES PROJECT CHARLIE

While developing the digital tool towards the product supply of OD, it is interesting that the project development spends resources to create a cross-divisional adaptation. This strategy could be highly beneficial for the organization, saving resources for similar projects and creating possible unification between the divisions, ultimately creating synergies. This strategy should be further investigated and applied to other digital projects to create synergies from collaboration while developing a project solely for one division. It is a way that single projects could engage the organization to work proactively and enable the other divisions to follow when they have the resources to do so.

Similarly to PB technical challenges were prioritized over business innovation. It is especially interesting within this project which aims to develop a new aftermarket function that in somewhat extent should be applicable to the whole organization. This puts high demands on business model exploration, evaluating business opportunities, creating new supply chains and examining tradeoffs from conflicts with current business.

High

Interm.

Low

Business innovation

Product contact

Technical complexity

External Collaboration

Internal Collaboration

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4.1.6. Project Delta FINDINGS Project Delta (PD) was a digital project located in RD, established in 2015 as a prioritized project for the organization. It resulted in a now launched, commercially available service connecting existing products into an ecosystem of interconnected products.

TABLE 13 - PROJECT DELTA

The developed product was launched in 2016 and has since been further developed and expanded. Due to the integrated position of the project, its development could easily focus on product applicability and customer satisfaction through increased experience from and simplified communication with important functions.

The project has now been established as its own product category within the Residential garden division, collaborating with other categories to further drive the digitalization of the division. This integration has created increased awareness towards digital development within the divisions. Each category has concurrent communication with the digital category towards applicability and digital integration in supply.

The product and service director states that the project was developed desirably based on the prerequisites from the organization. Though the organization had to be recurrently convinced that the digital initiative was necessary, creating downsizing and struggles. The product and service director also argues that these drawbacks have been seen as learnings, increasing knowledge and experience. In hindsight, looking back at the outcome of PD, the product and service director states that things could have been done differently in order to create a better customer experience from the project. The possible alterations would have included changes in work procedures, product attribute prioritization and value focus, better adapting the minimum value product (MVP) to customer needs.

Organizational placement Goal Management Progression

The project was located and

developed within RD. It has now become a

separate function within the division.

The goal of the project was to enter the digital

market with the divisional brand.

Increasing comfort and simplicity for their

customers by digitalizing existing

product supply.

The project was managed by a team

within an existing product category. It was first developed

solely within RD then through partnership with an acquired firm specialized within the

area.

The project successfully

developed a product, fitting RD. Its usability

was reduced in relation to a primary

vision, but further development is being

conducted. The initiative is now a separate product

category.

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ANALYSIS While it is necessary to process these initiatives rapidly due to competitive pressure, inexperience and lack of processes created unplanned challenges for the project. This forced the project to a more narrow scope and a less extensive MVP than desired. The lack of processes and routines derives from the traditional organization, which had not yet advocated digital transformation.

TABLE 14 - PROJECT ATTRIBUTES PROJECT DELTA

The idea of developing the project solely within and for one division was beneficial in terms of customer satisfaction and product applicability. Contact between product and project development and customer contact was simplified. Based on our perception of the projects attributes, see Table 14, the business innovation was intermediate, reducing demands on separation and flexibility. Product contact and technical complexity were on the other hand rather high, promoting an integrated structure.

Collaboration with external resources derives from the integration of the acquired firm as project leaders. This seems to have been key for the project development partly from reducing competition that the acquired firm otherwise would have created but also from increased knowledge. The business environment of digitalization is rapidly developing and many actors are establishing their own ways of incorporating digital technology with their products. Decreasing competition through acquisition, buying their experience, could thus be seen as an aggressive but rewarding strategy.

During development, the project was solely focused on the products and customers of RD and collaboration between divisions was thus omitted. This has resulted in a well-integrated product for RD, while losing possible synergies from cross-functional collaboration and organizational unification. Digital initiatives demand a lot of communication and cross-functional support, not only developing back end features but also business opportunities and marketing. Creating collaboration and an organizational understanding of the necessity of digital transformation could benefit the initiatives.

High

Interm.

Low

Business innovation

Product contact

Technical complexity

External Collaboration

Internal Collaboration

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4.2. Holistic analysis Evidently, the case company isn’t yet fully adapted to handle a digital transformation, due to aggravating traditional structures and processes. Today, the firm has its assets in their physical products whose development and business models are key for the organization and its survival. The existing organizational structure of the case company was created to benefit traditional business through simplified resource disposition and increased focus on specific customer segments. This structure has proven to be very successful for the organization in terms of profitability and business strategies. But, while being very important for the firm the structure isn’t adapted or ready for a digital transformation. The organization isn’t ready to trade their one-way vision of physical products as the main focus. This will ultimately require changes in structure and strategy.

The firm is, as earlier described a technical organization, elaborated in incremental development of existing business, with strict structures and processes. Digital development has increased demands on cross-functional collaboration, flexibility, speed and resources which the organization isn’t ready to provide. An alteration of the organization towards digital development will thus be difficult and should be conducted in multiple steps rather than one major adaption. Leadership and responsibility will ultimately be crucial parameters for the organization when developing digital solutions and challenging old business models. Large structural alterations will as earlier stated be hard to implement and digital advocation through leadership and culture must thus be developed.

The pressure on digital development within manufacturers such as the case company is increasing. It is evident that digitalization is a major topic within the organization, but it isn’t a prioritized exploration area. While competitors and customer expectations constantly increase there is a hesitation towards the digital transformation. This does partly derive from a fear for big organizational changes but also from financial aspects. Digitalization is costly in many aspects, mainly by taking focus and resources from the traditional business but also due to an adaption of existing supply towards a digital adaption. Using too much resources on a digital development will undermine the financial security from traditional business. As earlier stated, it is equally dangerous to enter a market too early as too late.

All interviewees from the second phase commended the digital initiative currently conducted at the case company. It is confidently believed that the development of the four digital initiatives was the right to do, though during their development they grew into something bigger, more complex, which the organization wasn’t ready for. While the four examined digital initiatives were prioritized their acknowledgement and amount of resources was limited in comparison to the development of more traditional business and long term digital development has in some cases been omitted.

Looking at the examined initiatives it is rather clear that there is a lack of synchronized digital initiatives throughout the organization. Due to resource limitations, some divisions

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can’t afford to enter the digital market and while PB for example has been conducted in collaboration between divisions the collaboration failed to some extent due to the irregularity of prerequisites. Based on observations, there is a will to create synchronization between divisions and establish common digital projects, but it isn’t fully elaborated and the possible synergies are missed. Instead, it seems as though the projects developed for one specific division are more successful in terms of applicability and customer satisfaction. PD and PC for example resulted in useful tools and products based on their customer segment and PB resulted in an applicable product for the division that mainly drove its development.

There is also a lack of drive for digital initiatives within the divisions. Many of the innovative digitalization initiatives are run from a group level, and not within the divisions, even though the majority of the organization’s workforce is conducted from inside the divisions. It was also seen that there is a lack of knowledge about how to utilize digitalization to improve core business. Many of the discussions centered around using technology to enhance products, but that is but one part of digitalization. The case company are excellent at developing and applying technical developments into their products but lack insight in how to generate new business models and other services to further enhance the value of the physical products.

As previously analyzed, PC is an interesting example where synergies from unification between divisions can be created while omitting cross-divisional collaboration. The idea of creating digital foundations on which multiple divisions could develop their own initiatives, adapted for their specific customer segments could benefit the organization. Common project directly applicable to multiple divisions increases development complexity and decreases customer satisfaction for a specific segment. Focusing on one specific division while developing on common technology and prerequisites might thus increase development speed, customer satisfaction while still creating synergies from unification.

Based on our findings, it is evident that a separated exploration function is important for projects such as PA. While it seems crucial that some digital initiatives are developed close to functions within the divisions, there should be a function that can develop new business models without being held back by the traditional ones. A platform where projects such as PA can be extensively developed and where exploration is prioritized over existing business. While this function to some extent already exists within the organization today, it lacks the ability, authority and resources to fully develop such an initiative. Processes and experience regarding both separated long term development and divisional integration are lacking and should be further examined and developed.

One of the largest challenges regarding a digital solution is the long term demand for maintenance. The traditional development of a manufacturer usually ends when a product is manufactured and established as supply. Digital solutions on the other hand demand constant alterations and attention to adapt to new products and customer demands. The

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development processes are never ending and demand a constant loop of iterations which a manufacturer isn’t experienced with. Existing product owners aren’t confident with this type of development and support functions don’t convey the guidelines needed.

Today, business development is driven by group functions like DOT and programs such as Next, supporting the divisions. Instead, the technical development is strong within the divisions creating qualitative physical products. This is an organizational strategy that has to be challenged in favor of digital development. Business exploration tied to the division should increasingly be conducted within the divisions due to their contact with customers to ensure the applicability and usability of their products.

While being a huge challenge to enter a digital transformation it is evident that the case company does have what it takes to undergo such a development. There is a strength in culture, people and a history of business transformation that wrestles with the new business area. That said, it isn’t certain that the firm will succeed, there is no given solution or roadmap towards the success, and while having the prerequisites, the firm has to challenge itself.

4.3. Key findings While there are many interesting findings and perspective of the digital impact on the case company, some results are more applicable to this study than others. Key findings to further analysis and discussion in order to reach conclusions tied to the research questions are the following.

• The case company is a large and complex organization. There are many parameters to defer and changes are hard to implement. The organization is a traditional manufacturer and the current organizational structure creates tardy processes for digital development. Today there is a lack of support, elaborated guidelines and leadership in a digital context.

• Digitalization is an important field for the organization due to market expectation and development. Though, while some would consider it as the highest priority it is also costly and comes with high risks.

• Cross-divisional collaboration has not worked ideally. There is a pursuit for synergies through divisional collaboration. Though it is not incentivized by management and the cross-divisional communication is rather weak. While collaboration has been deemed as important it hasn’t given the desired effects. Instead, the digital development has been slowed down and resources have been unnecessarily distributed.

• Due to a competition for market share and the need for recurrent customer evaluation, digital services or tools requires high-speed development, producing an MVP and iterate.

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5. Chapter five - Discussion

5.1. Culture and perception of digitalization Digitalization and digital transformation are perceived as a big challenge for the manufacturing industry in Sweden (Digitaliseringskommissionen, 2016). Though, while being a challenging transformation with both risks and high costs, it’s also seen as an opportunity to increase customer satisfaction and create differentiation. Digital technology enables an extended use of existing products, increasing quality and can create lock-in effects, tying products together through digital platforms (Baines et al., 2015; IRIS Group, 2015).

While possibilities from digital transformation are many, there is, based on our empirical findings, a hesitation in a Swedish OEM towards digital development. This is mainly deriving from an uncertainty for customer approval and profitability. The digital market for a manufacturing firm isn’t fully developed and while it is dangerous to linger and enter the market too late, it is equally risky to enter too early (Khanagha et al., 2014). Digital development doesn’t solely require financial resources but also a lot of time and labour, resources that otherwise would have been used to develop existing lucrative products. A manufacturer, such as the case company, still relies financially on its physical products where digital tools and solutions mostly act as costly complements, not yet earning profit for the firm. This is a counterforce, hampering digital transformation and reducing its priority for management. Even though there are resources to spend, a listed firm with financial responsibilities to their stock owners will think twice before initiating a project with an uncertain future. Though, however hard a digital transformation might be, there is an increased demand for digitalization and an organizations adaption towards it (Birkinshaw & Raisch, 2008).

There is an increasing interest for digitally mature firms and a belief that some sort of digital solution eventually will be applicable to almost every manufactured product. This vision pushes the digital transformation forward, increasing market competition and customer expectations. It is simply inevitable to explore digital possibilities, and its importance is increasing for each year that passes by (Holmström & Nylén, 2015).

The Swedish manufacturing industry has its strengths in assimilating new technologies, improving production methods, cost-saving advancements and radically changing the nature of physical products (Bergström et al., 2016). Though, this strength is also a part of the issue that the industry faces today. Traditionally, the structures used and the mentality that permeates the entire organizations has been very successful (ibid). Though the digital solutions driven by a rapidly evolving environment has new requirements, challenging traditional manufacturing organizations. The digitalization is increasing speed, enabling new business opportunities, allowing for increased differentiation in products with

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technological solutions and additional services. These possibilities are concurrently straining the current organizations, as it requires an additional set of skills and a mindset beyond the well-established foundations, thoroughly integrated within the organization today.

While digital transformation requires structural changes and new work procedures (Beltagui, 2018), the actual driving force for change and alteration comes from culture. According to our empirical findings, there are people within the case company that strives for and strongly advocates digital development, but traditional mindsets and processes are hampering development. Loup and Koller (2005), as well as Goodman and Loh (2011), emphasized the importance of participation, involving the entire organization, creating unity to incentivize organizational change, such as a digital transformation. As with any alteration process it is necessary to fully engage the entire organization (Goodman and Loh, 2011), creating a comprehension towards its importance and what each person can do to contribute. Tying our empirical findings to the model developed by Loup and Koller (2005) the case company is somewhere in between stage one and two, challenged by resistance from more traditional manufacturing instances. A handful of people are clearly driving for change while the majority of the organization has not yet understood its importance and opportunities. In order to increase awareness for digital development and business exploration within the case company’s divisions the organizational culture must emphasize digitalization (Birkinsghaw & Gibson, 2004). Everyone must get involved and gain experience towards digital business in order to understand the importance of a transformation. Otherwise, parts of the organization might not accept the change, slowing the organization down and losing valuable competence and input.

Reasoning based on Andervin and Jansson’s model of maturity phases (2016) combined with the collected empirics, it can be seen that the case company is currently in the second phase, the coordination phase (figure 6 in section 2.10.). The organization has proven that the digital business is viable, and have a number of products and services available. However, in most cases the services are stand alone and not thoroughly integrated into the traditional business structure. In this phase, change management is vital (Andervin & Jansson, 2016), with leadership working actively towards a synchronization between the two business areas, but also integrating them into each other to consolidate them into one. In this phase, where two different business areas are merging into one, tensions will arise within a company. This phase is the most difficult (ibid) and requires a lot of attention from management for it to successfully transform into the third and final phase (ibid). In order to properly manage this change, the study has shown the importance of leaders to be hybrids, i.e. understand both old and new business.

According to our observations in this study, a manufacturing firm can be seen as somewhat tardy through processes and organizational complexity deriving from industry traditions. Though the case company has a strong advantage already integrated in its culture. Throughout its long history, the organization has become accustomed to changes and

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adaptions, appeasing new environments. As discussed earlier the transformational process has high demands in participation, involving the whole organization, in order to jointly drive the digital transformation (Goodman & Loh, 2011). Loup and Koller (2005) visualize the change process in three steps on their road to commitment, understanding, belief and commitment (see figure 7 in chapter 2). Based on interviews, it is evident that there is a high drive for development, and most people we’ve met are in the second stage, believing in the importance of the digital transformation. Though, important to discuss is that the studies interviewees are mainly tied to the digital development and thus actors driving towards a transformation. The organization is large with a lot of employees and every product owner might not agree on the importance of digitalization.

Based on both theory and interviews one major trend, accompanied by digitalization is an increasing demand for product complements enabled through digital technology (Baines et al., 2015). Digital servitization enables services and solutions to existing offers as well as creating new business models to explore (Baumgartner et al. 1999). This means infusing the organization with new knowledge and perspectives, changing work procedures in order to become faster and more responsive (Beltagui, 2018). The case company, as well as the majority of the industry, is in the midst of developing strategies for how to approach the challenge (Baines et al., 2015). Within the industry, there are major opportunities for developing and using digital tools to improve value and differentiate from competitors. The importance of the case company becoming digital was frequently discussed in the interviews, and almost everyone agreed that digital knowledge need to increase within the organization Based on current theories regarding servitization one can also determine that the exploration of new business models tied to services is very important in terms of market share and competition (Khanagha et al., 2014). There are many competitors who currently develop their own digital tools and solutions which can have a huge impact on market development.

According to theory and confirmed by the vice president of global design at the case company, manufacturing firms are well positioned to develop servitization due to their close relation to the affected products (Baumgartner et al. 1999). While distributors can create customer satisfaction through complementing services, a manufacturer can also alter their supply with digital technology to increase differentiation. Comparing the examined digital initiatives to the categorization by Baines et al. (2015). the case company is currently investigating services and solutions on a base and intermediate level. This categorization is mainly a scale of the complexity of business exploration where advanced services or solutions might not be applicable to a firm. Though, findings from the comparison emphasize the different requirements that the initiatives have. Commonly, different services and solutions have different requirements in terms of prerequisites to be developed successfully since they differ in complexity as well as connection to business models and supply. These different demands have, in somewhat extent been acknowledged within the case company, though based on the examined projects there is room for improvements.

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5.2. Organizational structure The manufacturing industry has throughout the years perfected its ability to create and develop physical products. The Swedish industry is famous for quality and expertise deriving from many years of development (Bergström et al., 2016). The optimized structure for manufacturing within the case company is built on shielded functions, with strict routines deriving from organizational culture and tradition. Communication between functions are scarce and cross-organizational collaboration isn’t incentivized.

While some aspects within the development of digital products and solutions can be similar to incremental product development, there are many aspects that differ (Davies et al. 2006). As determined through our case study, the development of digital solutions demands business functions to collaborate, e.g. back end features must be applicable to the physical products, business models needs to be altered to include the digital solution and constant customer evaluation is needed to chasten the development.

Parameters required within an organization to enhance digital transformation are, e.g. communication, speed, support and leadership (Davies et al., 2006; Beltagui et al., 2018; Birkinshaw & Raisch, 2008). An old traditional organization with separated business functions therefore has to be altered (Davies et al. 2006).

The case company is, using Tushman and Smith’s definition (2002), to a higher degree focused on incremental innovation and exploitation. In a sense, this is only natural, given that this is the firm’s core competence and that there are established processes for how to approach this type of innovation. There is a mentality throughout the organization that digitalization is important, but given the differences in approach compared to ”normal” business it is more difficult to initiate (Benner & Tushman, 2003). There are also financial aspects involved, incremental product centered innovation and development can often more easily be connected to an existing business model. Product manufacturers can substantiate cost and value in the form of components and construction design. When exercising exploration, the value of a service is less obvious. It is difficult to present in numbers and hard to connect to a cost center using existing structures and routines (Lavie et al., 2010). The outcome of explorative initiatives are hence more uncertain, and can therefore be given lower priority than exploitation. This is also because the exploitative innovation constitutes for the majority of the revenues, whereas explorative is aimed towards a future business, and thus are more of an experimental nature (Birkinshaw & Raisch, 2008).

It is evident from both empirics and theory that the organizational structure used by a Swedish manufacturer such as the case company is ill-suited to accommodate digitalization (Baines et al., 2015). Digital development increases the demand for fast and flexible organizations. Large companies with, from this perspective, the inherent weaknesses will have a harder time to accommodate these flexible and faster organizations. What many

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firms are trying to achieve through digitalization is being an innovator, in accordance to Rogers (1962) definition in the Diffusion of innovations model, see figure 1 in chapter 2. Instead of following others, they want to and drive the pace of change, thereby creating a proactive way of working. Being an innovator within a new business area does though, as earlier stated has its demand on organizational prerequisites.

What is salient for innovators are smaller teams, specialized in knowledge and great flexibility (Beltagui et al., 2018). This movement towards increased innovation thereby causes tensions for an organization that hasn’t been designed for such activities. The larger the company, the bigger the need for set structures and formal processes, increasing complexity and slowing down decision making (Freeman, 1991). When exercising incremental innovation and exploitation, this is a strength, ensuring only the best ideas and improvements are made. When companies focus on exploitation they develop stable organizations, trading flexibility for stability (Lavie et al., 2010), thus creating an organization that is hampering digital transformation. However, as previously mentioned, exploration needs a different structure and environment than exploitation, allowing for larger creativity and looser processes (ibid). This struggle between different types of innovation and strategic business decisions is something that many firms have to deal with and there is no common solution or clear guidelines.

Based on findings from this study, one could argue that the discussed struggle of how to optimize organizational structure in relation to business environment is especially difficult for the manufacturing industry. The reason for this is the sensitive balance between traditional business and risky exploration. The physical products on which the company has grown successful must remain as the center of operations, keeping processes and structures that have proven lucrative. Exploration towards new business opportunities on the other hand is just as essential for the firms future and requires a different environment to prosper (Lavie et al., 2010; Rafiq & Wang, 2014). At the case company we have seen different opinions on how a firm should handle the situation. Some almost advocated total separation while others were hesitant towards digital development. Though, most of the interviewees agreed that the organization has to, to some extent, adapt towards an organization that benefits exploration.

Ambidexterity presents a possible solution to digital transformation challenges through the ability to simultaneously conduct both exploitation and exploration (e.g. Benner & Tushman, 2003; Rafiq & Wang, 2014). Though, important to note is that, given the structure of the case company, with self-governed divisions, each with responsibilities for profit and loss, there are limitations in the structural alteration.

One solution that could be utilized is structural ambidexterity and separate exploration from exploitation within the organization. Applying structural ambidexterity to the case company would entail a creation of a separate division that solely focuses on exploration whereas existing divisions would keep elaborating exploitation (Birkinshaw & Raisch, 2008). This

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adaptation could also be conducted on a lower level by separating each division in two parts with their own focus. This integration between exploration and exploitation units could enable the divisions to simultaneously manage both activities at the same time (Jansen et al., 2009). However, setting up such an organization would require a major structural change (Lavie et al., 2010) which is considered to be an unrealistic solution for this type of organization. However, given that development of new offers would in some way be connected to the core products, there is a risk with dividing explore and exploit. In some cases there will be developed innovation that is similarly developed within both parts of the organization, creating duplication of work. This could be remedied by good communication between the two parts, sharing information regarding current projects and creating mutual roadmaps.

With the product acting as a centerpiece for development, there is a need for high product knowledge, even when developing other offerings such as services and stand-alone solutions. These large firms have a knowledge of its customers, thoroughly integrated into the organization that must be used to maintain and enforce competitiveness. In order to utilize this knowledge, some development must be driven within the divisions. This would endorse some sort of temporal separation as a plausible solution to avoid conflicting pressures (Lavie & Rosenkopf, 2006). Temporal separation in the case company would be conducted through cyclic changes between explore and exploit within each division. Doing this would enable a division to make use of existing knowledge and alternative focus between exploitation and exploration. However, as a large part of the organization is unfamiliar with exploration it is unlikely that a cyclic exploit/explore process will be successful. Such alterations require an agile organization (Lavie et al., 2010), which isn’t implemented throughout the organization today. The case company is simply too large and complex to apply temporal separation as a solution for simplified digital transformation. It would be a presumptuous initial step which would decrease speed and productivity across the divisions as they incorporate digital development.

Overall, influenced by culture, the case company lacks an understanding of this new business area, brought forward by digitalization. There are people highly knowledgeable in digitalization within the organization, but they are a minority and the knowledge must be better distributed. This is not a critique but merely a reality and a challenge that the industry is facing. There is a growing recognition for processes and systems in regards to ambidextrous organizations, and that ambidextrous facilitation requires more than just structural changes (Birkinshaw & Gibson, 2004). Instead of separating an organization’s structure, a culture aiming to incentivize and encourage both exploration and exploitation could be created, in theory referred to as contextual ambidexterity. This would provide benefits for development and reduce the duplication of work that otherwise would be created through a structural separation. By using the entire organization, merely obtaining knowledge and broadening focus to involve explorative ideas, the entire firm would grow stronger and likely more successful (ibid). This is no easy task and it requires a lot of attention and education. Leadership is essential in contextual ambidexterity (ibid),

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especially during its highly complex implementation (Rafiq & Wang, 2014). The benefits and opportunities associated with digitalization must be made visible so that the entire organization recognize them and actively pursues development.

However, even though a complete separation is deemed to be difficult and undesirable in a setting such as the one investigated, a minor separation would, in this case, be advisable. More basic services could benefit from being developed close to the traditional product development in order to increase customer satisfaction through applicability (Khanagha et al., 2014). Complex services on the other hand require a more detached structure (Beltagui et al., 2018). When the complexity of a service increases, old traditions and processes can slow down and limit the project development, decreasing innovation and differentiation. This would suggest that, while a contextual approach is beneficial, it might not be the sole optimal solution for all types of innovation. As mentioned, when developing complex services, they benefit from being separate (ibid), the separated unit is described by Lavie et al. (2010) as typically smaller, with loose culture and flexible processes.

This specifically has, in somewhat extent been taken into consideration at the case company, where Project Alpha was conducted outside of traditional structures. It was successful for the development of its product, but challenges from an integration of the developed project into a division aggravated the initiative’s long term possibilities. This is an important note to bear in mind when setting up a project outside of the traditional organization. At some point, if being successful, the developed service or solution has to be either integrated into the existing structures or gain the prerequisites for further separate development.

Based on both literature and empirics it is clear that the structure of the organization is a large factor, affecting its ability to develop new business models and digital solutions. Many of the issues that the case company, and probably similar manufacturers as well, faces originates from its structure through slow processes and ambiguous leadership. There is no right answer from theory, nor in practice. Regardless of what approach is settled on it will come with certain drawbacks. However, knowing what these might be can help in trying to avoid them proactively.

5.3. Digital development Our analysis of the studied projects is that their appointment and prioritized status were strategically right. However, while the initial aim of some projects was to explore new business models and customer journeys, a lot of focus was put towards the technology development instead, reducing success through less elaborated business innovation. One reason for this, discussed during interviews, was the mentality of the company. Being a hardware manufacturer, the core competence is technical solutions and design, not knowledge regarding digital transformation. Furthermore, determined through observations, people tend to focus on what they already are familiar with, resulting in a

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larger focus on technical aspects of the digital project. This may sound harsh, but it is simply a reality one must keep in mind when orchestrating and structuring initiatives reaching for successful development (Davies et al., 2006).

The term successfulness is rather subjective when discussing the examined digital projects since it can be measured in many ways. The success of a digital initiative doesn’t solely depend on profitability. Since, digitalization foremost is a complement to business that customer requests and expects (Baines et al., 2015) it can be an important factor that strengthens existing supply, increasing their profitability in turn.

The success of the examined projects mainly depends on what they brought to the firm. For example; PA brought guidelines and learnings regarding digital development and increased partnership, PB increased the usability of products, increasing competitiveness, PC explored a new business area, increasing market share and PD created knowledge regarding smart and connected tools. All examined initiatives were successful in some aspects, but could possibly have been even better. Based on interviews in this study it is clear that project developers would have advocated increased digital awareness in the firm, more resources and increased prioritization. This is of course something most project leaders desire unrelated to whether it is a digital project or not. Though, it is backed by theory that a well-balanced combination of explore and exploit is essential for long term development of a firm (Birkinshaw & Raisch, 2008).

As earlier stated, based on interviewees and observations we see that employees are interested in exploration and development. As of right now, there are multiple initiatives aiming at increasing the firm’s digital competitiveness, but there is an uncertainty regarding how the digital transformation should be conducted. This is, according to Mauborgne & Kim, (2005) a dilemma which the majority of the industry is faced with, creating a hesitation that impairs a digital effort.

FIGURE 10 - CUSTOMER CENTERED INNOVATION

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As mentioned, it is within the division that knowledge of customers lies. This contact could be crucial for the development of some digital projects. Many customers have different expectations today, driven and influenced by a large exposure to technology and digitalized solutions, and the companies have to adapt to this. This is what we try to visualize with figure 10, that the core of a digital product has to meet customer needs and demands. The development of this kind of digital initiative should therefore circle around the customer when creating the final product.

Based on findings from this study, we see the need for a designated person within each division with the responsibility to convey digital development. This would help to enhance knowledge and influence of digitalization and determine how each division can benefit from added services and solutions through digitalization (Lavie et al., 2010). This might be, based on observations, especially important within a manufacturing firm where more traditional structures and leadership occurs. If managers focusing on incremental innovation has the large mandate in decision making, radical innovation and exploration will be reduced. A designated leader with responsibility and authority could bolster the digital transformation within the divisions, increasing competitive strength for the future.

It is also important to clearly give a person the responsibility for digital development, in order to establish ownership of the transformational progress within the division. A prioritization for digital development will gradually increase through exposure and acknowledgment of digital solutions, creating experience and new customs (Khanagha et al., 2014).

It is important to increase business exploration within the divisions and prioritizing radical innovation. As earlier discussed, digital initiatives tend to focus on technical development due to experience and existing processes. If the divisions in the case company should increase their digital development they simultaneously need to question their old processes and structures (Baines et al., 2018). This is backed by the fact that customer relationship is a very important aspect when developing services and radical initiatives (Baumgartner et al., 1999). In order for a division to utilize their full potential in digital projects, they need to focus on customer experience through business development. This is the case tied to digital initiatives that complement existing supply with a specific, known customer group. Different initiatives have different needs and should therefore be built on different platforms.

Another interesting finding that has been slightly examined in this study is the case company’s hesitation towards external resources. Many challenges that the firm is faced with today can seemingly be solved through partnership with firms in a similar situation or external labour not held down by internal politics and old processes. According to some interviewees, these resources could create a faster progression than the internal resources which has been used for the majority of the examined initiatives. This is mainly due to inexperience regarding digital development and the varying volition towards digital

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participation within the firm today. Though, based on observations, the firm has a rather low reliance to consulting firms who, according to interviewees aren’t aware of the full picture of the situation. External resources today wishes to sell their services with solutions based on theoretical desire rather than the realistic situation. A perception that creates a distance to these resources. Another important aspect to consider is that knowledge from external resources will be lost when their contract is completed. This advocates usage of internal resources, creating knowledge that stays within the firm.

While partnership on the other hand sounds like a functioning hybrid the organization is seemingly rather inexperienced regarding partnership even though it has been used to some extent for projects such as PA. Increased usage of partnerships is advocated by some interviewees and might be a strategy that should be further examined.

5.4. Collaboration Communication and collaboration are key factors for digital transformation. In order to develop a digital initiative in a desired pace, avoid conflicting units and a duplication of effort, functions must work together across the whole organization (Davies et al., 2006).

Evident throughout the study there are current issues for the organization regarding cross-divisional collaboration that rises while aspiring for synergies across them. PB was supposed to be applicable to supply from OD and CD but during its launch, it was only functional for OD and PC was initially supposed to be used by the whole organization but was eventually developed solely for OD. Effort and resources have still been consumed to establish collaboration and to seek synergies that have either gone to waist or gained an excessive yield. The complication towards collaboration mainly depends on the shielded separation between the divisions. They could be compared to four individual companies, seeing as they all have separate profit and loss responsibilities and their own decisive customers. This creates their own specific needs, volitions and roadmaps.

There are synergies to be reaped from working together, but the question must be, at what cost. PB and PC started with the aim of presenting one solution that would be applicable across the divisions. This slowed down the development process due to an increase in stakeholders and involved parties which in turn increased operation time. As stated earlier, a key factor for success is the ability to be fast and adaptive (Holmström & Nylén, 2015), which is increasingly difficult when trying to satisfy multiple parties.

Ultimately there is a trade-off between synergies and speed which the case company and other manufacturing firms need to consider. Each organization must strategically decide to what extent synergies are important and when speed should be prioritized. Based on findings in this study, we would advocate that each division should conduct their own digital initiatives and reduce cross-divisional collaboration. This would result in a decrease of synergies but important speed and flexibility would increase. While this statement might be

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interpreted as somewhat contradicting to theoretical findings that advocates increased collaboration (Davies et al., 2006) we would argue that the demand on collaboration rather exists within the divisions than between them.

This type of separation could though, through less digital exposure reduce incentive and drive force towards digital development (Goodman & Loh, 2011). As a countermeasure, support must increase on a holistic level, incentivizing exploration through culture and inspiration. It is important to create coordination within the organization towards digital transformation, establishing understanding and engagement (Andervin & Jansson 2016). Another important benefit from separation would be the increased focus on a specific target group instead of applying a service or solution between many customer segments for each division. Notable to add is that there are common customers, shared between division that could be negatively affected by this separation. While this is an issue to defer to, it should be more or less manageable through organizational strategies and common technology.

In this specific case, we would advocate a function such as DOT to play the important role of an enabler and supporter. While letting the divisions drive their own innovation DOT could inspire them to increase their digital development. This function should create digital strategies for the whole organization, increase coordination between divisions and their digital technology. While this is similar to the existing structure within the firm today, we would argue that it hasn’t been working properly and therefore should be emphasized. Today, the DOT function acts as the overseer of digital strategies and more or less as responsible enforcers of digital development. Instead, we advocate that each division should be responsible for driving their digitalization and that DOT should be there to guide them. This way the knowledge of customers within the divisions will be fully utilized and group functions will be used to support and enhance knowledge rather than running the projects themselves.

When structurally separating a company in the way the case company has done, there is a need for dissemination of information. If the organization, as previously discussed would keep digital development separated within the divisions we see it as beneficial to create a common back end to keep track of technology. Technological collaborative research is increasingly important (Shilling, 2017). A back end function used by all divisions would create collaborative synergies, reduce duplication of work and create a unanimity. This could be compared to a collaborative network as described by Fang et al. (2016). While collaborative networks usually is comprehended as collaboration between organizations, it could be applied to the divisional structure, treating the divisions as different firms. Fang et al. (2016) stated that collaborative innovation networks are helping to promote knowledge transfer, as well as allocating resources efficiently. This would help the divisions to benefit from each other, picking pieces from the other divisions best practice, thereby enhancing the competitiveness of the entire organization (Schilling, 2017). This would also incentivize development, seeing what other divisions are up to and be inspired by their progress. This

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type of collaboration is already existing within the organization through different forums, but we believe that these could be increasingly utilized.

A common back end could also increasingly be responsible for the actual development of the digital technology used in digital projects. Thereby knowledge and experience could be collected, increased and utilized by the whole organization. This would further relieve the divisions ability to focus on the development of business and customer experience, enhancing digital initiatives and the firm’s competitiveness.

5.5. Structuring digital initiatives As earlier discussed in section 5.2. there are distinctive trade-offs to take into consideration when deciding on how to create the most beneficial structure for the examined organization. Thought, alterations have to be conducted in order to increasingly work proactively, preparing for business environment evolution. Some level of separation is advocated in order to improve prerequisites for digital development, but an alteration from the existing structure is not a simple adaption for a large OEM (Khanagha et al., 2014). The benefits from flexibility and speed from organizational separation would boost development and innovation for new business segments (Lavie et al., 2010). Though, a full separation can’t be a feasible solution in practice for a company such as the case company. As earlier discussed, a large OEM does to a large extent rely on its traditional structure and profits from physical products and a big modification would be risky and expensive. While an organizational separation might be a future solution, depending on the upcoming environment, it is not easily applied today.

There are theoretical solutions to apply to an organization to increase the ability to develop digital solutions, where ambidexterity consist of several different ones. These are, according to theory, of high importance but difficult to utilize in practice (Lavie et al., 2010: Birkinshaw & Raisch, 2008). One important aspect taken into consideration in this study is therefore the difficulty to alter a large and complex organization that a traditional OEM commonly is classified as. This is especially important when altering an organization in consideration to the development of an uncertain business area. A manufacturer such as the case company can’t be expected to change their focus and structure if it negatively affects their main source of revenue, even though it is identified as utmost importance for the future.

One major structural alteration that should have a prioritized focus for an organization is where a digitalized initiative should be placed in the organization (Baines et al., 2015). In order to propose a structure regarding placement of digital projects, there is an initial need to classify the project itself. Based on the the empirical findings and discussions with interviewees, together with thoughts from Baines et al. (2015) and arguments surrounding ambidexterity (e.g. Lavie et al., 2010: Jansen et al., 2009) we would like to divide digital initiatives into two categories, Product Centered Innovation (PCI) and New Business Innovation (NBI). There is a difference between the two in the way they operate, and thus

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also what they require from the organization. We’ve chosen to distinguish PCI and NBI based on three factors concluded from interviews, and also corresponding with the division of services (Baines et al., 2015). These are dependency of existing products, dependency of customer contact and relation to existing business models. In order to be classified as PCI one must be dependent on one or more of the factors stated above. For example, PB was highly dependent on both costumer contact and existing supply. Through the product contact, it was also dependent on the existing business models. PB would thus be classified as a PCI. PA on the other hand was, as stated, more separated to the existing business within the organization and would thus be classified as an NBI.

If this classification is taken this into consideration, we have to find a solution applicable to the organization and its ability to undergo an alteration. It is clear from empirics that a Product Centered Innovation has to be developed close to the physical product, in this case within the divisions. While this seems to be somewhat contradicting to some theoretical findings, it is a limitation that has to be established. Developing these projects within the divisions will obviously have a partially negative impact on the initiative because of old structures and routines that inevitably will affect its development. Though, the digital solution will both be affected and affect the physical product its tied to and needs a constant flow of input from customers which can only be received through the division. This is also supported by the categorization of services of Baines et al. (2010) where they state that services with high customer interaction need to be developed where the knowledge of customers lies. In this case that would be within the divisions, supporting the empirics from the study and strengthening the argument for the placement of PCI within the organization. These would also be allowed to co-exist with traditional product development, creating synergies between the two processes and potentially allowing knowledge from both types of innovation to benefit each other.

Instead of creating organizational separation, preconditions for digital development could be enhanced through contextual ambidexterity. By creating a context aligned with Birkinshaw and Gibson (2004) it is believed that radical innovation from a digitalized perspective will be given the best possibilities to succeed. This would also aid with previously discussed problems in connection to understanding the change and an uncertainty in what each individual can do to contribute to the case company’s prolonged success (ibid). This could also be improved through the installation of a digital innovation manager within each division, as discussed in section 5.3.

While the previous discussion regarding Product Centered Innovation was centered around digital initiatives tied to a physical product, the same limitations for separation doesn’t apply to New Business Innovation. These initiatives explores new business opportunities and concepts without the need for existing product experience and customers and can therefore be conducted separately. Such an organizational position is supported by both theory and interviews (Baines et al., 2010: Birkinshaw & Gibson, 2004). The business exploration benefits from the flexibility of a separate function that isn’t held down by the

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divisions. It would allow for an even higher development speed and enable new possibilities in adaption and customization when exposed to new insights and learnings.

Distinguished parameters required within an organization to enhance digital transformation are, according to the study e.g. communication, speed, support and leadership. An old traditional organization with shielded business functions therefore has to be altered. This change was in the interviews referred to as one of the biggest challenges for the company going forward.

TABLE 15 - POSSIBLE ATTRIBUTES OF NBI, PCI

In order to compare the defined innovation categories to the examined projects in this study, we have created a generalized picture of a PCI and NBI attributes in table 15. The characteristic attributes are mainly external vs internal collaboration as well as product contact.

As previously stated, we believe that support for digital initiatives should derive from a holistic position in the firm, which can separately aid and guide development. This is important for an implementation of contextual ambidexterity and the development of PCI’s inside each division. They still lack the thorough understanding of how digitalization can be utilized, and they will need help seeing this. This support function should take a big role in the development of digital initiatives, collecting knowledge that can be transferred within the whole organization. It could also act as a platform on which to develop initiatives that aren’t tied to existing supply, and explores new business models. By doing so, it would further increase experience regarding digital development while offering a separate platform on which highly innovative projects could prosper. The separation increases flexibility, innovation and speed, desirable for the initiative.

As a summary of the discussion above, the organizational placement of a digital initiative is crucial for its development and result. Its position should vary depending on the initiative itself, how much it is tied to existing products or solutions and to what extent the business model differs from existing models. A PCI should be developed within the division itself in order to simplify communication and resource management. An NBI should be placed separately on group level, developed through a group function such as DOT.

PCI NBI

High

Interm.

Low

Business innov.

Product contact

Technical comp.

External Collab.

Internal Collab.

Business innov.

Product contact

Technical comp.

External Collab.

Internal Collab.

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5.6. Structural proposal Based on our analysis and discussion on synergies vs speed, the holistic support function, a common back end and how to use ambidexterity to enable a simultaneous work towards boot exploitation and exploration we can establish and propose an altered structure for an organization such as the case company. As visualized in figure 11 (on the next page), we would recommend the following: • Eliminate gray zones in responsibilities and governance by strategically separating

different types of innovation and creating a structure for them within the organization. • Let each division be responsible for developing and running PCI’s. • Avoid collaborations between divisions, increasing speed and appropriate solutions for

the specific target customer. • Alter group functions to act as enablers, guiding and supporting the organization through

incentives and inspiration for the divisions. • Let a group function be responsible for coordinating holistically across the group, as well

as developing and running NBI’s.

FIGURE 11 - PROPOSED ORGANIZATIONAL STRUCTURE

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Visually we place a product-centered initiative within the division to show the need to decrease cooperation between them and focus on internal speed and customers. New Business Innovation is as previously discussed placed within the DOT-function who also should act as organizational support towards digital development. The structure is a mix between structural ambidexterity (Lavie et al., 2010) where the two different types of innovations are separated, and contextual ambidexterity (Birkinshaw & Gibson, 2004) to be used within the divisions. The structural separation is deemed necessary in order to give NBI the flexibility and speed necessary for rapid prototype testing (Lavie et al., 2010). The contextual ambidexterity within the divisions is vital as there is a need to conduct both exploitative as well as explorative innovation within them. Even though hard to implement, Birkinshaw and Gibson (2004) state that it is possible to do. This was also supported by Rafiq and Wang (2014), whose study emphasized that there isn’t necessarily a trade-off between exploration and exploitation.

Due to the decrease in cross-divisional collaboration, a common back end function is emphasized. Using common technology developed within this function will create a unification amongst the divisions and simplify the development of similar initiatives across the divisions. A person responsible for the digitalization for each division is also seen as important, in order to clearly distribute the responsibility for this development, and also visualize the importance of the transformation.

When placing the responsibility for PCI’s within the organization, it is vital that the group function, in this case, DOT are still responsible for the overall strategy for the entire group, and clearly communicates this to the divisions. As collaboration decreases between divisions, strategy and unity must be managed by DOT, ensuring that, while divisions take a larger responsibility for PCI, the different branches aren’t diverging and creating large cost structures and lock in effects.

Ultimately we have chosen to visualize the organizational chart up-side-down. This is not to propose a structural alteration but rather to advocate a change in mindset and leadership. In order incentivize a division to increase digital development and to simplify the integration of initiatives, leadership and holistic functions must act as supporters and enablers, inspiring and carrying the divisions. This requires a change in culture, demanding product developers to start thinking of new ways of enhancing their product, with a larger scope than only product development and improvement. This is where leadership is vital (Koller & Loup, 2005: Andervin & Jansson, 2016), to engage the organization and show what possibilities exist with digitalization, encouraging divisions to drive their own digital transformation.

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This organizational structure would thus increase the organization’s ability to structure and develop digital initiatives, simplifying future roadmaps and increasing the firm’s digital competitiveness.

While this structural proposal obviously can be hard to apply as a whole for every manufacturing firm, it can give a clear picture of important aspects and should to be taken into consideration when creating a digitally promoting organization. While this structure has been founded on the prerequisites of the case company, other firms with similar struggles and structural complexity could be inspired by this alteration. The major alteration that should be considered across organizations within the manufacturing industry is the ambidextrous adaptation towards the traditional structure. A separated function for digital development is necessary to explore new business models, while contextual ambidexterity should be integrated within organizational culture and processes to lift the whole firm. Overall the mindset of the firm has to be altered and management has to challenge themselves and the firm’s traditional structures to evolve with the business environment.

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6. Chapter six - Conclusions

6.1. Conclusions In this master thesis, perspectives on and parameters affecting digital transformation has been examined. The scope of the study has been the transformation towards digital solutions and services for a Swedish product manufacturer. A globally renowned, Swedish organization, manufacturing a broad range of products on multiple markets has been examined in a case study as a representative for the industry.

We can, based on findings from this study, emphasize the business environments demands on digitalization within a manufacturers supply. The environment, through customer expectations and competition, is stressing the development of digital initiatives. The digitalized technology in its nature has a high competitive pressure. For example; competence within digital development is high within e.g. large IT-firms, competitors that previously haven’t been a threat to a traditional manufacturer but that increasingly is approaching the manufacturing domain.

There is a perception that digitalization ultimately is important and will affect the total supply of a Swedish manufacturer. In the examined organization, there are multiple digital initiatives that have been conducted to digitalize products and explore new business models. However, the case company is not quite ready to fully engage with a digital transformation. Due to weak financial results from digital solutions, there is a hesitation towards digitalization in regards to business optimization and timing, it is equally dangerous being too early as too late.

The case company examined in this study is, through the firm’s history, accustomed to change. Though, digitalization is a new challenge which differs from previous adaptions from new demands on culture, collaboration and radical business alterations. In order to successfully adapt towards digitalization, leadership is key. Existing leaders have to challenge their perception of business and explore the new possibilities for the firm.

Digital solutions and services have demands on cross-functional collaboration and development of business models that traditional manufacturers are not yet accustomed to. This requires an understanding throughout the organization and change management to facilitate it. Due to high levels of competition, digital development needs to be fast and often designed with a high customer contact to assure applicability. Its development is therefore a challenge within many firms and demands an alteration of organizational structure, communication and leadership.

A manufacturing organization is competent in developing and utilizing technology due to many years of experience within product development. The firm examined in this study was

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clearly relying on traditional manufacturing where products have been altered through many years of incremental development. Though, while some aspects within the development of digital innovation are similar to the ones of ordinary product development, there are many factors that differ and a manufacturer has to undergo adaptations and alterations to cope with market demands.

While there are solutions that in theory would benefit the digital transformation, it is harder to create a valid solution to implement in practice. This is due to an uncertainty for the digital market both from customer and manufacturer. It could be careless to alter an organizational towards a structure beneficial for digitalization before there are any real profits emerging from that market. There are many interesting functions and possibilities deriving from digital technology, but while being attractive, they are not guaranteed to be neither useful nor profitable. The risk of developing an unprofitable product will automatically create a hesitation towards digital transformation from the organization’s point of view. Especially when an organizational alteration towards digital development might affect the ordinary business negatively through changes in focus and resources.

The examined organization, a Swedish manufacturer that strives for digital development is thus recommended to tread carefully. While being a risky alteration, it is important to increase experience and acknowledgement for digitalization, preparing for an adaption towards the anticipated business transformation. There is a unified belief that digital solutions and services eventually will be in some way tied to every manufactured product.

By using a combination of structural and contextual ambidexterity, and classifying digital innovation projects, we believed that the organization would improve their ability to develop digital solutions, increase digital focus and the usage of knowledge within the organization. Creating an ambidextrous organization is not an easy task, but deemed necessary, both based on literature and findings from the study.

To increase customer satisfaction, digital initiatives that in a higher degree is connected to physical products, named Product Centered Innovation, should be developed within traditional business functions to increase customer and product contact. It is thus important to increase contextual ambidexterity, lifting digital awareness and development throughout the whole organization. New Business Innovation, with initiatives that radically explore new opportunities, will require flexibility through separation and should therefore be conducted outside of traditional business functions. If this structure would be set, an ambidextrous structure is established. Ambidexterity doesn’t necessarily demand a large scale structural change, instead, small changes could be made to create the required prerequisites for the different types digital innovation.

While the alteration should be based on whats feasibly possible for the organization, a separation should be created to offer radical innovation the prerequisites needed. We recommend that a holistic digital function receives the responsibility to develop these

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radical projects, a function that likewise could be responsible for the organization’s digital strategy. Through its own projects, it will increase digital experience and be able to supervise the organization while creating new possibilities for both traditional functions as well as new emerging ones. There will be remaining challenges for the radical projects such as decisions regarding their long term roadmaps and possible future integration into current parts of the existing organization.

It is advocated that a manufacturer should create alterations towards digital development that minimizes the effects on traditional business and focuses on development of speed. Taking the case company as an example, development speed could be enhanced by reducing cross-divisional collaboration, decreasing development complexity. Each division should focus on applicability towards their specific customer segment and less on collaboration synergies that evidently are rather profitless. The divisions could then increase business innovation for related to their field of expertise integrating digital solutions to their supply.

This could further be supported by the discussed holistic digital function that can inspire and aid the divisions in their development, encouraging digitalization and increasing business development. Collaborative synergies that get lost from separation could be created through a common back end. A function that develops, gather and enable technology for the whole organization. The back end could also take an increased responsibility in technical development which favors the divisions ability to focus on business. Using a supportive function to create guidelines and a back end function to create unification and simplify development would thus increase the firm’s ability to develop digital projects and enhance the organization’s competitive advantage.

To sum this up, the digital transformation is approaching rapidly but many firms are hesitating to take part in the business evolution. It will ultimately be an important transformation to undergo and manufacturing organizations needs to increase their digital experience and proactively work towards an implementation of digital solutions into their core business. Major areas where a manufacturing firm can alter itself to benefit a digital transformation includes support towards digital initiatives, increased focus on business innovation and a deliberate, ambidextrous structure regarding placement of digital project. There are dangers tied to rapid alterations and we advocate an accurate and realistic transformation, but based on the case company, studied in this thesis, a manufacturing firm has to challenge itself and prepare for a revolution of the business environment.

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6.2. Limitations and future research As with any study, especially a master thesis, there are areas to explore which time restraints won’t allow. These consequently limits the study’s results and its applicability to both theory and practice. This has affected the scope of the study, where only a single company has been rigorously examined and used to represent the whole industry. Further studies conducted on multiple firms within the area would increase generalizability, usability and validity of the conclusions. It could also be of interest to extend the scope by examining OEMs from different nationalities. This would visualize the digital importance for the Swedish industry through benchmarking with firms from other countries.

An important addition to this study would be the creation of a framework regarding whether an initiative could be classified as a PCI or NBI. Attributes of initiatives as well as business models could be evaluated to separate the two. This would ultimately simplify the structural placement of an initiative and development decisions.

One big area that has been abstained is an in-depth analysis of how human behavior affects digital development. This is a very interesting aspect to further study especially within such a traditional and complex organization examined in this study. Human behavior will definitely affect decisions and collaboration within a firm which could have big impacts on the development of a digital transformation.

Furthermore, as discussed in the study, the issue of integrating a separated digital initiative within the ordinary business functions is an issue that remains to be examined. While this study has discussed affecting forces and parameters that would benefit initiative integration, it has not been thoroughly discussed. Further studies within the area would be both interesting and useful for the manufacturing industry. Another interesting aspect to is the actual structure of the holistic developer of digital initiatives. How a separated development function, lacking ordinary business functions and a customer base should be created to manage initiative development and advocate its long term possibilities.

Another area which has been slightly examined within this study is targeted integration and the usage of external resources to develop in-house project within a manufacturing organization. Evidently, the usage of these resources is avoided in favor of creating and keeping knowledge within the firm. Though there are areas in which external resources could be useful, lifting traditional and tardy processes, offering new knowledge and challenging old routines. This could have a big impact on the development of digital transformation.

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Appendix I - Interview guide

Part one: (25min) • Personlig bakgrund

• Position och erfarenhet inom organisationen? • Hur ser du på digitalisering och dess påverkan på svensk industri? • Vad är styrkorna inom organisationen? Nämn 5st • Vad är organisationen främsta utvecklingsområden?

• Hur arbetar man med dessa? • (Vilka är organisationens största nuvarande och framtida utmaningar?) • Hur arbetar ni? Beskriv ett typiskt projekt. • Vad har du för erfarenhet och koppling till organisationen digitala initiativ? • Vad ser du för svårigheter för projektet/projekten? • Hur sker beslutsfattandet bland organisationen digitala initiativ? Hierarkiskt • Hur sker samarbete mellan initiativ?

• Finns det någon plattform för detta? • Vem är ansvarig för detta?

Part two: (35min) Processer: • Vilka är de viktigaste arbetsprocesserna för dig? Hur ser de ut? (Intervjuresultat) - processer som skapas i varje instans - Samarbete mellan initiativen - Att det ligger i divisionerna - Resursproblem • Hur bör man gå till väga när man skapar nya processer? • Vad händer när man skapat en ny process?

• Hur tas erfarenheten till vara? • Vart tar de vägen? • Hur ska man man gå tillväga för att dela dessa?

• Vart ska ansvaret för detta ligga? • Finns det någon plattform för gemensam standardisering eller processdelning?

Ambidexterity: • Hur ser du på rådande organisationsstruktur?

• Svagheter • Styrkor

• Hur ser du på arbetet med exploit/explore? • Givet organisationens förutsättningar, vad tror du?

• Trade-off snabbhet, ”kvalitet” (separerad vs intern) integration • Finns det någon integrationsmekanism för ett separerat projekt? Targeted integration: • Hur ser du på rådande trade-off i organisationen

• Lyckas organisationen med rådande strategi • Borde något ändras tycker du?

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Appendix II - One pager (first phase)

Study of project structure in Digital Innovation What is digital transformation and how does it affect the Swedish industry today? While attempting to reach digital maturity, some companies choose to run digital initiatives in separate divisions, channels or functions creating separations and weak collaboration. Others choose to implement and run new projects within existing structures and are as a result faced with other problems. This gap exists for many different reasons, partially due to restricted resources but also from a lack of guidelines and tools to utilize in this rather unexplored transformation.

Some theories advocate a separation of the digital initiative from the organization, creating a new digital branch. This strategy passively avoids the resistance of old structures and routines, evolving with agility and increased growth, though the big issue of reorganization and total implementation remains.

As of today, there isn’t an agreed structure on how to run the initiatives driving digital maturity. Firms fumble in the dark, making their way forward with multiple strategies at a time with varied success. These initiatives are complex and not thoroughly studied but they are necessary for the future of the company.

This study is conducted by two master students from KTH Royal Institute of Technology on behalf of XX, under supervision from XX. The study aims to investigate how the organisatory structure effects a digital initiative, focusing on innovation projects which are in operation/have been conducted at XX. The study will result in a public thesis, published by KTH. Opportunity will be given to review the content before publication.

As a first step in this study we will conduct a number of interviews with the primary purpose of increasing our theoretical foundation and ensure proper understanding of XX’s digital thinking. For this reason we are looking for people with knowledge and experience of digital innovation projects, its execution and structure, willing to share their knowledge to benefit a more digital XX. Our intention is to conduct one interview á one hour, but should we feel the need to we would like to have the opportunity to see if another meeting is possible.

The interview will be centered around a few discussion points, based around the digital initiative you have participated in. Your contribution is very important for the direction of the study and will conduce to maintain Swedish industry’s and specifically XX’s competitiveness.

Best Regards, Jonathan Gunnarsson och Marcus Kjellberg MSc Industrial engineering and management, within Integrated production KTH Royal Institute of Technology +46 73-025 4048 Ι jogunn@kth.se

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Appendix III - One pager (second phase)

Study of project structure in Digital Innovation What is digital transformation and how does it affect a Swedish OEM? Digitalization is a central strategic topic, where many firms struggle. Organizational ambidexterity is a key factor here, how can you exploit the existing business model and simultaneously explore new opportunities without loosing focus? This case study aims to investigate how the organisatory structure affect digital initiatives. It is conducted by two master students from KTH on behalf of XX, under supervision from Petra Sundström. XX is a perfect case for this study because of its history and position as a global leader within product manufacturing. XX stands out as a firm with continuous development which dare to explore new opportunities.

From what we have seen of XX, there is no sole structure for how to run digital initiatives. A clear strength is the human capital within the organization with a lot of driven and highly competent people. The internal drive and will to explore, to dare and question structures and business models is vital for the continuous success of XX. The execution of the studied projects are considered successful, but we have acknowledged weaker correlating areas, such as a shortage of process structure, collaboration and awareness. Dedicating resources to establish cross-functional processes, tailoring the organization could be key to stay competitive in the developing market.

The study is limited to four projects; Project alpha, Project bravo, Project charlie and Project delta but other insights and experiences are also of interest. A first round of interviews has been conducted and we are now moving on to the next stage.

We wish to gain an insight in your knowledge and experience of the digital innovation projects, execution, structure and outcome. Our intention is to conduct one interview á one hour, but if we feel the need to we would be grateful to have the opportunity to be in further contact. Your contribution is important for the result of the study and will conduce to maintain Swedish industry’s and specifically XX’s competitiveness.

Best Regards, Jonathan Gunnarsson och Marcus Kjellberg MSc Industrial engineering and management, within Integrated production KTH Royal Institute of Technology +46 73-025 4048 Ι jogunn@kth.se

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