The End of Traditional Hierarchies

Industry 4.0 requires a completely new approach to management – away from hierarchy and towards collaboration. What makes sense in theory has proven to be a tedious process of implementing reforms in day-to-day business life, particularly at established companies. Above all else, it requires experienced managers to radically change their way of thinking.


Nowadays, not a single workshop or conference on innovation or change management is held without featuring the words of US management legend Peter Drucker, who passed away in 2005: “Culture eats strategy for breakfast.” Yet the strategy guru with Austrian roots, who was decades ahead of his peers and is only now really being discovered, wasn’t saying that strategies are now completely obsolete. Instead, Drucker wanted to point out how extremely important corporate culture is because without it, nothing else matters. At first glance, it seems like this message has finally reached the boardrooms of international corporations. Culture initiatives, agility projects, employer branding and change management campaigns are popping up at companies around the globe. They aim to assign an exaggerated modern “purpose” to their work and breathe new life into their corporate culture.

The world is moving faster and faster

One thing is also true – we need to change. The VUCA world now at our doorstep, with all its volatility, uncertainty, complexity, and ambiguity, is no longer that of the predictable 1980s, 1990s, or even 2000s. Technological advances are revolutionizing one sector after another. Even primary industries will change completely in the coming years due to digitalization and automation. The old is disappearing, the new is emerging. This is how it’s always been throughout the history of business – and how it will always be. But what is new is the speed with which change is occurring. Technological leaps are becoming increasingly frequent and occurring at shorter intervals. Only one question remains to be answered: can people still keep up? Both those on the shop floor and those at the top in the boardroom?

“Everyone is talking about Industry 4.0 – as if it’s going to manage itself. Or could be managed with the management models of the pre-4.0 era. But it can’t. New industry needs new management,” says Professor Michael Henke, head of the Fraunhofer Institute for Material Flow and Logistics and chair of the Department of Corporate Logistics within the Faculty of Mechanical Engineering at TU Dortmund University. In addition, he also serves as adjunct professor of supply chain management at the Lappeenranta University of Technology’s School of Business and Management in Finland. Despite his academic credentials, Henke regularly spends time on the ground at companies. His conclusion, at least for Germany and neighboring Europe, is sobering: “The managers and employees who are expected to work with new autonomous systems and highly individualized processes in production, logistics, and supply chain management won’t be able to do so simply because they’ve received some technical training. Their awareness needs to be raised to reduce their fear of the unknown. They need support to develop the skills they need to work with new technologies. They need guidance throughout the process to prevent their motivation plummeting every time they face some obstacle, which is bound to occur.”

New Times Require New Managers

In short, digital revolutions only create the necessary condition for a new type of industry. In addition (continuing the mathematics- speak) a new kind of manager is required as a sufficient condition for future market success. Open-mindedness, flexibility, a strong willingness to change, a willingness to challenge one self and, last but not least, empathy for the desires, concerns, and needs of the workforce are required – right up to the top level of management. Industry leaders like Evonik Industries have recognized the tremendous importance of “openness”. For example, this specialty chemicals giant based in Essen recently invited employees to internal “speed-up conferences.” Resourceful employees were given the opportunity to present their ideas for new projects or products during four conferences held in Germany, China, and the United States. These workshops were unique because the entire workforce, not a jury or supervisor. decided which ideas to pursue. Innovation through collaboration and grassroots democracy is the perfect fit for this time.

Evonik is not an isolated case. Other major industrial companies also adhere to the principle of focusing on the team rather than the individual. These include Deutsche Bahn, Daimler with the “Leadership 2020” initiative it launched in 2016 to create a new culture of leadership and collaboration, and its Bavarian neighbor Bosch. Holacracy – the concept developed by American entrepreneur Brian Robertson – is the name for this historical turning point in business administration, where a previously hierarchical management system is replaced by mostly self-organizing units. Leadership is being redefined, with the former role model and top dog now primarily a motivator and coach. Career paths are now very different to how they used to be. They no longer lead straight upwards, based on years of service and seniority. “Skills are becoming more important than functions or offices. Temporary teams are replacing fixed, hierarchical departments. The managers who formerly reigned supreme suddenly have to subordinate themselves to the new paradigm of process orientation,” Fraunhofer researcher Henke concludes.

If a company wants to be successful in the VUCA world, it must change not only on a broad level by introducing a fancy new cultural slogan, changing its company logo, or setting up football tables in its open-plan offices. Even more important is a shift in attitude in the minds of every single employee – the highly touted “new mindset.” And don’t forget – this applies both from the bottom up and the top down. In this context, middle management plays a particularly important role. These individuals need support and training because, as always, they have the most difficult role sandwiched thanklessly between agility and fragility, as mediators between the rebellious base and senior management. This means the success or failure of a cultural change will be decided in the middle, as so often is the case.

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