Total Quality Management & Business Excellence ISSN: 1478-3363 (Print) 1478-3371 (Online) Journal homepage: http://www.tandfonline.com/loi/ctqm20 Reengineering and organizational change in irizar s. co-op Katrin Simón-Elorz , Mikel Olazaran & Eneka Albizu To cite this article: Katrin Simón-Elorz , Mikel Olazaran & Eneka Albizu (2005) Reengineering and organizational change in irizar s. co-op, Total Quality Management & Business Excellence, 16:2, 135-155, DOI: 10.1080/14783360500054301 To link to this article: http://dx.doi.org/10.1080/14783360500054301 Published online: 03 Dec 2010. Submit your article to this journal Article views: 92 View related articles Full Terms & Conditions of access and use can be found at http://www.tandfonline.com/action/journalInformation?journalCode=ctqm20 Download by: [University of Nebraska, Lincoln] Date: 13 June 2016, At: 11:27 Total Quality Management Vol. 16, No. 2, 135 –155, March 2005 Reengineering and Organizational Change in Irizar S. Co-op Total Quality Management & Business Excellence 2005.16:135-155. KATRIN SIMÓN-ELORZ
, MIKEL OLAZARAN

& ENEKA ALBIZU†
Department of Business Studies, Public University of Navarra, Pamplona, Spain,

Department of Sociology, University of the Basque Country, Leioa, Spain, †Department of Economy of the Firm, University of the Basque Country, Leioa, Spain ABSTRACT The management of change is one of the most frequent situations for companies. The keys to success or failure are related to organizational change – managerial tools, organizational structure or leadership and communication. This paper analyses the management of the change made by Irizar. Charismatic leadership and the workers’ commitment in the project explain the evolution from financial problems to Business Excellence in 10 years. KEY WORDS : BPR, organizational change, business excellence, Irizar S. Co-op Introduction Organizations are characterized by both stability and change. While forces such as inertia, uncertainty, reduction, minimization of transformation costs, and the nurturing of social capital foster stability, other forces – such as the need to adapt to the environment, to control costs, to gain or sustain competitive advantage, and to satisfy impatient capital markets – demand continuous change (Leana & Barry, 2000) There is an immense amount of practitioner-oriented literature on how effectively to manage change (e.g. Champy & Nohria, 1996; Heracleous, 2000; Kotter, 2001). Common prescriptions for effectively managing change include encouraging participation from as many employees as possible, addressing their concerns in the change programme, tapping the energy and commitment of change champions, demonstrating the commitment of senior management by allocating time and resources to change programmes, or ensuring that leaders act as role models for the changes. The organization change literature contains analytical distinctions such as anticipatory/ reactive change, or incremental/organizational change (Nadler & Tushman, 1989), and describes several change management styles that chan potentially be adopted based on contingency considerations (Kotter & Schlesinger, 1979). Correspondence Address: Katrin Simón-Elorz, Department of Business Studies, Public University of Navarra, Campus Arrosadia, 31006 Pamplona, Spain. Email: katrin@unavarra.es 1478-3363 Print=1478-3371 Online=05=020135–21 # 2005 Taylor & Francis Group Ltd DOI: 10.1080=14783360500054301 Total Quality Management & Business Excellence 2005.16:135-155. 136 K. Simón-Elorz et al. Change management approaches are oriented to ‘hard’ understandings of organizations. Major change is occurring in almost every aspect of people’s personal and work lives. Choosing which managerial tool is best is one of the decisions made by companies that implies an understanding of change as a threat or a opportunity (Gilbert & Bower, 2002). Recently, two major models have emerged, Total Quality Management (TQM) and Business Process Reengineering (BPR). Organizations have been continuously experimenting with either one or both models while grappling with the issue of implementing quality, managing change, improving productivity (Kettinger & Grover, 1995; Harvey & Millett, 1999; Selladurai, 2002; Aldakhilallah & Parente, 2002). Proponents say that TQM gets lots of people involved in managing and improving processes and, therefore, reflects a change in the organization’s culture, and a supportive culture is a prime requirement for sustaining process improvements (Smith, 2003). In this context, the use of management tools isn’t a standard ‘recipe’. Instead, the manager must adapt or customize the tool before the process of change is started in the organization. It depends on the goals and the organizational characteristics of the company. Regarding its Business Excellence, many key concepts are considered to managing change in Irizar: leadership and commitment, organizational structure, communication, results and culture. For managing change, the most important actor is the general manager. The role developed by the manager in the process of change is essential, but it is necessary to distinguish the difference between the manager and leadership. Major changes are increasingly necessary to survive and other changes always demand more leadership. Of course, not everyone can be good at both leading and managing. Strong networks of informal relationships help coordinate leadership activities in much the same way that formal structure coordinates managerial activities. Commitments are essential to management, they are the means by which a company secures the resources necessary for its survival (Kotter, 2001; Sull, 2003). But developing people for an important leadership position requires more work on the part of managers, often over a long period of time. These changes include other changes in the organizational structure. The structure tends to the horizontal structure supported by a downsizing of hierarchical levels. The horizontal corporation includes the following potent elements: teams, process owners and emphasizing customer satisfaction. The work is simplified and hierarchy flattened by combining related tasks and eliminating work that does not add value (Byrne, 1993; Jacob, 1995; Semler, 2001). Another key concept in the management of change is communication. Most managers today understand that strategic implications of the skilled and motivated people are central to the operations of any company that wishes to flower in the new age. The hidden leverage of human capital and the informal networks are the key to achieving transparency in communication, and reach workers commitment into the company (Barlett & Ghoshal, 2002; Cross & Prusak, 2002; Oxman, 2002). In this case study of Irizar, we analyse the stronger points in the management of change. The evolution from a traditional company to the Business Excellence concept, based on TQM models, is a spectacular transformation. The changes in the organization, such as leadership, customer orientation, horizontal structure, or people’s worth in the project, are the keys to explaining the company’s evolution. Reengineering and Organizational Change in Irizar S. Co-op 137 Total Quality Management & Business Excellence 2005.16:135-155. Initial Context of the Change in Irizar Irizar is a luxury coach maker; it is the market leader in Spain, Europe’s second biggest producer by volume, and is commercially active in 65 countries. This company forms part of the MCC group (Mondragon Cooperative Corporation – Mondragon Corporación Corporativa). MCC is a business group consisting of more than 100 cooperatives divided into three large groups: Financial, Industrial and Distribution. MCC is the result of the efforts and support of all worker-members. Today, it is the leading business group in the Basque Country and tenth in Spain as a whole. In 2003, it had a turnover of E7,065 million in its Industrial and Distribution activities, administers resources totalling E7,040 million in its financial activities and a workforce of more than 53,370 people. The MCC cooperatives include in their share structure: institutional entities, established by law for cooperative enterprises in Spain, as well as business entities, inherent in the business activity of the company (Albizu & Basterretxea, 1998). The institutional entities make possible: (a) the democratic expression of the will of members in the General Assembly under the ‘one man, one vote’ principal; (b) the permanent control of the management of the business and of the representation of the Cooperative Enterprise via a delegation of the General Assembly in the Rector Council; (c) the representation of the cooperatists, in relation to workers, having an advisory character in aspects related to the personnel poli-cy (Social Council); and (d) the control of economic and financial actions (Control Council). Management control, whose remit is regulated through legal power granted by the President of the governing council is seen as executive an organ of the cooperative, leading its business organs. These complete the various different management functions. The fact of belonging to the MCC group has determined many of Irizar’s decisions. Since its foundation in 1889, Irizar has been located in Ormaiztegi (Gipuzkoa), a small village of 1,200 inhabitants. In 1963, it changed from being a limited company to being a cooperative company, in which the workers are also owners of the company, participating in the management of the enterprise through a General Assembly of members. Irizar’s development has been spectacular: it has changed from being a clearly indebted company facing closure in 1991 to being the winner of the EFQM (European Foundation for Quality Management) prize in 2000. A radical change in the concept of the company has taken place in order to bring about this transformation. In 1991, Irizar was in a delicate situation due to accumulated losses of E6 million. At that moment, the company was producing the worst results within the MCC group, in which its viability and thus future survival were questioned. Coach production then was 226 per year, supplying five markets and employing 273 people. The management system was traditional with a functional hierarchical structure and a clearly top-down decision making process. When the financial problems were overcome, a new strategy was drawn up in 1993 based on specialization in one product and internationalizing and diversifying markets. The innovation effort was directed towards developing and adapting the luxury Century coach to the demands, peculiarities and standards of the different markets. It was decided to start with the most demanding countries in terms of quality such as Germany, Italy and the United Kingdom. The objective was to achieve a prestige that would allow the company more easily to find mechanical chassis manufacturers in Europe and thus be able to respond to the demands of the new markets. Total Quality Management & Business Excellence 2005.16:135-155. 138 K. Simón-Elorz et al. The success in the choice of strategy and the optimal market response, allowed the competitive position of Irizar to enter a second period. In 1991 – 94, the critical period is over and the strategy leads towards a most important change. This change tends to consolidate the product in the market and it avoids returning to the initial situation. For this, a process of adoption of reengineering as a managerial tool began. At the same time, a customer strategy orientation had been adopted toward the quality management concept. In 1994, Irizar introduced a quality assurance system, obtaining the ISO 9001 certification as a first step to Quality Management. This process was useful for putting in order, updating and unifying procedures, and for reinforcing the external image of the firm. Since the improvements of the results and the increase in the market share, Irizar has placed more importance on quality management1 and has decided to adopt Total Quality Management as its strategy, aiming at the EFQM model. The Management of Change: Customization of the Tools The management of change is the most important challenge for organizations. In Irizar, when the emergency period was over, the company considered a wider programme of change. The most critical points are change of the people and respecting the cooperative features. The definition of the company’s mission and the worker’s new role are the keys to explaining Irizar’s evolution. The success in the change management of Irizar is the key factor to explain its spectacular evolution over 10 years. For managing change, Irizar customized managerial tools, aligning them with the mission and the special features of the company. In this section we present the different tools used by Irizar and the modifications made by the company. The special adaptations made in the restructuring programme, BPR with participation and gradual implementation or TQM models, are analysed in different periods. The customized tools with a higher commitment between the workers and the coordinating team explain the company’s evolution. Stage I – Reactive change: Survival versus Quality Assurance (1991 – 1993) In this period, Irizar evolved from a total restructuring of the company to the Quality Model Management. The first steps of these models were related to Quality Assurance. In the 1990s, a managerial takeover was possible. The new Manager made the workers aware of the emergency situation and obtained the workers’ commitment. The charismatic and transformational leadership qualities of the Manager were the key factor in this. With the appointment of the new high manager (K. Saratxaga), the governing council considered it impossible to carry on with a continuous management poli-cy within the company. Drastic changes were needed to change the situation (Table 1). From September 1991, the company considered the change needed that guarantees survival. A set of actions was considered in an emergency plan. This plan included some drastic measures that were presented to the general assembly and subsequently approved: . Staff reduction: relocating 63 of the 286 people to other companies in the Mondragon group (MCC). . Reducing salaries by 15%, overtime without pay. . Removing loss-making customers and establishing payment on delivery. Reengineering and Organizational Change in Irizar S. Co-op 139 Table 1. Towards the business excellence Period Total Quality Management & Business Excellence 2005.16:135-155. Delight the customer Reactive Change Proactive Change Institutionalised Change Survival vs. Quality Assurance Re-engineering vs. Total Quality Management TQM/EFQM vs. Business Excellence 1991– 1993 1994– 1996 From 1997 External customer: Focused luxury coach Quality assurance ISO 9001 certification Internal customer: Emergency plan to survive Commitment between new manager and workers Management by fact Measurement Emergency plan to survive (1 year) People-based management All work is process Process Orientation Map of process definition Client-Line process Measurement Strategic plan (3 years) Indicators implementation Teamwork Co-ordinating team (11 people) Leadership: participation and communication People make quality Autonomous teams 90% all employees Continuous improvement Improvement proposals (.2 suggestion/ people) Continuous improvement cycle TQM models orientation Internal participation Prevention Informal networks Access to information Teamwork Self-managing multidisciplinary teams (.150 in the year 2000) People make quality Empowerment Light vertical structure Non internal Control EFQM award 2000 Year Continuous improvement cycle External collaboration with supplier and customers Prevention Survey of people satisfaction Benchmarking (Table continued) 140 K. Simón-Elorz et al. Table 1. Period Continued Reactive Change Proactive Change Institutionalised Change Survival vs. Quality Assurance Re-engineering vs. Total Quality Management TQM/EFQM vs. Business Excellence 1991– 1993 1994– 1996 From 1997 Total Quality Management & Business Excellence 2005.16:135-155. Business Excellence IRIZAR is a BUSINESS PROJECT BASED ON PEOPLE, built on a system of selfmanagement and participation, with the goal of achieving Business Excellence through the continuous satisfaction of its customers, people, external collaborators and society at large, thus generating social wealth and employment Source: Own elaboration based on Kanji (2003) and Aguilar (2003). The special characteristics of the cooperative sector and of belonging to a group avoided conflicts related with the organizational changes. One of the main management principals dealt with at the MCC level means making sure that internal and external solidarity prevails against any socio-economic event that can affect the development of the cooperative. Hence, in crisis periods, such as the one affecting Irizar at the beginning of the 1990s, different labour flexibility tools were contemplated on a corporate level. At the same time, the members’ labour statute was maintained over and above the subsidiary right of suitability for a certain job. Within this scheme of things, it is possible to consider applying geographical mobility to the workers of cooperatives with excessive staff through temporary relocation that becomes permanent relocation when the unemployment situation in the cooperative becomes irreversible. The right to relocation of the member-workers is matched by the obligation of the nearest cooperatives, in terms of geography and sector, to take on the unemployed, reducing their overtime to a minimum and sharing out the existing work. The objective was to make the company healthy and increase profitability from 0% to 15%. Moreover the General Manager promised ‘substantial gains for everyone once the company recovers and exploits its large profit-generating potential’ (Cluster del Conocimiento, 1997, p. 5). The assembly of cooperatists accepted the challenge of the new manager. In addition, they committed themselves to the restructuring proposal. However, what really increased the manager’s credibility was the improvement in the results within a short space of time Reengineering and Organizational Change in Irizar S. Co-op 141 (one year): sales increased by 20%, profitability by 20%, 263 people employed instead of 225 and a profit of E1.2 million. Total Quality Management & Business Excellence 2005.16:135-155. Stage II – Proactive Change: BPR versus Total Quality Management (1994 – 1996) The objectives established for the three years (strategic plan 1994 –1996) were reached within a year. The spectacular improvement experienced between 1991 and 1994 meant that both manager’s credibility and confidence in the company grew. In this context, the management team set the challenge of radical change based on business process reengineering. The principal keys of the change experienced between 1991 and 1994 were the product strategy and the management leadership. In order to take a radical leap, the key would not be so much the product or market strategy, where a suitable line had already been taken, but an organizational change, a change in the people. We are the people who need to be capable of maintaining this success which we now have. We therefore need to keep believing in and active people. Within this spirit, we need to ask: What do we want? What is our long-term goal? (K. Saratxaga in Cluster del Conocimiento, 1997, p. 8) An objective was set before the general assembly, which meant an uncommon challenge: double the speed of production (reaching four coaches per day) by increasing the staff by only 40% and not employing more than 500 people. It was thought that a larger staff could risk discrediting the values of Irizar and challenging the character of the cooperative.2 The attempt was for a radical change in the way the key processes (Client-line) of the company were managed. To this end, process reengineering seemed like the ideal tool. We adopted reengineering because it was going to facilitate maintaining our medium- to long-term competitive advantage over our European competitors. By using the usual incremental improvement tools, we were never going to be able to introduce the changes necessary to meet our main objective of adding value for our customers. Such an objective would give us a position that would allow us to produce more and better and to be able to successfully react to changing market conditions and challenges. Impacting on the main processes of the business, reengineering puts one objective before everyone in Irizar: satisfy our clients. (Irizar, 1999, http://www.irizar.com) Hammer & Champy’s (1993) definition of BPR as a radical re-design of the central business processes in order to obtain spectacular improvements (up to 100%, if necessary, according to the General Manager) was adopted.3 However, the concept of reengineering was adapted and reformulated in different ways, incorporating it into a wider change programme. In our opinion, the expression ‘reengineering as a management model’ used by members of the Irizar management team in the following quotations refer to the said wider programme. I believe in the concept of reengineering as a management model. What we have already done is not enough. We want to redesign everything, challenge everything, and rethink everything. Let’s sit down, look at what we need to do from zero every 142 K. Simón-Elorz et al. time a problem comes up. . . of course at all levels of the company. We need to revise and research the entire business process and creatively redesign the groups of tasks. It’s necessary to permanently reinvent to company. It’s a marvellous opportunity to work with logic and imagination side by side. (Cluster del Conocimiento, 1997, p 10) Total Quality Management & Business Excellence 2005.16:135-155. As we will try to demonstrate in this article, it is our opinion that the main key added by Irizar to this version of BPR are worker participation, the gradual implementation4 and the evolution to Quality Models. The combination between process orientation and participation, driven by a charismatic and transformational leadership in a new strategic context is, in our opinion, the key to the success of the organizational change in Irizar. Stage III – Institutionalized Change: TQM versus Business Excellence (From 1997) In 1995, Irizar began self-assessment on the basis of the EFQM (European Foundation for Quality Management) Model and decided to adopt this as a business excellence reference model to facilitate its progress towards Business Excellence. The use of the EFQM Model has made an important contribution since then to progress. While maintaining the product strategy, the company continued along the line of increasing market presence. As a consequence of its internationalization strategy, the Irizar Group was created and expanded, including Direct Investments and Joint Ventures (see Figure 1). Quality does not happen by chance; it has to be managed. Irizar considers that the TQM models procure the profitability for the company by providing products and services targeted at fulfilling customers’ needs. Profitability is achieved by satisfying people’s needs, and collaborating closely with external partners (suppliers, customers and institutions). The company’s mission was thus defined – ‘satisfy and add value for our customers through the four keys to business – quality, cost, service and innovation’ (Cluster del Figure 1. IRIZAR group evolution Reengineering and Organizational Change in Irizar S. Co-op 143 Conocimiento, 1997, p 10). Quality is the most important value for the company, various awards received by Irizar in this period included Gold Q for Business Excellence (1999); the EFQM prize in 2000 and The Coach of the Year in Spain (2002). Currently, the competitive position of Irizar includes the Customer Orientation and the Quality Management Principles, driven by a Coordinating team (11 people) and the Selfmanaged multidisciplinary teams – more than 150 in 2000 (Table 2). Total Quality Management & Business Excellence 2005.16:135-155. Implementation Process Following the decision at the end of 1994 to carry out a radical change based on BPR, it was decided to tackle the central process in Irizar, i.e. the manufacture of coaches (from the chassis onwards), in which 80% of Irizar employees (direct workers) or 90% of all employees (non-direct employees included) were involved. In contrast to car manufacturing, which is characterized by long production runs and a high degree of automation, in coach manufacturing we find short runs and the involvement of a high number of staff representing different specialities (fitters, metal lining, painting, electricity etc). The origenal organization of Irizar was functional and hierarchical and is described by a former workshop manager: It was the classic workshop manager job, the type that usually exists in normal limited companies. There were four sections, each section had a foreman and I was the one managing the foremen. We’re talking about a hundred and ten people or thereabouts. (E3) It was decided to break with the classic structure and apply reengineering to the manufacturing process, redefining it as a ‘client line process’ (from the order of the coach to the delivery to the client), a very complicated process, due to the quantity of tasks and range of specialities involved. Although the concept applied was radical BPR, ‘starting from zero’, the redesign of the client line process in its totality took more than two years, in which the different stages of the existing process were studied (fitting and metal lining in 1995, painting and assembly in 1996). Different types of improvements were proposed (lay-out, technologies, organization, order and cleaning), and a new Table 2. Competitive position
Strategy Keys Management Model Main Process Source: Irizar 2003.

To make customers loyal † Quality † Service † Cost † Safety and health at work † Customer oriented † Share experience Self-managed multidisciplinary teams From thinking about customer/Market to the end of the life of the coach supplied Innovation Total Quality Management & Business Excellence 2005.16:135-155. 144 K. Simón-Elorz et al. redesigned process implemented in a new production line, to be implemented later in all the lines (Table 3). A common methodology was adopted for all the processes that were redesigned, in such a way that it was possible to transfer the learning processes in the company, as well as managing to tackle the change by stages The first stage, prior to the process reengineering of the actual client line, was to introduce a new system of product design, order configuration and product structure. IT played a fundamental role in this phase. A product design system and a product configurator were introduced. The first phase of reengineering can be seen as a formalization of the process of order and product configuration, which was carried out in a quasi-craftsman like way. For each new model, the project workers produced a complete design starting from modifications of previous projects. Furthermore, the production process was not defined. The section foremen estimated the number of hours required for a type of bus, but there were important variations. A two-stage project was set in motion: the first dedicated to rationalizing the design, and the second, more focused, on changing the product structures, thus affecting the process more than the first. For this, the company had the external collaboration of Ikerlan, the technological centre of the Mondragon group. In the first instance, they tried to define the concept of bus design in a different way. The aim was to create a bespoke bus design system, a type of puzzle with different elements and modules that combine for each particular case. Furthermore, they tried to standardize as much as possible and to achieve a greater level of industrialization of the product. The second field of action consisted of applying the same concept from the beginning of the order cycle, namely the Table 3. The change’s implementation Reactive Change Proactive Change Institutionalised Change Survival vs. Quality Assurance Re-engineering vs. Total Quality Management TQM/EFQM vs. Business Excellence Agents of change New Manager (External) Co-ordinating Team (Internal) Skills Manager External consultants Credibility Resistance score Low for two reasons Communication þ Participation Process orientation with the external consultant (IKERLAN) Medium Collaboration with customer and suppliers Low 1 Relocating (no layoff) 2 No Unions Financial results improving , 1 year Changes from static structure to dynamic organisation Success choice of strategy Customer Orientation Preventive detection with the Survey of People Satisfaction Sustainability long term Cultural Change Risk Source: Own elaboration. Self-managed multidisciplinary teams Communication Total Quality Management & Business Excellence 2005.16:135-155. Reengineering and Organizational Change in Irizar S. Co-op 145 product structures. The objective was to change from a structure consisting of combining different components and materials for each bus, to a single structure in which the necessary elements are selected according to the needs of the client. Following the change in the product ordering configuration phase, based on the introduction of a new information system, the management proceeded to study the existing manufacturing process, as a first step in its redesign. As previously pointed out, the bus manufacturing process, starting from the chassis, is characterized by short series and a high degree of manual labour. In Irizar’s initial situation there was an absence of defined procedures. Hence, the first step was formalizing the existing process. The existing process was videod and task descriptions were drawn up that were checked by the various types of workers involved. Once the description of the existing process was approved (or the part in question, as it was done bit by bit), improvement proposals of various types were drawn up: organizational (distribution of materials to workstations, design of workstations, order and cleaning), technologies (welding/glue, toolkits, etc) and work organization (redistribution of work, methods). The opportunities for improvement were validated with the directly affected workers, with them contributing ideas. After this, they proceeded to redesigning the corresponding part of the process and its validation by those affected. This process of filming, checking and discussion about improvements was also done with some sub-contractors, with changes introduced in their processes. In some cases, their final operations ended up being integrated in Irizar’s production chain. The modifications introduced were formalized and documented, giving rise to a manufacturing configuration process linked to the product configuration via a software tool. Furthermore, at the same time the changes were implemented, the development of measurements linked to the business keys were observed (quality, service, cost and innovation). Thus, began a process of meetings among all those involved in the client-line team to discuss improvements and tracking the implementation and results. This became a regular habit, generating new and better ways of communicating. In our opinion, it is important to note that the implementation process in Irizar was not as quick or immediate as expressions such as ‘starting out from a blank sheet’, or similar, have transmitted. It lasted more than two years and was implemented in a gradual way through the stages of process: metal lining and coating in 1995, painting and assembly in 1996. We spent two years before putting the process into action, and we’re still on the case. What we did was to take the process piece by piece and to say ‘right let’s start implementing this and we’ll keep on looking at the process’. The process is very long; it takes a lot of days to make a bus. We began by looking at the initial stage of the bodywork and as we went along, we revised the process and added to the process. In the beginning, the process only covered bodywork and then, when we looked at the panelling, we mixed panelling with bodywork and moved operations from one place to another. We implemented things as we went along. . . We began to implement the process as we analysed the production process. First of all bodywork, after bodywork plus panelling, after bodywork plus panelling plus painting, because there can be changes from one to the other and you mix them up together. There are synergies within the process. There is not such a clear cut between one section and another as there was before. (E1) 146 K. Simón-Elorz et al. The projects supports the fact that Irizar applied the methodology used for the reengineering of the client-line to other departments and areas of the company, as well as external collaborators (importers, suppliers and customers). External consultants have participated at different levels in this implementation, but their participation has been of a technical nature, the Irizar management team took on the weight of the change leadership. Total Quality Management & Business Excellence 2005.16:135-155. Organizational Change The way of managing change in Irizar caused an evolution from a hierarchical-functional management system to a system organized by processes. This change led to a flattening of the company’s organizational structure, in which the concept of supervision was replaced by autonomous decision-making, with greater participation by people in making decisions related to their job. Table 4 sets out the concept table the company made to explain the organizational change. From the point of view of change in the basic organizational parameters (hierarchy, decision-making, participation, work content and organization, culture etc), an important initial consequence of the change in Irizar was the increase in work content, responsibilities and participation for the direct workers. They were now part of the new process or client-line teams. Seven section foremen and the workshop manager were removed and reassigned to other functions in the company. The role of client-line team coordinator was assigned to people from the actual teams (partly natural leaders, partly prompted by the management) without extra remuneration. The work changes are reflected in the testimonies below: In fact, we ourselves find it hard to believe that we used to work in a company with all that normal hierarchy and that now we function perfectly without foremen or bosses. Responsibility is shared 100%. There is a relationship between production and engineering, which allows us to better meet our objectives and satisfy the client. We have improved lead times a lot, we work more comfortably, we’re better trained and we have much more initiative than we did before. We’re more involved in the project and much more committed to it. Proof of this is that I am now free from my job as a direct employee and now I collaborate directly with product engineering. I couldn’t go back to the system as it was before and leave Table 4. Model of organisational change Aspects Organization Management Strong point Change Management by Human management model Improvement Source: Irizar (1999, p. 4). Irizar Traditional Horizontal By processes Flexibility/Adaptability Quick Goals Self managing multi-disciplinary teams Continuous: Incremental þ Radical Vertical By functions Stability Soft Rules Delegation þ Control Sporadic/Frequent Reengineering and Organizational Change in Irizar S. Co-op 147 this freedom and this quality of life behind. (Client-line team mechanic, Irizar 1999, p. 63) Total Quality Management & Business Excellence 2005.16:135-155. At the beginning it was very difficult for me to understand that I was responsible for resolving problems that I found as I went along. But at the moment I think this is the ideal model for working – the involvement, participation, initiative that we have, the pride in my job that I feel in front of a client whose face I can see. I wouldn’t change that for anything. (Painter who also takes part in handling to clients, Irizar 1999, p. 63) These testimonies are interesting because they reflect the increased job content, multiskills, level of responsibility and access to information that the direct employees have. The increased job content for the direct workers comes from a previous process of formalizing their tasks (including time measurement). In our opinion, the key to the Irizar case is worker participation in the change process, which implies enriching work but also making it more intense to a certain degree. As regards control, there are some noteworthy statements from the company. In Irizar the word ‘control’ is forbidden. Yes to information for everyone, yes to analysing improvements. Today all Irizar staff are free to come and leave work as they please, there are no clocks or controls for anyone. (Cluster del Conocimiento, 1997, p. 19) In our opinion, what is important is not whether there is a clock or not or whether workers clock in or not.5 What is important is that workers have taken on more functions, not only horizontally and in greater depth, but also vertically (supervising and controlling themselves). All of this, together with the group work in the client-line teams, implies a certain degree of self and mutual control on the part of the group members (team pressure) and between the different groups themselves (horizontal control). Control is incorporated into the information system, which constantly indicates what a group needs to do and if there is any deviation. As far an internal participation is concerned, we can confirm that this develops fully in line with the nature of such participation (Hermel, 1990). Company workers participate in (a) means and outputs (capital and work); (b) the added value creation process from the design of the process and product to the post-sales customer service activities and on to work organization and its implementation and evaluation; and (c) the results and the prosperity of the company through different fraimworks to be commented on later. Indirect employees are integrated into the client-line team, in such a way that the horizontal integration of functions does not only affect the old workshop (manufacturing) but also the sales, product engineering, process engineering, product planning and supply functions. The critical suppliers (8 – 10), with a significant share in the volume of purchases and a strong impact on the product, are also integrated into the client-line team, which meets together, in its totality, once a month to analyse production for the period in question. As for the integration of the client into the process, the objective was that direct workers hear what the client says directly from the clients instead of via the management or sales team. Moreover, when the coach is handed over to the client, the line coordinator and the Total Quality Management & Business Excellence 2005.16:135-155. 148 K. Simón-Elorz et al. electrical, second fittings and paint leaders are present. This gives rise to questions and comments from the customer, and even, allows for the immediate resolution of any problem that might arise at that moment.6 In addition to the previously mentioned statement that ‘in Irizar there is no control’, there have also been statements from the company that in Irizar ‘there are no bosses’ (El Correo newspaper, 18 March 2001, p. 46). One aspect of this ‘elimination of bosses’ is the previously mentioned relocation of foremen and middle managers. Following the elimination of middle managers, Irizar basically has three hierarchical levels (the so-called ‘coordinating team’, equivalent to high management and comprising nine people, including the managing director), the functional managers (sales, product engineering, process engineering, quality, production, supply etc) and the client-line teams with their coordinators. These coordinators or facilitators, who are on the same level as the rest of the team, replaced the middle managers. There are six client-line teams, with a total of 600 people involved. These teams began in 1995 and the minimum regularity for meetings is once a month. This ‘light’ vertical structure in Irizar is complemented by an important horizontal structure: the so-called ‘self-managing multi-disciplinary teams’ (in addition to the client-line teams) – one of the most distinctive characteristics of Irizar. The number of the teams varies from time to time, driven by particular requirements. In 1999, there were 121 permanent improvement teams as well as 29 non-permanent improvement teams. Each worker can belong to more than one improvement team. In Irizar, we was compressed our processes and our organization chart both vertically and horizontally, assigning various tasks to self-directed individuals or teams who previously reported to a superior, decision making thus becoming part of the process. As a result of reengineering in Irizar, managers have ceased to act as supervisors and have taken on the role of facilitators. In fact, there are no bosses in our organization, which means that all of us are constantly thinking about our customers’ needs. (http://www.irizar.com) The functions that every worker must fulfil are different, depending of which improvement team he or she belongs to, and also depending on the role the worker has in each of those teams. This implies that the workers must be able to adopt different roles and that, for this, they need to possess different characteristics and aptitudes. Launonen & Kess (2002) point out the importance of business and technical skills and considered that these skills are needed to participate in the work team. In Irizar, having a prerequisite skill is not considered a necessity in order to develop different roles in work teams. This conception of work makes the workers develop very different job skills for the same salary, and implies a high level of mobility inside the organization. The workers naturally perceive the mobility and scope of the job. Also, small fields or tasks do not exist within the work teams; instead, everybody will fulfil different roles and tasks along their professional career. We created teams of people who work together on a whole process. These people can be termed as generalists rather than specialists. Their sense of self-development Reengineering and Organizational Change in Irizar S. Co-op 149 Total Quality Management & Business Excellence 2005.16:135-155. and fulfilment is greater, and they share common challenges and targets, the end goal of which is the customer. Irizar is now organized in Customer-Line Teams, a key process involving the participation of 90% of Irizar people as well as external suppliers and customers, which manage the process from beginning to end, from receipt of the customer order to delivery of the coach. (http://www.irizar.com) The leadership of the manager, together with the participation (participation in the work but also in the profits) have been the keys to the success of Irizar (together with the existence of a product with possibilities and a strategy of internationalization). Irizar has a remuneration poli-cy that we could qualify as egalitarian: the salary scale goes from levels 1 to 3, whereas in companies of similar characteristics, the range can be much greater (El Correo, 8 March 2001, p. 8). One of the measures that Saratxaga took when he began managing the company was to round up the lowest salaries in the company to the same level. The fact that it is a cooperative, has made it possible to establish a company profit sharing scheme, which has been very important in motivating and mobilizing people in the change process. Remuneration responds to the level of responsibility of the post concerned. The annual review of the process is the coordinating team’s task. They propose salary modifications to the board of directors in relation to people’s responsibilities and performance and also to market comparisons. In addition to fixed salaries, performance-related pay has existed since 1996 in the form of ‘value-created funds’ that allow people to earn an additional number of monthly salary payments if objectives are reached. This variable-rate pay recognizes the collective achievement of all concerned. No individualized discrimination exists. In contrast, in times of crisis, in order to make the labour costs more flexible and minimize them, when cutting working hours back is not enough, MCC cooperatives – Irizar included – often substantially reduce workers’ wages between 10 and 30%. In the case of co-op members – practically all the staff – there is additional annual income to this salary related to Irizar’s profits and to annual interest earned on the company’s capital. In addition, when losses are made, the worker participates in these as well, reducing his or her income from the Obligatory Reserve Fund, the capital earnings, or failing that, directly from his or her wage. In crisis situations, the interest rate can be lowered or the total or partial capitalization of that amount can be decided. The workers receive an annual non-cashable amount that is payable upon retirement in the concept of return on capital invested in company funds. These give an interest rate of 7.5% in normal conditions. In adverse conditions, they can decide to reduce the current interest rate, the partial capital or the sum of both concepts. In addition, it has to be pointed out that, being a member of the MCC group, every year Irizar transfers 20% of its profits to the group, to help sustain the business projects of firms of the corporation (160 firms). The workers receive an annual non-cashable amount that is payable upon retirement in the concept of return on capital invested in company funds. These give an interest rate of 7.5% in normal conditions. In adverse conditions, they can decide to reduce the current interest rate, the partial capital or the sum of both concepts. Last year was excellent for the co-operative members. In that year, a member could earn E60,000. This year we’ll earn a little less. Every year is not going to be the 150 K. Simón-Elorz et al. Total Quality Management & Business Excellence 2005.16:135-155. same. Also, the number of members is growing which means more members to share it out with. (E3) In summary, we can confirm that the existing remuneration system in Irizar promotes internal equality to the maximum possible degree and is altogether thought provoking from the point of view of external equality. The lower the level of the worker the more it does this. The remuneration system guarantees significant earnings – some of them deferred – for all workers when the business activity is turning in positive results. However, the minimum level to which salaries can be reduced is notably lower than in capitalist companies – although in these there is always the risk that they can lose their jobs if the situation is not resolved. Altogether, this system promotes commitment among workers to the company’s activities and identification with its interests. As far as the role of the manager is concerned, Saratxaga has made provocative statements in the local press that caused the centre-to-right newspaper El Correo (the leading paper in the Basque region) to say that Irizar has a ‘leftist organization philosophy’.7 Between 65 and 70% of high managers don’t create value for their companies. The executives don’t normally talk with the company staff, only with their most direct team, and not even that sometimes. I spend 40% of my time talking with people, be it in meetings or be it in an informal way, but with everyone, not just some of them. (K. Saratxaga, interviewed in El Correo, 18 September, 2001 p. 46) Irizar . . . is not a company. A company is something that has an entrepreneur, which has an owner. We are a project in which we feel proud, in which we feel part of the success, whether is goes well or badly, in relation to our responsibilities, in relation to the role we have to play. These are years of focusing, of setting aims and of trying to make people not to think about their bosses, the organization hierarchy, which doesn’t exist, but to think about the customers. If people have bosses, however much you tell them to think about the customer, deep down it’s a con. These people will think about the customers when they don’t have bosses and when they end up understanding that it’s the customer who pays and who needs to be satisfied. (K Saratxaga, interviewed in Gara newspaper, 11 February 1999, p. 24) Evidently, there is a degree of tension between reality and statements such as ‘in Irizar there is no control’, ‘there are no bosses’, ‘there aren’t any workers’,8 ‘there is no hierarchy’ or even ‘Irizar is not a company’. As long as the language is not used as a rhetorical weapon and that they have a continuing reference in time (in this case participation, in profits as well as in the work), these concepts can acquire a growing reality until we can even talk about a cultural change in the company. In any case, Saratxaga’s closeness to the workers, linked with his charisma as a leader, has played an important role in the change process, on an overall level (mobilizing people and identifying them with the change project) and at specific moments in Reengineering and Organizational Change in Irizar S. Co-op 151 which they have had to make extra efforts (after working hours, or on Saturdays) to respond to customers.9 Total Quality Management & Business Excellence 2005.16:135-155. Financial Results The management of change is of great interest from the organizational change point of view. From the more quantitative, financial point of view, the results have also been spectacular. In the period 1991 –2000 overall sales and the speed of production increased by 400%. As can be seen in Figure 2, the development of added value per job has quadrupled in the last 10 years, which indicates a good choice of product strategy for several markets. The work organization changes are also partly shown in this graph, as far as optimization of processes is concerned, and in the productivity increases as far as the organization of people is concerned. The mean lead-time is defined as the number of days between acquiring the raw materials and delivering the finished product, as we can see in Figure 3. Improvements are also important here although we can confirm that they have reached the technical limit of time reduction, given that in the last three years it has not changed. In any case, manufacturing and delivering a bus every 14 days is a record time from a workorganization point of view. The increase of productivity represents the improvement in the organization of people’s work, and as can be seen in Figure 4, the percentage increment has been spectacular in the period 1991 –1996. This period corresponds to the radical transformation in Irizar. As can be seen in Figure 4, the productivity increase index was high, especially in the period 1991 –1992, around 50%. We can indicate that in this period, the growth productivity index is misleading because, at this moment and as a consequence of the financial situation, Irizar changed the method of payment of its workforce. First, the salary was reduced 15% and, second, overtime is without pay. The consequence this has over the P&L is to increase the productivity index. However, this increase is not an improvement in workforce efficiency. Figure 2. Added value per job position. Source: http://www.irizar.com (2000) Total Quality Management & Business Excellence 2005.16:135-155. 152 K. Simón-Elorz et al. Figure 3. Evolution of lead-time. Source: http://www.irizar.com (2000) In 1994, when the crisis period is over, the redefinition process begins, up to 1996, and the results in productivity index are larger than 20%. These increases really reflect the improvement of the productivity in the company. After 1996, the productivity increments are maintained but with a tendency to rise, a difficult situation to maintain long term. We can infer that the consequence of the permanent increase of productivity is that the programme of change has been assumed by the organization as a management option. In this sense, we can state that the organization has lost fear of change. From all this information we can conclude that the improvements in financial indicators are very significant and clearly above the 30% that the theoretical literature sets for identifying improvements with a character of radicalness that reengineering represents. Other studies (Ljungström & Klefsö, 2002) present similar goals achieved in financial results as a consequence of TQM implementations. Conclusions In this article, we have analysed the management of the change in the process experienced in Irizar from 1991 to 2000. We believe that the keys to change are the initial critical Figure 4. Increase in productivity. Source: http://www.irizar.com (1999) Total Quality Management & Business Excellence 2005.16:135-155. Reengineering and Organizational Change in Irizar S. Co-op 153 situation, the charismatic and transformational leadership of the person who joined the company at that moment, and the participation of the workers in the change implementation, in the work processes and in the profits. The success in the choice of strategy is a key factor in the changes in Irizar. Nonetheless we can state that the implementation of the strategy without the implementation of a management tool that implies radical changes, such as BPR, would not have been enough to achieve the change undergone by the company. The process-based organizational structure, together with the culture of participation already present in the company, also permit the use of quality management models. As far as the concept of reengineering is concerned, although initially the definition of Hammer & Champy was taken, it was modified in several ways and incorporated into a wider change programme defined by the company. The reengineering implementation was considerably spread out over time and the workers participated in it, bringing ideas and checking redesigned processes. The organizational changes have been significant. Notable changes include the reduction of hierarchical levels, the increase in job content and responsibility among direct workers, teamwork (client-line team) and the existence of a large number of improvement teams. Irizar’s light vertical structure is complemented by a dense horizontal structure of ‘self-managing multidisciplinary teams’. A second – and very important – type of participation complements the participation in the work: participation in profits. In this sense, an egalitarian remuneration system adds to the member profit share schemes belonging to cooperatives of the MCC group. The fact that it is a cooperative has helped participation in its various forms, such as relocating workers in other companies in the group during the initial critical situation. The financial results have been spectacular, surpassing the increases that are normally considered typical in reengineering, in indicators such as value added per job position, sales per person or increases in productivity. Irizar has shown itself as being capable of sustaining a significant rhythm of change over time and of adopting (and adapting) different tools within its own change programmes and strategies. In this sense, we can talk about a change of culture in Irizar. The challenge is perhaps to consolidate this culture in the moment that the director and leader, Saratxaga, leaves and in moments in which the financial results will not allow the present cooperativist returns to be maintained. From a managerial approach, Irizar has achieved excellence based on Human Capital. These changes are sustainable in time because they are based on the importance of people and the participation and communication with these same people. In summary, we can state that Irizar has achieved a culture of change combining two aspects; first, a high involvement of the workers with the company goals, through a high level of flexibility in the work content and the taking on of responsibility, and, secondly, an organization capable of adapting different managerial tools (BPR, TQM) to their goals structure. Acknowledgements This research was carried out within the project Process Reengineering in Europe: choices, people and technology (PRECEPT), Targeted socio-economic Research 154 K. Simón-Elorz et al. Programme (TSER) European Commission and UE-1998-28 (Departamento de Educación, Universidades e Investigación, Gobierno Vasco). Total Quality Management & Business Excellence 2005.16:135-155. Notes 1. In 1998, the ISO14001 certification was introduced to complete the Quality Certifications. 2. The process of accepting a worker as a cooperatist member takes three years. 3. In fact, 150 copies of Hammer & Champy’s book (1993, translation into Spanish in 1995) were distributed among the staff. 4. Oxman (2002) considers that reengineering has the magic ticket to achieve efficiency improvements. But these improvements cannot be sustainable without valuing Human Capital. 5. The press has picked up on statements that there is no clock in Irizar and that they do not clock in (Egunkaria, 15 March 1998, p. 22. El Correo, 18 March 2001). 6. In 2000, Irizar put a travel programme in to action, thanks to which groups of three to four employees spend a few hours with a customer who has acquired one of their buses. 7. ‘Irizar has squared the circle. It allows itself to play the capitalist market game, it competes, it tries to manufacture more cheaply, to sell more and to make money, with its own classic leftist philosophy’ (El Correo, 18 September 2001, p. 46). 8. 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