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Management approaches for Industry 4.0: A human resource management

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Conference Paper · July 2016

DOI: 10.1109/CEC.2016.7748365

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 Management Approaches for Industry 4.0
A human resource management perspective

Saqib Shamim1, Shuang Cang*2, Hongnian Yu1, Yun Li3

1
Faculty of Sciences & Technology, Talbot Campus, Bournemouth University, UK
2*
(corresponding Author) Faculty of Management, Talbot Campus, Bournemouth University, UK
3
School of Engineering, University of Glasgow, Glasgow G12 8LT, U.K

Abstract: Industry 4.0 is characterized by smart business and current processes, replacing the manual
manufacturing, implementation of Cyber Physical Systems business operations by digital computer structures [3].
(CPS) for production, i.e., embedded actuators and sensors, Socio economic triggers of industry 4.0 are presented in
networks of microcomputers, and linking the machines to figure 1. According to figure 1, there are number of factors
the value chain. It further considers the digital enhancement very critical for Industry 4.0 including lack of skilled
and reengineering of products. It is also characterized by workforce, aging society, resource efficient and clean urban
highly differentiated customized products, and well- production, mass customization, increasing product
coordinated combination of products and services, and also variability, shorter product life cycle, dynamic value chain,
the value added services with the actual product or service, volatile markets and cost reduction pressure. All these
and efficient supply chain. All these challenges require factors need specialized management to cope up with
continuous innovation and learning, which is dependent on challenges. Even the world’s big economies are facing
people and enterprise’s capabilities. Appropriate these challenges like China is facing the challenge of clean
management approaches can play a vital role in the urban production due to extremely high pollution [42].
development of dynamic capabilities, and effective learning Japan and China are facing the problem of aging work force.
and innovation climate. This paper aims at offering a Furthermore customization and cost reduction is not
viewpoint on best suitable management practices which can supposed to work in parallel, as customization causes
promote the climate of innovation and learning in the additional cost [10]. Product life cycle is also shortened due
organization, and hence facilitate the business to match the to changing trends, and now companies need to focus on
pace of industry 4.0. This paper is one of the initial attempts short term innovation [1].
to draw the attention towards the important role of
management practices in industry 4.0, as most of the recent
studies are discussing the technological aspect. This paper
also suggests empirical and quantitative investigation on
these management approaches in the context of industry 4.0.
Key words: Industry 4.0, Management practices,
Organizational structure, Leadership style, HR practices.
Introduction
Industry is an integral part of any economy. Since the
evolution of industrialization, industry experienced the
paradigm shifts due to the technological changes and
innovations. These paradigm shifts are known as “industrial
revolutions”, for example, mechanization (1st industrial
revolution), high use of electrical energy (2nd industrial
revolution), electronics and automation (3rd industrial
revolution). Today’s economy is about to face the fourth Figure 1, Socio economic triggers of industry 4.0
Source: http://www.slideshare.net/SPRICOMUNICA/basque-industry-40-the-
industrial revolution, triggered by social, economic, fourth-industrial-revolution-based-on-smart-factories
technological and political changes [1]. This fourth
The central idea of industry 4.0 is to implement the Cyber
industrial revolution is also known as industry 4.0 [2],
Physical Systems (CPS) for production, i.e. embedded
which is a subclass of digital transformation in existing
actuators and sensors, networks of microcomputers, linking
978-1-5090-0623-6/16/$31.00 2016
c IEEE 5309
the machines to the value chain [4]. It further considers the which can lead to innovations [34]. Most of the studies on
digital enhancement and reengineering of products. Figure industry 4.0 are discussing the technological aspects of the
2 is presenting a summarized idea of industry 4.0 industry and enterprise. This study is an initial attempt to
production style. It is also characterized by highly draw the attention towards the preferable management
differentiated customized products, and well-coordinated approaches for industry 4.0, in order to match with the pace
combination of product and services, and also the value of technological leaps by enhancing the climate of learning
added services with the actual product or service [3]. In and innovation.
simple words industry 4.0 is supposed to have smart
Management approaches for industry 4.0
machines, storage system, and production facility. It
minimizes the human interventions and increase Success in industry 4.0 is dependent on the innovation
productivity. It emphases on decentralized and highly capability of enterprise [1]; either it’s about CPS (i.e.
automated production, as shown in figure 2. embedded actuators, sensors, computer networks), product
reengineering, differentiation, or some supply chain issues.
If organization needs to be smart, they need intelligent
employees, and climate for learning and innovation, which
• Smart • Adapt
without
• Decentralized requires suitable management practices. Management for
machines production
• Storage human
intervention • Realtime industry 4.0 is indeed a very important issue and not many
systems control
• Production • Reduce
waste • Pressofa people have researched into. Industry 4.0 needs to develop
facilities button
CyberͲ Networked
• Increase production capabilities across different dimensions in the organizations
productivity Flexible
Autonomou
Physical
sProduction production as shown in figure 3. There is need to develop capabilities
Systems
to successfully manage business models, and product
portfolio, to access potential market and customers, to
enhance value chain processes and systems, risk
Figure 2, Idea of industry 4.0 production style
management and legal matters, and cultural management
Supply chain structures in industry 4.0 are characterized by because of globalization.
flexible processes and high efficiency which should be not
only cost saving but also supposed to offer benefits like
improved management for complex products, reduced time
to market, and production on demand [2]. Normally
differentiation and cost leadership are considered as
contradictory competition strategies, but industry 4.0 has
the challenge to enable them simultaneously [5] [6].
In such an uncertain business environment there are many
challenges regarding the management approaches, for
example business model innovation [2], as in the era of
industry 4.0 key success factor for many enterprises is the
innovation capability [1]. In such an environment, the role
of employees is very important who are motivated to
contribute in organizational learning, and innovative
process in the organization. Because in environment such
as industry 4.0, where rate of change is accelerating with
greater force and frequency, firm need to be very sensitive
to new needs of customers, and new type of competitors.
To enables the employees to work according to industry 4.0
needs and pace, it is very important to provide a climate of
innovation and learning, as it is an important facilitator of
learning and creative behaviours on job [7].
That’s why this paper offers a view point about
management practices suitable for providing a climate of
learning and innovation to the employees, which can Figure 3
facilitate the employees and organizations to meet the Source: http://www.strategyand.pwc.com/reports/industry-4-0

requirements of industry 4.0. As appropriate management It is very much clear that in industry 4.0, organizations will
practices have the potential to enhance dynamic capabilities, face many economic, social, and technological challenges,

5310 2016 IEEE Congress on Evolutionary Computation (CEC)

which requires dynamic capabilities and innovative work departmental obstacles, speeds up the decision making
force. So, it is extremely important to discuss that how can process, enhances generalist skills, and supports the
organizations enhance their capabilities which leads to learning in the organization [38][39]. In an uncertain
innovations, to match the requirements of industry 4.0. environment like industry 4.0, where changes are expected
That’s why by integrating the literature with the logical very frequently and innovation is a key to success, project
beliefs, this study proposes several management practices based teams are a good option to facilitate learning and
to make the organization compatible with industry 4.0 by innovation [7] [11]. To improve the innovations, new
developing a climate of learning and innovation, which can knowledge and new routines are required. Technological
ultimately enhance the organizational capabilities. These developments require new technical solutions and the reuse
practices are discussed below: of existing solutions [12]. Project teams, especially in a
learning environment, can be a facilitator of knowledge
1. Organizational structure
sourcing, and reuse [13], which is critical for innovations
In the environment of accelerating rates of changes [14]. However, knowledge source and reuse for innovation
organizational structures can play a significant role in the in project teams is dependent on group member’s goal
development of a climate suitable for learning and orientation [13]. So project managers should motivate the
innovation [7]. On a broader spectrum organizations can group members to learn by tolerating the mistakes, or by
range from mechanistic design to organic design [8]. adopting a capability oriented supervision [15].
Mechanistic design is characterised by a centralised
Flat hierarchy: Hierarchy is the organization’s chain of
structure, specialized tasks, many rules and formalities,
command; it specifies the authority of managers at different
vertical communications, and strict hierarchy of authority
levels in the organization [10]. Flat structures are
and it is suitable in a stable environment, and a rigid culture
characterised by fewer level of hierarchy, and the span of
[9], which is not the case with industry 4.0. Industry 4.0 is
control is wide [10]. This means that in a flat structure there
characterised by an unstable changing environment, and is
are fewer managerial/staff levels in hierarchy but number of
compatible with the organic design of organization which is
employees reporting to one manager is usually higher than
characterized by decentralization, empowerment, few rules
a tall structure, where number of levels are high. A flat
and formalities, horizontal communication, and
structure facilitates quicker communication, and reduces the
collaborative team work [9]. This kind of design is more
distance between employees and the top management [10].
suitable for innovation strategy, and changing environment
In this way the flat structure increases the chances of
[8]. So in industry 4.0, while making organizational
employee participation in discussions and decision making,
structure, a manager should remain in the organic paradigm
which increases the chances of employee learning and also
of design. It is not rational to suggest one single structure
quick and noise fee feedback to top management, because
for industry 4.0, as organizations need design the flexible
of horizontal communication [8]. So it is rational to argue
structures according to their needs and situations, no single
that a flatter organizational structure can be compatible
approach is suitable for every organization, each has its
with industry 4.0, as it facilitates organizational learning
pros and cons [8]. However several suitable options for
and innovations by increasing employee participation, and
industry 4.0 environment are:
quicker feedback to top management.
Matrix structure: It refers to a structural form in the
Decentralization: With decentralization, the authority to
organization, where activities are aligned among more than
take decision is transferred to the lower levels of
one authority line [37]. The matrix structure groups people
organizations. In decentralized systems, the authority and
and resources by function and product simultaneously,
knowledge of activities lies with the employees instead of
using a dual reporting system [37]. The best thing of the
supervisors or top management [8]. In the decentralized
matrix structure is that, it is very flexible and can promptly
system lower managers and non-managerial staff have the
respond to the need of change [10] [37]. In the matrix
authority to take their decisions, for example how to use
structure each employee has to work with two bosses, one
organizational resources [10]. They don’t need approval
product manager, and other functional manager [10] [37].
from top management. In uncertain environment where
Matrix structures can also facilitate the formal linking
situation changes very frequently, decentralization is
mechanisms by jointing problem solving from the product
preferable for many organizations. It allows the employee
and functional managers [7]. The matrix structure of
to take the timely decision, to change the direction, with the
organizations can be a good source of matching with the
change in the business environment. This kind of system
pace of industry 4.0.
facilitates quick decision and learning. So it can be argued
Project teams: A team-based structure puts different that decentralization can facilitate the organization’s
processes and functions in single group to peruse a common compatibility with industry 4.0.
objective [37]. It breaks down the functional and

2016 IEEE Congress on Evolutionary Computation (CEC) 5311

 2. Leadership style
Leadership is the skill to influence over others, inspire,
motivate and direct the activities to achieve the
organizational goals [10]. Leaders can achieve the desired
goals from their fellows by adopting the appropriate
leadership style according to the situation. It is suggested
by the path goal theory of leadership as well [16]. For
example, in the list of most innovative companies of the
world, Apple Inc. is among top ones. According to most of
the case studies it is not due to the technical skills of
Apple’s CEO Steve Jobs, it is due to his leadership skills
[40] [41], i.e. he knew how to extract best outputs from his
employees. Similarly success of Microsoft Corporation is
often credited to the leadership style of Bill Gates [41]. So
there should be a specialized leadership style to be adopted
in industry 4.0 to accelerate the process of innovation and
learning. The most commonly discussed leadership style for
innovation and learning is the transformational leadership
style [17] [18] [19] [20]. Some other leadership styles like
authentic leadership [21] and transactional leadership [20]
[22] are also discussed in relation to knowledge, learning
and innovation but the transformational leadership is the
most commonly discussed leadership style. Industry 4.0
needs something more than the transformational leadership,
which should be more specific to learning and innovation.
As the transformation leadership is limited to idealize
influence, inspirational motivation, intellectual stimulation,
and providing vision [23]. Industry 4.0 needs to focus on
knowledge, learning and innovation. In this way, effort has
been made by introducing the knowledge oriented
leadership construct, by combining the transformational and
transactional style of leadership [24]. Knowledge oriented
leadership is more specific to learning and innovation, but
still there is potential to extend the construct of knowledge
oriented leadership to be used in industry 4.0. i.e. by testing
and then adding innovative role modelling, stimulating
knowledge diffusion, supportive behaviour, delegation,
consulting, and mentoring to the construct of knowledge
oriented leadership. As this extended construct of
knowledge oriented leadership can facilitate the
organization to accelerate the pace of innovation and
learning in the organization to be compatible with industry
4.0.
3. Human resource (HR) practices
HR practices are considered as one of the primary sources
by which organizations can shape the skills, capabilities,
behaviours, and attitude of its employees to achieve
organization goals [25]. Managers can enhance the
innovativeness, knowledge management capacity, and
learning among employees by designing the HR practices
accordingly [26]. As HR practices are critical for
competitive advantage in a knowledge based economy [26].
5312 2016 IEEE Congress on Evolutionary Computation (CEC)
HR practices which need to be designed accordingly for
innovation and learning are training, staffing, performance
appraisal, compensation and job design [26] [28]. In
industry 4.0, managers need to design these HR practices
with the intention to promote innovativeness and learning
in the organization.
Training: Organizations in industry 4.0 need to design
their training programs in a way which can enhance the
innovative capability and learning. Organizations should
offer different type of training to the employees to enable
them for multitasking. It is not necessary that these
trainings should be directly relevant to employee job, but to
increase the variety of skills [27]. These training sessions
should be ongoing. Trainings should also focus on team
building and team work skills, and mentoring should be the
routine activity of managers, especially to the new hires
[28]. Furthermore there should be training sessions to
enhance the problem solving skills of the employees [26].
Staffing: In industry 4.0 hiring should be on the basis of
variety of skills, and heterogeneous knowledge and these
should be tested in the screening process before selecting
the candidate [27]. Organizations should spend
considerable effort in selecting the right candidate for every
job by using extensive recruitment and selection procedures
[28]. For example, to hire innovative employees recruiters
should focus on identifying the attributes necessary for
innovative behaviour e.g. openness to experience, which
can be evaluated through psychometric testing in the
selection process. As openness to new experience is
characterized by active imagination, inner feeling
attentiveness, variety preferences, intellectual curiosity,
creativity, and flexible thinking [29] [30]. Furthermore
people who are highly open to new experience show more
positive attitude toward learning [30]. In the process of
recruitment and selection, organizations should also
evaluate the goal orientation of the candidate, which can be
learning orientation and performance orientation. To
promote innovation and learning in the organization,
recruiters should prefer candidates with high learning
orientation. As employees with learning goal orientation
prefer to engage in challenging tasks, are eager to improve
themselves [31], are eager to develop a new set of skills,
and tend to achieve mastery [32]. In the recruitment process
focus on the future potential of the candidate is also very
important [26].
Compensation: The compensation system in industry 4.0
should reflect the contribution of employees to the
company. Employees should receive the compensation
based on individual, group, and organizational performance
[28]. There should be a link between performance and the
reward i.e. profit sharing, and additional incentive pay [26].
Such a compensation system has the potential to facilitate
the climate of innovation and learning in the organizations
[26] [28].
Performance appraisal: A performance appraisal system
which can suit industry 4.0 should be focused on employee
developments, result based approach, and behaviour based
approach, as these approaches can facilitate learning and
innovation [26]. Employees should receive the feedback on
their performance on routine basis. Furthermore the
performance appraisal should be more objective i.e. there
should be matrixes to evaluate the performance
quantitatively. An ideal appraisal process should include
the establishment of performance standards,
communicating the expectations, measuring the actual
performance, comparing the actual performance with the
standards, discussing the appraisal with the employee, and
initiating the corrective action where necessary [33].
Among many appraisal approaches, management by
objectives (MBO) is getting popularity. MBO can be
explained as “A performance appraisal method that
includes mutual objective setting and evaluation based on
the attainment of the specific objectives” [33]. A typical
MBO program is characterized by specific goals where
objectives are concise statements of expected outcomes.
For participative decision-making, managers do not assign
the objectives to the employees unilaterally. Goals are not
imposed in the MBO program, managers and employees set
the goals and the ways to achieve the goals by mutual
discussion and consensus. Time line is also defined for
each goal, and there is ongoing feedback in the MBO
program. Ongoing feedback allows managers and
employees to monitor the activities and take the corrective
action accordingly [33]. MBO is a good approach of
performance appraisal to be compatible with industry 4.0.
Job design: It is described as “the way that the position and
the tasks within that position are organized, including how
and when the tasks are done and any factors that affect the
work such as in what order the tasks are completed and the
conditions under which the tasks are completed” [33]. Job
design to promote the climate of innovation in learning
should be characterised by job rotation, flexible
assignments in multiple areas, the extensive transfer of
tasks and responsibilities to the employees. Furthermore job
design should facilitate team work and collaboration, and
requiring skills variety [28]. In the industry 4.0
environment characterized by change and innovation, such
a job design can help the organization to adjust according to
the business environment.
4. Focusing short term innovations, but long term
capabilities
Nature of the projects in industry 4.0 is characterized by
short developmental periods [1]. It does not mean that
organizations should not consider the longer term
2016 IEEE Congress on Evolutionary Computation (CEC)
perspectives. As the rates of change in technological, social,
economic, and political environment are high in industry
4.0 [1], so innovations will not last for a longer period.
Organization should make the innovation process a part of
routine, by developing the long term capabilities in
employees, i.e. by developing the innovative work
behaviour, and enhancing the knowledge management
practices in the organization, which has the potential to
positively influence innovativeness [24]. By adopting the
right management practices organizations can develop the
dynamic capabilities for innovation [34]. In simple words
organizations and employees should be capable enough to
change their direction according to the changing situations.
5. Willingness to abandon investment and
knowledge
As discussed that in the uncertain industry 4.0 environment,
developmental periods and innovation periods are need to
be shortened [1], so there is a need to cut off the traditional
style of investment [35]. To foster the innovation process
organisations should be willing to abandon their existing
investment and knowledge, if require. Instead of using
outdated knowledge, and other resource, organization
should acquire new knowledge, translate the acquired
knowledge into core competence, and then develop new
products based on the core competence [35]. Learning and
innovation are the critical success factor in industry 4.0, and
sometimes it requires willingness to abandon knowledge,
experience, and investment to accommodate new
technology [35]. For example, there are chances that in
order to save the current knowledge, and investment,
organization may ignore the new methods of working, or
new technology, which can lead to a bigger disaster.
Discussion and conclusion
Primary objective of this paper is to offer a viewpoint, and
suggest the best management practices for the businesses
preparing for the fourth industrial revolution. It is done by
integrating the existing literature with the logical beliefs.
The business environment of industry 4.0 is discussed,
which is supposed to be uncertain and unstable. Then the
major goals and challenges of industry 4.0 are discussed i.e.
smart manufacturing, implementation of CPS for
production, i.e. embedded actuators and sensors, networks
of microcomputers, linking the machines to the value chain
[4], digital enhancement and reengineering of products,
highly differentiated customized products, well-coordinated
combination of product and services, and also the value
added services with the actual product or service [3],
efficient supply chain [2], and enabling cost leadership and
differentiation simultaneously [5] [6]. On the basis of the
argument that success in industry 4.0 is dependent on the
innovation capability of enterprise [1], this study offers
viewpoint on suitable management practices including,
5313
organizational structure, leadership, and HR practices.
Furthermore this paper also emphasises on the need of
short-term innovation, but long-term capabilities, and the
willingness to abandon investment and knowledge, if
required.
This paper also offers direction for future research on
management practices in the context of industry 4.0.
Empirical and quantitative research in the future can
validate the arguments made in this study based on the
integration of literature and logics. For future research,
interview based study to validate the argument is required
in the context of industry 4.0, followed by a questionnaire
based survey to test the findings by quantitative techniques.
Unit of analysis should high tech enterprises involved in
smart manufacturing, and the implementation of CPS. The
framework for the future empirical and quantitative
research is presented in Figure 4.

Organizational structure
-Matrix structure
-Project teams
-Flat hierarchy
-Decentralization

Knowledge oriented
leadership
Learning & Compatibility
Innovation with industry
HR practices 4.0
-Training
-Staffing
-Compensation
-Performance appraisal
-Job design

Willingness to abandon Focusing short term

investment and knowledge innovations, and long
term capabilities

Figure 4 Framework for future research

In conclusion, this study offers implications for managers
and enterprises to adopt appropriate management
approaches to survive and grow in the fourth industrial
revolution. This study also provides implications for the
researchers by offering a theoretical framework for the
future research. Industry 4.0 requires smart
manufacturing and smart business operations, which need
innovations. Innovation is dependent on people’s
capability which is facilitated by learning and knowledge.
Learning and knowledge management can be influenced
by effective and appropriate management approaches. In
this way suitable management practices can play a vital
role in enhancing the compatibility of the enterprise with
the environment of industry 4.0. In case of
incompatibility organizations need to rethink and
redesign their management approaches. That’s why it is
equally important to discuss the management approaches
for industry 4.0 along with the technological and highly
scientific studies. The phenomenon how appropriate
management practices can lead to learning, enhanced
capabilities, innovation, meeting the challenges of smart
manufacturing and business operations, and compatibility
with industry 4.0 is presented in Figure 5, which also
represents the core theme, and main idea of this paper.

5314 2016 IEEE Congress on Evolutionary Computation (CEC)

 Figure 5, Management practices leading to the compatibility with industry 4.0
These management practices can lead to the compatibility
with industry 4.0. As these practices provide an
environment and climate, suitable for learning new skills
to meet the requirements and challenges of industry 4.0.
Learning and knowledge management increases the
capability of the employees by making them more
creative and innovative [26]. More creative and
innovative employees will be in better position to
contribute in smart manufacturing and business
operations, which are the main characteristics of industry
4.0, and innovation capability is one of the main factor
needed for success in industry 4.0 [1]. In this way
appropriate management practices can make the
organization compatible with industry 4.0 by facilitating
learning, enhancing capability, innovation, and smart
manufacturing and business operations.
Acknowledgement: Authors acknowledge the financial
support provided by Erasmus Mundus.
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