Oticon

Oticon is today the world’s leading manufacturer of hearing-aids. In 1991, Oticon was in the red and had only a 10% market share, but it has since then increased revenues from $27 million in 1990 to $436 million today. Oticon markets the world’s most advanced hearing aid, the DigiFocus, which is the first fully digitized hearing instrument with a processor with the processing power equal to an Intel 486 chip. Not only has Oticon been able to develop a revolutionizing hearing-aid, it has also reduced the time-to-market (product development cycle) by 50%. The question naturally arises, how has Oticon been able to out-smart multi-billion competitors like Panasonic and Siemens?

The change agent for the “Oticon rebirth” is the present CEO, Lars Kolind. Kolind challenged Henry Ford’s idea of “why do I need the whole person when all I want is a pair of hands” and went for all the intellectual and creative skills that are embedded in any employee. In order to “set free” and benefit from these unused resources within the Oticon employees, Kolind believed that the basic, and traditional functional, organizational structure and the business processes needed to be changed.

In 1990 the “spaghetti organization” was introduced, and in 1991 the entire management moved into the newly designed headquarters which supports the principles of the new organizational structure. The spaghetti organization is based on the following principles:

• No barriers to open communication in order to develop and support knowledge workers (no doors, no offices, instead of a permanent desk each employee has a mobile caddie cart, no papers since all mail is scanned into the computer and thus virtually accessible to all employees)
• No job titles or job descriptions which eliminates categorization of employees and which maximizes development opportunities (ability to be a “category killer”)
• Rewards/salary based on specific individual or team performance in order to encourage/develop initiative, cooperation and knowledge sharing
• Each employee select their own mentor who conducts annual reviews and guidance sessions in order to support employee learning and development, and establish performance feedback
• Each employee must organize themselves in teams to create and tackle whatever projects need doing and dissolve the team after the task is completed (employees are thus expected to gain support for a project idea or find a project team that needs the employees skills)
• No line management or departments except for executive corporate management

The financial results of this change have been impressive. However, from an organizational and strategic point of view, the long term effect of the changes is even more interesting. The changes have created an organizational structure that constantly rejuvenates itself. Multi-disciplinary skills are naturally embedded in all employees, they just need to be set free and utilized. This is exactly what Kolind did. Oticon is today a constantly changing organization, “a structured chaos”, which has created an empowering work environment. Today, a secretary can run a product development team if she can gain support from enough people to form the team and convince the management of the value of the project. Professional development at Oticon is not rewarded with promotion but with salary and ability to join or form project teams that have the biggest impact on the future of Oticon.

The spaghetti organization and the BPR has resulted in Oticon’s competitive edge of “fast and creative integration of all existing expertise in the field” (of chip development, circuitry, anatomics and audiology). Also, it has created an amount of flexibility in the organization which enables Oticon to respond faster to the competitive forces in the market place. Hence, the flexibility of the individual people is supported by the flexibility of the organization.

A natural reaction to such a different organization structure (or lack hereof) is that management looses control over the processes since their are no build-in coordination mechanisms. Also, it can be argued that since Oticon is collapsing the value-added chain into a cross-functional team structure, the functional expertise is spread thin throughout the organization, and the increased response time and empowerment therefore are at the expense of the functional learning (e.g. reduced functional absorptive capacity).

However, the inherent risk of chaos in the spaghetti-organization is were the cultural change is playing a key role. Kolind started out the reorganization of Oticon by involving not only management and external consultants, but also employees in rethinking the business process and organizational structure. Hence, Oticon’s change process was run from both bottom-up and from top-down. The Oticon employees were part of crafting the new organization and the processes needed to make it work. Empowerment and the focus on removing barriers to communication have made coordination of the chaotic business processes work. Face-to-face communication between employees instead of email is encouraged, employees have access to practically all information about the company activities, and middle management is removed to ensure free flow of information. Hence, the cultural and organizational change supports informal coordination of the dispersed activities. Obviously, the informal coordination is made easier/possible by leveraging IT in an intelligent way. IT is used to assure common access to formal information, whereas Kolind is encouraging personal interaction to also assure exchange of informal information.

Why is Oticon interesting?

Oticon is interesting because it has created a knowledge-based organizational web where individual knowledge is transformed into organizational knowledge. This is possible because Oticon expects its employees to think, act and respond instead of only acting on command. The empowerment of the employees was founded by the inclusion of them in the restructuring phase of Oticon, and is today based on mutual respect and focus on both individual and company performance. Oticon thus has a proactive attitude to change and a clear understanding of what constitutes the key long term asset - human intellects.

Einstein once said “Curiosity is more important than knowledge” but Oticon has based its organizational structure and corporate culture on the idea that curiosity and knowledge is not mutually exclusive, but rather mutually reinforcing. Employees therefore are not boxed-in by job descriptions, and only their own lack of curiosity/initiative limits them in improving/changing skills and shifting work environment.

Also, Oticon is interesting because it is an example of an organization that can meet the need for flexibility. As product life cycles are becoming shorter and shorter, fiercer competition and new competitors is the name of the game today and tomorrow, response-time and the ability to leverage all (company) resources is necessary for survival. The combination of flexible employees and a supporting and constantly changing organization makes Oticon a good example of how the organization and the employee of the future will look like.

What Oticon’s spaghetti-organizational structure may lack answers to are;

• What will be the reward substitution for the “problem” of limited possibilities of promotion (no middle management)?
• Will the spaghetti-organizational structure loose functional absorptive capacity in the long run because of its cross-functional team structure?
• Due to the need for knowledge sharing and coordination, is there a maximum size for the spaghetti-organization? (Kolind believes it is 300 employees), and if so, what will substitute it when Oticon reaches this limit?
• Is physical presence by the employees in the same building a necessity or can the spaghetti-organization develop into a virtual organization?
• Can the spaghetti-organization be used in non-project oriented settings (e.g. manufacturing)?