Organizational Behavior can be regarded as study and application of knowledge about how people, individuals, and groups act in an organization. It interprets relation between people and organization in terms of the people, group, organization itself, and social system. Its need is to cater to best relationships by achieving human objectives, organizational goals, and social vision in the long run.
In this case we analyze as how Oticon has been successful by applying the concepts of change management with least resistance to it, nature of their spaghetti organizational structure and its effectiveness, advantages and disadvantages as referred to the classical organizational models and theories. How restructuring has helped them to make a comeback in a competitive market under immense pressure. This analysis is based on the case "Oticon-Spaghetti for the ears" by Pernille Eskerod and Per Darmer. Due to word limitation only change management, motivation and leadership strategies of oticon will be critically analysed.
Oticon- A innovative Danish Company found by William Demant in 1904 manufactures hearing aids to cater to the markets of Europe, japan and US mainly. Oticon has four leading subsidiaries in Copenhagen, Hellerup, Snekkersten, and Thisted competing mainly with Wildex and Danavox. Today Oticon is the second largest manufacturer of hearing aids in world with a market share of 10 % under the successful leadership of Lars Kolind and Niels Jacobsen. They believe in the slogan "people first" which has made them a company of firsts. They have introduced many innovative products in the market place such as Vigo connect, Safari, Agil, Adapto, Multifocus, Epoq, Digifocus, specialized pediatric instruments, bone anchored hearing solutions and etc. They are known for their organizational structure, team work, and employee involvement. It employs around 3000 individuals across the globe, including strong technically sound team of 25 scientists, 60 software engineers, 1200+ in sales and marketing. They have sales operations in about 23 countries spread through more than 80 distributors. Continuous market research has been the key to their success. They invest substantial amount of resources every year in Ramp;D and have around 20 awards for corporate and developmental achievements to their credit. They are listed on NASDAQ OMX and have declared a turnover of DKK 5.4 billion with a profit of more than 1 billion DKK.
Competition to the business of Oticon in late 1980's was at its peak leading to downfall in market share, profit and sales turnover ; Oticon as a product used the traditional 'Behind the ear' model to generate sales whereas its competitors introduced more advanced, innovative and cheaper products into the marketplace. Starkey Inc. an American company captured 80% of US market as they used the latest 'In the ear' hearing aid model. This led to a huge financial setback in 1987.
Lars Kolind became CEO in 1990 and shortly realized that innovation will be the key to company's success. He created an environment which promoted the flow of knowledge and introduced entrepreneurial behavior amongst the employees. He changed the entire structure of the company where traditional way of doing things were abandoned and incorporated new ideas where every employee was free to select the projects they were interested to work on; line of command was removed and there was no formal hierarchy in the organization; they started working on project base rather than department wise.
This was the theme of spaghetti organization. Every employee was expected to use a PC which was a new experience then. Although there was initial resistance to the change, the employee turnover was very low and nobody left the organization. He incorporated portability at the office where the employees could actually move their tables to discuss the projects with their colleagues, use of paper was completely stopped, and open door policy was introduced where new ideas could be conveyed to the manager, director or even CEO. Provided with an opportunity, anybody whose project idea was accepted could lead the project and also select the people who would work for the project, they could also work from their home as far as it did not affect the deadline and the budget of the project. This flexibility gave birth to thinking process to generate new ideas, enthusiasm, responsibility and interest towards the work. Further Oticons return on equity rose to 25% as they went on to manufacture innovative digital hearing aids.
STATEMENT OF PROBLEM
Oticon had all the major problems such as hierarchy, procedures issues, conservatism, and attrition. They were world's leading supplier of hearing aids, in 1980s but still had problems in sales, organizational structuring, and financial issues.
- Management had very reactive and hierarchy oriented approach.
- They mainly concentrated on external stakeholders interests which lead to difference of opinion at workplace.
- The main functional areas had no interaction and communication amongst themselves.
- R&D came to halt which didn't allow oticon to concentrate on latest technology such as "in-the-ear" hearing aid
These problems reached a stage which triggered the restructuring of Oticon which was lead by then CEO Lars Kolind who came up with a memo called "Think the Unthinkable" and was distributed to entire staff in 1990. This was the first step of restructuring.
Change in any organization is very necessary due to various reasons like advancement in technology, systems, and social changes which form internal entity of the organization. Change has to occur at organizational level, which leads to individual and group changes. Individual change can be adjusting to new environment and changing the attitude and perception towards the job and acquiring new challenges and skills. Group is an essential entity in the organization and to execute any project successful like minded people need to come together and setup norms and guidelines. The goals, plans and reasons has to be very clearly stated for any organizational change which is very highly resisted as it instills a feel of insecurity, hence the employees should be made to understand the need of change and the way it is executed, finally the benefits are expected to be shared with them which can be done through effective communication and involvement.
Mullins (1996) sees change as a pervasive influence. It is a departure from an existing process or way of doing something, to a new process or a different way of doing the same thing.
"Change can be effectively implemented by referring to Kurt Lewin's 3 stage model of change.
- Unfreezing : Creating motivation and readiness to change through
- Disconfirmation or lack of confirmation.
- Creation of guilt or anxiety.
- Ensure subordinates of psychological safety.
- Identifying with a new role model, mentor, etc.
- Scanning the environment for new relevant information.
- The total personality and self - concept.
- Significant relationship. "
CHANGE MANAGEMENT AT OTICON
"Think the unthinkable," which was written by the new CEO proposed a 10 page strategy of restructuring; outline of which is given below.
- Increasing the efficiency by utilization of available resources such as HR, technology and thereby reducing the costs which were very high then so as to create competitiveness.
- Concept of hierarchy was replaced by project based where every employee was free to get involved in different projects at the same time. Every project was considered as a business with its own resources and time limit.
- Authoritative jobs such as managerial were cut down and the control was transferred to the project team or the relative employee.
- It should be made sure to reduce the usage of paper and make it a paper free organization which exerted pressure to introduce innovative technology such as networks and systems.
- Open space office to be created which leads to physical mobility where each person had a cart or trolley upon which the cabinet, computer, phone, and some space for files can be moved around in the office.
The entire objective was to increase the productivity of the organization by 30% in 3 years which was a challenge as change of this magnitude leads to de-motivation amongst employees, it was very important for Lars Kolind to support this change by few self initiated actions which raised the employee morale. For instance Mr. Kolind himself had no office and moved around in office with his trolley, he installed paper shredders to stop usage of papers and start with electronic methods so as to fasten the process. He built an environment where all the employees believed that the change would bring laurels; this was supported when CEO invested his own funds in the organization.
All the middle manager posts were closed and the higher management decided as to which project goes live and who heads it. The project leaders were given the right to choose their project team with whom they thought they could produce results with provided resources, budget and time. It was a two layer management system where there was only top management at first layer and only employees in the second; all the hierarchy was abandoned. With this, aroused the question of HRM, which was tackled effectively; the project leaders were responsible for employee's salaries and their performance management. This lead to only three levels of management which constituted project managers, senior specialists with expertise in respective functional areas, and mentors or coaches who catered to the HRM needs. These innovative initiatives snailed oticon towards success and gradually increased the sales and finally the company was able to cope with the funds for research and development which tripled in no time.
Motivation is defined as "inner burning passion caused by need, wants and desire which propels an individual to exert his physical and mental energy to achieve desired objectives".
According to scot motivation is defined as "a process of stimulating people to action to accomplish desired goals".
Mc Farland has defined "motivation as the way in which urges, drives, desires, aspirations, strivings needs direct, control or explain the behavior of human beings".
Essence of Motivation: In any organization it is the managers responsibility to create an environment where the employees are motivated towards their personal goals and hence the strategic organizational goals. Motivation is a pathway to meet the aspirations and desires which reflect individual behavior. It is not only the monetary incentives that keep employees motivated but also non monetary incentives such as satisfaction, recognition and value because it is a psychological phenomenon. High motivation leads to better performance and is the most important work to be executed by manager. Motivation leads to
- Organizational image
- Acceptance of organization change
- Low employee turn over and absenteeism
- High level of performance
Various motivational theories are in use today of which following few are classics.
- Theory X and Theory Y
- Vroom's Theory of Motivation. (Performance Satisfaction).
- Motivation and Hygiene Two Factor Theory
- Porter Lawler Theory.
- Maslow's Theory of Need Hierarchy
- ERG Theory
Maslow theory of needs suggests that every for individual to be motivated his set of needs to be fulfilled at first place, it determines the biggest need at that moment. He initiated need hierarchy theory of motivation and categorized human needs into five entities namely physiological needs, safety needs social needs, esteem needs and self-actualization needs.
Fredrick Herzberg's theory of motivation comprises two factors, "motivation factor" which concentrates on a set of conditions which operates to develop a strong motivation and job satisfaction and "maintenance factor or hygiene factor" This defines the job situations that leaves the employees unsatisfied and cannot change their perception even on changing the situation.
Douglas McGregar's Theory X and Theory Y state that managerial actions are contingent to human behavior and speak about human nature of laziness and no interest to work. Theory Y depicts the other side of the coin where it speaks about the employees who take their job serious and execute it successfully.
Clayton Aldefer rcommended 3 needs of human beings ar existence need, growth and relative needs.
Vroom's Expectancy theory of motivation and Porter and Lawler speaks about performance efforts, and rewards. He suggests that employee is motivated to work great when his efforts are recognized.
MOTIVATION AT OTICON
As explained earlier, Oticon has bypassed all traditional ways of organization management. Vertical hierarchy and titles were extinct, these changes and call for cooperation from CEO was to lead to de-motivation of employees at workplace, because possibilities for career development in Oticon initially seemed dull but going ahead CEOs address to his staff changed the attitude and perspective of the job for employees who also instilled motivation and enthusiasm.
The quote stated "Innovation is badly needed around here. I know that you are all able to think and act responsibly and innovatively, and moreover, you know what is needed to be done. If you have suggestions for improvements, please let me know. If I have not answered you within 24 hours you can take it for a yes, and you will be given resources to realize your proposal. If I for some reason cannot be reached, you determine what constitutes a good proposal by calculating with a 30% internal interest rate" (Jensen. 1998).
There always existed an excitement of job loss and insecurity which was changed when employees understood the situation and the CEOs vision, moreover they were made to use new technologies such as e-mailing and usage of computers which made them more excited and highly motivated. Employees were invited to actively take part and plan the restructuring process, which created a room for implementation of everybody's suggestions. Restructuring of a company, where vertical hierarchy existed made employees feel valued and found it prestigious to be project leaders when horizontal hierarchy was introduced and also work in different projects and departments at the same time gave them a feel of career development. Employee turnover was very less although they had to adjust to unconventional processes initially.
Oticon is an example to learn organizations. At oticon career development is characterized by social networking and social processes which is the pathway to be a part of good project and new project proposals. Aggressiveness was inevitable and one had to have immense self-confidence to succeed.
Oticon announced the following management philosophies which led to the motivational achievement in the organization and brought a turnaround in the companies' fortunes.
- We assume oticon employees want to take responsibility if they get the opportunity.
- We assume oticon employees want to develop and grow in their jobs and experience new challenges within the company.
- We assume oticon employees want the greatest possible freedom, but at the same time accept the necessity of having a clear and structures framework- chiefly in the form of an accepted strategy and approved plans.
- We assume oticon employees want to have qualified and fair feedback to their work and a salary corresponding to their contribution.
- We assume oticon employees want to be partners in oticon and not adversaries.
- We assume oticon employees want the security that derives from improving themselves in their current jobs so that they are able to get another job if they leave oticon
- We assume oticon employees want to be treated as grown-up and independent people.
- We assume oticon employees want to understand how their own tasks fit into the context of the whole company.
- We assume oticon employees are more interested in challenging and exciting tasks than in formal status and titles.
It is very evident that oticon cared for its employees.
LEADERSHIP AT OTICON
The word leadership was the key for oticon's success over years. A model which carried the solution for the problems created by hierarchy and conflicts was designed by a successful leader at oticon. Lars Kolind's leadership style reflected various characteristics such as consultative and not authoritarian. However at oticon they still followed the top down process; but eventually it eliminated the managerial hierarchy. Although employees were involved in majority of decision, according to leader-participation model, decision making powers still vested with the superior management.
Lars Kolind followed a transactional in place of transformational leadership approach which mainly concentrated on the outcome of any project and the ideas of employee's rather than employee oriented approach. He believed variety of ideas lead to innovations and he built the fortunes of oticon upon its employee's ideas. He stated "If they don't have anything new to do, then we don't need them", and introduced a concept of spaghetti organization which truly is an innovation in structuring of the organization leaving behind all the conventional methods. Lars Kolind says don't know how but spaghetti somehow is interwined to each other and cannot be separated, similarly he bought all the departments to work together to achieve final organizational goals.
Increasing growth of the company has lead to increase in number of employees over years. Lars kolind who revolutionized the organization got retired in 1998 and was replaced by Niel Jacobsen. However there has been a lot of change in the way the organization is doing business today in the essence that the project allocation has been professionalized and there are only fewer project managers, the concept of paperless organization is scrapped and there is a formal HR department to manage the human resources, value for people vision does still exist but its essence is different, sort of hierarchy prevails in the organization today, coaches still exist but their role is changed, people still move around using trolleys but not daily, all this mainly happened because there was no proper execution of the projects undertaken and changing management. Recently in 2008 a new executive board was formed which comprised of Soren Nielsen as president and Mikael worning as executive vice president. Irrespective of all these changes oticon today is still the second best brand in hearing aid and have come up with many innovative products to cater to hearing aid market.
This assignment was undertaken to make a critical analysis on organizational behavior Practices at OTICON. A detail study of OB practices at OTICON was made in the direction of
- Change Management
Following conclusions are drawn from the study.
Think the Unthinkable memo from Lars kolind was not only thinkable but also realizable and executable successfully. They proved how to incorporate innovation without resistance to change and do it financially successfully. They believed in flexibility to bring around the strategic turnaround.
"Survival of the fittest" kind of environment increased healthy competition in organization but also had its own disadvantage where those who are less adaptive to innovative things stayed back in the unfair race. The "spaghetti organization" is for the career oriented people who are not in need of authoritative powers, and is not everybody's cup of tea. It also leads to personal bias and conflicts.
This type of structure leads only to concentrate on new ideas and their implementation, where all the employees are on their toes to propose new projects and leave their old project and original job undone as they lose interest in it. They concentrate on many things at same time which leads to confusion and inefficiency. One will be jack of all but master of none.
This organizational setup was possible in Denmark or in western countries unlike in eastern countries because the concept of teamwork which proves to be more effective in west mainly because of cultural differences and the way of life. For instance Chinese follow a collective orientation which emphasize on rules, values, group work, and cooperative effort. They are more effective under strong leadership, rules and procedures. This reflects their risk averse nature concluding that spaghetti organization cannot be a global perspective.
It is very clearly observed from oticon today that this concept didn't last long as it wasn't efficient in the long run. These principles are hardly followed today in its original essence.
Change is evident but it is always recommended that although there are changes in management and leadership styles, conventional concepts such as career development and formal hierarchy should prevail for an organization to sustain in the long run.
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