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Oticon Case Study MGMT2001

Submitted by Jiayu LUO z3219847

Table of Contents
Introduction ............................................................................................................................. 2 Case Study Outline .................................................................................................................. 2 Key Issues ................................................................................................................................ 2 Loss of Market Share ......................................................................................................... 2 Rigidity of Management Structure .................................................................................... 3 Narrow Definition of Corporate Mission and Vision ........................................................ 3 Decline in R&D ................................................................................................................. 4 In Depth Analysis ..................................................................................................................... 4 Administrative Innovation ................................................................................................. 4 Process Innovation ............................................................................................................. 4 Managerial Innovation ....................................................................................................... 5 Hard System Model of Change ........................................................................................... 5 Management of Resistance ................................................................................................. 6 .............................................................................................................................................. Independent Evaluation ......................................................................................................... 6 Conclusion ................................................................................................................................ 7 Bibliography ............................................................................................................................. 8

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Introduction The Oticon case study comprises of many problems in terms of the company structure, its response to emerging new technology in its field, the rigidity of management structure and the narrow definition of its vision and mission. The changes implemented by the new CEO aimed to address these issues, implementing new innovation across the entire company, from administrative processes to the service operations. The companys vision, mission, culture, and organisational structure were changed to effectively manage the problems within the company.

Case Study Outline In this case study, the core issue of Oticon lies in its restrictive organisational structure and rigid definition of management roles. It is evident that this restraint was the source of a large number of problems at Oticon, which led to its loss in market share as the industry moved in an unexpected direction. With the appointment of a new managing director (Kolind), changes were made to cut costs, which allowed Oticon to be profitable. However, these changes were minimal and the companys performance would not last, as sales began to decrease regardless. Kolind then began to implement drastic new changes, transforming the company from bottom up in order to improve the efficiency of its employees, as well as improving distribution and improving research and development results. This change involved dismantling the companys departments and rebuilding as a project-based company, where the focus was to be on the projects, and employees were to be involved in a number of projects, increasing productivity overall.

Key Issues Loss of Market Share: Oticon management and development teams believed that the inear models would not be successful and preferred to stick to the production and development in behind-the-ear models Because Oticon was focused completely on behind-the-ear model of hearing aids, as people began to move to the in-ear models, Oticon suffered a loss of market share (its book equity fell by 50% within an 18-month period). This issue is particularly important as it was the catalyst for the need for change. As they began to lose money, Oticons board members elected to recruit a new managing director, who proceeded
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to make swift changes in order for Oticon to become profitable again cutting down the workforce, as well as restructuring the production process. He felt, however, these changes would not lead to a long-term profit increase for Oticon, and took further action to change the nature of the company, setting forward a motion to become a problem-solving structure rather than a command structure (Sullivan 1998). Rigidity of Management Structure: Oticons management structure before the change was implemented was far too rigid, which encouraged groupthink, and thus, the company focused too heavily on the behind-the-ear hearing aid market, and thus suffered the loss of market share. Moreover, this rigidity led to limitations in cross-communication between the departments, especially as the traditional separation of departments meant a tendency for staff to care less about other projects in the firm, preferring to focus on the projects they were assigned. (Bjorn Andersen and Turner 1994). Due to this restrictive nature of the organisation, managing director Kolind implemented a change to eliminate the traditional departments, organising the firm into focusing on projects in the large open space, setting forward a motion for employees to define their own roles and responsibilities within the firm. This issue is crucial as it was the basis of many of the causes of the loss in profitability. Moreover, it meant that the company was too focused on shareholder interests, which were not necessarily the most profitable perspective at the time. There was too much conflict in opinion at the workplace, and most managers and employees focused on their own projects, which at the time was assigned to them which meant there was a lack of interest in those projects, which stifles creativity and innovation. Narrow Definition of Corporate Mission and Vision: Oticons focus on its behind-theear hearing aid model meant that while it was producing high quality hearing aids, the cost cutting was still not enough to improve the firms financial standing in the long term. Kolind recognised that the key to future success for the firm was to change the firm from an industrial production firm to a service firm, focusing on innovation of new products answering customer needs. This organisation would need to be flexible, and much more responsive to the external environment. By redefining the corporate vision to thinking the unthinkable, changing the way the employees worked, as well as implementing unthinkable concepts like the now famous paperless office concept and having mobile offices, which encouraged employees to think radically.

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Decline in R&D: As Oticon preferred the behind-the-ear hearing aid model, their research and development focused mainly on miniaturising them, rather than developing the emerging in-the-ear model. This meant that in comparison to its competitors, Oticons research and development sector was focused on the less mainstream product, leading to decline in sales and hence decline in profits. This profit decline was the main reason the board hired a new CEO to undertake a major overhaul of the culture, vision and overall structure of Oticon.

In Depth Analysis Administrative Innovation: as mentioned previously, the rigid organisational structure of Oticon restricted the free-thinking Kolind wanted to encourage in his employees. Kolinds solution was to have a dis-organised organisation, by completely restructuring the company. He realised that restructuring the company was the only way to go, in order to fully achieve the result he visualised. The first step taken was to move the offices to an open area, having no walls so that barriers to communication would be erased. This open space also promoted sharing, and employees were encouraged to gravitate towards projects that were of interest to them, which meant that employees are more likely to work harder on these projects. Moreover, new definitions of management were implemented project managers, competence managers and personal managers. Kolind dubbed this new structure as a spaghetti organisation, referencing the flexible and intertwined nature of the structure. The controlling forces in the organisation were much more flexible, as employees were volunteering for projects meant that the traditional managerial position was not needed. This frees up the resources that would otherwise be required if management simply assigned workers to tasks. Process Innovation: due to the introduction of the paperless office, as well as the new open area office space and mobile offices, employees were able to have a much more open channel of communication, as well as a higher inclination to help each other with projects, leading to higher innovation and productivity. Moreover, as employees were no longer given fixed roles, they were able to work on several tasks and several projects at the one time. Kolinds view was that if people dont have anything to do, they would need to find something or we dont need them. This view meant that employees were able to contribute to other projects and brings diversity and new innovation to an otherwise average project.
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The new open area space meant that employees were able to focus on group projects more, rather than immaterial items in a private office. The paperless office concept was also introduced for this reason. Managerial Innovation: as previously mentioned briefly, management was deemed unnecessary when employees were volunteering for projects, as it was believed that employees would monitor their own progress when they are interested in the projects, rather than being assigned a project and having no choice in the matter. This meant that the project leaders were now acting as motivators rather than managers they were responsible for encouraging innovation and productivity, rather than simply just monitoring the employees. Oticons new philosophy regarding management led to high excitement, as employees previously never used the new computers, which invited them to actively work together during the restructuring process. This opened the channel of communication, which led to better innovation in product design and marketing. Such a large scale of change to an organisation would generally lead to employees feeling de-motivated. Not only did Kolind bring in an external change agent to help facilitate the changes, Kolind took action to show support for these changes, as he himself had no office. He built up a new organisation structure from the ground up, which motivated employees to support his changes, with the installation of paper shredders which had constant flow of shredded mail around the office, sending the visual that reinforces his ideal of a paperless office. Hard System Model of Change: It can be argued that this situation is of hard complexity, as Kolind is very certain of the changes which need to be made. He has already identified the type of organisation he believes Oticon needs to be in order to facilitate a more productive and innovative approach to raising its long run profitability. Because Kolind planned out very carefully the changes which needed to be made, although there was some turnover at the beginning of the changes, overall, employees were happy with the change and were actually motivated to work harder and be more flexible. Employees were encouraged to expand their skill sets, and with the movable office space, were able to contribute to other projects which roused their interest. This flexibility meant that employees were much more enthusiastic about the projects, offering advice on other projects, which added variety to the already present thinking processes.
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Management of Resistance: Kolind employed an external change agent to help ease the organisation into the new changes he made. Moreover, he wrote a 10-page dissertation outlining his ideas and plans for the kind of organisation he felt would drive Oticon to be sustainably profitable in the long term, by implementing changes throughout the organisation as a whole. However, as changes began to be made in the organisation, employees were not completely on board with the changes. In particular, a proposed relocation of the offices was met with open resistance. Reluctantly, Kolind was forced to abandon the idea of completely relocating the offices, and instead restructured the firm into a paperless, private-office-less structure, in order to open the channels of communication. In order to encourage support for his vision for change, Kolind applied the same principles to himself he no longer had an office, or other material belongings, and he also invested a large amount of money into the organisation himself. This new spaghetti organisation was developed in the Danish environment, where the culture was supportive of this type of setup. It was found that in western cultures in particular, the spaghetti organisation was effective and worked as planned. However, in eastern cultures like Japan, who follow a much more rigid structure where they require direct and obvious leadership, this model would not take root.

Independent Evaluation Lars Kolinds vision for the company, while unthinkable at the time, was actually executed well and produced a new form of organisational structure, leading to increased employee efficiency, motivation and performance. They managed resistance to change well and stimulated corporate innovation as a whole, with increased flexibility and competitiveness within the company. This, in turn, led to transforming Oticon to a much more sustainable and profitable organisation. Moreover, the lack of private offices led to open channels of communication, leading to a much more natural inclination towards innovation. As employees choose their own tasks and responsibilities, they were much more motivated to contribute and work harder, to share knowledge and skills with other teams to achieve the best possible outcomes to please customers. This is what was primarily lacking in the original Oticon, as well as the halt in R&D department.
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Not only that, employees would then be working on several tasks, contributing to all areas which interest them. While it sounds quite good on paper, this type of structure has several weaknesses. For one, employees may be more likely to lose interest and abandon projects. On the other hand, the lack of clear leadership, and the participation of employees in several tasks may lead to ambiguity and confusion. Feedback does not seem to be provided in a clear manner. A better solution to the lack of innovation is to not only encourage flexibility and cross-exchange of ideas, but to also implement a strong feedback system or a reward system. This incentive system means that employees would be much more motivated to work harder, and if; for example, new innovation ideas lead to a bonus payment or promotional opportunities. However, in this case study, it does appear that Kolinds vision of ideals for the organisation is working, as after a year, Oticons profits doubled. Given that in 2 years, Oticon became more profitable, more productive and much more innovative, his changes were clearly effective.

Conclusion Although at the time of implementing the changes mentioned, it was considered to be ground-breaking, innovative and very different, in the long run, it was not completely efficient. These changes at their bases are still present today; however, not all the changes remained. Kolind opened up the organisation and consequently, using new technology at the time, facilitated high flow of internal communication. Overall, his vision was achieved as Oticon successfully overcame its financial difficulties.

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Bibliography

Bjorn-Andersen, N. and Turner, J. A. 1994. Creating the 21st Century Organisation: The metamorphosis of Oticon. Center for Digital Economy Research, Stern School of Business Working Paper IS-95-13
Foss, N. J. 2003. Selective intervention and internal hybrids: Interpreting and learning from the rise and decline of the Oticon spaghetti organization. Organization Science 14: 311-349 Kolind, L. 2006. The Second Cycle: Winning the war against bureaucracy. School Publishing Larsen, H.H. (1996). Oticon. Thinking the Unthinkable: Radical (and Successful) Organizational Change, J. Storey (Ed.), Blackwell Cases in Human Resource Management. Oxford: Blackwell. Sullivan, M. 1998. Oticon Workers Go Walkabout. Human Resource Management International Digest, Vol. 6, Iss. 4, July/August. Wharton

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