Cases > Case 9

CASE 9

BACKGROUND

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98 Cases in Organisational Behaviour

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throughout Europe including locations in Norway, Italy, Holland, France,Spain, Germany and Switzerland. Outside of Europe Oticon has sub-

sidiaries in the US and Japan.In total the company has some 1,000 staff, the majority of whom areemployed in the Danish subsidiaries. Work at the head office, employing130 of the staff, covers a range of activities including new product research,product development and the marketing and promotion of both new and

existing products.By 1979 Oticon was considered by many observers to be the leadingmanufacturer of hearing aids in the world. During the late 1970s Danishproducers of hearing aids accounted for approximately 25 per cent of theworld market. OVer the past 15 years, however, this market share hasdeclined to approximately 20 per cent. In addition to Oticon, which is byfar the largest, the other Danish producers of hearing aids are Wildex andDanavox. In the last few years Wildex has improved its market share at theexpense of the other two manufacturers. Oticon' s sales revenue in 1991 was476 nilllion Danish kroner while for Danavox and Wildex the figures were

347 and 287 nilllion Danish kroner respectively.The design of traditional hearing aids is familiar to many. The power

source together with the amplification system is contained in a small unitworn behind the user's ear. This traditional style, commonly known as the'behind the ear' model, had been the cornerstone of the success ofEuropean - not only the Danish - producers of hearing aids. However,during the 1980s an alternative, more compact design of hearing aid, withthe complete system worn in the ear, came on to the market and achieved

some success particularly in the American market.European producers were slow in developing and marketing an 'in the

ear' model, because of their existing superiority in producing 'behind theear' models. The European hearing aid industry was convinced that thebetter quality in sound of the 'behind the ear' model would eventuallyprove victorious in the battle with the cosmetically more attractive, but

lower quality of sound of the 'in the ear' models.However their forecast proved to be wrong. Their cause was not helped

by the significant publicity given to the 'in the ear' design when RonaldReagan, then the President of the US appeared on nationwide TV wearinga hearing aid placed in his ear rather than behind it. The 'in the ear' hearingaid was manufactured by Starkey (a fast-growing American company) andthe resulting growth in sales led to major difficulties for the Danish compa-nies (particularly Otic on and Danavox) competing in the US market. By1993 80 per cent of the US sales were 'in the ear' hearing aids. The Danishand the other European producers of hearing aids were, therefore, facingnew and hard competition in the American market particularly from the

Starkey Corporation.

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Oticon - Spaghetti for the ears 99

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This setback led Oticon into serious financial difficulties in 1987, but withintwo years - at the beginning of 1990 - it was back on the money-makingtrack. During this period Oticon undertook a thorough review of its opera-tions in order to identify what could be done to make the company morecompetitive and, thereby, improve its market position. It was decided tomake the company more service oriented and customer focused. The over-all objectiving was to make the company 30 per cent more efficient in threeyears. This resulted in a new company structure with the focus on makingOticon an adaptable service organisation with the individual employee atthe centre.

Oticon introduced its restructured organisation during 1991 and seemswell on its way to achieving the ambitious goal. In 1992 Oticon had a totalrevenue of 539m Danish kroner (approximately £54m). This is a 13 per centrise in revenue, compared with a 3 per cent rise in revenue during the pre-vious years. Gross profit in 1992 was 18m Danish kroner. Oticon hasregained some of its lost territories, and today it is the third largest supplierof hearing aids in the world with a 10 per cent share of the world market.

As a reflection of its growing confidence, Oticon is trying to improve thismarket position by introducing a new hearing aid, which automatically(without volume control) adapts the sound level to fit the noise of the sur-roundings. This new type of hearing aid is produced by Oticon in both the'behind the ear' and the 'in the ear' models.

In the three year period up to 1991 Oticon has been through an almosttotal reconstruction of the company. During this organisational develop-ment process there have been some changes in management and staffreductions have taken place. The new structure was implemented on 8August 1991, and on that day everyone started in a completely differentworkplace (Oticon having moved into new surroundings in Hellerup).

The process through which Oticon has developed has had a significantimpact on almost all aspects of organisational behaviour in the company. Thistransformation did not of course come about without some resistance tochange amongst the employees. After all, the restructuring meant a cleanbreak with most of the usual and well known routines and habits. In planningfor the new structure, the company sought ways of involving employees inthe change process.

The employees had been kept informed about what was going to happenduring the three year period leading up to its implementation. Managersopenly discussed the reasons for changes, how it was to be done and thepossible consequences for employees. Many of the employees had partici-pated in planning and executing the restructuring of the company.Meetings were held with employees so that up-to-date information couldbe passed on and any questions dealt with, firsthand, at the time. The new

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organisation required all employees to use a personal computer (PC) whichfor most was a completely new experience. In order to overcome any fearsor worries this might hold, employees were encouraged to take a PC homeso that they could become familiar with its use. Employee turnover atOticon was remarkably low considering the extent of the change. No oneleft the company during the first three months following the introductionof the restructured organisation despite the fact that not everyone felt com-fortable with the new world of Oticon.

The developments at Oticon have created a project-organisation - a so-called spaghetti-organisation, which the management writer Tom Petersargues to be the most promising structure for industry in the future. Thecentral themes in the spaghetti-organisation are the lack of a line of com-mand, no formal organisational hierarchy, and no specific leader to whomemployees report. The employees are no longer working for a department.Oticon has abolished departments and the whole organisation is built onprojects. At anyone time employees and project leaders may have varyinglevels of participation in a number of different projects.

Oticon has literally torn down the walls to create one big open planoffice. Employees move from desk to desk in accordance with the projectsin which they are presently involved. In order to be able to work togetherand discuss the project, the team members often move their desks togetherin a comer of the office. To make this possible everybody has a 'Rullemarie'(a small transportable table with their few necessities) so they can moveabout and find themselves a place at the standardised desks containing apersonal computer.

Oticon has 'banned' the use of paper. All communication is now effectedthrough a PC-network or face to face. The latter is used more frequentlynow that no one including project leaders has a personal office. However,even with the use of sophisticated technology there are still a number ofroutine administrative tasks which have to be done in support of the pro-ject teams. Employees undertaking these jobs have less freedom andcontrol over their activities than team members since their work is muchmore structured.

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Organisation of project teams

The number of participants in the project groups varies according to theamount of work being done and the complexity of the task. For example aproject with the objective to relaunch a product by a new marketing cam-paign typically has 2 to 3 members in the project group, while largerproduct development teams may have 10 to 20 people involved. A productdevelopment project with common technology, such as the automatic hear-ing aid, is often tied together through a larger project. The responsibility oftbp; ('()-ordinating manager is to oversee the marketing of the product and

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the timing of its introduction into the market.The selection of the project leaders takes place in several ways.

Sometimes the employee who has proposed the project is chosen to leadthe project. At other times senior management suggests the person theyfeel will be best suited for the job and a range of criteria are used to makethe choice depending upon the nature of the project. Typically theseinclude, technical skills, experience, leadership ability or corporate skillscombined with the fact that the person has time available when the projectis due to commence.

The project leader is free to manage the project group in the manner heor she prefers. This means that the project groups are run in various ways.Some groups meet with all the project members on a regular basis. Othersonly meet when they find it necessary. Some groups make all decisionsjointly, while others leave the decision making to those directly involvedwith a particular aspect of the project. Project managers are responsible forchoosing the members of each project group. The usual practice is simplyto go and ask, and try to persuade people to join the project. This informalprocess ensures that the members really want to be involved in the project(otherwise they could have refused), but it also means that some employeesare more in demand than others. Oearly it is more beneficial for an indi-vidual employee's career to be involved in a successful and high profileproject since they may then be noticed by other leaders and be invited tojoin other important projects.

To obtain good project members, resources and attention from the topmanagement, project leaders have to be very good in promoting their pro-jects within the organisation. If they are successful in the promotion, projectleaders will get to the top of the priority list and are more likely to be suc-cessful in obtaining scarce resources for their projects.

The larger projects often start with a team meeting with the purpose ofto getting to know each other and the objectives and the scope of the pro-ject. Sometimes project members meet together for a couple of days at alocation away from the company and other work pressures in order to seeknew inspiration and to take a fresh look at issues and problems related tothe project in hand.

The project group is required to undertake all the tasks connected withproduct development until the product is successfully introduced in allmarkets. This means that the project group may exist for several years, andthat the project members cover a range 6f other job-functions in addition tothose relating to their own specialism. There are a range of different pro-jects in progress at the company at anyone time with different timescalesattached to each. The product development process for example, typicallylasts for 3 to 5 years and Oticon has about 10 to 15 larger product develop-ment projects running simultaneously. Other projects are of a much shorterduration lasting a few weeks or months.

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Project groups meet with top management once every three months topresent their work and results. The criteria for success established by thecompany are that project tasks should be completed within the timescaleset and within the budget allowed, otherwise the project groups are free towork as they wish. Each member of the group can even work at home, if heor she prefers, providing their absence does not interfere with the success-

ful progress of the project.The co-ordination and communication between the project groups arehot formalised. The connections between the employees are much strongerwithin the individual project group than between groups. The groups arefully autonomous, which means that no one outside the project team reallyknows what is going on inside the group. The lack of a general overviewwhich this process creates has sometimes caused p!oblems for the develop-

ment process.Employees are responsible for joining project groups themselves and forcompleting the projects they have accepted. When a project is finished (orabandoned) the employees involved in the project move on to other projects.

All employees are encouraged to suggest new projects and ideas. Becauseof the lack of a line of command, the ideas can be presented to anyone in thecompany, even to the managing director. Employees are expected to demon-strate initiative and results. Lars Kolind, the managing director, puts it thisway: 'If people don't have anything to do, they need to find something - orwe don't need them' (Peters, T. J., Liberation Management, 1992, p. 202.)

In essence Oticon has therefore become an umbrella organisation for theprojects going on in the company. The borders between the projects are, ofcourse, not always clear~t. Projects are often interrelated and employeesare frequently working on more than one project at the same time (theaverage is 1.5 projects per person). Therefore the projects, the processes,and the people become intertwined, and it is this seeming mess which has

given rise to the use of the spaghetti-organisation metaphor.

IACTIVITY BRIEF

1 Critically evaluate the reasons for Oticon's success in minimising resistance to

change?

4 What can Oticon do in order to eliminate - or at least minimise - the disadvan-

tages of its spaghetti-organisation?

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3 What are the advantages and disadvantages of the spaghetti-organisation

as used at Oticon?


REFERENCESto

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Peters, T. J. (1992) Liberation Management, New York: Albert A. Knopt.

RECOMMENDED READING

Mintzberg, H. (1993). Structures in Fives, New Jersey: Prentice-Hall.Mullins, L. J. (1993). Management and Organisational Behaviour, London: Pitman.Robbins, s. n993). Organisational Behavior, New Jersey: Prentice-Hall.Peters, T. n992). Liberation Management, New York: Alfred A. Knopf.

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