The Oticon Case: the Spaghetti organisation
Developed by Fernando Lara Hoces
The Spaghetti organisation was the result of a radical change that undergo the danish hearing manufacturer Oticon. When in 1988 Lars Kolind took over as the CEO, the market share of the company had dropped dramatically. That situation called for a revolution in the company in order to remain competitive. Back then, the company was up against big companies like Siemens, Philips, Sony, M3 and AT&T. It was impossible to compete against them on financial resources, technology or marketing. The only way to remain competitive was to create something that the big companies would never be able to replicate: an innovative fast-moving organisation.
As a result of the radical nature of the change, the necessary program to make it happen was extremely complex. The new organisation aimed to modify all the interactions between the different parts of the company, and, consequently, the behaviours produced as a result of those interactions. Therefore, it was crucial a strong leadership in order to create clear directions and ensure effective communication to speed up the "sense-making process". This article aims to analyse the leadership of Lars Kolind in order to highlight which points lead to the successful implementation of the change.
In order to approach the case from a program management point of view, it is necessary to see which domains of that discipline are related with leadership. As it can be seen in Figure 1, the different domains of a project management performance are basically four: the Program Strategy Alignment, the Program Benefits Management, the Program Stakeholder Engagement, the Program Governance, and the Program Stakeholder Engagement. Among those, the ones related with leadership are the Program Strategy Alignment and the Program Stakeholder Engagement. Throughout this article those two domains are analysed in the case at hand.
It can be argued if the Program Governance is also related with leadership. If we consider the definition of the Project Management Institute, "Program Governance ensures decision-making and delivery management activities are focused on achieving program goals in a consistent manner, addressing appropriate risks, and fulﬁ lling stakeholder requirements.”. Therefore , its competences are more related with management than with leadership. [footnotes 1]. Another important aspect to highlight is the importance of the Program of Communications. Although the article does not contain a specific section about it, the most relevant parts have been analysed along the text.
Once Lars Kolind was appointed CEO of Oticon, a period of rationalisation and cost-cutting started. During his first years as CEO, Kolind undergo a diagnosis of the company by meeting with clients and managers, analysing all the different parts of the company and understanding the market where they where competing. Then, in 1990 he announced a broad package of innovative and radical measures in the job design, the organisational structure, the physical layout of the company and the way of sharing information. This changes lead to a new organisation known as the Spaghetti organisation due to its lack of structure (e.g. there was neither managers nor subordinates; everything was "entangled"). Some of those changes included:
1. To go from a hierarchical organisation to a project-oriented one. In that organisation, every employee was involved in more than one project at the same time. Those projects were usually cross-functional and cross-organisational and were considered as "business units", with their own resources, time, schedule and success criteria.
2. To change from a rule-based, departmentalised hierarchical engineering culture to a customer-focused, flexible, innovative business culture.
3. All current job titles disappeared. The managerial authority was transferred to the project groups or the individual employees. There were no more managers, only project leaders that were chosen by the members of the group. Moreover, there was the figure of the mentor. Those ones were responsible to coach and support a number of staff members. These members had to voluntarily choose them as their mentor.
3. Oticon became a paperless organisation. Computers were introduced in the every day life of the company. All incoming mails were scanned and new systems to share the information were created. It has to be said that by then, people did not know how to use computers.
4. The office became an open space office. Every worker had a trolley that could be used to move easily from one project to another. The organisation moved the headquarters to a new building that fulfilled the requirements of the new working space.
5. The hearing aids changed completely. First, switching from Behind The Ear (BTE) to Inside The Ear (ITE) hearing aids. Second, using digital processors instead of analogue processors.
A big change started and the unstructured organisation was in the edge of the chaos. The limited resources of the company challenged the planning of its CEO. First, the financial situation of the company constrained the room for manoeuvre of Kolind. Second, the employees were not ready for some of the new processes that the new company required. For instance, a paperless organisation required a staff with advanced computer skills. However, during the 90s, the computers were a new technology in the market and not everyone knew how to use them. Another example is the fact of eliminating all the job titles. Some managers did not find their place in the new organisation. That challenged the program as well, as it was difficult to have the right people in the right position. The only way to deal with that chaos was a strong leadership.
As it has been explained in previous sections, the radical change of Oticon put the organisation in the edge of the chaos. One of the key factors to avoid the disaster was the strong leadership of the CEO. Along this chapter, the most important aspects of his leadership will be analysed.
Type of leadership
One of the reasons for why Lars Kolind did the right things[footnotes 1] was because of the type of leadership he embraced. Hence, before analysing the different aspects of the program management, it is necessary to understand how Lars Kolind approached the situation while being the CEO of Oticon. That way, it will be easier to understand one of the key factors of the success of the program. According, to Marc C. Bojeun, it exist different types of leadership within the program management. Some of the most important are the transactional and transformational types. On the one hand, the transactional leadership focuses on the role of supervision, organisation and group performance. This type of leadership is based on the assumption that the only motivation of the worker is his own gain. Therefore, in order to improve the performance of the group is necessary some extrinsic motivation as additional salary, time off when the program is completed, potential promotion, not loose one's job, etc. On the other hand, the transformational leadership is based on a more charismatic, inspirational and intellectual leader. A leader who uses this approach intrinsically motivates and empowers his employees by creating a common vision, a common goal. Any leader is neither 100 percent transactional nor transformational. Nevertheless, it can be argued that Lars Kolind was mostly transformational. The new organisation that he promoted strongly relied on the empowerment of the employees and his intrinsic motivation. The individuals were informed enough to understand their role in the organisation and the teams were driven by objectives. Therefore, Kolind strongly believed in the Theory Y, counting on the positive nature of people. In that sense, it should be pointed out that the fact of creating a strong culture around the new organisation made less necessary to apply command and control techniques . However, he also applied some supervision of the employees. For instance, once a year, all the employees had a meeting with their mentors to discuss their performance during the year and readjust their salaries accordingly.
The radical change that Oticon underwent resulted in a several number of projects. Some of those had very different nature and where not interrelated at all. Hence, a perfect alignment of all of them was imperative for not making a complicated program out of a complex one. In order to manage the strategy alignment of the different projects and processes, the program manager should address four different elements: the program business case, the program plan, the program roadmap and the environmental assessment. . Among those aspects, the one strongly related with leadership is the program plan. The program plan aims to clarify the organisation concept, vision, mission and benefits produced by the program . This task was exceptionally performed by Lars Kolind, who was able to define a clear vision, under the motto Think the unthinkable, as well as a clear a mission: "help people (with impaired hearing) to live as they wish with the hearing they have". By clearly defining those two concepts and efficiently communicate them to all the stakeholders, he created a strong shared sense of direction and gave sense to the program . It should also be pointed out that he also clarify the benefits of his program to the different stakeholders. For instance, when the program was launched, he sent a newsletter to all the employees of the company explaining why the company needed that change and which benefits the program will produce. Some days after, a meeting with all the employees took place. It aimed to clarify all the possible doubts they could have.
Stakeholder management is an important factor to take into account in every organisational change. It is necessary to identify which stakeholders will be affected and evaluate what's their degree of commitment and their power. To increase their commitment, the program manager must communicate a clear vision of the need of change to all the individuals affected. He must set clear goals, see when is necessary the change, plan the change, monitor the change and manage the people issues along the change. As it can be seen in Figure 4, the Stakeholder management can be divided in three steps: identification, engagement and management of expectations. One of the key factors of the success of the change process of Oticon was that Kolind followed those steps.
Identify Program Stakeholders
During his first years as CEO, he met several clients in order to understand their concerns and what was their idea of Oticon. That was crucial to set an effective goal that lead Oticon to became the leader of hearing aids. Moreover, he met with internal stakeholders as managers and employees of different departments. He asked them what they thought was the vision of the company and why they thought the company was in such trouble. That was useful to understand the misunderstanding inside the company and later align the different departments with the strategy of the company. Finally, he also figured out which ones where the relations between the different departments and what was each department exactly doing.
Engage Program Stakeholders
Then, it was necessary to plan how engage and manage the different individuals involved. At that point, the most critical point was to create a clear shared vision with all the stakeholders. Until then, the vision of the company was "leaders in hearing technology". When the change started, the vision became "helping people (with impaired hearing) to live as they wish with the hearing they have" . This motto and putting the new focus on the hearing care profesional instead of the end user created a clear and common vision.
Apart from the vision, another aspect to take into account while dealing with the stakeholders engagement is the communication. Within a company, several channels are used, but only one message is wanted to be transmitted. That's why is important to plan how to transmit the message. The strategy used by Kolind was to send a newsletter titled "Think the Unthinkable"  explaining all the different changes he wanted to perform. Some days after, a meeting with all the employees took place. It aimed to clarify all the possible doubts they had. Anyone was obliged to go, but almost everyone went. He explained the idea and, in order to involve the employees in the process, he let them vote who wanted to be part of the project. Most of the audience respond positively. They were engaged in the change process. This commitment was crucial in further situations. For instance, due to the lack of financial resources, the company gave the option to the employees to invest money in the company. The first who invested was Lars Kolind, fact that increased even more the commitment among the other employees. Kolind embraced this practice [footnotes 2] in further situations. For example, as any employee of the company had an office, he did not have one neither .
Not only the internal stakeholder where addressed. Kolind also took care of the clients asking which were they concerns and what they were looking for in a product. Those inputs were really important to decide the vision of the company and choose the new projects to develop, while they engaged the clients in the change process.
Manage stakeholders expectations
Another important aspect when managing the stakeholders is to take into account which expectations they have. If a program negatively affects a stakeholder, it is necessary to mitigate the impact in order to maintain the stakeholders involved . In that sense, it is important to make sure that stakeholders expectations are based on accurate information. Therefore, once more, it is important an effective communication.
In the present case, one of the biggest problems of the new organisation was to remove all the job titles. This fact created two major problems within the company. First, the resistance of the senior and middle managers. Their expectations of loosing their benefits and power in the new organisation put them against the process. Frequently, during a change process, the stakeholders who don't support the change use to go through eight different stages: shock, anger, denial, depression, acceptance of reality, testing, consolidation and internalisation (see Figure 4). Therefore, the task of the program manager is to contain the denial phase (e.g. not negatively affect the other stakeholders) and emotionally support the stakeholders during the depression part. Lars Kolind said: “One day a former middle manager came to me to discuss (…) he openly admitted that he did not know what to do for the company.” . At that point, the former middle manager was entering in the depression phase. The duty of a good leader was to support him emotionally. Kolind made him see that he was not only a manager, but also a great specialist. That, made the middle manager decide to return to the specialist role: “He admitted that when he had been promoted to department head, the company had lost a good specialist, and gotten a bad leader in return.” . In that example, we can see how Kolind was able to influence the middle manager, affecting his beliefs and attitude towards the organisation. Apart from the resistance of the middle managers, another problem arose. Some people felt frustrated because it was not possible to get promoted in the organisation . The fact of not having job titles made impossible to get promoted. The salary was fixed according to the contribution of each individual to the organisation. That extreme competitiveness made some employees not to feel comfortable. Even thought there was not a formal hierarchy, a “natural hierarchy” was created as some projects were more successful than others and some groups were more productive. In that case, Kolind couldn’t do anything, as this problem was a collateral effect of the same nature of the organisation.
During his years as CEO of Oticon, Lars Kolind promoted a completely new type of organisation. The lack of hierarchy, the scarce resources and the need of fast improvements made the program extremely complex. Thus, a good leader was necessary to handle the situation and avoid the chaos. This is the fundamental contribution of that case to program management. Lars Kolind was an example of transformational leadership, leading his employees to a successful change process by inspiring and intrinsically motivating them. When he took over as the CEO, the company was running against big firms with more financial resources and more technology. The only way of being competitive was to create a fast-moving and innovative organisation. Consequently, the program needed to be fast-moving as well, resulting in less control processes and substantial delegation of power. This challenged the best practices of program management. Therefore, the success of the Spaghetti organisation can only be explained by the strong leadership of its CEO. From this case various lessons can be extrapolated to future similar cases. First of all, the fact that Kolind was able to rapidly define a clear vision and mission was one of the secrets of the success of the program. When an organisation or individual goes through a change, it is important to minimise the "non-sense stage" as usually people tend to reject what they don't understand. Second, Kolind performed really good gaining the support of the people. The fact of being completely transparent and involving employees in the process resulted in a massive commitment. In that regard, one of the most impressive achievements was that he solved the problem of the scarce financial resources of the company by engaging the employees in buying assets of the organisation. In that cased, Kolind invested first, leading by example. Finally, it was important how the leader supported the people during the change process. He was a close leader, ready to talk with any employee and emotionally support him. That is something important during the change in order to avoid people to be depressed and negatively affect to the motivation of the whole group.
- ↑ 1.0 1.1 Managing is about "doing things right" and leadership is about "doing the right things" (Bennis and Nanus, 1985, p. 21)
- ↑ [ You don’t lead by pointing and telling people some place to go. You lead by going to that place and making a case. —Ken Kesey]
Mark C , Bojeun (2014). Program Management Leadership. Creating succesful team dynamics. Florida: Taylor and Francis group: This book approaches the program management from a leadership point of view. It is interesting to notice the different types of leaderships and how they can maximise the income of your program. Along the article only two types have been explained, but a lot of other different types exist. Moreover, it is explained how the type of leadership chosen has a direct influence on the group dynamics. Throughout that book the the relation between this three concepts (e.g. Program Management, Leadership and Group Dynamics) is highlighted. In order to understand the success of the Oticon case it is very useful to have a clear idea of this relation.
Hayes John (2010). The Theory and Practice of Change Management. 5rd ed. New York: PALGRAVE MACMALLIN: This book explains in detail the different aspects to consider while going through a change process. It can be useful to understand why the individuals act the way they act and how it can affect to your program. Different chapters explain the best ways to manage the people issues and how to create a huge commitment of the stakeholders. Apart from that, other aspects related with Change Management can be found. The book is divided according to the different stages that all change process should address, from recognising the need of change to learn form it.
Hans J. Thamhain and David L. WIELMON (1997). Leadership effectiveness in program management. IEEE Transactions on engineering management. VOL. EM-24, NO3: This article reports the results of an exploratory field study of the effectiveness of different leadership styles in various project-oriented work environments. It explains that there is not a best type of leadership. It depends on the environment and on other particular conditions of the case. It can be interesting in order to understand why the leadership applied by Lars Kolind was the best according to the particular situation. The Oticon case is a nice example to understand the theory offered by that article.
Lars Kolind. The second Cycle. Winning the War Against Burecracy, Wharton School Publishing.: Along this book, Lars Kolind, the CEO that undego the successful radical change of Oticon, explains the case form his point of view. It is interesting to see how he figured out the solutions of the different problems he found along the way. The book goes from 1988, when he took over as the CEO of Oticon, until 1998, when he left the company. Although it might be a bit biased, the information provided is highly useful. During all this years different projects were executed. The way Lars dealt with all of them, aligning all the different stakeholders, is a powerful source of inspiration.
- ↑ 1.0 1.1 1.2 1.3 1.4 Managment Institute(2008), The Standard for Program Management, PMI Publications, 2nd ed, Pennsylvania: , pg 227-241
- ↑ 2.0 2.1 Oehmen, Christian Thuesen, Pedro Parraguez Ruiz and Joana Geraldi (2010). Complexity Management for Projects, Programmes, and Porfolios. An Engineering Systems Perspective. Project Management Institute. White Paper, pg 5-11
- ↑ Management Institute(2008), The Standard for Program Management, PMI Publications, 2nd ed, Pennsylvania: , pg. 243
- ↑ 4.0 4.1 C , Bojeun (2014). Program Management Leadership. Creating succesful team dynamics. Florida. Taylor and Francis group , pg 81-118.
- ↑ J. Morse and Jay W. Lorch(2009). Beyond Theory Y.Cambridge. Harvard Business Publishing Newsletter
- ↑ 6.0 6.1 , The Role of Program Management in an Organisational Change, September, 2015
- ↑ 7.0 7.1 7.2 7.3 7.4 7.5 7.6 7.7 7.8 "Lars Kolind. The second Cycle. Winning the War Against Burecracy, Wharton School Publishing.
- ↑ [Hayes John (2010). The Theory and Practice of Change Management. 5rd ed. New York: PALGRAVE MACMALLIN, pg 167-183.]
- ↑ [Hayes John (2010). The Theory and Practice of Change Management. 5rd ed. New York: PALGRAVE MACMALLIN, pg 261.]
- ↑ [Henrik Holt Larsen (2003).Oticon: Unorthodox Project-Based Management and Careers in a "Spaghetti Organization".Institut of Organization and Industrial Sociology. Copenhagen Business School