Oticon: unorthodox project-based management and careers in a "spaghetti organization".

Background

The company was established in 1904 and is one of the world's largest producers of hearing aids. Its headquarters, located in Copenhagen and employing approximately 300 employees, is the focus of this case.

As a private, well-established, and fairly profitable company, by the 1980s the organization had all the strengths and weaknesses of traditional, hierarchical organizations including formal procedures, a conservative culture, employee loyalty, and consensus-seeking (or conflict-avoiding) behaviors. Although by then the company achieved a position as the world's leading supplier of hearing aids, throughout the 1980s it faced increasing sales, financial, and organizational difficulties:

1. The top management team had an increasingly reactive and status-quo-maintaining approach to managing the company.

2. Top management put great emphasis on signaling consensus to the external stakeholders (including the board of directors), and thus suppressing disagreement and differences of opinion.

3. The company was structured around three major functional areas that had only limited interaction and cross-communication.

4. Research and development activities were in decline.

5. The company experienced great difficulties establishing itself in the growing market for "in-the-ear" hearing aids, and focused too heavily on the more traditional "behind-the-ear" market.

The Change Process: Think the Unthinkable

These problems escalated to a point where it became evident that radical steps had to be taken, the trigger being a sharp devaluation of the U.S. dollar against the Danish currency, which caused a major deficit. It resulted in the recruitment in 1988 of a new CEO, Lars Kolind, who was given full responsibility for implementing changes.

After a two-year period of rationalization and cost-cutting, which achieved savings in sales and administration costs of 20 percent, the newly appointed CEO announced in early 1990 a broad package of innovative and radical initiatives in organizational structure, job design, information technology, and physical layout of the company. Oticon was to be rebuilt as a networking organization and become the world's technologically leading audiological company; and within five years to be flaunted on the Danish stock exchange. All these recommendations were described in a 10-page memo called, "Think the unthinkable," which was written by the new CEO and distributed to all staff in March 1990. The proposed changes included:

1. Increasing competitiveness by utilizing human and technological resources in a more efficient way, hence reducing the overhead costs, which at that time exceeded the actual production costs;

2. Replacing a hierarchical job structure with a project-based organization where each employee is involved in a number of (often cross-organizational and cross-functional) projects at the same time, and where each project is considered a "business unit" with its own resources, time schedule, and success criteria;

3. Abandoning traditional managerial jobs and transferring managerial authority to the project groups or the individual employee;

4. Drastically reducing written paper communication by establishing electronic scanning of all incoming mail and introducing comprehensive information technology systems, networks, etc.;

5. Facilitating physical mobility by creating an open space office where each person has a cart or trolley (i.e., filing cabinet on wheels containing the computer, the phone, and a limited space for files) that can be moved around in the office.

The overall objective, explicitly stated in the CEO's memo, was to increase productivity by 30 percent in three years.

The plan was implemented in August 1991 when the headquarters were relocated to a three-floor building that had been especially designed to support the physical, organizational, and technological flexibility of the reconfigured organization.

In order to maximize physical flexibility, a big open space made the free movement of employees trolleys possible, and several coffee bars and the cafe (deliberately not called a canteen) created extensive opportunities for the informal exchange of information and experiences. The three floors were connected by a wide staircase where people unavoidably "bumped" into each other. (The elevators were only used by disabled persons or to move the trolleys from one floor to another and required a key held at Reception).

Project teams became the basic organizing frame of the new organization. These teams had from two to three and up to 20 or even 50 participants, and the project leader could choose how to achieve the agreed-upon objectives of the project, and who should be a member of the team, as long as he or she met the project specifications (in terms of time, resources, and quality).

Everyone could in principle become a team leader, provided he or she had the necessary technical and leadership skills.

Strong emphasis was put on providing abundant facilities for information technology. To speed up employee familiarity with the computers, all staff members were equipped with a computer at home. All incoming mail was directed to one particular room where employees would come to read it. All important mail was scanned into the electronic information system, after which the paper was shredded. Written communication within the organization was almost exclusively online.

Finally, funds allocated to research and development were tripled. The reason for this was partly a shift in emphasis to the quality-based, upper part of the hearing aid market; partly a strategic decision to focus increasingly on the smaller "in-the-ear" hearing aids -- a huge technological challenge, as it is much more difficult to obtain a satisfactory sound quality in the tiny "in-the-ear" hearing aids.

The change process was supported by a number of symbolic acts:

1. The CEO himself had no office, but moved around with his trolley as appropriate, like any other employee.

2. The paper-shredder in the mailroom was connected to a transparent tube which passed through the building, including the caf6. One could not help but notice the shredded paper when using the stairs or during lunch. The tube -- which is still in place -- signified a liberation from written communication, as well as the speed and agility of electronic communication. In addition, and somewhat paradoxically, it also institutionalized the belief in the strength of oral communication, negotiations, and agreements. Paper was replaced by e-mails or handshakes, so to speak.

3. The CEO stressed clearly and frequently that most of his ideas about managing an organization came from his long-standing association with the boy scout movement. This philosophy implied (in the company) that work was driven by initiative and personal commitment as well as teamwork and willingness to share knowledge and know-how. The CEO also signaled his firm belief in the future of the company by investing heavily in the company from his personal funds.

Re-organization meant there were hardly any middle managers left. Top management decided which projects should be started up and who should be the project leaders, but the project leaders had (and still have today) the responsibility for managing resources, outcomes, budget, and schedules for their own projects. All staff members were encouraged to put forward project proposals. A number of senior specialists (mainly middle managers from the "old" organization) were given a role as "centers of technical expertise," but did not have a managerial role in a traditional sense and did not have any subordinates. In principle, it was a two-layered organization (consisting of the top management team and "the rest" -- comprising all employees). Consequently, titles and job descriptions were abandoned. The fact that all employees could in principle become project leaders meant that a project leader for one project could be an ordinary member in other project teams.

The HR responsibility was undertaken partly by the project leaders, partly by a number of coaches. Each employee appointed a coach for himself or herself. The coach could only turn down the request if he or she was already the coach for a fairly large number of employees. In addition, all the project team leaders, for whom a specific employee worked at any given time, had -- collectively -- the responsibility for certain HRM issues like salary adjustment, performance management.

All in all, the organization supported only three "managerial" roles:

1. Project managers (with the overall responsibility for projects);

2. Senior specialists (providing professional expertise in functional areas);

3. Coaches (mentoring and other HR-related roles).

The three roles support jointly, but from three different aspects, key managerial processes. This meant in practice that as an employee you went to the project team leader(s) if you had a problem with the project, you went to the expert if you had a technical problem, and you discussed career plans and welfare-related concerns with your coach. The three underlying parameters (project structure, functional expertise, and human resources) were seen as essential work aspects requiring managing; as well as the most vital competitive edge of the company.

Evaluation of the Outcomes, and the Present