Rethinking management’s first principles

Oticon
We could never beat them on technology, so we had to find something that we could do in a unique fashion. That led me to believe that if we could design a uniquely innovative, fast moving, efficient organisation, then this is something they could never replicate.”
Kolind’s response to this problem was a radical new organisational model with no formal hierarchical reporting relationships, a resource allocation system built around self-organised project teams, and an entirely open-plan physical layout. He called it the spaghetti organisation, to
Oticon Delta

Oticon, the Danish hearing aid technology

symbolise the organic and non-formal structure he

company, was a world leader in behind the ear

was trying to create.

hearing aids in the 1970s but by the 1980s its

Inspirational strands

market share began to decline, as people moved to ‘in the ear’ models. By 1987, the company’s market share had dropped from 15 to seven per cent and it was starting to lose money. Lars Kolind took over as CEO at Oticon in 1988 to turn its performance around.
A former management consultant and associate
Professor at Copenhagen University, Kolind embarked on a classic turnaround strategy: he pared the company down, shed staff and improved efficiency. And he re-focused the business on its key markets. By 1989, the medicine seemed to be working and Oticon returned to profit. But Kolind knew that the changes were not enough. “It was clear that we could not survive over the next five years without taking a radical step” he remembers. “Where was our competitive edge? Nowhere.”
“It was at that point that we reached a sort of breakpoint. I realised the competitive situation was extremely difficult because we were up against all the big boys you can imagine – Siemens, Philips,
Sony, 3M, and AT&T. My analysis was that we could never beat them in financial resources; we could never beat them at marketing or on brand because they all had fantastic brands.

In his concept of the perfect corporate organisation,
Kolind placed the interaction, collaboration, and connectivity of people, customers, suppliers, and ideas at the company’s heart. Kolind called it “a spaghetti organisation of rich strands in a chaotic network”. The key characteristics of a spaghetti organisation are choice (staff initiate projects and assemble teams; individuals invited to join a project can decline); multiple roles (the project approach creates multi-disciplined individuals); and transparency (knowledge is shared throughout the organisation). The organisation is knowledge based and is driven internally by free market forces.
Kolind got his inspiration for this new model from his deep involvement in the scouting movement:
“The scouting movement has a strong volunteer aspect, and whenever scouts come together, they cooperate effectively together without hierarchy.
There is no game-playing, no intrigue; we are one family brought together through common goals.
My experiences in scouting led me to focus on defining a clear ‘meaning’ for Oticon employees, something beyond just making money, and to build a system that encouraged volunteerism and self-motivation.”

New frontiers Tomorrow’s management innovation today 15

Rethinking management’s first principles > Oticon

“I was inspired by frustrations in former jobs”, he

“My thinking went like this. If Oticon was to

says, looking back. “Management seldom made

compete with a serious competitor like Siemens,

a positive contribution to the development of the

we had to do something radically different. You

business. Too much control; too little spirit, joy

can’t just do it 10 percent different. You have to

or inspiration.”

do it radically different and use your imagination, gut feeling, whatever it is, and hope it will work. So
I was aware that I couldn’t simply read the same books as the