OTICON ‐ THE DISORGANISED ORGANISATION1
Background
Oticon, a Danish company founded in 1904, was the first hearing instrument company in the world.
In the 1970s, it was the world’s number one manufacturer of ‘behind the ear’ hearing aids. However, as the market for ‘in the ear’ products grew in the 1970s and 1980s, its fortunes plummeted and it lost money and market share. In 1987, so poor was the company’s performance that it lost half of its equity. The basic problem was that Oticon was a very traditional, departmentalised and slow‐moving company. It had a distinguished past but it was it a small company operating in a global market.
Though it had 15 sites around the world and 95 distributorships, the Head Office, its largest site by far, only employed 145 people. Yet it was operating in a market which had come to be dominated by
Siemens, Phillips, Sony, 3M and Panasonic. More importantly, it had the wrong products. Oticon manufactured the standard ‘behind the ear’ hearing aids but customers increasingly preferred the ‘in the ear’ variety. Also, Oticon was strong in analogue technology, whilst the market and its customers were moving towards digital technology. In addition, though the company was strong in the state‐ subsidised markets of Scandinavia and Northern Europe, it was weak in the more buoyant markets of
America and the Far East.
This began to change with the appointment of Lars Kolind as President of the company in 1988. The fact that he was only the third person to hold this post in the company’s history helps to explain its strong attachment to tradition. In his view the company had ‘been sleeping for ten years’. In the next two years, he worked hard to tum the situation round through cost‐cutting measures: he pared the company down, cut staff and increased efficiency, and reduced the price of a hearing aid by 20 per cent. By 1990 Oticon made a profit of some £16 million on a turnover of £400 million with sales growing at 2 percent per annum. However, the market was growing at 6 per cent. More importantly,
Kolind did not think the company had a future. He had been searching for a sustainable competitive advantage for Oticon: ‘I looked at technology, audiology. I looked at distribution strength. I looked at everything, but there was nothing we could do better than the competition’. That he arrived at this view is hardly surprising. When competing against the world's leading electronics companies, it is very difficult to see how a small Danish company could, for example, design a better microchip for digital sound processing than Sony.
Nevertheless, he did not give up. Instead, Kolind resolved to ‘think the unthinkable’. On New Year's
Day 1990, the solution came to him:
Maybe we could design a new way of running a business that could be significantly more creative, faster, and more cost‐effective than the big players, and maybe that could compensate for our lack of technological excellence, our lack of capital, and our general lack of resources.

The vision ‐ a knowledge‐based organisation

Kolind realised that the industry was totally technology‐focused, and that the main thrust was to make hearing‐aids smaller. He, on the other hand thought this exclusive focus on technology was short‐sighted. He believed Oticon was not in the hearing‐aid business per se; they were in the business of ‘making people smile’ – restoring the enjoyment of life that hearing‐impairment can destroy. Making people smile, he reasoned, means not only giving them a wonderful piece of technology but actually changing people’s lives for the better. To this end, the company adopted a new mission statement: 1

I am grateful for the help of Ronnie Stronge of Stronge Communications in preparing this case study. Further information on Oticon can be obtained from its web site (http://www.oticon.com). rd Burns, B. (2000) ‘Managing Change: A strategic approach to organisational dynamics’ (3 ed.). Harlow, England, Financial Times, Prentice
Hall.

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To help people with hearing difficulties to live life as they wish, with the hearing they have.
To achieve this requires a knowledge of people’s lifestyle and how hearing impairment affects this, and an understanding of the social stigma associated with hearing impairment and the use of hearing aids. He saw that what would allow Oticon to compete and thrive was not selling hearing aids, but providing a new holistic approach to customer care – a system that would allow a hearing clinic to assess hearing loss, to discuss the lifestyle needs of the person concerned, to select the appropriate hearing aid, to programme it, and to interpret the feedback from the user in order to fine‐tune the hearing aid. The intent would be to allow people with hearing difficulties to lead the sort of life they wanted in their situation, whether they preferred classical music or rock music, whether they worked in a noisy environment or a quiet one, whether sound was central to their work or peripheral.
Kolind had the vision for Oticon’s role in meeting customers’ needs, but he still had to find a way of implementing it. He believed the key lay in the mix of expertise necessary to produce a hearing aid: micro‐mechanics, microchip design, audiology, psychology, marketing, manufacturing, logistics, and all‐round service capability. If Oticon were to move away from merely making hearing aids and instead provide a total package of support for people with hearing difficulties, it would have to develop a whole new concept in hearing‐aid service. It would need to combine this expertise in a new way and add new areas of expertise to the organisation. In short, they would have to move from a technological orientation to a knowledge orientation, from a technology‐based manufacturing company to a knowledge‐based service business. They had to build a learning organisation where experts put aside their expertise and work as a team to ‘make people smile’.
For Kolind, a knowledge‐based or learning organisation:
...should not work like a machine, it should work like a brain. Brains do not know hierarchies – no boxes – no job descriptions; what there is, is a very chaotic set of thousands of relationships tangled in with each other based on certain knowledge centres, with an interaction which may seem chaotic. It is the reflection of the brain into the organisation that creates companies that are able to manage that knowledge process.
Kolind began by redefining his role as CEO. Instead of seeing himself as the captain that steers the ship, he saw himself as the naval architect who designs it. He believed that it was more important to design the organisation to act in a clever and responsible way than to control every action. On this basis, he drafted plans for the company’s future which he first presented in April 1990. He wanted to create ‘the spaghetti organisation’ – a chaotic tangle of relationships and interactions that would force the abandonment of preconceived ideas and barriers to innovation and competitiveness.

The strategy
Having identified the vision for the organisation, the next step was to set about fleshing out and implementing his strategy for change. Beginning with the. Head Office, which comprised the finance, management, marketing and product development functions, he decided to abandon the concept of a formal organisation; instead he wanted to create a ‘disorganised organisation’. Formal structures, job descriptions and policies were seen as creating barriers to co‐operation, innovation and teamwork rather than facilitating it. Kolind’s new disorganised organisation would be founded on four principles:


Departments and job titles would disappear and all activities would become projects initiated and pursued informally by groupings of interested people.



Jobs would be redesigned into fluid and unique combinations of functions to suit each employee’s needs and capabilities.



All vestiges of the formal office would be eradicated and replaced by open space filled with workstations which anyone could use.



Informal, face‐to‐face dialogue would replace memos as the acceptable mode of communication.

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Therefore, Oticon got rid of departments, departmental heads and other managerial and supervisory positions. Job descriptions and titles and anything else that created a barrier between one member of staff and another were also eliminated. The company wanted to get rid of everything associated with traditional organisations, including budgets. The intent was to see what happened when staff were ‘liberated’ to do what they thought best. They wanted everyone in the organisation, from secretaries to technical experts, to work much more closely together to make things happen more creatively, faster and more cost‐effectively.
After 15 months of preparation, the change to the new way of working took place at 8am on 8
August 1991. Two old buildings were abandoned and the Head Office moved into a refurbished former factory in the northern part of Copenhagen. The heart of the new Head Office was a state‐of‐ the‐art electronic infrastructure, costing nearly £30 million.
The reason for beginning with the Head Office was relatively simple: this was not just where the largest percentage of Oticon’s costs were but, more importantly, where the core of its competence lay. The belief was that if it could get the Head Office functioning effectively, the rest of Oticon’s somewhat scattered organisation would follow.
The concept of creating chaos out of organisation and expecting anything other than a disaster to follow seems far‐fetched, if not downright lunatic. Oticon also recognised the dangers in the course it was embarking upon. The company realised that if success was to follow, above all else, there were two elements it needed to get right: direction and human values.

Direction
Oticon’s management was convinced that without a clear direction which everyone understood and believed in, the company would fragment and collapse into a disorientated mass of individuals each pursuing their own course of action. To avoid this, the management and staff openly and at length discussed and debated the new strategy for the company, and the implications for how Oticon would be structured and operate. Kolind commented that:
…the entire staff discussed not only where we were going but why we were doing so, and we created a consensus among staff that not only made them know why we were doing it and what we were doing, but we also got as far as having everybody think that this fundamentally made a lot of sense …so there was consensus on the strategy.

Human values
As well as a consensus about the strategy, Oticon realised it also needed to get a fundamental consensus about the basic human values’ of its business. After much debate, these were summed up in one sentence:
We build this company on the assumption that we only employ adults, and everything we do will rest on that assumption, so we will not treat our staff as children – we will treat them as responsible adults.
Underlying this simple statement was a view that adults do not have to be told when to come to work and go home or that those dealing with, for example, the Japanese market will come in later and go home later than those servicing the American market. In a similar way, Oticon’s management believed that staff would not overspend or misspend budgets and, therefore, there was no need continually to remind them of this fact or harp on about other company rules or practices.

Implementing the strategy
Oticon now operates on a project basis. Anyone can start a project, provided they have the permission of one of five senior managers. Some projects are also initiated by management.
Whomsoever the idea comes from, the main criterion for acceptance is that a project is customer‐ focused. Anyone can join a project, provided they have the agreement of the project leader. The basic idea, going back to the concept that Oticon treats everyone as an adult, is that it is the
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individual’s responsibility to fill their day usefully. If people do not have anything to do, it is their job to find something useful to do – either by starting a project or by joining one.
Kolind’s view of Oticon would send shivers down the spine of most traditional CEOs: ‘Hearing aids are not the core of what this company is about. It’s about something more fundamental. It’s about the way people perceive work. We give people the freedom to do what they want.’ This is perhaps why, as well as the 100 or so ‘authorised’ projects, as Kolind comments, ‘We have a lot of skunk work going on that’s not in any official priority.’ There is a saying in Oticon that ‘It’s easier to be forgiven than to get permission.’ Basically, this means, ‘If in doubt do it. If it works, fine. If it doesn't, we forgive you.’
Communication is at the centre of this new approach to work. Partly this is facilitated by computer.
Each desk has a computer, and these list all the projects ‘on offer’ and the team leader’s name along with the tasks involved. Usually the team leader will try and ‘recruit’ the skills he or she needs, but individuals are also expected to seek out opportunities as well. There are no demarcation lines; if an
R&D specialist or a secretary wants to work with a marketing group, then all they have to do is have a chat with the project leader in order to sign on.
The physical embodiment of this new ‘structureless’ structure is the workplace. Gone are individual offices, gone are corridors – all the walls were taken out and everyone works in the same open‐plan office. Staff gather where they wish to work. Instead of individual offices, everyone has a little filing cabinet on wheels. Staff come in each morning, pick up their mobile office and trundle it to where they are working that day. Oticon is also a genuinely ‘paperless office’. All incoming mail is scanned into the computer and then shredded. The reason for this is simple: Oticon wants staff to move around from project group to project group as work requires. It does not want this process hindered by staff having to transport masses of paper as happens in most offices – the solution is to get rid of the paper.
This requires everyone to have access to and to be able to use a computer. However, the emphasis at
Oticon is on face‐to‐face, informal communication (although, for example, e‐mail is used but not extensively). This is why the office is littered with stand‐up coffee bars to encourage small, informal
(but short) meetings. Three or four people will meet to discuss an issue or exchange ideas and information and then return to where they are working that day and follow up ideas and suggestions.
These are usually fed straight into the computer and are available to everybody else. There is also an expectation not only that all information is open to staff in this manner, but that staff actually want to know the information. Therefore, rather than putting up barriers or operating on a need‐to‐know basis, Oticon tries to be transparent about all aspects of its business, whether it be new products, staff salaries or finance in general. The view is that the more a person knows, the more valuable they are to the company.
Staff did not take to this radically new way of working overnight. This is perhaps not surprising. Staff were not originally recruited for their teamworking and project management skills, and some found it hard to come to terms with these new arrangements. Nor did they welcome the loss of routine and clear authority relationships or find the resultant uncertainty easy to adjust to. This was especially the case with managers for whom the loss of their power base, information monopoly and status symbols was difficult to accept.
In addition, under the new arrangement, managers were reclassified as project leaders and had to compete for the best staff, rather than having their own dedicated subordinates. Some groups of staff also found it difficult to find a role in the project team environment; for some time, receptionists, for instance, still answered the telephone. It was also some years before this new approach was adopted outside the Head Office, though the Danish manufacturing operation, which is on a different site, did show some interest quite early.
Kolind anticipated resistance and sought to overcome this by involving staff in planning the transformation of the company. Small groups of staff were selected to handle such projects as designing the new electronic infrastructure, locating a site for the new Head Office and selecting an architect. Also, all staff were given IT skills training. Indeed, they were all given a home PC and
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encouraged to identify their own training needs. One result of this was that staff formed their own
PC club to work together to develop their skills. Despite this, prior to the move to the .new building,
Kolind found it necessary to issue an ultimatum to staff: accept the new arrangements or leave.
Regardless of this carrot and. stick approach, the biggest boost to the new i arrangements came when staff could see they actually worked better than the old ones. One immediate benefit was that
Oticon ‘found’ that it had already developed the industry’s first automatic, self‐adjusting hearing aid in the 1980s. However, owing to technical problems (the solution to which was given a very low priority), lack of communication between the R&D and sales staff, and a lack of imagination, nobody seemed to have realised that they had developed a potentially world‐beating product. In the transformed Oticon, this new type of hearing aid quickly resurfaced, the technical problems were rapidly ironed out, and the MultiFocus hearing aid, as it became known, was launched in late 1991. In the next two years, three more powerful variants of the MultiFocus were developed and its size reduced by half.
To set the seal on this transformation, in December 1994, after a seminar with staff, Oticon (1994: 6) published a statement of fundamental human values (see Table 9.1).

Table 9.1 Oticon’s statement of fundamental human values
Oticon’s fundamental human values

How do we implement them?

We assume that Oticon employees want to take responsibility if they get the opportunity.

Whenever possible (especially within a project), an employee chooses his task, work hours and place of work.

We assume that Oticon employees want to develop and grow in their jobs and experience new challenges within the company.

We make it possible for an employee to assume several tasks at the same time, if he is interested and qualified – possibly with the support of colleagues. We assume that Oticon employees want the greatest possible freedom…

This freedom is possible because Oticon has the fewest rules practicable, and because we encourage staff to use their common sense instead of slavishly complying with rules.

We assume that Oticon employees want to have qualified and fair feedback to their work and a salary corresponding to their contribution.

All levels of management – technical staff and project managers – should give honest feedback to their employees – negative as well as positive.

We assume that Oticon employees want to be partners in Oticon, and not adversaries.

At intervals, we offer staff in Oticon shares at favourable rates so that they benefit financially from the success to which they have contributed.

We assume that Oticon employees want the security that derives from improving themselves in their current jobs so that they are able to get another job if they – for one reason or another – should leave Oticon.

We make it possible for staff to improve themselves in their jobs and assume other tasks in the company wherever relevant.

We assume Oticon employees want to be treated Oticon’s entire way of operating is based on this. as grown‐up, independent people.
We assume that Oticon’s employees want to understand how their tasks fit into the context of the whole company.

Oticon is an open company where all employees have access to as much information as possible.

We assume that Oticon employees are more interested in challenging and exciting tasks than in formal status and titles.

We have a minimum of titles and no formal career planning. We seek, however, to give each employee the possibility of personal and professional development through varied and ever more challenging tasks.

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Sustaining and extending change
The changes to – or rather the transformation of – Oticon started at 8am on 8 August 1991. At the beginning, all was chaos. It took months before everyone understood their new roles, and for the organisation to cast off its old ways and begin to operate in the manner Kolind had envisaged.
However, by 1994, the results were impressive:


15 new products had been launched (twice as many as the company had previously);



new product lead time had been halved;



the company’s sales were growing at 20 per cent per year, after a period of 10 years without real growth and at a time when the market had begun shrinking by 5 per cent per year;



Oticon’s market share increased from 8 per cent in 1990 to 12 per cent in 1993.

Nor did the progress stop there. In 1995; Oticon launched the world’s first digital hearing aid, the
DigiFocus. This is, in effect, a four‐gram computer which fits in the ear but has the processing power of a desk‐top machine. Not only was this a technological breakthrough for which Oticon has won a number of major innovation awards, but it also allowed Oticon to regain its position as one of the world’s top three hearing aid producers. Also, by 1995 turnover had increased by 100 per cent on
1990 and profits had increased tenfold.
For some, this would have been a time to sit back and feel satisfied. Yet Kolind was becoming increasingly dissatisfied. The launch of the DigiFocus had dominated 1995 and the long‐standing project teams created to develop and launch the product had taken on an air of permanency. He believed the company was in danger of slipping back into a traditional departmental organisational form. His response to this was to ‘explode the organisation’.
In an uncharacteristically directive way, Kolind instructed people and teams to re‐locate within the
Head Office. Teams devoted to short‐term business goals (such as sales, marketing, and customer service) were moved to the top floor. People working on medium‐term projects (upgrading existing products, for example) and long‐term research were put on the second floor. Those dealing with technology, infrastructure and support were located on the first floor. In Kolind’s words, ‘It was total chaos. Within three hours, over 100 people had moved.’ He justified this new bout of chaos by arguing that ‘To keep a company alive, one of the jobs of top management is to keep it dis‐ organised.’ As can be seen, Oticon went through major and substantial changes in the 1990s; nor were these solely restricted to its Head Office. In the early 1990s, Oticon began to extend the new working arrangements to its two factories in Denmark, and laid plans for their extension to its sales operations throughout the world. By 1997, all of its major subsidiaries in Europe, the USA and the
Pacific Rim had moved into purpose‐built offices designed to replicate the arrangements in its Danish
HQ. The intention was to:
…set the standard for the knowledge‐based sales company of the future… [Through the] concept of a flat organisation, which stimulates openness, flexibility and informal communication… Though Oticon believes that its approach can be replicated in other countries, it is not blind to cultural differences. The company realised that Denmark, with a culture characterised by equality and lack of formality, provided fertile ground for its approach to work. Therefore, in extending this approach to its operations in other countries, Oticon recognised the need for cultural sensitivity.
In addition to its own organisation, Oticon also developed partnership‐style arrangements with both its component suppliers and the 5000 or so hearing care centres who distribute its products throughout the world.
Such has been its perceived success that Oticon’s approach has been copied by many other organisations in Denmark, including a government ministry.

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In 1998, after 10 years at the head of Oticon, Lars Kolind decided it was time to move on. He left the company in a far, far stronger position than it had been when he first arrived. In almost every sense, whether financial, technological, structural and most of all philosophical, he transformed the company. His leaving was very amicable. As he said:
I am quitting Oticon now because I feel that both the company and I will benefit from a change. There is a whole new generation of young people who are ready to run with the ball – and why shouldn’t I let them?
Kolind’s departure highlights the dilemma of transformational managers: what do you do when you have transformed the company? For Oticon, success did not end with Kolind’s departure, nor does it appear to have led to any rethinking of his approach to work. Rather the reverse. Oticon is now more than ever stressing the wider ethical and social role it wishes to play. As his successor, Niels Jacobsen, stated when receiving the prestigious Employee Empowerment Pioneer Award in New York in 1998:
Our goal is to do business in a manner that positively contributes to society in every country where we do business. We support the principle that industry has a responsibility for society and that we have a collective responsibility to the environment.

Summary
Quite obviously, Oticon must be doing something right, but what? The key to its success appear to lie in seven factors:


Changing the rules of the game. Oticon created a vision of where it wanted to be. Like Japanese companies such as Cannon and Honda, this was based not only on ambition but also on a deep understanding of the nature of the market in which it operates. This allowed Oticon to spot the chink in the armour of the big players, and in effect to change the rules of the game – recognising that service delivery in total, and not technological development in isolation, is what customers really want.



Moving to a project‐type structure which fits the strategy and vision of the business.



Creating a whole‐hearted commitment from everyone to working co‐operatively and proactively.
In effect, there appears to have been a wholesale cultural change at Oticon, from the senior management down.



Creating a learning organisation. The restructuring (or rather, de‐structuring) of Oticon removed hierarchical, horizontal and cultural barriers to information flows, and created a situation where people genuinely want to exchange ideas and learn from each other. This is supported by the emphasis on informality, experimentation, innovation and risk‐taking.



Leadership. The Oticon story appears to be one of those rare cases of genuine visionary leadership that transformed an organisation over a relatively short space of time and then continued to support, drive and reinforce the transformation.



Consistent vision. Lars Kolind had a vision of what he wanted Oticon to become. He pursued this consistently and with passion. Nor, after the new Oticon had been working for some years, and was very successful, did he hesitate to take decisive action when he felt that the company was slipping back into old ways.



Societal values. As has been mentioned previously, Scandinavia has a long history of industrial and social democracy. Denmark in particular has led the way with the creation of a strong co‐ operative movement. The changes that have taken place at Oticon appear to be a classic, if somewhat extreme, form of Scandinavian industrial democracy. As such, Oticon’s new way of working fits in with the societal values espoused by Denmark and other Scandinavian countries.

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