The assignment focuses on the outcomes of the study of the module-Organizational Behaviour which deals with the importance of the organizational principles in any company linked to its success in long run. I have focussed myself to study the Case of Oticon Ltd. in reference to change of organisation structure bringing in success.
Though the objective of the study is to analyse the organisation in the context of dynamics of change affecting its very functioning with respect of organizational issues, the limitation of the study is inability to take up all issues considering organisation behaviour.
Oticon, is a Danish firm, which was founded in 1904 by William Demant, is a leader in manufacturing hearing aids in Europe and the rest of the world.
During the 1980’s, a small American company, which designed a new and innovative model of hearing aids, entered aggressively in the market, and caused decreased sales for Oticon.
The reaction of Oticon was immediate, as they decided to reconstruct the whole structure of the company, so as to boost their efficiency and profitability.
The process lasted for almost three years, and resulted to major changes, which helped Oticon to regain profits, and become again a leader in their sector.
Oticon is a good example of what D. T. Hall (1996) called “The career is dead, long live the career” and the boundary career construct (Arthur & Rousseau, 1966). Key features of traditional career management like earmarking of management potential, formalized development programs, the use of promotions and organizational symbolism (e.g., privileges) etc. were simply not applicable in the “spaghetti organization” with no hierarchical structure, no traditional management positions, no high-flier program and not even an HR function.
The nickname “spaghetti organization” reflects the complex, informal and almost anarchistic characteristics of the project organization, as it was initially implemented at Oticon.
The path which Oticon choose to regain its ground and the initiatives taken in terms of Organizational Behaviour has been assessed in this assignment.
For the purpose of analyzing the focus was laid down on 3 key aspects of organization behavior which are organizational structure, management of change and organizational culture and climate which can be correlated to the case.
2. Organizational Structure
According to Sheldon: “Organization is the process of combining the work, which individuals and groups have to perform with the facilities necessary for its execution, that the duties so performed provide the best channels for the efficient, systematic, positive and coordinated application of the available efforts”.
Koontz and Donnel have defined organizational structure as ‘the establishment of authority relationships with provision for coordination between them, both vertically and horizontally in the enterprise structure’.
A good organizational structure has the following features:
The structure should lay down a formal reporting hierarchy from lowest level to higher level of management.
Identical activities should be grouped for each department so that equipment, processes and expertise can be developed at one place under the guidance of a departmental head.
Coordination of various activities is laid down and specification of the coordinating authority be placed.
Individual, group and departmental goals should be laid down with specific time frame. Monitoring of goals is essential to achieve the objectives.
2.1 Forms of Organization Structure
Comparative evaluation of mechanistic and organic form of organizational structures can be summarized as under:
2.1Centralization and Decentralization
Apart from the forms of organizational structure discussed above the decision makers of the organization could be categorized into centralization and decentralization based on the form of organizational structure the board of directors or the higher management decide for the benefit of the organization, but in certain cases of management decisions this may or may not prove beneficially in long run and change is expected if it needs to change its horizons and expand its business.
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The concept of centralization refers to reservation of authority for decision making at top level of management i.e. the decision lies in the hands of Board of Directors/MD. Lower levels are responsible for implementing the decisions or one can say to abide by the decision ordered by the higher level. They are basically operators or implementers. In general, the authority is not delegated to the lower levels. The subordinates carry out work towards accomplishing their destined task. If at all there is a hurdle or operation is halted due to some reason, then the matter is referred to an appropriate authority that has the power to take appropriate decision to resolve the problem.
Centralization can be viewed or implemented where the organization structures do not have many layers and it is relatively flat. It is majorly noticed where the subordinates are rightly not trained to handle key specific/ higher jobs, where there is a lack of trust in subordinates and the intricacy or the magnitude of work that demands centralized control.
Decentralization on the other hand refers to authority being delegated to various levels of organization for making appropriate decisions for making the process quicker and efficient.
In decentralized organizations, the individuals at lower levels are allowed to make decisions pertaining to their jobs which give them autonomy. Authority in this case does not flow with the same rate to each of the levels of the organization structure. It is important to note that each level should have appropriate authority for decision making when need arises and that one does not have to wait for upper level to take decisions at each level.
An organization which has flat organizational structure is ideal to have a decentralized command and control especially in the current environment where specialization, information technology, competencies, work teams, group culture and systems prevail. It develops a sense of responsibility among employees, efficient time management, improves productivity, team sprit, motivation and brings the feeling of oneness among work groups. Greater decentralization offers employees higher level of job satisfaction as they have autonomy at work in decision making process. They can respond to a particular situation quickly.
Charlisle suggested the following guidelines to determine whether there should be centralization or decentralization.
(a) Mission, goals and objectives of the organization: Those organizations where democracy exists prefer decentralized structure in decision making process in turn, small organizations have a centralized structure.
(b) Size of the organization and complexity of the work. Large organizations with diverse production lines and conglomerates with companies involved in different fields should be decentralized.
(c) Geographical location of customers: Organizations which cater for customers which are geographically located far apart should have decentralized organizational structure.
(d) Competency: If the top management is highly skilled, knowledgeable and experienced and has the capacity to handle more activities at one time, then the centralization is recommended.
(e) Communication: If the communication between the management and employees is efficient, then the decentralization is recommended. This will enable problem solving and accord a sense of autonomy amongst workers.
2.2 Organizational structure and Oticon
Oticon was initially following the Mechanistic Form of organization structure with centralized decision makers until it faced a stiff competition in terms of market leadership until Kolind the new CEO of the company had converted the same mechanistic form of organization structure into decentralized organic system of organizational structure which yielded fruitful results to the success of company in long run.
Though the top management is highly skilled, knowledgeable and experienced and has the capacity to handle more activities at one time, then the centralization is recommended but the situation demanded Spaghetti organization.
The introduction of Spaghetti form of organization structure was a tough task indeed as it needed everyone’s (board of directors, stakeholders, etc.) consent for implementation and the situation for Oticon demanded immediate decision to change its structure for its very survival which also links with the management of change which is discussed in relation to organization structure in the following paragraphs.
3.0 Management of Change
It is known fact that change is inevitable. Nothing is permanent except the change but it is the duty of the management or organization to manage change properly and orderly. Organizations must incorporate suitable changes if the situation so demands or when the need arises. Change is a continuous phenomenon. It is to be noted even in most stable organizations change is necessary just to keep the level of stability. The major environmental forces, which make the change necessary, are
Market forces and
Showing resistance to change can prove fatal for the very existence of the organization.
According to Barney and Griffin, “the primary reason cited for organizational problems is the failure by managers to properly anticipate or respond to forces for change.”
3.1 Change Process
Kurt Lewin proposed “Three Stage Model” of the change process for moving the organization from present position to the changed position. This is as under:
Stage 1: Unfreezing: Creating motivation and readiness to change through
(a) Disconfirmation or lack of confirmation.
(b) Creation of guilt or anxiety.
(c) Ensure subordinates of psychological safety.
Stage 2: Changing through cognitive restructuring: Helping the client to see things, judge things, and feel things differently based on new point of view obtained through.
(a) Identifying with a new role model, mentor, etc.
(b) Scanning the environment for new relevant information.
Stage 3: Refreezing: Helping the client to integrate the new point of view into
(a) The total personality and self – concept.
(b) Significant relationship.
1. Unfreezing: Process of unfreezing makes individuals ready for change. Lewin believes that employees must be informed in advance of impending change and that they should not be surprised. Unfreezing entails unfreezing the old behaviour or situation.
Edgar Schein took this excellent idea propagated by Lewin and improved by specifying psychological mechanism involved in each stage of the model. Unfreezing involves creating motivation and readiness to change by creating an environment of disconfirmation of existing psychological safety in the changed pattern of behaviour.
This can be achieved by making announcements, meetings and promoting the idea throughout the organization through bulletin, boards, personal contacts and group conferences. The unfreezing process basically cleans the slate so that fresh behavioural patterns, customs, traditions can be imprinted which can then become a new way of doing things.
2. Moving: Once unfreezing process is completed, moving takes place. Moving is incorporating change. Persons undergo cognitive restructuring.
The process is carried out by the following three methods as proposed by Kelman:
â€¢ Compliance: Compliance is achieved by introducing rewards and punishments. It has been established that individual accepts change if he is rewarded or punished. This is a behaviour modification tool.
â€¢ Identification: Members are psychologically impressed upon to select their role model and modify behaviour. If a leader can act as a role model the change is easier.
â€¢ Internalization: It involves internal changing of individual’s thought processes in order to adjust to a new environment. Members are advised to carry out soul searching and adopt a new behaviour.
3. Refreezing: It is related to integrate the new behaviours into the person’s personality and attitude. It is referred to stabilization. The change behaviour must necessarily fit into the social surroundings. Refreezing takes place when the new behaviour is adopted in a normal way of life. New behaviour must replace the old on a permanent basis. New behaviours must be re-enforced continuously so that it does not diminish. Change process is not a one time process but it is continuous hence unfreezing, change and refreezing must also be continuous.
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3.1 Steps In Managing Change
Organizations must plan to implement change in a systematic manner. It must identify the field in which the change is required whether it is strategic, structural, process – oriented or cultural change. Changes can also be affected in all the areas concurrently, but it must be managed appropriately so that there is no bottleneck effect. Once the need for change is identified and the area in which it is to be implemented, the following steps have been suggested by Greiner.
Develop new goals and objectives: Objectives and goals are derived out of mission statements, objects may need revision due to change in external or internal forces.
Select an agent for change: It is the responsibility of the management to entrust execution of change to appropriate authority. A manager may be given this responsibility.
Diagnose the problem: Diagnosis is the first step to implement change. If an organization has a large number of employee turnover then the data must be collected and made available to the consultant so that the reasons for turnover can be identified and appropriate corrective measures taken. The process of identification of problem is not simple as it appears and requires research.
Select Methodology: It is comparatively easy to implement material change as a part of change of a system. What is important is to protect the emotions they must be made party to select methods so that it is easier to implement at a later stage.
Develop Plan: If the organization wants to reduce employee turn over, it may like to carry out comparative study of other organizations in respect of job content, reward system, employee performance, appraisal system, promotion criteria, training & development and the strategy adopted by the organization for its growth.
Strategy for implementation: Timings of implementation of change is very crucial. If the change is related to internal employees, it must be communicated at an appropriate time so that there is no resistance to planned change.
Implementation of Plan: Once the decision to implement the plan and communication through which the plan is to be implemented is decided, it is the responsibility of the various departments to implement the same. This may need notification, briefing sessions or in-house seminars so as to ensure acceptance of all the members of the organizations specially those who are likely to get affected. Employee reactions in attitudes, aspirations, emotions and behaviour must be canalized in positive directions due to change.
Evaluation & Feedback: The result of the change must be evaluated and suitable feed back obtained. If modification to training & development causes decrease in employee turnover, the objective of change would deemed to have been achieved. If the results are contrary to the expectation, then a new change may be required to diagnose cause.
3.2 The Change Process in relation to Oticon: Think the Unthinkable
The change process in Oticon was initiated with the recruitment of a new CEO, Lars Kolind in 1988, who was given the full responsibility for implementing changes, and who bought the change which was unthinkable. After a two-year period of rationalization and cost-cutting, which has achieved savings in sales and administration costs of 20 percent, Lars Kolind announced in early 1990 a unique package of innovative and radical initiatives in terms of organizational structure, job design, information technology, and physical layout of the company. Oticon was rebuilt as a networking organization and became the world’s technologically leading audio logical company; and within five years was listed on the Danish stock exchange.
The recommendations for the change process was 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 are described:
1. To Increase the competitiveness by utilizing human and technological resources in a more efficient way, reducing the overhead costs, which at that point of time exceeded the actual production costs;
2. The objective is to replace the hierarchical job structure where in each employee is involved in number of projects at the same time considering each project as a business unit with its own criteria.
3. To reduce the written paper communication by establishing electronic scanning of all incoming mail and introducing comprehensive information technology systems, networks, etc.;
4. To disown traditional managerial jobs and transferring managerial authority to the project groups or the individual employee;
5. An open space office to be created where physical mobility persists where in each person has a cart or trolley, a cabinet on wheels containing the computer, the phone, and a limited space for files that can be moved around in the office.
4.0 Organizational Culture and Climate
Edgar Schein defined culture as “A pattern of basic assumptions invented, discovered or developed by given group as it learns to cope with its problems of external adoption and internal integration worked well enough to be considered valuable and therefore, to be taught to new members as a correct way to perceive, think and feel, in relation to those problems.”
Wagner III and Hollenbeck have defined organizational culture as “the shared attitude and perceptions in an organization that are based on a set of fundamental norms and values and help members understand the organization.”
Organizational culture is not inherit form of an organization, it has to be invented and later developed over a period of time. It enables employees to perform within the framework of the organization’s culture.
Environment plays a dominant role in developing the culture and so does demographic factors. Once the culture is developed, it virtually becomes a people’s organization from a functional point of view that promotes risk-taking among managerial cadre and generates novel ideas. It promotes communication that improves productivity and job satisfaction.
4.1 Organizational Climate
According to Bowditch and Buono “Organizational culture is with the nature of belief and expectations about organizational life, while climate is an indicator of whether those beliefs and expectations are being fulfilled.”
Employees in the organization keep studying the management philosophy and various actions they take to deal with organizational factors that are of a routine nature. These include the following:
(a) Selection Process of the employees.
(b) Leadership style and approach to solve problems of the employees.
(c) Wage administration.
(d) Attitude to implement change and incorporate latest technology.
(e) Job description.
(f) Organizational structure and frequency to modify the same based on need.
(g) Performance evaluation.
(h) Promotion policy and its implementation.
(i) Efforts involved in promoting creativity and innovations.
(j) Availability of resources for research and development.
Overt factors can be measured and fair assessment can therefore be made about the intentions of the management and efforts they are putting in to build an appropriate organizational climate. While on the other hand covert factors can not be quantified being of subjective nature.
Likert has carried out studies on organizational climate by isolating six different variables namely decision making, leadership style, motivation, goal setting, communication and control. Each variable was then evaluated on four dimensions. Each of the dimensions can then be studied on the five-point scale enumerated above. Based on the inputs so received on the specific study of a particular variable an appropriate conclusion of the prevailing organizational climate can be drawn. Suitable remedial measures then can be initiated to modify the climate to desired level.
According to Edgar Schein “Culture is the most difficult organizational attribute to change”. He specified three cognitive levels of organizational culture:
What can be seen and known,
Organizational mission and value,
Tacit assumptions which is the deepest level and the most difficult to explicate.
In the years before the change Oticon management had bureaucratic nature of the organization and corporate culture. It was more off hierarchical organization with importance given to people rather than position.
Oticon after year 1991 became more task culture, it developed into customer focus organization and started to be project orientated, where departments disappeared, individuals were expected to contribute to the organization and got recognized influence in the group. In short it was made more important what you do and not who you are.
Various companies have tried and tested teamwork organization unsuccessfully but what were the key elements that were responsible for the success of teamwork in Oticon?
A lot of companies want to implement teamwork in their processes, as working into teams has several advantages such as creativity, innovation, speed, and better productivity. Moreover, teams with more freedom in their ideas and way of working, seem to be more productive and creative than others with stricter rules.
In the case of Oticon, there are several key elements which were responsible for the successful implementation of teamwork.
Firstly, the employees were fully informed about the changes and the new working situation. In addition to this, some of them participated to the process of restructuring the company.
Even in the meetings there was the employees’ presence so as to be closer to the new decisions. It is important to be mentioned that it was necessary for the employees to practice in PC use, so they were encouraged to take a PC home so as to practice in their free time too.
Another aspect of this change was that because of the Spaghetti organization, all the departments were abolished, and the company’s structure was based on the projects. By this, employees were motivated, as they were encouraged to come up with new ideas for new projects, and become leaders of these project teams.
So, the company promoted creativity and innovative ideas among their workers and gained in productivity, as the employees felt satisfied and ready to contribute more, because they were active members in the development of the organization.
The organization of the company became more elastic, that gave freedom to employees’ duties; as they could co-operate and even more, work in the same offices, by moving their desks.
Oticon also gave the freedom to project leaders to select on their own the team members, according to their specifications, in a more informal way, the selected team members had the right to refuse to take part in the project. This means that the people, who are in the team, are by their will, so they are more dedicated in the goal, and loafing effects are avoided.
Furthermore, it is important to be mentioned that team meetings were frequently arranged, and the way the meetings were conducted, were organized by the team itself, in the frame of given freedom. So, teams decided in which way they could be more productive, and, be frequent meetings and good communication, the success was inevitable. On the contrary, meetings between senior management, and project groups had taken place only once every three months in order to present their results and take feedback.
A three year preparation period before the completion of the new structure was enough time for the idea to mature, and the organization’s members to adapt to the new working conditions.
Finally, the fully autonomous groups were one of the most important factors of success, as strong connections were built between the team members, which ameliorated the collaboration. Moreover, team members had the opportunity to work in several projects simultaneously, which allowed them to exchange and share ideas and information between “connected” projects. All in all, the not formalized structure encouraged all employees to contribute in the development, be having the right to give to their employers, new ideas and projects, without the fear of criticism.
Evaluation of the Outcomes, and the Present
Today, over two decade after the changes were inaugurated, overall management ideology and practice have largely remained the same, but a number of specific changes have occurred. The organization has been professionalized by defined projects in the sense that fewer people are now assigned as project team leaders, with a proper career path, and that a training program in project management has been launched — thus making it more selective and exclusive to become a project manager. The role of functional experts has been maintained, but has developed into more traditional business units or staff functions. The CEO’s thought of creating a “paperless organization” has proved to be too idealistic. Lars Kolind, the man behind the change of thought process in 1990-91, retired in 1998 and was replaced by Niels Jacobsen, who had been with the company from 1988 and “co-managed” the company with Lars Kolind until his retirement.
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