How Oticon developed over the period in question, and what changes may be necessary in the future, drawing on key organisational development theory.
To what extent are the changes made by Kolind sustainable, what challenges does the new President face, and what will he need to bear in mind in terms of implementing more change in the organisation?
Oticon and Its Development
Oticon was founded in 1904 in Denmark. It is understandable that the new company grew up in the socio-economic context of its times: based on economic theory well-known in beginning of the twentieth century and it did take its common approach to the structures of business organization.
The industrial revolution was still having a profound effect on socioeconomic condition in European countries in the beginning of the twentieth century. Industrialisation and mass production was taking over the role of the old fashion manufacturing craftsman. Use of steam-powered machines led to a massive increase in the number of factories. It created the new class of industrial workers which were needed to work machines. European working class and middle class was made.
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The spread of the Electric age and introduction of simultaneity from the instant spread of electricity transform the notion of process-based way of working of specialized segments of attention (splitting every process into a sequence) to the idea of the awareness of the whole, sense of function as a unity.
Rapid development of industry and changes happening in society provided an intellectual framework which welcomed scientific knowledge.
Common threads were appearing in the productive industries ? Marxism-Leninism and Communism concentrated on ?commodification? of man while Ford revolutionized automobile manufacturing process by employing interchangeable parts on assembly lines-heralding the beginning of industrial mass production were looking towards technological development and growth of work efficiency.
Emerging scientific and technological development created new ideas and schools of organisational development.
The first theoretician who conducted scientific research of organisational and management development was F.W. Taylor who tried to find ?the best way? of working. He wanted to cut on laziness of workers, he believed what he called ?systematic soldiering?; workers always do minimum and often only pretend to work. He introduced job analysis in a scientific way so every one knew how much work should be done in one day. This also enabled management to measure productivity more accurately.
He observed methods used by workers in the factory and used task analysis to achieve maximum of effectiveness. Standardised tasks were introduced to workers as he believed in profound specialisation.
His theory of supervision was based on control and discipline through hierarchy. Every labourer?s work was planned in advanced and his work was controlled and described in details. It was management?s role to find out which job suited which worker and train them accordingly.
Taylor created management as a job to do and gave it degree of respectability but also constituted a formal division between workers and supervisors. To this extent in the case study it is noticeable that in the turnaround this was seen as one of the key impediments to improving the situation of the organisation at the time.
Taylorism led to development of a theory of administrative management.
Henri Fayol defined the five functions of management as planning, coordinating, organising, commanding and controlling.
He produced a conceptual framework for management as a whole.
This mode of thinking was underpinned by German sociologist Max Weber and his analysis of bureaucracy.
He described ideal bureaucracy in positive terms with following qualities: role definition, hierarchy/authority, rules and procedures, qualification for office, impartiality.
When first discovered and developed, scientific and administrative management theories were see as progressive steps in its modern world. Bureaucracy described and analysed by Weber was a constructive addition to modern administration, although it was also to prove to have not only strengths but weaknesses.
Marxist-Leninist theory as implemented by Stalin demonstrated the evil side of strongly centralised and controlled organisations. The failure of Five Year plans in agriculture and heavy industry in the Union of Soviet Socialist Republics are ample example of the weaknesses of a heavily centralised system.
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The weaknesses of a bureaucratic system can be summed up as;
- Treatment of individual human beings as impersonal object. (and thus reducing innovation, loyalty to the organisation and its goals).
- Nepotism and corruption can counter the rule of impersonality and create a recruitment and promotion system based on oligarchy.
- Lack of criticism and dependability makes organisation unable to change and realised its own mistakes and limitations.
- Competences can be unclear and often decision itself may be consider more important than its effect, in unusual case decision-making process can be slow or even impossible.
- Control reduces the risk element of modernization, but also reduces people?s innovation. Change is not welcome and employees don?t like to stand out of the crowd and be different.
And yet, bureaucratic organisations have their strengths as well, to some extent depending on the people who work there e.g. if your employee population is from the theory X group from the MacGregor typology. Human history tells us however that many people strive for more. In summary, bureaucratic strengths are:
- Security and stability of the job.
- Being controlled and directed takes responsibility away from the employee. Thus, there is no stress involved.
- Clear job description allows not using people imagination and helps those with lack of ambition.
Analysing Oticon before 1991 there are many pieces of information that imply it was a highly bureaucratic Company.
1. The Company was very traditional, with strong managerial structure. Oticon was departmentalised and lethargic; Kolind said that the Company had?been sleeping for ten years?.
2. Core competence rested with the Head Office. There was a formal structure, job description and policies, departments and supervisory positions.
3. The head Office and administration was too big and top-heavy, too costly and was not functioning effectively. Company had a wrong product on the market and lost half of its equity.
4. Oticon hardly changed over the years and the only way to improve was to appoint a new President from outside of the organisation.
5. Oticon did not modernise his production quickly enough. The Company was strong in analogue technology while market was moving towards digital technology.
6. One of the reasons its performance declined was that the mass production is not flexible because it is difficult to modify production process after a production line is implemented.
Although bureaucracy worked for Oticon until the seventies, changes in the modern world pushed it into a phase of decline.
Over the last 30 years changes within the global economy have created new management challenges demanding solutions both more complex and more demanding of management skills than traditional hierarchy could cope with.
Vertical bureaucracy had to change to the horizontal corporation (Castells, 1996).
Kolind shifted Oticon from bureaucracy to modern, task-oriented, project-based organisation.
He created organisation around process not tasks, introduced flat hierarchy and team management. The Company was run ?more creative, faster, and more cost effective than the big players? (Kolind, 1990)
His mission statement based performance management upon customer satisfaction.
The contingency school
Contingency approach to the management was developed as a result of researchers trying to understand why management methods that appeared to work well in one situation failed in another.
It is based on the idea that there is no one best way to manage and that to be effective, planning, organizing, leading, and controlling must be tailored to the particular circumstances faced by an organization.
According to the contingency perspective, stable environments suggest mechanistic structures that emphasize centralization, formalization, standardization, and specialization to achieve efficiency and consistency. Certainty and predictability permit the use of policies, rules, and procedures to guide decision making for routine tasks and problems. Unstable environments suggest organic structures which emphasize decentralization to achieve flexibility and adaptability. Uncertainty and unpredictability require general problem solving methods for no routine tasks and problems.
Oticon before 1991 could be classified as a mechanistic organisational form with its traditional structure, strong supervision, task?s distinction and obedience to the organisation.
Oticon after 1991 adopted an organic approach. The Company worked based on individual tasks and relied on worker commitment to tasks rather than pure obedience.
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Communication consisted of information rather than instructions e.g. all information was scanned to the computer and available to be read by every worker.
Another important indication of organic form is network structure of control and communication. Oticon adopted four of five organising principles for network described by Lipnick and Stamps (1994):
- Unifying purpose (staff should share ideas, values and goals); for example at Oticon the staff were encouraged to participate in the informal meetings to share their ideas.
- Independence (each member is able to stand on its own while benefit from being part of the network).
- Voluntary links and multiply leaders. Oticon was flat organisation without job titles compare to integrated levels hierarchy used by Lipnick and Stamps.
The Hawthorne Experiments began in 1924 and continued through the early 1930s. A variety of researchers participated in the studies, including Clair Turner, Fritz J. Roethlisberger, and Elton Mayo, whose respective books on the studies are perhaps the best known. One of the major conclusions of the Hawthorne studies was that workers' attitudes are associated with productivity. Another was that the workplace is a social system and informal group influence could exert a powerful effect on individual behavior. A third was that the style of supervision is an important factor in increasing workers' job satisfaction. The studies also found that organizations should take steps to assist employees in adjusting to organizational life by fostering collaborative systems between labor and management. Such conclusions sparked increasing interest in the human element at work.
According to the human relations school, the manager should possess skills for diagnosing the causes of human behavior at work, interpersonal communication, and motivating and leading workers. The focus became satisfying worker needs. If worker needs were satisfied, wisdom held, the workers would in turn be more productive. The human relations school focuses on issues of communication, leadership, motivation, and group behavior.
Oticon under Kolind?s management understood the importance of human value. However Kolind concentrated mainly on people?s adult approach to work.
He believes workers to behave like adult at work, without need of being controlled and supervised all the time. He gave them the freedom at work and he expected the good results. The companies changed to operate on a project basis, people were expected to manage themselves and make sure they work effectively. But originally the employees were not recruited to work in such a modern organisation. Many had a problem with loss of routine and supervision. Managers lost their authority, power and status.
Work satisfaction based on security and recognition was gone and many workers which couldn?t cope with the situation left the Company. Kolind dealt with change in his dictatorial manner?take it or leave it?. Mayo?s management?s involvement with workers at an individual emotional level was ignored in that case. According to Kurt Levin?s force field theory people don?t want change and it is very important to change people behavior and perception what the change is about. Communication is vital to overcome the fear. Although Kolind did communicate with the staff before the change the involvement was probably not strong enough to engage workers into the change and have their acceptance.
Kotter in his six change approaches gives good model how to minimize resistance to change in organisation. Communication and education together with participation and involvement can make people recognize that the change is needed, overcome their resistance and see that the change is feasible.
Formal and Informal organisation
Oticon before the change could be considered a formal organisation with its strong policies and procedures, job description, efficiency measures and rules and regulations.
As shown by Mintzberg informal communication is important because managers prefer it, they intend to bypass formal systems and build their own networks of informal contacts. It also is essential in social relationships; people need to relate to each other, they rely on friendship. Oticon after the change became more a informal organisation. The manager role as such actually disappears together with authority (some of managers had a problem to handle it). The company focused on informal communication e.g. coffee meetings when people could exchange the ideas and information. They were expected to work on those ideas and also put them into computer so it could be available for everybody else.
? Culture is both a dynamic phenomenon that surrounds us at all times, being constantly enacted and created by our interactions with others and shaped by leadership behavior, and a set of structures, routines, rules and norms that guide and constrain behavior.? ( Schein) .
According to Edgar Schein culture is the most difficult organisational attribute to change. He specified three cognitive levels of organisational culture: what can be seen and known, organisational mission and value, tacit assumptions which is the deepest level and the most difficult to explicate.
In the years before the change Oticon management and bureaucratic nature of the organisation determined corporate culture. Role culture defined Oticon as it was hierarchical organisation with roles more important than people and position?s power.
Oticon after year 1991 growth to be more task culture, it developed into customer focus organisation and started to be project orientated, departments disappeared, individuals were expected to contribute to the organisation and got recognized influence in the group. It was more important what you do not who you are. It caused the problem within management as they lost their power and privileged position.
Theory of Leadership
Bass distinguished between transactional and transformational leadership. Transactional leader accepts structure, objectives and culture of the existing organisation. He is part of a hierarchical system and manages people within bureaucratic structure. The relationship between leader and workers is seen as a transaction, he provides rewards if they perform adequately. Jobs are described and punishments are known.
A transformational leader wants to transform the organisation. He has a vision and can communicate it the way which is appealing and inspiring others. He motivates workers to do more than expected, wakes up people?s social responsibility and pride. People understand why the tasks are important teamwork make people feel they belong to the team and fulfill their needs (Maslow).
Being very traditional organisation before the change Oticon had managers rather than leaders. Warren Bennis developed comparison of the differences between management and leadership. Managers are administers, focused on systems and structures and systems and rely on control. That is how Oticon, probably, was managed before the change.
Kolind had changed it all. He was not only transformational leader but also charismatic one, who lead by vision and value. Leader who would make people follow him for different reasons, some would totally believe in his vision some would follow because of his strong personality and luck of compromise. He followed most of Garry Yukl?s guidelines for transformational leadership; he had a clear vision and was able to explain it to others. Kolind had to act confidently and optimistically to be able to communicate confidence in the followers.
Knowledge management comprises a range of practices used by organisation to identify, create, represent, and distribute knowledge. Nonaka used distinction between explicit and tacit knowledge. Explicit knowledge is knowledge that the individual holds explicitly and consciously in mental focus, and may communicate to others e.g. technical, procedures, figures. Tacit knowledge is what is in our heads, our ?wisdom?.
Tacit knowledge is important during innovation process. Kolind was aware of it and he put emphasis on workers tacit knowledge. Explicit knowledge is seen as recordable (on paper, computer disk, etc.), and tacit as inherently difficult to record and hence to share through such media as computers.
A possible solution to this is to see sharing tacit knowledge as a process, achieved through human interaction, rather than as simple content. Kolind have a say in this by connecting people so that they can collaborate and share their tacit (personal) knowledge about a particular work context or practice. Open line office, no demarcation lines, and availability of all information as well as informal communication helped sharing tacit knowledge and used it in projects.
Post - Kolind Issues
Kolind left Oticon, a transformed organisation, in 1998. New President Niels Jacobsen faced a problem how to keep Oticon on the track. One of the key issues here is the danger that when the leader leaves the Company people intend to go back to their old habits, and to their old behaviors. As in the example with the rubber band, if the gap between the ?as is? and ?to be? is very big there is a danger that it is going to snap back. If the band is pushed to far organisation can be destroyed. The rubber band represents the people and the culture; they will push to go back to where they were. In Oticon case it all would depend of in which moment of development Kolind left the company. Gestalt psychologists see learning process as going from unconscious competence or unconscious incompetence to conscious incompetence, then conscious competence and finally unconscious competence. If Oticon workers were at any of last two stage of this development it is probable the change made by Kolind was sustained. But if he left his workers in conscious incompetence level it is possible they would act like rubber band and push back.
Another symptom of sustained change would be if Oticon?s workers, during Kolind?s 10 years management, developed in them McGregor?s Theory Y. They need and desired work and are willing to contribute to organisation?s success. They accept responsibility and are creative and innovative.
New leader has to find his way to lead and motivate people. Shall he follow Kolind?s way of lead differently? People were used to his management and it is always difficult to replace a charismatic leader.
From a personal perspective, I worked as a manager in Dutch company Anova with a similar structure to Oticon. The company was transformed and led by its director who was a very strong and charismatic leader.
The company was run very successfully in East Africa for 8 years until the director left for Holland. After his resignation the company survived another 18 months and then closed down.
Addressing the issues
In summary, there are several approaches the new CEO could take based on the information supplied on Oticon;
One is to take some internal functions and outsource (e. g. finance, HR, manufacturing), while keeping research and development inside. This way Oticon could make more space for young innovative people.
Another is to offer older employees a chance to set up consultancy for Oticon for specific operation, resulting in the optimum size of operation and clearing the way for younger staff ? thus removing potential recruitment and retention issues.
Young people come to the company and bring their enthusiasm and new way to approach projects. It is easier to keep chaos controlled in the small organisation. It has to have certain number of employee to make all social groups to work effectively - demonstrated thru studies of military organisations.
Two questions remain for the organisation and the new CEO to deal with:
1.How it is possible to regroup project groups without using bureaucracy?
2.How they measure effectiveness without any bureaucratic tools? As demonstrated above in the section on bureaucracy, bureaucracy and elements of Taylorism allow a clear delineation of roles and what activities need to be carried out ? which made it easier to track progress. Although the company has improved some of its key numbers it is not clear to what extent this has come from an improved organisation and working culture or purely through the new product. Which begs the question as to whether some form of bureaucracy may need to be introduced by the new CEO?
From the case study we can surmise that Oticon is still successful company. Despite its problems, there are several possible explanations for this;
1.People learned through process of change and became more adaptable. A positive experience of change leaves people more capable of handling future changes.
2.People became better at utilizing and commercializing knowledge assets. According to Itami (1987) this means that the organisation has developed its ?invisible asset? knowledge base from which all employees operate.
Oticon could be used as good example of how the management theories changed over the twentieth century.
Darwin said that it is not the strongest or most intelligent species that survive but the one which respond to changes quickest.
The global business environment is changing faster then ever. Businesses constantly need to reshape their ideas to survive. Organisations need to be transformed not restructured.
Kolind was a right leader for what the market as the end of the twentieth century demanded. He transformed Oticon, abolished formal organisation, disorganized Oticon and created a ?spaghetti? organisation.
Oticon had a chance to face the 21st century as a modern company, ready for the new Millennium. To survive the Company needs to stay aware of market?s demand and respond quickly and better than competitors.
At the same time, management change methodologies will also need to stay ahead to the point where change will be anticipated as a normal part of our modern life, resistance to change will be dmod and organisations will be able to respond much faster and efficiently to environmental changes.