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HYBRID ORGANIZATIONAL DESIGNS: THE SPAGHETTI (OTICON) ORGANIZATION
Alternative organizational designs come forward from the turn of the millennium
Traditional Designs
- Longstanding discontent with the traditional organizational designs (U-form, M-form and Matrix)
- Cumbersome, too bureaucratic and complex
- Low responsiveness to particular conditions, little capacity to adapt to new situations, different from standard ones
- Difficulties in handing exemptions
- Low capacity to adapt to change
- Limited delegation of decision rights (centralized, top-down)
- Incentives and motivation
The history of management and organization studies as a field is closely connected to ways to deal with these fundamental issues
Change and Organizational Designs
- The greater the pace of change and the
unpredictability of future events, the higher the problems of adaptability confronting traditional designs. The unpredictability of future made the traditional organizational designs enter in crisis- Hierarchy, structure, clear command and responsibility lines as liabilities. Responsiveness: - Flexibility - Incentives and motivation Traditional organization: - Low responsiveness - Low flexibility - Low incentives and motivations The Market as an Inspiration: - The market as a system - Production decisions and the makeup of demand High responsiveness: - Market decisions are made to respond to the demand - Production decisions need to be highly responsive towards demand Market needs to allocate resources through: - Competition - Price mechanism: Price of products is made by competition, by demand and supply Incentivizing economic agents: - Owning decision rights - Market incentivizes economic agents, such as producers.consumers because each agent owns decision rightsmaster of themselves- àCan the market as a system be used to help designing organizations? we see the riseof the idea of taking market as inspiration and infuse into the organization some of theprinciples of the market (conceived as a system, a complex mechanism in whichproduction decision making are done in response to demand > high responsiveness)
Organizational economics as a specific subfield of management
oMarkets and Hierarchies- Markets
Distributed and decentralized systemso Flexible with a minimal set of ruleso Capacity to adapto Incentiveso à à àHayek and after End of ‘80s and beginning ‘90s it was understoodo that we can inject the market structure into organizations to revitalizethem
- Organizations
Centrally controlled systemso § HierarchyRule bound behaviouro Specializationo Efficiency through planningo àCareer paths and salaries as incentives Organizations are connected too
à àcareer paths as incentives organizations are layers of careers tied to particular payments- à àOrganizations are designed to reflect markets in order to work organizationsàmust work to satisfy markets, so they should be similar but we see that markets are different from organizations- Markets and Organizations as alternative formsMarkets and organizations represent different systems or forms for producing goods and making them available- Firms (economic organizations) exist where markets fail to efficiently monitorà àtransactions between economic agents firms are particular kinds of organizationsàeconomic organization exist where markets fail to efficiently monitor transactions between economic agents- Which conditions are conductive to market failures?Transaction Cost Economicso- Market failures have many underlying reasonsàUncertainty of transactions not knowing what do you have on the othero àside so instead ofbuying you prefer to organize production internallyàComplexity of transactions if the product is very complex, the conditionò àthat underlie the production of the product constitute an impediment soinstead of having complex transactions you prefer to produce the productinternally àResource indivisibility so you need an organization to master theseo resources àEconomies of scale if they are strong they push actors to build organizationo àto exploit them because the more you produce of a particular product, theàlower the prices, because you divide costs with larger quantities share cost –economies of scale drive large, hierarchical organizations àSticky knowledge – that cannot be shared - and firm-specific advantageso knowledge that a specific firm needs in order to produce the productOtherso- Where none of the above applies, markets ought to be the most efficient mechanism forresource allocationHybrid forms- HybridLocal decisions à Improve individual and team incentives by internalizing decision makingo individuals and groups responsible for their decisions also through payment§ Making individual and groups responsible for their choicesRaise entrepreneurial capabilities within the organizationo Clarify business objectiveso àProvide incentives for sharing and reproducing knowledge diffusion ofo knowledge is easierCritical Issues of Internal Hybrids- Motivational and commitment problems that derive from the incomplete delegationof decision rights- In internal hybrids (delegated) decision rights are not owned; they are always loanedfrom the holder(s) of ultimate decision-making rights, namely the top managementàand/or the shareholders Decision rights are not owned (as in the market) – decisionmaking power is top management- fundamental problem: how to design anorganization that makes this delegation of decision rights reliable, credible, andrefraining fromintervening (selective intervention) when you disagree with it.- A fundamental problem for top management/owners is to commit to real delegation and refrain from selective intervention that harms motivation, and may reduce effort and investments in firm-specific human capital- Internal hybrids = organizations infused by elements of markets- External hybrids = market infused by planning
THE SPAGHETTI ORGANIZATION
Selective Intervention and Internal Hybrids: Interpreting and Learning from the Rise and Decline of the Oticon Spaghetti Organization
Oticon- Founded in 1904, Danish world leading company in hearing aids- Underwent radical organizational redesign to tackle dropping revenues and loss of competitive advantage Spaghetti organization is the Danish firm Oticon spaghetti re-design company went through radical organizational re-design to tackle dropping of revenues and loss of competitive advantage integrated market-based elements
Infusing market-based elements
- The new organization was cleverly marketed as the very embodiment of empowering project- and team-based organization.
- It quickly demonstrated its innovative potential by re-vitalizing important, but "forgotten" development projects. These projects produced significant financial results, essentially saving the firm from a threatening bankruptcy.
- The organization reverted negative trend and demonstrated innovative potential and moved from bankruptcy to innovation.
- New strong spin-off of products and innovation.
Background of the organizational redesign:
- Loss of competitive advantage and revenue and market share because of technological developments, most notably quickly developing miniaturization.
- Behind-the-ear aids versus In-the-ear aids.
Organizational Factors:
- Functional organization (U-form).
- Focus on technical capabilities.
- Product-centric orientation focused on products but the products they made were not anymore.
- Competence trap
- Doing efficiently things that are no longer relevant
- Products that lost some or all of their earlier market attraction
- The Spaghetti Concept
- Service rather than manufacturing firm
- They conceived themselves as a service firm, not a manufacturing firm
- So they redirected attention to external factors and customer experience
- The products they made were just one side of the coin
- Redirects attention to external factors and customer experience
- Knowledge rather than technology-oriented organization
- Focus on knowledge rather than technology alone (technology is part of it, but not all of it)
- Multiple knowledge centres
- Organization
- Flat and non-hierarchical
- Human centric
- Spontaneously working internal network
- Project-based organization
- Projects were linked to the formation of organizational units that were conceived as competence centres
- Competence Centres
- Multiskilling, boundary crossing
- Employees
Were actively encouraged (and in the beginning actually required) to develop and include skills outside of their existing skill portfolio.
No restrictions on the number of projects that employees could participate voluntarily.
Mobility:
- Extensive delegation of the rights to make decisions
- &agr;
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