Gould, M. (1994). Revolution at Oticon A/S (A): Vision for a changecompetent organization. Lausanne, Switzerland: International
Management Development Institute,
o
Major Project
Gould, M. (1994). Revolution at Oticon A/S(A): Vision for a changecompetent organization. Lausanne, Switzerland: International
Management Development Institute. Reproduced with
permission from ECCH at Babson Ltd., Babson College, Babson
Park, MA 02457 (28 May 03)
268
Managing Change
Case
Revolution at Oticon A/S (A):
Vision for a Change-Competent Organization
We told them we were going to take all existing departments away.
Nobody could hide anymore as everything would be out in the open. We
would be able to look at what they were doing, and they could see what
we were doing. This was a shock to a lot of people. They asked, "How are
we going to cope with this? Where are we going to sit? Is everybody
going to look at us all the time? What about people like me who are
managers, how are we supposed to talk to our employees privately? And
where?"
Torben Groth, former middle manager at Oticon
Never mind that CNN, the BBC, and other
international news bureaus were rushing
to Oticon A/S, the Danish manufacturer of
high-quality hearing aids in Hellerup,
Denmark. The real story was not only the
innovative new structure at Oticon, but in­
stead the revolutionary new assumptions
of what it meant to work and how one
worked. At Oticon, management had
given employees the power to drive
change and the opportunities for cease­
lessly pursuing new challenges. Employ­
ees would be the ones responsible for
setting the pace for change. The question
was: Would it work?
Source: This case was prepared by Dr. R. Morgan
Gould. Research Associate Michael Stanford, IMD,
and Research Officer Kate Blackmon, London
Business School, contributed to the development
of this case.
Copyright © 1994 by the International
Management Development Institute (IMD),
Lausanne, Switzerland.
Lars Kolind, Oticon’s new CEO, was
convinced that the best strategy for achiev­
ing long-term competitive advantage
would be to create a work environment that
unleashed individual ability and to design a
company proficient in the management of
change. Aware of the gamble, he had per­
sonally invested over DKK26 million in
this strategy, even though the outcome
could not be known in advance.
Oticon A/S was a niche company with
product lines devoted exclusively to the
improvement of hearing. Unlike several of
its chief competitors—huge, diversified
multinational companies—it manufac­
tured and distributed only three main
product lines:
1. Behind-the-ear (BTE) hearing aids,
which were produced in large series as
standard products and used primarily
by people with relatively severe hear­
ing loss.
Module 3
2. ln-the-ear (1TE) hearing aids, which
were produced for individual users, pri­
marily people with mild or moderate
hearing loss.
3. Systems that eased communication at
home, work and in various public situ­
ations, including loudspeaker systems
and loop amplifiers for schools,
churches, etc.
OTICON HOLDING A/S
Oticon Holding A/S, which had previ­
ously served an exclusively financial
function, was restructured in 1990 into a
group management company to gain more
optimal business opportunities, including
possible acquisitions in an industry under­
going rapid consolidation. (Refer to Ex­
hibit 1.) The change provided Oticon A/S
with a stronger market focus by giving the
subsidiaries greater visibility and support­
ing distributors for its hearing aids and
accessories in just over 100 countries. Oti­
con had sales companies in 13 countries
whose main task was to build and main­
tain Close cooperation with the profes­
sional hearing aid dealers; Oticon Export
A/S served this same function through in­
dependent distributors in the remaining
countries.
The main functions—research, devel­
opment, marketing, purchasing, and pro­
duction—were realigned to meet the new
market focus.
Implementing Change
269
THE HEARING AID
INDUSTRY1
THE MARKET
The main component of the worldwide au­
diology market was the manufacture and
sale of hearing aids accounting for 89.8
percent of the $1.13 billion total audiology
market in 1993, projected to rise to 90.4
percent by 1998. The market was mature,
with compound annual growth projections
from 1990 to 1998 estimated at 5 percent
per annum (refer to Exhibit 2); some ex­
perts, however, estimated growth as high
as 6.8 percent per annum. Industry experts
anticipated that the industry structure
would remain stable, with a host of estab­
lished companies participating. A consid­
erable number of mergers and joint
venture activities were also expected to
take place in an effort to expand product
lines and technology.
The United States historically had been
the dominant market for audiology, with
projected 1993 revenues of $467 million
or 41.2 percent of the market. Europe fol­
lowed with $386.6 million (34.1 percent);
the Pacific Rim had $149.6 million (13.2
percent); and the rest of the world ac­
counted for $130.5 million (11.5 percent).
(Refer to Exhibit 2.) Industry experts be­
lieved that this market structure would not
change much, though higher growth rates
were likely to occur in Eastern Europe,
Asia, and especially China; the U.S. mar­
ket was expected to remain, flat through
the end of the century. While world rev­
enues grew by 9.9 percent in\1987, they
’Market data from Market Intelligence Research
Company, 1993.
270 Managing Change
EXHIBIT 1
The Oticon Group
Die William
Demant-Stiftung
Switzerland
William Demants & Hustru
Ida Emilies Fond
The Oticon Foundation
Denmark
Otovox S.A
Switzerland
Oticon H oiding A/S
Den mark
Oticon Foundation
New Zealand
Oticon S.A.
Schweiz
Oticon
New Zealand LTD
New Zealand
Oticon G.m.b.H.
Germany
Oticon S/A
Norway
Oticon Export A/S
Denmark
60%
Oticon EspanaS.A.
Spain
i 15%
IA M Pty. Ltd.
Australia
u
i
i
I
'
Oticon AB
Sweden
Oticon Lydsystemer A/S
Denmark
Oticon Nederland B.V.
Holland
Oticon France S.A.
France
Oticon K.K.
Japan
Oticon A/S
Denmark
Oticon Limited
Great Britian
Otovox Italia S.rJ.
Italy
Oticon INC.
U.S.A
Club Hearing
Instruments A/S
Denmark
Module 3
EXHIBIT 2
Implementing Change
271
Worldwide Audiological Market
Revenue and Forecast by Product Type
Source: From Market Intelligence, October 30,1992. “World Audiology Products Market: Market Size/Forecasts by Region."
fell by 3.3 percent in 1988—chiefly be­
cause of the decline in sales of custom
hearing aids in the huge U.S. market. Oticon estimated that sales figures for 1993
would show a 7 percent decline in the U.S.
market.2
Projections indicated that, because
there were a large number of manufactur­
ers in the industry—coupled with the gen­
eral economic recession of the early
1990s—prices would remain steady and
price competition would continue to be an
important dynamic in the market. Differ­
entiation of the product through the addi­
tion of value-added features was a key
strategy available to manufacturers in this
mature market. Sales correlated directly
with manufacturers’ efforts to educate end
users and to provide technical support to
dispensers.
2Personal correspondence with Leif Sorensen.
END USERS
Hearing impairments were generally of
two kinds: conductive impairment, which
affected the middle ear and could be reme­
died with surgery; and sensorineural im­
pairment, which affected the inner ear and
cochlear nerve and was not amenable to
surgery. Although an estimated 10-20 per­
cent of the population had defective hear­
ing, only about 5-10 percent of those who
could benefit from hearing aids wore
them. In addition to overcoming the
stigma associated with hearing loss, man­
ufacturers had to overcome physicians’
lack of conviction concerning the thera­
peutic utility of sensorineural devices.
Previously incapable of being corrected,
sensorineural hearing loss had become
possible to correct with hearing aid de­
vices, but the medical community still
needed to be convinced.
272
Managing Change
TECHNOLOGICAL
DEVELOPMENT
OTICON’S PRODUCT
LINE
The major function of a hearing aid was to
increase the volume of sound heard by the
wearer. Modem electronic hearing aids
were composed of a microphone, an am­
plifier, and an earphone. The microphone
converted sound into an electrical current,
the amplifier increased the current, and the
earphone converted the amplified signal
into sound.
Miniaturization of hearing aids made
possible the development of the first
behind-the-ear hearing aids, replacing tech­
nology from the 1950s. Recent technologi­
cal advances included remote volume
control devices, sophisticated sound filter­
ing, and multichannel digital program­
ming for different levels of hearing loss and
variations in hearing environments.
With the introduction of digitally pro­
grammable hearing aids, the industry was
transformed overnight. Prograihmable
systems allowed the dispenser to cus­
tomize the hearing aid and to adjust it as
the user’s hearing changed. Multi-channel
hearing aids treated low-, medium-, arid
high-frequency sounds differently, using
nonlinear amplification.
Hearing aid technology was moving to­
ward the creation of a single hearing aid
that could be adjusted to many types of
hearing loss through prograiriming, caus­
ing many current products to become ob­
solete. Oticon was at the leading edge of
developing hearing aids With nonlinear
amplification, and sought to become a
leader in programmable, fully digitized
hearing aids.
The hearing aid market was segmented
into behind-the-ear (BTE) and in-the-ear
(ITE) hearing aids. BTE hearing aids,
used for relatively severe hearing loss,
were more standardized. They were fitted
to the contour of the outer ear and worn
behind the ear so that a relatively small
number of sizes could fit most people. ITE
hearing aids, for mild to moderate hearing
loss, were individually designed by taking
an impression of the client’s ear and then
fabricating a customized shell. The market
for BTE hearing aids was stagnant, while
the market for ITE hearing aids was con­
sidered the higher-growth segment.
In 1991, Oticon introduced MultiFocus, the world’s first fully automatic hear­
ing aid with no user controls. This device,
which could treat 70 percent of people
with hearing loss, exceeded sales projec­
tions by more than 100 percent. As tech­
nology moved toward digital signal
processing, Oticon added an integrated
circuit development team, in one of the
largest design centers in Denmark, to de­
velop new chip technology. The creation
of new products had shorter and shorter
life-cycles (currently 4-7 years), but most
of them still constituted upgrades to exist­
ing Oticon products rather than creating
new market segments.
COMPETITION
Siemens Audiologische Technik (Erlan­
gen, Germany), a division of Siemens
A.G., and Starkey (Minneapolis, USA)
were the world’s two leading hearing aid
manufacturers, in both volume and market
share. Starkey was the leader in ITE hear­
ing aids. Oticon A/S was the third largest
Module 3
hearing aid manufacturer in the world.
Oticon had cooperated for many years
with the other two Danish hearing aid
manufacturers, GN Danavox, and Widex
A/S, on technical matters—especially
concerning issues on standardization. Oti­
con exported 90 percent of their produc­
tion. Other competitors included Phillips
Hearing Instruments, Dahlberg, and
Phonak.
The hearing aid industry was becoming
more competitive, with over 100 compa­
nies in the market. Oticon was targeting
the high-priced segment of the market,
where audiology expertise and reputation
differentiated them from low-cost manu­
facturers. Lars Kolind sought to enhance
Oticon’s market focus by giving greater
attention to Oticon’s customers, who were
the nearly 5,000 key hearing aid dis­
pensers and hearing clinics most commit­
ted to end-user satisfaction. The industry
practice of close collaboration with physi­
cians and medical facilities would con­
tinue, but again only with those more
professionally focused.
DISTRIBUTION
Hearing impairment had to be diagnosed
by a professional audiologist. Then, the
hearing aid device would be purchased
from a dispenser—that is, the audiologist,
a physician, or a licensed independent
hearing aid fitter—who would buy di­
rectly from the manufacturer. Increas­
ingly, retail outlets were also springing up
(similar to those for vision wear), making
it more difficult for small independent dis­
pensers to compete with large chains.
Nevertheless, the number of independents
continued to grow, with a nearly tenfold
increase of audiologists in the United
States alone over the previous decade.
Implementing Change
273
Access to distribution networks was
also made through acquisitions. Bausch &
Lomb, for example, had recently pur­
chased Dahlberg, the manufacturer of
“Miracle Ear,” a hearing aid with high
brand-name recognition in the United
States, for its network of 800 franchises
and 200 Sears Roebuck Miracle Ear hear­
ing aid outlets. Oticon similarly sold to
chains of hearing aid dealers who were re­
sponsible for increasing volume in Europe,
the United States, and the Far East. Club
Hearing Instruments A/S, a project headed
by Soren Holst, was launched in 1992 to
service the dealer chains. These chains had
their own service departments, marketing,
stock control, and distribution systems,
eliminating the need for the hearing aid
supplier to perform those functions.
OTICON’S HISTORY:
A STEADY COURSE
Oticon was founded in 1904 by Hans Demant, whose wife was hearing-impaired.
When he returned from a visit to the
United States, he brought his wife one of
the first electronic hearing aids, and soon
others were asking for this new product.
Demant started importing hearing aids for
sale in Europe, operating as essentially a
trading company.
Oticon began its own production of
hearing aids during World War II, remain­
ing a family-owned business until 1956,
when new management took the company
into mass production. Under this same
management, the company rose to the
number one position in the world by the
end of the 1970s. With 15 percent of the
world market, and sales in over 100 coun­
tries, Oticon had established itself as a
leader in miniaturization, the technology
used in mass production of behind-the-ear
274 Managing Change
hearing aids. “What counted then was
miniaturization, and we were very good at
that,” said Lars Kolind in looking back at
Oticon’s “golden age.”
Although Oticon’s second management
had proved its effectiveness by becoming
number one in the hearing aid market, the
company was “conservative” like many
others of its era. The functional depart­
ments—marketing and sales, finance,
manufacturing, and operations—were
headed up by directors who, in turn, made
up the top executive group responsible for
all strategic decisions. “Basically, Oticon
had been an extremely conservative com­
pany for many years and was still the
same when I joined in 1984. We had lots
of departments,” reported Torben Groth,
who had been a middle manager in those
days. The hierarchical structure worked
well for the mass production of hearing
aids, providing the necessary coordination
and control for a manufacturing company.
where its major costs were incurred, en­
abled the company to continually show
improved financial performance through
1985. In reality, during the period
1979-1985, Oticon lost a tremendous
amount of competitive power. By 1985, a
reversal of the favorable exchange rate—
the declining value of the dollar against
most European currencies—coupled with
competitors’ introduction of the ITE prod­
ucts put Oticon in a highly threatened posi­
tion. Oticon’s market share tumbled from
15 percent to 7 percent; the world cham­
pion lost its position as market leader and
fell to third place. Some seriously ques­
tioned whether Oticon could even survive
this disastrous development. Following
losses of DKK 4 million in 1986 and DKK
41 million in 1987, Oticon’s Foundation
Board decided that new management was
needed to overcome the crisis.
OTICON’S THIRD
MANAGEMENT
CRISIS AT OTICON
“What we didn’t know was that hearing
aids would move two centimeters, from
behind the ear to right into the ear, and
that’s a very long distance,” recalled Lars
Kolind. With the advent of in-the-ear
products, Oticon was faced with a rapidly
declining market share as competitors
reaped the benefits of the technological
breakthrough. With no ITE product of its
own to offer in this changing market, Oti­
con was not a player. By 1987, ITE hear­
ing aids accounted for just under 50
percent of the world market, while behind-the-ear products represented only
slightly more than 50 percent.
Oticon’s troubles had actually begun in
1979, but the favorable exchange rate be­
tween U.S. dollars, the source of most of
Oticon’s income, and Danish kroner.
Lars Kolind was an unexpected choice for
CEO as he had had no previous experi­
ence in the industry. He had, however,
come from a company producing scien­
tific instruments (Radiometer) that had
gained first place in another niche market
Furthermore, his values, for the most part
corresponded to those of the Foundation
Board members. Thus, Lars Kolind and
his team became only the third manage­
ment of Oticon since its founding in 1904.
The previous management, however,
remained fully involved in Oticon’s oper­
ations. The former CEO assumed a seat
on Oticon’s Foundation Board. The for­
mer technical director took a position in
manufacturing operations. The previous
sales and marketing director went to
Paris as General Manager of the Oticon
subsidiary in France. Only the previous
Module 3
Implementing Change
275
EXHIBIT 3
Oticon Financial Performance, 1988-1990
Oticon Holding Group
| C6^**^v,.yL"s, || p|| vT-Jt
gl
|gj|g| :
DKK 1,000
1988
1989
1990
432,756
1,97,125
11,534
6,893
-48
-5,110
10,836
124,033
353,357
1,064
449,601
212,910
13,782
36,105
22,298
16,944
-19,015
137,399
378,479
1,087
455,931
195,069
15,822
16,870
13,127
10,425
70,392
172,694
370,853
1,049
-3,9%
50,000
248
13.0%
50,000
6.7%
65,000
266
Principal Figures
Net turnover
Gross profit
R&D
Profit on primary operations
Profit before tax
Net profit for the year
Net cash flow
Shareholders'equity
Total assets, year end
Number of employees
Key Figures
Return on equity
Share capital
Book value per 100 DKK share
.
V.’: 'H
•'
-■'-t
275
Sales by Region (Percent)
1990 (est.) 1991 (proj.) 1992 (proj.) 1993 (proj.)
Scandinavia
Western Europe
North America
Asia
Rest of world
15
35
25
15
10
finance director retired. Throughout Oticon’s history, management continuity had
been a constant, and the arrival of Lars
Kolind would do little to change that
tradition.
CRISIS MANAGEMENT
Lars Kolind immediately introduced dras­
tic cost-saving measures and refocused the
business on specific key segments. He
moved quickly and mercilessly to bring
down overhead costs and to cut unprof­
itable product lines. Some 10-15 percent
of the employees at headquarters lost their
jobs. The turnaround was dramatic.
15
36
23
15
11
15
40
21
13
11
15
38
19
16
12
Within six months, Oticon returned to
profitability, despite heavy losses in the
first two quarters of 1988. By 1989, Oticon reported a profit of DKK 22 million.
(Refer to Exhibit 3.)
Lars Kolind immediately saw the need
to change the market focus. Since quality
had become a requirement for participa­
tion, nearly all competitors were meeting
quality standards. Thus, Oticon’s position
as a high-quality, high-cost producer no
longer assured it competitive advantage.
Lars Kolind decided that Oticon should
become the preferred partner with the
most professional hearing clinics and
hearing aid dealers in the world.
276 Managing Change
Until 1988, our strategy was to be
the biggest, the best, to do everything
for everybody. Clearly, this didn’t work
for us. So, in 1989, we refocused our
business toward those dispensers or
retailers who were most interested in
providing end-user satisfaction. We
decided to concentrate our entire
business on the professional end of the
retailing business—that is, those
dispensers who were concerned about
their end users. That was the basis for
all the reductions and changes. Our aim
was to develop and maintain those
activities that fostered customer
satisfaction and to eliminate the rest. We
are doing exactly the same thing today.
Lars Kolind promoted several younger
managers who had been middle managers
before the change ta higher levels, where
they would assume responsibility for mak­
ing the necessary changes for survival.
But, although the financial turnaround
was successful, the feeling remained that
nothing had really changed. Lars Kolind
elaborated:
What I had accomplished is what a
good captain on a ship can do if he
takes charge, but I didn’t think that I
had managed to establish a long-term
stable change at a significantly better
level. You know you can cut costs and
you can cut away loss-making product
lines and activities, but you have not
significantly improved your
competitive position in the long term.
COGITATE
INCOGNITA: THINK
THE UNTHINKABLE
You are not alone when you fight;
there are people who want to work
together with you. But I saw that
certain major competitors were
driving new technologies and were
moving fast. I was concerned that
we had not established a solid base
for the long term. And, I realized
that this concern was not generally
accepted at all inside the company. |
was really alone in wanting to take
the company significantly further.
Imagine my situation. Everybody
from outside, including the Board,
was saying that we had a really
fantastic management. They were
satisfied and wanted to leave things
the way they were. I felt more
alone than I had ever been.
Lars Kolind
On New Year’s Day, January 1, 1990,
Kolind wrote a four-page memo in which
he described his dream for the kind of or­
ganization he believed would achieve a
sustainable competitive advantage for the
future: an organization that would lead in
creativity, innovation, and flexibility. Lars
Kolind asked all Oticon employees to
“think the unthinkable.” Tossing out all
assumptions about work and workplaces,
Kolind challenged his managers to begin
again with a clean slate. All paper would
go. All jobs would go. All walls would go.
The foundation upon which Oticon would
build its future would rest on twin con­
cepts: dialogue and action. Everything at
Oticon would be designed to support these
two ideas as the means for making break­
through accomplishments in creativity,
speed, and productivity. “We really wanted
to be innovators in this industry,” said
Kolind, “but we were known for being ex­
actly the opposite. We wanted to combine
innovation with new records in productiv­
ity levels.” Kolind set ambitious goals: a
30 percent increase in productivity in three
Module 3
years, an objective which became known
aS Project 330.
LARS KOLIND’S
VISION
What Lars Kolind had in mind was a com­
pletely . different kind of company; it
woiild have just one team—of 150 em­
ployees at headquarters—all continuously
developing. This company, the new Oticon, would not just run faster, but better.
Lars Kolind wrote in his memo that Oticon would be:
• A company where the biggest part of
what we are doing is something we are
good at and like.
• A company organized in such a way
that all working there better understand
what they are doing.
• A company where there are as few lim­
its as possible that stop people from do­
ing a good and effective job.
• A company where each one of us has
many possible opportunities to develop
in the long term, to change working
tasks, to try bigger challenges.
In his memo, Lars Kolind explained the
increasing competition brought on by glob­
alization and price pressures: Having the
best product in the world was no longer
good enough; the company had to be an or­
ganization working in concert—that is,
with sales, marketing, service, production,
and administration as one unified team. He
told them that the cost of doing business
was too high in all areas—from administra­
tion to materials to marketing. All costs had
to go down by 30 percent in order to sur­
vive the price competition alone. Having
these figures as a goal—30 percent in three
years—was how Project 330 was con­
ceived. Achieving these objectives required
Implementing Change
277
more than simple refinement, it meant an
entirely new way of thinking.
Lars Kolind asked each employee to ex­
amine his own job and focus on what he
did well. It was not acceptable, he asserted,
for a development engineer to spend only
25 percent or less of his time on real re­
search work, or for a product manager not
to spend time visiting clients to glean new
ideas for product development. Each em­
ployee should be able to do several tasks:
those he or she did very well, and those
where new skills could be learned.
Everyone was asked to eliminate nonvalue-added activities:
The development engineer must be able
to spend more time on research if we
are to increase our competitiveness by
30 percent. We must spend more time
on real sales work than today. More
time on marketing than today. More
time on effective control of the product
stream and profitability than today.
Less time writing memos, marking
territories, pointing fingers at other
departments, and putting out fires.3
The solution Lars Kolind proposed in
his memo did not, then, focus on func­
tional expertise. Instead he called on
everyone to assume several jobs to maxi­
mize individual contributions. Thus, when
activities in one area slowed down, em­
ployees would be available to pick up ac­
tivities in a second or third area.
Lars Kolind was strongly convinced
that paper hindered efficiency. If people
were expected to work with other employ­
ees on several projects, then each person
should be able to move about freely. Paper
inhibited that capability. Paper hid infor­
mation instead of sharing it. Paper added
no value; indeed, it took time away from
3Quoted directly from "Think the Unthinkable,"
the original memorandum prepared by Lars Kolind.
278 Managing Change
value-adding activities. The solution? Get
rid of the paper. Lars Kolind imagined in­
stead a computer information system with
complete transparency, where anyone
could work anywhere by simply using a
computer on any desk. The computer sys­
tem should make it possible to write less
and talk more. Lars Kolind exhorted in his
memo:
The goal of the computer system is to
enable us to solve problems much
faster and more, efficiently by “talking”
to each other rather than writing
memos. Sit down at an empty desk, tell
the PC where you are, and then you
have your files. Talk about how to
solve a project: it is faster, more
effective, and more fun than writing.
The other barrier to working together,
in Lars Kolind’s opinion, was a physical
one: walls. If people were to become one
big team, then the walls had to go. Lars
Kolind argued in his memo:
Why do we have partitions? The work
environment should be interesting and
exciting with an open environment.
Then, employees could become part of
a bigger entity where they would more
easily understand how their job relates
to Oticon’s strategies and goals. The
time needed for a traditional
organization with many controls could
be replaced by giving greater time to
clients.
FIRST REACTIONS
The memorandum was meant to initiate a
dialogue for a new way of doing things.
But by February 1990, Lars Kolind had
had enough discussions with his manage­
ment to know that the older, more tradi­
tional managers were against his proposal.
Torben Groth recalled that some managers
were not only bewildered by the concept,
they were strongly opposed to it. Many of
the younger people, however, agreed that
the company needed the very changes that
Lars Kolind was prescribing. Loyalty had
always been a strong value at Oticon and,
when Lars Kolind indicated his commit­
ment to this new way of working, every­
one extended support—at least on the
surface. The document “Think the Un­
thinkable” was drafted for presentation to
the staff and the Foundation Board.
There had been little resistance when
Lars Kolind first presented his vision, but
also not much confidence that it would
ever materialize. However, momentum
was quickly gained when discussions be­
gan in earnest about relocating Oticon’s
headquarters and the new kind of organi­
zation Lars had in mind.
MERGING TWO
CULTURES
Lars Kolind felt he had to be bold when
considering the problem of where to locate
Oticon’s new headquarters. The company
had previously been located in two sites—
marketing and product development at one
site; corporate management, administra­
tion, and distribution at the other—and two
distinct and incompatible cultures had
emerged. Moving one to the other might
invite disaster. Instead, thought Kolind,
why not create a new third culture and
move them both into that? Oticon was in a
strong position financially after weathering
the crisis. But it was still a high-cost, highoverhead company, despite the many sig­
nificant reductions. This situation, together
with a house divided within itself, led Lars
Kolind to consider radical solutions.
Module 3
EXHIBIT 4
Implementing Change
279
Some Milestones
From March 1990—when “Think the
Unthinkable” was first introduced—
through the remainder of the year, Lars
Kolind devoted himself to preparing Oticon’s employees for the move to the new
headquarters. In November 1990, he hired
Sten Davidsen to manage the change
process. Davidsen came from Den Danske
Bank, where he had been working on a
bank merger project. Davidsen first pre­
pared a one-page “map” of the change
process (refer to Exhibit 4), so that all em­
ployees would be informed about how
they fit into the plan. A statement of cor­
porate values was drafted and circulated
(refer to Exhibit 5).
Small working groups were formed to
cany out the actual tasks related to the or­
ganization changes. One group worked di­
rectly with the architects and engineers as
they designed the new headquarters build­
ing. Another group edited and published
“Project 330,” the newsletter that kept all
employees up-to-date on progress. A group
of 13 people called “Superusers” was cre­
ated to train people how to use the software
for the new information system. “We got a
lot of people involved in the process—as
280 Managing Change
EXHIBIT 5
Statement of Values at Oticon
many as possible—and gave them a free
hand in deciding for themselves what
responsibilities they had in their area,” re­
membered Niels Jorgen Toxvaerd.
Monthly meetings were held, and a
number of academics and consultants
were invited to present the latest thinking
on organization design, communication,
and teamwork. Lars Kolind’s new man­
agement group was similarly involved in
reexamining some of Oticon’s fundamen­
tal business assumptions, renewing prod­
uct lines, and reviewing the company’s
strategy regarding markets, products and
competitive moves.
RESISTANCE BECOMES
REVOLT
As the change process progressed, and as
it became apparent that Lars Kolind was
intent on implementing his vision, resis-
tance among Oticon’s management inten­
sified. Open resistance finally emerged
when relocation to Thisted in Jutland, a
remote part of western Denmark where
Oticon’s manufacturing site was located,
was being considered. Managers who had
been covertly resisting became com­
pletely open in their opposition to the
move; they began to work actively
against Lars Kolind. Despite all Lars
Kolind’s efforts to prepare everyone for
the move to the proposed new headquar­
ters in Jutland, he was suddenly facing a
full-scale revolt. Should he proceed with
his vision? Had he perhaps already gone
far enough? Was it possible that Oticon
had indeed achieved sufficient fiscal
health and that such radical restructuring
was no longer really necessary?
Module 3
Implementing Change
281
Reading
United in the Quest to Become Radical
Matthew Jones
“A lot of businesses are like caterpillars
wanting to be sleeker, fitter and more sus­
tainable,” says David Vamey, the chief ex­
ecutive of BG, the oil, gas, and pipeline
company formed from the upstream half
of the old British Gas.
“The trouble is that the caterpillars of­
ten don’t realize they are blind, so when
the opportunity to become a butterfly
comes along they say ‘this is not for me.’ ”
Mr. Varney may be unusual in his use
of metaphor, but his quandary is shared by
many executives at the head of large pri­
vatized companies. At BG, he found that
the company carried a lot of baggage from
its state-owned days. “Change” was not a
word everyone in the group recognized.
He thought BG needed an outside influ­
ence to counter the fixed ideas that had de­
veloped within the company.
So when the Performance Group, a
Norwegian-owned management consul­
tancy, approached him to chair a global
learning consortium, he eagerly took up
the offer. Two years on, the results are in.
And BG has in’the past few weeks made a
series of announcements that suggest the
company is learning to be radical.
Mr. Varney’s consortium searched
Europe for other companies that were
facing similar challenges. It assembled a
collection that included ABB, the Swiss
engineering group; SJ, the Swedish
State Railways cargo division; Posten,
Source: Financial Times, May 12, 2000, p. 33.
the Swedish postal service; Wallenius
Wilhelmsen Lines, the Nordic cargo ship­
ping group; and Unitor, the Norwegian
shipping-services group.
“People got involved because they had
a need-driven appetite,” explains David
Oliver of the Performance Group.
BG, for its part, was pondering how to
increase growth and value for sharehold­
ers. In addition, the regulator that oversees
BG’s gas-pipeline business was becoming
tougher, and the scope for further perfor­
mance improvements appeared limited.
The aim of the consortium was to visit
international companies that were recog­
nized as either having gone through a lot
of change or as leaders in their industries.
The companies were a mixture of large
and rapidly growing businesses. They in­
cluded FedEx, International Business Ma­
chines, Sears, Cisco Systems and 3M, and
all agreed to be interviewed on a confiden­
tial basis, provided that they would re­
ceive the conclusions of the consortium’s
research.
“We were amazed that all of the com­
panies we approached wanted to see us
and took the exercise very seriously,” says
Mr. Vamey.
The findings from the visits were
shared at a two-day conference in
Chicago, and then filtered back to the par­
ticipating organizations through further in­
ternal meetings.
The consortium discovered that in or­
der to increase the odds of successfully
changing their business, companies had
first to conduct an honest appraisal of
282 Managing Change
themselves and be ruthlessly blunt about
where they stood in the market.
They then had to develop their ability
to look ahead. Only that way could the
companies determine what threats and op­
portunities were coming along, and create
the energy and focus to implement the ap­
propriate response.
The last main conclusion was that com­
panies too often played to their traditional
strengths and failed to recognize new
ideas. The consortium advocated that com­
panies create a “question everything” cul­
ture and a “hothouse,” where ideas could
develop without being judged too early.
Mr. Varney says that, in all, his com­
pany spent about two man-years on the
exercise. Yet at first glance the conclu­
sions appear to be fairly obvious and not
particularly new. So why spend so much
time and money, when the spade work
could have been done by a management
consultancy, and the lessons could have
been gleaned from any one of the hun­
dreds of management manuals?
Mr. Varney says the real value of the
program lies partly in having the weight of
real-life examples behind him when he re­
ported back to his own board, and partly
in seeing first-hand how BG was analyzed
by a cross-section of companies.
“People listen a lot more if you can say
‘this is what IBM did in that situation.’
Consortium exercises like this catalyze ac­
tivity and help to make the process of
changing the company’s culture more
transparent,” he says.
In the past few weeks BG has also em­
barked on an information-system strategy.
It has announced that it will develop a net­
work of fibre-optic cables and communi­
cations towers around its pipeline to take
advantage of the growing needs for highquality data transmission capacity.
The group is also demerging Transco,
its regulated pipelines company, from the
international oil and gas exploration and
production arm of the business. And it has
created a “venture laboratory” to work on
a few good ideas, including natural-gas
vehicles and small-scale combined heat
and power plants.
In business, as in anything else, it helps
to see things for yourself.