Change Management (Oticon)

Introduction

“Nothing is more permanent than change” – Heraclitus This statement, as true and practical as it is, was not taken seriously by the Danish hearing instrument company, Oticon. Founded in 1904, Oticon was the first hearing instrument company in the world.

However, due to its bureaucratic and inflexible nature, the company was unable to adapt to the changing business environment and became unprofitable. Changes had to be made; else the company will go in the red. Besides the changes associated with the entry and exit of Mr. Lars Kolind as Oticon’s President, the company went through three (3) phases of change under Kolind’s leadership. The changes are:

1. In1988: Appointment of Lars Kolind “an innovator” as the third President of Oticon.
2. In 1988: Turning the poor performance and negative profitability round through cost-cutting measures: he pared the company down, cut staff and increased efficiency, and reduced the price of a hearing aid by 20 percent.
3. In 1990: 15 months planned change in company vision, competitive strategy, culture/values, organizational structure e. t. c.
4. In 1995: To avoid slipping back into a traditional departmental organizational form Kolind re-organized the company as a strategy to keep it ‘dis-organized’.
5. In 1998: Lars Kolind exit and Niels Jacobsen entry as Oticon’s President.

The following analysis will examine the triggers to the change; the change drivers and barriers; main stakeholders and opinions; and Oticon’s approach to change.

Triggers Leading to the Change

Oticon was a pioneer hearing instrument manufacturer and continued to operate in its initial strategy until things began to change due to;

1. Economic Trigger: It lost money and market share in the 80s’. In 1987, the performance was so low that it lost half of its equity.
2. Technology Trigger: The market became dominated by more advanced technology companies with preferred digital products compared to Oticon’s ‘behind the ear’ products.
3. Social Trigger: Customers preferred ‘in the ear’ variety of products compared to Oticon’s standard ‘behind the ear’ products.
4. Environmental Trigger: Oticon was operating as a state-subsidized Scandinavian company making it weak in more buoyant markets of America and the Far East.

Oticon Change Drivers

1. The new company President (Lars Kolind) was determined and will stop at nothing to bring change to Oticon.
2. The market gap for knowledge-based hearing instrument company with good marketing relationship and the main goal of putting a smile on customer’s faces.
3. Shareholders expectation: After 10 years of poor performance, the shareholder must be putting pressure on management for profitability.
4. Customer expectation: Demand for ‘in the ear’ type and digital product.

Change Barriers

1. Financial barrier: On arrival of Kolind as new president he needed to cut down cost to bring Oticon back to profitability in his first change drive. In his second stage change drive (strategic change) two (2) old building was abandoned and a new head office required ? 30 million.
2. Human resources skills and capabilities: Shifting from technical to knowledge (making people smile) based competition required a multi-discipline team comprising psychologists, audiologists, logistics, relationship marketers e. t. c.
3. Company structure: Traditional structure, job descriptions, and policies were barriers to cooperation, innovation, and teamwork.
4. Hierarchy barrier: Psychological barrier to change among senior managers based on fear or self-preservation (resistance to change).
5. Time: Estimating time required to plan and create the change especially the second change under Kolind that required change in company vision, strategy, culture, and structure.
6. Change management know-how: Lack of training on change management, information technology, mentoring, and team-building…

The main stakeholders, their influence, and major concerns. Stakeholder-1: Oticon Customers. Influence: Stakeholder has Low Power & High Interest. It has an informal referent power that stems from being a highly valued customer. Concern: Stakeholder seeking for a customer-focused and knowledge-based hearing device manufacturer/marketer. Stakeholder-2: Oticon’s Management. Influence: Stakeholder has High Power & High Interest. It has a formal legitimate power that stems from the position in the organization’s hierarchy “that is right to command”. The stakeholder is a key player in organizational change and change management strategy.

Concern: Stakeholders concerned with developing vision strategies and values to keep the business profitable through organizational change and change management. Stakeholder-3: Oticon’s Ownership (shareholders). Influence: Stakeholder has High Power & High Interest. It has a formal legitimate power that stems from consensus shareholders’ decisions during AGM. A stakeholder is a key player in organizational change, financial investment, company vision, culture/values, and change management strategy. Concern: Stakeholders concerned with creating wealth and adding value to invested capital. Maintaining a Danish company in the industry and creating employment for nationals. Stakeholder-4: Workforce (employees).

Influence: Stakeholder has Low Power & High Interest. Concern: Stakeholders with concern to keep their jobs and authority. Also, to be trained to acquire enabling skills to fit-in to the new “disorganized” Oticon. Stakeholder-5: Oticon’s Suppliers. Influence: Stakeholder has Low Power & High Interest. Concern: Stakeholders with concern to keep supplying goods and services to Oticon and develop a partnership-style relationship. Oticon’s approach to change management. After ten (10) years of poor performance and making losses, change came to Oticon in three (3) phases after the appointment of Lars Kolind as President in 1988. Each of the changes started by developing a strategy for change.

Phase One (1)

The first two (2) years the company experienced the first breeze of change as Kolind worked hard to turn the poor performance and negative profitability round through cost-cutting measures: he pared the company down, cut staff, and increased efficiency, and reduced the price of a hearing aid by 20 percent. By 1990, Oticon made a profit of some 16 million on a turnover of  400 million with sales growing at 2 percent per annum. However, the market was growing at 6 percent. Change approach: Emergent Approach of rapid transformation (bold stroke).

Phase Two (2)

The second stage of change started from the new year day of 1990 with the President coming up with a totally new company strategy of shifting from a technological based competitive advantage to a knowledge-based one. The change here required changing from a traditional organization, got rid of departments, departmental heads, and other managerial and supervisory positions. Job descriptions and titles and anything else that created a barrier between one member of staff and another was also eliminated. Change approach: Management set up a group to plan and implement the change using a Plan Approach of slow change in a stable environment which took 15 months of planning before implementation. The company did not rush into making a decision about what exactly was the problem, what solution to adopt or what equipment to purchase but rather to its time to plan and implement using a “top-down approach”.

The planned approached used follows the four (4) planned phases of change model (Bullock & Batten, 1985) which has:

• Exploration (unfreezing): Oticon was able to establish not only where problems lay in the company, but also whether the problems intensity and the priority and approach to change and change management.
• Planning (moving for a change): Clearing defining goals for change and setting up a small group comprising staff to plan and implement the new strategy which took 15 months.
• Action (making the change): Change to the new way of working and doing business took effect on the 8th of August starting with the head office as an approach that once the head office changes another subsidiary will follow the “top-down approach”.
• Integration (Freeze): It took months before everyone understood their new roles, and for the organization to cast off its old ways and begin to operate in an expected manner. By 1994 resultant outcome was impressive (see the conclusion for change impact measurement). The change management process applied here is similar to the ADKAR model (Awareness-Desire-Knowledge-Ability-Reinforcement).
• Awareness: As a change innovator leader Kolind first built awareness of the need for change. Sharing why the change is necessary with all relevant stakeholders and all the needful risk assessment.
• Desire: He further created the necessary motivating factors such as training staff and address the issue of resistance to change by involving staff in the transformational planning which results in employees choosing to support the change.
• Knowledge: Moving from technology to knowledge-based competitive advantage required training and education programs. This knowledge is critical to understanding what is changing, what the future will look like, how to change, and how stakeholders will fit into the change.
• Ability: The extension of knowledge into action or behavior in support of the future state of the change (Hiatt, 2006). In this case, the human value was used to support the future state of change.
• Reinforcement: Rewarding the successful efforts of implementing change was seen by way of Awards to Oticon, financial results, number of launched new projects, and its lead time, balanced scorecard, and market share increase.

Phase Three (3)

After achieving groundbreaking change and performance by 1995, he still believed the company was in danger of slipping back into a traditional departmental organizational form. His response to this was to ‘explode the organization’. In an uncharacteristically directive way, Kolind instructed people and teams to relocate within the Head Office. Teams devoted to short-term business goals (such as sales, marketing, and customer service) were moved to the top floor. People working on medium-term projects (upgrading existing products, for example) and long-term research were put on the second floor. Those dealing with technology, infrastructure, and support were located on the first floor. In Kolind’s words, ‘It was total chaos. Within three hours, over 100 people had moved. He justified this new bout of chaos by arguing that ‘To keep a company alive, one of the jobs of top management is to keep it dis-organized. ’ Change approach: Emergent Approach of rapid transformation (bold stroke). Dealing with people issues (Resistance) during the Oticon change process. “You’re not a war-time Consigliari, Tom. Things could get rough with the move we’re making” – Michael Corleone to Tom Hagen in Godfather II. The statement above shows how resistance to change by stakeholders can make things look very ugly. Hence, a strategy must be in place to mitigate resistance. There are five approaches to overcoming resistance to change (Kotter & Schlesinger, 1979), which are;

1. Educative Approach
2. Persuasive Approach
3. Facilitative Approach
4. Participative Approach
5. Power Approach.

In the three phases of change that took place during Kolind tenure some or all of the approach was applied. Particularly, a phase-2 change which was a major change Kolind applied all the five change approaches. Phase-1:  The fact that Oticon has been performing poorly and consistently making a loss for the past 10 years made it for the new President on arrival to cut non-performing staff, increase efficiency and achieving a reduction in the price of products by 20%. In this phase, Kolind used a predominantly power approach to lay-off unproductive workers which are most likely to resist change and unlikely to increase efficiency.

This was augmented with an educative approach by training the remaining staff to be more productive and persuasive approaches by making staff realize that poor efficiency/performance will not be welcomed by management. Phase-2:  After deep thinking and consultation with main stakeholders on Oticon’s new vision and business strategy. It was evident that Oticon needed a clear direction that everyone understood and a fundamental consensus about the basic human values to avoid the disoriented mass of individuals and resistance to change. “The management and staff open and lengthy discussion on the new strategy made everyone know why what and the reason behind the new business strategy”.

Employee relations and communication was very good in Oticon and hence employee saw things with management that change was justified. The staff that lacked project management skills and managers that had a power base initially found the new strategy as a threat. This fear and act of self-preservation was overcome by involving staff in planning the transformation, all staff was given IT skills training and given a home PC. Finally, the ultimatum issues by Kolind “accept the new arrangements or leave” sent a signal to staff that management will not tolerate resistance from any staff or group of staff. In addition, the use of open-plan office took away privacy that encourages conspiracy.

Oticon emphasized its human value to re-assure its workforce that their level of responsibility will not be threatened in the new Oticon. Its human value states “ Oticon only employs adults, and will treat its staff as responsible adults”. Giving them some level of authority with the management slogan “It’s easier to be forgiven than to get permission” meaning ‘if in doubt do it. If it works, fine. If it doesn’t we forgive you’. To overcome resistance to change in this phase Oticon used all five approaches.

• Educative approach: By making sure stakeholders understand the reasons for change and consequences as most resistance is born out of misunderstanding or lack of accurate information.
• Facilitative approach: This approach was applied to overcome resistance born out of fear from the lack of required skills and threat to self-preservation following the change. To overcome this project management and IT training were given and a home PC was provided for staff.
• Persuasive Approach: This approach was applied to overcome resistance born out of fear of loss of power base and authority. To overcome some resistance managers that were to lose their title and power base in a new flat organization were offered a project leader position in return.
• Participative Approach: Naturally, humans are political animals and want to have some influence on matters that affects them. This approach was applied by involving staff in planning the transformation and emphasizing the human values of the company to motivate and demonstrate to staff that they are still a highly valued stakeholder.
• Power Approach: This approach which is the most distasteful was applied at last when all the other four approaches have been used. This approach was in the form of (threat) ultimatum issued by Kolind “accept the new arrangements or leave”. Phase-3:  Resistance to change here was avoided using educative approach by staff understanding what the change was about and a facilitative approach by not having individual offices, use of little filing cabinet on wheels, and adoption of ‘paperless office’.

It was easy for staff to come in each morning, pick up their mobile office, and trundle it to wherever. This made it easy for management to avoid staff sitting back and the company slipping back into a traditional departmental organization and achieve keeping it ‘dis-organized’.

Leadership and management

After deep thoughts, Kolind demonstrated his skill as an innovative leader by establishing a clear vision and desired future state of the organization. As a motivating leader, he kept an on-going, open, multi-way flow communication regarding the need for change, how the change will be implemented and measured. In this way, a feeling of collective ownership of success and failure was created in Oticon.

Conclusion

During the tenure of Lars Kolind “an innovator” as President of Oticon, the company went through phases of changes both major and minor change. The impact of the change was measurable with numerous benefits for all stakeholders. Change impact measurement can be deduced by:

1. 15 new products launched in 3 years (by 1994).
2. New product lead time was halved.
3. Company sales were growing at 20% per annum when the market was shrinking by 5% per annum.
4. Oticon’s market share increased from 8% in 1990 to 12% in 1993.
5. Launch of the first digital hearing aid in 1995
6. By 1995, turnover increased by 100% in 1990 and profit has increased ten-folds.
7. Receiving numerous awards for innovations and employee empowerment.
8. Balanced scorecard.

References

1. Balogun, J. & Hope, V., (1999). Exploring Strategic Change. London: Prentice-Hall Publishing.
2. Burnes, B., (2004). Managing Change – A Strategic Approach to Organizational Dynamics. London: Prentice-Hall Publishing.
3. Hiatt, J., (2006). Adkar: A model for change in business, government, and our community. Loveland, Colorado: Prosci Learning Centre Publications.
4. Hiatt, J. & Creasey, T., (2003). Change Management: the people side of change. Loveland, Colorado: Prosci Learning Centre Publications.
5. Kotter, J. P., (1996). Leading change. Boston, MA: Harvard Business School Press.