1) What does the case describe in terms of changes in the way that people worked at

Oticon?
The entire company had a drastic change, especially on how each individual in the company
think and work. Kolind decided to demolish the concept of formal organisation, and became
a project based organisation (the spaghetti model) each project was considered a
business unit. Every project leaders had the choice of picking their team, responsible for
the timeline, budget and results. Job titles, departments and traditional managerial jobs
disappeared, encouraging each employee to be involved in several project at once, often
cross-functional and cross- organisational. Anyone can be a team leader as long he/she has
the necessary technical and leadership skills. Kolind emphasized and encouraged employee
empowerment. Any employee is encouraged to put forward project proposals. Formal
offices were eradicated and replaced by open space filled with workstation which anyone
could use. Wide staircases were built where people unavoidably meet each other by chance.
Informal and face-to-face dialogue replaced memos as the acceptable mode of
communication to enhance greater productivity. Oticon also establish electronic scanning of
all incoming mail, reducing paperwork.

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2)

Explore the connection between the changes in the way that people worked and
Oticons overall business strategy.
Oticons overall new business strategies are knowledge based and innovative organisation.
Kolind had the expertise and knowledge to turn the entire company around. He did many
unorthodox things and was very innovative in his approach. Kolind did so many changes to
the company as mentioned in the previous question.
However, one of the key changes and I believed that led Oticon to be successful, was the
change to spaghetti model. It emphasizes a lot on the employees empowerment. We can
observe the mix of Theory E and O (Beer and Nohria. 2000) being practiced at the company
at the same time. (1 2 Manage 2009 extract of The key differences between theory E and
Theory O table):
Dimension
of Change

Leadership

Focus

Process

Theories E and O
Theory E

Theory O

Combined

Encourage

Set direction from the top

Manage from the

participation from the

and engage the people

top down

bottom up

below

Build up corporate

Focus simultaneously on

Emphasize

culture; employees

the hard (structures and

structure and

behaviour and

systems) and the soft

systems

attitudes

(corporate culture)

Plan and establish

Experiment and

programs

evolve

Plan for spontaneity

With the changed from the concept of formal organisation to project based organisation,
3 key changes can be seen from the table above. 1) Leadership The leadership style
used to change the companys culture is also key to analyse how Oticon dealt with
people during the change. It encourages participation from both top down and bottom
up, e.g. anyone can be a team leader as long he/she has the necessary technical and
leadership skills. 2) Focus Top management keeps emphasising on verbal
communication and wants to reduce written communication. Turned the office space into
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open space, to incorporate openness/formality culture. 3) Process Top management

decides which project to prioritize and start, employees experiment by cross-functional
and organisational.
Since the implementation of Think the Unthinkable four years ago, investment in
research and development has tripled, turnover has doubled and return on investment
increased five times. Linking good human resources methods to overall business strategy
allowed the company to achieve greater performance overall.
The aim of the change is multiple, redefining corporate culture to include a better
customer service, to improve employees involvement and also to facilitate launches of
new ideas and products on the market place, to achieve competitive edge in the sector.
3) Identify one HR topic which management would need to consider as a result of
the changes at Oticon. Complete a literature review relating to the topic and on the
basis of your research make recommendations to Oticons management on its HR
policy in relation to the topic.
Both compensation and incentive are the key motivator for majority of people. They are
dependent on performance. One of the primary ways organisation use to improve
employees motivation is providing performance-contingent incentive compensation to
align employee and shareholder interests (Delaney and Huselid 1996). Compensation
can be classified into three different plans; 1) Base-compensation (fixed pay to
employees). 2) Pay incentives (bonuses and profit sharing. 3) Indirect compensation like
health insurance, vacation (Gomer-Mejia et al. 2004).
It is essential that organisations have the right compensation system. Having the right
designed compensation system motivates performance, help attract and retain
employees, and is deemed to be a core element of employer-employee relationship.
(Wah, 2000; Bloom & Milkovich, 1996). Studies showed that employees who are more
likely to stay in the organisation are those participated in benefit programs
(Namasiyayam,K.,Miao,L. & Zhao,X. 2007).

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There are many different compensation methods each organisation uses. Oticon had a
major change in their compensation system and adopted a spaghetti model; which
compensations are performance-based. It motivates employees to do their best because
their efforts will affect their income (Arthur & Jelf 1999) Previously, Oticon used a
hierarchy structure, which their pay determines the employees position in the
organisation (Schreurs et al., 2013).
In spaghetti model, employees with greater results and high productivity will be able
to earn a higher wage regardless of their position in the company (Su, 2012). When an
individual is able to earn money for good performance, it will encourage them to work
harder, more efficiently and effectively (Camerer & Hogarth, 1999). (Ryan & Deci,
2000) highlights that the freedom to make decisions in the team resulted in high
motivation for the employees. The change to a spaghetti model is a positive one for
Oticon as it will demolish the mind-set that your position in the company is determined
by your wages (Schaubroeck, 1996). This allows employees to step out of their comfort
zone to try and achieve more as they do not have this fear of superiority over them,
ultimately having a lot of friendly competition to bring out the best within one another.

However, some organisations have shown that not all performance-based compensation
system has a positive correlation with motivation factors. (Frey & Oberholzer-Gee,
1997).
(Ryan & Deci, 2012) highlighted that giving incentives because of competition or
performance actually makes them less motivated to do the task, hence producing lousier
work. Studies show that by giving larger-than-average monetary incentives will reduce
performance in some cases (Mobbs et al., 2009). An individual could be so caught up
with the incentive which led to the decrease in performance as one succumb to high
pressure in order to achieve it (Boniecki & Schlenker, 1995). Individual could also
demand a higher compensation, failing to achieve the demand could result in low
performance (Umanath et al., 1993)
I would recommend that Oticon might consider paying their employees based on team
performance rather than individual performance. This will encourage individual to work
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together and to help each other, to stimulate team spirit. Having individual compensation
rather than team performance compensation could result in unequal reward under certain
condition and might cause unfriendly competition within the team, resulting in lower
productivity amongst the group (Baron & Cook, 1992). There might also be conflict of
individuals justifying that they should get a greater incentives based on their contribution
to the team (Baron & Byrne, 1997). Furthermore, this should not be the case as the team
leaders are the ones that choose their teams. Another recommendation is that Oticon
could consider paying their employees with indirect compensation or non-financial plan
like vacations, staff benefits or even health insurance. Using of non-financial
compensation actually resulted in an increased in performance (Banker et al., 2000)
Paying individual with non-financial could also show that Oticon has their welfare
interest at heart, and not entirely on just getting results from them.
Oticon decision to adopt a spaghetti model changed how compensation should be
carried out for their employees. Two recommendations were given; Firstly paying the
employees from a team performance rather than an individual performance prospective.
Secondly is for Oticon to pay the employees with non-financial compensation plan.
Oticon should continue to monitor their compensation system to see how it can increase
companys overall performance, as it is always challenging for the HR department to
find the ideal one.

4) What options are there for design of the whole HR function at Oticon and what
would you recommend to management in terms of the HR role.
Adaptability is key. Since shifting from a hierarchical structure to a spaghetti model, it
is very important for Oticon to learn how to adapt to this model quickly and making sure
that the entire company follow closely with Kolinds Think the Unthinkable.
Since there is a drastic change in the organisation structure, I would recommend Oticon
to look at hiring, training and development.
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Hiring
Oticon changes the way on how employees work. When hiring of new staff, Oticon has
to change it hiring strategy because it is no longer just doing individual work, but to
make sure he/she is capable of working in a team-based culture. To add on, Oticon have
to ensure this individual has the ability to work in several cross functioning projects at
one time. Team-oriented and capability are the two key characteristic Oticon should look
for when hiring as getting a team player is so important.
Training and Development
Key area that Oticon should focus on because it is important that their employees are
well versed in different functions. Since working on several and cross functioning
projects are the norms in the company, it is essential that the employees get adequate
training and should continuously keep upgrading themselves by learning from different
departments. Other than trainings, employees could have role plays to let them
experience how it is like and what could be done when in different situations. Ultimately,
it should be the employees responsibility to upgrade their skills and make themselves
useful as Kolind has already issued an ultimatum; If people dont have anything to do,
they need to find something or we dont need them.
References:
Bryant, P. and Allen, D. (2013). Compensation, Benefits and Employee Turnover: HR
Strategies for Retaining Top Talent. Compensation & Benefits Review.
Lee, F., Lee, T. and Wu, W. (2010). The relationship between human resource
management practices, business strategy and firm performance: evidence from steel
industry in Taiwan. The International Journal of Human Resource Management, 21(9),
pp.1351-1372.
Namasivayam, K., Miao, L. and Zhao, X. (2007). An investigation of the relationships
between compensation practices and firm performance in the US hotel industry.
International Journal of Hospitality Management, 26(3), pp.574-587.
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Sarin, S. and Mahajan, V. (2001). The Effect of Reward Structures on the Performance
of Cross-Functional Product Development Teams. Journal of Marketing, 65(2), pp.3553.
Schaubroeck, J. (1996). Pay status hierarchy and organizational attachment. Journal of
Economic Psychology, 17(5), pp.579-589.
Strombach, T., Hubert, M. and Kenning, P. (2015). The neural underpinnings of
performance-based incentives. Journal of Economic Psychology, 50, pp.1-12.
Chow, C., Schulz, A. and Wu, A. (2010). Environmental Uncertainty, Comprehensive
Performance Measurement Systems, Performance-Based Compensation, and
Organizational Performance. SSRN Electronic Journal.

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