Working Paper Series, Department of Industrial Economics & Strategy, Copenhagen Business School
Nicolai J Foss
Internal Disaggregation in Oticon: Interpreting and Learning from the Rise and Decline of the Spaghetti Organization
Abstract: Infusing coordination mechanisms that are characteristic
of market organization in hierarchies has become a much-used way of
simultaneously increasing entrepreneurialism and motivation in firms.
However, such "internal hybrids" are inherently problematic, because of
fundamental credibility problems related to managerial promises to not
intervene in delegated decision-making. This theme is developed using the
case of the Danish hearing aids producer, Oticon. In the beginning of the
1990s, Oticon became famous for its radical delegation experiment the
"spaghetti organization." Recent work has interpreted the spaghetti
experiment as a radical attempt to foster dynamic capabilities by imposing
loose coupling on the organization (Lovas and Ghoshal 2000; Verona and
Ravasi 1999; Ravasi and Verona 2000), neglecting, however, that about a
decade later, many of the more radical elements of the spaghetti
organization have been left. This paper presents an organizational
economics interpretation of the spaghetti organization and its subsequent
transformation. In such an interpretation, the spaghetti organization
imposed significant organizational costs that could be tolerated as long as
the benefits produced by the spaghetti organization dominated the costs.
One source of organizational costs that the paper focuses on turn on the
potential contradiction involved in combining a strong manager who
possesses ultimate decision rights with widespread delegation. A number of
implications are developed, both for the understanding of internal hybrids,
and for the more general issue of the distinction between firms and
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