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Selective Intervention and Internal HybridsInterpreting and Learning from the Rise and Decline of the Oticon Spaghetti Organization

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  • Nicolai J. Foss

Abstract

Infusing hierarchies with elements of market control has become a much-used way of simultaneously increasing entrepreneurialism and motivation in firms. However, this paper argues that such “internal hybrids,” particularly in their radical forms, are inherently hard to successfully design and implement, because of fundamental credibility problems related to managerial promises to not intervene in delegated decision-making ¾ an incentive problem that is often referred to as the “problem of selective intervention.” This theoretical theme is developed and illustrated, using the case of the world-leading Danish hearing aids producer, Oticon. In the beginning of the 1990s, Oticon became famous for its radical internal hybrid, the ”spaghetti organization.” Recent work has interpreted the spaghetti organization as a radical attempt to foster dynamic capabilities by imposing loose coupling on the organization, neglecting, however, that about a decade later, the spaghetti organization has given way to a more traditional matrix organization. This paper presents an organizational economics interpretation of organizational changes in Oticon, and argues that a strong liability of the spaghetti organization was the above incentive problem. Motivation in Oticon was strongly harmed by selective intervention on the part of top-management Changing the organizational structure was one means of repairing these motivational problems. Refutable implications are developed, both for the understanding of efficient design of internal hybrids, and for the more general issue of the distinction between firms and markets, as well as the choice between internal and external hybrids.

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Bibliographic Info

Paper provided by DRUID, Copenhagen Business School, Department of Industrial Economics and Strategy/Aalborg University, Department of Business Studies in its series DRUID Working Papers with number 01-16.

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Date of creation: 2001
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Handle: RePEc:aal:abbswp:01-16

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Web page: http://www.druid.dk/

Related research

Keywords: Internal hybrids; organizational change; delegation; managerial commitment problems; new organizational forms;

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References

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  1. Nicolai J. Foss, 1996. "Firms, Incomplete Contracts and Organizational Learning," DRUID Working Papers 96-2, DRUID, Copenhagen Business School, Department of Industrial Economics and Strategy/Aalborg University, Department of Business Studies.
  2. Peter Maskell, 1996. "Localised Low-tech Learning in the Furniture Industry," DRUID Working Papers 96-11, DRUID, Copenhagen Business School, Department of Industrial Economics and Strategy/Aalborg University, Department of Business Studies.
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Citations

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Cited by:
  1. Robert Gibbons, 2010. "Inside Organizations: Pricing, Politics, and Path Dependence," Annual Review of Economics, Annual Reviews, vol. 2(1), pages 337-365, 09.
  2. Lars Lindkvist, 2004. "Governing Project-based Firms: Promoting Market-like Processes within Hierarchies," Journal of Management and Governance, Springer, vol. 8(1), pages 3-25, March.
  3. Rebecca Henderson & Sarah Kaplan, 2005. "Inertia and Incentives: Bridging Organizational Economics and Organizational Theory," NBER Working Papers 11849, National Bureau of Economic Research, Inc.
  4. Agnès Festré & Nathalie Lazaric, 2007. "Routines and leadership in Schumpeter and von Mises' analysis of economic change," Post-Print halshs-00271338, HAL.
  5. Akın Kazakçı & Thomas Gillier & Gérald Piat, 2008. "Investigating co-innovation in exploratory partnerships: An analytical framework based on design theory," Post-Print hal-00417247, HAL.
  6. Silvia Dominguez-Martinez & Randolph Sloof & Ferdinand von Siemens, 2010. "Monitoring your Friends, not your Foes: Strategic Ignorance and the Delegation of Real Authority," CESifo Working Paper Series 3172, CESifo Group Munich.
  7. Nathalie Lazaric & Alain Raybaut, 2007. "Knowledge, Hierarchy and incentives: Why human resource policy and trust matter," Post-Print hal-00453292, HAL.
  8. Lam, Alice, 2004. "Organizational Innovation," MPRA Paper 11539, University Library of Munich, Germany.
  9. Nicolai J. Foss, 2006. "The Emerging Knowledge Governance Approach Challenges and Characteristics," DRUID Working Papers 06-10, DRUID, Copenhagen Business School, Department of Industrial Economics and Strategy/Aalborg University, Department of Business Studies.
  10. Ferdinand von Siemens, 2011. "Intention-Based Reciprocity and the Hidden Costs of Control," Tinbergen Institute Discussion Papers 11-115/1, Tinbergen Institute.
  11. Lam, Alice & Lambermont-Ford, Jean-Paul, 2008. "Knowledge Creation and Sharing in Organisational Contexts: A Motivation-Based Perspective," MPRA Paper 11488, University Library of Munich, Germany.
  12. Oliver Baumann & Nils Stieglitz, 2011. "Motivating Organizational Search," DRUID Working Papers 11-08, DRUID, Copenhagen Business School, Department of Industrial Economics and Strategy/Aalborg University, Department of Business Studies.
  13. Kirsten Foss & Nicolai J. Foss & Peter G. Klein, 2006. "Original and Derived Judgment An Entrepreneurial Theory of Economic Organization," DRUID Working Papers 06-09, DRUID, Copenhagen Business School, Department of Industrial Economics and Strategy/Aalborg University, Department of Business Studies.
  14. Kirsten Foss & Nicolai J. Foss, . "Authority and Discretion: Tensions, Credible Delegation, and Implications for New Organizational Forms," IVS/CBS Working Papers 2002-08, Department of Industrial Economics and Strategy, Copenhagen Business School.
  15. Markus Becker & Nathalie Lazaric & Richard Nelson & Sidney G. Winter, 2005. "Applying Organizational Routines in understanding organizational change," Post-Print hal-00457068, HAL.
  16. Kjærgaard, Annemette, 2004. "Internal corporate venturing during organisational change:," Working Papers 2004-19, Copenhagen Business School, Department of Informatics.

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