Resource title

Selective Intervention and Internal Hybrids - Interpreting and Learning from the Rise and Decline of the Oticon Spaghetti Organization

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Infusing hierarchies with elements of market control has become a much-used way ofsimultaneously increasing entrepreneurialism and motivation in firms. However, this paperargues that such “internal hybrids,” particularly in their radical forms, are inherently hard tosuccessfully design and implement, because of fundamental credibility problems related tomanagerial promises to not intervene in delegated decision-making ¾ an incentive problem thatis often referred to as the “problem of selective intervention.” This theoretical theme isdeveloped 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 radicalattempt 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 amore traditional matrix organization. This paper presents an organizational economicsinterpretation of organizational changes in Oticon, and argues that a strong liability of thespaghetti organization was the above incentive problem. Motivation in Oticon was stronglyharmed by selective intervention on the part of top-management Changing the organizationalstructure was one means of repairing these motivational problems. Refutable implications aredeveloped, both for the understanding of efficient design of internal hybrids, and for the moregeneral issue of the distinction between firms and markets, as well as the choice between internaland external hybrids.

Resource author

Nicolai J. Foss

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Resource language

eng

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application/pdf

Resource resource URL

http://hdl.handle.net/10398/7894

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