This Article Full Text (PDF) References Alert me when this article is cited Alert me if a correction is posted Services Email this article to a friend Similar articles in this journal Alert me to new issues of the journal Download to citation manager Citing Articles Citing Articles via HighWire Citing Articles via Google Scholar Google Scholar Articles by Foss, N. J. Search for Related Content

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

LINK, Department of Industrial Economics and Strategy, Copenhagen Business School, Solbjergvej 3; 2000 Frederiksberg, Denmark
njf.ivs{at}cbs.dk

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 a fundamental incentive problem of establishing credible managerial commitments to not intervene in delegated decision making. This theme is developed and illustrated, using the case of the world-leading 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 organizational means, neglecting, however, that about a decade later the spaghetti organization has given way to a more traditional matrix organization. In contrast, an organizational economics interpretation of Oticon organizational changes is developed. This lens suggests that a strong liability of the spaghetti organization was the above incentive problem: Frequent managerial meddling with delegated rights led to a severe loss of motivation, and arguably caused the change to a more structured organization. Refutable implications are developed, and the discussion is broadened to more general issues of economic organization.

Key Words: Internal Hybrids; Organizational Change; Delegation; Managerial Commitment Problems; New Organizational Forms

This article has been cited by other articles:

				T. Felin and N. J. Foss Social Reality, the Boundaries of Self-Fulfilling Prophecy, and Economics Organization Science, May 1, 2009; 20(3): 654 - 668. [Abstract] [PDF]

				R. Mudambi Location, control and innovation in knowledge-intensive industries J. Econ. Geogr., September 1, 2008; 8(5): 699 - 725. [Abstract] [Full Text] [PDF]

				K. Foss, N. J. Foss, and P. G. Klein Original and Derived Judgment: An Entrepreneurial Theory of Economic Organization Organization Studies, December 1, 2007; 28(12): 1893 - 1912. [Abstract] [PDF]

				N. J. Foss The Emerging Knowledge Governance Approach: Challenges and Characteristics Organization, January 1, 2007; 14(1): 29 - 52. [Abstract] [PDF]

				K. Foss, N. J. Foss, and X. H. Vazquez 'Tying the manager's hands': constraining opportunistic managerial intervention Camb. J. Econ., September 1, 2006; 30(5): 797 - 818. [Abstract] [Full Text] [PDF]

				M. G. Jacobides and S. Billinger Designing the Boundaries of the Firm: From "Make, Buy, or Ally" to the Dynamic Benefits of Vertical Architecture Organization Science, March 1, 2006; 17(2): 249 - 261. [Abstract] [PDF]

				A. G. L. Romme and G. Endenburg Construction Principles and Design Rules in the Case of Circular Design Organization Science, March 1, 2006; 17(2): 287 - 297. [Abstract] [PDF]

				S. Brusoni The Limits to Specialization: Problem Solving and Coordination in 'Modular Networks' Organization Studies, December 1, 2005; 26(12): 1885 - 1907. [Abstract] [PDF]

				S. Kaplan and R. Henderson Inertia and Incentives: Bridging Organizational Economics and Organizational Theory Organization Science, September 1, 2005; 16(5): 509 - 521. [Abstract] [PDF]