Spaghetti Organizations: Oticon’s revolutionary organization redesign & lessons learned for advertising agencies.

Prior to Rotman, I worked at one of Canada’s largest advertising agencies with well over 700 employees. Despite being a knowledge based organization, we were extremely compartmentalized and hardly spoke to one another. I consistently felt overworked and undervalued. Since leaving, I have struggled with understanding why my colleagues and I were so unhappy and why management was so blind to the problem. This week I finally had a breakthrough in Organization Design when we discussed Oticon, another knowledge based organization.

Lars Kolind
When Lars Kolind arrived, Oticon was clearly in crisis. The one time leader in hearing aid design and manufacturing was losing market share in Europe and North America. To make matters worse, they were struggling with innovation and design. The balance sheet showed a bleak future.

Kolind knew that dramatic changes were necessary to revitalize this company. Interestingly, the bold moves he took were not undertaken immediately. When Kolind arrived, Oticon was organized by product line, much like any other manufacturing firm. With a long history, the formal, compartmentalized culture was well engrained.

Short Term: Kolind’s first priority was cost-cutting. If the company was to survive, Kolind had to focus on the balance sheet. He eliminated inefficiencies by reorganizing by function which allowed for more economies of scale.

Long Term: Oticon is first and foremost a knowledge based organization. They stay ahead of their competition by constantly discovering new technologies and translating that knowledge to their products. As Oticon was struggling with R&D, Kolind took a bold, unconventional approach to design. He recognized that knowledge organizations are only as successful as the people in them, thus he reorganized in a way that both allowed knowledge transfer, broke down silos AND put people first.

The Spaghetti Organization

Upon reading about the resulting ‘spaghetti’ organization, my immediate reaction was, ‘this isn’t going to work’.

Employees were stripped of their formal job functions, rather, they were given very broad job descriptions and were encouraged to become far more well-rounded. The formal structure was completely decimated, instead they became project based, with employees choosing their own projects. The entire office was reorganized with furniture on wheels so that it would be mobile, workspaces could be changed at a drop of a hat. The most surprising development however, was the freedom offered to the employees who were free to set their own hours and vacation time. How on earth could a company operate without any accountability, you might ask? Well, performance and development were closely monitored and encouraged via monthly performance reports.

Lessons for Advertising Industry
The advertising that I worked at was organized by first and foremost by function. Within that function, we worked in groups by product (or client). For instance, I worked under a Vice President who was responsible for several of our major clients.

From what I have been able to glean from friends in the industry, this design is typical of large, full-service advertising agencies.

Could the Oticon ‘spaghetti’ organization design work for a large advertising agency?
1) Project based vs. function based (loose formal structure)
2) Broad job descriptions vs. Highly specialized
3) Employee freedom vs. 9-5ish in the office

I think the answer is yes and no.

Benefits: The project based approach makes a lot of sense, with the caveat that some continuity be maintained in order to develop a close client relationship. Additionally, employees believe it is necessary to change agencies in order to maintain fresh thinking. With the ability to constantly change projects and clients, attrition for this reason may be avoided.
Broad job descriptions would also be possible. For instance, there is currently overlap between many of the functional areas. For instance, media planners must develop a deep understanding of the consumer. This skill is also present in branding and relationship management (CRM).

Additionally, freedom to set your own hours, with the understanding that performance is constantly under review, is possible thanks to technology. In fact, there is an entire agency that exists using this premise. The Cloud Advertising Agents do not have a fixed office or hours. The entire organization operated using “free agents” on a contract basis.

The most interesting prospect of this organization design is raising the P&L to the agency level as opposed to the functional level. At times when I was working, the functions would fight over compensation. Splitting the compensation across divisions had several unfortunate drawbacks. Small cross-functional projects were rejected, or operated at a loss for one division. Staffing was inadequate in one or more divisions which lowered the quality of the work, decreasing client and employee satisfaction. Raising the P&L to the agency level may make more projects attractive and allow for adequate staffing.

Question Marks: It is not unusual for a company to employ multiple advertising and communications agencies. For instance, you will see Coca-Cola on multiple agency rosters. I’m unsure whether a spaghetti organization would attract a larger portion of the business from these clients or whether it would make a spaghetti organization less attractive.

Overall, I think that the Spaghetti organization structure shows promise for advertising agencies, and I don’t doubt that there are many that operate under this premise. For the organization that I worked at, however, as it is not in obvious crisis, I doubt management will undertake such a dramatic change. That being said, cracks are beginning to show in the once mighty ad giant. The question remains, is it smart to wait until the point of near bankruptcy, like Oticon, before making a bold change for the better?