Business Strategy - Oticon - Case Study Example

Oticon s Submitted by s: Introduction Oticon is a company in Denmark that used to be among the best in the market asfar as hearing aids were concerned (Nandram and Borden, 2010, p. 83). The evolution as well as progress seen among other competing companies such as Siemens Audiologische Technik and Starkey, forced Oticon into a precarious slippery position in the industry, particularly globally where the company exported most of its products to. The company was established in 1904 and during the mid-90s, it became best known for a radical turnabout within the firm that was intended at assisting the company achieve its complementary objectives of increasing the empowerment and responsibility of its workers, decreasing the product development cycles, enhancing interaction with the customers as well as creation of new knowledge (Burton et al., 1998, p. 400). The company’s CEO who was responsible for the “spaghetti organization” turnaround, consequently became a press favourite. In numerous ways, the strong publicity that was received by this experiment was warranted entirely (Picot, Reichwald and Wigand, 2008, p. 185). Overview of the company Oticon was started by a Danish citizen named Hans Demant who had an extremely personal objective in mind as he wanted to enhance the life of his wife, Camilla who lived with hearing loss (Rivard, 2004, p. 166). Through the couple was lucky to have a chance of visiting proficient doctors in Berlin and Vienna so that Camilla could have her ears checked, there was no intervention at that time that could assist in making her hearing better through surgical practices or hearing technology that existed at that time (Shi and Silvius, 2011, p. 151). At almost the same time, Alexandra married Prince Albert and became the queen and people became aware that she had to use Acousticon electrical hearing aid which was the first ever hearing aid that could be carried around, as she used it in the process of her coronation. This device was bulky and thus was more obvious to the public to notice. Hans Demant travelled to England in 1903 to make a purchase of the Acousticon for his wife and she realized that is significantly assisted her in her hearing. On realization that there were many more people who needed to access devices that could assist them in hearing, Hans developed a partnership with a company that produced the devices in the United States and started importing them for resale (Tye-Murray, 2009, p. 123). The company created by Hans progressively gained more business with his son taking over after he passed on (Mone and London, 1998, p. 231). During the Second World War, difficulties were experienced in the importations of supplies particularly from the United States and thus Hans’ son; William decided to manufacture the hearing aids in his own company for sale (Beech and MacIntosh, 2012, p. 235). He also exported the hearing aids he manufactured to other European nations and after the war, he signed an agreement with Charles Lehmann that formed a company which would buy hearing aid components and ship them to Denmark. At Oticon’s fiftieth anniversary in 1954, it was ranked as the number one provider of hearing aids in Denmark (Healthyhearing.com, 2014). It went on to open a branch in the United States in 1965 while expanding to have companies in other countries such as Switzerland, New Zealand and Japan among others. Later, William and his wife decided to give his share of the William Demant Holding Group to the Oticon Foundation which made the charitable group the largest shareholder of the company with shares that totalled almost sixty percent. Newer production plants were consequently opened in Scotland and Denmark in 1973 in order to cater for the increased demand for hearing aids and solutions (Hearingaidmuseum.com, 2014). Strategic position Industry analysis It is estimated that more than eleven million hearing aids were purchased in 2012 and this amounted to a total wholesale value of almost five and a half billion dollars. Almost half of the total hearing aids were sold in Europe, thirty percent in North America and the remaining in other areas of the world (Pyndt and Pedersen, 2006, p. 76). There is an increasing population of aging people all over the world and the numbers are likely to be high by 2030. Even though this seems to demonstrate that the hearing aid industry will boom, the market as it exists has a number of serious challenges, for example, the market decreased between 2008 and 2013 especially in the United States as a result of reluctant customers as well as the domination of the market by a few manufacturers and retailers who made of hard for other small businesses to get traction (Alpiner and McCarthy, 2000, p. 18). As a result of the costs associated to hearing aid devices to the users, the economic state along with the increased levels of joblessness has had a considerable effect on the number of hearing aids sold (Dalebout, 2009, p. 145). The sale of hearing aids dropped in the last decade by about 0.2 percent every year and even though the market has started improving, the losses that had already been realized have not yet been outdone. It is projected that the worldwide hearing aid market will progressively increase at a rate of seven percent every year until 2016 as a result of the emergent digital hearing aid devices (Dugan, 2003, p. 42). The entire hearing aid industry market all over the world is dominated by only six manufacturers where Sonova and Demant control almost a quarter of the market and have been progressively increasing the share they have since 2005 (Wei, 2007, p. 342). Resound is responsible for sixteen percent of the market while Starkey hold nine percent. Siemens which at one time held twenty three percent of the market share currently holds seventeen percent of the market while Widex has continued to hold a steady nine percent in the same period. Companies such as Demant, which owns Oticon as well as Sonova and ReSound, have been increasing the number of retail stores to the ones they currently own all over the world including the United States market (Stroud and Walker, 2013, p. 73). Sonova now has more than four times the number of store it had in the previous decade increasing its number of outlets all over the globe to two thousand. Costco has developed to become the biggest hearing aid retailer in the United States and its sales keep increasing at the rate of between nineteen and twenty percent each year. The company now has more than five hundred outlets in the US market which comprise of in-store hearing booths and audiologists. Regardless of whether a company is experiencing success or losses, the costs associated with hearing aids remains prohibitive to purchases (Magill et al., 2012, p. 106). Since the average cost of a hearing aid is three thousand dollars, it is common to find people postponing the purchase of these devices for a number of years. The people who already have these devices are reluctant to buy newer replacements even in the event that the newer technology has the potential of considerably enhancing their hearing (Mezey, 2001, p. 77). The retailers who sell their products online offer lower prices for their products because of the reduced overhead costs, but for the devices to be customized to the needs of the customer, it has to be shipped back to the manufacturer at the customers cost. Analysis of the industry in relation to competitors Hearing aid assistance begins with basic hearing tests and the hearing aids that are provided for the people who need them are not supposed to interfere with their lives. Actually, they are supposed to enhance the quality of life of the user through giving them a chance to hear. Hearing professionals including audiologists, hearing device experts or hearing aid providers are better placed to explain to the users the different brands and models that are available in the market through advising on the best choices for particular needs. Times have changed for the people who have hearing impairments and the options for hearing aids that are available at presently do not compromise on comfort and aesthetic value. Oticon is the oldest manufacturer of hearing aid in the world as the company was founded in 1904 and has remained a leader in the market as well as in research. The Iniga that is created by Oticon comprises of a high capacity processing chip as well as wireless technology that works with the brain to enhance hearing and filter the noise that is unrequired. Even the people who have minor hearing impairments indicate considerable improvements when they use the small unit. The company has a number of key competitors that include ReSound, Phonak and Starkey among others. The main area of competition between these companies is through charitable donations. For instance, Phonak has established an initiative that is referred to as “hear the world” which is focused on spreading the word about the importance of protection of the hearing sense. Majority of the other companies have also started the programs of a similar nature. Oticon Hearing Foundation provides hearing care to persons all over the globe while ReSound makes supplies of hearing aids to more than eighty nations (Digiovanni, 2011, p. 99). The Alera that was developed by ReSound in 2010 was the first wireless hearing device that did not need a streamer to be carried with it solidifying the company’s position among the main companies in the industry. This device is water resistant and enhances the hearing experience regardless of the environment it is operating in. On the other hand, Starkey creates custom hearing aids while remaining at the front of the waterproof technology in regard to hearing aids (Sandlin, 2000, p. 118). It offers a wide variety of digital, invisible and wireless products that can be used by adults and children. Strategic choices Business strategy Even though Oticon remains the leading manufacturer of hearing aids in the globe, it was experiencing problems in 1991 and controlled a mere ten of the market share but it has been able to increase its revenues from twenty seven million in the 90s up to almost 350 million presently. The company deals with the most advanced hearing aids in the globe, the DigiFocus, which was the first completely digitized hearing instrument that contained a processor with capabilities that were equal to an Intel 486 chip. Apart from developing revolutionary hearing aids, it has also considerably decreased the time to market and the entire cycle of product development to fifty percent. The change instrument that led to the rebirth of Oticon can be attributed to Lars Kolind who joined the company as the CEO and challenged the perception of Henry Ford concerning the need for hands only from the people. Instead he emphasized on creative and intellectual expertise that are entrenched in all the workers. In order to expose and become beneficial from the resources that exist within the Oticon workers, Kolind had the belief that the simple and typically functional organizational structure as well as the business procedures required changes. 1990 saw the introduction of the spaghetti organization and in the year that followed, the whole management shifted into a newly designed head offices that supported the ideologies of the new structure of the firm. The spaghetti organization is founded on various ideologies so that the organization may improve from the slump that it was going into. These ideologies included removing obstacles to communication to ensure the development and support of knowledge in the employees, this involves the elimination of doors and offices, and rather than having a permanent desk, all the workers have a mobile caddie cart. The principle also eliminated the use of paper through scanning all the documents into the computer in order to give access to all the workers (Lucas, 1999, p. 143). The company also eradicated the use of job titles as well as job descriptions as this eliminated classification of the workers in order to maximize the growth opportunities for the company. The new principle also aimed at rewarding and paying salaries to the employees depending on the performance of a particular person or a team with the aim of encouraging and developing initiatives, cooperation and sharing of knowledge. The spaghetti organization idea allows every employee to choose their preferred mentor who will be responsible for conducting yearly reviews as well as guidance sessions with the aim of supporting the workers in their learning and development along with the establishment of performance feedback (Mone and London, 1998, p. 235). It also requires all the employees to consolidate themselves into teams to develop and deal with any projects that need to be worked on and dissolve these teams upon the completion of the tasks. Therefore, the workers are supposed to get support for the idea of a project or identify a project team that requires the skills they possess. The idea of the spaghetti eliminated line managements and departments leaving behind only the executive corporate management so that employees could feel free to come up with new ideas on their own (Lawler, 2000, p. 118). The financial results associated with these changes have been significant, but when considered from an organizational and strategic perspective, the prolonged impact of the changes becomes more remarkable. The changes have led to an organizational structure that is in continuous rejuvenation of itself as the company believes that skills of a multi-disciplinary nature are entrenched in all the workers and all that is needed is to be allow them freedom and utilize their skills. Currently, the firm is continually changing in a process that it considers as structured chaos which has led to a work setting that is empowering to the employees. In the present setting, a secretary is allowed to lead a product development team if she is able to gain adequate backing from enough people to create a team and assure the management that they project is valuable and viable. Professional development at the company does not get rewarded with a promotion, instead, it is rewarded with a salary and the capacity to join or create project teams that have the greatest effect on the future of the company. The spaghetti organization had given the company his competitive advantage of quick and creative incorporation of all the expertise that may be in existence in the field such as the developing chips, circuitry as well as audiology (Fagerberg, Mowery and Nelson, 2005, p. 131). It has also led to some level of flexibility in the firm which allows Oticon to react faster to forces of competition in the industry and thus the flexibility of the people is inspired by the flexibility of the organization. An expected reaction to this kind of organization structure is that the management does not maintain control of activities since coordination mechanisms in the organization no longer exist. There are also arguments from various quarters that since the company is disintegrating the value added chain to become a cross-functional team system, the functional skills are distributed all through the firm, in the better reaction times and empowering the employees while reducing the functional absorptive capabilities. Nevertheless, cultural change is involved in the intrinsic risks of confusion in the spaghetti organization. The reorganization of the company was started through the involvement of management and external consultants, as well as the workers in redesigning the business process and the structure of the organization (Gibbons and Roberts, 2013, p. 198). Thus, the change processes at Oticon was executed from bottom-up and top-down approaches and the workers were involved in the creation of new firm and the procedures that were required to make it successful. Empowering and the emphasis on elimination of barriers to communication have supported the coordination of the confused business processes to be successful. One-on-one communication between the employees rather than email is encouraged and the workers are given access to all the information concerning the activities of the company. The middle management is also eliminated in order to make sure that information flows freely all through the organization. The changes in the organization and its culture supported informal coordination of the distributed activities. Leveraging of IT in an intelligent manner has also assisted in the informal coordination and the IT is employed in order to assure there is access to formal information where the CEO encourages personal interaction to make sure of smooth exchange in information. Oticon has created an organization web that is based on knowledge where the knowledge of the individuals is transformed to become the knowledge of the organization. This has been achieved because Oticon expects the workers to act and react rather than waiting for commands and this empowerment of the workers has been encouraged by their inclusion on the restructuring stage of the company and this empowerment is founded on the mutual respect, the performance of the company and the individual worker. Corporate strategy An all new generation of end users who are more active is in the pipeline and Oticon is prepared to meet the increasing expectations in regard to new products, services as well as business support programs. Oticon developed a new corporate brand strategy that is strongly committed to hearing care experts all over the globe to give them the assistance they require to empower persons who have hearing loss to maintain active lives. The new generation is intended to assist both Oticon and professional associated with hearing care to deal with the increased expectations that are synonymous with the current aging population. All the activities associated with Oticon are founded on a time-honoured commitment to prioritizing the needs of the people while the key philosophy remains the same. The company seeks to interpret that same philosophy in relation to new changed users and the outcomes that will be seen in the hearing industry. The contemporary society has redefined the meaning of aging enabling the aging population of the current times to be adequately informed and more demanding than those of days passed. This aging section of the society is also comprised of the most health conscious generation that has ever lived and there are chances that they might transfer the health-oriented way of thinking to hearing care as well. Therefore, Oticon strengthens is focus attention of the development of hearing solutions as well as support tools that have the capacity to empower people to play active roles in life. The company’s widened approach blends technological leadership with innovative services as well as new business support programs that are founded of the insights of the end users. According to the company, assisting the people who have hearing impairments to hear is not enough as it must increase its commitment and make sure they have been empowered to communicate more freely and have natural interactions as well as active participations. The corporate strategy that has been adopted by Oticon reinforces the focus of the company on the benefits of the end-user which are useful and significant to the end users as well as the professionals in hearing care. This strategy is founded on three guiding principles: “people are the starting point, innovation is the means, empowering people is the shared goal.” The company ensures there is continuous dialogue with its end users so that it can be able to understand the personal and professional challenges they go through in their day to day lives. Collaborating fully with the hearing care professionals in the laboratory, in the field and in the company’s international research centre, Oticon collects insights that develop the beginning of newer discoveries that meet the expectations of the users and their needs together with how they interact in their day to day lives. The company’s innovative culture provides it with energy and capability to be the pioneer of creative ideas in the industry and this assists Oticon in setting of new standards through developing beneficial solutions needs and wishes that are perceived as being impossible. According to Oticon, innovation takes place when people collaborate in towards a particular outcome while looking for ways that will enable technology to address the needs of the end user. Innovative solutions in regard to hearing aids can be developed only when audiology along with technology are informed by the insights gathered from the end-user. To inspire successful interactions on a daily basis between the professionals that deal with hearing care and their clients while at the same time developing successful practices, Oticon reinforces its offering with a variety of efficient online and offline instruments. In the days to come, introducing newer support programs will be founded on the insights of a generation that has increased demands and is more active. Additionally, empowering people is the company’s strongest and most valued commitment. Oticon shares the objective of individual’s empowerment with the specialists in hearing care by aiming to assist persons with hearing impairments become more active in their lives (Harari, 1997, p. 80). Through the support of professionals in hearing care to become better providers of life-quality, Oticon achieves its goal of empowering the people who have hearing loss to live more active and vital lives. The corporate strategy of the company aims at shaping and directing the work of the whole Oticon network that comprises of more than one hundred sister companies all over the world. Conclusion Oticon is an interesting case because it represents an example of a firm that has been able to meet the need for flexibility. As the life cycles of products keep decreasing in magnitude, more fierce competition as well as newer entrants into the market in the current and future, reaction time as well as the capacity to leverage all the resources of the company is critical for survival. The blend of flexible workers and a supportive and continuously evolving company makes Oticon a respectable example of how the firm and the workers of the days to come will look like. Nevertheless, the spaghetti structure may not be able to address what the reward substitutions for the issue of limited possibilities of promotion will be seeing as the company does not have a middle management. The company also has to consider if the new structure will lose functional absorption capability in the future as a result of its cross-functional framework of the teams. It should be determined in there is a maximum size for the spaghetti organization based on the need to share knowledge as well as coordination between the workers in the organization. According to the CEO, the maximum number of workers in such an organization is three hundred; therefore Oticon should find alternatives for substitution when this limit is reached. The company should also consider whether the physical presence of the workers in the organization is necessary and if the organization can be able to create a virtual organization instead. Finally, the company should consider if the set-up of the spaghetti organization can be employed in other environments that are not based on projects such as in manufacturing. Bibliography Alpiner, J. and McCarthy, P. 2000, Rehabilitative audiology, Lippincott Williams & Wilkins, Philadelphia, PA. Beech, N. and MacIntosh, R. 2012, Managing change, Cambridge University Press, Cambridge. Burton, R., Obel, B., Hunter, S., Søndergaard, M., Døjbak, D. and Burton, R. 1998, Strategic organizational diagnosis and design, Kluwer Academic Publishers, Boston, Mass. Dalebout, S. 2009, The Praeger guide to hearing and hearing loss, Praeger Publishers, Westport, Conn. Digiovanni, J. 2011, Hearing aid handbook, 2011, Delmar, Cengage Learning, Clifton Park, NY. Dugan, M. 2003, Living with hearing loss, Gallaudet University Press, Washington, D.C. Fagerberg, J., Mowery, D. and Nelson, R. 2005, The Oxford handbook of innovation, Oxford University Press, Oxford. Gibbons, R. and Roberts, J. 2013, The handbook of organizational economics, Princeton University Press, Princeton. Harari, O. 1997, Leapfrogging the competition, American Century Press, Washington, DC. Healthyhearing.com, 2014, Oticon Hearing Aids & Hearing Loss Products. [online] Available at: http://www.healthyhearing.com/oticon-hearing-aids [Accessed 13 Nov. 2014]. Hearingaidmuseum.com, 2014, Oticon Model P11P Transistor (Body) Hearing Aid. [online] Available at: http://www.hearingaidmuseum.com/gallery/Transistor%20%28Body%29/Oticon/info/ oticonp11p.htm [Accessed 13 Nov. 2014]. Lawler, E. 2000, From the Ground Up, John Wiley & Sons, Hoboken. Lucas, H. 1999, Information technology and the productivity paradox,: Oxford University Press, New York. Magill, A., Strickland, G., Maguire, J., Ryan, E. and Solomon, T. 2012, Hunters Tropical Medicine and Emerging Infectious Disease, Elsevier Health Sciences, London. Mezey, M. 2001, The encyclopedia of elder care, Springer Pub, New York. Mone, E. and London, M. 1998, HR to the rescue., Gulf Pub. Co, Houston, Tex. Nandram, S. and Borden, M. 2010, Spirituality and business, Springer, Berlin. Picot, A., Reichwald, R. and Wigand, R. 2008, Information, organization and management, Springer, Berlin. Pyndt, J. and Pedersen, T. 2006, Managing global offshoring strategies, Copenhagen Business School Press, Køge, Denmark. Rivard, S. 2004, Information technology and organizational transformation, Elsevier Butterworth-Heinemann, Oxford. Sandlin, R. 2000, The textbook of hearing aid amplification, Singular Thomson Learning, San Diego, Calif. Shi, N. and Silvius, G. 2011, Enterprise IT governance, business value and performance measurement, Information Science Reference, Hershey, PA. Stroud, D. and Walker, K. 2013, Marketing to the ageing consumer, Palgrave Macmillan, Basingstoke [u.a.]. Tye-Murray, N. 2009, Foundations of aural rehabilitation, Delmar Cengage Learning, Clifton Park, NY. Wei, J. 2007, Product engineering, Oxford University Press, Oxford. Read More