From Bureaucracy to Innovation and Growth
by Lars Kolind
Former CEO, and driving force behind the innovation and knowledge-based turnaround that led to Oticon's leadership in the world market for hearing aids. Named Denmark's Man of The Year 1996, his work, encapsulated in his recent, "The Second Cycle: Winning the War Against Bureaucracy", backed by his impressive web site, is a classic management case study presented at many leading business schools worldwide — May, 2006
"The larger and the more successful an organization becomes the more of its attention, creativity and resources are used on bureaucracy. Guess how much in your organization: Most likely 30 percent or more. In one company I worked for, less than 25 percent of an engineer's time was used on engineering work. The rest was meetings, planning, reports, budgets, administrative procedures, emails, intrigues and simple frustration - in other words: Bureaucracy.
"My new book is inspired by the transformation I made at troubled hearing-aid manufacturer, Oticon, which became one of the world's first truly knowledge based innovation powerhouses in the 1990s: Oticon scrapped managers, titles, formal organization, job descriptions, paper and offices long before most people had heard of mobile phones, portable computers, knowledge management and the Internet. Oticon beat world-class companies such as 3M, Sony, Philips and others and became the fastest growing and most profitable business in the industry.
"The cure was not rocket science. There are five simple steps: 1) Define a meaning beyond profit, 2) Create a partnership with staff, suppliers and customers, 3) Build a collaborative organization, 4) Forget conventional management and lead through vision and values, and 5) Make it happen through a carefully designed change process.
"The book is backed by the Second Cycle web site, where we offer the opportunity to perform self-assessments of organizations with one, one hundred or one thousand participants at no cost. The tools are "open source" , because I think that it is more important to have an impact than to make money on tool usage. Four weeks after the "Second Cycle Index" self assessment tool went online, more than one thousand organizations have performed a self assessment.
"You will look in vain for conventional buzzwords such as Lean Management, TQM, BPR, Blue Ocean, Performance Management, Benchmarking and Six Sigma. The Second Cycle formula is different from what you have seen before: It helps you calculate your organizations "Second Cycle Index", it introduces a Mental Model Mapper and a Value Identification Process and it shows you how to achieve consensus with all employees through the Consensus Creation Crash Process. It argues for meeting rooms without tables and chairs in an "Innovation Powerhouse" concept and it gives examples on how organizations may unlearn old habits. You may not dare try all my ideas, but you will no doubt be provoked as will union leaders, politicians and top executives when they are confronted with the need to fight bureaucracy in the public school systems, the labour unions and the US automobile industry.
"Is it all theory? No - it has been done and it has worked, first at Oticon, which had become complacent due to its success and therefore thought it knew better than customers. The company lost half its equity in one single year. After a conventional turnaround Oticon transformed itself into a second cycle: It defined a new meaning (people first), it invited all staff (about 1100) to become co-owners, and it eliminated the formal organization, departments, titles, job descriptions, procedures and even offices and paper. Featured by CNN and other major media, it was named the craziest company on earth. This was in 1991. But since then, the company has grown about 19 per cent per year - largely organic growth. It has introduced more new products than any other company in the industry and today it is the industry leader, having gently helped competitors such as Philips, 3M, AT&T, Ascom, Beltone and Sony to gracefully leave the marketplace. Sales 2005 amounted to USD600M, operating profit was USD175M or 23.4 per cent of sales or just under two times the shareholder's equity of USD102M.
"Will it work for small business? Yes it will; just take a look at Danish online marketing business Retail Internet A/S. The meaning of this business is to short-circuit consumer demand and supply through EDRM. Imagine what this means for e.g. the Norwegian society where Retail Internet serves 1.1 million consumers out of a population of 4 million with commercial offers within their fields of interest. If you have something attractive to sell to the Norwegian market, here is the channel! Here is a meaning that makes sense. All 45 employees are shareholders and partners and they operate in a seamless networked organization based on few, clear values. It works: This year they will be growing to USD12M compared to USD5M and USD2M the year before. Bottom line is black despite dramatic growth and their expansion into six countries in three years. Serving 6.5M consumers in the Nordic countries and the UK they are now the largest online marketer in the region."
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