While many thought leaders have proposed innovative models for organizations, Lars Kolind has done more than think about new organizational forms. As a top executive of several major corporations and leader of nonprofit organizations, he has an impressive track record of implementing fundamental organizational redesigns that have transformed traditional industrial firms into modern knowledge organizations.

Kolind — who will speak at the Wharton Fellows Master Class on Design, Innovation, and Strategy in Copenhagen and Milan in September — achieved international fame for his development and implementation of the "spaghetti organization," which he put into practice at hearing aid manufacturer Oticon in the early 1990s. The company had been losing market share and had suffered its first financial loss in 1986, 2 years before Kolind joined the firm. After cutting costs, Kolind led the redesign of the company. Its traditional bureaucratic structure was replaced with a radically new design based on project teams, a new IT system that led to the virtual elimination of paper, reconfigured office spaces, and a shift in the business from focusing on technology to serving end customers.

Kolind dubbed the new organization the "spaghetti organization" because the multiple roles individuals played were intertwined. It also shared another common characteristic with spaghetti. He noted that "You cannot describe how spaghetti hangs together, but somehow it does." The new structure was celebrated in articles and Harvard case studies. In a 1992 article, Fortune called it "the Terminator II type organization," comparing it to the shape-shifting robot of the futuristic film. By 1993, Oticon enjoyed its greatest profits since it was founded in 1904. Kolind took Oticon public in 1995 and left in 1998.

But while this organizational structure was designed to reflect the realities of knowledge organizations and knowledge workers, it was not an end in itself. Nor was it intended as a solution for all organizations. Kolind points out that it represented one design solution that met Oticon's particular strategic needs at the time. Since leaving Oticon, Kolind has been involved in diverse organizations and public initiatives, including serving as chairman of Grundfos, the second largest manufacturer of pumps in the world, and chairman of Unimerco Group, one of the world's leading tool companies.

In a recent interview, Kolind reflected on some of the lessons that he has learned from his hands-on experiments in organizational design:

Why is design important and what is the role of senior executives?

Many view the role of chief executive as the captain of the ship. But I see the role not as captain but as naval architect. The chief executive is the one who constantly redesigns the ship, not only to serve the current needs but to meet the challenges ahead. That is the way I hope people would look at design.

I look at design from the mindset of total design. This involves product design, software design, web site design, company building design, organizational design, the way the company is managed, and how it engages in stakeholder dialogue. This is not only product design but designing the company.

How did you apply this perspective at Oticon?

Oticon offered a rare opportunity to actually build the very purpose of the organization into the organizational design. The purpose of the hearing aid business is to help people achieve a better quality of life with the hearing they have. It took us 2 years to realize that was the purpose of the business instead of what we had been telling one another — that we were the company that developed, manufactured, and sold the world's best hearing aids. We realized we were in the quality of life and communications business, so we needed to design the organization as a communications and innovation powerhouse. To excel in communications, we needed to remove barriers. The youngest employee could communicate directly with the CEO. This free and open communication reflected the very idea of the company. The organizational design reflected the purpose of the organization.

How have you implemented this approach to "design following purpose" in other contexts?

There are so many keys on the keyboard that you can hit with organizational design. You have to find out what your purpose is, and then it can be reflected in your physical premises, how you treat one another, social responsibility, and stakeholder dialogue. For [pump manufacturer] Grundfos and the Grundfos Foundation, the focus is sustainability. The goal is to create the ultimate sustainable business. It is much more than a pump factory. We put sustainability at the top of the company's branding and build sustainability into everything Grundfos does.

I also am nonexecutive chairman of Unimerco Group, which makes advanced tools for metal and woodworking that demands ultimate precision. We realized that we are not just a manufacturer but are primarily in the service business. There is a combination of a knowledge component, advising the client on what tools to use, and actually manufacturing tools for special purposes. We reorganized the headquarters in Denmark, which is a 1-million-square-foot room with these big machines that look like enormous harvesters. And now, in between the machines you see circles of engineers and sales people. It is completely weird, but reflects a decentralized, flat design focused on the knowledge business and consultancy. They moved from a mindset of making tools to a mindset that says we are the masters of improving our clients' productivity. The organization was redesigned organizationally and physically based on this mindset. It also is 100 percent owned by staff. We have taken this structure to the U.S., Britain, Sweden, Norway, Germany and are opening a plant in China. It is very courageous, and the business is growing very nicely.

Is the spaghetti organization model appropriate for other types of firms?

Its four primary characteristics were: a much broader job definition, less formal structure, more open and informal physical layouts to facilitate communications, and management based on values rather than command-and-control mechanisms. Are these four relevant for other companies? All are absolutely relevant, especially for those parts of the company that are highly knowledge intensive and for organizations or industries where there is a need for constant change and innovation. A factory that produces a hundred thousand of the same thing every day can be organized the way Henry Ford did it.

What would you recommend to other "captains" in approaching their own challenges of "naval architecture"?

I would recommend that they make an effort to understand their mindset or mental model of what their company is actually doing. For Oticon, it was a totally different mental model, whether you are thinking the organization is producing the best hearing aids or helping people with impaired hearing to smile more. If people actually understood the impact of different mindsets on what they are doing, they would pay much more attention to mental models. Then you need to translate that mental model into the physical premises, organizational design, relations to different stakeholders, and product design. It all needs to reflect your current mindset.

For example, we've been through the process lately in looking at the mindsets for institutions such as the public school system. The way the ministry of education looks upon primary schools, the mental model is a "teaching factory." The goal is to convey knowledge and skills into the minds of young people so they can reproduce them later. This may be the wrong mental model. We can think of schools as "learning environments" not teaching factories. This means we need to rethink every corner of the school, its organization, and interactions between students, teachers, and parents. It is a total redesign of what you are doing. You need to understand what the current mental model is and validate whether it is still relevant, and then modify it.

Why doesn't this organizational redesign happen more often?

The person who is chosen for the job as CEO typically has got this job because he functioned well in a command power structure rather than an organic dialogue situation. Boards tend to promote that sort of person. This makes it difficult to change mindsets and rethink the design of the organization.

How were you able to break out of this way of thinking? Was there something in your own training or background that led you in this direction?

I was trained as a mathematician, but I broke out mostly because I was so fed up. I had spent the preceding 8 years as chief operating officer in two fairly large, bureaucratic organizations. I was frustrated with the cost of conventional, hierarchical, departmentalized, rigid organizations. I decided to change it at Oticon. What also inspired the change was the work I was doing in scouting at the time. While you would probably perceive American scouting as being highly structured, my experience from international scouting is a different picture. Large teams work together across borders with very few resources and manage to get large projects up and running. I saw this could be done.

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• Wharton Fellows
  Organizational architect Lars Kolind discusses the power of matching design to the purpose of the organization.
  
  
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  People are at the heart of great design, according to the authors of a new book, The Design of Things To Come.
  
  
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