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 fundamental credibility problems related to managerial promises to not intervene in delegated decision-making ⎯ an incentive problem that is often referred to as the “problem of selective intervention. ” This theoretical theme is developed and illustrated, using the case of the world-leading Danish 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 imposing loose coupling on the organization, neglecting, however, that about a decade later, the spaghetti organization has given way to a more traditional matrix organization. This paper presents an organizational economics interpretation of organizational changes in Oticon, and argues that a strong liability of the spaghetti organization was the above incentive problem. Motivation in Oticon was strongl
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