Harvard

Business ReviewJuly-August

Larry E. Greiner

Evolution and revolutionas organizations growA company's past has clues for management

that are critical to fnture success

ForewordThis author maintains that growing organizationsmove through five distinguishable phases of develop-ment, each of which contains a relatively calm periodof growth that ends with a management crisis. Heargues, moreover, that since each phase is stronglyinfluenced hy the previous one, a management witha sense of its own organization's history can anticipateand prepare for the next developmental crisis. This

article provides a prescription for appropriate man-agement action in each of the five phases, and it showshow companies can turn organizational crises intoopportunities for future growth.

Mr. Greiner is Associate Professor of OrganizationalBehavior at the Harvard Business School and is theauthor of several previous HBR articles on organiza-tion development.

A small research company chooses too com-plicated and formalized an organization struc-ture for its young age and limited size. It floun-ders in rigidity and bureaucracy for several yearsand is finally acquired by a larger company.

Key executives of a retail store chain hold onto an organization structure long after it hasserved its purpose, because their power is derived

from this structure. The company eventuallygoes into bankruptcy.

A large bank disciplines a "rebellious" man-ager who is blamed for current control problems,when the underlying cause is centralized pro-

Author'a note: This article is part of a continuing project on orsatiizationiltrvelopment with my colleague. Professor Louis B. Barnes, and spnnsorcdby the Division of Research, Harvard Business Schoor

Harvard Business Review: July-August 1972

cedures that are holding back expansion intonew markets. Many younger managers subse-quently leave the bank, competition moves in,and profits are still declining.

The problems of these companies, like those ofmany others, are rooted more in past decisionsthan in present events or outside market dy-namics. Historical forces do indeed shape thefuture growth of organizations. Yet manage-ment, in its haste to grow, often overlooks suchcritical developmental questions as: Where hasour organization been? Where is it now' Andwhat do the answers to these questions meanfor where we are going? Instead, its gaze is fixedoutward toward the environment and the fu-tureas if more precise market projections willprovide a new organizational identity.

Companies fail to see that many clues to theirfuture success lie within their own organiza-tions and their evolving states of development.Moreover, the inability of management to un-derstand its organization development problemscan result in a company becoming "frozen" inits present stage of evolution or, ultimately,in failure, regardless of market opportunities.

My position in this article is that the futureof an organization may be less determined byoutside forces than it is by the organization'shistory. In stressing the force of history on anorganization, I have drawn from the legacies ofEuropean psychologists (their thesis being thatindividual behavior is determined primarily byprevious events and experiences, not by whatlies ahead). Extending this analogy of individ-ual development to the problems of organiza-tion development, I shall discuss a series of de-velopmental phases through which growingcompanies tend to pass. But, first, let me providetwo definitions:

1. The term evolution is used to describe pro-

!. See, for exaTiiple, Wiliiam H. Siarhutk, "Organizational Metamor-phosis," in Promising Research Directions, ediied by R.W. Millmanand M.P. Hottenstein |Tempe, Arizona, Academy of Maiiafiement,[968), p. 115.

Z. See, for ex.itnple, the Griiiigesfeerg ease series, prepared by C. RolandChristenseii and Bruce R. Scott, Case Clearing Ht)u-,e-, HarvardBusiness Sehiml.

3, Strategy and Structure: Chapters in the History of the AmericanIndustrial Entciprise [Cambridge, Massachusetts, The M.l.T. Press, iufiz).

4. I have drawn on many sources for evidence: |a) numerous casescollected at the Harvard Business School; (h) Organization Crnwth andDevelopment, edited by William H. Starbuek (Midiilesex, England,Penguin Books, Ltd., 1971], where several studies are cited; and (c)articles published in journals, such as Lawrence E. Fouraker and |(ihnM. Stiipford, "Organization Structure and the Multinational Strategy."Administrative Science Quurierly. Vol. i ) , N o . i , 1968, p. 47; andMakolm S. Salter, "Management Appraisal and Reward Systems,"lournal of Easiness Policy, Vol. 1, No. 4, [971.

longed periods of growth where no major up-heaval occurs in organization practices.

2. The term revolution is used to describethose periods of substantial turmoil in organ-ization life.

As a company progresses through developmentalphases, each evolutionary period creates its ownrevolution. For instance, centralized practiceseventually lead to demands for decentralization.Moreover, the nature of management's solutionto each revolutionary period determines whethera company will move forward into its next stageof evolutionary growth. As I shall show later,there are at least five phases of organizationdevelopment, each characterized by both anevolution and a revolution.

Key forces in development

During the past few years a small amount ofresearch knowledge about the phases of or-ganization development has been building. Someof this research is very quantitative, such astime-series analyses that reveal patterns of eco-nomic performance over time.' The majority ofstudies, however, are case-oriented and use com-pany records and interviews to reconstruct a richpicture of corporate development.- Yet bothtypes of research tend to be heavily empiricalwithout attempting more generalized statementsabout the overall process of development.

A notable exception is the historical work ofAlfred D. Chandler, fr., in his book Strategy andStructure.-^ This study depicts four very broadand general phases in the lives of four largeU.S. companies. It proposes that outside marketopportunities determine a company's strategy,which in turn determines the company's orga-nization structure. This thesis has a valid ringfor the four companies examined by Chandler,largely because they developed in a time of ex-plosive markets and technological advances. Butmore recent evidence suggests that organizationstructure may be less malleable than Chandlerassumed; in fact, structure can play a criticalrole in influencing corporate strategy. It is thisreverse emphasis on how organization structureaffects future growth which is highlighted in themodel presented in this article.

From an analysis of recent studies,^ five keydimensions emerge as essential for building amodel of organization development:

1. Age of the organization.

38

Growing organizations

2. Size of the organization.3. Stages of evolution.4. Stages of revolution.5. Growth rate of the industry.

I shall describe each of these elements separate-ly, but first note their combined effect as il-lustrated in Exhibit J. Note especially how eachdimension influences the other over time; whenall five elements begin to interact, a more com-plete and dynamic picture of organizationalgrowth emerges.

After describing these dimensions and theirinterconnections, I shall discuss each evolu-tionary revolutionary phase of development andshow (a) how each stage of evolution breeds itsown revolution, and (b) how management solu-

tions to each revolution determine the nextstage of evolution.

Age of the organization

The most obvious and essential dimension forany model of development is the life span of anorganization (represented as the horizontal axisin Exhibit 1). All historical studies gather datafrom various points in time and then makecomparisons. From these observations, it is evi-dent that the same organization practices arenot maintained throughout a long time span.This makes a most basic point: managementproblems and principles are rooted in time. Theconcept of decentralization, for example, canhave meaning for describing corporate practices

Exhibit I. Model of organization development

Size oforgani-zation

Large

ompany inmedium-growthindustry

Company inlow-growtbindustxy

Small

YoungAge of organization

Mature

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Harvard Business Review: July-August 1972

at one time period but loses its descriptivepower at another.

The passage of time also contributes to theinstitutionalization of managerial attitudes. Asa result, employee behavior becomes not onlymore predictable but also more difficult tochange when attitudes are outdated.

Size of the organization

This dimension is depicted as the vertical axisin Exhibit 1. A company's problems and solu-tions tend to change markedly as the numberof employees and sales volume increase. Thus,time is not the only determinant of structure;in fact, organizations that do not grow in sizecan retain many of the same management issuesand practices over lengthy periods. In additionto increased size, however, problems of coor-dination and communication magnify, newfunctions emerge, levels in the managementhierarchy multiply, and jobs beeome moreinterrelated.

Stages of evolution

As both age and size increase, another phenom-enon becomes evident: the prolonged growththat I have termed the evolutionary period. Mostgrowing organizations do not expand for twoyears and then retreat for one year; rather, thosethat survive a crisis usually enjoy four to eightyears of continuous growth without a majoreconomic setback or severe internal disruption.The term evolution seems appropriate f