org life cycle 2

8/3/2019 Org Life Cycle 2

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Organizational Life Cycle Stages

It has been suggested that organizations

experience a predictable sequence ofstages growth and development: theorganizational life cycle.The four principle stages of theorganizational life cycle are:

-Birth -Growth-Decline -Death


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Organizational Birth

Organizations are born whenindividuals, called entrepreneurs,

recognize opportunities to use theirskills to create value.

Organizational birth is a dangerous lifecycle stage, associated with thegreatest chance of failure.


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Liability of newness

This liability of newnessthe dangersof being the first in a new

environmentis due to thefollowing:

Entrepreneurship is a risky processNew organizations lack formalstructure

Resources may be scarce because of

established organizations.


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Growth often occurs first in the administrative supportareas.

Recently theorists have suggested that growth is morelikely an international action.

Growth may be pursued to better the organizationscompetitive advantage.

Growth may also be pursued to gain power oversuppliers, buyers, regulators, and other environmentalcomponents.

Generally organizations become more formalized andcomplex as they grow in size and mature.


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Organizational birth Emergent structure

The formal organization Dinosaurs and turnarounds Restructuring Re-engineering

Rethinking


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Organizations encounter a predictable series ofproblems that must be managed if they are to growand survive in a competitive environment.

To advance from one stage to the next, an

organization must successfully manage and solvethe organizational problem associated with eachcrisis.


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Greiners Model of Organizational Growth

Age of organizationYoung Mature

Large

Small

Stage 1 Stage 2 Stage 3 Stage 4 Stage 5

1. Crisis of

leadership

2. Crisis of

autonomy

3. Crisis of

control

4. Crisis of

red tape

5. Crisis of ?

1. Growth through

creativity

2. Growth through

direction

3. Growth through

delegation

4. Growth throughcoordination

5. Growth through

collaboration

Szoognzo


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Entrepreneurs develop skills and abilities tocreate and introduce new products for newmarket niches.

A great deal of organizational learning occurs. Norms and values of the organizations culture,

rather than the hierarchy and organizationalstructure, control peoples behavior. The

informal organization guides decision makingand communication.


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As the organization grows, foundingentrepreneurs confront the task of having tomanage the organization.

Entrepreneurs are so involved in getting theorganization off the ground that they forgetthe need to manage organizational resourcesefficiently Replace entrepreneurs withprofessional managers.


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New top management team takes responsibility fordirecting the companys strategy, and lower levelmanagers assume key functional responsibilities.

A functional or divisional structure is established toallow the organization to regain control of itsactivities. Decision making becomes centralized.

Adoption of formal, standardized rules and

procedures allows each organizational function tobetter monitor and control its activities.


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Organizations delegate authority to lower levelmanagers in all functions and link their increasedcontrol over organizational activities to a reward

structure that recognizes their contributions. Strike a balance between the need for professional

management to improve technical efficiency andproviding room for entrepreneurship.

Moving to a product team structure or multidivisionalstructure is one way to respond.


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When top managers compete with functionalmanagers or corporate level managers compete withdivisional managers for control of organizational

resources. If divisional/functional managers use control of

resources to pursue their own goals at the expenseof organizational goals, the organization becomes

less effective. Sometimes top management tries to recentralize

decision making back to crisis of autonomy.


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Top management takes on the role of coordinatingdifferent divisions and motivating divisionalmanagers to take a company-wide perspective.

e.g. Divisions can share resources and cooperate tocreate new products and processes that benefit theorganization as a whole.

Initiate company-wide programs to review

performance of various divisions. Reward by promotion to top ranks of organization.


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When organizations fail to manage coordinationand the number of rules and procedures increase.

Increasing bureaucracy does little to increaseorganizational effectiveness and is likely to

decrease it by stifling entrepreneurship andinnovation.


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Greater spontaneity in management actionthrough teams and skillful confrontation ofinterpersonal differences.

Social control and self-discipline take over fromformal control.

e.g. Use of matrix structures

Collaboration makes an organization more

organic by making more use of mutualadjustment and less of standardization.


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Based on the organizations inability or reducedcapacity to cope with this environment.

Organizations generally do not decline rapidly; ithappens in a slow agonizing retreat a

downward spiral. Hard to reverse because the decline exacerbates

the difficulty of obtaining resources. Decline has five distinct stages: Blinded Inaction Faulty action Crisis Dissolution


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Weitzel and Jonssons Model of Organizational Decline

TmeDecline begins Dissolution andorganizational death

Stage 1:

Blinded

Stage 2:

Inaction

Stage 3:

Faulty action

Stage 4:

Crisis

Stage 5:

Dissolution

Good

information

Prompt action

Corrective

action

Acceptable

performance

Effective

reorganization

Actual

performance

Acceptable organizational performance

Actual organizational performance

Poman


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Organizations are unable to recognize theinternal/external problems that threaten their long-term survival.

Organizations do not have in place the monitoringand information systems they need to measureorganizational effectiveness and identify sources oforganizational inertia.

Access to good information and an effective topmanagement team can prevent the onset of decline.


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If the organization does not realize it is in trouble inthe blinded stage, its decline advances to the inactionstage Top management takes little action to correct

problems. Managers misinterpretation of information and belief

that the situation reflects a short-term environmentalchange.

Managers are pursuing goals that benefit themselvesat the expense of other stakeholders.

Managers are following tried and true, butinappropriate, approaches.


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Problems continue to multiply despitecorrective action.

Managers may have made the wrongdecisions because of conflict in the topmanagement team, or may have changed toolittle too late because they feared a major

reorganization may do more harm than good.


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Only radical changes to an organizations strategyand structure can stop the decline.

Stakeholders are starting to dissolve/restrict their

relationships with the organization.


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The company cannot recover and decline isirreversible.

The organization has lost support of its

stakeholders, and access to resources shrivels as itsreputation and markets disappear.

If new leaders have been selected they are likely tolack the organizational resources to institute

successful turnaround. Attachment of people to the organization is only

temporary Divest existing resources, liquidateassets, enter bankruptcy proceedings.


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STAGE STRATEGY STRUCTURE

BIRTH CONCENTRATION SIMPLE

GROWTH INTEGRATION FUNCTIONALMATURITY DIVERSIFICATION DIVISIONALDECLINE RETRENCHMENT CONSOLIDATIONDEATH LIQUIDATION DISMEMBERMENT

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