The Organizational Life Cycle

Organizational life cycle: a predictable sequence of stages of growth and change

Organizations go through predictable patterns of growth and development.
The four principal stages of the organizational life cycle:
1. Birth
2. Growth
3. Decline
4. Death
Different organizations may have these stages at different rates.
The way an organization can change in response to the problems determines the
next stage of its life cycle.

A Model of the Organizational Life Cycle

Organizational Birth
The Founding Of an Organization.
Organizations are born when entrepreneurs take the advantage of opportunities to use
their skills and competences to utilize resources in new ways to create value.
Ex: Dell computers. (new way to market low-priced computers.)
A dangerous life cycle stage associated with the greatest chance of failure.
Failure rate is high due to:
1. Liability of newness: the dangers associated with being the first in a new environment.
2. Entrepreneurship is an inherently risky process as there is no way to predict success.
3. New organization is fragile because it lacks a formal structure.
4. Due to conditions in the environment that can be hostile to new organization.

Developing a plan for a new business

1. Begins when an entrepreneur notices an opportunity to develop a new or improved product
or service
2. Tests the feasibility of the new product idea: SWOT analysis
3. Examine the strengths and weaknesses of the idea
4. Decide whether the new product idea is feasible
Plan should include
5. Statement of the organizations mission, goals, and financial objectives
6. Statement of the organizations strategic objectives
7. List of all the functional and organizational resources required to implement the idea
8. Timeline that contains specific milestones used to measure the progress of the venture.

Developing a Business Plan

A Population Ecology Model of

Organizational Birth

Population ecology theory

A theory that seeks to explain the factors that affect the rate at which new organizations are born (and
die) in a population of existing organizations
Population of organizations
The organizations that are competing for the same set of resources in the environment
Environmental niches
Particular sets of resources or skills.
Number of births determined by the availability of resources.
Population density: the number of organizations that can compete for the same resources in a
particular environment
Factors

that produce a rapid birthrate

1. Availability of knowledge and skills to generate similar new organizations.
2. New organizations that survive provide role models and confer legitimacy

As the environment is populated with a number of

successful organizations, birthrate tapers off because:
1. Fewer resources are available for newcomers
2. First-mover advantages: benefits derived from being an early
entrant into a new environment
3. Difficulty of competing with existing companies

Organizational Birthrates Over Time

Survival strategies:
Strategies that organizations can use to gain access to resources and
enhance their chances of survival in the environment.
1)
r-strategy versus K-strategy
r-strategy: a strategy of entering a new environment early
K-strategy: a strategy of entering an environment late, after other
organizations have tested the environment
2)
Specialists: organizations that concentrate their skills to pursue a narrow
range of resources in a single niche.
Generalists: organizations that spread their skills thin to compete for a
broad range of resources in many niches.

Process of natural selection

Two sets of strategies result in:
r-Specialist, r-Generalist, K-Specialist, K-Generalist
Early in an environment, new organizations are likely to become r-Specialists.
Move quickly to focus on serving the needs of a particular group.
As r-Specialists grow, they often become generalists and compete in new niches.
K-Generalists often move into the market and threaten the weaker rSpecialists.
Eventually, the market is dominated by the strongest r-Specialists, r-Generalists,
and K-Generalists

Strategies for Competing in the Resource Environment

Natural selection
The process that ensures the survival of organizations that have the
skills and abilities that best fit with the environment
Over time, weaker organizations die because they cannot adapt their
procedures to fit changes in the environment
Natural selection is a competitive process.

The Institutional Theory of

Organizational Growth

Organizational growth:
The life-cycle stage in which organizations develop value-creation skills and
competences that allow them to acquire additional resources
Organizations can develop competitive advantages by increasing division of labor
Creates surplus resources that foster greater growth
Growth should not be an end-in-itself
Institutional theory
A theory that studies how organizations can increase their ability to grow and
survive + [in a competitive environment] by becoming legitimate in the eyes of their
stakeholders
Institutional environment
Values and norms in an environment that govern the behavior of a population of
organizations.

Organizational isomorphism: the similarity among organizations

in a population
Three processes that explain why organizations become similar are:
1.Coercive isomorphism
2.Mimetic isomorphism
3.Normative isomorphism

Coercive isomorphism:
Exists when an organization
Adopts certain norms
Because of pressures exerted by other organizations and by society in
general
Increasing dependence of one organization on another leads to greater similarity
Mimetic isomorphism:
Exists when organizations
Intentionally imitate one another to increase their legitimacy
Environmental uncertainty increases the likelihood of imitation
Normative isomorphism:
Exists when organizations
Indirectly adopt the norms and values of other organizations in the environment

Organizations acquire norms and values when:

1. Employees move from one organization to another and bring with them the
norms and values of their former employer.
2. They participate in the activities of industry, trade, and professional associations

Disadvantages of isomorphism
1. Organizations may learn ways to behave that have become outdated and no
longer lead to organizational effectiveness
2. Pressure to imitate may reduce the level of innovation in the environment

Greiners Model of Organizational Growth

Greiner proposes 5 sequential growth stages
1. Each stage results in a crisis
2. Advancement to the next stage requires successfully resolving
the crisis in the previous stage

Stage 1: Growth through creativity

1. Entrepreneurs develop the skills to create and introduce new products
2. Organizational learning occurs
3. It is entrepreneurial stage.
4. Non - bureaucratic
5. Goal- survival
6. Crisis of leadership entrepreneurs may lack management skills

Stage 2: Growth through direction

Crisis of leadership results in recruitment of top-level managers who take
responsibility for the organizations strategy
Organizations youth
Also known as Collectivity stage
Structure is mostly informal
Crisis of autonomy
1. Creative people lose control over new product development
2. Professional managers run the show
3. Decision making becomes centralized

Stage 3: Growth through delegation

To solve the crisis of autonomy, managers must delegate
Strike a balance between the need for professional management and the
opportunity for entrepreneurship
Movement toward product team structure
Crisis of control as power struggles over resources emerge between toplevel and lower-level managers

Stage 4: Growth through coordination

To resolve crisis of control, managers must find right balance of centralized
and decentralized control
Top management takes on role of coordinating different divisions
Crisis of red tape
1. Increasing reliance on rules and standard procedures
2. Organization becomes overly bureaucratic and stifles entrepreneurship

Stage 5: Growth through collaboration

1. Emphasizes greater spontaneity in management action
2.Social control and self-discipline take over formal control
3.Greater use of product team and matrix structures
4.Collaboration makes an organization more organic which
can be a difficult task

Greiners Model of Organizational Growth

25

Organizational Decline
and Death

Organizational decline
The life-cycle stage that an organization enters when
it fails to anticipate, recognize, avoid, neutralize, or adapt
to external or internal pressures that threaten its long-term survival
May occur because organizations grow too much

Effectiveness and profitability

Assessing an organizations effectiveness involves comparing its

profitability relative to others

Profitability
Measures how well a company is making use of its resources by investing them in
ways to create goods and services that generate profit when sold.
Short-term profits say little about how well managers are using resources to
generate future profits

The Relationship Between Organizational Size and

Organizational Effectiveness

Organizational inertia
Organizational inertia:
The forces inside an organization that make it resistant to change
Risk aversion:
Managers become unwilling to bear the uncertainty of change as organizations
grow
The desire to maximize rewards:
Managers may increase the size of the company to maximize their own rewards
even when this growth reduces organizational effectiveness
Overly bureaucratic culture:
In large organizations, property rights can become so strong that managers
spend all their time protecting their specific property rights instead of working to
advance the organization

Uncertain and changing environment

Affect an organizations ability
To obtain scarce resources, thereby leading to decline
Makes it difficult for top management
to anticipate the need for change
and to manage the way organizations change and
adapt to the environment.

Weitzel and Jonssons Model of

Organizational Decline
5 Stages Of Decline

STAGE 1: BLINDED
Organizations are unable to recognize the internal or external problems that
threaten their long-term survival
Stage 2: Inaction
Despite
clear signs of deteriorating performance,
top management takes little actions to correct problems.
Gap between acceptable performance and actual performance increases
Stage 3: Faulty action
Managers may have made the wrong decisions
because of conflict in the top management team,
or they may have changed too little too late
fearing more harm than good from reorganization

Stage 4: Crisis
By the time this stage has arrived,
only radical changes in strategy and structure
can stop the decline
Stage 5: Dissolution
Decline is irreversible
Organization cannot recover

Weitzel and Jonssons Model of Organizational Decline