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Organizational Theory,

Design, and Change

Organizational
Transformations: Birth,
Growth, Decline,
and Death

Copyright 2007 Prentice Hall 11- 1


The Organizational Life Cycle
Organizational life cycle: a
predictable sequence of stages of
growth and change
The four principal stages of the
organizational life cycle:
Birth
Growth
Decline
Death
Copyright 2007 Prentice Hall 11- 2
Figure 11-1: Model of the
Organizational Life Cycle

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Organizational Birth
Organizational birth: the founding of
an organization
Occurs when entrepreneurs take advantage
of opportunities to use their skills and
competences to create value
A dangerous life cycle stage associated
with the greatest chance of failure
Liability of newness: the dangers associated
with being the first in a new environment
New organization is fragile because it lacks a
formal structure
Copyright 2007 Prentice Hall 11- 4
Organizational Birth (cont.)
Developing a plan for a new business
Begins when an entrepreneur notices an
opportunity to develop a new or improved
product or service
Tests the feasibility of the new product
idea
SWOT analysis
Examine the strengths and weaknesses of
the idea
Decide whether the new product idea is
feasible
Copyright 2007 Prentice Hall 11- 5
Organizational Birth (cont.)
Developing a plan for a new business
(cont.)
Plan should include:
Statement of the organizations mission,
goals, and financial objectives
Statement of the organizations strategic
objectives
List of all the functional and organizational
resources required to implement the idea
Timeline that contains specific milestones
used to measure the progress of the venture

Copyright 2007 Prentice Hall 11- 6


Table 11-1: Developing a
Business Plan

Copyright 2007 Prentice Hall 11- 7


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

Copyright 2007 Prentice Hall 11- 8


Population Ecology Model
(cont.)
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 birth rate
Availability of knowledge and skills to generate
similar new organizations
New organizations that survive provide role
models
Copyright 2007 Prentice Hall 11- 9
Population Ecology Model
(cont.)
As environment is populated with a
number of successful organizations,
birth rate tapers off because:
Fewer resources are available for
newcomers
First-mover advantages: benefits derived
from being an early entrant into a new
environment
Difficulty of competing with existing
companies

Copyright 2007 Prentice Hall 11- 10


Figure 11-2: Organizational
Birth Rates Over Time

Copyright 2007 Prentice Hall 11- 11


Population Ecology Model
(cont.)
Survival strategies
Strategies that organizations can use to
gain access to resources and enhance
their chances of survival in the
environment
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
Copyright 2007 Prentice Hall 11- 12
Population Ecology Model
(cont.)
Survival strategies (cont.)
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

Copyright 2007 Prentice Hall 11- 13


Population Ecology Model
(cont.)
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 r-Specialists
Eventually, the market is dominated by the
strongest r-Specialists, r-Generalists, and K-
Generalists
Copyright 2007 Prentice Hall 11- 14
Figure 11-3: Strategies for Competing
in the Resource Environment

Copyright 2007 Prentice Hall 11- 15


Population Ecology Model
(cont.)
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
Copyright 2007 Prentice Hall 11- 16
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

Copyright 2007 Prentice Hall 11- 17


The Institutional Theory of
Organizational Growth (cont.)
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

Copyright 2007 Prentice Hall 11- 18


The Institutional Theory of
Organizational Growth (cont.)
Organizational isomorphism: the
similarity among organizations in a
population
Three processes that explain why
organizations become similar are:
Coercive isomorphism
Mimetic isomorphism
Normative isomorphism

Copyright 2007 Prentice Hall 11- 19


The Institutional Theory of
Organizational Growth (cont.)
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
Copyright 2007 Prentice Hall 11- 20
The Institutional Theory of
Organizational Growth (cont.)
Normative isomorphism: exists
when organizations indirectly adopt the
norms and values of other
organizations in the environment
Organizations acquire norms and values
when:
Employees move from one organization to
another and bring with them the norms and
values of their former employer
They participate in the activities of industry,
trade, and professional associations

Copyright 2007 Prentice Hall 11- 21


The Institutional Theory of
Organizational Growth (cont.)
Disadvantages of isomorphism
Organizations may learn ways to behave
that have become outdated and no
longer lead to organizational
effectiveness
Pressure to imitate may reduce the level
of innovation in the environment

Copyright 2007 Prentice Hall 11- 22


Greiners Model of
Organizational Growth
Greiner proposes five growth stages
Each stage results in a crisis
Advancement to the next stage requires
successfully resolving the crisis in the
previous stage
Stage 1: Growth through creativity
Entrepreneurs develop the skills to create
and introduce new products
Organizational learning occurs
Crisis of leadership entrepreneurs may
lack management skills
Copyright 2007 Prentice Hall 11- 23
Greiners Model of
Organizational Growth (cont.)
Stage 2: Growth through direction
Crisis of leadership results in recruitment
of top-level managers who take
responsibility for the organizations
strategy
Often turns around an organizations
fortunes
Crisis of autonomy
Creative people lose control over new product
development
Professional managers run the show
Copyright 2007 Prentice Hall 11- 24
Greiners Model of
Organizational Growth (cont.)
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 top-level and
lower-level managers

Copyright 2007 Prentice Hall 11- 25


Greiners Model of
Organizational Growth (cont.)
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
Attempt to inculcate a companywide
perspective
Crisis of red tape
Increasing reliance on rules and standard
procedures
Organization becomes overly bureaucratic
Copyright 2007 Prentice Hall 11- 26
Greiners Model of
Organizational Growth (cont.)
Stage 5: Growth through collaboration
Emphasizes greater spontaneity in
management action
Greater use of product team and matrix
structures
Changing from a mechanistic to an
organic structure as an organization
grows is a difficult task

Copyright 2007 Prentice Hall 11- 27


Figure 11-4: Greiners Model of
Organizational Growth

Copyright 2007 Prentice Hall 11- 28


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

Copyright 2007 Prentice Hall 11- 29


Organizational Decline and
Death (cont.)
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
Copyright 2007 Prentice Hall 11- 30
Figure 11.5: Relationship Between
Organizational Size and Organizational
Effectiveness

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Figure 11.6: Differences in
Profitability

Copyright 2007 Prentice Hall 11- 32


Organizational Decline and
Death (cont.)
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
Copyright 2007 Prentice Hall 11- 33
Organizational Decline and
Death (cont.)
Organizational inertia (cont.)
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

Copyright 2007 Prentice Hall 11- 34


Organizational Decline and
Death (cont.)
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

Copyright 2007 Prentice Hall 11- 35


Weitzel and Jonssons Model
of Organizational Decline
Five 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
Copyright 2007 Prentice Hall 11- 36
Weitzel and Jonssons Model
(cont.)
Five stages of decline (cont.)
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 and the organization cannot
recover
Copyright 2007 Prentice Hall 11- 37
Figure 11-6: Weitzel and Jonssons
Model of Organizational Decline

Copyright 2007 Prentice Hall 11- 38