ORGANIZATION

LIFE CYCLE
&
GROWTH

PGP 20- OB II
Tuesday, 25th October , 2016
 LEARNING OBJECTIVES

Appreciate the problems involved in surviving the perils of

organizational birth, growth and maturity and what organizations
must do to survive and prosper.
Population Ecology Model and Institutional Theory

Discuss why organizational decline occurs, identify the stages of

decline, and how managers can change their organizations to prevent
failure and eventual death or dissolution.
 THE 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
 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.
A new organization is fragile because it lacks a formal structure.
Develop a plan for a new business
Statement of the organizations mission, goals, financial & 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.
A POPULATION ECOLOGY MODEL
OF ORGANIZATIONAL BIRTH
Population ecology theory: explains 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
Population density: the number of organizations that can compete for the same
resources in a particular environment
Environmental niches: particular sets of resources or skills.
Number of births determined by the availability of resources

Factors that produce a rapid birthrate

Availability of knowledge and skills to generate similar new organizations
New organizations that survive provide role models and confer legitimacy
POPULATION ECOLOGY MODEL
First-mover advantages: benefits derived from being an early entrant into a
new environment.
Survival strategies: Strategies that organizations can use to gain access to
resources and enhance their chances of survival in the environment
Strategy Description
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
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 r-Specialists
Eventually, the market is dominated by the strongest r-Specialists, r-Generalists,
and K-Generalists.
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
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. Legitimization/
political (Quality Standards- ISO 9000, Pollution control/environmental
protection norms, CSR)
MIMETIC isomorphism: exists when organizations intentionally imitate one another to
increase their legitimacy. Environmental uncertainty increases the likelihood of
imitation. (EPR systems, campus recruitment drives , International immersion
programs)
NORMATIVE isomorphism: exists when organizations indirectly adopt the norms and
values of other organizations in the environment.
Acquired 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 forums.
Professionalism. (NASSCOM, ESOPS, Cafeteria Style Perquisites)
GREINERS MODEL OF ORGANIZATIONAL
GROWTH
Describes phases that organizations go through as they grow. Each growth phase is made up of a period
of relatively stable growth, followed by a "crisis" when major organizational change is needed if the
company is to carry on growing.

AGE OF THE ORGANIZATION SIZE OF THE ORGANIZATION

History shows that the same organizational
practices are not maintained throughout a long life
span.
Management problems and principles are rooted in
time. They do not last throughout the life of an
organization.
E.g. The concept of decentralization, can describe
corporate practices at one period but can lose its
descriptive power at another.
Problems of coordination and communication
magnify, new functions emerge, levels in the
management hierarchy multiply, and jobs become
more interrelated.
Organizations that do not become larger can
retain many of the same management issues and
practices over long periods.
 STAGES OF EVOLUTION
As organizations age and grow, another
phenomenon emerges: prolonged growth
that we can term the evolutionary period.
The term evolution seems appropriate for
describing these quiet periods because
only modest adjustments appear to be
necessary for maintaining growth under
the same overall pattern of management.
STAGES OF REVOLUTION
They typically exhibit a serious upheaval of
management practices.
Traditional management practices that were
appropriate for a smaller size and earlier time no
longer work and are brought under scrutiny by
frustrated top-level managers and disillusioned
lower-level managers. During such periods of crisis,
a number of companies fall short.
Those that are unable to abandon past practices and
effect major organizational changes are likely either
to fold or to level off in their growth rates.

GROWTH RATE OF THE INDUSTRY

The speed at which an organization experiences phases of evolution and revolution is closely related
to the market environment of its industry. Evolutionary periods tend to be relatively short in fast-
growing industries, much longer evolutionary periods occur in mature or slow-growing industries.
 CREATIVITY
In the birth stage of an organization, the emphasis is on creating both a product and a market. The
following are the characteristics of the period of creative evolution:

The founders of the company are usually technically or entrepreneurially oriented, and they
generally disdain management activities; their physical and mental energies are absorbed
entirely by making and selling a new product.
Communication among employees is frequent and informal.
Long hours of work are rewarded by modest salaries and the promise of ownership benefits.
Decisions and motivation are highly sensitive to marketplace feedback; management acts as
customers react.

Crisis of leadership entrepreneurs may lack management skills.

 PHASE 2: DIRECTION
Those companies that survive the first phase by installing a capable business manager usually
embark on a period of sustained growth under able, directive leadership. Here are the characteristics
of this evolutionary period:

A functional organizational structure is introduced to separate manufacturing from marketing

activities, and job assignments become increasingly specialized.
Accounting systems for inventory and purchasing are introduced.
Incentives, budgets, and work standards are adopted.
Communication becomes more formal and impersonal as a hierarchy of titles and positions grows.
The new manager and his or her key supervisors assume most of the responsibility for instituting
direction; lower-level supervisors are treated more as functional specialists than as autonomous
decision-making managers.

Crisis of autonomy - Creative people lose control over new product development
 DELEGATION
The next era of growth evolves from the successful application of a decentralized organizational structure. It
exhibits these characteristics:

Much greater responsibility is given to the managers of plants and market territories. Movement toward
product team structure
Bonuses are used to motivate employees.
Top-level executives at headquarters limit themselves to managing by exception based on periodic
reports from the field.
Management often concentrates on acquiring outside enterprises that can be lined up with other
decentralized units.
Communication from the top is infrequent and usually occurs by correspondence, telephone, or brief
visits to field locations.

Crisis of control as power struggles over resources emerge between top-level and
lower-level managers
 COORDINATION
The evolutionary period of the coordination phase is characterized by the use of formal systems for achieving
greater coordination and by top-level executives taking responsibility for the initiation and administration of
these new systems. For example:

Decentralized units are merged into product groups. product/ multi divisional
Formal planning procedures are established and intensively reviewed.
Numerous staff members are hired and located at headquarters to initiate companywide programs of
control and review for line managers.
Capital expenditures are carefully weighed and parceled out across the organization.
Each product group is treated as an investment center where return on invested capital is an important
criterion used in allocating funds.
Certain technical functions, such as data processing, are centralized at headquarters, while daily operating
decisions remain decentralized.
Stock options and companywide profit sharing are used to encourage employees to identify with the
organization as a whole.
Crisis of red tape: Increasing reliance on rules and standard procedure; becomes overly
bureaucratic and stifles entrepreneurship
 COLLABORATION
The last observable phase emphasizes strong interpersonal collaboration in an attempt to overcome
the red-tape crisis. Where Phase 4 was managed through formal systems and procedures, Phase 5
emphasizes spontaneity in management action through teams and the skillful confrontation of
interpersonal differences. Social control and self-discipline replace formal control. This transition is
especially difficult for the experts who created the coordination systems as well as for the line
managers who relied on formal methods for answers.

A more flexible and behavioral approach to management. Here are its characteristics:
The focus is on solving problems quickly through team action.
Teams are combined across functions to handle specific tasks.
 COLLABORATION
(CONT..)
Staff experts at headquarters are reduced in number, reassigned, and combined into interdisciplinary teams
that consult with, not direct, field units.
A matrix-type structure is frequently used to assemble the right teams for the appropriate problems.
Formal control systems are simplified and combined into single multipurpose systems.
Conferences of key managers are held frequently to focus on major problems.
Educational programs are used to train managers in behavioral skills for achieving better teamwork and
conflict resolution.
Real-time information systems are integrated into daily decision-making processes.
Economic rewards are geared more to team performance than to individual achievement.
Experimenting with new practices is encouraged throughout the organization.

Crisis of ???????
 ORGANIZATION PRACTICES
CATEGORY PHASE 1 PHASE 2 PHASE 3 PHASE 4 PHASE 5
Problem
Management Efficiency of Expansion of Consolidation of
Make and sell solving and
Focus operations market organization
innovation
Organization Centralized Decentralized and Line-staff and
Informal Matrix of teams
Structure and functional geographical product groups
Top-
Individualistic &
Management Directive Delegative Watchdog Participative
entrepreneurial
Style
Plans and
Standards and Reports and profit Mutual goal
Control System Market results investment
cost centers centers setting
centers
Management
Salary & merit Profit sharing and
Reward Ownership Individual bonus Team bonus
increases stock options
Emphasis
ORGANIZATIONAL LIFE CYCLE:
Streamlining,
small-company
thinking

Large Development of teamwork Continued

maturity

Addition of internal systems Crisis: Decline

Need for
revitalization
S Provision of clear direction
I
Z Crisis:
Need to deal
E
Creativity with too much
Crisis: red tape
Need for
Crisis: delegation
Need for with control
leadership
1. 2. 3. 4.
Small Entrepreneurial Collectivity Formalization Elaboration
Stage Stage Stage Stage

Sources: Adapted from Robert E. Quinn and Kim Cameron, Organizational Life Cycles and Shifting Criteria of Effectiveness: Some Preliminary Evidence, Management
Science 29 (1983): 33-51; and Larry E. Greiner, Evolution and Revolution as Organizations Grow, Harvard Business Review 50 (July-August 1972): 37-46.
ORGANIZATIONAL DECLINE AND DEATH
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 and the organization cannot recover
WEITZEL AND JONSSONS MODEL
OF ORGANIZATIONAL DECLINE
Stage 1:Blinded Stage 3:Faulty action
Stage 2: Inaction Stage 4:Crisis
Good info Acceptable Stage
performance 5:Dissolution
Prompt action
Performance

Corrective action
Effective
reorganization
Actual

performance

Decline begins Dissolution and Death

TTime
Acceptable organizational performance
Actual organizational performance
 DECLINE
Leadership factors:
a) managerial perception of environmental reality may be erroneous leading to wrong
action choice,
b) managerial inertia to continuously realign organization.

Environmental factor
a) velocity of environmental change,
b) content of change munificence

Organizational factors:
ownership, corporate control, culture, age, size, and industrial relations