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Organizational life cycle

The organizational life cycle is the life cycle of an organization from its creation to its termination. It also
refers to the expected sequence of advancements experienced by an organization, as opposed to a
randomized occurrence of events. The relevance of a biological life cycle relating to the growth of an
organization was discovered by organizational researchers many years ago. This was apparent as
organizations had a distinct conception, periods of expansion and eventually, termination.

Stages

Generally, there are five stages to an organization's life cycle

 Stage 1: Existence: Commonly known as the birth or entrepreneurial stage, “existence” signifies the
start of an organization’s expansion. The main importance is centered around the acknowledgement
of having an adequate number of customers to keep the organization or business active.
 Stage 2: Survival: At this stage, organizations look to pursue growth, establish a framework and
develop their capabilities. There is a focus on regularly setting targets for the organization, with the
main aim being to generate sufficient revenue for survival and expansion. Some organizations enjoy
adequate growth to be able to enter the next stage, whilst others are unsuccessful in achieving this
and consequently fail to survive.
 Stage 3: Maturity: This stage signifies the organization entering a more formal hierarchy of
management (hierarchical organization). A frequent problem encountered at this stage would be
those associated with “Red Tape”. Organizations look to safeguard their growth as opposed to
focusing on expansion. Top and middle level management specialize in different tasks, such as
planning and routine work respectively.

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 Stage 4: Renewal : Organizations experience a renewal in their structure of management, from a

hierarchical to a matrix style, which encourages creativity and flexibility.
 Stage 5: Decline : This stage initiates the death of an organization. The decline is identified by the
focus on political agenda and authority within an organization, whereby individuals start to become
preoccupied with personal objectives, instead of focusing on the objectives of the organization
itself. This slowly destroys the functionality and feasibility of the entire organization.

Phases of growth
According to Larry Greiner, there are 5 phases of growth in an organization, each indicated by an
evolutionary and subsequently, a revolutionary phase.
An evolutionary phase refers to an extended duration of expansion enjoyed by the organization with no
significant disruptions. Similarly, a revolutionary phase refers to a period of considerable disturbance
within an organization.

Phase 1: creative expansion → leadership crisis

Creative expansion (evolutionary phase) leads to a leadership crisis (revolutionary phase). Initially, the
organization enjoys expansion through the creativity and proactive nature of its founders. However, this
leads to a crisis of leadership, as a more structured form of management is required. The founding
members must either assume this role, or empower a competent manager to fulfill this if they are
unable to.

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Phase 2: directional expansion → autonomy crisis

Directional expansion (evolutionary phase) leads to a crisis of autonomy (revolutionary phase). As the
organization experiences expansion through directive leadership, a more structured and functional
management system is adopted. However, this leads to a crisis of autonomy. Greater delegation of
authority to managers of lower levels is required, although at the reluctance of top tier managers who
do not wish to have their authority diluted.

Phase 3: expansion through delegation → control crisis

Expansion through delegation (evolutionary phase) leads to a crisis of control (revolutionary phase). As
the organization expands from delegating more responsibilities to lower level managers, top tier
directors start to lessen their involvement in the routine operations, reducing the communication
between both levels. This eventually leads to a crisis of control, as lower level managers become
accustomed to working without the intrusion of top-level directors. This leads to a conflict of interest
with the directors, who feel that they are losing control of the expanded organization.

Phase 4: expansion through coordination → red tape crisis

Expansion through coordination (evolutionary phase) leads to a crisis of red tape (revolutionary phase).
As an organization expands from improving its coordination, such as through product group formation
and authorized planning systems, a bureaucratic system develops. This eventually leads to a crisis of red
tape, where many administrative obstacles reduce efficiency and innovation.

Phase 5: expansion through collaboration

At this stage, the organization seeks to overcome the barrier of red tape through adopting a more
flexible and versatile matrix structure (matrix management). Educational courses are arranged for
managers, to equip them with the skills of solving team disputes and to foster greater teamwork.
Complex and formal systems are also made simpler, and there is an increased emphasis on the
communication between managers, to solve crucial problems. Although Greiner identified expansion
through collaboration as the evolutionary phase, he did not specifically identify the succeeding crisis
(revolutionary phase), as there was little evidence due to most of the organizations still being in the
collaboration phase. However, Greiner predicted that the crisis might involve the exhaustion of
members in an organization, due to a strong requirement for innovation and teamwork.

Implications for growth phases

There are certain implications for managers in organizations with regards to the phases of growth:
Recognizing one's position in the course of expansion
Top tier managers should be aware of their organization's current stage, to be able to execute relevant
solutions to the type of crisis faced. Managers should also not be tempted to surpass their current

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phase due to eagerness. This is because there may be vital experiences from each phase to be learned,
that will be required to tackle future phases.
Recognizing the restricted variety of solutions
It becomes clear in each phase of revolution that there are only a specific number of solutions that can
be applied. Managers should avoid repeating solutions, as this will prevent the evolution of a new phase
of growth. It is also important to note that evolution is not a mechanical event, and organizations must
actively seek out new solutions to the current crisis that are also suitable for the next stage of growth.
Recognizing that solutions result in crisis
Managers should realize that past actions are factors of future consequences. This would help managers
in formulating solutions to cope with the crisis that develops in the future.

Strategic Management - An Introduction

Strategic Management is all about identification and description of the strategies that managers can
carry so as to achieve better performance and a competitive advantage for their organization. An
organization is said to have competitive advantage if its profitability is higher than the average
profitability for all companies in its industry.

Strategic management can also be defined as a bundle of decisions and acts which a manager
undertakes and which decides the result of the firm’s performance. The manager must have a thorough
knowledge and analysis of the general and competitive organizational environment so as to take right
decisions. They should conduct a SWOT Analysis (Strengths, Weaknesses, Opportunities, and Threats),
i.e., they should make best possible utilization of strengths, minimize the organizational weaknesses,
make use of arising opportunities from the business environment and shouldn’t ignore the threats.

Strategic management is nothing but planning for both predictable as well as unfeasible contingencies.
It is applicable to both small as well as large organizations as even the smallest organization face
competition and, by formulating and implementing appropriate strategies, they can attain sustainable
competitive advantage. It is a way in which strategists set the objectives and proceed about attaining
them. It deals with making and implementing decisions about future direction of an organization. It
helps us to identify the direction in which an organization is moving.

Strategic management is a continuous process that evaluates and controls the business and the
industries in which an organization is involved; evaluates its competitors and sets goals and strategies to
meet all existing and potential competitors; and then reevaluates strategies on a regular basis to
determine how it has been implemented and whether it was successful or does it needs replacement.
Strategic Management gives a broader perspective to the employees of an organization and they can
better understand how their job fits into the entire organizational plan and how it is co-related to other
organizational members.

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The strategic management process means defining the organization’s strategy. It is also defined as the
process by which managers make a choice of a set of strategies for the organization that will enable it to
achieve better performance.
Strategic management is a continuous process that appraises the business and industries in which the
organization is involved; appraises it’s competitors; and fixes goals to meet all the present and future
competitor’s and then reassesses each strategy.

Components of Strategic Management Process

Strategic management process has following four steps:

1. Environmental Scanning- Environmental scanning refers to a process of collecting, scrutinizing and
providing information for strategic purposes. It helps in analyzing the internal and external factors
influencing an organization. After executing the environmental analysis process, management
should evaluate it on a continuous basis and strive to improve it.
2. Strategy Formulation- Strategy formulation is the process of deciding best course of action for
accomplishing organizational objectives and hence achieving organizational purpose. After
conducting environment scanning, managers formulate corporate, business and functional
strategies.
3. Strategy Implementation- Strategy implementation implies making the strategy work as intended
or putting the organization’s chosen strategy into action. Strategy implementation includes
designing the organization’s structure, distributing resources, developing decision making process,
and managing human resources.
4. Strategy Evaluation- Strategy evaluation is the final step of strategy management process. The key
strategy evaluation activities are: appraising internal and external factors that are the root of
present strategies, measuring performance, and taking remedial / corrective actions. Evaluation
makes sure that the organizational strategy as well as it’s implementation meets the organizational
objectives.
These components are steps that are carried, in chronological order, when creating a new strategic
management plan. Present businesses that have already created a strategic management plan will
revert to these steps as per the situation’s requirement, so as to make essential changes.
Strategic management is an ongoing process. Therefore, it must be realized that each component
interacts with the other components and that this interaction often happens in chorus.

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Meaning of Working Capital

Capital required for a business can be classified under two main categories viz.
(i) Fixed capital
(ii) Working capital.
Every business needs funds for two purposes for its establishment and to carry out its day-to-day
operations. Long-term funds are required to create production facilities through purchase of fixed
assets such as plant and machinery, land, Building etc. Investments in these assets represent that part
of firm’s capital which is blocked on permanent basis and is called fixed capital. Funds are also needed
for short-term purposes for purchase of raw materials, payment of wages and other day-to-day
expenses etc. These funds are known as working capital which is also known as Revolving or circulating
capital or short term capital. According to Shubin, “Working capital is amount of funds necessary to
cover the cost of operating the enterprise”.

Concept of Working Capital

There are two concepts of working capital:
(i) Gross working capital
(ii) Net working capital.
Gross working capital is the capital invested in total current assets of the enterprise. Examples of
current assets are: cash in hand and bank balances, Bills Receivable, Short term loans and advances,
prepaid expenses, Accrued Incomes etc. The gross working capital is financial or going concern
concept. Net working capital is excess of Current Assets over Current liabilities.
Net Working Capital = Current Assets – Current Liabilities
When current assets exceed the current liabilities the working capital is positive and negative working
capital results when current liabilities are more than current assets. Examples of current liabilities are
Bills Payable, Sunday debtors, accrued expenses, Bank Overdraft, Provision for taxation etc. Net working
capital is an accounting concept of working capital.

Classification or Kinds of Working Capital

Working capital may be classified in two ways:
(a) On the basis of concept
(b) On the basis of time
On the basis of concept working capital is classified as gross working capital and net working capital. On
the basis of time working capital may be classifies as Permanent or fixed working capital and Temporary
or variable working capital.
Permanent or Fixed working capital
It is the minimum amount which is required to ensure effective utilization of fixed facilities and for
maintaining the circulation of current assets. There is always a minimum level of current assets which its
continuously required by enterprise to carry out its normal business operations. As the business grows,

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the requirements of permanent working capital also increase due to increase in current assets. The
permanent working capital can further be classified as regular working capital and reserve working
capital required ensuring circulation of current assets from cash to inventories, from inventories to
receivables and from receivables to cash and so on. Reserve working capital is the excess mount over
the requirement for regular working capital which may be provided for contingencies that may arise at
unstated periods such as strikes, rise in prices, depression etc.

Temporary or Variable working capital

It is the amount of working capital which is required to meet the seasonal demands and some special
exigencies. Variable working capital is further classified as seasonal working capital and special working
capital. The capital required to meet seasonal needs of the enterprise is called seasonal working capital.
Special working capital is that part of working capital which is required to meet special exigencies such
as launching of extensive marketing campaigns for conducting research etc.

Importance or Advantages of Adequate Working Capital : Working capital is the life blood and nerve
centre of a business. Hence, it is very essential to maintain smooth running of a business. No business
can run successfully without an adequate amount of working capital. The main advantages of
maintaining adequate amount of working capital are as follows:
1. Solvency of the Business: Adequate working capital helps in maintaining solvency of business
by providing uninterrupted flow of production.
2. Goodwill: Sufficient working capital enables a business concern to make prompt payments and
hence helps in creating and maintaining goodwill.
3. Easy Loans: A concern having adequate working capital, high solvency and good credit standing
can arrange loans from banks and others on easy and favourable terms.
4. Cash Discounts: Adequate working capital also enables a concern to avail cash discounts on
purchases and hence it reduces cost.
5. Regular Supply of Raw Material: Sufficient working capital ensures regular supply of raw
materials and continuous production.
6. Regular payment of salaries, wages and other day to day commitments: A company which
has ample working capital can make regular payment of salaries, wages and other day to day
commitments which raises morale of its employees, increases their efficiency, reduces costs and
wastages.
7. Ability to face crisis: Adequate working capital enables a concern to face business crisis in
emergencies such as depression.
8. Quick and regular return on investments: Every investor wants a quick and regular return on
his investments. Sufficiency of working capital enables a concern to pay quick and regular dividends to is
investor as there may not be much pressure to plough back profits which gains the confidence of
investors and creates a favourable market to raise additional funds in future.

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9. Exploitation of Favourable market conditions: Only concerns with adequate working capital
can exploit favourable market conditions such as purchasing its requirements in bulk when the prices
are lower and by holding its inventories for higher prices.
10. High Morale: Adequacy of working capital creates an environment of security, confidence, high
morale and creates overall efficiency in a business.

Excess or Inadequate Working Capital

Every business concern should have adequate working capital to run its business operations. It should
have neither excess working capital nor inadequate working capital. Both excess as well as short
working capital positions are bad for any business.
Disadvantages of Excessive Working Capital
1. Excessive working capital means idle funds which earn no profits for business and hence
business cannot earn a proper rate of return.
2. When there is a redundant working capital it may lead to unnecessary purchasing and
accumulation of inventories causing more chances of theft, waste and losses.
3. It may result into overall inefficiency in organization.
4. Due to low rate of return on investments, the value of shares may also fall.
5. The redundant working capital gives rise to speculative transaction.
6. When there is excessive working capital, relations with banks and other financial institutions
may not be maintained.
Disadvantages of Inadequate working capital
1. A concern which has inadequate working capital cannot pay its short-term liabilities in time.
Thus, it will lose its reputation and shall not be able to get good credit facilities.
2. It cannot buy its requirements in bulk and cannot avail of discounts.
3. It becomes difficult for firm to exploit favourable market conditions and undertake profitable
projects due to lack of working capital.
4. The rate of return on investments also falls with shortage of working capital.
5. The firm cannot pay day-to-day expenses of its operations and it created inefficiencies, increases
costs and reduces the profits of business.

The Need of Working Capital

The need for working capital arises due to time gap between production and realisation of cash from
sales. There is an operating cycle involved in sales and realisation of cash. There are time gaps in
purchase of raw materials and production, production and sales, and sales and realisation of cash. Thus,
working capital is needed for following purposes.
1. For purchase of raw materials, components and spares.
2. To pay wages and salaries.
3. To incur day-to-day expenses and overhead costs such as fuel, power etc.

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4. To meet selling costs as packing, advertisement

5. To provide credit facilities to customers.
6. To maintain inventories of raw materials, work in progress, stores and spares and finished stock.
Greater size of business unit large will be requirements of working capital. The amount of working
capital needed goes on increasing with growth and expansion of business till it attains maturity. At
maturity the amount of working capital needed is called normal working capital.

Importance of marketing in small business

(1) Marketing Helps in Transfer, Exchange and Movement of Goods:
Marketing is very helpful in transfer, exchange and movement of goods. Goods and services are made
available to customers through various intermediaries’ viz., wholesalers and retailers etc. Marketing is
helpful to both producers and consumers.
To the former, it tells about the specific needs and preferences of consumers and to the latter about the
products that manufacturers can offer. According to Prof. Haney Hansen “Marketing involves the design
of the products acceptable to the consumers and the conduct of those activities which facilitate the
transfer of ownership between seller and buyer.”

(2) Marketing Is Helpful In Raising And Maintaining The Standard Of Living Of The Community:
Marketing is above all the giving of a standard of living to the community. Paul Mazur states,
“Marketing is the delivery of standard of living”. Professor Malcolm McNair has further added that
“Marketing is the creation and delivery of standard of living to the society”.
By making available the uninterrupted supply of goods and services to consumers at a reasonable price,
marketing has played an important role in raising and maintaining living standards of the community.
Community comprises of three classes of people i.e., rich, middle and poor. Everything which is used by
these different classes of people is supplied by marketing.
In the modern times, with the emergence of latest marketing techniques even the poorer sections of
society have attained a reasonable level of living standard. This is basically due to large scale production
and lesser prices of commodities and services. Marketing has infact, revolutionised and modernised the
living standard of people in modern times.

(3) Marketing Creates Employment:

Marketing is complex mechanism involving many people in one form or the other. The major marketing
functions are buying, selling, financing, transport, warehousing, risk bearing and standardisation, etc. In
each such function different activities are performed by a large number of individuals and bodies.
Thus, marketing gives employment to many people. It is estimated that about 40% of total population is
directly or indirectly dependent upon marketing. In the modern era of large scale production and
industrialisation, role of marketing has widened.

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This enlarged role of marketing has created many employment opportunities for people. Converse,
Huegy and Mitchell have rightly pointed out that “In order to have continuous production, there must
be continuous marketing, only then employment can be sustained and high level of business activity can
be continued”.

(4) Marketing as a Source of Income and Revenue:

The performance of marketing function is all important, because it is the only way through which the
concern could generate revenue or income and bring in profits. Buskirk has pointed out that, “Any
activity connected with obtaining income is a marketing action. It is all too easy for the accountant,
engineer, etc., to operate under the broad assumption that the Company will realise many dollars in
total sales volume.
However, someone must actually go into the market place and obtain dollars from society in order to
sustain the activities of the company, because without these funds the organisation will perish.”
Marketing does provide many opportunities to earn profits in the process of buying and selling the
goods, by creating time, place and possession utilities. This income and profit are reinvested in the
concern, thereby earning more profits in future. Marketing should be given the greatest importance,
since the very survival of the firm depends on the effectiveness of the marketing function.

(5) Marketing Acts as a Basis for Making Decisions:

A businessman is confronted with many problems in the form of what, how, when, how much and for
whom to produce? In the past problems was less on account of local markets. There was a direct link
between producer and consumer.
In modern times marketing has become a very complex and tedious task. Marketing has emerged as
new specialised activity along with production.
As a result, producers are depending largely on the mechanism of marketing, to decide what to produce
and sell. With the help of marketing techniques a producer can regulate his production accordingly.

(6) Marketing Acts as a Source of New Ideas:

The concept of marketing is a dynamic concept. It has changed altogether with the passage of time.
Such changes have far reaching effects on production and distribution. With the rapid change in tastes
and preference of people, marketing has to come up with the same.
Marketing as an instrument of measurement, gives scope for understanding this new demand pattern
and thereby produce and make available the goods accordingly.

(7) Marketing Is Helpful In Development Of An Economy:

Adam Smith has remarked that “nothing happens in our country until somebody sells something”.
Marketing is the kingpin that sets the economy revolving. The marketing organisation, more

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scientifically organised, makes the economy strong and stable, the lesser the stress on the marketing
function, the weaker will be the economy.

Customer Relationship Management

Meaning and Definition:
Customer satisfaction has always been a key element in the pursuit of corporate goals and objectives.
However, the current competitive environment fostered by liberalization and globalization of the econ-
omy and the rising customer expectations for quality, service and value have promoted many compa-
nies to organize their business around the customers they serve, rather than around the product lines
or geographic business units.

Customer relationship management (CRM) first gained prominence in the early 1990s. It refers to the
holistic approach that organizations can take to manage their relationships with their customers, includ-
ing policies related to contact with customers, collecting, storing, analysing customer information, and
the technology needed to perform these tasks.

According to Philip Kotler and Gary Armstrong, ‘CRM is concerned with managing detailed information
about individual customers and all customer “touch points” to maximize customer loyalty. It can also be
defined as, ‘an alignment of strategy, processes and technology to manage customers, and all
customer-facing departments and partners’. In short, CRM is about effectively and profitably managing
customer relationships through the entire life cycle.

CRM helps in providing better service to the customers and developing effective customer relationships.
CRM integrates everything that a company’s sales, services and marketing teams know about the
individual customers to get a 360-degree view of the customer relationship.

The aim of CRM is to build customer equity; customer equity is the sum of lifetime values of all the
customers. CRM analysts develop data warehouses and use data-mining techniques to develop and
maintain long-lasting relationships with the valuable customers. A data warehouse is a company-wide
electronic database of detailed customer information. The purpose of data warehouse is not just to
gather information but also to place it into a central location for easy access. Once the data warehouse
locates the data at a central place, the data analysts use the data-mining techniques to examine the
mounds of data to find out interesting facts about the customers.

Need and Importance of CRM:

1. Better service to customers:
CRM provides more avenues for customers to communicate and explain their needs to the organization
through numerous contact points. Customers get increased satisfaction and a feeling of being special

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and important because of the increased personalization of services and customization of goods offered
to them.
For example, ICICI Bank maintains a list of priority customers and provides them with additional
facilities and special offers such as free tickets to concerts, movies, and so on. Some banks, such as
Syrian Catholic Bank provide personalized services to their important customers.
2. Customization of market offerings:
Companies can customize a product or service depending on the data available with the firm. The firm
can facilitate customer-company interaction through the company contact centre and web site. Such
interactions help develop customized products.
3. Reduction in the customer defection rate:
CRM emphasizes on training and development of the employees to become more customer oriented.
Due to CRM training and development, employees show care and concern towards the valuable
customers; therefore, the customer defection rate may be reduced to a great extent.
4. Increase and improvement in long-term relationships:
Some firms treat their customers as partners. Firms solicit the help of the customers to design new
products or to improve their services. If the customer gets involved with the firm, they are more likely
to remain with the firm.
5. Increase in customer equity:
CRM increases customer equity. Firms focus the marketing efforts more on the most valuable
customers (MVCs). The main aim of CRM is to produce high customer equity. Customer equity is the
sum of lifetime values of all customers. More focus on MVCs will enable a firm to increase the customer
equity.
6. Competitive advantage:
The firms that adopt CRM get competitive advantage in the market. They can face the competition with
much ease. Competitive advantage helps in generating higher returns on investment.
7. Building and maintaining corporate image:
The image of the firm also gets enhanced. Loyal customers become evangelists. The evangelists spread
a good word about the company and its products. This enables a firm to get additional customers to its
fold.
8. Higher return on investment:
Due to CRM, a company gains a position to generate higher returns on investment. This is because of
the repeat purchases on the part of the loyal customers. The company also makes money through cross
selling. The higher return on investment increases the shareholders’ value.

Techniques of Building CRM:

Firms use a number of techniques to build, maintain and enhance CRM. The techniques include the
software programmes, promotional techniques, pricing strategies, MVC programmes, and so on. Some
of the techniques have been discussed in detail.

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Data Warehousing and Data Mining:

CRM analysts develop data warehouses and use data-mining techniques to develop and maintain long-
lasting relationships with the valuable customers.
1. A data warehouse is a company-wide electronic database of detailed customer information. The
purpose of data warehouse is not just to gather information, but to place it into a central location for
easy access.
2. Once the data warehouse locates the data at a central place, the data analysts use data mining
techniques to examine the mounds of data to find out interesting facts of the customers.
The mined data can be utilized for various marketing decisions such as the following:
1. Product design and modification
2. Product pricing
3. Promotion mix
4. Selection of channels of distribution
5. Maintaining dealer relationships.
One-to-one Marketing:
Some firms adopt one-to-one marketing strategy. Such firms treat their customers as partners,
especially in the case of B2B markets firms solicit the help of customers to design new products or to
improve their services. If the customer gets involved with the firm, then they are more likely to remain
with the firm.
Loyalty Programmes:
Firms may use variety of loyalty programmes to retain customers. For example, airlines may offer spe-
cial discount for frequent fliers. Firms may also provide gifts and other benefits to the loyal customers.
But it is to be noted that all loyal customers need not be profitable, and all profitable customers need
not be loyal.
Therefore, the firm must be selective. In order to enhance marketing efficiency, a firm has to find out
which of its customers are worth retaining and which are not, and which customers should be given
extra care and attention. In other words, the firm has to determine the value of its customers, and focus
on MVCs accordingly.
Priority Customer Programmes:
Some firms introduce priority customer programmes. The priority customers are the MVCs. They are
given priority in after-sales service, delivery and resolving complaints. The priority customer
programmes are followed by several organizations, especially in the banking industry.
For example, Citibank maintains a list of priority customers and provides them with additional facilities
special offers such as free ticket to concerts, movies, and so on. Some banks, such as Syrian Catholic
Hank provide personalized services to the important customers.

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