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Organizational Life Cycle Stages

It has been suggested that organizations experience a predictable sequence of stages growth and development: the organizational life cycle. The four principle stages of the organizational life cycle are: -Birth -Growth -Decline -Death
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Organizational Birth
Organizations are born when individuals, called entrepreneurs, recognize opportunities to use their skills to create value. Organizational birth is a dangerous life cycle stage, associated with the greatest chance of failure.
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11 - 3 .Liability of newness This liability of newness—the dangers of being the first in a new environment—is due to the following: • Entrepreneurship is a risky process • New organizations lack formal structure • Resources may be scarce because of established organizations.

  . Generally organizations become more formalized and complex as they grow in size and mature. and other environmental components. Growth often occurs first in the administrative support areas. regulators. Recently theorists have suggested that growth is more likely an international action. buyers.   Growth may be pursued to better the organization’s competitive advantage. Growth may also be pursued to gain power over suppliers.

Organizational birth  Emergent structure  The formal organization  Dinosaurs and turnarounds  ◦ Restructuring ◦ Re-engineering ◦ Rethinking .

. To advance from one stage to the next.  Organizations encounter a predictable series of problems that must be managed if they are to grow and survive in a competitive environment. an organization must successfully manage and solve the organizational problem associated with each crisis.

Crisis of leadership 5. Crisis of red tape 3. Growth through coordination 3. Growth through creativity Mature Age of organization 11 - 7 . Growth through delegation 2. Crisis of autonomy 1. Crisis of control 2.Greiner’s Model of Organizational Growth Large Stage 1 Stage 2 Stage 3 Stage 4 Stage 5 5. Growth through collaboration 4. Crisis of ? Size of organization 4. Growth through direction Small Young 1.

The informal organization guides decision making and communication. control people’s behavior. rather than the hierarchy and organizational structure.   Entrepreneurs develop skills and abilities to create and introduce new products for new market niches. Norms and values of the organization’s culture. A great deal of organizational learning occurs. .

  As the organization grows. founding entrepreneurs confront the task of having to manage the organization. . Entrepreneurs are so involved in getting the organization off the ground that they forget the need to manage organizational resources efficiently  Replace entrepreneurs with professional managers.

. Decision making becomes centralized. standardized rules and procedures allows each organizational function to better monitor and control its activities. Adoption of formal.   New top management team takes responsibility for directing the company’s strategy. A functional or divisional structure is established to allow the organization to regain control of its activities. and lower level managers assume key functional responsibilities.

product engineering. and to be internal entrepreneurs. to take risks. and marketing become frustrated by their lack of control. Structure designed by top managers and imposed on organization limits freedom to experiment. . There is an increase in bureaucracy and decrease in entrepreneurial motivation. Creative people are likely to leave the company.    The organization’s creative people in R&D.

Organizations delegate authority to lower level managers in all functions and link their increased control over organizational activities to a reward structure that recognizes their contributions.  Strike a balance between the need for professional management to improve technical efficiency and providing room for entrepreneurship.  .  Moving to a product team structure or multidivisional structure is one way to respond.

.   When top managers compete with functional managers or corporate level managers compete with divisional managers for control of organizational resources. If divisional/functional managers use control of resources to pursue their own goals at the expense of organizational goals. the organization becomes less effective. Sometimes top management tries to recentralize decision making  back to crisis of autonomy.

.g. e. Reward by promotion to top ranks of organization. Divisions can share resources and cooperate to create new products and processes that benefit the organization as a whole. Initiate company-wide programs to review performance of various divisions.   Top management takes on the role of coordinating different divisions and motivating divisional managers to take a company-wide perspective.

  When organizations fail to manage coordination and the number of rules and procedures increase. Increasing bureaucracy does little to increase organizational effectiveness and is likely to decrease it by stifling entrepreneurship and innovation. .

Use of matrix structures Collaboration makes an organization more organic by making more use of mutual adjustment and less of standardization.g. . e.   Greater spontaneity in management action through teams and skillful confrontation of interpersonal differences. Social control and self-discipline take over from formal control.

    Based on the organization’s inability or reduced capacity to cope with this environment. Organizations generally do not decline rapidly. Decline has five distinct stages: ◦ ◦ ◦ ◦ ◦ Blinded Inaction Faulty action Crisis Dissolution . it happens in a slow agonizing retreat— a “downward spiral”. Hard to reverse because the decline exacerbates the difficulty of obtaining resources.

Weitzel and Jonsson’s Model of Organizational Decline Stage 1: Blinded Good information Performance Prompt action Corrective action Stage 2: Inaction Stage 3: Faulty action Acceptable performance Stage 4: Crisis Stage 5: Dissolution Effective reorganization Actual performance Decline begins T ime Acceptable organizational performance Actual organizational performance Dissolution and organizational death 11 - 18 .

Organizations do not have in place the monitoring and information systems they need to measure organizational effectiveness and identify sources of organizational inertia.   Organizations are unable to recognize the internal/external problems that threaten their longterm survival. Access to good information and an effective top management team can prevent the onset of decline. .

approaches. its decline advances to the inaction stage  Top management takes little action to correct problems. Managers are pursuing goals that benefit themselves at the expense of other stakeholders.    If the organization does not realize it is in trouble in the blinded stage. but inappropriate. Managers are following tried and true. . Managers’ misinterpretation of information and belief that the situation reflects a short-term environmental change.

or may have changed too little too late because they feared a major reorganization may do more harm than good. Problems continue to multiply despite corrective action.  . Managers may have made the wrong decisions because of conflict in the top management team.

Stakeholders are starting to dissolve/restrict their relationships with the organization. Only radical changes to an organization’s strategy and structure can stop the decline.  .

and access to resources shrivels as its reputation and markets disappear. . If new leaders have been selected they are likely to lack the organizational resources to institute successful turnaround.    The company cannot recover and decline is irreversible. The organization has lost support of its stakeholders. liquidate assets. enter bankruptcy proceedings. Attachment of people to the organization is only temporary  Divest existing resources.

STAGE STRATEGY STRUCTURE BIRTH GROWTH MATURITY DECLINE CONCENTRATION INTEGRATION DIVERSIFICATION RETRENCHMENT SIMPLE FUNCTIONAL DIVISIONAL CONSOLIDATION DEATH LIQUIDATION DISMEMBERMENT .

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