Organizational Theory,

Design, and Change

CHAPTER 5

ORGANISATIONAL
TRANSFORMATIONS:
BIRTH,GROWTH,DECLINE AND
DEATH
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Learning Objectives
1. Organization size: Is bigger better?
2. Appreciate the problems involved in
surviving the perils of organizational birth
and what founders can do to help their new
organizations to survive.
3. Describe the typical problems that arise as
an organization grows and matures, and
how an organization must change if it is to
survive and prosper.
4. 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. 11- 2
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Introduction to the organizational
Life Cycle
 Just like people, organizations have life cycles.
Organizations are born, they grow bigger and
mature, and as they pass through midlife, they start
to decline. In many cases, organizations die, just
like every other living thing.
 Some organizations live long lives, and some live
short lives, but each stage of development in the
organizational life cycle is sequential and
predictable for all organizations.
 It is important that managers of organizations
realize which phase of the life cycle their
organization is currently in so that they can adopt
strategies that work best for their current
situation.
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Cont’d
 Organizations move from one stage to another
because the fit between the organization and its
environment is so inadequate that either the
organization's efficiency and/or effectiveness is
seriously impaired or the organization's survival is
threatened.
 The OLC model's prescription is that the firm's
managers must change the goals, strategies, and
strategy implementation devices to fit the new set
of issues.
 Thus, different stages of the organizations 's life
cycle require alterations in the firm's objectives,
strategies, managerial processes (planning,
organizing, staffing, directing, controlling),
technology, culture, and decision-making.
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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
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A 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
 During this stage, organizations accumulate capital, hire
workers, and begin developing their products and services.
Organizations in the start-up stage are small and managed
informally, usually by one person.
 Is 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
 The conditions in the environment may be hostile to the
new organization.
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 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
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Organizational Birth (cont.)
 Developing a plan for a new business
(cont.)
 Plan should include:
 Statement of the organization’s mission,
goals, and financial objectives
 Statement of the organization’s 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

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Table : Developing a Business
Plan

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 Greiner’s Model of
Organizational Growth
 Greiner proposes 5 sequential 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

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Greiner’s 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 organization’s
strategy
 Crisis of autonomy
 Creative people lose control over new product
development
 Professional managers run the show
 Decision making becomes centralized

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Greiner’s 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

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Greiner’s 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
 Crisis of red tape
 Increasing reliance on rules and standard
procedures
 Organization becomes overly bureaucratic and
stifles entrepreneurship

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Greiner’s Model of
Organizational Growth (cont.)
 Stage 5: Growth through collaboration
 Emphasizes greater spontaneity in
management action
 Social control and self-discipline take over
formal control
 Greater use of product team and matrix
structures
 Collaboration makes an organization more
organic which can be a difficult task

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Figure : Greiner’s Model of
Organizational Growth

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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

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Figure : The Relationship Between
Organizational Size and Organizational
Effectiveness

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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
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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

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Organizational Decline and
Death (cont.)
 Uncertain and changing environment
 Affect an organization’s 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

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Weitzel and Jonsson’s 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
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Weitzel and Jonsson’s Model
(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
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Figure : Weitzel and Jonsson’s Model
of Organizational Decline

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