organization size, life cycle and decline nathan colaco nando d’oria laura wimperis

Organization Size, Life Cycle and Decline

Nathan ColacoNando D’OriaLaura Wimperis

Chapter Overview

Organizational Size, Life Cycle, and Decline

• Is Bigger Better?• Organizational Life Cycle• Organizational Bureaucracy and Control• Bureaucracy in a Changing World• Organizational Control Strategies• Organizational Decline and Downsizing

E.G.S.S.

Why Grow?

1. Better serve clients2. Acquire the size and resources needed to compete3. Invest in new technology 4. Control and/or establish distribution channels5. Fear of stagnation6. Better access to markets7. Attract best and brightest employees

Leads to increased market share, customer base, and MORE MONEY!!!

Is Bigger Really Better?

Large Small

Economies of Scale Responsive, flexible

Global reach Reginal reach

Vertical hierarchy, mechanistic Flat structure, organic

Complex Simple

Stable market Niche finding

Employee longevity, raises, and promotions

Entrepreneurs

What is the Ideal Size?

The Big/Small Hybrid• Takes the best features of each size

• From Large Organization1. Large resources2. Reach3. Attracting best qualified employees

• From Small Organization1. Flexibility2. Simplicity3. Organic structure

Organization Life Cycle

1. Entrepreneurial2. Collectivity3. Formalization4. Elaboration

• As organizations grow in size, they enter new stages of development

• Stages are sequential and success is essential to pass to the next stage

Why Is The Life Cycle Important?

• 84% of organizations that make it past Year 1 fail within 5 years because they do not make it past the entrepreneurial stage

• Knowing which stage the organization you work for is in is important for the following reasons:• Finding misalignments between their goals, strategy and

structure• Knowing which crises your organization is likely to face• Knowing what your role in the company entails during different

stages

Organization Stages of Development

1. Entrepreneurial Stage Characteristics

CharacteristicStage 1

Entrepreneurial

Structure Informal, one-person show

Product or services Single product or service

Reward and control systems

Personal, paternalistic

Innovation By owner-manager

Goal Survival

Top management style

Individualistic, entrepreneurial

Entrepreneurial Stage• Start-up where the emphasis is on creating ONE product or

service• Goal is to survive in the marketplace• Founders devote all of their attention to the technical

activities of production and marketing• Informally structured• Experience growth through creativity

Entrepreneurial Stage Crisis

Crisis: Need for Leadership• More employees needed• Owners tend to focus on product or service and growth

instead of management issues• Owners need to adjust structure to accommodate growth or

bring in other managers who can

Nike Example

Entrepreneurial Stage

Collectivity Stage

Formalization Stage

Elaboration Stage

• Founded by Phil Knight and his track coach Bill Bowerman in January of 1964

• Originally called Blue Ribbon Sports (BRS)• Operated out of the trunk of Knight’s car as a

distributor for a Japanese shoe maker• 1st year they sold 1,300 pairs of Japanese runners

grossing $8,000

2. Collectivity Stage Characteristics


Collectivity

Structure Mostly informal, some procedures

Product or services Major product or service, with variations


Personal, contribution to success

Innovation By employees and managers

Goal Growth


Charismatic, direction-giving

Collectivity Stage• Departments are established and a hierarchy• Employees are dedicated to making the organization succeed

and identify with their mission• Mostly informal communication but some formal systems

begin to develop

Collectivity Stage Crisis

Crisis: Need for delegation with control• Lower-level employees begin to become restricted by strong

top-down leadership• Lower-level managers become more confident and want more

discretion• Autonomy crisis when top managers do not want to give up

responsibility

Nike Example


Collectivity Stage

Formalization Stage

Elaboration Stage

• Nike began to grow very quickly in terms of sales• First retail store was opened in 1966 so the

employees wouldn’t have to sell out of their cars anymore

• Hired a number of new employees and a hierarchy was established

• Phil Knight was viewed as a strong charismatic leader and provided direction for the company to continue to grow

• Still only selling shoes from the Japanese shoe manufacturer

3. Formalization Stage Characteristics


Formalization

Structure Formal procedures, division of labour, new specialties added

Product or services Line of products or services


Impersonal, formalized systems

Innovation By separate innovation group

Goal Internal stability, market expansion


Delegation with control

Formalization Stage• Organization becomes more bureaucratic• Use of rules, procedures and control systems• More formal communication• Top management worries about strategy and planning and

middle management is left with operations• Incentive systems are based on profits

Formalization Stage Crisis

Crisis: Need to deal with too much red tape• Middle management likely to resent intrusion of staff• Restricted innovation• Organization too large and complex to be managed through

formal programs

Nike Example• Continued growth lead to Nike expanding to the East Coast of

the U.S• Stopped selling Japanese shoes and launched their own line of

footwear• Hired an advertising agency and other support staff• More experienced team of managers were brought in to bring

discipline to Nike


Collectivity Stage

Formalization Stage

Elaboration Stage

4. Elaboration Stage Characteristics


Elaboration

Structure Teamwork within bureaucracy, small-thinking company

Product or services Multiple product or service lines


Extensive, tailored to product and department

Innovation By institutionalized R&D department

Goal Reputation, complete organization


Team approach, attack bureaucracy

Elaboration Stage• More flexible organization design• Managers learn how to work within the bureaucracy• Formal systems are simplified• More collaboration between departments and divisions• Organization split into multiple divisions to get “small-

company” benefits

Elaboration Stage Crisis

Crisis: Need for revitalization• Once reaching maturity, it may have temporary decline• Out of alignment with environment• Slow moving or over-bureaucratized• Top managers replaced

Nike Example• Nike began international expansion• Multiple new product lines were created• Very extensive R&D department creating new product lines• Knight retired as CEO and brought in Bill Perez who he

believed was the right leader based on Nike’s position in the life cycle


Collectivity Stage

Formalization Stage

Elaboration Stage

Goals, Strategy and Structure

Strategy example:• Collectivity Stage

• Miles and Snow’s Prospector strategy• Includes innovation, taking risks, seeking out new opportunities and growth

• Formalization Stage• Porter’s Low-Cost Leadership

• Increase market share, focus on stability

Stage Goals Structure

Entrepreneurial Survival Informal, one-person show

Collectivity Growth Mostly informal, some procedures

Formalization Internal stability, market expansion

Formal procedures, division of labour, new specialties added

Elaboration Reputation, complete organization

Teamwork within bureaucracy, small-company thinking

Test Your Understanding

What stage of the life cycle is each of the following organizations in?• Snapchat• Apple when it was created by Steve Jobs and Stephen Wozniak

in Wozniak’s parents’ garage• Neighbourhood coffee shop

What Is Bureaucracy?

Way of administratively organizing large numbers of people who need to work together.

1. Rules & Procedures2. Specialization & Division of Labour3. Hierarchy of Authority4. Technically Qualified Personnel5. Separate Position from Position Holder6. Written Communications & Records

Size & Structural Control

1. FormalizationRules, procedures, and written documentation, such as policy manuals and job descriptions, outlining rights and duties of employees.

2. CentralizationLevel of hierarchy with authority to make decisions. Either centralized or decentralized.

3. Personnel RatiosRatio of administrative, clerical, and professional support staff.

Bureaucracy In a Changing World

“Every time you add a layer of bureaucracy, you delay the movement of information up the chain of command… And you dilute the information because at each step details are taken out.”

Organizing Temporary Systems for Flexibility & Innovation

Incident Command Systems (ICS):

Formal authority relationships are fixed, decision making authority is dispersed to individuals who best understand the particular situation.Great for organizations that require extremely high reliability, flexibility, and innovation.Example: Salvation Army

Other Approaches to Reduce Bureaucracy

1. Cutting layers of hierarchyGiving lower level workers greater freedom to make decisions.

2. Decentralization & LeannessGiving frontline workers more authority and responsibility to define and direct their own job.

3. The increasing professionalism of employeesDefined as the length of formal training and experience of employees.

4. Professional partnershipsOrganization made up completely of professionals.

Organizational Control Strategies

Bureaucracy – Rules, Standards, Hierarchy, Legitimate Authority

Market – Prices, Competition, Exchange Relationship

Clan – Tradition, Shared Values and Beliefs, Trust


Bureaucratic Control

• Traditional Authority

• Charismatic Authority

• Rational-Legal Authority


Market Control

• A situation that occurs when price competition is used to evaluate the output and productivity of an organization

• Requires that outputs be sufficiently explicit for a price to be assigned and that competition exist

• Originated in Economics


Clan Control

• The use of social characteristics, such as corporate culture, shared values, commitments, traditions, and beliefs, to control behaviour

• Excels when ambiguity and uncertainty are high

• Individuals hired must be committed to the organizations purpose and mission

• Self- Control

Organizational Decline

• A condition in which a substantial, absolute decrease in an organization’s resources base occurs over a period

• Organizational Atrophy

• Vulnerability

• Environmental Decline or Competition

Organizational Decline Factors

Organizational Atrophy

• Occurs when organizations grow older and become inefficient and overly bureaucratized

• Organization’s ability to adapt to its environment deteriorates

• WARNING Signals: Excess administration, heavy administrative processes, outdated organizational structure


Vulnerability

• Reflects an organization’s strategic inability to prosper in its environment

• They are vulnerable to shifts in consumer tastes or in the economic health of the larger community

• WARNING Signals: Unable to to implement a strategy that fits the environment


Environmental Decline or Competition

• Decline refers to reduced energy and resources available to support an organization

• New competition increases the problem

• WARNING Signals: Low barriers to entry, environment has a low capacity to support and more organizations


A Look Back… Legitimacy

• An organizational must “appear” legitimate to the public

• Scandals, controversy, non-ethical practices, shine a negative light on organizations

• Loss of consumer loyalty

The Decline

The model suggests that decline if not managed properly, can move through five stages, resulting in organizational dissolution.

• Stage 1 - Blinded Stage• Stage 2 - Inaction Stage• Stage 3 - Faulty Action Stage• Stage 4 - Crisis• Stage 5 - Dissolution

Five Stages of Organizational Decline

The Decline

Stage 1 - Blinded Stage

• The internal and external change that threatens long-term survival

• The organization may have excess personnel, cumbersome procedures, or lack of harmony with customers

• Leaders miss the signals

The Decline – Stage 1 - Blinded

The Decline

Stage 2 – Inaction

• Denial occurs despite signs of deteriorating performance

• Leaders must acknowledge the decline and take prompt action

• Leaders convince employees that all is well

The Decline – Stage 2 - Inaction

The Decline

Stage 3 – Faulty Action Stage

• Organization is facing serious problems, and indicators of poor performance can’t be ignored

• Failure to adjust to the declining spiral at this point can lead to organizational failure

• Leaders are forced to consider major changes

The Decline – Stage 3 – F.A.S.

The Decline

Stage 4 – Crisis Stage

• Organization still hasn’t been able to deal with decline effectively and is facing a panic

• Organization may experience chaos, efforts go back to basics, sharp changes, and anger

• Dramatic actions such as replacing top admins occur

The Decline – Stage 4 - Crisis

The Decline

Stage 5 – Dissolution

• Stage of decline is irreversible

• The organization is suffering loss of markets and reputation, the loss of its best personnel, and capital depletion

The Decline – Stage 5 - Dissolution

The Implementation of Downsizing

Downsizing: Reducing the number of employees on the operating payroll

• Communicate More

• Provide Assistance

• Help the Survivors


Communicate More

• Saying less is not more

• Organizations need to provide as much information as possible to the employees

• Impossible to over communicate in turbulent times


Provide Assistance

• The organization has a “responsibility” to help displaced workers

• The organization “can” provide training, severance packages, extended benefits, counseling services etc.

• Allow employees to leave with dignity


Help the Survivors

• Leaders need to remember the emotional needs of the survivors

• Survivors might experience guilt, anger, confusion, sadness

• Troubles dealing with additional job duties and responsibilities

Downsizing

Question

• Why should downsizing be the last option?

• How can downsizing harm an organization?

Summary

Organizational Size, Life Cycle, and Decline

• Is Bigger Better?• Organizational Life Cycle• Organizational Bureaucracy and Control• Bureaucracy in a Changing World• Organizational Control Strategies• Organizational Decline and Downsizing

organization size, life cycle and decline nathan colaco nando d’oria laura wimperis

Documents

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