Organization

Size, Life
Cycle and Decline

Nathan Colaco
Nando DOria
Laura Wimperis

Chapter Overview
Organiza:onal Size, Life Cycle, and Decline

Is Bigger BeAer?
Organiza:onal Life Cycle
Organiza:onal Bureaucracy and Control
Bureaucracy in a Changing World
Organiza:onal Control Strategies
Organiza:onal Decline and Downsizing

E.G.S.S.

Why Grow?
1. BeAer serve clients
2. Acquire the size and resources needed to
compete
3. Invest in new technology
4. Control and/or establish distribu:on channels
5. Fear of stagna:on
6. BeAer access to markets
7. AAract best and brightest employees

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

Is Bigger Really Better?

Large

Small

Economies of Scale

Responsive, exible

Global reach

Reginal reach

Ver;cal hierarchy, mechanis;c

Flat structure, organic

Complex

Simple

Stable market

Niche nding

Employee longevity, raises,

and promo;ons

Entrepreneurs

What is the Ideal Size?

The Big/Small Hybrid

Takes the best features of each size
From Large Organiza:on
1. Large resources
2. Reach
3. AArac:ng best qualied employees
From Small Organiza:on
1. Flexibility
2. Simplicity
3. Organic structure

Organization Life Cycle

1.
2.
3.
4.

Entrepreneurial
Collec:vity
Formaliza:on
Elabora:on

As organiza:ons grow in size, they enter new stages of

development
Stages are sequen:al and success is essen:al to pass to the
next stage

Why Is The Life Cycle Important?

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

Knowing which stage the organiza:on you work for is in is
important for the following reasons:
Finding misalignments between their goals, strategy and
structure
Knowing which crises your organiza:on is likely to face
Knowing what your role in the company entails during dierent
stages

Organization Stages of Development

1. Entrepreneurial Stage Characteristics

Characteris;c

Stage 1
Entrepreneurial

Structure

Informal, one-person show

Product or services

Single product or service

Reward and control

systems

Personal, paternalis:c

Innova;on

By owner-manager

Goal

Survival

Top management
style

Individualis:c, entrepreneurial

Entrepreneurial Stage
Start-up where the emphasis is on crea:ng ONE product or
service
Goal is to survive in the marketplace
Founders devote all of their aAen:on to the technical
ac:vi:es of produc:on and marke:ng
Informally structured
Experience growth through crea:vity

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
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 Knights car as a
distributor for a Japanese shoe maker
1st year they sold 1,300 pairs of Japanese runners
grossing $8,000

Entrepreneurial
Stage

Collec:vity
Stage

Formaliza:on
Stage

Elabora:on
Stage

2. Collectivity Stage Characteristics

Characteris;c

Stage 2
Collec;vity

Structure

Mostly informal, some procedures

Product or services

Major product or service, with

varia:ons

Reward and control

systems

Personal, contribu:on to success

Innova;on

By employees and managers

Goal

Growth

Top management
style

Charisma:c, direc:on-giving

Collectivity Stage
Departments are established and a hierarchy
Employees are dedicated to making the organiza:on succeed
and iden:fy with their mission
Mostly informal communica:on but some formal systems
begin to develop

Collectivity Stage Crisis

Crisis: Need for delega;on with control
Lower-level employees begin to become restricted by strong
top-down leadership
Lower-level managers become more condent and want more
discre:on
Autonomy crisis when top managers do not want to give up
responsibility

Nike Example

Nike began to grow very quickly in terms of sales

First retail store was opened in 1966 so the
employees wouldnt 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 charisma:c
leader and provided direc:on for the company to
con:nue to grow
S:ll only selling shoes from the Japanese shoe
manufacturer
Entrepreneurial
Stage

Collec:vity
Stage

Formaliza:on
Stage

Elabora:on
Stage

3. Formalization Stage Characteristics

Characteris;c

Stage 3
Formaliza;on

Structure

Formal procedures, division of labour,

new special:es added

Product or services

Line of products or services

Reward and control

systems

Impersonal, formalized systems

Innova;on

By separate innova:on group

Goal

Internal stability, market expansion

Top management
style

Delega:on with control

Formalization Stage
Organiza:on becomes more bureaucra:c
Use of rules, procedures and control systems
More formal communica:on
Top management worries about strategy and planning and
middle management is lel with opera:ons
Incen:ve systems are based on prots

Formalization Stage Crisis

Crisis: Need to deal with too much red tape
Middle management likely to resent intrusion of sta
Restricted innova:on
Organiza:on too large and complex to be managed through
formal programs

Nike Example
Con:nued 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 adver:sing agency and other support sta
More experienced team of managers were brought in to bring
discipline to Nike

Entrepreneurial
Stage

Collec:vity
Stage

Formaliza:on
Stage

Elabora:on
Stage

4. Elaboration Stage Characteristics

Characteris;c

Stage 4
Elabora;on

Structure

Teamwork within bureaucracy, small-

thinking company

Product or services

Mul:ple product or service lines

Reward and control

systems

Extensive, tailored to product and

department

Innova;on

By ins:tu:onalized R&D department

Goal

Reputa:on, complete organiza:on

Top management
style

Team approach, aAack bureaucracy

Elaboration Stage

More exible organiza:on design

Managers learn how to work within the bureaucracy
Formal systems are simplied
More collabora:on between departments and divisions
Organiza:on split into mul:ple divisions to get small-
company benets

Elaboration Stage Crisis

Crisis: Need for revitaliza;on
Once reaching maturity, it may have temporary decline
Out of alignment with environment
Slow moving or over-bureaucra:zed
Top managers replaced

Nike Example

Nike began interna:onal expansion

Mul:ple new product lines were created
Very extensive R&D department crea:ng new product lines
Knight re:red as CEO and brought in Bill Perez who he
believed was the right leader based on Nikes posi:on in the
life cycle

Entrepreneurial
Stage

Collec:vity
Stage

Formaliza:on
Stage

Elabora:on
Stage

Goals, Strategy and Structure

Stage

Goals

Structure

Entrepreneurial

Survival

Informal, one-person
show

Collec;vity

Growth

Mostly informal, some

procedures

Formaliza;on

Internal stability, market Formal procedures,

expansion
division of labour, new
special;es added

Elabora:on

Reputa:on, complete
organiza:on

Teamwork within
bureaucracy, small-
company thinking

Strategy example:
Collec:vity Stage

Miles and Snows Prospector strategy

Includes innova:on, taking risks, seeking out new opportuni:es and growth

Formaliza:on Stage
Porters Low-Cost Leadership

Increase market share, focus on stability

Test Your Understanding

What stage of the life cycle is each of the following organiza:ons
in?
Snapchat
Apple when it was created by Steve Jobs and Stephen
Wozniak in Wozniaks parents garage
Neighbourhood coee shop

What Is Bureaucracy?
Way of administra:vely organizing large numbers of people
who need to work together.
1.
2.
3.
4.
5.
6.

Rules & Procedures

Specializa:on & Division of Labour
Hierarchy of Authority
Technically Qualied Personnel
Separate Posi:on from Posi:on Holder
WriAen Communica:ons & Records

Size & Structural Control

1. Formaliza:on
Rules, procedures, and wriAen documenta:on, such as policy
manuals and job descrip:ons, outlining rights and du:es of
employees.

2. Centraliza:on
Level of hierarchy with authority to make decisions.
Either centralized or decentralized.

3. Personnel Ra:os
Ra:o of administra:ve, clerical, and professional support sta.

Bureaucracy In a Changing World

Every :me you add a layer of bureaucracy, you
delay the movement of informa:on up the chain
of command And you dilute the informa:on
because at each step details are taken out.

Organizing Temporary
Systems for Flexibility &
Innovation

Incident Command Systems (ICS):

Formal authority rela:onships are xed, decision making
authority is dispersed to individuals who best understand the
par:cular situa:on.
Great for organiza:ons that require extremely high reliability,
exibility, and innova:on.
Example: Salva:on Army

Other Approaches to Reduce

Bureaucracy
1. CuSng layers of hierarchy
Giving lower level workers greater freedom to make decisions.

2. Decentraliza;on & Leanness
Giving frontline workers more authority and responsibility to
dene and direct their own job.

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

4. Professional partnerships
Organiza:on made up completely of professionals.

Organizational Control Strategies

Bureaucracy Rules, Standards, Hierarchy, Legi:mate
Authority

Market Prices, Compe::on, Exchange Rela:onship

Clan Tradi:on, Shared Values and Beliefs, Trust

Organizational Control Strategies

Bureaucra:c Control

Tradi:onal Authority
Charisma:c Authority

Ra:onal-Legal Authority

Organizational Control Strategies

Market Control

A situa:on that occurs when price compe::on is used to

evaluate the output and produc:vity of an organiza:on
Requires that outputs be suciently explicit for a price
to be assigned and that compe::on exist
Originated in Economics

Organizational Control Strategies

Clan Control

The use of social characteris:cs, such as corporate

culture, shared values, commitments, tradi:ons, and
beliefs, to control behaviour
Excels when ambiguity and uncertainty are high
Individuals hired must be commiAed to the organiza:ons
purpose and mission
Self- Control

Organizational Decline
A condi:on in which a substan:al, absolute decrease in
an organiza:ons resources base occurs over a period

Organiza:onal Atrophy
Vulnerability
Environmental Decline or Compe::on

Organizational Decline Factors

Organiza:onal Atrophy

Occurs when organiza:ons grow older and become

inecient and overly bureaucra:zed
Organiza:ons ability to adapt to its environment
deteriorates
WARNING Signals: Excess administra:on, heavy
administra:ve processes, outdated organiza:onal
structure

Organizational Decline Factors

Vulnerability

Reects an organiza:ons strategic inability to prosper in
its environment
They are vulnerable to shils in consumer tastes or in the
economic health of the larger community
WARNING Signals: Unable to to implement a strategy
that ts the environment

Organizational Decline Factors

Environmental Decline or Compe::on

Decline refers to reduced energy and resources available

to support an organiza:on
New compe::on increases the problem
WARNING Signals: Low barriers to entry, environment
has a low capacity to support and more organiza:ons

Organizational Decline Factors

A Look Back Legi:macy

An organiza:onal must appear legi:mate to the public
Scandals, controversy, non-ethical prac:ces, shine a
nega:ve light on organiza:ons
Loss of consumer loyalty

The Decline
The model suggests that decline if not managed properly,
can move through ve stages, resul:ng in organiza:onal
dissolu:on.

Stage 1 - Blinded Stage

Stage 2 - Inac:on Stage
Stage 3 - Faulty Ac:on Stage
Stage 4 - Crisis
Stage 5 - Dissolu:on

Five Stages of Organizational

Decline

The Decline
Stage 1 - Blinded Stage

The internal and external change that threatens long-

term survival

The organiza:on 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 Inac:on

Denial occurs despite signs of deteriora:ng performance

Leaders must acknowledge the decline and take prompt
ac:on
Leaders convince employees that all is well

The Decline Stage 2 - Inaction

The Decline
Stage 3 Faulty Ac:on Stage

Organiza:on is facing serious problems, and indicators of

poor performance cant be ignored
Failure to adjust to the declining spiral at this point can
lead to organiza:onal failure
Leaders are forced to consider major changes

The Decline Stage 3 F.A.S.

The Decline
Stage 4 Crisis Stage

Organiza:on s:ll hasnt been able to deal with decline

eec:vely and is facing a panic
Organiza:on may experience chaos, eorts go back to
basics, sharp changes, and anger
Drama:c ac:ons such as replacing top admins occur

The Decline Stage 4 - Crisis

The Decline
Stage 5 Dissolu:on

Stage of decline is irreversible

The organiza:on is suering loss of markets and
reputa:on, the loss of its best personnel, and capital
deple:on

The Decline Stage 5 - Dissolution

The Implementation of Downsizing

Downsizing: Reducing the number of employees on the
opera:ng payroll

Communicate More
Provide Assistance
Help the Survivors

The Implementation of Downsizing

Communicate More

Saying less is not more

Organiza:ons need to provide as much informa:on as
possible to the employees
Impossible to over communicate in turbulent :mes

The Implementation of Downsizing

Provide Assistance

The organiza:on has a responsibility to help displaced

workers
The organiza:on can provide training, severance
packages, extended benets, counseling services etc.
Allow employees to leave with dignity

The Implementation of Downsizing

Help the Survivors

Leaders need to remember the emo:onal needs of the

survivors
Survivors might experience guilt, anger, confusion,
sadness
Troubles dealing with addi:onal job du:es and
responsibili:es

Downsizing
Ques:on

Why should downsizing be the last op:on?
How can downsizing harm an organiza:on?

Summary
Organiza:onal Size, Life Cycle, and Decline

Is Bigger BeAer?
Organiza:onal Life Cycle
Organiza:onal Bureaucracy and Control
Bureaucracy in a Changing World
Organiza:onal Control Strategies
Organiza:onal Decline and Downsizing