11 Organ Transformations, Birth, Growth, Decline and Death(1)

7/21/2019 11 Organ Transformations, Birth, Growth, Decline and Death(1)

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11-Copyright 2007 Prentice Hall 1

Organizational Theory,Design, and Change

Fifth Edition

Gareth R. Jones

Chapter 11

Organizational

Transformations: Birth,Growth, Decline,

and Death


Learning Objectives

1. Appreciate the problems involved insurviving the perils of organizationalbirth and what founders can do tohelp their new organizations tosurvive

2. Describe the typical problems thatarise as an organization grows andmatures, and how an organizationmust change if it is to survive andprosper


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Learning Objectives (cont.)

3. Discuss why organizational declineoccurs, identify the stages of decline,and how managers can change theirorganizations to prevent failure andeventual death or dissolution


The Organizational Life Cycle

Organizational life cycle: apredictable sequence of stages ofgrowth and change

The four principal stages of the

organizational life cycle: Birth

Growth

Decline

Death


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Figure 11-1: Model of theOrganizational Life Cycle


Organizational Birth

Organizational birth: the founding ofan organization

Occurs when entrepreneurs take advantageof opportunities to use their skills andcompetences to create value

A dangerous life cycle stage associatedwith the greatest chance of failure

Liability of newness: the dangers associatedwith being the first in a new environment

New organization is fragile because it lacks aformal structure


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Organizational Birth (cont.) Developing a plan for a new business

Begins when an entrepreneur notices anopportunity to develop a new or improvedproduct or service

Tests the feasibility of the new productidea

SWOT analysis

Examine the strengths and weaknesses ofthe idea

Decide whether the new product idea isfeasible


Organizational Birth (cont.)

Developing a plan for a new business(cont.)

Plan should include:

Statement of the organizations mission,goals, and financial objectives

Statement of the organizations strategicobjectives

List of all the functional and organizationalresources required to implement the idea

Timeline that contains specific milestonesused to measure the progress of the venture


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Table 11-1: Developing aBusiness Plan


A Population Ecology Model oOrganizational Birth Population ecology theory: a

theory that seeks to explain the factorsthat affect the rate at which neworganizations are born (and die) in apopulation of existing organizations

Population of organizations: theorganizations that are competing for thesame set of resources in the environment

Environmental niches: particular setsof resources or skills


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Population Ecology Model(cont.)

Number of births determined by theavailability of resources

Population density: the number oforganizations that can compete for thesame resources in a particularenvironment

Factors that produce a rapid birth rate

Availability of knowledge and skills to generatesimilar new organizations

New organizations that survive provide rolemodels



As environment is populated with anumber of successful organizations,birth rate tapers off because:

Fewer resources are available fornewcomers

First-mover advantages: benefits derivedfrom being an early entrant into a newenvironment

Difficulty of competing with existingcompanies


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Figure 11-2: OrganizationalBirth Rates Over Time



Survival strategies

Strategies that organizations can use togain access to resources and enhancetheir chances of survival in theenvironment

r-strategy versus K-strategy r-strategy:a strategy of entering a new

environment early

K-strategy:a strategy of entering anenvironment late, after other organizationshave tested the environment


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Survival strategies (cont.) Specialists: organizations that

concentrate their skills to pursue anarrow range of resources in a singleniche

Generalists: organizations that spreadtheir skills thin to compete for a broadrange of resources in many niches


Population Ecology Model(cont.)Process of natural selection

Two sets of strategies result in: r-Specialist,r-Generalist, K-Specialist, K-Generalist Early in an environment, new organizations are

likely to become r-Specialists Move quickly to focus on serving the needs of a

particular group As r-Specialists grow, they often become generalists

and compete in new niches

K-Generalists often move into the market andthreaten the weaker r-Specialists

Eventually, the market is dominated by thestrongest r-Specialists, r-Generalists, and K-Generalists


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Figure 11-3: Strategies for Competingin the Resource Environment


Population Ecology Model(cont.) Natural selection: the process that

ensures the survival of organizationsthat have the skills and abilities thatbest fit with the environment

Over time, weaker organizations diebecause they cannot adapt theirprocedures to fit changes in theenvironment

Natural selection is a competitiveprocess


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The Institutional Theory ofOrganizational Growth

Organizational growth: the life-cyclestage in which organizations developvalue-creation skills and competencesthat allow them to acquire additionalresources

Organizations can develop competitiveadvantages by increasing division of labor

Creates surplus resources that foster

greater growth Growth should not be an end-in-itself


The Institutional Theory ofOrganizational Growth (cont.) Institutional theory: a theory that

studies how organizations canincrease their ability to grow andsurvive in a competitive environmentby becoming legitimate in the eyes of

their stakeholders Institutional environment: values

and norms in an environment thatgovern the behavior of a populationof organizations


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The Institutional Theory ofOrganizational Growth (cont.)

Organizational isomorphism: thesimilarity among organizations in apopulation

Three processes that explain whyorganizations become similar are:

Coercive isomorphism

Mimetic isomorphism

Normative isomorphism


The Institutional Theory ofOrganizational Growth (cont.) Coercive isomorphism: exists when

an organization adopts certain normsbecause of pressures exerted by otherorganizations and by society in general

Increasing dependence of oneorganization on another leads to greatersimilarity

Mimetic isomorphism: exists whenorganizations intentionally imitate oneanother to increase their legitimacy

Environmental uncertainty increases thelikelihood of imitation


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Normative isomorphism: existswhen organizations indirectly adopt thenorms and values of otherorganizations in the environment

Organizations acquire norms and valueswhen: Employees move from one organization to

another and bring with them the norms andvalues of their former employer

They participate in the activities of industry,trade, and professional associations



Disadvantages of isomorphism

Organizations may learn ways to behavethat have become outdated and nolonger lead to organizationaleffectiveness

Pressure to imitate may reduce the levelof innovation in the environment


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Greiners Model of

Organizational Growth

Greiner proposes five growth stages Each stage results in a crisis

Advancement to the next stage requiressuccessfully resolving the crisis in theprevious stage

Stage 1: Growth through creativity Entrepreneurs develop the skills to create

and introduce new products

Organizational learning occurs

Crisis of leadershipentrepreneurs maylack management skills


Greiners Model of

Organizational Growth (cont.)Stage 2: Growth through direction

Crisis of leadership results in recruitmentof top-level managers who takeresponsibility for the organizationsstrategy

Often turns around an organizationsfortunes

Crisis of autonomy

Creative people lose control over new productdevelopment

Professional managers run the show


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Greiners 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 forprofessional management and the opportunityfor entrepreneurship

Movement toward product team structure

Crisis of control as power struggles over

resources emerge between top-level andlower-level managers


Greiners Model of


Stage 4: Growth through coordination To resolve crisis of control, managers

must find right balance of centralized anddecentralized control

Top management takes on role of

coordinating different divisionsAttempt to inculcate a companywide

perspective

Crisis of red tape Increasing reliance on rules and standard

procedures

Organization becomes overly bureaucratic


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Greiners Model of


Stage 5: Growth through collaboration

Emphasizes greater spontaneity inmanagement action

Greater use of product team and matrixstructures

Changing from a mechanistic to anorganic structure as an organization

grows is a difficult task


Figure 11-4: Greiners Model of

Organizational Growth


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Organizational Decline andDeath

Organizational decline: the life-cycle stage that an organization enterswhen it fails to anticipate, recognize,avoid, neutralize, or adapt to externalor internal pressures that threaten itslong-term survival

May occur because organizations growtoo much


Organizational Decline andDeath (cont.)Effectiveness and profitability

Assessing an organizations effectivenessinvolves comparing its profitability relativeto others

Profitability:measures how well a

company is making use of its resourcesby investing them in ways to creategoods and services that generate profitwhen sold Short term profits say little about how well

managers are using resources to generatefuture profits


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Figure 11.5: Relationship BetweenOrganizational Size and OrganizationalEffectiveness


Figure 11.6: Differences inProfitability


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Organizational Decline andDeath (cont.)

Organizational inertia: the forcesinside an organization that make itresistant to change

Risk aversion: managers becomeunwilling to bear the uncertainty ofchange as organizations grow

The desire to maximize rewards:

managers may increase the size of thecompany to maximize their own rewardseven when this growth reducesorganizational effectiveness



Organizational inertia(cont.)

Overly bureaucratic culture: in largeorganizations, property rights canbecome so strong that managers spendall their time protecting their specific

property rights instead of working toadvance the organization


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Uncertain and changing environment Affect an organizations ability to obtain

scarce resources, thereby leading todecline

Makes it difficult for top management toanticipate the need for change and tomanage the way organizations changeand adapt to the environment


Weitzel and Jonssons Model

of Organizational Decline

Five stages of decline

Stage 1: Blinded: organizations areunable to recognize the internal orexternal problems that threaten theirlong-term survival

Stage 2: Inaction: despite clear signs ofdeteriorating performance, topmanagement takes little actions to correctproblems

Gap between acceptable performance andactual performance increases


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Weitzel and Jonssons Model

(cont.)

Five stages of decline (cont.) Stage 3: Faulty action: managers may

have made the wrong decisions becauseof conflict in the top-management team,or they may have changed too little toolate fearing more harm than good fromreorganization

Stage 4: Crisis: by the time this stagehas arrived, only radical changes in

strategy and structure can stop the decline Stage 5: Dissolution: decline isirreversible and the organization cannotrecover


Figure 11-6: Weitzel and JonssonsModel of Organizational Decline

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11 Organ Transformations, Birth, Growth, Decline and Death(1)