1. Organization Size, Life Cycle and Decline
Nathan Colaco
Nando D’Oria
Laura Wimperis

2. 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

3. E.G.S.S.

4. Why Grow? Better serve clients
Acquire the size and resources needed to compete
Invest in new technology
Control and/or establish distribution channels
Fear of stagnation
Better access to markets
Attract best and brightest employees
Leads to increased market share, customer base, and MORE MONEY!!!

5. 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?

6. The Big/Small Hybrid Takes the best features of each size
From Large Organization
Large resources
Reach
Attracting best qualified employees
From Small Organization
Flexibility
Simplicity
Organic structure

7. Organization Life Cycle
Entrepreneurial
Collectivity
Formalization
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

8. 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
Descriptors, not tools

9. Organization Stages of Development

10. 1. Entrepreneurial Stage Characteristics
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

11. 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

12. 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

13. Entrepreneurial Stage
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 Knight’s car as a distributor for a Japanese shoe maker
1st year they sold 1,300 pairs of Japanese runners grossing $8,000
Entrepreneurial Stage
Collectivity Stage
Formalization Stage
Elaboration Stage

14. 2. Collectivity Stage Characteristics
Structure
Mostly informal, some procedures
Product or services
Major product or service, with variations
Reward and control systems
Personal, contribution to success
Innovation
By employees and managers
Goal
Growth
Top management style
Charismatic, direction-giving

15. 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

16. 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

17. Entrepreneurial Stage
Nike Example
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
Entrepreneurial Stage
Collectivity Stage
Formalization Stage
Elaboration Stage

18. 3. Formalization Stage Characteristics
Structure
Formal procedures, division of labour, new specialties added
Product or services
Line of products or services
Reward and control systems
Impersonal, formalized systems
Innovation
By separate innovation group
Goal
Internal stability, market expansion
Top management style
Delegation with control

19. 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

20. 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

21. Entrepreneurial Stage
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
Entrepreneurial Stage
Collectivity Stage
Formalization Stage
Elaboration Stage

22. 4. Elaboration Stage Characteristics
Structure
Teamwork within bureaucracy, small-thinking company
Product or services
Multiple product or service lines
Reward and control systems
Extensive, tailored to product and department
Innovation
By institutionalized R&D department
Goal
Reputation, complete organization
Top management style
Team approach, attack bureaucracy

23. 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

24. 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

25. Entrepreneurial Stage
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
Entrepreneurial Stage
Collectivity Stage
Formalization Stage
Elaboration Stage

26. Goals, Strategy and Structure
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
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

27. 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

28. What Is Bureaucracy?
Way of administratively organizing large numbers of people who need to work together.
Rules & Procedures
Specialization & Division of Labour
Hierarchy of Authority
Technically Qualified Personnel
Separate Position from Position Holder
Written Communications & Records

29. Size & Structural Control
1. Formalization
Rules, procedures, and written documentation, such as policy manuals and job descriptions, outlining rights and duties of employees.
2. Centralization
Level of hierarchy with authority to make decisions.
Either centralized or decentralized.
3. Personnel Ratios
Ratio of administrative, clerical, and professional support staff.

30. 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.”

31. 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

32. Other Approaches to Reduce Bureaucracy
1. Cutting layers of hierarchy Giving lower level workers greater freedom to make decisions. 2. Decentralization & Leanness Giving frontline workers more authority and responsibility to define and direct their own job. 3. The increasing professionalism of employees Defined as the length of formal training and experience of employees. 4. Professional partnerships Organization made up completely of professionals.

33. Organizational Control Strategies
Bureaucracy – Rules, Standards, Hierarchy, Legitimate Authority
Market – Prices, Competition, Exchange Relationship
Clan – Tradition, Shared Values and Beliefs, Trust

34. Organizational Control Strategies
Bureaucratic Control
Traditional Authority
Charismatic Authority
Rational-Legal Authority

35. Organizational Control Strategies
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

36. Organizational Control Strategies
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

37. 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

38. 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

39. Organizational Decline Factors
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

40. Organizational Decline Factors
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

41. Organizational Decline Factors
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

42. The Decline Stage 1 - Blinded Stage Stage 2 - Inaction Stage
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

43. Five Stages of Organizational Decline

44. 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

45. The Decline – Stage 1 - Blinded

46. 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

47. The Decline – Stage 2 - Inaction

48. 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

49. The Decline – Stage 3 – F.A.S.

50. 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

51. The Decline – Stage 4 - Crisis

52. 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

53. The Decline – Stage 5 - Dissolution

54. The Implementation of Downsizing
Downsizing: Reducing the number of employees on the operating payroll
Communicate More
Provide Assistance
Help the Survivors

55. The Implementation of Downsizing
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

56. The Implementation of Downsizing
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

57. The Implementation of Downsizing
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

58. Downsizing Question Why should downsizing be the last option?
How can downsizing harm an organization?

59. 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