Ch11 - Organisation theory design and change gareth jones


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Ch11 - Organisation theory design and change gareth jones

  1. 1. Organizational Theory, Design, and Change Sixth Edition Gareth R. Jones Chapter 11 Organizational Transformations: Birth, Growth, Decline, and Death
  2. 2. Learning Objectives <ul><li>Appreciate the problems involved in surviving the perils of organizational birth and what founders can do to help their new organizations to survive </li></ul><ul><li>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 </li></ul>
  3. 3. Learning Objectives (cont.) <ul><li>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 </li></ul>
  4. 4. The Organizational Life Cycle <ul><li>Organizational life cycle: a predictable sequence of stages of growth and change </li></ul><ul><li>The four principal stages of the organizational life cycle: </li></ul><ul><ul><ul><li>Birth </li></ul></ul></ul><ul><ul><ul><li>Growth </li></ul></ul></ul><ul><ul><ul><li>Decline </li></ul></ul></ul><ul><ul><ul><li>Death </li></ul></ul></ul>
  5. 5. Figure 11.1: A Model of the Organizational Life Cycle
  6. 6. Organizational Birth <ul><li>Organizational birth: the founding of an organization </li></ul><ul><li>Occurs when entrepreneurs take advantage of opportunities to use their skills and competences to create value </li></ul><ul><li>A dangerous life cycle stage associated with the greatest chance of failure </li></ul><ul><ul><li>Liability of newness: the dangers associated with being the first in a new environment </li></ul></ul><ul><ul><li>A new organization is fragile because it lacks a formal structure </li></ul></ul>
  7. 7. Organizational Birth (cont.) <ul><li>Developing a plan for a new business </li></ul><ul><ul><li>Begins when an entrepreneur notices an opportunity to develop a new or improved product or service </li></ul></ul><ul><ul><li>Tests the feasibility of the new product idea </li></ul></ul><ul><ul><ul><li>SWOT analysis </li></ul></ul></ul><ul><ul><li>Examine the strengths and weaknesses of the idea </li></ul></ul><ul><ul><li>Decide whether the new product idea is feasible </li></ul></ul>
  8. 8. Organizational Birth (cont.) <ul><li>Developing a plan for a new business (cont.) </li></ul><ul><ul><li>Plan should include: </li></ul></ul><ul><ul><ul><li>Statement of the organization’s mission, goals, and financial objectives </li></ul></ul></ul><ul><ul><ul><li>Statement of the organization’s strategic objectives </li></ul></ul></ul><ul><ul><ul><li>List of all the functional and organizational resources required to implement the idea </li></ul></ul></ul><ul><ul><ul><li>Timeline that contains specific milestones used to measure the progress of the venture </li></ul></ul></ul>
  9. 9. Table 11.1: Developing a Business Plan
  10. 10. A Population Ecology Model of Organizational Birth <ul><li>Population ecology theory: a theory that seeks to explain the factors that affect the rate at which new organizations are born (and die) in a population of existing organizations </li></ul><ul><ul><li>Population of organizations: the organizations that are competing for the same set of resources in the environment </li></ul></ul><ul><ul><li>Environmental niches: particular sets of resources or skills </li></ul></ul>
  11. 11. Population Ecology Model (cont.) <ul><li>Number of births determined by the availability of resources </li></ul><ul><ul><li>Population density: the number of organizations that can compete for the same resources in a particular environment </li></ul></ul><ul><ul><li>Factors that produce a rapid birthrate </li></ul></ul><ul><ul><ul><li>Availability of knowledge and skills to generate similar new organizations </li></ul></ul></ul><ul><ul><ul><li>New organizations that survive provide role models and confer legitimacy </li></ul></ul></ul>
  12. 12. Population Ecology Model (cont.) <ul><li>As the environment is populated with a number of successful organizations, birthrate tapers off because: </li></ul><ul><ul><li>Fewer resources are available for newcomers </li></ul></ul><ul><ul><ul><li>First-mover advantages: benefits derived from being an early entrant into a new environment </li></ul></ul></ul><ul><ul><li>Difficulty of competing with existing companies </li></ul></ul>
  13. 13. Figure 11.2: Organizational Birthrates Over Time
  14. 14. Population Ecology Model (cont.) <ul><li>Survival strategies </li></ul><ul><ul><li>Strategies that organizations can use to gain access to resources and enhance their chances of survival in the environment </li></ul></ul><ul><ul><li>r-strategy versus K-strategy </li></ul></ul><ul><ul><ul><li>r-strategy: a strategy of entering a new environment early </li></ul></ul></ul><ul><ul><ul><li>K-strategy: a strategy of entering an environment late, after other organizations have tested the environment </li></ul></ul></ul>
  15. 15. Population Ecology Model (cont.) <ul><li>Survival strategies (cont.) </li></ul><ul><ul><li>Specialists: organizations that concentrate their skills to pursue a narrow range of resources in a single niche </li></ul></ul><ul><ul><li>Generalists: organizations that spread their skills thin to compete for a broad range of resources in many niches </li></ul></ul>
  16. 16. Population Ecology Model (cont.) <ul><li>Process of natural selection </li></ul><ul><ul><li>Two sets of strategies result in: r-Specialist, r-Generalist, K-Specialist, K-Generalist </li></ul></ul><ul><ul><ul><li>Early in an environment, new organizations are likely to become r-Specialists </li></ul></ul></ul><ul><ul><ul><ul><li>Move quickly to focus on serving the needs of a particular group </li></ul></ul></ul></ul><ul><ul><ul><ul><li>As r-Specialists grow, they often become generalists and compete in new niches </li></ul></ul></ul></ul><ul><ul><ul><li>K-Generalists often move into the market and threaten the weaker r-Specialists </li></ul></ul></ul><ul><ul><ul><li>Eventually, the market is dominated by the strongest r-Specialists, r-Generalists, and K-Generalists </li></ul></ul></ul>
  17. 17. Figure 11.3: Strategies for Competing in the Resource Environment
  18. 18. Population Ecology Model (cont.) <ul><li>Natural selection: the process that ensures the survival of organizations that have the skills and abilities that best fit with the environment </li></ul><ul><ul><li>Over time, weaker organizations die because they cannot adapt their procedures to fit changes in the environment </li></ul></ul><ul><ul><li>Natural selection is a competitive process </li></ul></ul>
  19. 19. The Institutional Theory of Organizational Growth <ul><li>Organizational growth: the life-cycle stage in which organizations develop value-creation skills and competences that allow them to acquire additional resources </li></ul><ul><ul><li>Organizations can develop competitive advantages by increasing division of labor </li></ul></ul><ul><ul><li>Creates surplus resources that foster greater growth </li></ul></ul><ul><ul><li>Growth should not be an end-in-itself </li></ul></ul>
  20. 20. The Institutional Theory of Organizational Growth (cont.) <ul><li>Institutional theory: a theory that studies how organizations can increase their ability to grow and survive in a competitive environment by becoming legitimate in the eyes of their stakeholders </li></ul><ul><li>Institutional environment: values and norms in an environment that govern the behavior of a population of organizations </li></ul>
  21. 21. The Institutional Theory of Organizational Growth (cont.) <ul><li>Organizational isomorphism: the similarity among organizations in a population </li></ul><ul><ul><li>Three processes that explain why organizations become similar are: </li></ul></ul><ul><ul><ul><li>Coercive isomorphism </li></ul></ul></ul><ul><ul><ul><li>Mimetic isomorphism </li></ul></ul></ul><ul><ul><ul><li>Normative isomorphism </li></ul></ul></ul>
  22. 22. The Institutional Theory of Organizational Growth (cont.) <ul><li>Coercive isomorphism: exists when an organization adopts certain norms because of pressures exerted by other organizations and by society in general </li></ul><ul><ul><li>Increasing dependence of one organization on another leads to greater similarity </li></ul></ul><ul><li>Mimetic isomorphism: exists when organizations intentionally imitate one another to increase their legitimacy </li></ul><ul><ul><li>Environmental uncertainty increases the likelihood of imitation </li></ul></ul>
  23. 23. The Institutional Theory of Organizational Growth (cont.) <ul><li>Normative isomorphism: exists when organizations indirectly adopt the norms and values of other organizations in the environment </li></ul><ul><ul><li>Organizations acquire norms and values when: </li></ul></ul><ul><ul><ul><li>Employees move from one organization to another and bring with them the norms and values of their former employer </li></ul></ul></ul><ul><ul><ul><li>They participate in the activities of industry, trade, and professional associations </li></ul></ul></ul>
  24. 24. The Institutional Theory of Organizational Growth (cont.) <ul><li>Disadvantages of isomorphism </li></ul><ul><ul><li>Organizations may learn ways to behave that have become outdated and no longer lead to organizational effectiveness </li></ul></ul><ul><ul><li>Pressure to imitate may reduce the level of innovation in the environment </li></ul></ul>
  25. 25. Greiner’s Model of Organizational Growth <ul><li>Greiner proposes 5 sequential growth stages </li></ul><ul><ul><li>Each stage results in a crisis </li></ul></ul><ul><ul><li>Advancement to the next stage requires successfully resolving the crisis in the previous stage </li></ul></ul><ul><li>Stage 1: Growth through creativity </li></ul><ul><ul><li>Entrepreneurs develop the skills to create and introduce new products </li></ul></ul><ul><ul><li>Organizational learning occurs </li></ul></ul><ul><ul><li>Crisis of leadership – entrepreneurs may lack management skills </li></ul></ul>
  26. 26. Greiner’s Model of Organizational Growth (cont.) <ul><li>Stage 2: Growth through direction </li></ul><ul><ul><li>Crisis of leadership results in recruitment of top-level managers who take responsibility for the organization’s strategy </li></ul></ul><ul><ul><li>Crisis of autonomy </li></ul></ul><ul><ul><ul><li>Creative people lose control over new product development </li></ul></ul></ul><ul><ul><ul><li>Professional managers run the show </li></ul></ul></ul><ul><ul><ul><li>Decision making becomes centralized </li></ul></ul></ul>
  27. 27. Greiner’s Model of Organizational Growth (cont.) <ul><li>Stage 3: Growth through delegation </li></ul><ul><ul><li>To solve the crisis of autonomy, managers must delegate </li></ul></ul><ul><ul><ul><li>Strike a balance between the need for professional management and the opportunity for entrepreneurship </li></ul></ul></ul><ul><ul><ul><li>Movement toward product team structure </li></ul></ul></ul><ul><ul><li>Crisis of control as power struggles over resources emerge between top-level and lower-level managers </li></ul></ul>
  28. 28. Greiner’s Model of Organizational Growth (cont.) <ul><li>Stage 4: Growth through coordination </li></ul><ul><ul><li>To resolve crisis of control, managers must find right balance of centralized and decentralized control </li></ul></ul><ul><ul><li>Top management takes on role of coordinating different divisions </li></ul></ul><ul><ul><li>Crisis of red tape </li></ul></ul><ul><ul><ul><li>Increasing reliance on rules and standard procedures </li></ul></ul></ul><ul><ul><ul><li>Organization becomes overly bureaucratic and stifles entrepreneurship </li></ul></ul></ul>
  29. 29. Greiner’s Model of Organizational Growth (cont.) <ul><li>Stage 5: Growth through collaboration </li></ul><ul><ul><li>Emphasizes greater spontaneity in management action </li></ul></ul><ul><ul><li>Social control and self-discipline take over formal control </li></ul></ul><ul><ul><li>Greater use of product team and matrix structures </li></ul></ul><ul><ul><li>Collaboration makes an organization more organic which can be a difficult task </li></ul></ul>
  30. 30. Figure 11-4: Greiner’s Model of Organizational Growth
  31. 31. Organizational Decline and Death <ul><li>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 </li></ul><ul><ul><li>May occur because organizations grow too much </li></ul></ul>
  32. 32. Organizational Decline and Death (cont.) <ul><li>Effectiveness and profitability </li></ul><ul><ul><li>Assessing an organization’s effectiveness involves comparing its profitability relative to others </li></ul></ul><ul><li>Profitability: measures how well a company is making use of its resources by investing them in ways to create goods and services that generate profit when sold </li></ul><ul><ul><li>Short-term profits say little about how well managers are using resources to generate future profits </li></ul></ul>
  33. 33. Figure 11.5: The Relationship Between Organizational Size and Organizational Effectiveness
  34. 34. Organizational Decline and Death (cont.) <ul><li>Organizational inertia: the forces inside an organization that make it resistant to change </li></ul><ul><ul><li>Risk aversion: managers become unwilling to bear the uncertainty of change as organizations grow </li></ul></ul><ul><ul><li>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 </li></ul></ul>
  35. 35. Organizational Decline and Death (cont.) <ul><li>Organizational inertia (cont.) </li></ul><ul><ul><li>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 </li></ul></ul>
  36. 36. Organizational Decline and Death (cont.) <ul><li>Uncertain and changing environment </li></ul><ul><ul><li>Affect an organization’s ability to obtain scarce resources, thereby leading to decline </li></ul></ul><ul><ul><li>Makes it difficult for top management to anticipate the need for change and to manage the way organizations change and adapt to the environment </li></ul></ul>
  37. 37. Weitzel and Jonsson’s Model of Organizational Decline <ul><li>5 stages of decline </li></ul><ul><ul><li>Stage 1: Blinded: organizations are unable to recognize the internal or external problems that threaten their long-term survival </li></ul></ul><ul><ul><li>Stage 2: Inaction: despite clear signs of deteriorating performance, top management takes little actions to correct problems </li></ul></ul><ul><ul><ul><li>Gap between acceptable performance and actual performance increases </li></ul></ul></ul>
  38. 38. Weitzel and Jonsson’s Model (cont.) <ul><li>5 stages of decline (cont.) </li></ul><ul><ul><li>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 </li></ul></ul><ul><ul><li>Stage 4: Crisis: by the time this stage has arrived, only radical changes in strategy and structure can stop the decline </li></ul></ul><ul><ul><li>Stage 5: Dissolution: decline is irreversible and the organization cannot recover </li></ul></ul>
  39. 39. Figure 11.7: Weitzel and Jonsson’s Model of Organizational Decline