Organizational decline can be a difficult process to manage. It is characterized by decreased personnel, centralization of decision making, lack of long term planning, curtailed innovation, scapegoating of leaders, resistance to change, increased turnover, low morale, loss of resources, fragmented groups pursuing self interest, loss of credibility for leaders, increased conflict, and decaying employee motivation. Management must directly address the ambiguity, communicate extensively about strategic changes, and find innovative ways to handle cutbacks in order to best manage through organizational decline.

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PowerPoint Presentation by Rajeesh Viswanathan
Jansons school of Business
Organization Theory
Structure, Design, and Applications
Third Revised Edition
Stephen P. Robbins and Mary Mathew
C H A P T E R
17
PART IV: APPLICATIONS: CONTEMPORARY ISSUES IN
ORGANIZATION THEORY
Managing Organizational
Evolution

2. After reading this chapter, you should be able to:
• Identify four reasons why organizations seek growth.
• Describe the five-phase model of organizational growth.
• Define organizational decline.
• Describe environmental forces that might precipitate organizational decline.
• Explain how decline affects the administrative component.
• Outline the steps management is likely to follow in response to decline.
• Identify potential problems managers face when organizations decline.
• List specific c techniques management can use to reduce personnel.

3. MANAGING GROWTH
• Bigger is Better
• One of the strong forces for growth has been the “bigger is better” notion in
America. Large organizations were desirable, as were large cars and large
homes. But large size, when applied to organizations, could also be
justified in economic terms. Growth was desirable because with increases in
size came economies of scale. Bigger, in fact, was frequently more
efficient.
• Growth Increases the Likelihood of Survival.
• If the organization does not survive, other issues become purely academic.
Growth becomes desirable, then, because it increases the likelihood of
survival.

4. Growth Becomes Synonymous with Effectiveness.
If an organization is getting bigger, it is common to assume that it is being
managed effectively
The systems approach favors growth. Growth is sought because it connotes youth
and vitality.6
Growth is evidence that the organization is in good health. And
expansion, again consistent with the systems perspective, increases the likelihood
that the organization will survive.
Growth is Power.
The arguments that growth can be consistent with economies of scale, can
be used by the specific environment to assess the organization’s
effectiveness, and can increase the likelihood of survival are all
economically rational explanations for the pro-growth bias

5. Organizational Life Cycle
1.
Entrepreneurial
Stage
2.
Collectivity
Stage
3.
Formalization
Stage
4.
Elaboration
Stage
Crisis:
Need to deal
with too much
red tapeCrisis:
Need for
delegation
with control
Crisis:
Need for
leadership
Creativity
Provision of clear direction
Addition of internal systems
Development of teamwork
Crisis:
Need for
revitalization
Decline
Continued
maturity
Streamlining,
small-company
thinking
S
I
Z
E
Large
Small
Sources: Adapted from Robert E. Quinn and Kim Cameron, “Organizational
Life Cycles and Shifting Criteria of Effectiveness: Some Preliminary
Evidence,” Management Science 29 (1983): 33-51; and Larry E. Greiner,
“Evolution and Revolution as Organizations Grow,” Harvard Business
Review 50 (July-August 1972): 37-46.

6. A Model of Organizational Growth
• The best-known model of organizational growth was
developed in the early 1970s by Larry Greiner.10
Greiner studied a number of organizations and from
his observations proposed that an organization’s
evolution is characterized by phases of prolonged and
calm growth, followed by periods of internal turmoil.
The former he called evolution, the later revolution.
Each stage of evolution or growth creates its own
crisis. The resolution of the crisis, how ever, initiates
a new evolutionary phase.

7. • Phase 1: Creativity. The first stage of an organization’s evolution is
characterized by the creativity of its founders. These founders typically
devote their energies toward the development of products and markets.
Their organization’s design tends to look like the simple structure.
Decision making is controlled by the owner-man ager or top management.
Communication between levels in the organization is frequent and
informal.
• Phase 2: Direction. If the leadership crisis is resolved, strong leadership
will have been acquired. This new leadership will formalize
communication and put accounting, budget, inventory, and other systems
into place. The organization’s design will become increasingly
bureaucratic. Specialization will be introduced, as will a functional
structure, so as to separate production and marketing activities.

8. Phase 3: Delegation. If decisions are decentralized, the crisis of phase two
will have been resolved. Lower-level managers will now have relative
autonomy to run their units. Top management will devote its energy to
long-run strategic planning. Internal control systems will be developed to
monitor the decisions of lower-level managers.
Phase 4: Coordination. The control crisis is solved by
implementing staff units to review, evaluate, and control line-
management activities and product groups to facilitate coordination.
Phase 5: Collaboration. The solution to the red-tape crisis is strong
interpersonal collaboration among the organization’s members. A
strong culture acts as a substitute for formal controls. Task forces
and other group devices are created to perform tasks and solve
problems. ‘The organization’s structure moves toward the organic
form

9. ORGANIZATIONAL DECLINE: ACCEPTING THE NEW
REALITY
Organizational decline, means a prolonged decrease in
the number of personnel in an organization. It is
synonymous with any form of permanent retrenchment.
It is not meant to describe temporary aberrations in an
organization’s growth curve

10. Dysfunctional Consequences of Organizational Decline
• Centralization. Decision making is passed upward, participation decreases, and
control is emphasized.
• No long-term planning. Crises and short-term needs drive out strategic planning.
• Innovation curtailed. No experimentation, risk-aversion, and skepticism about
noncore activities.
• Scape-goating. Leaders are blamed for the pain and uncertainty.
• Resistance to change. Conservation and turf protection lead to rejection of new
alternatives.
• Turnover. The most competent leaders tend to leave first, causing leadership anemia.
• Low morale. Few needs are met, and infighting is predominant.
• Loss of slack. Uncommitted resources are used to cover operating expenses.
• Fragmented pluralism. Special interest groups organize and become more vocal.
• Loss of credibility. Leaders lose the confidence of their subordinates.
• Non-prioritized cuts. Attempts to ameliorate conflict lead to attempts to equalize
cutbacks.
• Conflict. Competition and infighting for control predominate when resources are
scarce.

11. • Increased Conflict.
A manager has the opportunity to really test his or her conflict-
management skills during organizational de cline. As we have noted
before, growth creates slack that acts as a grease to smooth over conflict
-creating forces.
• Increased Politicking:
Less slack also translates into more politicking. There will emerge many
organized and vocal groups actively pursuing their self-interest
Increased Resistance to Change.
The organization responds more slowly to environmental change in decline
than in growth. In its effort to protect itself, the dominant coalition fights
hard to maintain the status quo and its control. Vested interests thwart
change efforts

12. • Loss of Top-Management Credibility. In decline, members of the
organization will look to some individual or group on which to place the
blame for the retrenchment. Whether or not top management is directly
responsible for the decline, they tend to become the scapegoat. This, in
turn, leads to a loss of top-management credibility
• Change in Work-Force Composition. Retrenchment requires
personnel cuts. The most popular criterion for determining who gets laid off
is seniority; that is, the most recent hires are first to go. Laying off personnel
on the basis of seniority, however, tends to reshape the composition of the
work force.
• Increased Voluntary Turnover. The other side of employee departures
are voluntary quits. This becomes a major potential problem in
organizational decline because the organization will want to retain its most
valuable employees

13. Decaying Employee Motivation.
Employee motivation is different when an organization is contracting than
when it is enjoying growth. On the growth side, motivation can be
provided by promotional opportunities and the excitement of being
associated with a dynamic organization. During decline, there are layoff s,
reassignments of duties that frequently require absorbing the tasks that
were previously done by others, and similar stress-inducing changes.

14. What’s the Solution?
• Management needs to attack directly the ambiguity that
organizational decline creates among employees. This is best done
by clarifying the organization’s strategy and goals
• Organizational decline demands that management do a lot of
communicating with employees. The primary focus of this
communication should be downward; specifically, explaining, the
rationale for changes that will have to be made
• management to look for innovative ways to deal with the problems
inherent in cutbacks