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Organization size, life cycle and decline.ppt
- 1. ©2001 South-Western College Publishing Cincinnati,Ohio Daft, Organizational Theory and Design, 7/e 8-1
- 2. 8-2 Chapter Nine Organization Size, LifeCycle, and Decline
- 3. ©2001 South-Western College Publishing Cincinnati,Ohio Daft, Organizational Theory and Design, 7/e Purpose of This Chapter • In this chapter, we explore the question of large versus small organizations and how size relates to structure and control. Organization size is a contextual variable that influences organization design and functioning just as do the contextual variables— 8-3
- 4. ©2001 South-Western College Publishing Cincinnati,Ohio Daft, Organizational Theory and Design, 7/e Purpose…… cont., • technology, environment, goals— discussed in previous chapters. • In the first section, we look at the advantages of large versus small size. • Then, we explore what is called an organization’s life cycle and the structural characteristics at each stage. 8-4
- 5. ©2001 South-Western College Publishing Cincinnati,Ohio Daft, Organizational Theory and Design, 7/e • Next, we examine the historical need for bureaucracy as a means to control large organizations and compare bureaucratic control to various other control strategies. Finally, the chapter looks at the causes of organizational decline and discusses some methods for dealing with downsizing. 8-5
- 6. ©2001 South-Western College Publishing Cincinnati,Ohio Daft, Organizational Theory and Design, 7/e ORGANIZATION SIZE: IS BIGGER BETTER? • The question of big versus small begins with the notion of growth and the reasons so many organizations feel the need to grow large. 8-6
- 7. ©2001 South-Western College Publishing Cincinnati,Ohio Daft, Organizational Theory and Design, 7/e Pressures for Growth • Do you ever dream of starting a small company? • Many people do, and entrepreneurial start-ups are the lifeblood of the U.S. economy. Yet the hope of practically every entrepreneur is to have his or her company grow fast and grow • large, maybe even to eventually mak the Fortune500 list. 8-7
- 8. ©2001 South-Western College Publishing Cincinnati,Ohio Daft, Organizational Theory and Design, 7/e • Sometimes this goal is more urgent than to make the best products or show the greatest profits. • Recent economic woes and layoffs at many large firms have spurred budding entrepreneurs to take a chance on starting their own company or going it alone in a sole proprietorship. 8-8
- 9. ©2001 South-Western College Publishing Cincinnati,Ohio Daft, Organizational Theory and Design, 7/e • Yet despite the proliferation of new, small organizations, the giants such as Procter & Gamble, General Electric, Toyota, and Wal-Mart have continued to grow. • For example, Wal-Mart’s employee base is almost as big • as the population of the city of Houston, Texas. 8-9
- 10. ©2001 South-Western College Publishing Cincinnati,Ohio Daft, Organizational Theory and Design, 7/e • Companies in all industries, from retail, to aerospace, to media, strive for growth to acquire the size and resources needed to compete on a global scale, to invest in new technology, and to control distribution channels and guarantee access to markets. 8-10
- 11. ©2001 South-Western College Publishing Cincinnati,Ohio Daft, Organizational Theory and Design, 7/e • There are a number of other pressures for organizations to grow. Large size enables companies to take risks that could ruin smaller firms, and scale is crucial to economic health in some industries. For marketing-intensive companies such as Coca-Cola, Procter &Gamble, and Anheuser-Busch, greater size provides power in the marketplace and thus increased revenues. 8-11
- 12. ©2001 South-Western College Publishing Cincinnati,Ohio Daft, Organizational Theory and Design, 7/e Dilemmas of Large Size • Organizations feel compelled to grow, but how much and how large? • What size organization is better poised to compete in a fast- changing global environment? The arguments are summarized in Exhibit 9.1. 8-12
- 13. ©2001 South-Western College Publishing Cincinnati,Ohio Daft, Organizational Theory and Design, 7/e Large 8-13 Huge resources and economies of scale are needed for many organizations to compete globally. Only large organizations can build a massive pipeline in Alaska. Only a large corporation like General Electric can afford to build ultra efficient $2 million wind turbines that contain 8,000 different parts. 9 Only a large Johnson & Johnson can invest hundreds of millions in new products such as bifocal contact lenses and a patch that delivers contraceptives through the skin.
- 14. ©2001 South-Western College Publishing Cincinnati,Ohio Daft, Organizational Theory and Design, 7/e Small. • The competing argument says small is beautiful because the crucial requirements for success in a global economy are responsiveness and flexibility in fast-changing markets. • Small scale can provide significant advantages in terms of quick reaction to changing customer needs or shifting environmental • and market conditions. 8-14
- 15. ©2001 South-Western College Publishing Cincinnati,Ohio Daft, Organizational Theory and Design, 7/e • In addition, small organizations often enjoy greater employee commitment because it is easier for people to feel like part of a community. • Employees typically work on a variety of tasks rather than narrow, specialized jobs. • For many people, working in a small company is more exciting and fulfilling than working in a huge organization. 8-15
- 16. ©2001 South-Western College Publishing Cincinnati,Ohio Daft, Organizational Theory and Design, 7/e EXHIBIT 9.1 Differences between Large and Small Organizations 8-16
- 17. ©2001 South-Western College Publishing Cincinnati,Ohio Daft, Organizational Theory and Design, 7/e 8-17 Differences Between Large and Small Organizations • LARGE – Economies of scale – Global reach – Vertical hierarchy – Mechanistic – Complex – Stable market – “Organization men” • SMALL – Responsive – Flexible – Regional reach – Flat structure – Organic – Simple – Niche finding – Entrepreneurs Source: Based on John A. Byrne, “Is Your Company Too Big?” Business Week, 27 March 1989, 84-94.
- 18. ©2001 South-Western College Publishing Cincinnati,Ohio Daft, Organizational Theory and Design, 7/e Big-Company/Small- Company Hybrid 8-18 . The paradox is that the advantages of small companies sometimes enable them to succeed and, hence, grow large. Small companies can become victims of their own success as they grow, shifting to a mechanistic structure emphasizing vertical hierarchy and spawning “organization men” rather than entrepreneurs. Giant companies are “built for optimization, not innovation.” Big companies become committed to their existing products and technologies and have a hard time supporting innovation for the future.
- 19. ©2001 South-Western College Publishing Cincinnati,Ohio Daft, Organizational Theory and Design, 7/e ORGANIZATIONAL LIFE CYCLE 8-19 A useful way to think about organizational growth and change is the concept of an organizational life cycle, which suggests that organizations are born, grow older, and eventually die. Organization structure, leadership style, and administrative systems follow a fairly predictable pattern through stages in the life cycle. Stages are sequential and follow a natural progression.
- 20. ©2001 South-Western College Publishing Cincinnati,Ohio Daft, Organizational Theory and Design, 7/e Stages of Life Cycle Development 8-20 Research on organizational life cycle suggests that four major stages characterize organizational development. Exhibit 9.3 illustrates these four stages along with the problems associated with transition to each stage. Growth is not easy. Each time an organization enters a new stage in the life cycle, it enters a whole new ball game with a new set of rules for how the organization functions internally and how it relates to the external environment.
- 21. ©2001 South-Western College Publishing Cincinnati,Ohio Daft, Organizational Theory and Design, 7/e 8-21 For technology companies today, life cycles are getting shorter; to stay competitive, companies like eBay, Google, and MySpace have to successfully progress through stages of the cycle faster.
- 22. ©2001 South-Western College Publishing Cincinnati,Ohio Daft, Organizational Theory and Design, 7/e EXHIBIT 9.3 Organizational Life Cycle 8-22
- 23. ©2001 South-Western College Publishing Cincinnati,Ohio Daft, Organizational Theory and Design, 7/e 8-23 Organizational Life Cycle ORGANIZATION STAGES OF DEVELOPMENT 1. Entrepreneurial Stage 2. Collectivity Stage 3. Formalization Stage 4. Elaboration Stage Crisis: Need to deal with too much red tape Crisis: 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.
- 24. ©2001 South-Western College Publishing Cincinnati,Ohio Daft, Organizational Theory and Design, 7/e Entrepreneurial stage 8-24 When an organization is born, the emphasis is on creating a product or service and surviving in the marketplace. The founders are entrepreneurs, and they devote their full energies to the technical activities of production and marketing. The organization is informal and non bureaucratic. The hours of work are long. Control is based on the owners’ personal supervision.
- 25. ©2001 South-Western College Publishing Cincinnati,Ohio Daft, Organizational Theory and Design, 7/e Collectivity stage. 8-25 If the leadership crisis is resolved, strong leadership is obtained and the organization begins to develop clear goals and direction. Departments are established along with a hierarchy of authority, job assignments, and a beginning division of labor. Social networking company Face book moved quickly from the entrepreneurial to the collectivity stage. Twenty-three year-old founder Mark Zuckerberg knows his company has to “grow up at Internet speed,” so he recruited a top Google executive, Sheryl Sandberg, to serve as chief operating officer.
- 26. ©2001 South-Western College Publishing Cincinnati,Ohio Daft, Organizational Theory and Design, 7/e Formalization stage. 8-26 The formalization stage involves the installation and use of rules, procedures, and control systems. Communication is less frequent and more formal. Engineers, human resource specialists, and other staff may be added. Top management becomes concerned with issues such as strategy and planning and leaves the operations of the firm to middle management. Product groups or other decentralized units may be formed to improve coordination. Incentive systems based on profits may be implemented to ensure that managers work toward what is best for the overall company.
- 27. ©2001 South-Western College Publishing Cincinnati,Ohio Daft, Organizational Theory and Design, 7/e Elaboration stage 8-27 The solution to the red tape crisis is a new sense of collaboration and teamwork. Throughout the organization, managers develop skills for confronting problems and working together. Bureaucracy may have reached its limit. Social control and self- discipline reduce the need for additional formal controls. Managers learn to work within the bureaucracy without adding to it. Formal systems may be simplified and replaced by manager teams and task forces.
- 28. ©2001 South-Western College Publishing Cincinnati,Ohio Daft, Organizational Theory and Design, 7/e 8-28 Organization Characteristics During Four Stages of Life Cycle 1. Entrepreneurial 2. Collectivity 3. Formalization 4. Elaboration Characteristic Nonbureaucratic Prebureaucratic Bureaucratic Very Bureaucratic Structure Informal, one- person show Mostly informal, some procedures Formal procedures, division of labor, specialties added Teamwork within bureaucracy, small- company thinking Products or services Single product or service Major product or service with variations Line of products or services Multiple product or services lines Reward and control systems Personal, paternalistic Personal, contribution to success Impersonal, formalized systems Extensive, tailored to product and department Innovation By owner-manager By employees and managers By separate innovation group By institutionalized R&D Goal Survival Growth Internal stability, market expansion Reputation, complete organization Top Management Style Individualistic, entrepreneurial Charismatic, direction-giving Delegation with control Team approach, attack bureaucracy Sources: Adapted from Larry E. Greiner, “Evolution and Revolution as Organizations Grow,” Harvard Business Review 50 (July-August 1972): 37-46; G. L. Lippitt and W. H. Schmidt, “Crises in a Developing Organization,” Harvard Business Review 45 (November-December 1967): 102-12; B. R. Scott, “The Industrial State: Old Myths and New Realities,” Harvard Business Review 51 (March-April 1973): 133-48; Robert E. Quinn and Kim Cameron; “Organizational Life Cycles and Shifting Criteria of Effectiveness,” Management Science 29 (1983): 33-51.
- 29. ©2001 South-Western College Publishing Cincinnati,Ohio Daft, Organizational Theory and Design, 7/e 8-29 Weber’s Dimensions of Bureaucracy and Bases of Organizational Authority • BUREAUCRACY 1. 1. Rules and procedures 2. Specialization and division of labor 3. Hierarchy of authority 4. Technically qualified personnel 5. Separate position and incumbent 6. Written communications and records • LEGITIMATE BASES OF AUTHORITY 1. Rational-legal 2. Traditional 3. Charismatic
- 30. ©2001 South-Western College Publishing Cincinnati,Ohio Daft, Organizational Theory and Design, 7/e 8-30 Percentage of Personnel Allocated to Administrative and Support Activities 50 75 25 0 Organization Size Small Large Line employees Top administrators Clerical Professional staff Percentage of Employees
- 31. ©2001 South-Western College Publishing Cincinnati,Ohio Daft, Organizational Theory and Design, 7/e 8-31 Three Organizational Control Strategies TYPE Bureaucratic Market Clan REQUIREMENTS Rules, standards, hierarchy, legitimate authority Prices, competition, exchange relationship Tradition, shared values and beliefs, trust Source: Based upon William G. Ouchi, “A Conceptual Framework for the Design of Organizational Control Mechanisms,” Management Science 25 (1979): 833-48.
- 32. ©2001 South-Western College Publishing Cincinnati,Ohio Daft, Organizational Theory and Design, 7/e 8-32 Management Control Systems Used as Part of Bureaucratic Control Subsystem Budget Statistical reports Reward systems Operating procedures Content and Frequency Financial, resource expenditures, monthly Non-financial outputs, weekly or monthly, often computer-based Annual evaluation of managers based on department goals and performance Rules and regulations, policies that prescribe correct behavior, continuous Source: Based on Richard L. Daft and Norman B. Macintosh, “The Nature and Use of Formal Control Systems for Management Control and Strategy Implementation,” Journal of Management 10 (1984): 43-66.
- 33. ©2001 South-Western College Publishing Cincinnati,Ohio Daft, Organizational Theory and Design, 7/e 8-33 Major Perspectives of the Balanced Scorecard Mission Strategy Goals Internal Business Processes Does the chain of internal activities and processes add value for customers and shareholders? Examples of measures: order-rate fulfillment, cost-per-order Financial Do actions contribute to improving financial performance? Examples of measures: profits, return on investment Learning and Growth Are we learning and changing? Examples of measures: continuous process improvement, employee retention, new product introductions Customers How well do we serve our customers? Examples of measures: customer satisfaction, customer loyalty Sources: Based on Robert S. Kaplan and David P. Norton, “Using The Balanced Scorecard as a Strategic Management System,” Harvard Business Review, January-February 1996, 71-79; Chee W. Chow, Kamal M. Haddad, and James E. Williamson, “Applying the Balanced Scorecard to Small Companies,” Management Accounting 79, No. 2 (August 1997), 21-27; and Cathy Lazere, “All Together Now,” CFO, February 1998, 28-36.
- 34. ©2001 South-Western College Publishing Cincinnati,Ohio Daft, Organizational Theory and Design, 7/e 8-34 Evaluation of Control On the Job Workbook Activity 1. 2. 3. 4. Your job responsibilities How your boss controls Positives of this control Negatives of this control How you would improve control
- 35. ©2001 South-Western College Publishing Cincinnati,Ohio Daft, Organizational Theory and Design, 7/e 8-35 Evaluation of Control At the University Workbook Activity 1. 2. 3. 4. Item How Prof. A (small class) controls How these controls influence you What you think is a better control How Prof. B (large class) controls