Organizational Transformations: Birth, Growth, Decline, and Death

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Copyright 2007 Prentice Hall 1
Organizational Theory,
Design, and Change
Fifth Edition
Gareth R. Jones
Chapter 11
Organizational
Transformations: Birth,
Growth, Decline,
and Death

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Learning Objectives
1. Appreciate the problems involved in
surviving the perils of organizational
birth and what founders can do to
help their new organizations to
survive
2. 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

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Learning Objectives (cont.)
3. 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

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The Organizational Life Cycle
 Organizational life cycle: a
predictable sequence of stages of
growth and change
 The four principal stages of the
organizational life cycle:
 Birth
 Growth
 Decline
 Death

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Figure 11-1: Model of the
Organizational Life Cycle

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Organizational Birth
 Organizational birth: the founding of
an organization
 Occurs when entrepreneurs take advantage
of opportunities to use their skills and
competences to create value
 A dangerous life cycle stage associated
with the greatest chance of failure
 Liability of newness: the dangers associated
with being the first in a new environment
 New organization is fragile because it lacks a
formal structure

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Organizational Birth (cont.)
 Developing a plan for a new business
 Begins when an entrepreneur notices an
opportunity to develop a new or improved
product or service
 Tests the feasibility of the new product
idea
 SWOT analysis
 Examine the strengths and weaknesses of
the idea
 Decide whether the new product idea is
feasible

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Organizational Birth (cont.)
 Developing a plan for a new business
(cont.)
 Plan should include:
 Statement of the organization’s mission,
goals, and financial objectives
 Statement of the organization’s strategic
objectives
 List of all the functional and organizational
resources required to implement the idea
 Timeline that contains specific milestones
used to measure the progress of the venture

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Table 11-1: Developing a
Business Plan

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A Population Ecology Model of
Organizational Birth
 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
 Population of organizations: the
organizations that are competing for the
same set of resources in the environment
 Environmental niches: particular sets
of resources or skills

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Population Ecology Model
(cont.)
 Number of births determined by the
availability of resources
 Population density: the number of
organizations that can compete for the
same resources in a particular
environment
 Factors that produce a rapid birth rate
 Availability of knowledge and skills to generate
similar new organizations
 New organizations that survive provide role
models

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(cont.)
 As environment is populated with a
number of successful organizations,
birth rate tapers off because:
 Fewer resources are available for
newcomers
 First-mover advantages: benefits derived
from being an early entrant into a new
environment
 Difficulty of competing with existing
companies

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Figure 11-2: Organizational
Birth Rates Over Time

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(cont.)
 Survival strategies
 Strategies that organizations can use to
gain access to resources and enhance
their chances of survival in the
environment
 r-strategy versus K-strategy
 r-strategy: a strategy of entering a new
environment early
 K-strategy: a strategy of entering an
environment late, after other organizations
have tested the environment

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(cont.)
 Survival strategies (cont.)
 Specialists: organizations that
concentrate their skills to pursue a
narrow range of resources in a single
niche
 Generalists: organizations that spread
their skills thin to compete for a broad
range of resources in many niches

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(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 and
threaten the weaker r-Specialists
 Eventually, the market is dominated by the
strongest r-Specialists, r-Generalists, and K-
Generalists

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Figure 11-3: Strategies for Competing
in the Resource Environment

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(cont.)
 Natural selection: the process that
ensures the survival of organizations
that have the skills and abilities that
best fit with the environment
 Over time, weaker organizations die
because they cannot adapt their
procedures to fit changes in the
environment
 Natural selection is a competitive
process

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The Institutional Theory of
Organizational Growth
 Organizational growth: the life-cycle
stage in which organizations develop
value-creation skills and competences
that allow them to acquire additional
resources
 Organizations can develop competitive
advantages by increasing division of labor
 Creates surplus resources that foster
greater growth
 Growth should not be an end-in-itself

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Organizational Growth (cont.)
 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
 Institutional environment: values
and norms in an environment that
govern the behavior of a population
of organizations

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 Organizational isomorphism: the
similarity among organizations in a
population
 Three processes that explain why
organizations become similar are:
 Coercive isomorphism
 Mimetic isomorphism
 Normative isomorphism

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 Coercive isomorphism: exists when
an organization adopts certain norms
because of pressures exerted by other
organizations and by society in general
 Increasing dependence of one
organization on another leads to greater
similarity
 Mimetic isomorphism: exists when
organizations intentionally imitate one
another to increase their legitimacy
 Environmental uncertainty increases the
likelihood of imitation

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 Normative isomorphism: exists
when organizations indirectly adopt the
norms and values of other
organizations in the environment
 Organizations acquire norms and values
when:
 Employees move from one organization to
another and bring with them the norms and
values of their former employer
 They participate in the activities of industry,
trade, and professional associations

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 Disadvantages of isomorphism
 Organizations may learn ways to behave
that have become outdated and no
longer lead to organizational
effectiveness
 Pressure to imitate may reduce the level
of innovation in the environment

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Greiner’s Model of
Greiner proposes five growth stages
 Each stage results in a crisis
 Advancement to the next stage requires
successfully resolving the crisis in the
previous stage
Stage 1: Growth through creativity
 Entrepreneurs develop the skills to create
and introduce new products
 Organizational learning occurs
 Crisis of leadership – entrepreneurs may
lack management skills

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Stage 2: Growth through direction
 Crisis of leadership results in recruitment
of top-level managers who take
responsibility for the organization’s
strategy
 Often turns around an organization’s
fortunes
 Crisis of autonomy
 Creative people lose control over new product
development
 Professional managers run the show

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Stage 3: Growth through delegation
 To solve the crisis of autonomy, managers
must delegate
 Strike a balance between the need for
professional management and the opportunity
for entrepreneurship
 Movement toward product team structure
 Crisis of control as power struggles over
resources emerge between top-level and
lower-level managers

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Stage 4: Growth through coordination
 To resolve crisis of control, managers
must find right balance of centralized and
decentralized control
 Top management takes on role of
coordinating different divisions
 Attempt to inculcate a companywide
perspective
 Crisis of red tape
 Increasing reliance on rules and standard
procedures
 Organization becomes overly bureaucratic

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Stage 5: Growth through collaboration
 Emphasizes greater spontaneity in
management action
 Greater use of product team and matrix
structures
 Changing from a mechanistic to an
organic structure as an organization
grows is a difficult task

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Figure 11-4: Greiner’s Model of

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Organizational Decline and
Death
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
 May occur because organizations grow
too much

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Death (cont.)
Effectiveness and profitability
 Assessing an organization’s effectiveness
involves comparing its profitability relative
to others
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
 Short term profits say little about how well
managers are using resources to generate
future profits

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Figure 11.5: Relationship Between
Organizational Size and Organizational
Effectiveness

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Figure 11.6: Differences in
Profitability

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Death (cont.)
 Organizational inertia: the forces
inside an organization that make it
resistant to change
 Risk aversion: managers become
unwilling to bear the uncertainty of
change as organizations grow
 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

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Death (cont.)
 Organizational inertia (cont.)
 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

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Death (cont.)
 Uncertain and changing environment
 Affect an organization’s ability to obtain
scarce resources, thereby leading to
decline
 Makes it difficult for top management to
anticipate the need for change and to
manage the way organizations change
and adapt to the environment

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Weitzel and Jonsson’s Model
of Organizational Decline
Five stages of decline
Stage 1: Blinded: organizations are
unable to recognize the internal or
external problems that threaten their
long-term survival
Stage 2: Inaction: despite clear signs of
deteriorating performance, top
management takes little actions to correct
problems
Gap between acceptable performance and
actual performance increases

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Weitzel and Jonsson’s Model
(cont.)
 Five stages of decline (cont.)
 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
 Stage 4: Crisis: by the time this stage
has arrived, only radical changes in
strategy and structure can stop the decline
 Stage 5: Dissolution: decline is
irreversible and the organization cannot
recover

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Figure 11-6: Weitzel and Jonsson’s
Model of Organizational Decline

Organizational Transformations: Birth, Growth, Decline, and Death

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Organizational Transformations: Birth, Growth, Decline, and Death