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
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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Population Ecology Model (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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Population Ecology Model (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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Population Ecology Model (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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Population Ecology Model (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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Industry Life Cycles

 Industry Evolution
 Entry strategies
 First movers
 Followers
 Survival strategies
 Specialist
 Generalist

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 Entry Strategies
 Entering the market early
 Pick of environmental resources

 Rapid growth

 Better chances of survival

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 Entry Strategies
 Entering the market later
 Reduces operational uncertainty

 Correct way to compete is apparent

 Lower R&D investment

 Survival as the more efficient producer

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Survival Strategies
 Specialists
 Concentrate skills in a single niche
 Develop core competencies
 Can provide better customer service
 and superior products, but
 Trouble if the niche disappears or others enter.
 Generalists
 Spread skills across many niches
 Providing greater brand recognition
 Can succeed when environment is uncertain, If
risk is spread across a number of niches

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Population Ecology Model
(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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The Institutional Theory of
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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The Institutional Theory of
Organizational Growth (cont.)
 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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 The Institutional Theory of
Organizational Growth (cont.)
 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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The Institutional Theory of
Organizational Growth (cont.)
 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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The Institutional Theory of
Organizational Growth (cont.)
 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 Organizational
Growth
 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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Organizational Characteristics
During the Life Cycle
 ENTREPRENEURIAL STAGE:
 Personal control systems

 Innovation by owner/manager

 Goal: Survival

 Management style: Entrepreneurial

 Crisis: Lack of/Need for leadership

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 Greiner’s Model of Organizational
Growth (cont.)
 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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Organizational Characteristics
During the Life Cycle
 COLLECTIVITY STAGE:
 Personal rewards aimed at individuals who
contribute to organizational success
 Innovation from employees and managers
 Goal: Growth
 Management style: Charismatic, directive
 Crisis: Lack of/need for delegation

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Greiner’s Model of Organizational
Growth (cont.)
 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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Organizational Characteristics
During the Life Cycle
 FORMALIZATION STAGE:
 Impersonal rewards through formalized
systems
 Innovation from separate innovative groups
 Goal: Internal stability/market expansion
 Management style: Delegation with control
 Crisis: Too much red tape

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Greiner’s Model of Organizational
Growth (cont.)
 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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Greiner’s Model of Organizational
Growth (cont.)
 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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Organizational Characteristics
During the Life Cycle
 ELABORATION STAGE:
 Extensive rewards tailored to product and
department success
 Innovation by institutionalized R & D
 Goal: Image/reputation-building
 Management style: Team approach
 Crisis: Lack of/need for revitalization

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Figure 11-4: Greiner’s Model of
Organizational Growth

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 Organization Life Cycle
Large
Streamlining

Development of Teamwork
Continued
maturity
Addition of
Internal Systems
Size

Provision of Crisis: Too Decline

Clear Direction much
red tape
Creativity
Crisis: Need for
Crisis: Need for
revitalization
delegation
with control

Crisis: Need for Leadership

Small
Entrepreneurial Collectivity Formalization Elaboration ?????????
 Adizes, I., (1999), Corporate Lifecycles: How and why
Corporations Grow and Die and What to do about it (Prentice
Hall, London).
Stage Characteristics

Courtship The organisation exists only as an idea. The founder must fall in love
with the idea before making a commitment to its execution. If the
courtship is only an affair, the entrepreneur will lose interest before
executing the idea.
Infant Once the organisation is born it is immediately vulnerable and in need
of constant care and attention to keep it going. A lack of commitment
or of capital may result in infant mortality.
Go-Go Once the idea is working, the confidence of the founder grows. Like a
child who has just learned to crawl, the organisation explores every
opportunity. As the organisation grows, the energy of the founder
may no longer be sufficient to fuel it, resulting in the Founder or
Family Trap.

Adolescence After passing the Founder or Family Trap, the organisation is

reborn. The transition to delegation and professional management is
often painful. Divorce results where the original entrepreneurs no
longer find the environment fulfilling, and this may result in
premature aging. Adolescent organisations are characterised by many
committees, meetings and a degree of in-fighting.

Prime Prime is the optimal point in the lifecycle curve. The organisation
achieves a balance of control and flexibility. A Prime organisation is
not at the top of the lifecycle curve - it still has room to grow, limited
only by its ability to attract and train enough skilled people.
Stage Characteristics

Stable The Stable stage marks the beginning of the Aging process. The
company is still strong, but is starting to lose the flexibility,
creativity and innovation. The number of meetings and
committees starts to increase.

Aristocracy The organisation is focused on how things get done, and

organisational protocol and tradition dominate. Challenges to the
status quo are frowned upon, thus stifling innovation. Individual
dissatisfactions remain unvoiced, and conflicts are swept under
the carpet.

Early Bureaucracy Early Bureaucracy is characterised by witch-hunting. The writing is

on the wall for the organisation, and each area seeks evidence
that some other area is to blame. Paranoia freezes the
organisation. Energy is spent on in-fighting and the customer is
seen as a nuisance.
Bureaucracy The purpose of the Bureaucracy is to support its continued
existence. The internal systems acquire a life of their own. The
organisation becomes dissociated with its original purpose.

Death Death occurs as commitment to the organisation

dissipates. Clients desert the organisation, followed by employees,
until nothing remains.
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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Organizational Decline and 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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 Organization Growth:
Is Bigger Better?
 Pressures for Growth
 Organization goals

 Economies of scale

 Executive advancement

 Economic health

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Size and Structural Characteristics

As Organizations get bigger:

• Complexity increases
• Centralization decreases
• Formalization increases
• Flexibility decreases
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Large Vs. Small: How can you be
both?
 Structural reorganization (split up)
 Smaller headquarters staff (decentralize)
 Subsidiaries/spin-offs that can act small
 Skunkworks to develop new products
 Support intrapreneurship within the firm

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Figure 11.6: Differences in
Profitability

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Organizational Decline and 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
 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 11- 49
Organizational Decline and 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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 Organizational Decline and
Downsizing: The Causes
 Organizational Atrophy
 Loss of ability to respond to changing
environment
 Inefficient, bureaucratic, fat, and happy
 Organizational Vulnerability
 Loss of resources
 Loss of market share
 Loss of legitimacy
 Environmental decline
 Stagnating economy
 Flat/shrinking market
 Increased competition
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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

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 Stages of Decline

Successful Organizational Performance

Good
Information Acknowledge
Decline
Major
Changes
Reorganization
No choices

Blinded Inaction Faulty Action Crisis Dissolution