Organization Size, Life Cycle, and Decline - Insights and Analysis

Chapter 9: Organization Size, Life Cycle, and Decline By: Jessie Karn, Andrew Digby

What Size Organization For You How do you work preferences fit organization size? Answer the following questions as they reflect your likes and dislikes. Please answer whether each item in Mostly True or Mostly False for you. ***Answer Key Here**

Purpose of This Chapter As organizations grow and become more competitive, they need more complex systems and procedures. Bigger organization = more bureaucracy. The size of an organization influences design and goals in the same way. Examining the natural life cycle of an organization.

The Bigger the Better? Does your organization need growth? Pressures of Growth include: Many believe that growth is the only way to stay economically healthy. Your customers could be at risk if growth happens to quickly. The more employees, the more challenges.

Organizational Size Differences Large Small Very complex Global reach Vertical hierarchy (Mechanistic) Employees longevity, raises and promotions Stable market Economies of scale Simple Regional Reach Flat structure (Organic) Entrepreneurs Niche finding Responsive and flexible

The Hybrid Model: Small Giants Giant companies are built for optimization not innovation. Big-company/small-company hybrid combines large corporations resources and reach with a small company s simplicity. The divisional structure is one way large firms attain a big/small design. Giant retail stores have that large and small feel.

Bureaucracy Developed by Max Weber Rules and standard procedures Hierarchy provides supervision and control Advantages over organization forms Favoritism Social status Family connections Graft

Webers Dimensions of Bureaucracy Technically qualified personnel Hierarchy of authority Specialization and division of labour Separate position from position holder Written Rules and procedures Bureaucracy communications and records

UPS Management Style A leader does not have to remind others of his authority by used of a title. Knowledge, performance, and capacity should be adequate evidence of position and leadership.

Size and Structural Control Size influences structural design and methods of control. Formalization Rules, procedures, and written documents Centralization Refers to hierarchy with authority to make decisions. Paradox?

Personnel Ratios Two patterns: A) Top administration to total employees - Small ratio in large organizations B) Clerical and professional support staff ratios - Increase in proportion to organization size Keeping costs for administrative, clerical and professional staff low is important for large organizations

As the World Changes Worked well for many needs during the industrial age Machine-like bureaucratic system no longer works Over-bureaucratization are evident in the inefficiencies of some government organizations

Flexibility and Innovation Incident command system (ICS). Allows fluidity between a formalized and loosely structured strategy. Police/Fire departments, Nuclear aircraft carrier. Organizing to improvise Professionalism equals less bureaucracy

Control Strategies 1) Bureaucratic Control - Rules, standards, hierarchy, legitimate authority 2) Market Control - Prices, competition, exchange relationship 3) Clan Control - Tradition, shared values and beliefs, trust

Organizational Life Cycle: A look at Apple Entrepreneurial Elaboration Collectivity Formalization

Building The Organizational Life Cycle Entrepreneurial

Entrepreneurial Stage Start up of organization Full energies into production or service Crisis: Need for leadership - must adjust structure of the organization to accommodate continued growth Steve Jobs and Stephen Wozniak starting Apple in Wozaniak s parents garage

Building The Organizational Life Cycle Entrepreneurial Collectivity

Collectivity Stage Grows and develops a more elaborated design. Employees identify with the mission of the organization Crisis: Need for delegation with control - Employees and middle management are restricted by top management. During the rapid growth years for Apple (1978 - 1981), employees threw themselves into the business as the major product line was established.

Building The Organizational Life Cycle Entrepreneurial Collectivity Formalization

Formalization Stage Involves the installation and use of bureaucracy and control systems. Communication less frequent and more formal. Top management becomes concerned with issues such as strategy and planning, and leave the operations of the firm to middle management. Crisis: Need to deal with too much red tape growth of the organization can be strangled by middle-level executives. Apple was in the formalization stage in the Mid-to-late 1980 s, when Jobs resigned.

Building The Organizational Life Cycle Entrepreneurial Elaboration Collectivity Formalization

Elaboration Stage The organization becomes flexible. Bureaucracy may have reached the limit. Collaboration helps companies excel in this stage Crisis: Need for revitalization After the organization reaches maturity, it may enter periods of temporary decline. Apple went through 4 different CEO s before Jobs returned. He weeded out inefficiencies and refocused Apple on innovative products.

Organization Characteristics during Four Stages of Life Cycle Characteristic Entrepreneurial Non-bureaucratic Collectivity Bureaucratic Formalization Bureaucratic Elaboration Very Bureaucratic Informal, One person show Mostly Informal, some procedures Formal procedures, division of labor, new specialties added Teamwork within bureaucracy, small company thinking Structure Single product or service Major product or service, with variations Line of products or services Multiple product or service lines Products or Services Personal, paternalistic Personal, contribution to success Impersonal, formalized system Extensive, tailored to product and department Reward and control systems By owner-manager By employees and managers By separate innovation group By institutionalized R&D department Innovation Survival Growth Internal stability, market expansion Reputation,complete organization Goal Individualistic, entrepreneurial Charismatic, direction-giving Delegation with control Team approach, attack bureaucracy Top management Style

Something to Ponder Eighty-four percent of organizations that make it past the first year still fail within five years because they can t make the transition from the entrepreneurial stage.

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Organizational Decline and Downsizing Continual growth and expansion may not be possible. Many have collapsed partly as a result of rapid growth an in effective control.

Causes of Decline Defintion: Decrease in an organization's resource base over a period of time. Often associated with environmental decline Three factors that result in decline: A) Organizational atrophy B) Vulnerability C) Environmental decline or competition

Five Stages of Decline Stage 1: Blinded Stage 2: Inaction Stage 3: Faulty Action Stage 4: Crisis Stage 5: Dissolution

Five Stages of Decline Stage 1: Blinded Stage 2: Inaction Stage 3: Faulty Action Stage 4: Crisis Stage 5: Dissolution

Stage 1: Blinded Internal and external change that threatens long term survival. May have excess personnel or lack of harmony with customers. Can bring business back to top performance. Example: Blockbuster switching from VHS to DVD.???

Five Stages of Decline Stage 1: Blinded Stage 2: Inaction Stage 3: Faulty Action Stage 4: Crisis Stage 5: Dissolution

Stage 2: Inaction Denial has occurred despite of performance. Leaders must acknowledge decline and take action. Realign organization with environment. Example: Netflix began taking Blockbuster s market share. Reassess goal, structure and straegy.

Five Stages of Decline Stage 1: Blinded Stage 2: Inaction Stage 3: Faulty Action Stage 4: Crisis Stage 5: Dissolution

Stage 3: Faulty Action Serious issues and must not be ignored. Failure to adjust can lead to organizational failure. Leaders should reduce employee uncertainty. Major mistake at this stage decreases the chance of a comeback. Example: Dish Network acquired Blockbuster and has tried to restructure company for survival.

Five Stages of Decline Stage 1: Blinded Stage 2: Inaction Stage 3: Faulty Action Stage 4: Crisis Stage 5: Dissolution

Stage 4: Crisis Enable to deal with decline and facing panic. If leaders cannot prevent crisis, major reorganization is only solution. Downsizing may be severe Example: Blockbuster closed down 253 stores in Canada to decrease debt.

Five Stages of Decline Stage 1: Blinded Stage 2: Inaction Stage 3: Faulty Action Stage 4: Crisis Stage 5: Dissolution

Stage 5: Dissolution Stage is irreversible. Suffering great loss of markets and reputation. Only option is to close down Example: Filed for bankruptcy and is on a tumbling decline with less than 500 stores in the USA.

Downsizing Implementation Individuals are laid off permanently or not replaced. Times when downsizing is necessary for survival. Techniques to smooth downsizing process 1) Communicate more, not less. 2) Provide assistance to displaced workers 3) Help survivors thrive

Summary Organization Size Bureaucracy Lifecycle Decline of an organization