Organization Size_ Life Cycle_ and Decline by rt3463df

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									Organization Size,
Life Cycle,
and Decline
                  Natalie Barker
                      Simon Liu
               Jelena Borovickic
        Purpose of This Chapter
   Looking at large versus small organizations and
    how sizes relates to structure and control.
   Look at an organization’s life cycle and the
    structural characteristics of each stage
   The historical need for bureaucracy as means to
    control large organizations and compare
    bureaucratic control to various other control
   Causes of organizational decline and discusses
    some methods for dealing with downsizing
                 Is Bigger Better?
                      Pressures for Growth
    The dream of practically every businessperson - to grow fast and to
                                  grow large

   A decade ago: Belief that small nimble
    companies could respond quicker in a fast
    paced environment

   Today: entered an era of the mega-corporation
    and merger mania
   As an organizational Manager, guidelines to
    keep in mind include deciding whether or not
    your company should act like a large or small

       To the extent the economies of scale, global reach, and
        complexity are important, introduce greater bureaucratization
        as the organization increases in size.

       As it becomes necessary, add rules and regulations, written
        documentation, job specialization, technical competence in
        hiring and promotion, and decentralization.
 Large vs. Small Organizations
LARGE                     SMALL
 •   Economies of          •Responsive
     scale                 •Flexible
 •   Global reach          •Regional reach
 •   Vertical hierarchy    •Flat structure
 •   Mechanistic
 •   Complex
                           •Niche finding
 •   Stable market         •Entrepreneurs
 •   Career longevity
     and stability
  Dilemmas of Large Size
        How Much and How Large?

    “Small organizations have a flat
structure and an organic, free flowing
management style that encourages
entrepreneurship and innovation.” (Daft,

   Do you agree with this statement?
      Dilemmas of Large Size
             How Much and How Large?

Big Company/Small-Company Hybrid
 The paradox is that sometimes the advantages
  of small companies sometimes enable them to
  succeed and, hence grow large.

     Become victims of their own success
     Solution
    Dilemmas of Large Size
          How Much and How Large?

Size is not necessarily at odds with
  flexibility and speed, as evidenced by
      large companies such as GE and Wal-Mart.
       Organizational Life Cycle
Suggests organizations are born, grow
 older, and eventually die.

  o   Each time an organization enters a new stage
      of the life cycle, encounters a new set of rules
      for how the organization functions internally
      and how it relates to the external
      Organizational Life Cycle
1. Entrepreneurial Stage (Birth)
Emphasis on creating a product and/or service and
  surviving in the marketplace.

  o Devote full attention to technological activities of production and
  o Informal and non-bureaucratic.
  o Work long hours.
  o Control based on owner’s personal supervision.
  E.g. Steve jobs in Stephen Wozniak’s parent’s garage.
        Organizational Life Cycle
1.    Entrepreneurial Stage (Birth)

     Crisis: Need for leadership

        o   As the organization starts to grow, the larger number of
            employees cause problems.
        o   Creative and technically orientated managers are confronted with
            managerial issues.
        o   Must either:
            1.  Adjust the structure to accommodate continued growth or
            2.  Bring in strong managers who can do so
       Organizational Life Cycle
2. Collectivity Stage
Leadership crisis resolved, strong leadership is
  attained and the organization begins to develop
  clear goals and direction.

  o   Departments established with a hierarchy and authority, job
      assignments, and a beginning division of labour.
      Organizational Life Cycle
2. Collectivity Stage

   Crisis: Need for delegation
      o   Employees gradually find themselves restricted by the strong
          top-down leadership.
      o   Lower level managers acquire confidence in their own
          functional areas and want more discretion.
      o   Autonomy crisis occurs if top managers do not want to give
          up responsibility
      o   The organization need to find mechanisms to control and
          coordinate departments without direct supervision.
        Organizational Life Cycle
3. Formulization Stage
Involves the installation and use of rules,
  procedures and control systems

   o   Communication less frequent and more formal
   o   Engineers, HR, and other staff may be added
   o   Top management concerns themselves with strategy and
       planning. Operations to middle management
   o   Decentralized units may be formed to improve coordination
   o   Incentive systems
     Organizational Life Cycle
3. Formulization Stage

  Crisis: Too much red tape
     o   Proliferation of systems may begin to strangle middle
     o   Seems bureaucratized
     o   Middle management may resent intrusion of staff
     o   Innovation may be restricted
       Organizational Life Cycle
4. Elaboration Stage
The solution to the red tape crisis is a new sense
  of collaboration and teamwork.

  o   Social control and self-discipline reduce the need for additional
      formal controls.
  o   Managers learn to work within the bureaucracy without adding to
  o   Formal systems may be simplified and replaced by manager
      teams and task forces.
  o   May also split into multiple divisions to maintain a small-
      company philosophy.
     Organizational Life Cycle
4. Elaboration Stage

  Crisis: Need for revitalization
     o   After the organization reaches maturity, it may enter periods
         of decline
     o   A need for renewal may occur every 10 to 20 years.
     o   Top managers are often replaced in this period
           o   Shifts out of alignment with the external environment ort slow
               moving because it is over bureaucratized.
           o   Must go through stage of streamlining and innovation
         Organizational Life Cycle
Large                                                                                                           thinking

                                                                 Development of teamwork
                                          Addition of internal systems                        Crisis:
                                                                                             Need for             Decline

    S             Provision of clear direction
    I
    Z                                                                   Need to deal
    E      Creativity                                                   with too much
                                                            Crisis:         red tape
                                                          Need for
                                            Crisis:      delegation
                                           Need for      with control
                  1.                       2.                     3.                     4.
           Entrepreneurial            Collectivity           Formalization          Elaboration
                Stage                   Stage                   Stage                  Stage
       Organization Characteristics During Four
                 Stages of Life Cycle
                            1.                           2.                         3.                               4.
                      Entrepreneurial               Collectivity               Formalization                     Elaboration

Characteristic        Nonbureaucratic             Prebureaucratic               Bureaucratic                  Very Bureaucratic
                  Informal, one-person show   Mostly informal, some       Formal procedures, division    Teamwork within bureaucracy,
                                              procedures                  of labor, specialties added    small-company thinking

Products or       Single product or service   Major product or service    Line of products or services   Multiple product or services
services                                      with variations                                            lines

Reward and        Personal, paternalistic     Personal, contribution to   Impersonal, formalized         Extensive, tailored to product
control systems                               success                     systems                        and department

                  By owner-manager            By employees and            By separate innovation         By institutionalized
                                              managers                    group                          R&D

                  Survival                    Growth                      Internal stability, market     Reputation, complete
                                                                          expansion                      organization

Top Management    Individualistic,            Charismatic, direction-     Delegation with control        Team approach, attack
Style             entrepreneurial             giving                                                     bureaucracy

 Organizational Bureaucracy and

Max Weber on Bureaucracy

     Restricts   personal liberties
     Brings   great efficiency
Weber’s Dimensions           Rules and
of Bureaucracy              procedures

                                              Specialization and
                                               division of labor
    and records


   Separate position                             Hierarchy of
 from position holder                             authority

                        qualified personnel
   Efficiency                Goal

   Predictability
   Consistency               Strategy

   Centralized
   Standardized              Structures
   Bureaucratic model
       Strict Rules to tell employees How to:
            Load the truck
            Fasten seat belt
            Walk
            Carry keys
            Etc.

   Employee retention rate > 90%
   Technology used to record everything
   Dominate small package delivery market
        Size and Structural Control
   Formalization
       Rules, procedures and written documentation
       Ex. Policy manuals, job descriptions
       To control
            Large orgs —— rules, procedures and paperwork
            Small orgs —— personal observation

   Centralization
       Level of hierarchy with authorities
       Authority to make decisions
            In centralized orgs —— top
            In decentralized orgs —— lower level
Size and Structural Control
   Personnel Ratios

     As   the size of orgs increase …
       The top administration ratio decrease
       The clerical and professional support staff ratios
                                     Line employees


Percentage of
                Top administrators

                                Professional staff

                       Small                           Large
                                Organization Size
Administrative assistant to the assistant administrator for
administration of the General Services Administration
 Bureaucracy in a Changing World

 Industrial Age VS. Service oriented Age
 Large organizations
 Inefficiency
     Some   U.S. government
       So many clerical staff
       Confusing job titles

       Responsible for 9.11?
Organizing Temporary Systems for
    Flexibility and Innovation
   Incident Command System (ICS)
       Ex. Police and fire department
     Formalization & Hierarchical structure
          during times of stability
     Flexibility   &Loosely structure
          New opportunities, unforeseen competitive threats,
           organizational crises
     Other Approaches to Reducing
 Cut layers of the hierarchy
 Keep headquarters staff small
 Empower lower level workers
 Increasing professionalism
     Ex.   Researchers, attorney or doctors in GM
   Professional partnership
     Ex.   Law firm, consulting firm
    Organizational Control Strategies
    Every organization needs systems for guiding and
                controlling the organization

   Three control strategies according to William Ouchi:

                Bureaucratic
                Market
                Clan

   All three types may appear simultaneously
          Bureaucratic Control
    Rules, standards, hierarchy, legitimate

 Primary purpose: standardize and control
  employee behavior
 More present in larger organizations, but is
  used in virtually all organizations
             Types of Authority
   Managers must have authority to maintain
    control over the organization

              Rational-legal
              Traditional
              Charismatic

   More than one type of authority may exist, but
    rational-legal is the most widely used
               Market Control
    Prices, competition, exchange relationship

   Price competition used to evaluate output and
   Used in: product divisions and network
   Can only be used when competition exists and
    price can be assigned
Tradition, shared values and beliefs, trust

 Relies on social characteristics
 Best when: ambiguity and uncertainty are
 Used more in small, informal organizations,
  or ones with a strong culture
Implement one of the three forms of control as
             the primary means

   Bureaucratic: organizations are large, have
    stable environment, and routine tech
   Clan: small, uncertain departments
   Market: outputs can be priced and competitive
    bidding is available
       Organizational Decline and
   Reduction in size or reduction in shape
   Can be voluntary or involuntary
   Often associated with environmental decline

      Organizational atrophy
      Environmental decline or competition
              Decline Stages
If a decline is not managed properly, it can result in
     organizational dissolution

            1. Blind Stage
            2. Inaction Stage
            3. Faulty action Stage
            4. Crisis Stage
            5. Dissolution Stage
              Decline Stages
   Inserting Exhibit 9.8 from Text
Summary – Tying it all Together
1.   Each stage of org. life cycle may require
     different systems, structures, and control
2.   The growth during this cycle often leads to
3.   Organization must find right balance of
     bureaucracy in changing environment
4.   Through growth and lifecycle maturity, may
     need to make downsizing decisions

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