1. Growth, Decline, and Death
Organizational
Transformations:
Birth,
Growth, Decline, and Death
Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall
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2. Learning Objectives
Appreciate the problems involved in surviving the perils of organizational birth and what actions founders can take to help their new organizations survive.
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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3. Learning Objectives
Discuss why organizational decline occurs, identify the stages of decline, and describe how managers can work to prevent the failure and even the death or dissolution of an organization
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4. The Organizational Life Cycle
Organizational life cycle: A sequence of stages of growth and development through which organizations may pass
The four principal stages of the organizational life cycle:
Birth
Growth
Decline
Death
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5. Figure 11.1 - A Model of the Organizational Life Cycle
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6. 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
A new organization is fragile because it lacks a formal structure
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7. 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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8. 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

9. Table 11.1 - Developing a Business Plan
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10. 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
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11. 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 birthrate
Availability of knowledge and skills to generate similar new organizations
New organizations that survive provide role models and confer legitimacy

12. Population Ecology Model (cont.)
As the environment is populated with a number of successful organizations, birthrate 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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13. Figure 11.2 - Organizational Birthrates Over Time
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14. 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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15. Population Ecology Model (cont.)
Specialist strategy versus generalist strategy
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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16. 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 move into the market and threaten the weaker r-Specialists
The market is dominated by the strongest r- Specialists, r-Generalists, and K-Generalists
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17. Figure 11.3 -Strategies for Competing in the Resource Environment
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18. 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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19. 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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20. 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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21. 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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22. 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

23. The Institutional Theory of Organizational Growth (cont.)
Mimetic isomorphism: exists when organizations intentionally imitate one another to increase their legitimacy
Environmental uncertainty increases the likelihood of imitation

24. 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

25. 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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26. Greiner’s Model of Organizational Growth
Greiner proposes 5 sequential growth stages
Each stage results in a crisis
Advancement to the next stage requires successfully resolving the crisis in the previous stage
The stages are;
(1) Growth through creativity
(2) Growth through direction
(3) Growth through delegation
(4) Growth through coordination
(5) Growth through collaboration
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27. Greiner’s Model of Organizational Growth (cont.)
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

28. 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

29. 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

30. 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
Crisis of red tape
Increasing reliance on rules and standard procedures
Organization becomes overly bureaucratic

31. Greiner’s Model of Organizational Growth (cont.)
Stage 5: Growth through collaboration
Emphasizes greater spontaneity in management action
Social control and self-discipline take over formal control
Greater use of product team and matrix structures
Collaboration makes an organization more organic which can be a difficult task

32. Figure 11.4 - Greiner’s Model of Organizational Growth
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33. 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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34. Figure 11.5 - The Relationship Between Organizational Size and Organizational Effectiveness

35. 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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36. Figure 11.6 - Differences in Profitability

37. 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
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38. Organizational Decline and Death (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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39. Organizational Decline and Death (cont.)
Changes in the 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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40. Weitzel and Jonsson’s Model of Organizational Decline
5 stages of decline
Stage 1: Blinded
Stage 2: Inaction
Stage 3: Faulty action
Stage 4: Crisis
Stage 5: Dissolution
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41. Weitzel and Jonsson’s Model of Organizational Decline (cont.)
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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42. Weitzel and Jonsson’s Model of Organizational Decline (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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43. Weitzel and Jonsson’s Model of Organizational Decline (cont.)