1 Organizational Life Cycles Population Ecology Institutional Theory Growth and Decline

2 Population Ecology Large variety appears in the organizational population Some organizations find a niche and survive A few organizations grow large and become institutionalized in the environment

3 Organizational Birth Rates over Time Time Birthrate is rapidly increasing Birthrate tapers off Number of organizations

4 Population Ecology Two factors account for the rapid birthrate: -As new organizations are founded, there is an increase in the knowledge and skills available to start similar organizations. -When a new organization is founded and survives, it provides a role model. Because success confers legitimacy, it is easier to found similar organizations.

5 Two factors account for the birthrate decrease: Births taper off as the availability of resources diminishes. The level of competition for resources with existing organizations increases. Population Ecology

6 Institutional Theory Three processes lead organizations to become more similar over time: Coercive isomorphism organizations adopt norms because of pressures exerted by other organizations and by society in general (affirmative action, environmental protection) Mimetic isomorphism organizations intentionally imitate and copy one another to increase their legitimacy (new medical practices, advertising approaches) Normative isomorphism organizations indirectly adopt the norms and values of other organizations in the environment (IT professionals carry practices from one organization to another)

7 Isomorphism: Pros and Cons Negative Effects Bad practices spread Outdated practices may be institutionalized Innovation stifled in strongly isomorphic field Positive Effects Leads to stability Provides legitimacy

8 Organizational Life Cycle ORGANIZATION STAGES OF DEVELOPMENT 1. Entrepreneurial Stage 2. Collectivity Stage 3. Formalization Stage 4. Elaboration Stage Crisis: Need to deal with too much red tape Crisis: Need for delegation with control Crisis: Need for leadership Creativity Provision of clear direction Addition of internal systems Development of teamwork Crisis: Need for revitalization Decline Continued maturity Streamlining, small-company thinking SIZESIZE Large Small Sources: Adapted from Robert E. Quinn and Kim Cameron, “Organizational Life Cycles and Shifting Criteria of Effectiveness: Some Preliminary Evidence,” Management Science 29 (1983): 33-51; and Larry E. Greiner, “Evolution and Revolution as Organizations Grow,” Harvard Business Review 50 (July-August 1972):

11 -9 Organizational Decline and Death occurs when an organization fails to anticipate, recognize, avoid, neutralize, or adapt to external or internal pressures that threaten its long-term survival

Weitzel and Jonsson’s Model of Decline Time Decline begins Dissolution and organizational death Stage 1: Blinded Stage 2: Inaction Stage 3: Faulty action Stage 4: Crisis Stage 5: Dissolution Good information Prompt action Corrective action Acceptable performance Effective reorganization Actual performance Acceptable organizational performance Actual organizational performance Performance

11 Turnaround Strategies Entrepreneurial approach –Create new products –Increase R & D –Enter or create new markets Efficiency approach –Reduce operating costs –Increase use of existing assets –Drop failing aspects of business –Cut inventories