12 Chapter Organization Size and Life Cycle ©2013 Cengage Learning. All Rights Reserved. May not be...

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Organization Size and Life Cycle

©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Understanding the Theory & Design of OrganizationsEleventh EditionRichard L. Daft

Purpose of this chapter

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• Organizational size is matter, • Large vs. Small organization, which one is better

• Explore what is called an organization’s life cycle • The structural characteristics at each stage of the cycle

• Prerequisite: • Please image: organization is creature• Every creature has its own population

Differences Between Large and Small Organizations

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Is bigger better?

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• Why organization is getting bigger and bigger?

• industry characteristics, ex. network effect, referring to effect that one user of a good or service has on the value of that product to other people. When network effect is present, the value of a product or service is dependent on the number of others using it.

• stakeholder requirements, such as shareholder, customer, and etc.

• Founder and/or CEO commitment, ex wanna be rich

• getting hierarchy in order to deal with complex tasks

Organization Size: Is Bigger Better?

Pressures for Growth– Companies in all industries strive for growth to acquire the

size and resources needed to compete globally– Size enables companies to take risks

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Dilemmas of Large Size– Large organizations are able to get back to business more

quickly following a disaster– Large companies are standardized, mechanistic, and

complex– Small companies are flexible and can be responsive– Many companies aim to have a big company/small-

company hybrid

Organization Size: Is Bigger Better?

Mergers and Acquisitions strategy– Some organizations tend to use this strategy in order to

grow up speedily– It is a general term used to the consolidation of companies. – A merger is a combination of two companies to form a new

company while an acquisition is the purchase of one company by another in which no new company is formed.

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Five Famous Mergers and Acquisitions Gone Wrong

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Stage of Life Cycle Development

• Growth is not easy. • Each time an organization enters a new stage

in the life cycle. • It enters a whole new ball game with a new set

of rules for how the organization functions internally.

• How the new functions relates to the external environment.

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Entrepreneurial Stage

• The emphasis is to create a product or service and survive in the marketplace.

• Someone who exercises initiative by organizing a venture to take benefit of an opportunity and, as the decision maker, decides what, how, and how much of good or service will be produced.

• Creativity is essential. • Need for leadership/control

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Collectivity Stage

• Organization begins to develop clear goals and direction. • Departments are established along with a hierarchy of

authority, job assignments, and a beginning division of labor.

• Communication and control are mostly informal, although a few formal systems begin to appear.

• Provision of clear direction is essential• Need for delegation. Organization needs to find

mechanisms to control and coordinate department without direct supervision from the top.

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Formalization Stage

• The installation and use of rules, procedures, and control systems.

• Establishing coordination and control systems enable the organization to continue growing up.

• Standardize the administrative process and internal systems.

• Too much red tape, the collection of forms and procedures required to gain bureaucratic approval for something, especially when oppressively complex and time-consuming. Getting restricted, bureaucratized (administrative policy-making group).

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Elaboration Stage

• Developing skills for confronting problems and working together because bureaucracy may have reached its limit.

• Development of teamwork is essential. • Inertia: resistance to motion, action, or

change. • Need for revitalization.

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Organization Characteristics During Four Stages of Life Cycle


What is Bureaucracy?• Weber defined bureaucracy as a threat to liberty• Bureaucracy includes:

– Rules and standard procedures

– Clear tasks and specialization

– Hierarchy of authority

– Technical competence

• Bureaucracy is the most efficient system for organizing• Bureaucratic organization: it was originally intended to have a

hierarchical or pyramidal structure to help achieve the most rational and efficient operation at the lowest cost

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Weber’s Dimensions of Bureaucracy and Bases of Organizational Authority


10 minutes break

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• Organization size influences structural design and methods of control.

• The critical difference between large and small organization in formalization, centralization, and personnel ratios.

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Size and Structural Control

• refers to rules, procedures, and written documentation, such as policy manuals and job descriptions, prescribing the rights and duties of employees

• Large firms are far more formalized. • Top managers can use personal observation to

control a small organization.

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Size and Structural Control-Formalization

• refers to the level of hierarchy with authority to make decisions.

• Centralized one tend to make decisions at the top level while decentralized one makes decisions at the lower level.

• Human beings are bounded rationality.

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Size and Structural Control-Centralization

• The ratio for administrative (trained secretaries or

administrative assistants), clerical (entry-level workers), and professional support staff.

• The ratio of top administration to total employees is smaller in large firm.

• Clerical and and professional support tend to increase in proportion to firm size.

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Size and Structural Control-Personnel Ratios

Percentage of Personnel Allocated to Administrative and Support Activities


Bureaucracy in a Changing World

• Bureaucracy worked for the industrial age• Began around 1970. The replacement of hand tools with

power-driven machines, such as steam engines. • Nowadays is post-industrial age, a period in the

development of an economy in which the relative importance of manufacturing lessons of service, information, and research grows.

• The system no longer works for today’s challenges, such as low-cost, dynamic consumer’s expectation, and so forth.

• Organizations face new challenges and need to respond quickly

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Bureaucracy in a Changing World

• Over-bureaucratization is evident in the inefficiencies of large U.S. government organizations

• Narrowly defined jobs and rules limit creativity, flexibility, and rapid response

• Some organizations are using temporary structures for emergencies or crisis situations

• Temporary structure can be employed to aid the construction of larger projects, but they might also be end projects in themselves.

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Approaches to Busting Bureaucracy

• Keep the firm structure flat, keeping headquarters staff small, giving lower-level workers greeter freedom.

• Increasing professionalism of employees, referring to the length of formal training and experience of employees.

• However, in Taiwan, firms tend to replace full-time employees with temporary workers in order to save cost.

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• The use of rules, policies, hierarchy of authority, written documentation, standardization, and other bureaucratic mechanisms to standardize behavior and assess performance.

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Three Organizational Control Strategies-Bureaucratic

• It occurs when price competition is used to evaluate the output and productivity of an organization or its major departments and divisions.

• Market control requires that outputs be sufficiently explicit for a price to be assigned and that competition exist.

• Without competition, the price does not accurately reflect internal efficiency.

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Three Organizational Control Strategies-Markets

• The use of social characteristics, such as shared values, commitment, traditions, and beliefs, to control behavior.

• It is important when environmental ambiguity and uncertainty are high.

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Three Organizational Control Strategies-Clans

Establishing high-performing collaboration

• Davis, J.P., & Eisenhardt, K.M. 2011. • Cooperative, inter-organizational

relationships which rely on neither market nor hierarchical mechanisms of control to ensure cooperation and coordination and, instead, are negotiated in ongoing, communicative processes” (Lotia & Hardy, 2008: 366).

• It can be viewed as professional association (DiMaggio & Powell, 1983).

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• High-performing collaboration involves dynamic organizational processes associated with partners’ leadership roles that solve critical innovation problems related to recombination across boundaries.

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• Rather than dominant and consensus leadership, rotating leadership processes can associate with more innovation. • altering decision control that accesses the

complementary capabilities of both partner organization.

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• zig-zagging objectives that engender deep and broad search for potential innovations.

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• Fluctuating network cascades that mobilize different participants who bring variable inputs to recombination.

Organizational Decline and Downsizing

The decrease of an organization’s resources over time is caused by:

– Organizational recession– Vulnerability– Environmental decline or competition

Downsizing refers to intentionally reducing the size of a company’s workforce

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Stages of Decline and the Widening Performance Gap


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Stages of Decline and the Widening Performance Gap


require the organization to tighten up. require the organization to tighten up.

Denial occurs despite signs of deteriorating performanceDenial occurs despite signs of deteriorating performance

managers fail to adjust the organization to the declining spiral

managers fail to adjust the organization to the declining spiral

may face chaos, sharp changes, anger, jolts. may face chaos, sharp changes, anger, jolts.

there is nothing you can do betterthere is nothing you can do better

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Easing Downsizing Tension

1) Search for alternatives

2) Communicate more, not less

3) Provide assistance to displaced workers

4) Help the survivors thrive

1) Search for alternatives

2) Communicate more, not less

3) Provide assistance to displaced workers

4) Help the survivors thrive


Otherwise, downsizing may cause turnover rate of survivors

Design Essentials

Organizations experience pressures to grow Organizations evolve through stages of the life-cycle Larger organizations usually adopt bureaucratic

characteristics All organizations require systems for control Many organizations experience decline

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12 Chapter Organization Size and Life Cycle ©2013 Cengage Learning. All Rights Reserved. May not be...

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