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Organizational Theory,Design, and Change
Fifth Edition
Gareth R. Jones
Chapter 11
Organizational
Transformations: Birth,Growth, Decline,
and Death
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Learning Objectives
1. Appreciate the problems involved insurviving the perils of organizationalbirth and what founders can do tohelp their new organizations tosurvive
2. Describe the typical problems thatarise as an organization grows andmatures, and how an organizationmust change if it is to survive andprosper
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Learning Objectives (cont.)
3. Discuss why organizational declineoccurs, identify the stages of decline,and how managers can change theirorganizations to prevent failure andeventual death or dissolution
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The Organizational Life Cycle
Organizational life cycle: apredictable sequence of stages ofgrowth and change
The four principal stages of the
organizational life cycle: Birth
Growth
Decline
Death
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Figure 11-1: Model of theOrganizational Life Cycle
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Organizational Birth
Organizational birth: the founding ofan organization
Occurs when entrepreneurs take advantageof opportunities to use their skills andcompetences to create value
A dangerous life cycle stage associatedwith the greatest chance of failure
Liability of newness: the dangers associatedwith being the first in a new environment
New organization is fragile because it lacks aformal structure
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Organizational Birth (cont.) Developing a plan for a new business
Begins when an entrepreneur notices anopportunity to develop a new or improvedproduct or service
Tests the feasibility of the new productidea
SWOT analysis
Examine the strengths and weaknesses ofthe idea
Decide whether the new product idea isfeasible
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Organizational Birth (cont.)
Developing a plan for a new business(cont.)
Plan should include:
Statement of the organizations mission,goals, and financial objectives
Statement of the organizations strategicobjectives
List of all the functional and organizationalresources required to implement the idea
Timeline that contains specific milestonesused to measure the progress of the venture
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Table 11-1: Developing aBusiness Plan
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A Population Ecology Model oOrganizational Birth Population ecology theory: a
theory that seeks to explain the factorsthat affect the rate at which neworganizations are born (and die) in apopulation of existing organizations
Population of organizations: theorganizations that are competing for thesame set of resources in the environment
Environmental niches: particular setsof resources or skills
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Population Ecology Model(cont.)
Number of births determined by theavailability of resources
Population density: the number oforganizations that can compete for thesame resources in a particularenvironment
Factors that produce a rapid birth rate
Availability of knowledge and skills to generatesimilar new organizations
New organizations that survive provide rolemodels
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Population Ecology Model(cont.)
As environment is populated with anumber of successful organizations,birth rate tapers off because:
Fewer resources are available fornewcomers
First-mover advantages: benefits derivedfrom being an early entrant into a newenvironment
Difficulty of competing with existingcompanies
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Figure 11-2: OrganizationalBirth Rates Over Time
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Population Ecology Model(cont.)
Survival strategies
Strategies that organizations can use togain access to resources and enhancetheir chances of survival in theenvironment
r-strategy versus K-strategy r-strategy:a strategy of entering a new
environment early
K-strategy:a strategy of entering anenvironment late, after other organizationshave tested the environment
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Population Ecology Model(cont.)
Survival strategies (cont.) Specialists: organizations that
concentrate their skills to pursue anarrow range of resources in a singleniche
Generalists: organizations that spreadtheir skills thin to compete for a broadrange of resources in many niches
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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 often move into the market andthreaten the weaker r-Specialists
Eventually, the market is dominated by thestrongest r-Specialists, r-Generalists, and K-Generalists
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Figure 11-3: Strategies for Competingin the Resource Environment
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Population Ecology Model(cont.) Natural selection: the process that
ensures the survival of organizationsthat have the skills and abilities thatbest fit with the environment
Over time, weaker organizations diebecause they cannot adapt theirprocedures to fit changes in theenvironment
Natural selection is a competitiveprocess
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The Institutional Theory ofOrganizational Growth
Organizational growth: the life-cyclestage in which organizations developvalue-creation skills and competencesthat allow them to acquire additionalresources
Organizations can develop competitiveadvantages by increasing division of labor
Creates surplus resources that foster
greater growth Growth should not be an end-in-itself
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The Institutional Theory ofOrganizational Growth (cont.) Institutional theory: a theory that
studies how organizations canincrease their ability to grow andsurvive in a competitive environmentby becoming legitimate in the eyes of
their stakeholders Institutional environment: values
and norms in an environment thatgovern the behavior of a populationof organizations
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The Institutional Theory ofOrganizational Growth (cont.)
Organizational isomorphism: thesimilarity among organizations in apopulation
Three processes that explain whyorganizations become similar are:
Coercive isomorphism
Mimetic isomorphism
Normative isomorphism
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The Institutional Theory ofOrganizational Growth (cont.) Coercive isomorphism: exists when
an organization adopts certain normsbecause of pressures exerted by otherorganizations and by society in general
Increasing dependence of oneorganization on another leads to greatersimilarity
Mimetic isomorphism: exists whenorganizations intentionally imitate oneanother to increase their legitimacy
Environmental uncertainty increases thelikelihood of imitation
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The Institutional Theory ofOrganizational Growth (cont.)
Normative isomorphism: existswhen organizations indirectly adopt thenorms and values of otherorganizations in the environment
Organizations acquire norms and valueswhen: Employees move from one organization to
another and bring with them the norms andvalues of their former employer
They participate in the activities of industry,trade, and professional associations
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The Institutional Theory ofOrganizational Growth (cont.)
Disadvantages of isomorphism
Organizations may learn ways to behavethat have become outdated and nolonger lead to organizationaleffectiveness
Pressure to imitate may reduce the levelof innovation in the environment
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Greiners Model of
Organizational Growth
Greiner proposes five growth stages Each stage results in a crisis
Advancement to the next stage requiressuccessfully resolving the crisis in theprevious stage
Stage 1: Growth through creativity Entrepreneurs develop the skills to create
and introduce new products
Organizational learning occurs
Crisis of leadershipentrepreneurs maylack management skills
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Greiners Model of
Organizational Growth (cont.)Stage 2: Growth through direction
Crisis of leadership results in recruitmentof top-level managers who takeresponsibility for the organizationsstrategy
Often turns around an organizationsfortunes
Crisis of autonomy
Creative people lose control over new productdevelopment
Professional managers run the show
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Greiners 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 forprofessional management and the opportunityfor entrepreneurship
Movement toward product team structure
Crisis of control as power struggles over
resources emerge between top-level andlower-level managers
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Greiners Model of
Organizational Growth (cont.)
Stage 4: Growth through coordination To resolve crisis of control, managers
must find right balance of centralized anddecentralized control
Top management takes on role of
coordinating different divisionsAttempt to inculcate a companywide
perspective
Crisis of red tape Increasing reliance on rules and standard
procedures
Organization becomes overly bureaucratic
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Greiners Model of
Organizational Growth (cont.)
Stage 5: Growth through collaboration
Emphasizes greater spontaneity inmanagement action
Greater use of product team and matrixstructures
Changing from a mechanistic to anorganic structure as an organization
grows is a difficult task
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Figure 11-4: Greiners Model of
Organizational Growth
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Organizational Decline andDeath
Organizational decline: the life-cycle stage that an organization enterswhen it fails to anticipate, recognize,avoid, neutralize, or adapt to externalor internal pressures that threaten itslong-term survival
May occur because organizations growtoo much
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Organizational Decline andDeath (cont.)Effectiveness and profitability
Assessing an organizations effectivenessinvolves comparing its profitability relativeto others
Profitability:measures how well a
company is making use of its resourcesby investing them in ways to creategoods and services that generate profitwhen sold Short term profits say little about how well
managers are using resources to generatefuture profits
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Figure 11.5: Relationship BetweenOrganizational Size and OrganizationalEffectiveness
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Figure 11.6: Differences inProfitability
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Organizational Decline andDeath (cont.)
Organizational inertia: the forcesinside an organization that make itresistant to change
Risk aversion: managers becomeunwilling to bear the uncertainty ofchange as organizations grow
The desire to maximize rewards:
managers may increase the size of thecompany to maximize their own rewardseven when this growth reducesorganizational effectiveness
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Organizational Decline andDeath (cont.)
Organizational inertia(cont.)
Overly bureaucratic culture: in largeorganizations, property rights canbecome so strong that managers spendall their time protecting their specific
property rights instead of working toadvance the organization
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Organizational Decline andDeath (cont.)
Uncertain and changing environment Affect an organizations ability to obtain
scarce resources, thereby leading todecline
Makes it difficult for top management toanticipate the need for change and tomanage the way organizations changeand adapt to the environment
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Weitzel and Jonssons Model
of Organizational Decline
Five stages of decline
Stage 1: Blinded: organizations areunable to recognize the internal orexternal problems that threaten theirlong-term survival
Stage 2: Inaction: despite clear signs ofdeteriorating performance, topmanagement takes little actions to correctproblems
Gap between acceptable performance andactual performance increases
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Weitzel and Jonssons Model
(cont.)
Five stages of decline (cont.) Stage 3: Faulty action: managers may
have made the wrong decisions becauseof conflict in the top-management team,or they may have changed too little toolate fearing more harm than good fromreorganization
Stage 4: Crisis: by the time this stagehas arrived, only radical changes in
strategy and structure can stop the decline Stage 5: Dissolution: decline isirreversible and the organization cannotrecover
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Figure 11-6: Weitzel and JonssonsModel of Organizational Decline
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