Organizational Theory

Chapter 11 Organizational Birth,Growth,Decline, and Death

Whats on the agenda?

The organizational life cycle Organizational birth

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Organizational Theory
Chapter 11 Organizational Birth, Growth, Decline, and Death

Whats on the agenda?

A population ecology model of organizational birth The institutional theory of organizational growth
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Organizational Theory
Chapter 11 Organizational Birth, Growth, Decline, and Death

Whats on the agenda?

Greiners model of organizational growth Organizational decline and death

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Organizational Theory
It has been suggested that organizations experience a predictable sequence of stages growth and development: the organizational life cycle.

The four principle stages of the organizational life cycle are: -Birth -Growth -Decline -Death
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Organizational Theory
Organizations are born when individuals, called entrepreneurs, recognize opportunities to use their skills to create value.

Organizational birth is a dangerous life cycle stage, associated with the greatest chance of failure.

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Organizational Theory
This liability of newnessthe dangers of being the first in a new environmentis due to the following:

Entrepreneurship is a risky process

New organizations lack formal structure Resources may be scarce because of established organizations.
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Organizational Theory
A population ecology model of organizational birth

Population ecology theory seeks to explain the rate at which new organizations are born (and die) in a population of organizations.

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Organizational Theory
A population of organizations comprises the organizations that are competing for the same set of resources in the environment.

Different organizations within a population may choose to focus on different environmental niches, or particular sets of resources.

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Organizational Theory
According to population ecology, availability of resources determines the number of organizations in a population.

The amount of resources in an environment limits population densitythe number of organizations that compete for the same resources in a particular environment.

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Organizational Theory
According to population ecology theory, the rate of birth of new organizations in an environment increases rapidly at first and then tapers off.

There are different reasons for explaining the shape of this type of curve over time.

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FIGURE 11.2 Organizational Birth Rates over Time

Number of organizations

Birthrate tapers off

Birthrate is rapidly increasing

Time

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Organizational Theory
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. - Also, when a new organization is founded and survives, it provides a role model. Because success confers legitimacy, it is easier to found similar organizations.
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Organizational Theory
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.

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Organizational Theory
Population ecologists have identified two sets of strategies that organizations can use to gain access to resources and increase their chances of survival: r-strategy versus K-strategy

specialist strategy versus generalist strategy

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Organizational Theory
The r versus K issue addresses timing of entry into the population.

R-strategy involves entering a new environment early. K-strategy involves entering an environment late, after other organizations have tested the waters.
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Organizational Theory
The specialist versus generalist issue addresses the set of resources for which an organization competes.

Specialists concentrate their skills to pursue a narrow range of resources in a single niche.
Generalists spread their skills thinly to compete for resources in many niches.
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FIGURE 11.3 Strategies for Competing in the Resource Environment

rStrategy (early entry into environment) Specialist Strategy (operates in one niche) Generalist Strategy (operates in several niches)

rSpecialist

rGeneralist

KStrategy (late entry into environment)

KSpecialist

KGeneralist

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Organizational Theory
The Institutional Theory of Growth Organizational growth is the life cycle stage in which organizations develop skills and competencies that allow them to acquire additional resources.

Institutional theory studies how organizations can grow and survive in a competitive environment by satisfying stakeholders.
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Organizational Theory
Institutional theory also argues that to increase chances of survival, organizations adopt many of the rules and codes of conduct found in the institutional environment.

The institutional environment is defined as the set of values and norms in an environment that govern the behavior of organizations.
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Organizational Theory
Because organizations are conforming to a common institutional environment, the result is something referred to as organizational isomorphism.

Organizational isomorphism is a term for the similarity among organizations in a population.

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Organizational Theory
Institutional theory identifies three processes that explain why organizations become similar over time:

Coercive isomorphism
Mimetic isomorphism Normative isomorphism

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Organizational Theory
Coercive isomorphism exists when an organization adopts certain norms because of pressures exerted by other organizations and by society in general (boycott goods made by children) . Mimetic isomorphism exists when organizations intentionally imitate and copy one another to increase their legitimacy (easy to replicate)
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Organizational Theory
Normative isomorphism exists when organizations indirectly adopt the norms and values of other organizations in the environment This can happen when employees move from organization to organization (taking their business knowledge with them), or by giving and receiving information at industry trade shows.

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Organizational Theory
Disadvantages of Isomorphism Although isomorphism leads to stability and legitimacy, it has some disadvantages.

Organizations may learn ways to behave that have become outdated and no longer lead to organizational effectiveness.

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Organizational Theory
Greiner developed a life-cycle model of growth, proposing that organizations pass through five stages, and that each stage ends in a crisis.

To advance from one stage to the next, an organization must successfully manage and solve the problem associated with each crisis.
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FIGURE 11.4 Greiners Model of Organizational Growth

Large

Stage 1

Stage 2

Stage 3

Stage 4

Stage 5 5. Crisis of ?

4. Crisis of red tape Size of organization 3. Crisis of control 2. Crisis of autonomy 1. Crisis of leadership 5. Growth through collaboration 4. Growth through coordination

3. Growth through delegation

2. Growth through direction

1. Growth through creativity

Small Young Age of organization Mature

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Organizational Theory
Greiners five stages include: Stage 1: Growth through creativity Crisis of leadership Stage 2: Growth through direction Crisis of autonomy Stage 3: Growth through delegation Crisis of control
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Organizational Theory
Greiners five stages include:

Stage 4: Growth through coordination Crisis of red tape Stage 5: Growth through collaboration

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Organizational Theory
Organizational Decline and Death Organizational decline is 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.

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Organizational Theory
An organization may not easily adapt to meet changes in the environment because of organizational inertia.

Organizational inertia results from forces inside an organization that make it resistant to change.

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Organizational Theory
Factors that can increase organizational inertia: Risk aversionmanagers become unwilling to bear the uncertainty of change. Desire to maximize rewardschange often involves shrinking an organization, which challenges how most managers are rewarded.

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Organizational Theory
Factors that can increase organizational inertia: Overly bureaucratic culturein large organizations, property rights can become so strong that managers spend all their time protecting their specific property rights rather than working to advance the organization.

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Organizational Theory
Weitzel and Jonssons Model of Decline According to Weitzel and Jonsson, organizational decline occurs by degrees. They have identified five stages of decline, and management action can reverse the decline at each stage except the last stage (dissolution).
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Organizational Theory
Weitzel and Jonssons Model of Decline Stage 1: Blindedorganizations are unable to recognize the internal or external problems that threaten their long-term survival.

Stage 2: Inactiondespite clear signs of declining performance, top management takes little action.
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Organizational Theory
Weitzel and Jonssons Model of Decline Stage 3: Faulty Actionmanagers may have made the wrong decisions, or changed too little too late.

Stage 4: Crisisby the time this stage has arrived, only radical changes in strategy and structure can stop decline.
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Organizational Theory
Weitzel and Jonssons Model of Decline

Stage 5: Dissolutiondecline is irreversible, the organization cannot recover.

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FIGURE 11.6 Weitzel and Jonssons Model of Organizational Decline

Stage 1: Blinded Good information Performance Prompt action Corrective action Stage 2: Inaction Stage 3: Faulty action Acceptable performance Stage 4: Crisis Stage 5: Dissolution

Effective reorganization

Actual performance

Decline begins T ime Acceptable organizational performance Actual organizational performance Copyright 2001 Prentice Hall

Dissolution and organizational death

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