11- Copyright 2007 Prentice Hall 1 Organizational Theory, Design, and Change Fifth Edition Gareth R. Jones Chapter 11 Organizational Transformations: Birth,

Copyright 2007 Prentice Hall 111-

Organizational Theory, Design, and Change

Fifth EditionGareth R. Jones

Chapter 11

Organizational Transformations:

Birth, Growth, Decline,

and Death


Learning Objectives

1. Appreciate the problems involved in surviving the perils of organizational birth and what founders can do to help their new organizations to survive

2. 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


Learning Objectives (cont.)

3. Discuss why organizational decline occurs, identify the stages of decline, and how managers can change their organizations to prevent failure and eventual death or dissolution


The Organizational Life Cycle

Organizational life cycle: a predictable sequence of stages of growth and change

The four principal stages of the organizational life cycle:

Birth Growth Decline Death


Figure 11-1: Model of the Organizational Life Cycle


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

New organization is fragile because it lacks a formal structure


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


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


Table 11-1: Developing a Business Plan


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 or skills


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 birth rate

Availability of knowledge and skills to generate similar new organizations

New organizations that survive provide role models


Population Ecology Model (cont.) As environment is populated with a

number of successful organizations, birth rate 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


Figure 11-2: Organizational Birth Rates Over Time


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


Population Ecology Model (cont.) Survival strategies (cont.)

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


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 and threaten the weaker r-Specialists

Eventually, the market is dominated by the strongest r-Specialists, r-Generalists, and K-Generalists


Figure 11-3: Strategies for Competing in the Resource Environment


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


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


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


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


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

Mimetic isomorphism: exists when organizations intentionally imitate one another to increase their legitimacy

Environmental uncertainty increases the likelihood of imitation


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


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


Greiner’s Model of Organizational Growth

Greiner proposes five growth stages Each stage results in a crisis Advancement to the next stage

requires successfully resolving the crisis in the previous stage

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


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


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



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

Attempt to inculcate a companywide perspective

Crisis of red tape Increasing reliance on rules and standard

procedures Organization becomes overly bureaucratic



collaboration Emphasizes greater spontaneity in

management action Greater use of product team and

matrix structures Changing from a mechanistic to an

organic structure as an organization grows is a difficult task


Figure 11-4: Greiner’s Model of Organizational Growth


Organizational Decline and DeathOrganizational 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


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


Figure 11.5: Relationship Between Organizational Size and Organizational Effectiveness


Figure 11.6: Differences in Profitability


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


Organizational Decline and Death (cont.) Organizational inertia (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


Organizational Decline and Death (cont.) Uncertain and changing

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


Weitzel and Jonsson’s Model of Organizational DeclineFive 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


Weitzel and Jonsson’s Model (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


Figure 11-6: Weitzel and Jonsson’s Model of Organizational Decline

Documents

11- Copyright 2007 Prentice Hall 1 Organizational Theory, Design, and Change Fifth Edition Gareth R. Jones Chapter 11 Organizational Transformations: Birth,