Session 7 Organization Size, Life Cycle, And Decline

8/19/2019 Session 7 Organization Size, Life Cycle, And Decline

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Organization Size, Life

cycle, and decline


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Dening Organization Size

• Total number of employees•

Since it is the people and their interactionsthat are structured, their numbers shouldbe more closely associated with than withany other size measure

• Number of research studies also concluded

that total number of employees appear tobe more related to size- one study found the correlation betweennumber of employees and net assets to be

!"- the correlation between total hospitalwor# force and daily patient load to beo$er %&- size of full time and part time facultycorrelates with student enrollment at


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(s )igger )etter

• *ressure for growth

+ Organizational goals To grow fast andgrow large

. ompanies stri$e to ac.uire size andac.uire resources to compete on global

scale. To in$est in new technology

. ontrol distribution channel

. /uarantee access to mar#ets0 12ecuti$e ad$ancement

3 1conomic 4ealth


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)ig company5 Small companyhybrid

a ombines a large corporation6sresources with a small company6ssimplicity and 7e2ibility

b 8eorganize into groups of smallcompanies

c *ro$ides greater autonomy tomanagers

d 8educes the number of le$els ofmanagers


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onclusions on the Size and Structure 8elationship

•

Size certainly does not dictate all of anorganization structure but it is important inpredicting some dimensions of structure

1. Size and complexity

•. Size a9ects comple2ity but at decreasing

rate, in go$ernment organizations, whether itis true in business organizations is.uestionable

•. (n business organizations where managersha$e greater discretion structure causes size

•. onsistent with strategy imperati$e, ifmanagers ha$e discretion they may chooseto ma#e their structure more comple2:consistent with management theory; as

more acti$ities and personnel are added


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Size and Complexity contd• (t can6t be ruled out that size-structure relationship is

circular There is e$idence that size generatesdi9erentiation and that increasing di9erentiation alsoincreases size

• The strongest case can be made for e9ect size on$ertical di9erentiation

• < less strong but certainly solid relationship could bemade for size-horizontal di9erentiation relationship

• The larger the organization, the more pronounced :atdeclining rate; the di$ision of labor within it, the samebeing true for functional di9erentiation of theorganization into di$isions

• The size and spatial di9erentiation is problematic)lau6s high correlations are attributable to the type oforganization studied =urther research co$eringdi$erse types of organizations is needed before anysubstance can be drawn


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2. Size and Formalization• < comprehensi$e re$iew of twenty se$en

studies co$ering more than one thousandorganizations concluded that the relationshipbetween size and formalization was high ,positi$e and statistically signicant

• There is logical connection between size andformalization- Two popular methods for control of beha$iorof employees are direct sur$eillance andformalized regulations

- as one increases the other decreases- sur$eillance costs increase $ery rapidly asorganizations e2pand in size - management in order to achie$e economiessubstitutes formalization to sur$eillance


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Size and Formalization contd.• 4enry >intzberg, after re$iewing the size and

formalization literature proposed that ? thelarger the organization, the more formalized itsbeha$ior6- 1mphasized that larger organization

formalizes those acti$ities that ha$e a propensity torecur often- with increased size comes greater internalconfusion (n order to minimize this confusion

they see# to ma#e beha$ior at lower le$els inthe hierarchy more predictable- management turns to rules, procedures, @obdescriptions, and other formalization techni.ueto bring about predictability

• Size and formalization relationship cannoti nore whether or anization is inde endent or


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onclusions on the Size andStructure 8elationship

Size and Formalization contd.

• *arent rms often impose rules

and regulations to maintainnancial reporting consistenciesthat would be unnecessary if smallrm was independent

• < moderating factor on size6se9ect on formalization would bewhether organization was asubsidiary of a large rm or anindependent rm


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3 Size and entralization• (n large organizations there is ine$itable

delegation•


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*ersonnel 8atios

•


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Thomson LearningA 0BB'

%-+'

*ercentage of *ersonnel


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Organizational Life ycle

+ 1ntrepreneurial Stage

•. haracteristics. 1mphasis is on creating a product and

sur$i$ing in the mar#et place. =ounders are entrepreneurs and de$ote

full energies to technical acti$ities ofproduction and mar#eting. Organization is informal and non-

bureaucratic

. ontrol is based on owners personalsuper$ision. /rowth is from a creati$e new product or

ser$ice


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+ 1ntrepreneurial stage•. risis of leadershipa


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0 ollecti$ity stage.

(f strong leadership is obtained theorganization begins to de$elop cleargoals and direction

. Departments are established along withhierarchy of authority, @ob assignments,

and beginning of di$ision of labor. 1mployees identify the mission of the

organization and wor# long hours helpingthe organization succeed

.>embers feel part of a collecti$e,communication and controls are mostlyinformal although few formal systembegin to appear


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0 ollecti$e Stage•

risis Need for Delegation1mployees gradually nd themsel$esrestricted by strong top-down leadership

Lower le$el managers begin to ac.uirecondence in their own functional areasand want more discretion


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3 =ormalization Stage•

haracteristics (n$ol$es the installation and use of rules,procedures, and control systems

ommunication is less fre.uent and moreformal

Top management becomes moreconcerned with issues such as strategy,and planning and lea$es operation of therm to middle le$el managers

*roduct groups or other decentralizedunits may be formed to impro$ecoordination

(ncenti$e system based on prots may beimplemented


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=ormalization Stage –

risis 8ed Tape*roliferation of systems and

programs begin to strangle middle-le$el e2ecuti$es

Organization becomesbureaucratized

Organization becomes too large andcomple2 to be managed throughformal programs


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' 1laboration stage•. haracteristics. New sense of collaboration and team

wor#. >anagers de$elop s#ills for confronting

problems and wor#ing together

. )ureaucracy may ha$e reached its limit. Social control and self discipline reduce

the need for additional controls. To achie$e collaboration, cross functional

teams are formed. Organization may be split into multiple

di$isions to maintain small companyphilosophy


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=ormalization stage

risis Need for re$italization>ay enter into periods of temporarydecline

The organization shifts out of alignmentwith en$ironment or becomes slow mo$ing

and must go through a stage ofstreamlining and inno$ation

Top management is often replaced duringthis period

The company faces simultaneous needsfor cost cutting to remain competiti$e andinno$ati$e new products

Organization needs bold leadership tomo$e forward


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Discussion Cuestions

+


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haracteristics and causes during decline

• Denition

< condition in which a substantial,absolute decrease in an organization6sresource base occurs o$er a period of

time Often associated with en$ironmental

decline in the sense that anorganizational domain e2periences either

a 8eduction in size : shrin#age in customerdemand;

b 8eduction in shape


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auses of decline

• Three factors are considered to causedecline

+


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auses of decline

0 $ulnerability

. organization6s strategic inability toprosper in the en$ironment

. 4appens often with the small rmsthat are not fully established Theyare $ulnerable to shifts in consumertastes

. Some organizations are unable to

dene correct strategy to t theen$ironment

. Typically need to redene theiren$ironmental domain to enter newindustries and mar#ets


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auses of decline

3 1n$ironmental decline or competition

. 8efers to reduced energy and resourcesa$ailable to support an organization

. hen the en$ironment has less capacityto support organizations, the

organization has to either scale downoperations or shift to another domain

. (ncreased global competition is also

in7uencing many companies to scaledown operations and cutbac# personnelas they stri$e for lean, nimbleorganizations


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< model of decline stages

+ )linded stage. (nternal and 12ternal changes threaten

long-term sur$i$al and may re.uireorganization to tighten up

. Organization may ha$e e2cess personnel,cumbersome procedures or lac# of

harmony with customers. Leaders often miss signals of decline atthis point

. The solution is to de$elop e9ecti$escanning and control systems thatindicate something is wrong

. ith timely information alert leaders canbring bac# the organization to topperformance


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0 (naction stage. Denials occur despite signs of

deteriorating performance. Leaders try to persuade employees all is

well. reati$e accounting may ma#e things

loo# better. Solution for leaders is to recognize

decline and ta#e prompt actions torealign organization with en$ironment

.Leadership action include:a; New problem sol$ing approaches, :b;increasing decision-ma#ing participation,: c; e2pression of dissatisfaction to learnwhat is wrong


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3 =aulty action

.Organization is facing serious problemsand indicators of poor performancecannot be ignored

. =ailure to ad@ust to declining spiral at this

point can lead to organizational failure. Leaders are forced by se$ere

circumstances to consider ma@or changes

.Leaders should reduce employeeuncertainty by clarifying $alues andpro$iding information


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' risis stage

. Still not been able to deal with decline

and is facing a panic. Organization may e2perience chaos,

e9orts to go bac# to basics, sharpchanges and anger

. The only solution is a ma@orreorganization

. The social fabric of organization is

eroding, dramatic action such asreplacing top administrators,re$olutionary changes in the structure,strategy, and culture is re.uired

. or#force downsizing may be se$ere


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G Dissolution

. This stage is irre$ersible. Organization is su9ering loss of

mar#ets and reputation, the loss of

its best personnel and capitaldepletion

. The only solution is to close down

the organization


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Organizational ontrolStrategies

• The strategies for control came from a framewor#for organizational control proposed by illiamOuchi

• illiam Ouchi suggested three control strategies

that organization could adapt

)ureaucratic ontrol

>ar#et ontrol

lan ontrol

• 1ach of the control uses di9erent information

•


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>a@or ontrol ar#et ontrol *rice competition is used to e$aluate the output

and producti$ity of an organization Hse of mar#et control re.uires that outputs be

suFciently e2plicit for a price to be assigned andthat competition e2ist

ithout competition price will not be an accurate

re7ection of internal eFciency ompanies are applying mar#et control concept

to internal departments such as accounting, dataprocessing, legal departments and informationser$ices


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>a@or ontrol


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>a@or ontrol anagement ontrol systems

)roadly dened as formalized routines, reportsand procedures that use information to maintainor alter patterns in organizational acti$ity

(nclude the formalized information basedacti$ities for planning, budgeting, performancee$aluation, resource allocation, and employeerewards

These systems operate as feedbac# systems, withtargets set in ad$ance, outcomes compared with

targets, $ariances reported to managers forremedial actions


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=our >anagement ontrolsubsystems


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lan ontrol

1mployees may be hired because they are

compatible to the organization purpose New employees may be sub@ected to a longperiod of socialization

ompanies that shift to new managementparadigm of decentralization, horizontal

teams, networ# structures and employeeparticipation generally use clan control

lan control may also be used in certaindepartments, such as Strategic >anagement,where performance is diFcult to measure

lan control is in$isible yet $ery powerful

ontingency ontrol >odel


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ontingency ontrol >odel


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Super$isory ontrol Strategies

• =ocuses on performance of indi$idualemployees+ Output control. ritten records that measure employee outputs

and producti$ity

. Outputs of indi$idual wor#ers can easily bemeasured :piece rate system;0 )eha$ior control. *ersonal obser$ation of employee beha$ior to

see whether an employees follows correct

procedure. Ta#es more time than output control as it

re.uires personal sur$eillance. Hsed when outputs are not easily measured

S i t l


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Super$isory ontrolStrategies3 (nput control. Hses employees selection and training to

regulate #nowledge, s#ills, $alues, moti$es ofemployees

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Documents

Session 7 Organization Size, Life Cycle, And Decline