- 1.11-Copyright 2007 Prentice Hall 1 Organizational Theory,
Design, and Change Gareth R. Jones Chapter 11 Organizational
Transformations: Birth, Growth, Decline, and Death
2. 11-Copyright 2007 Prentice Hall 2 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 3. 11-Copyright 2007
Prentice Hall 3 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 4. 11-Copyright 2007 Prentice Hall 4
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 5. 11-Copyright 2007 Prentice Hall 5 Figure 11-1:
Model of the Organizational Life Cycle 6. 11-Copyright 2007
Prentice Hall 6 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 7.
11-Copyright 2007 Prentice Hall 7 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 8. 11-Copyright 2007 Prentice Hall 8
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 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 9. 11-Copyright 2007 Prentice Hall 9 Table 11-1:
Developing a Business Plan 10. 11-Copyright 2007 Prentice Hall 10 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 11. 11-Copyright 2007 Prentice Hall 11 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 12. 11-Copyright 2007 Prentice Hall 12
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 13. 11-Copyright
2007 Prentice Hall 13 Figure 11-2: Organizational Birth Rates Over
Time 14. 11-Copyright 2007 Prentice Hall 14 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 15. 11-Copyright 2007
Prentice Hall 15 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 16.
11-Copyright 2007 Prentice Hall 16 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 17.
11-Copyright 2007 Prentice Hall 17 Figure 11-3: Strategies for
Competing in the Resource Environment 18. 11-Copyright 2007
Prentice Hall 18 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 19. 11-Copyright 2007 Prentice
Hall 19 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 20. 11-Copyright 2007 Prentice Hall 20 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 21. 11-Copyright 2007
Prentice Hall 21 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 22. 11-Copyright 2007 Prentice
Hall 22 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 23. 11-Copyright 2007 Prentice Hall 23 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 24. 11-Copyright 2007 Prentice Hall 24
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 25. 11-Copyright 2007 Prentice Hall
25 Greiners 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 26. 11-Copyright 2007 Prentice Hall 26
Greiners 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 organizations
strategy Often turns around an organizations fortunes Crisis of
autonomy Creative people lose control over new product development
Professional managers run the show 27. 11-Copyright 2007 Prentice
Hall 27 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 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 28.
11-Copyright 2007 Prentice Hall 28 Greiners Model of Organizational
Growth (cont.) Stage 4: Growth through 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 29.
11-Copyright 2007 Prentice Hall 29 Greiners Model of Organizational
Growth (cont.) Stage 5: Growth through 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 30.
11-Copyright 2007 Prentice Hall 30 Figure 11-4: Greiners Model of
Organizational Growth 31. 11-Copyright 2007 Prentice Hall 31
Organizational Decline and Death Organizational 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 32. 11-Copyright 2007 Prentice
Hall 32 Organizational Decline and Death (cont.) Effectiveness and
profitability Assessing an organizations 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 33.
11-Copyright 2007 Prentice Hall 33 Figure 11.5: Relationship
Between Organizational Size and Organizational Effectiveness 34.
11-Copyright 2007 Prentice Hall 34 Figure 11.6: Differences in
Profitability 35. 11-Copyright 2007 Prentice Hall 35 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 36.
11-Copyright 2007 Prentice Hall 36 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 37.
11-Copyright 2007 Prentice Hall 37 Organizational Decline and Death
(cont.) Uncertain and changing environment Affect an organizations
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 38. 11-Copyright 2007 Prentice Hall 38 Weitzel and
Jonssons Model of Organizational Decline Five 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 39. 11-Copyright 2007 Prentice Hall 39 Weitzel and
Jonssons 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 40. 11-Copyright 2007 Prentice Hall 40 Figure 11-6: Weitzel
and Jonssons Model of Organizational Decline
