Organizational Theory, Design, and Change Sixth Edition Gareth R' Jones

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Organizational Theory, Design, and ChangeSixth
EditionGareth R. Jones
Chapter 11 Organizational Transformations
Birth, Growth, Decline, and Death
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Learning Objectives

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

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Learning Objectives (cont.)

• 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

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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

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Figure 11.1 A Model of the Organizational Life
Cycle
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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
• A new organization is fragile because it lacks a
  formal structure

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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

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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 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

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Table 11.1 Developing a Business Plan
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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

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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 birthrate
• Availability of knowledge and skills to generate
  similar new organizations
• New organizations that survive provide role
  models and confer legitimacy

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Population Ecology Model (cont.)

• As the environment is populated with a number of
  successful organizations, birthrate 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

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Figure 11.2 Organizational Birthrates Over Time
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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

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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

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

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Figure 11.3 Strategies for Competing in the
Resource Environment
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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

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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

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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

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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

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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

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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

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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

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Greiners Model of Organizational Growth

• Greiner proposes 5 sequential 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

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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
• Crisis of autonomy
• Creative people lose control over new product
  development
• Professional managers run the show
• Decision making becomes centralized

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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 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

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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 and decentralized
  control
• Top management takes on role of coordinating
  different divisions
• Crisis of red tape
• Increasing reliance on rules and standard
  procedures
• Organization becomes overly bureaucratic and
  stifles entrepreneurship

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Greiners Model of Organizational Growth (cont.)

• Stage 5 Growth through collaboration
• Emphasizes greater spontaneity in management
  action
• Social control and self-discipline take over
  formal control
• Greater use of product team and matrix structures
• Collaboration makes an organization more organic
  which can be a difficult task

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Figure 11-4 Greiners Model of Organizational
Growth
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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

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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

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Figure 11.5 The Relationship Between
Organizational Size and Organizational
Effectiveness
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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

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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

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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

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Weitzel and Jonssons Model of Organizational
Decline

• 5 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

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Weitzel and Jonssons Model (cont.)

• 5 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

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Figure 11.7 Weitzel and Jonssons Model of
Organizational Decline