Organisational Transformations - Week 9

7/28/2019 Organisational Transformations - Week 9

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11-Copyright 2010 Pearson Education, Inc. 1


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11-Copyright 2010 Pearson Education, Inc.

1. Appreciate the problems involved in surviving the perils of

organizational birth and what founders can do to help theirnew organizations to survive2. Describe the typical problems that arise as an organization

grows and matures, and how an organization must change ifit is to survive and prosper

3. Discuss why organizational decline occurs, identify the stagesof decline, and how managers can change their organizationsto prevent failure and eventual death or dissolution

Week 9 Organizational Transformations: Birth, Growth, Decline, and Death

Learning Objectives


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Summary

1. Appreciate the population ecology model2. Understand of life cycle in order to survive and prosper3. Examine Organisation growth model4. Examine Organizational Decline model


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The Organizational Life Cycle Organizational life cycle: a

predictable sequence of stages ofgrowth and change

The four principal stages of theorganizational 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 foundingof an organization

Occurs when entrepreneurs take advantageof opportunities to use their skills andcompetences to create value

A dangerous life cycle stage associated with

the greatest chance of failure

Liability of newness: the dangers associatedwith being the first in a new environment

A new organization is fragile because it lacks aformal structure


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Developing a plan for a new business

Begins when an entrepreneur notices an opportunityto 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

Plan should include:

Statement of the organizations mission, goals, andfinancial 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 tomeasure the progress of the venture



Developing a plan for a new business(cont.)



A Population Ecology Modelof Organizational Birth Population ecology theory: a

theory that seeks to explain the factorsthat affect the rate at which neworganizations are born (and die) in apopulation of existing organizations

Population of organizations: theorganizations that are competing for the

same set of resources in the environment Environmental niches: particular sets

of resources or skills



Number of births determined by the availability ofresources

Population density: the number of organizations that

can compete for the same resources in a particularenvironment

Factors that produce a rapid birthrate

Availability of knowledge and skills to generate similar neworganizations

New organizations that survive provide role models and conferlegitimacy

As the environment is populated with a number ofsuccessful organizations, birthrate tapers offbecause:

Fewer resources are available for newcomers

First-mover advantages: benefits derived from being an earlyentrant into a new environment

Difficulty of competing with existing companies



Figure 11.2: Organizational Birthrates Over Time



Survival strategies

Strategies that organizations can use to gainaccess to resources and enhance their chances of

survival in the environment

r-strategy versus K-strategy

r-strategy: a strategy of entering a new environmentearly

K-strategy: a strategy of entering an environmentlate, after other organizations have tested theenvironment

Specialists: organizations that concentrate theirskills to pursue a narrow range of resources in asingle niche

Generalists: organizations that spread their skills

thin to compete for a broad range of resources inmany niches



Survival strategies (cont.)



Figure 11.3: Strategies for Competing in theResource Environment

P f t l l ti



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 andcompete 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

Natural selection: the process that ensures the survival of

organizations that have the skills and abilities that best fit withthe environment

Over time, weaker organizations die because they cannot adapt theirprocedures to fit changes in the environment

Natural selection is a competitive process



h i i l h f



The Institutional Theory ofOrganizational Growth

Organizational growth: the life-cyclestage in which organizations develop value-creation skills and competences that allowthem to acquire additional resources

Organizations can develop competitiveadvantages by increasing division of labor

Creates surplus resources that foster greatergrowth

Growth should not be an end-in-itself



Institutional theory: a theory that studieshow organizations can increase their ability

to grow and survive in a competitiveenvironment by becoming legitimate in theeyes of their stakeholders

Institutional environment: values andnorms in an environment that govern thebehavior of a population of organizations


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Coercive isomorphism: exists when anorganization adopts certain norms because ofpressures exerted by other organizations and bysociety in general

Increasing dependence of one organization on anotherleads to greater similarity

Mimetic isomorphism: exists when organizationsintentionally imitate one another to increase theirlegitimacy

Environmental uncertainty increases the likelihood ofimitation


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Normative isomorphism: exists when

organizations indirectly adopt the norms andvalues of other organizations in theenvironment

Organizations acquire norms and values when: Employees move from one organization to another and

bring with them the norms and values of their formeremployer

They participate in the activities of industry, trade, and

professional associations


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Disadvantages of isomorphism

Organizations may learn ways to behave thathave become outdated and no longer lead toorganizational effectiveness

Pressure to imitate may reduce the level ofinnovation in the environment

G i M d l f


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Greiners Model ofOrganizational Growth

Greiner proposes 5 sequential growthstages Each stage results in a crisis

Advancement to the next stage requires

successfully resolving the crisis in the previousstage

Stage 1: Growth through creativity


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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

Stage 2: Growth through direction

Crisis of leadership results in recruitment of top-level managers who takeresponsibility for the organizations strategy

Crisis of autonomy

Creative people lose control over new product development Professional managers run the show

Decision making becomes centralized

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

Stage 4: Growth through coordination


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Stage 4: Growth through coordination

To resolve crisis of control, managers must find right balance of centralizedand 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

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 difficulttask


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Figure 11 4: Greiners Model of


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Figure 11-4: Greiner s Model ofOrganizational Growth


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Organizational Decline and Death

Organizational decline: the life-cycle stage that an organization enterswhen it fails to anticipate, recognize,avoid, neutralize, or adapt to externalor internal pressures that threaten itslong-term survival

May occur because organizations grow

too much


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Effectiveness and profitabilityAssessing an organizations effectiveness involves

comparing its profitability relative to others

Profitability: measures how well a company ismaking use of its resources by investing themin ways to create goods and services thatgenerate profit when sold Short-term profits say little about how well

managers are using resources to generate futureprofits

Figure 11 5: The Relationship Between Organizational


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Figure 11.5: The Relationship Between OrganizationalSize and Organizational Effectiveness

Organizational inertia: the forces inside an organization that


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Organizational inertia: the forces inside an organization thatmake it resistant to change

Risk aversion: managers become unwilling to bear theuncertainty of change as organizations grow

The desire to maximize rewards: managers may increasethe size of the company to maximize their own rewards evenwhen this growth reduces organizational effectiveness

Overly bureaucratic culture: in large organizations,

property rights can become so strong that managers spendall their time protecting their specific property rights insteadof working to advance the organization

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 andadapt to the environment

Organizational Decline and


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Organizational Decline andDeath(cont.)

Organizational inertia (cont.)


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Weitzel and Jonssons Model of Organizational Decline


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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 deterioratingperformance, top management takes little actions to correct

problemsGap between acceptable performance and actual performance

increases

Stage 3: Faulty action: managers may have made thewrong decisions because of conflict in the top-management

team, or they may have changed too little too late fearingmore harm than good from reorganizationStage 4: Crisis: by the time this stage has arrived, only

radical changes in strategy and structure can stop thedecline

Stage 5: Dissolution: decline is irreversible and theor anization cannot recover

Weitzel and Jonssons Model


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Weitzel and Jonssons Model(cont.)

5 stages of decline (cont.)

Figure 11 7: Weitzel and Jonssons Model of


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Figure 11.7: Weitzel and Jonsson s Model ofOrganizational Decline

Organisational Transformations - Week 9

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