Organizational Transformations: Birth, Growth, Decline, and Death

Organizational Theory,
Design, and Change

Fifth Edition
Gareth R. Jones
Chapter 11
Organizational
Transformations: Birth,
Growth, Decline,
and Death
Copyright 2007 Prentice Hall
11- 1
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
11- 2
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
11- 3
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
11- 4
Figure 11-1: Model of the

Organizational Life Cycle
11- 5
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
11- 6
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
11- 7
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
11- 8
Table 11-1: Developing a

Business Plan
11- 9
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- 10
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
11- 11

(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
11- 12
Figure 11-2: Organizational

Birth Rates Over Time
11- 13

(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
11- 14

(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
11- 15

(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 KGeneralists
11- 16
Figure 11-3: Strategies for Competing

in the Resource Environment
11- 17

(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
11- 18
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
11- 19

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
11- 20

Organizational isomorphism: the
similarity among organizations in a
population
Three processes that explain why

organizations become similar are:
Coercive isomorphism
Mimetic isomorphism
Normative isomorphism
11- 21

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
11- 22

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
11- 23

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
11- 24
Greiners Model of
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
11- 25
Greiners Model of
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
11- 26
Greiners Model of
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
11- 27
Greiners Model of
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
11- 28
Greiners Model of
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
11- 29
Figure 11-4: Greiners Model of

11- 30
Organizational Decline and

Death
Organizational decline: the lifecycle 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
11- 31

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
11- 32
Figure 11.5: Relationship Between

Organizational Size and Organizational
Effectiveness
11- 33
Figure 11.6: Differences in

Profitability
11- 34

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
11- 35

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
11- 36

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
11- 37
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
11- 38
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
11- 39
Figure 11-6: Weitzel and Jonssons

Model of Organizational Decline
11- 40

Organizational Transformations: Birth, Growth, Decline, and Death

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Organizational Transformations: Birth, Growth, Decline, and Death

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Organizational Theory,

Design, and Change

Copyright 2007 Prentice Hall

Learning Objectives (cont.)

Copyright 2007 Prentice Hall

The Organizational Life Cycle

Figure 11-1: Model of the

Copyright 2007 Prentice Hall

A dangerous life cycle stage associated

Liability of newness: the dangers associated with

Organizational Birth (cont.)

Begins when an entrepreneur notices an

Examine the strengths and weaknesses of

Organizational Birth (cont.)

Plan should include:

Statement of the organizations mission,

Table 11-1: Developing a

Copyright 2007 Prentice Hall

A Population Ecology Model of

Population of organizations: the

Copyright 2007 Prentice Hall

Population Ecology Model

Population density: the number of

Availability of knowledge and skills to generate

Copyright 2007 Prentice Hall

Population Ecology Model

Fewer resources are available for

First-mover advantages: benefits derived

Difficulty of competing with existing

Figure 11-2: Organizational

Copyright 2007 Prentice Hall

Population Ecology Model

Strategies that organizations can use to

r-strategy: a strategy of entering a new

Population Ecology Model

Specialists: organizations that

Copyright 2007 Prentice Hall

Population Ecology Model

Two sets of strategies result in: r-Specialist,

Early in an environment, new organizations are

Move quickly to focus on serving the needs of a

K-Generalists often move into the market and

Figure 11-3: Strategies for Competing

Copyright 2007 Prentice Hall

Population Ecology Model

Over time, weaker organizations die

Copyright 2007 Prentice Hall

The Institutional Theory of

Organizations can develop competitive

The Institutional Theory of

The Institutional Theory of

Three processes that explain why

Copyright 2007 Prentice Hall

The Institutional Theory of

Increasing dependence of one organization

Mimetic isomorphism: exists when

Environmental uncertainty increases the

The Institutional Theory of

Organizations acquire norms and values

Employees move from one organization to

Copyright 2007 Prentice Hall

The Institutional Theory of

Organizations may learn ways to behave

Copyright 2007 Prentice Hall