EVOLUTION AND REVOLUTION AS ORGANIZATIONS GROW

-KARAN SINGH (16P145)

A1. SUMMARY
Organizations evolve through distinct life-cycle stages as they grow and mature. Organizational
structure, internal systems and management issues are different for each stage of development. The
Author Larry Greiner outlines a series of developmental stages through which organizations may go
through from their inception to maturity as they continue to grow.

Each phase begins with a period of evolution which is characterized by modest adjustments to maintain
the steady growth and stability and ends with a period of revolution which is characterized by a turbulent
atmosphere of turmoil and serious overhauling of management practices.

The author explains that in order to develop a model of how organizations develop, one must have an
understanding of the force of history (past events and experiences) on the organization which is
primarily much more responsible for the behavior of individuals than what holds for them in the future.
The author outlines FIVE key dimensions that are essential for building a model of development which
tabulated below:

AGE OF SIZE OF STAGES OF STAGES OF GROWTH RATE

ORGANISATION ORGANIZATION EVOLUTION REVOLUTION OF THE
INDUSTRY
Life Span of an Problems and their Prolonged growth Turbulent phases Speed of
Organization Solutions change with periods can be called evolutionary and
the increase in Number periods of revolutionary periods
of Employees and Sales Revolution is related to the
Volume dynamics of the
Industry
Same Organizational Problems of Marked by steady Overhauling/ Evolutionary periods
Practices are not Coordination and growth and Upheaval of tend to be shorter in
maintained throughout Communication stability Management Fast-Growing
the Life-Span magnify Practices which no Industries and longer
longer work in Slow-Growth
Industries
Management Problems New Functions emerge, Only minor and New practices are Revolutions can be
and Principles are Jobs become more inter- modest required to foster severe and difficult
rooted in TIME related adjustments the next period of to resolve in poor
required to Evolutionary Industry environment
maintain growth Growth
Passage of TIME also Levels of Hierarchy A quiet period New practices and
contributes to change marked by solutions
Institutionalization of absence of a implemented will
Managerial Attitudes major economic be cause of some
setback or internal problems in the
disruption next phase.

Attitudes, Procedures,
Practices become rigid
and outdated with TIME

During its life, an organization goes through various phases each characterized by a dominant
management style in the evolutionary period and a dominant management problem in the revolutionary
period. The author explains why management styles, organizational structures, coordination
mechanisms work and not work in various phases an organization passes through.

Phase 1- Growth Through Creativity

• Emphasis on creating the product and innovations
• Founders are technical or entrepreneurial in nature
• Frequent and Informal Communication
• Management acts as and when Customers react- Receptive to Customers

The Leadership Crisis

With time, as the organization grows- both in the number of employees and sales volume, new
systems are required in the fields of manufacturing, accounting and HR related issues. The
founders usually do not have the expertise to manage the new systems and this leads to The
Leadership Crisis. The organizations require new management/outsiders who have the
expertise to manage the new environment.

Phase 2- Growth Through Direction

• Implementation of a functional organizational structure
• Proper Accounting Systems are put in place
• Formal and Impersonal Communication
• Low-Level supervisors are functional specialists and do not have autonomy
• New managers/higher-up supervisors assume higher responsibilities

The Autonomy Crisis

With the further advancement of the organization, centralized management starts to seem
inappropriate. Lower level managers possess direct knowledge of issues but are unable to react
quickly. There is a demand for greater autonomy. We see that the solution to the first phase
becomes the reason for crisis in the second phase.

Phase 3- Growth Through Delegation

• Application of a decentralized structure
• Greater responsibilities to field managers
• Use of profit sharing and bonus for incentives
• Top Managers react on the basis of reports from the field
• Active in Acquisitions
 • Communication from the top is infrequent and formal

The Control Crisis

Field operations become diversified and the Top Management senses the loss of control over
planning, budgeting, manpower decisions etc. Freedom breeds Parochialism in this phase. Top
Management seeks to regain control by introducing new coordination techniques.

Phase 4- Growth Through Coordination

• Decentralized units are merged into product groups-somewhat a divisional structure
• Formal planning procedures, Standard Operating Procedures are implemented
• Capital Expenditures decisions are reviewed and distributed across the organization
• ROI, ROCE become the criteria for measuring the field operations
• Daily operating decisions are decentralized while some technical functions remain centralized

The Red Tape Crisis

Field managers start to dislike being controlled staff managers who do not understand the local
field environments while staff managers have to deal with the problems of uncooperative field
managers. Both field and staff managers resent the bureaucratic atmosphere that has evolved.
The organization in this phase has become too large to be managed by rigid programs and
systems.

Phase 5- Growth Through Collaboration

• Strong interpersonal collaboration is emphasized upon to overcome the Red Tape crisis
• Focus on solving problems through Team Actions
• Teams are formed across functions to bring about greater understanding of various situations.
• A Matrix-type structure is developed
• Formal and rigid systems are simplified and combined
• Conferences of Key Managers are held frequently to address issue and chalk out future plans
• Education programs are rolled out to train employees
• Real-Time Information systems (ERP, SAP etc.) are used for decision making
• Experiments are encouraged which spurs innovations

The ? Crisis
The author tries to explain that the next crisis would center around employees who become
saturated emotionally and get physically exhausted but he intensity of teamwork and heavy
pressure. The solution to this crisis would demand new structures that would allow employees
to take rest, reflect and revitalize themselves. Sabbaticals, moving managers in and out of hot-
spot jobs, ensuring job security, making jobs interchangeable etc. would be used to solve any
such crises. Jeff Bezos of Amazon ensures that every employee including the top level
management to spend some time in dealing with the Customers directly and spend time with
the Customer Department. This build greater character amongst the employees and they get
aligned with the organizational goals from time to time.

Guidelines For Managers Of Growing Organizations

The author, through this article, provides some basic guidelines for the managers. They should be able
to understand where the organization lies in the developmental phase. The organizations should be
looking to ride the wave rather than swim against it. Also it is important that the managers understand
that the solutions to a particular problem will have a limited range and maybe the reason for another
problem in the next phase. Every problem will need a fresh solution that has been weighed and well
thought of in relation to the phase the organization is currently functioning in. Management must be
prepared to dismantle structures before the revolutionary stage becomes too turbulent. Solutions applied
in one phase can give rise to other problems in the next phase and managers must be ready to overhaul
the existing structures to be able to ensure the survival of the organization. Time is a very important
dimension and must be taken into consideration before devising a solution to a problem.
 A2. APPLY THE FRAMEWORK TO APPEX CORPORATION
STRUCTURE CHARACTERISTICS
• Key executives made
all decisions
• All employees were
involved in developing
and selling products
Entrepreneurial • Responsive and
GROWTH nature without Effective
THROUGH any formal • Entrepreneurial and
CREATIVITY structure. Technology driven
• Informal and Fluid
• Employees worked in
close interaction with
each other
• Organized functions as
teams for example
there was a
sales/marketing team,
technology team,
operations team etc.
• The structure was
diagramed in such a
way that it minimized
GROWTH Circular the sense of hierarchy.
THROUGH Structure and • Ensured that
DIRECTION Horizontal employees focused on
Structure were completing their tasks.
tried and • There was a focus on
tested. After task completion with
that a various departments
Hierarchical, working on their
Functional specific tasks.
Structure was • The need for planning
established. was addressed by this
structure
• It provided a system
for assessing
accountability
Product Team Structure
• It promised a greater
control structure
• It established separate
teams for each product.
• Product teams co-
GROWTH Product-Team existed with functional
THROUGH Structure & teams
DELEGATION Business Team • Product team managers
Structure would write business
plans for the products
Business Team Structure
• Teams acting as
intermediaries between
product reams and
corporate management
teams
CRISIS
As Appex Corporation
grew in size, it faced the
LEADERSHIP CRISIS.
The atmosphere was
changing from
Entrepreneurial to Chaotic.
There was an absence of
planning structure and only
fire-fighting was resorted
to. Customer complaints
increased and Appex began
to fall behind schedule.
Apart from the problems of
extensive politics, team
polarization, reduced
cooperation a very
important observation made
by Paul Gudonis was that
nobody is acting as the
integrator with
responsibilities. There were
no checks and balances in
the system. It became to
centralized with everyone
looking up to Shikhar
Ghosh to solve day to day
departmental problems.
This led to the
AUTONOMY CRISIS.
These structures faced
authority and resource
allocation related problems.
Also the main focus was
lost. People became less
concerned with meeting
company-wide financial
goals. There was no Profit-
Loss accountability. Appex
became an organization
with a lot of process and
where things were not
getting done. The
organization faced a
CONTROL CRISIS.
SOLUTION
Shikhar Ghosh used the
Circular and Horizontal
structure to provide the
much needed direction.
However, when these
were not well accepted
due to their respective
shortcomings, a
Functional Structure was
adopted. This was done
to solve the Leadership
Crisis.
Shikhar Ghosh acted on
recommendations to first
implement a Product-
Team structure and then
a Business Team
Structure. This gave
product managers the
authority to write
business plans for the
products and co-exist
with the Functional
Teams. In case of
Business-Teams, the
authority was well
defined and lied in the
hands of business teams.
This temporarily solved
the Autonomy Crisis.
To solve the Control
Crisis, Shikhar Ghosh
introduced a Divisional
Structure. Under this
structure, two broad
divisions were
established within which
all products could be
divided. A third division,
Operations was created
to take care of the utility
functions. Each division
who had one head
reported to Ghosh.
 • Teams that operated on
the same network and
shared the same
customer base reported
to one business team
• Included
representatives from
the senior management

• Functions would be The Divisional Structure Shikhar wanted to

grouped together some problems like increase collaboration,
according to specific resource allocation wherein spur product
demands of products, each division wanted to development,
markets or customers. control resources. There communication by
were high walls between setting a theme of quality
• Two broad divisions-
divisions reducing and creating a multi-
ICS and IS would be
cooperation and little cross- divisional, multi-quality
created within which
pollination of ideas. Certain teams. He rotated the
all the products would products did not develop employees across the
GROWTH Divisional be logically divided. because they did not fall divisions and that would
THROUGH Structure • A third division, neatly into the confines of in turn increase the
COORDINATION Operations would be one division or the other. collaboration within
created that would This led to the RED TAPE divisions.
service the two broad CRISIS where the company
divisions-ICS and IS became rigid.
• Improved
accountability,
budgeting and
planning.
• Established more
focus on meeting
financial targets.
• Increased the
cooperation among
divisions.

• Establishment of The ? Crisis. Behavioral The ? Crisis would be

centralized product changes occurred due to the solved by establishing
development teams changes in the Targets which would
apart from the organizational structure. It provide stability. Also,
divisional product created anxiety among according to the
teams. employees. People felt a lot framework, employee
Multi- • A company theme of of confusion and there was motivation should be
Divisional, quality would be increasing uncertainty. taken care of by offering
GROWTH Multi- established them benefits.
THROUGH Functional • Operations division
COLLABORATION Structure - would be disbanded
Matrix and incorporated into
Structure other two divisions.
• International Business
Division would be
added
• Increased focus
towards innovation and
product development.
A3. LESSONS FROM THE ARTICLE

The author, in this article has talked about the five key dimensions that are necessary to be kept in mind
while building an organizational development model which are the Age of the Organization, Size of the
Organization, Stages of Evolution, Stages of Revolution, Growth Rate of the Industry. These
dimensions must always be studied and taken into account before deciding upon the implementation of
any organizational structure, practice etc.

The author then outlines the phases an organization goes through with the passage of time. He explains
the characteristics of every phase and the evolutions and revolutions that take place in every phase. The
same has been explained above.

Through this article, the author provides guidelines to practicing managers that there are specific
management actions to characterize each growth period and these actions are also solutions that ended
the revolution stage of the preceding phase. Solutions implemented in one phase may run out of its
useful life in the next phase and thus demands for new solutions surface.

Practicing managers should be aware of the phase the organization is currently in before implementing
any solution. This is because solutions which may have worked in one phase may be useless in another
phase and may also lead to other severe problems.

Managers should be aware that the solutions have a limited range and they cannot be taken for granted
to work forever. It is often tempting to implement tried and tested solutions which may have worked
previously but the author explains that one should be careful while selecting and deciding upon a
solution. The managers must be open to dismantle current structures before the revolutionary stage
becomes too severe. Managers must work on their self-awareness skills as well as interpersonal skills
to be able to recognize a problem and also be able to explain it to others to persuade them that a change
is needed.

As we have seen in the article, every phase demands a solution which goes on to become the seed of a
new problem as the organization moves to the next phase. Actions in the past determine much of what
will happen to the company in the future. Therefore, the manager must inculcate a historical
understanding to understand the roots of the problem rather than pin-pointing on a current development
which may not be the actual reason for the problem.

The author, in this article, has explained the key dimensions to keep in mind, phases of growth and the
crisis in every phase and finally using the same he has provided basic guidelines on how managers
should try to solve organizational problems.