Chapter 9: Organization Size, Life

Cycle, and Decline

By: Jessie Karn, Andrew Digby

 What Size Organization For You
• How do you work preferences fit organization
size? Answer the following questions as they
reflect your likes and dislikes. Please answer
whether each item in Mostly True or Mostly
False for you.

• ***Answer Key Here**

 Purpose of This Chapter
• As organizations grow and become more
competitive, they need more complex systems and
procedures.
• Bigger organization = more bureaucracy.
• The size of an organization influences design and
goals in the same way.
• Examining the natural life cycle of
an organization.
 The Bigger the Better?
• Does your organization need growth?
• Pressures of Growth include:
– Many believe that growth is the only way to
stay economically healthy.
– Your customers could be at risk if growth happens
to quickly.
– The more employees,
the more challenges.
Organizational Size Differences
Large Small
• Very complex • Simple
• Global reach • Regional Reach
• Vertical hierarchy (Mechanistic) • Flat structure (Organic)
• Employees longevity, raises • Entrepreneurs
and promotions • Niche finding
• Stable market • Responsive and flexible
• Economies of scale
 The Hybrid Model: Small Giants
• Giant companies are built for optimization not innovation.
• Big-company/small-company hybrid combines large
corporations resources and reach with a small company’s
simplicity.
• The divisional structure is one way large firms attain a
big/small design.
• Giant retail stores have that large and small feel.
 Bureaucracy
• Developed by Max Weber
• Rules and standard procedures
• Hierarchy provides supervision and control
• Advantages over organization forms
– Favoritism
– Social status
– Family connections
– Graft
Weber’s Dimensions of Bureaucracy

Hierarchy Technically
of qualified
authority personnel

Specialization Separate
and division of position from
labour position holder

Rules and Written

procedures Bureaucracy communications
and records
 UPS Management Style
• “A leader does not have to remind others of
his authority by used of a title. Knowledge,
performance, and capacity should be
adequate evidence of position and
leadership.”
 Size and Structural Control
• Size influences structural design and methods
of control.
• Formalization – Rules, procedures, and written
documents
• Centralization – Refers to hierarchy with
authority to make decisions.
• Paradox?
 Personnel Ratios
• Two patterns:
A) Top administration to total employees
- Small ratio in large organizations
B) Clerical and professional support staff ratios
- Increase in proportion to organization size
• Keeping costs for administrative, clerical and
professional staff low is important for large
organizations
 As the World Changes
• Worked well for many needs during the
industrial age
• Machine-like bureaucratic system no longer
works
• Over-bureaucratization are evident in the
inefficiencies of some government
organizations
 Flexibility and Innovation
• Incident command system (ICS).
• Allows fluidity between a formalized and
loosely structured strategy.
• Police/Fire departments, Nuclear aircraft
carrier.
• “Organizing to improvise”
• Professionalism equals less bureaucracy
 Control Strategies

1) Bureaucratic Control
- Rules, standards, hierarchy, legitimate
authority
2) Market Control
- Prices, competition, exchange
relationship
3) Clan Control
- Tradition, shared values
and beliefs, trust
Organizational Life Cycle: A look at
Apple
Entrepreneurial

Elaboration Collectivity

Formalization
Building The Organizational Life Cycle

Entrepreneurial
 Entrepreneurial Stage
• Start up of organization
• Full energies into production or service
• Crisis: Need for leadership - must adjust
structure of the organization to accommodate
continued growth
• Steve Jobs and Stephen Wozniak starting
Apple in Wozaniak’s parents garage
Building The Organizational Life Cycle

Entrepreneurial

Collectivity
 Collectivity Stage
• Grows and develops a more elaborated design.
• Employees identify with the mission of
the organization
• Crisis: Need for delegation with control -
Employees and middle management
are restricted by top management.
• During the rapid growth years for Apple (1978 -
1981), employees threw themselves into the
business as the major product line was
established.
Building The Organizational Life Cycle

Entrepreneurial

Collectivity

Formalization
 Formalization Stage
• Involves the installation and use of bureaucracy
and control systems.
• Communication less frequent and more formal.
• Top management becomes concerned with issues
such as strategy and planning, and leave the
operations of the firm to middle management.
• Crisis: Need to deal with too much red tape – growth
of the organization can be ‘strangled’ by middle-level
executives.
• Apple was in the formalization stage in the Mid-to-late
1980’s, when Jobs resigned.
Building The Organizational Life Cycle

Entrepreneurial

Elaboration Collectivity

Formalization
 Elaboration Stage
• The organization becomes flexible.
• Bureaucracy may have reached the limit.
• Collaboration helps companies excel in this stage
• Crisis: Need for revitalization – After the
organization reaches maturity, it may enter
periods of temporary decline.
• Apple went through 4 different CEO’s before Jobs
returned. He weeded out inefficiencies and
refocused Apple on innovative products.
 Organization Characteristics during Four
Stages of Life Cycle
Characteristic Entrepreneurial Collectivity Formalization Elaboration
Non-bureaucratic Bureaucratic Bureaucratic Very Bureaucratic

Structure Informal, One Mostly Informal, Formal procedures, Teamwork within

person show some procedures division of labor, new bureaucracy, small
specialties added company thinking
Products or Services Single product or Major product or Line of products or Multiple product or
service service, with services service lines
variations
Reward and control Personal, Personal, Impersonal, formalized Extensive, tailored to
systems paternalistic contribution to system product and
success department
Innovation By owner-manager By employees and By separate innovation By institutionalized
managers group R&D department

Goal Survival Growth Internal stability, Reputation, complete

market expansion organization

Top management Individualistic, Charismatic, Delegation with control Team approach,

Style entrepreneurial direction-giving attack bureaucracy
Something to Ponder

• “Eighty-four percent of
organizations that make it
past the first year still fail
within five years because
they can’t make the
transition from the
entrepreneurial stage.”
• http://www.youtube.com/watch?v=hiCilTzhXr
A
Organizational Decline and Downsizing
• Continual growth and expansion may not be
possible.
• Many have collapsed partly as a result of rapid
growth an in effective control.
 Causes of Decline
• Defintion: Decrease in an organization's
resource base over a period of time.
• Often associated with environmental decline
• Three factors that result in decline:
– A) Organizational atrophy
– B) Vulnerability
– C) Environmental decline or competition
 Five Stages of Decline
Stage 1: Blinded

Stage 2: Inaction

Stage 3: Faulty Action

Stage 4: Crisis

Stage 5: Dissolution
 Five Stages of Decline

Stage 1: Blinded

Stage 2: Inaction

Stage 3: Faulty Action

Stage 4: Crisis

Stage 5: Dissolution
 Stage 1: Blinded
• Internal and external change that threatens
long term survival.
• May have excess personnel or lack of harmony
with customers.
• Can bring business back to top performance.
• Example: Blockbuster switching from VHS
to DVD.???
 Five Stages of Decline

Stage 1: Blinded

Stage 2: Inaction

Stage 3: Faulty Action

Stage 4: Crisis

Stage 5: Dissolution
 Stage 2: Inaction
• Denial has occurred despite of performance.
• Leaders must acknowledge decline and take
action.
• Realign organization with environment.
• Example: Netflix began taking Blockbuster’s
market share. Reassess goal, structure and
straegy.
 Five Stages of Decline

Stage 1: Blinded

Stage 2: Inaction

Stage 3: Faulty Action

Stage 4: Crisis

Stage 5: Dissolution
 Stage 3: Faulty Action
• Serious issues and must not be ignored.
• Failure to adjust can lead to organizational
failure.
• Leaders should reduce employee uncertainty.
• Major mistake at this stage decreases the
chance of a comeback.
• Example: Dish Network acquired
Blockbuster and has tried to restructure
company for survival.
 Five Stages of Decline

Stage 1: Blinded

Stage 2: Inaction

Stage 3: Faulty Action

Stage 4: Crisis

Stage 5: Dissolution
 Stage 4: Crisis
• Enable to deal with decline and facing panic.
• If leaders cannot prevent crisis, major
reorganization is only solution.
• Downsizing may be severe
• Example: Blockbuster closed down 253 stores
in Canada to decrease debt.
 Five Stages of Decline

Stage 1: Blinded

Stage 2: Inaction

Stage 3: Faulty Action

Stage 4: Crisis

Stage 5: Dissolution
 Stage 5: Dissolution
• Stage is irreversible.
• Suffering great loss of markets and reputation.
• Only option is to close down
• Example: Filed for bankruptcy and is on a
tumbling decline with less than 500 stores in
the USA.
 Downsizing Implementation
• Individuals are laid off permanently or not
replaced.
• Times when downsizing is necessary for
survival.
• Techniques to smooth downsizing process
– 1) Communicate more, not less.
– 2) Provide assistance to displaced workers
– 3) Help survivors thrive
 Summary
• Organization Size
• Bureaucracy
• Lifecycle
• Decline of an organization