Chapter 10

Organization Size, Life Cycle,

and Decline
Chapter

10
Organization Theory and Design
Thirteenth Edition
Richard L. Daft

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duplicated, or posted to a publicly accessible website, in whole or part.
 Learning Objectives
1. Explain the advantages and disadvantages of large
organization size.
2. Describe how an organization progresses through four stages
of the organizational life cycle.
3. Define the characteristics of bureaucracy.
4. Compare large organizations and small organizations along
the dimensions of formalization, centralization, and
personnel ratios.
5. Identify approaches to reducing bureaucracy in large
organizations.
6. Contrast market and clan control with bureaucratic control.
7. Describe the model of decline stages.
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 Organization Size: Is Bigger Better?
• Pressures for Growth
– Industry consolidation, global expansion, and diversification have
made firms grow
– Organizations strive for growth to acquire the size and resources
needed for global competition, to invest in new technology, and to
control distribution channels
• Dilemmas of Large Size
– Large organizations are better able to weather economic downturns
and can get back to business more quickly following a disaster
– Small companies are flexible and responsive, with a flat structure
and an organic, free-flowing management style
– Big-company/small-company hybrids” combine a large corporation’s
resources and reach with a small company’s simplicity and flexibility

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duplicated, or posted to a publicly accessible website, in whole or part.
Differences Between Large and Small
Organizations

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duplicated, or posted to a publicly accessible website, in whole or part.
 Stages of Life Cycle Development
1. Entrepreneurial Stage: Creation of the company
– Crisis: Need for leadership
2. Collectivity Stage: Identification with the mission
– Crisis: Need for delegation
3. Formalization Stage: Installation and use of rules
and procedures
– Crisis: Too much red tape
4. Elaboration Stage: Collaboration and teamwork
– Crisis: Need for revitalization

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duplicated, or posted to a publicly accessible website, in whole or part.
 Organizational Life Cycle

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duplicated, or posted to a publicly accessible website, in whole or part.
 Organization Characteristics During Four
Stages of Life Cycle
1. Entrepreneurial 2. Collectivity 3. Formalization 4. Elaboration

Characteristic Nonbureaucratic Pre-bureaucratic Bureaucratic Very Bureaucratic

Formal procedures, Teamwork within
Informal, one-person Mostly informal,
Structure division of labor, new bureaucracy, small-
show some procedures
specialties added company thinking
Major product or
Products or Single product or Line of products or Multiple product or
service, with
services service services service lines
variations
Personal, Extensive, tailored to
Reward and Impersonal,
Personal, paternalistic contribution to product and
control systems formalized systems
success department
By employees and By separate By institutionalized
Innovation By owner-manager
managers innovation group R&D department
Reputation,
Internal stability,
Goal Survival Growth complete
market expansion
organization
Top management Individualistic, Charismatic, Delegation with Team approach,
style entrepreneurial direction-giving control attack bureaucracy

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duplicated, or posted to a publicly accessible website, in whole or part.
 What is Bureaucracy?
• Sociologist Max Weber defined bureaucracy
as a threat to personal liberties but the most
efficient possible system for organizing
• Bureaucracy includes:
– Rules and standard procedures
– Specialization and division of labor
– Hierarchy of authority
– Technically qualified personnel

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duplicated, or posted to a publicly accessible website, in whole or part.
Weber’s Dimensions of Bureaucracy

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duplicated, or posted to a publicly accessible website, in whole or part.
 Size and Structural Control
• Formalization refers to rules, procedures, and
written documentation
• Centralization is level of hierarchy with
authority to make decisions
• Personnel ratios are the clerical and
professional support staff ratios

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duplicated, or posted to a publicly accessible website, in whole or part.
Percentage of Personnel Allocated to
Administrative and Support Activities

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 Bureaucracy in a Changing World
• Bureaucracy worked for the industrial age
• The system does not always work for today’s
challenges because organizations need to respond
quickly
• Over-bureaucratization is evident in the inefficiencies
of large U.S. government organizations
• Narrowly defined jobs and rules limit creativity,
flexibility, and rapid response
• Some organizations, such as police and fire
departments, use temporary structures for crises
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Other Approaches to Busting Bureaucracy

• Steps that organizations can take to reduce

bureaucracy include:
– Cutting layers of the hierarchy
– Keeping headquarters staff small
– Giving lower-level employees greater freedom to
make decisions without excessive rules and
regulations
– Leveraging their employees’ professionalism (formal
training and experience)
– Providing on-going training to employees
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duplicated, or posted to a publicly accessible website, in whole or part.
Bureaucracy and Other Forms of Control

• Three control strategies that organizations can

adopt are bureaucratic control, market
control, and clan control
• Each form of control uses different types of
information, but all three types may appear
simultaneously in an organization

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 Three Organizational Control Strategies
Type Requirements
Bureaucratic Rules, standards, hierarchy, legitimate
authority
Market Prices, competition, exchange relationship
Clan Tradition, shared values and beliefs, trust

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duplicated, or posted to a publicly accessible website, in whole or part.
 Examples of Rules at a Yacht Club
• Employees shall maintain a clean and well-dressed appearance at work.
• The summer uniform is green shorts, black or brown belt, white shirt tucked
in, and boat shoes. Frayed clothing is not allowed at the club.
• Employees should arrive at work at or before the agreed-upon shift time.
• Employees shall not smoke or consume alcohol on club property at any time.
• Employees are required to be polite and helpful to members at all times.
• Employees should remain a respectful distance from members and should not
accept social invitations from members.
• Employees should not be on club property when they are not working.
• Employees are not permitted to use the club phones to make or receive
personal calls.
• Instructors must provide their own manuals and radio.
• Maintenance employees must provide and use their own tools.

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 Organizational Decline
• Organizational decline is the decrease of an
organization’s resources over time and is
caused by:
– Organizational atrophy
– Vulnerability
– Environmental decline or competition

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 A Model of Decline Stages
• If not managed properly, decline can move
through five stages and result in the
dissolution of the organization:
1. Blinded stage
2. Inaction stage
3. Faulty action stage (including downsizing)
4. Crisis stage
5. Dissolution stage

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duplicated, or posted to a publicly accessible website, in whole or part.
Stages of Decline and the Widening
Performance Gap

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duplicated, or posted to a publicly accessible website, in whole or part.
Organizational Design Essentials (slide 1 of 2)
• Organizations experience many pressures to grow,
and large size is crucial to economic health in some
industries.
• Organizations evolve through distinct life-cycle stages
as they grow and mature.
• As organizations progress through the life cycle and
grow larger and more complex, they generally take
on bureaucratic characteristics.

Daft, Organization Theory and Design, 13e. © 2021 Cengage. All Rights Reserved. May not be scanned, copied or 20
duplicated, or posted to a publicly accessible website, in whole or part.
Organizational Design Essentials (slide 2 of 2)
• In many large organizations, bureaucracy has come
under attack with attempts to decentralize authority,
flatten organization structure, reduce rules and written
procedures, and create a small-company mindset.
• All organizations, large and small, need systems for
control, and managers may use a combination of
control approaches to meet the organization’s needs.
• It is the responsibility of managers to detect the signs
of decline, implement necessary action, and reverse
course.

Daft, Organization Theory and Design, 13e. © 2021 Cengage. All Rights Reserved. May not be scanned, copied or 21
duplicated, or posted to a publicly accessible website, in whole or part.