Chapter
Organization Size and
Life Cycle
12
Understanding the Theory & Design
of Organizations
Eleventh Edition
Richard L. Daft
©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Purpose of this chapter
• Organizational size is matter,
• Large vs. Small organization, which one is better
• Explore what is called an organization’s life cycle
• The structural characteristics at each stage of the cycle
• Prerequisite:
• Please image: organization is creature
• Every creature has its own population
2
©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Differences Between Large and Small
Organizations
3
©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Is bigger better?
• Why organization is getting bigger and bigger?
• getting hierarchy in order to deal with complex
tasks
• Founder and/or CEO commitment, ex wanna be rich
• stakeholder requirements, such as shareholder,
customer, and etc.
• industry characteristics, ex. network effect, referring to
effect that one user of a good or service has on the value of that
product to other people. When network effect is present, the value of a
product or service is dependent on the number of others using it.
4
©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Organization Size: Is Bigger Better?
Pressures for Growth
– Companies in all industries strive for growth to acquire the
size and resources needed to compete globally
– Size enables companies to take risks
Dilemmas of Large Size
– Large organizations are able to get back to business more
quickly following a disaster
– Large companies are standardized, mechanistic, and
complex
– Small companies are flexible and can be responsive
– Many companies aim to have a big company/smallcompany hybrid
5
©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Organization Size: Is Bigger Better?
Mergers and Acquisitions strategy
– Some organizations tend to use this strategy in order to
grow up speedily
– It is a general term used to the consolidation of companies.
– A merger is a combination of two companies to form a new
company while an acquisition is the purchase of one
company by another in which no new company is formed.
6
©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Five Famous Mergers and
Acquisitions Gone Wrong
7
©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Stage of Life Cycle Development
• Growth is not easy.
• Each time an organization enters a new stage
in the life cycle.
• It enters a whole new ball game with a new set
of rules for how the organization functions
internally.
• How the new functions relates to the external
environment.
8
9
5
10
5
11
Entrepreneurial Stage
• The emphasis is to create a product or service
and survive in the marketplace.
• Someone who exercises initiative by organizing
a venture to take benefit of an opportunity
and, as the decision maker, decides what, how,
and how much of good or service will be
produced.
• Creativity is essential.
• Need for leadership/control
12
5
13
Collectivity Stage
• Organization begins to develop clear goals and direction.
• Departments are established along with a hierarchy of
authority, job assignments, and a beginning division of
labor.
• Communication and control are mostly informal, although
a few formal systems begin to appear.
• Provision of clear direction is essential
• Need for delegation. Organization needs to find
mechanisms to control and coordinate department
without direct supervision from the top.
14
5
15
Formalization Stage
• The installation and use of rules, procedures, and control
systems.
• Establishing coordination and control systems enable the
organization to continue growing up.
• Standardize the administrative process and internal
systems.
• Too much red tape, the collection of forms and
procedures required to gain bureaucratic approval for
something, especially when oppressively complex and
time-consuming. Getting restricted, bureaucratized
(administrative policy-making group).
16
5
17
Elaboration Stage
• Developing skills for confronting problems and
working together because bureaucracy may
have reached its limit.
• Development of teamwork is essential.
• Inertia: resistance to motion, action, or
change.
• Need for revitalization.
18
Organization Characteristics During Four Stages of Life Cycle
©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
What is Bureaucracy?
• Weber defined bureaucracy as a threat to liberty
• Bureaucracy includes:
– Rules and standard procedures
– Clear tasks and specialization
– Hierarchy of authority
– Technical competence
• Bureaucracy is the most efficient system for organizing
• Bureaucratic organization: it was originally intended to have a
hierarchical or pyramidal structure to help achieve the most
rational and efficient operation at the lowest cost
20
©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Weber’s Dimensions of Bureaucracy and
Bases of Organizational Authority
21
©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
10 minutes break
22
Size and Structural Control
• Organization size influences structural design
and methods of control.
• The critical difference between large and small
organization in formalization, centralization,
and personnel ratios.
23
Size and Structural Control-Formalization
• refers to rules, procedures, and written
documentation, such as policy manuals and
job descriptions, prescribing the rights and
duties of employees
• Large firms are far more formalized.
• Top managers can use personal observation to
control a small organization.
24
Size and Structural Control-Centralization
• refers to the level of hierarchy with authority
to make decisions.
• Centralized one tend to make decisions at the
top level while decentralized one makes
decisions at the lower level.
• Human beings are bounded rationality.
25
Size and Structural ControlPersonnel Ratios
• The ratio for administrative (trained secretaries or
administrative assistants), clerical (entry-level workers), and
professional support staff.
• The ratio of top administration to total
employees is smaller in large firm.
• Clerical and and professional support tend to
increase in proportion to firm size.
26
Percentage of Personnel Allocated to
Administrative and Support Activities
©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Bureaucracy in a Changing World
• Bureaucracy worked for the industrial age
• Began around 1970. The replacement of hand tools with
power-driven machines, such as steam engines.
• Nowadays is post-industrial age, a period in the
development of an economy in which the relative
importance of manufacturing lessons of service,
information, and research grows.
• The system no longer works for today’s challenges, such as
low-cost, dynamic consumer’s expectation, and so forth.
• Organizations face new challenges and need to respond
quickly
28
©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Bureaucracy in a Changing World
• 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 are using temporary structures for
emergencies or crisis situations
• Temporary structure can be employed to aid the
construction of larger projects, but they might also be
end projects in themselves.
29
©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Approaches to Busting Bureaucracy
• Keep the firm structure flat, keeping headquarters staff
small, giving lower-level workers greeter freedom.
• Increasing professionalism of employees, referring to the
length of formal training and experience of employees.
• However, in Taiwan, firms tend to replace full-time
employees with temporary workers in order to save cost.
30
©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Three Organizational
Control Strategies-Bureaucratic
• The use of rules, policies, hierarchy of
authority, written documentation,
standardization, and other bureaucratic
mechanisms to standardize behavior and
assess performance.
31
Three Organizational
Control Strategies-Markets
• It occurs when price competition is used to evaluate
the output and productivity of an organization or its
major departments and divisions.
• Market control requires that outputs be sufficiently
explicit for a price to be assigned and that
competition exist.
• Without competition, the price does not accurately
reflect internal efficiency.
32
Three Organizational
Control Strategies-Clans
• The use of social characteristics, such as
shared values, commitment, traditions, and
beliefs, to control behavior.
• It is important when environmental ambiguity
and uncertainty are high.
33
Establishing high-performing
collaboration
• Davis, J.P., & Eisenhardt, K.M. 2011.
• Cooperative, inter-organizational
relationships which rely on neither market
nor hierarchical mechanisms of control to
ensure cooperation and coordination and,
instead, are negotiated in ongoing,
communicative processes” (Lotia & Hardy, 2008:
366).
• It can be viewed as professional
association (DiMaggio & Powell, 1983).
34
Establishing high-performing
collaboration
• High-performing collaboration involves
dynamic organizational processes associated
with partners’ leadership roles that solve
critical innovation problems related to
recombination across boundaries.
35
Establishing high-performing
collaboration
• Rather than dominant and consensus
leadership, rotating leadership processes can
associate with more innovation.
• altering decision control that accesses the
complementary capabilities of both partner
organization.
36
Establishing high-performing
collaboration
• Fluctuating network cascades that mobilize
different participants who bring variable
inputs to recombination.
• zig-zagging objectives that engender deep and
broad search for potential innovations.
37
38
Organizational Decline and Downsizing
The decrease of an organization’s resources over
time is caused by:
– Organizational recession
– Vulnerability
– Environmental decline or competition
Downsizing refers to intentionally reducing the size of a
company’s workforce
39
©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Stages of Decline and the Widening
Performance Gap
40
©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Stages of Decline and the Widening
Performance Gap
require the organization
to tighten up.
managers fail to adjust may face chaos, sharp changes,
the organization to the anger, jolts.
declining spiral
there is nothing you can do
better
Denial occurs despite signs of
deteriorating performance
41
©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Easing Downsizing Tension
1) Search for alternatives
2) Communicate more, not less
3) Provide assistance to displaced workers
4) Help the survivors thrive
Otherwise, downsizing may cause turnover rate of
survivors
42
©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Design Essentials
Organizations experience pressures to grow
Organizations evolve through stages of the life-cycle
Larger organizations usually adopt bureaucratic
characteristics
All organizations require systems for control
Many organizations experience decline
43
©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.