Organizational Life Cycles,
Size, and Decline
BA 152
Industry Life Cycles
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Industry Evolution
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Entry strategies
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First movers
Followers
Survival strategies
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Specialist
Generalist
Entry Strategies
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Entering the market early
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Pick of environmental resources
Rapid growth
Better chances of survival
Entry Strategies
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Entering the market later
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Reduces operational uncertainty
Correct way to compete is apparent
Lower R&D investment
Survival as the more efficient producer
Survival Strategies
 Specialists
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Concentrate skills in a single niche
Develop core competencies
Can provide better customer service
and superior products, but
Trouble if the niche disappears or others enter.
 Generalists
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Spread skills across many niches
Providing greater brand recognition
Can succeed when environment is uncertain,
If risk is spread across a number of niches
Organizational Life Cycle
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Stages of Life Cycle Development
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Pre-Birth Stage
 first
idea
 commitment and early planning
 implementation
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Entrepreneurial Stage
Collectivity Stage
Formalization Stage
Elaboration Stage
Organizational Characteristics
During the Life Cycle
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ENTREPRENEURIAL STAGE:
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Personal control systems
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Innovation by owner/manager
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Goal: Survival
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Management style: Entrepreneurial
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Crisis: Lack of/Need for leadership
Organizational Characteristics
During the Life Cycle
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COLLECTIVITY STAGE:
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Personal rewards aimed at individuals who
contribute to organizational success
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Innovation from employees and managers
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Goal: Growth
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Management style: Charismatic, directive
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Crisis: Lack of/need for delegation
Organization Growth:
Is Bigger Better?
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Pressures for Growth
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Organization goals
Economies of scale
Executive advancement
Economic health
Size and Structural
Characteristics
As Organizations get bigger:
• Complexity increases
• Centralization decreases
• Formalization increases
• Flexibility decreases
Large Vs. Small: How can you
be both?
Structural reorganization (split up)
 Smaller headquarters staff (decentralize)
 Subsidiaries/spin-offs that can act small
 Skunkworks to develop new products
 Support intrapreneurship within the firm

Bigger may not be better!
 Growth is difficult to maintain.
 A $100K company has to generate $10K to
grow by 10%.
 A $100B company has to generate $10B to
grow by the same 10%
 In the 1990s, what percentage of publiclytraded firms increased their revenues and
profit by an average of 10% a year?
 Growth can stretch a firm too thin.
 A 20% growth rate per year means a firm
doubles in size in less than four years.
Bigger may not be better!
 What determines a firm’s size?
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Market Cap?
Employees?
Profits?
Market share?
Revenues?
 The wrong choice can lead to seriously
negative consequences.
Organizational Characteristics
During the Life Cycle
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FORMALIZATION STAGE:
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Impersonal rewards through formalized
systems
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Innovation from separate innovative groups
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Goal: Internal stability/market expansion
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Management style: Delegation with control
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Crisis: Too much red tape
Organizational Characteristics
During the Life Cycle
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ELABORATION STAGE:
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Extensive rewards tailored to product and
department success
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Innovation by institutionalized R & D
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Goal: Image/reputation-building
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Management style: Team approach
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Crisis: Lack of/need for revitalization
Organization Life Cycle
Large
Streamlining
Development of Teamwork
Size
Continued
maturity
Addition of
Internal Systems
Provision of
Clear Direction
Crisis: Too
much
red tape
Creativity
Crisis: Need for
delegation
with control
Small
Decline
Crisis: Need for
revitalization
Crisis: Need for Leadership
Entrepreneurial Collectivity Formalization Elaboration
?????????
Organizational Decline and
Downsizing: The Causes
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Organizational Atrophy
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Organizational Vulnerability
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Loss of ability to respond to changing environment
Inefficient, bureaucratic, fat, and happy
Loss of resources
Loss of market share
Loss of legitimacy
Environmental decline
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Stagnating economy
Flat/shrinking market
Increased competition
Stages of Decline
Successful Organizational Performance
Good
Information
Acknowledge
Decline
Major
Changes
Reorganization
No choices
Blinded
Inaction
Faulty Action
Crisis
Dissolution
Managing the Downsizing
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Implementation approaches must be a
function of the severity and speed of decline.
Implementation issues to consider
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Consider voluntary programs with incentives (but
be careful - who might leave?)
Over communicate - “The best surprise is no
surprise.”
Allow employees to leave with dignity
Assist those leaving
Use ceremonies to reduce anger/confusion
Remember those who stay!
Next Time
Sunflower, Inc.