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
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Very complex
Global reach
Vertical hierarchy (Mechanistic)
Employees longevity, raises and
promotions
• Stable market
• Economies of scale
Simple
Regional Reach
Flat structure (Organic)
Entrepreneurs
Niche finding
Responsive and flexible
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
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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 of
authority
Technically
qualified
personnel
Specialization
and division of
labour
Rules and
procedures
Separate
position from
position holder
Bureaucracy
Written
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
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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
Non-bureaucratic
Collectivity
Bureaucratic
Formalization
Bureaucratic
Elaboration
Very Bureaucratic
Structure
Informal, One
person show
Mostly Informal,
some procedures
Formal procedures,
division of labor, new
specialties added
Teamwork within
bureaucracy, small
company thinking
Products or Services
Single product or
service
Major product or
service, with
variations
Line of products or
services
Multiple product or
service lines
Reward and control
systems
Personal,
paternalistic
Personal,
contribution to
success
Impersonal, formalized
system
Extensive, tailored to
product and
department
Innovation
By owner-manager
By employees and
managers
By separate innovation
group
By institutionalized
R&D department
Goal
Survival
Growth
Internal stability,
market expansion
Reputation, complete
organization
Top management
Style
Individualistic,
entrepreneurial
Charismatic,
direction-giving
Delegation with control
Team approach,
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
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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
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Organization Size
Bureaucracy
Lifecycle
Decline of an organization