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Organizational life cycle

Topic: Organization

 From HandWiki - Reading time: 13 min

The organizational life cycle is the life cycle of an organization from its creation to its termination.[1] It also refers to the expected sequence of advancements experienced by an organization, as opposed to a randomized occurrence of events.[2] The relevance of a biological life cycle relating to the growth of an organization, was discovered by organizational researchers many years ago.[3] This was apparent as organizations had a distinct conception, periods of expansion[4] and eventually, termination.[5]

Development

Comparisons between organisations and living organisms originated as early as 1890[6] by the economist Alfred Marshall who compared firms with trees in the forest, using the metaphor: “But here we may read a lesson from the young trees of the forest as they struggle upwards through the benumbing shade of their older rivals”.[7] Sixty years later, Kenneth Boulding presented the idea that organisations pass through a lifecycle similar to that of living organisms.[8] Shortly after, Mason Haire was among the initial researchers[9] who suggested that organisations may adhere to a certain path of uniformity in their course of expansion.[10]

Subsequently, research has been done on the organizational life cycle for more than 120 years[6] and can be found in various literature on organizations.[11] Examples include the various stages in an organization's life cycle, phases of growth experienced by an organization during expansion and implications for these phases of growth.[12] Review of the main organizational life cycle theories, with stages, main idea and authors is given in the table below.

Review of the life cycle stages in organizational literature[6]
Life cycle stages Main idea Reference
Growth, competition, top position, stagnation, decline and (eventually) death Growing trees in the forest as the analogy for the firm. (Marshall, 1890)[7]
Birth, growth, decline, death Organisations follow the same lifecycle as living organisms. (Boulding, 1950)[8]
Born stage, growth - establishing of legitimacy, rapid growth -innovation and expansion, aging phase  formalisation and control Describes the dynamics of bureaucratic organisations. (Downs, 1967)[13]
Birth, youth-developing, stability and reputation, and maturity. Organisation goes through stages in the lifecycle, and thus the crises which occur in every organisation could be predicted according to the stage. (Lippitt and Schmitdt, 1967)[14]
Informal "one-man- show," formalized bureaucracy, and diversified conglomerate Organisational lifecycle is based on strategy and structure. (Scott, 1971)[15]
High-growth phase and low–growth (mature) phase Researched how dividends fit in the lifecycle followed by the empirical evidence on dividend policy as it relates to the lifecycle theory. Value-maximizing firm should maintain  a  zero pay-out  ratio  at the  initial stages and increase thepay-outs  to  100% upon  reaching  maturity. (Mueller,1972)[16]
Creativity, direction, delegation, coordination and collaboration stage The speed at which an organisation experiences phases of evolution and revolution is closely related to the market environment of its industry. Each phase is both an effect of the previous phase and a cause for the next phase. (Greiner, 1972)[17]
First stage of new agency, second stage of new agency Based on organisational functional problems and how they can be applied to the analysis of complex public organisations. Problems provide criteria for identifying the functional effects of the efforts of an organisation both internally and as they contribute to the goals of larger systems. (Lyden, 1975)[18]
Primitive system stage, stable organisation stage and elaborative supportive structure stage Organisational structures develops over timeframe of organisational growth. (Katz and Kahn, 1978)[19]
Courtship, infancy, go-go, adolescence, prime, stability, aristocracy, recrimination (early bureaucracy), bureaucracy and death. Comparison of lifecycle of a company to lifecycle of living organism, with the crucial exception -company does not have to die, it can be rejuvenated. Organisations go through the normal struggles and difficulties accompanying each stage.
Initiation, innovation and institutionalization. Features of the organisation that led to its success as an innovation in the short run were incompatible with requirements for survival in the longer run. These findings underscore the advantages of a biographical approach to organisational analysis. (Kimberly,1979)[20]
Entrepreneurial stage, collectively, formalization and elaboration of structure stage. Changes that occur in organisations follow a predictable pattern that can be characterized by developmental stages. The stages are sequential, and changes target:cognitive orientations of organisation members, organisational structures and environment relation. (Quinn and Cameron 1983)[21]
Existence, survival, success, take-off and resource maturity Small business growth depends on success factors as: business size, diversity, complexity, owner's management style and organisational goals. (Lewis and Churchill 1983)[22]
Birth, growth, maturity, revival and decline Each stage would manifest integral complementariness among variables of environment, strategy, structure and decision making methods; Organisation growth and increasing environmental complexity would cause each stage to exhibit certain significant differences from all other stages along these four classes of variables (Miller and Friesen 1984)[23]
Inception, survival, growth, expansion and maturity. Transition from one stage to the next requires change, it will be accompanied by some crisis or another. Proactivity of management can minimize those crisis. (Scott and Bruce, 1986)[24]
Growth, decline, death Focus on causes and consequences of growth and decline processes in organisations has focused on the role of environmental, structure al, and individual factors. (Whetten, 1987)[25]
Entrepreneurial Stage, Collectivity Stage, Control Stage, Elaboration of Structure-Decline Stage Focus is on two outcomes of formalization: administrative efficiency, and influence. Formalization (as efficiency) contribute to effectiveness early in an organisation's history. Later in the lifecycle, formalization (as influence) may contribute to organisational ineffectiveness and decline. (Walsh and Dewar, 1987)[26]
Conception, Investment, Incorporation, Investments, Incorporation, Experiments, Systematic production, Social network, Collaborative inquiry, Foundational community of inquiry, Liberating disciplines Analogous to E. Erikson's (1959) theory of individual development. The main idea is to provide a new perspective on the problems of creating new organisations, changing bureaucratic organisations, and envisioning qualitatively different kinds of organising. Final phase enables rebirth by awareness of and skills for resolving gaps between mission, strategy and outcomes. (Rooke & Torbert 1998;[27] Sherman & Torbert 2000;[28] Cacioppe and Edwards, 2005[29])
Existence, survival, success, renewal, decline Resembling general Miller and Friesen viewpoint and 5 stages model, and developed a scale to classify organisations, and examines relationships between organisational lifecycle, competitive strategy, and performance. (Lester, Parnell and Carraher, 2003)[30]
The absorptive capacities: ignorance, awareness, knowledge, implementation. The tipping points: Market entry, operational improvement, people management, obtaining finance, formal systems, strategy. As analogy to lifecycle stages they chose 6 tipping points with two dimensions (absorptive capacity and tipping point solutions) provide a framework within which to examine the growth needs of firms. Their reconceptualization of firm growth contrasts with the linear model described by the organismic metaphor and proposes that, over time, firms encounter tipping points which are the consequence of growth or of environmental changes. To navigate beyond the tipping point, the firm must have the capability to identify, acquire and apply new and requisite knowledge to resolve the new challenges and succeed in a competitive environment. (Phelps, Adams, and Bessant, 2007)[31]
Start-up, growth, maturity, and decline Follow the framework of the resource-based theory to explain relations between managers and firm's resources. They use and explain synthesis of existing lifecycle research (Sirmon, Hitt, Ireland&Gilbert, 2011)[32]
Introduction, Growth, Maturity, Saturation, Recession Synthesize earlier theoretical research in order to connect lifecycle with organisational structure management and transaction costs (Gurianova, Gurianov and Mechtcheriakova, 2014)[33]
Start-up phase, phases of expansion, maturity and subsequent diversification(or decline) Lifecycle is unique configuration of variables related to organisation context, strategy, and structure. The number and nature of the stages varies extensively. (Hanks, 2015)[34]
Inception, High growth, Maturity Author synthesize work of previous author to suggest usable model generic to all organisations (Tam and Gray, 2016)[35]

Stages

Generally, there are five stages to an organization's life cycle[3]

  • Stage 1: Existence : Commonly known as the birth[36] or entrepreneurial stage,[37] “existence” signifies the start of an organization's expansion. The main importance is centered around the acknowledgement of having an adequate number of customers to keep the organization or business active.[3]
  • Stage 2: Survival : At this stage, organizations look to pursue growth,[38] establish a framework and develop their capabilities.[37] There is a focus on regularly setting targets for the organization, with the main aim being to generate sufficient revenue for survival and expansion.[36] Some organizations enjoy adequate growth to be able to enter the next stage, whilst others are unsuccessful in achieving this and consequently fail to survive.[3]
  • Stage 3: Maturity : This stage signifies the organization entering a more formal hierarchy of management (hierarchical organization).[37] A frequent problem encountered at this stage would be those associated with “Red Tape”.[39] Organizations look to safeguard their growth as opposed to focusing on expansion. Top and middle-level management specialize in different tasks, such as planning and routine work respectively.[3]
  • Stage 4: Renewal : Organizations experience a renewal in their structure of management, from a hierarchical to a matrix style, which encourages creativity and flexibility.[3]
  • Stage 5: Decline : This stage initiates the death of an organization. The decline is identified by the focus on political agenda and authority within an organization,[4] whereby individuals start to become preoccupied with personal objectives, instead of focusing on the objectives of the organization itself. This slowly destroys the functionality and feasibility of the entire organization.[3]

Phases of growth

According to Larry Greiner, there are 5 phases of growth in an organization, each indicated by an evolutionary and subsequently, a revolutionary phase.[40]

An evolutionary phase, refers to an extended duration of expansion enjoyed by the organization with no significant disruptions. Similarly, a revolutionary phase refers to a period of considerable disturbance within an organization.[40]

Phase 1: creative expansion → leadership crisis

Creative expansion (evolutionary phase) leads to a leadership crisis (revolutionary phase). Initially, the organization enjoys expansion through the creativity and proactive nature of its founders.[41] However, this leads to a crisis of leadership, as a more structured form of management is required. The founding members must either assume this role, or empower a competent manager to fulfill this if they are unable to.[40]

Phase 2: directional expansion → autonomy crisis

Directional expansion (evolutionary phase) leads to a crisis of autonomy (revolutionary phase). As the organization experiences expansion through directive leadership, a more structured and functional management system is adopted.[37] However, this leads to a crisis of autonomy. Greater delegation of authority to managers of lower levels is required, although at the reluctance of top-tier managers who do not wish to have their authority diluted.[40]

Phase 3: expansion through delegation → control crisis

Expansion through delegation (evolutionary phase) leads to a crisis of control (revolutionary phase). As the organization expands from delegating more responsibilities to lower-level managers, top-tier directors start to lessen their involvement in the routine operations, reducing the communication between both levels.[3] This eventually leads to a crisis of control, as lower-level managers become accustomed to working without the intrusion of top-level directors. This leads to a conflict of interest with the directors, who feel that they are losing control of the expanded organization.[40]

Phase 4: expansion through coordination → red tape crisis

Expansion through coordination (evolutionary phase) leads to a crisis of red tape (revolutionary phase). As an organization expands from improving its coordination, such as through product group formation and authorized planning systems, a bureaucratic system develops.[3] This eventually leads to a crisis of red tape, where many administrative obstacles reduce efficiency and innovation.[40]

Phase 5: expansion through collaboration

At this stage, the organization seeks to overcome the barrier of red tape through adopting a more flexible and versatile matrix structure (matrix management). Educational courses are arranged for managers, to equip them with the skills of solving team disputes and to foster greater teamwork. Complex and formal systems are also made simpler, and there is an increased emphasis on the communication between managers, to solve crucial problems. Although Greiner identified expansion through collaboration as the evolutionary phase, he did not specifically identify the succeeding crisis (revolutionary phase), as there was little evidence due to most of the organizations still being in the collaboration phase. However, Greiner predicted that the crisis might involve the exhaustion of members in an organization, due to a strong requirement for innovation and teamwork.[40]

Implications for growth phases

There are certain implications for managers in organizations with regards to the phases of growth:

Recognizing one's position in the course of expansion

Top-tier managers should be aware of their organization's current stage, to be able to execute relevant solutions to the type of crisis faced.[42] Managers should also not be tempted to surpass their current phase due to eagerness. This is because there may be vital experiences from each phase to be learned, that will be required to tackle future phases.[40]

Recognizing the restricted variety of solutions

It becomes clear in each phase of revolution that there are only a specific number of solutions that can be applied.[40] Managers should avoid repeating solutions, as this will prevent the evolution of a new phase of growth. It is also important to note that evolution is not a mechanical event, and organizations must actively seek out new solutions to the current crisis that are also suitable for the next stage of growth.[43]

Recognizing that solutions result in crisis

Managers should realize that past actions are factors of future consequences. This would help managers in formulating solutions to cope with the crisis that develops in the future.[40]

Alternative model

While Greiner's model is conceptually attractive, the central problem is that it is not possible to operationalise or apply it to specific organizations in practical situations. This is because the five phases are conceptual and can not be measured. An alternative model has been proposed by Flamholtz.[44] This models identifies seven different stages of organizational growth and uses corporate revenues as the way to define when each stage occurs (begins and ends).

The Seven stages of growth of a company's life cycle can be identified (all revenues in US dollars):

I. New venture up to $1 million
II. Expansion $1 million to $10 million
III. Professionalization $10 million to $100 million
IV. Consolidation $100 million to $500 million
V. Diversification $500 million to $1 billion
VI. Integration over $1 billion
VII. Decline and revitalization varies

These ranges are based upon manufacturing firms. An adjustment is made for the revenues of service and distribution firms. Revenues of service firms are multiplied by a factor of 3 to be the equivalent of manufacturing firms, and Revenues of distribution firms are multiplied by a factor of 2 to be the equivalent of manufacturing firms. These adjustments are made to account for the difference in cost of goods sold by manufacturing firms vis a vis service and distribution firms. A further explanation can be found in Flamholtz and Randle (2016).[44]

Limitations

According to the organizational life cycle models, growth in size leads to business issues that firms can solve by adopting only one possible organizational configuration, following a deterministic organizational approach. Recently, scholars challenged this view and propose conceiving of organizational life cycle as an evolutionary process, which calls for a variety of equifinal organizational solutions.[45]

See also

  • Enterprise life cycle
  • Small Business
  • SME
  • Tuckman's stages of group development, a subdividing of the early phases of organizational life cycle

References

  1. ↑ Daft, Richard L; Murphy, Jonathan; Willmott, Hugh (2010). Organization theory and design. Cengage Learning EMEA. p. 356. ISBN 978-1-84480-990-5. 
  2. ↑ Bess, James L (1984). College and university organization: insights from the behavioral sciences. New York University Press. p. 43. ISBN 978-0-8147-1049-4. 
  3. ↑ 3.0 3.1 3.2 3.3 3.4 3.5 3.6 3.7 3.8 Lester, Donald L.; Parnell, John A.; Carraher, Shawn (April 2003). "Organizational life cycle: A five‐stage empirical scale". The International Journal of Organizational Analysis 11 (4): 339–354. doi:10.1108/eb028979. 
  4. ↑ 4.0 4.1 Mintzberg, Henry (April 1984). "Power and Organization Life Cycles". Academy of Management Review 9 (2): 207–224. doi:10.5465/AMR.1984.4277632. 
  5. ↑ Kimberly, John Robert; Miles, Robert H. (1980). The Organizational Life Cycle: Issues in the Creation, Transformation, and Decline of Organizations. Jossey-Bass Publishers. ISBN 978-0-87589-459-1. 
  6. ↑ 6.0 6.1 6.2 Adizes, Ichak Kalderon; Rodic, Dusanka; Cudanov, Mladen (21 September 2017). "Estimating consultant engagement in the corporate lifecycle: study of the bias in South Eastern Europe". Management: Journal of Sustainable Business and Management Solutions in Emerging Economies 22 (2): 1–12. doi:10.7595/management.fon.2017.0015. 
  7. ↑ 7.0 7.1 Marshall, Alfred (1890). Principles of political economy. New York: Maxmillan. [page needed]
  8. ↑ 8.0 8.1 Boulding, Kenneth (1950). A Reconstruction of Economics. New York, USA: Wiley & Sons. pp. 34. 
  9. ↑ Smith, Ken G.; Mitchell, Terence R.; Summer, Charles E. (December 1985). "Top Level Management Priorities in Different Stages of the Organizational Life Cycle". Academy of Management Journal 28 (4): 799–820. doi:10.5465/256238. 
  10. ↑ Haire, Mason; University of California, Berkeley (1959). Modern organization theory; a symposium.. Wiley. ISBN 978-0-8240-8208-6. OCLC 228833. https://archive.org/details/modernorganizati00foun. [page needed]
  11. ↑ Smith, Norman R.; Miner, John B. (October 1983). "Type of entrepreneur, type of firm, and managerial motivation: Implications for organizational life cycle theory". Strategic Management Journal 4 (4): 325–340. doi:10.1002/smj.4250040404. 
  12. ↑ Jawahar, I. M.; Mclaughlin, Gary L. (July 2001). "Toward a Descriptive Stakeholder Theory: an Organizational Life Cycle Approach". Academy of Management Review 26 (3): 397–414. doi:10.5465/AMR.2001.4845803. 
  13. ↑ Downs, A (1967). Inside bureaucracy. Boston. Little, Brown. pp. 264. 
  14. ↑ "Crises in a Developing Organization". Harvard Business Review. 1967-11-01. https://hbr.org/1967/11/crises-in-a-developing-organization. 
  15. ↑ Scott, Bruce R. (December 1970). "Stages of Corporate Development (Part I) - Background Note - Faculty & Research - Harvard Business School". Harvard Business School Background Note. https://www.hbs.edu/faculty/Pages/item.aspx?num=8453. 
  16. ↑ Mueller, Dennis C. (1972). "A Life Cycle Theory of the Firm". The Journal of Industrial Economics 20 (3): 199–219. doi:10.2307/2098055. 
  17. ↑ Greiner, Larry E. (1989). "Evolution and Revolution as Organizations Grow". Readings in Strategic Management. pp. 373–387. doi:10.1007/978-1-349-20317-8_25. ISBN 978-0-333-51809-0. 
  18. ↑ Lyden, Fremont James (1975). "Using Parsons' Functional Analysis in the Study of Public Organizations". Administrative Science Quarterly 20 (1): 59–70. doi:10.2307/2392123. 
  19. ↑ Katz, Daniel; Kahn, Robert Louis; Kahn, Robert L. (1978). The Social Psychology of Organizations. Wiley. ISBN 978-0-471-02355-5. [page needed]
  20. ↑ Kimberly, J. R. (1 September 1979). "Issues in the Creation of Organizations: Initiation, Innovation, and Institutionalization". Academy of Management Journal 22 (3): 437–457. doi:10.2307/255737. PMID 10248231. 
  21. ↑ Quinn, Robert E.; Cameron, Kim (January 1983). "Organizational Life Cycles and Shifting Criteria of Effectiveness: Some Preliminary Evidence". Management Science 29 (1): 33–51. doi:10.1287/mnsc.29.1.33. 
  22. ↑ "The Five Stages of Small Business Growth". Harvard Business Review. 1983-05-01. https://hbr.org/1983/05/the-five-stages-of-small-business-growth. 
  23. ↑ Miller, Danny; Friesen, Peter H. (October 1984). "A Longitudinal Study of the Corporate Life Cycle". Management Science 30 (10): 1161–1183. doi:10.1287/mnsc.30.10.1161. 
  24. ↑ Scott, Mel; Bruce, Richard (June 1987). "Five stages of growth in small business". Long Range Planning 20 (3): 45–52. doi:10.1016/0024-6301(87)90071-9. 
  25. ↑ Whetten, D A (August 1987). "Organizational Growth and Decline Processes". Annual Review of Sociology 13 (1): 335–358. doi:10.1146/annurev.so.13.080187.002003. 
  26. ↑ Walsh, James P.; Dewar, Robert D. (May 1987). "Formalization and the Organizational Life Cycle". Journal of Management Studies 24 (3): 215–231. doi:10.1111/j.1467-6486.1987.tb00700.x. 
  27. ↑ "Organizational transformation as a function of CEOs' developmental stage". Organizational Development Journal 16 (1). 1998. 
  28. ↑ Transforming Social Inquiry, Transforming Social Action. Outreach Scholarship. 4. 2000. doi:10.1007/978-1-4615-4403-6. ISBN 978-1-4613-6981-3. 
  29. ↑ Cacioppe, Ron; Edwards, Mark (March 2005). "Seeking the Holy Grail of organisational development: A synthesis of integral theory, spiral dynamics, corporate transformation and action inquiry". Leadership & Organization Development Journal 26 (2): 86–105. doi:10.1108/01437730510582536. 
  30. ↑ Lester, Donald L.; Parnell, John A.; Carraher, Shawn (April 2003). "Organizational life cycle: A five‐stage empirical scale". The International Journal of Organizational Analysis 11 (4): 339–354. doi:10.1108/eb028979. 
  31. ↑ Phelps, Robert; Adams, Richard; Bessant, John (March 2007). "Life cycles of growing organizations: A review with implications for knowledge and learning". International Journal of Management Reviews 9 (1): 1–30. doi:10.1111/j.1468-2370.2007.00200.x. 
  32. ↑ Sirmon, David G.; Hitt, Michael A.; Ireland, R. Duane; Gilbert, Brett Anitra (September 2011). "Resource Orchestration to Create Competitive Advantage: Breadth, Depth, and Life Cycle Effects". Journal of Management 37 (5): 1390–1412. doi:10.1177/0149206310385695. 
  33. ↑ A Gurianova, Elina; N Gurianov, Igor; A Mechtcheriakova, Svetlana (28 September 2014). "The Influence of Phase the Organizational Life Cycle on Organizational Structure Management and Transaction Costs". Asian Social Science 10 (20): 137. doi:10.5539/ass.v10n20p137. 
  34. ↑ Hanks, Steven H. (2 January 1990). "The Organization Life Cycle: Integrating Content and Process". Journal of Small Business Strategy 1 (1): 1–12. https://libjournals.mtsu.edu/index.php/jsbs/article/view/218. 
  35. ↑ Tam, Steven; Gray, David E (4 January 2016). "Organisational learning and the organisational life cycle: The differential aspects of an integrated relationship in SMEs". European Journal of Training and Development 40 (1): 2–20. doi:10.1108/ejtd-07-2015-0052. http://gala.gre.ac.uk/id/eprint/16331/3/16331%20GRAY_Organisational_Learning_2016.pdf. 
  36. ↑ 36.0 36.1 Lewis, Virginia L.; Churchill, Neil C. (1983). "The Five Stages of Small Business Growth". Harvard Business Review 61 (3): 30–50. 
  37. ↑ 37.0 37.1 37.2 37.3 Quinn, Robert E.; Cameron, Kim (January 1983). "Organizational Life Cycles and Shifting Criteria of Effectiveness: Some Preliminary Evidence". Management Science 29 (1): 33–51. doi:10.1287/mnsc.29.1.33. 
  38. ↑ Adizes, Ichak (June 1979). "Organizational passages—Diagnosing and treating lifecycle problems of organizations". Organizational Dynamics 8 (1): 3–25. doi:10.1016/0090-2616(79)90001-9. 
  39. ↑ Miller, Danny; Friesen, Peter H. (October 1984). "A Longitudinal Study of the Corporate Life Cycle". Management Science 30 (10): 1161–1183. doi:10.1287/mnsc.30.10.1161. 
  40. ↑ 40.0 40.1 40.2 40.3 40.4 40.5 40.6 40.7 40.8 40.9 Greiner, Larry E (1972). "Evolution and revolution as organizations grow". Harvard Business Review 50 (4): 37–46. OCLC 785209579. 
  41. ↑ Bedeian, Arthur G. (November 1990). "Choice and determinism: A comment". Strategic Management Journal 11 (7): 571–573. doi:10.1002/smj.4250110707. 
  42. ↑ Cameron, Kim S.; Whetten, David A. (1981). "Perceptions of Organizational Effectiveness Over Organizational Life Cycles". Administrative Science Quarterly 26 (4): 525–544. doi:10.2307/2392338. 
  43. ↑ Lyden, Fremont James (1975). "Using Parsons' Functional Analysis in the Study of Public Organizations". Administrative Science Quarterly 20 (1): 59–70. doi:10.2307/2392123. 
  44. ↑ 44.0 44.1 Flamholtz, Eric G.; Randle, Y. (2007). Successful Organizational Development and Growing Pains. http://www.anderson.ucla.edu/Documents/areas/fac/hrob/org_dev_growing_pains.pdf. 
  45. ↑ Mosca, Luigi; Gianecchini, Martina; Campagnolo, Diego (March 2021). "Organizational life cycle models: a design perspective". Journal of Organization Design 10 (1): 3–18. doi:10.1186/s41469-021-00090-7. 

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