Organizational life cycle

Development

Comparisons between organisations and living organisms originated as early as 1890 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". Sixty years later, Kenneth Boulding presented the idea that organisations pass through a lifecycle similar to that of living organisms. Shortly after, Mason Haire was among the initial researchers who suggested that organisations may adhere to a certain path of uniformity in their course of expansion.

Subsequently, research has been done on the organizational life cycle for more than 120 years and can be found in various literature on organizations. 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. Review of the main organizational life cycle theories, with stages, main idea and authors is given in the table below.

Stages

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

• Stage 1: Existence : Commonly known as the birth or entrepreneurial stage, "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.
• Stage 2: Survival : At this stage, organizations look to pursue growth, establish a framework and develop their capabilities. There is a focus on regularly setting targets for the organization, with the main aim being to generate sufficient revenue for survival and expansion. 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.
• Stage 3: Maturity : This stage signifies the organization entering a more formal hierarchy of management (hierarchical organization). A frequent problem encountered at this stage would be those associated with "Red Tape". 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.
• Stage 4: Renewal : Organizations experience a renewal in their structure of management, from a hierarchical to a matrix style, which encourages creativity and flexibility.
• 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, 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.

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.

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

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. 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.

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. 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.

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. 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.

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. This eventually leads to a crisis of red tape, where many administrative obstacles reduce efficiency and innovation.

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.

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. 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.

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. 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.

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.

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. 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):

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).

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.

References

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