Organizational Life Cycles, Size, and Decline

BA 152

Industry Life Cycles

 Industry Evolution – – Entry strategies  First movers  Followers Survival strategies  Specialist  Generalist

Entry Strategies

 Entering the market early – Pick of environmental resources – Rapid growth – Better chances of survival

Entry Strategies

 Entering the market later – Reduces operational uncertainty – Correct way to compete is apparent – Lower R&D investment – Survival as the more efficient producer

Survival Strategies



Specialists

 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

 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

 Stages of Life Cycle Development – Pre-Birth Stage  first idea  commitment and early planning  implementation – Entrepreneurial Stage – Collectivity Stage – Formalization Stage – Elaboration Stage

Organizational Characteristics During the Life Cycle  ENTREPRENEURIAL STAGE: – Personal control systems – Innovation by owner/manager – Goal: Survival – Management style: Entrepreneurial – Crisis: Lack of/Need for leadership

Organizational Characteristics During the Life Cycle  COLLECTIVITY STAGE: – Personal rewards aimed at individuals who contribute to organizational success – Innovation from employees and managers – Goal: Growth – Management style: Charismatic, directive – Crisis: Lack of/need for delegation

Organization Growth: Is Bigger Better?

 Pressures for Growth – 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 publicly traded 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?

 Market Cap?

 Employees?

 Profits?

 Market share?

 Revenues?

 The wrong choice can lead to seriously negative consequences.

Organizational Characteristics During the Life Cycle  FORMALIZATION STAGE: – Impersonal rewards through formalized systems – Innovation from separate innovative groups – Goal: Internal stability/market expansion – Management style: Delegation with control –

Crisis: Too much red tape

Organizational Characteristics During the Life Cycle  ELABORATION STAGE: – Extensive rewards tailored to product and department success – Innovation by institutionalized R & D – Goal: Image/reputation-building – Management style: Team approach –

Crisis: Lack of/need for revitalization

Organization Life Cycle

Large Streamlining Development of Teamwork Continued maturity Creativity Addition of Internal Systems Provision of Clear Direction Crisis: Need for delegation with control Crisis: Too much red tape Decline Crisis: Need for revitalization Small Crisis: Need for Leadership Entrepreneurial Collectivity Formalization Elaboration ?????????

Organizational Decline and Downsizing: The Causes  Organizational Atrophy – Loss of ability to respond to changing environment – Inefficient, bureaucratic, fat, and happy  Organizational Vulnerability – – – Loss of resources Loss of market share Loss of legitimacy  Environmental decline – – 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

 Implementation approaches must be a function of the severity and speed of decline.

 Implementation issues to consider – – – – Consider voluntary programs with incentives (but be careful - who might leave?) Over communicate surprise.” “The best surprise is no Allow employees to leave with dignity Assist those leaving – – Use ceremonies to reduce anger/confusion Remember those who stay!

Next Time

Sunflower, Inc.