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Lecture 12

BU398 Lecture 12: Chapter-8

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Jennifer Komar

Chapter 8 – Organization size, Life cycle, and Decline Organization Size: is Bigger Better? Difference between large and small organization • Large – economies of scale, global reach, vertical hierarchy, mechanistic, complex, stable market, employee longevity, raises and promotions • Small – responsive, flexible, regional reach, flat structure, organic, simple, niche finding, entrepreneurs • Big-organization/small-organization hybrid – reorganizing into groups of small companies, from one big corporation, e.g. when a new product is created, a new company is created along with it, this way it can capture the advantages of each Organizational Life Cycle Stages of Life-Cycle Development • 1.) Entrepreneurial stage – start-up of an organization, the emphasis is on creating a product and surviving in the marketplace o Crisis: Need for leadership, as the organization grows, it will start having problems with management issues, and will need to do something about it or hire someone for it • 2.) Collectivity Stage – organization grows and develops a more elaborate design, starts to develop clear goals and direction, departments are established with hierarchy of authority, job assignment, and division of labour o Crisis: Need for delegation with control, need to find a way to control and coordinate departments without direct supervision from the top, lower level managers begin to have confidence in their own area and want more discretion • 3.) Formalization Stage – installation and use of rules, procedures, and control systems, top management becomes concerned with issues such as strategy and planning and leave the operations to the middle management o Crisis: Need to deal with too much red tape, when the middle management starts having too much things to deal with and does not want intrusion from hiring people to help them, the organization is getting bigger and complex for it to be managed through formal programs • 4.) Elaboration Stage – organization becomes more flexible, organization may be split into multiple division to maintain a small company philosophy, everyone starts working together and managers are developing skills to confronting problems, they learn to work within the bureaucracy without adding to it o Crisis: Need for revitalization, after organization reaches maturity, it may enter periods of temporary decline, the organization could shift out of alignment with the environment and become slow moving, organization must go through a stage of streamlining and innovation, top managers are often replaced • Summary – organizations that do not successfully resolve the problems associated with these transitions are restricted to growth and may even fail Organizational Characteristics during the Life Cycle • 1.) Entrepreneurial – informal, focusing on single product, goal is to survive, management style is individualistic, non-bureaucratic, innovation achieved by owner • 2.) Collectivity – mostly informal but with some procedures, major product with variations, goal is growth, management style is direction giving, pre-bureaucratic, innovation achieved by employees and managers • 3.) Formalization – formal procedures and division of labour and new specialties added, line of products, goal is internal stability and market expansion, management style is delegation with control, bureaucratic, innovation achieved by separate innovation group • 4.) Elaboration – teamwork within bureaucracy and small company thinking to prevent further bureaucratization, multiple product lines, goal is reputation and complete organization, management style is team approach and attack bureaucracy, very bureaucratic, innovation achieved by R&D department Organizational Bureaucracy and Control 6 Characteristics found in successful bureaucratic organizations • Rules and procedures – enables organizational activities to be performed in a predictable and routine manner • Specialization and division of labour – each employee has a clear task to perform • Hierarchy of authority – provides sensible mechanism for supervision and control • Technically qualified personnel – technical competence was the basis by which people were hired, rather than friendship or family ties • Separate position from position holder – individuals did not own or have an inherent right to the job, which promoted efficiency • Written communication and records – provides an organizational memory and continuity over time Size and Structural Control between Big and Small Organization • Formalization and centralization o Formalization - large organizations are more formalized with rules and procedures, they rely on rules and procedures and paper work to achieve standardization and control across their large number of employees and departments o Centralization – refers to level of hierarchy with authority to make decisions, larger organization permit greater decentralization instead or else top senior managers would be overloaded • Personnel Ratios o Administrative ratio – top administration to total employees is smaller in a large organization o Clerical ratio – they increase as organization size increase, because greater communication and reporting requirements needed as organization grow larger o Professional staff ratio – increase as organization size increase, because the greater need for specialized skills in larger, complex organization How to Reduce Bureaucracy • Organizing Temporary Systems for Flexibility and Innovation o Incident command system (ICS) – used by police and fire departments, where it has to respond rapidly to emergency or crisis situations, helps organization glide smoothly between a highly formalized hierarchical structure to a more flexible loosely structure when needed in a unexpected and demanding environmental condition ▪ Incident commander – responsible for all activities that occurs, and everyone knows clearly
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