Ch.9 - Organization Size, Life Cycle, and Decline

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3 Apr 2012

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Chapter 9: Organization Size, Life Cycle, and Decline
Organization Size: Is Bigger Better?
Pressures for Growth
Organizational size is a contextual variable, and it influences design and functioning
Organizations often experience pressures for growth, even at the expense at making the best products
and showing the greatest products
Today, the business world has entered an era of the mega-corporation
Companies in all industries, from aerospace to consumer products to media, strive for growth to
acquire the size and resources needed to compete on a global scale, to invest in new technology, and to
control distribution channels and guarantee access to markets
Other pressures include that many execs have found that firms must grow to stay economically
healthy, and to stop growing is stagnant
oTo be stable means that customers may not have their demands fully met or that
competitors will increase market share at the expense of your company
oWal-mart, for example, keeps growing because execs have “inferiority complex and are
ingrained with the idea that to stop growing is to stagnate and die
Dilemmas of Large Size
Large Organizations
oEconomies of Scale: Huge resources and economies are scale are needed, as only large
company could build a massive pipeline in Alaska, for example
oGlobal Reach: Have the resources to be a supportive economic and social force in difficult
times. Wal-Mart gave employees $1000 for emergency assistance when Katrina hit, for
oVertical Hierarchy, Mechanistic: standardized
oComplex: offers hundreds of functional specialties within the organization
oStable Markets: companies can have a presence that stabilizes a market for years if they’re well
o“Organization Men”: The organization can provide longevity, raises, and promotions
Small Organizations
oResponsive, Flexible: These are the crucial requirements for success in a global economy
oRegional Reach: Quick reaction to changing customer needs or shifiting environmental and
market conditions
oFlat Structure, Organic: They have a free-flowing management syle that encourages
entrepreneurship and innovation
oSimple: Smaller amount of people, less resources, less departments, etc.
oNiche Finding: Done through encouraging innovation
oEntrepreneurs: Come up with ideas for new small businesses
Big-Company/Small-Company Hybrid
oThe paradox is that the advantages of small companies sometimes enable them to succeed, and
hence, grow large
oMost of the 100 firms on Fortune magazine’s list of the fastest-growing companies in America
are small firms characterized by an emphasis on being fast and flexible in responding to the
oSmall companies can become victims of their own success as they grow large, shifting to a
mechanistic structure emphasizing vertical hierarchies
oGiant companies are “built for optimization, not innovation”
oThe “big-company/small-company hybrid” combines a large corporation’s resources and reach
with a small companies simplicity and flexibility, for instance, by using a divisional structure
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Organizational Life Cycle
A perspective on organizational growth and change that suggests that organizations are born, grow
older, and eventually die
Stages of Life Cycle Development
1. Entrepreneurial Stage
Emphasis is on creating a product or service and surviving in the marketplace
The founders are entrepreneurs and they devote their full energies to the technical activities of
production and marketing
Organization is informal and nonbureaucratic
Control is based on owners’ personal supervision
Growth is from a creative new product or service
Crisis: Need for Leadership
Must adjust structure to accommodate growth or bring in strong managers who can
focus on management issues
Many businesses fail because they are unsuccessful at the transition out of this stage
2. Collectivity Stage
Strong leadership is obtained and the organization begins to develop clear goals and direction
Departments are established along with a hierarchy of authority, job assignments, and a
beginning division of labour
Communication and control are still relatively informal but formal systems begin appearing
Crisis: Need for Delegation
Lower-level employees gradually find themselves restricted by the strong top-down
Lower-level managers begin to acquire confidence in their own functional areas and
want more discretion
An autonomy crisis occurs when top managers, who were successful because of their
strong leadership and vision, do not want to give up responsibility
3. Formalization Stage
Involves the installation and use of rules, procedures, and control systems
Communication is less frequent and more formal
Engineers, HR specialists, and other staff may be added
Top management becomes concerned with issues such as strategy and planning and leaves the
operations of the firm to middle management
Product groups or other decentralized units may be formed to improve coordination
Crisis: Too Much Red Tape
Organization seems bureaucratized and innovation is restricted
Need to eliminate unnecessary red tape
4. Elaboration Stage
The solution to the red tape crisis is a new sense of collaboration and teamwork
Managers develop skills for confronting problems and working together
Bureaucracy may have reached its limit, and social control and self-discipline reduce the need
for additional formal controls
Formal systems may be simplified and replaced by manager teams and task forces
Teams are often formed across functions or divioions
For example, Apple Computer is in this stage
Crisis: Need for Revitalization
May enter periods of temporary decline
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