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Ch09 Organization Size, Life Cycle, and Decline.doc

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Wilfrid Laurier University
Joel Marcus

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 o To 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 o Wal-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 o Economies of Scale: Huge resources and economies are scale are needed, as only large company could build a massive pipeline in Alaska, for example o Global 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 example o Vertical Hierarchy, Mechanistic: standardized o Complex: offers hundreds of functional specialties within the organization o Stable Markets: companies can have a presence that stabilizes a market for years if they’re well established o “Organization Men”: The organization can provide longevity, raises, and promotions • Small Organizations o Responsive, Flexible: These are the crucial requirements for success in a global economy o Regional Reach: Quick reaction to changing customer needs or shifiting environmental and market conditions o Flat Structure, Organic: They have a free-flowing management syle that encourages entrepreneurship and innovation o Simple: Smaller amount of people, less resources, less departments, etc. o Niche Finding: Done through encouraging innovation o Entrepreneurs: Come up with ideas for new small businesses • Big-Company/Small-Company Hybrid o The paradox is that the advantages of small companies sometimes enable them to succeed, and hence, grow large o Most 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 environment o Small companies can become victims of their own success as they grow large, shifting to a mechanistic structure emphasizing vertical hierarchies o Giant companies are “built for optimization, not innovation” o The “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 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 leadership  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  A renewal may need to occur every 10 to 20 years  Organization could shift out of alignment with the environment  Becomes inflexible  Often replace top managers • Diagram of Life Cycle: Organizational Characteristics during the Life Cycle Organizational Bureaucracy and Control What Is Bureaucracy? • Weber perceives it as a threat to basic personal liberties, but recognizes it as the most efficient possible way of organizing and notes that it focuses on rational ways of control • 6 Characteristics of Bureaucracy Identified by Weber o Rules and procedures  Enable activities to be performed in a routine/predictable manner o Specialization and Division of Labour  Each employee has a clear task o Hierarchy of Authority  Allows supervision and control o Technically qualified personnel  Hire employees based on expertise, rather than nepotism, etc. o Separation of position and incumbent  Individuals did not “own” job o Written communications and records  Provide organizational memory and continuity Size and Structural Control • Formalization o The degree to which an organization has rules, procedures, and written documents o Tends to be higher in large organizations • Centralization o The level of hierarchy with authority to make decisions o Decisions tend to me made at the top • Personnel ratios o The proportions of admin, clerical, and professional support staff o Number of top administrators tend to decrease with size, as economies of scale are realized o Clerical staff tends to increase as organizations grow in order to deal with greater communication and reporting requirements o Professional staff tends to increase to meet the need for specialized skills • Percentage of Personnel Allocated to Admin and Support Activities Bureaucracy in a Changing World Advantages of Bureaucracy • Provides an effective way to bring order to large groups of people and preven
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