Organization size, life cycle and decline.ppt

Presentation chapter 8, Organization size, life cycle and declined

1. ©2001
South-Western College Publishing
Cincinnati, Ohio
Daft, Organizational Theory and Design, 7/e
8-1

2. 8-2
Chapter Nine
Organization Size,
Life Cycle, and Decline

3. ©2001
South-Western College Publishing
Cincinnati, Ohio
Daft, Organizational Theory and Design, 7/e
Purpose of This Chapter
•In this chapter, we explore the
question of large versus small
organizations and how size
relates to structure and control.
Organization size is a contextual
variable that influences
organization design and
functioning just as do the
contextual variables—
8-3

4. ©2001
South-Western College Publishing
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Daft, Organizational Theory and Design, 7/e
Purpose…… cont.,
•technology, environment, goals —
discussed in previous chapters.
•In the first section, we look at the
advantages of large versus small
size.
•Then, we explore what is called
an organization’s life cycle and the
structural characteristics at each
stage.
8-4

5. ©2001
South-Western College Publishing
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Daft, Organizational Theory and Design, 7/e
•Next, we examine the historical
need for bureaucracy as a means
to control large organizations and
compare bureaucratic control to
various other control strategies.
Finally, the chapter looks at the
causes of organizational decline
and discusses some methods for
dealing with downsizing.
8-5

6. ©2001
South-Western College Publishing
Cincinnati, Ohio
Daft, Organizational Theory and Design, 7/e
ORGANIZATION SIZE:
IS BIGGER BETTER?
•The question of big versus small
begins with the notion of growth
and the reasons so many
organizations feel the need to
grow large.
8-6

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Pressures for Growth
•Do you ever dream of starting a small
company?
•Many people do, and entrepreneurial
start-ups are the lifeblood of the U.S.
economy. Yet the hope of practically
every entrepreneur is to have his or
her company grow fast and grow
•large, maybe even to eventually make
the Fortune500 list.
8-7

8. ©2001
South-Western College Publishing
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Daft, Organizational Theory and Design, 7/e
•Sometimes this goal is more
urgent than to make the best
products or show the greatest
profits.
•Recent economic woes and
layoffs at many large firms have
spurred budding entrepreneurs to
take a chance on starting their
own company or going it alone in
a sole proprietorship.
8-8

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•Yetdespitetheproliferationofnew,
smallorganizations,thegiantssuch
asProcter&Gamble, General
Electric,Toyota,andWal-Marthave
continuedtogrow.
•Forexample,Wal-Mart’semployee
baseisalmostasbig
•asthepopulationofthecityof
Houston,Texas.
8-9

10. ©2001
South-Western College Publishing
Cincinnati, Ohio
Daft, Organizational Theory and Design, 7/e
•Companies in all industries, from
retail, to aerospace, 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.
8-10

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•There areanumber ofother
pressuresfororganizationstogrow.
Largesizeenablescompanies to
takerisksthatcouldruinsmaller
firms,andscaleiscrucialto
economichealthinsomeindustries.
Formarketing-intensivecompanies
suchasCoca-Cola,Procter&Gamble,
andAnheuser-Busch,greatersize
providespowerinthemarketplace
andthusincreasedrevenues.
•7
8-11

12. ©2001
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Daft, Organizational Theory and Design, 7/e
Dilemmas of Large Size
•Organizations feel compelled to
grow, but how much and how
large?
•What size organization is better
poised to compete in a fast-
changing global environment?
The arguments are summarized
in Exhibit 9.1.
8-12

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Daft, Organizational Theory and Design, 7/e
Large
8-13
Huge resources and economies of scale are
needed for many organizations to compete
globally. Only large organizations can build a
massive pipeline in Alaska.
Only a large corporation like General Electric
can afford to build ultra efficient $2 million
wind turbines that contain 8,000 different
parts.
9
Only a large Johnson & Johnson can invest
hundreds of millions in new products such as
bifocal contact lenses and a patch that delivers
contraceptives through the skin.

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Daft, Organizational Theory and Design, 7/e
Small.
•The competing argument says small is
beautiful because the crucial
requirements for success in a global
economy are responsiveness and
flexibility in fast-changing markets.
•Small scale can provide significant
advantages in terms of quick reaction to
changing customer needs or shifting
environmental
•and market conditions.
8-14

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Daft, Organizational Theory and Design, 7/e
•In addition, small organizations often
enjoy greater employee commitment
because it is easier for people to feel
like part of a community.
•Employees typically work on a variety
of tasks rather than narrow,
specialized jobs.
•For many people, working in a small
company is more exciting and fulfilling
than working in a huge organization.
8-15

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Daft, Organizational Theory and Design, 7/e
EXHIBIT 9.1
Differences between Large and Small
Organizations
8-16

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Daft, Organizational Theory and Design, 7/e
8-17
Differences Between Large
and Small Organizations
•LARGE
–Economies of
scale
–Global reach
–Vertical hierarchy
–Mechanistic
–Complex
–Stable market
–“Organization men”
•SMALL
–Responsive
–Flexible
–Regional reach
–Flat structure
–Organic
–Simple
–Niche finding
–Entrepreneurs
Source:Based on John A. Byrne,
“Is Your Company Too Big?”
Business Week, 27 March 1989, 84-94.

18. ©2001
South-Western College Publishing
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Daft, Organizational Theory and Design, 7/e
Big-Company/Small-
Company Hybrid
8-18
.Theparadoxisthattheadvantagesofsmall
companiessometimes enablethemtosucceed
and,hence,growlarge.
Smallcompanies canbecomevictimsoftheir
ownsuccess astheygrow,shiftingtoa
mechanistic structureemphasizing vertical
hierarchyandspawning “organizationmen”
ratherthanentrepreneurs.Giantcompaniesare
“builtforoptimization,notinnovation.”
Bigcompanies become committed totheir
existingproductsandtechnologiesand
haveahardtimesupportinginnovationforthe
future.

19. ©2001
South-Western College Publishing
Cincinnati, Ohio
Daft, Organizational Theory and Design, 7/e
ORGANIZATIONAL LIFE
CYCLE
8-19
Ausefulwaytothinkaboutorganizational
growthandchangeistheconceptofan
organizationallifecycle,
whichsuggeststhatorganizationsareborn,
growolder,andeventuallydie.
Organizationstructure,leadershipstyle,and
administrative systems follow afairly
predictablepatternthroughstagesinthelife
cycle.
Stagesaresequentialandfollowanatural
progression.

20. ©2001
South-Western College Publishing
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Daft, Organizational Theory and Design, 7/e
Stages of Life Cycle
Development
8-20
Researchonorganizationallifecyclesuggests
that four major stages characterize
organizationaldevelopment.
Exhibit9.3illustratesthesefourstagesalong
withtheproblemsassociatedwithtransitionto
eachstage.Growthisnoteasy.Eachtimean
organizationentersanewstageinthelife
cycle,itentersawholenewballgamewitha
newsetofrulesforhowtheorganization
functionsinternallyandhow
itrelatestotheexternalenvironment.

21. ©2001
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Daft, Organizational Theory and Design, 7/e
8-21
Fortechnologycompanies today,lifecycles
aregettingshorter;tostaycompetitive,
companies likeeBay,Google,andMySpace
havetosuccessfullyprogressthroughstages
ofthecyclefaster.

22. ©2001
South-Western College Publishing
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Daft, Organizational Theory and Design, 7/e
EXHIBIT 9.3
Organizational Life Cycle
8-22

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Daft, Organizational Theory and Design, 7/e
8-23
Organizational
Life Cycle
ORGANIZATION STAGES OF DEVELOPMENT
1.
Entrepreneurial
Stage
2.
Collectivity
Stage
3.
Formalization
Stage
4.
Elaboration
Stage
Crisis:
Need to deal
with too much
red tapeCrisis:
Need for
delegation
with control
Crisis:
Need for
leadership
Creativity
Provision of clear direction
Addition of internal systems
Development of teamwork
Crisis:
Need for
revitalization
Decline
Continued
maturity
Streamlining,
small-company
thinking
S
I
Z
E
Large
Small
Sources:Adapted from Robert E. Quinn and Kim Cameron, “Organizational
Life Cycles and Shifting Criteria of Effectiveness: Some Preliminary
Evidence,” Management Science29 (1983): 33-51; and Larry E. Greiner,
“Evolution and Revolution as Organizations Grow,” Harvard Business
Review50 (July-August 1972): 37-46.

24. ©2001
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Daft, Organizational Theory and Design, 7/e
Entrepreneurial stage
8-24
Whenanorganizationisborn,theemphasisis
oncreatingaproductorserviceandsurviving
inthemarketplace.
Thefoundersareentrepreneurs, andthey
devotetheirfullenergiestothetechnical
activitiesofproductionandmarketing.
The organization isinformal and non
bureaucratic.Thehoursofworkarelong.
Controlisbasedontheowners’personal
supervision.

25. ©2001
South-Western College Publishing
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Daft, Organizational Theory and Design, 7/e
Collectivity stage.
8-25
Iftheleadershipcrisisisresolved,strong
leadershipisobtainedandtheorganization
beginstodevelopcleargoalsanddirection.
Departments areestablished alongwitha
hierarchyofauthority,jobassignments,anda
beginningdivisionoflabor.Socialnetworking
company Facebook movedquicklyfromthe
entrepreneurialtothecollectivitystage.
Twenty-threeyear-oldfounderMarkZuckerberg
knowshiscompanyhasto“growupatInternet
speed,”soherecruitedatopGoogleexecutive,
SherylSandberg,toserveaschiefoperating
officer.

26. ©2001
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Daft, Organizational Theory and Design, 7/e
Formalization stage.
8-26
Theformalizationstageinvolvestheinstallation
anduse ofrules,procedures,andcontrol
systems.Communication islessfrequentand
moreformal.
Engineers,human resourcespecialists,and
otherstaffmaybeadded.Topmanagement
becomes concerned withissuessuchas
strategyandplanningandleavestheoperations
ofthefirmtomiddlemanagement .Product
groupsorotherdecentralizedunitsmaybe
formedtoimprovecoordination.
Incentivesystemsbasedonprofitsmaybe
implemented toensurethatmanagers work
towardwhatisbestfortheoverallcompany.

27. ©2001
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Elaboration stage
8-27
Thesolutiontotheredtapecrisisisanew
sense ofcollaboration and teamwork.
Throughout theorganization, managers
developskillsforconfrontingproblemsand
working together.Bureaucracy mayhave
reached itslimit.Socialcontrolandself-
disciplinereducetheneedforadditional
formalcontrols.
Managers learntowork within the
bureaucracy withoutaddingtoit.Formal
systemsmaybesimplifiedandreplacedby
managerteamsandtaskforces.

28. ©2001
South-Western College Publishing
Cincinnati, Ohio
Daft, Organizational Theory and Design, 7/e
8-28
Organization Characteristics
During Four Stages of Life Cycle
1.
Entrepreneurial
2.
Collectivity
3.
Formalization
4.
Elaboration
Characteristic Nonbureaucratic Prebureaucratic Bureaucratic Very Bureaucratic
Structure
Informal, one-
person show
Mostly informal,
some procedures
Formal procedures,
division of labor,
specialties added
Teamwork within
bureaucracy, small-
company thinking
Products or
services
Single product or
service
Major product or
service with
variations
Line of products or
services
Multiple product or
services lines
Reward and
control
systems
Personal,
paternalistic
Personal,
contribution to
success
Impersonal,
formalized systems
Extensive, tailored to
product and
department
Innovation
By owner-manager By employees and
managers
By separate
innovation group
By institutionalized
R&D
Goal
Survival Growth Internal stability,
market expansion
Reputation, complete
organization
Top
Management
Style
Individualistic,
entrepreneurial
Charismatic,
direction-giving
Delegation with
control
Team approach,
attack bureaucracy
Sources:Adapted from Larry E. Greiner, “Evolution and Revolution as Organizations Grow,”
Harvard Business Review50 (July-August 1972): 37-46; G. L. Lippitt and W. H. Schmidt,
“Crises in a Developing Organization,” Harvard Business Review 45 (November-December 1967):
102-12; B. R. Scott, “The Industrial State: Old Myths and New Realities,” Harvard Business
Review51 (March-April 1973): 133-48; Robert E. Quinn and Kim Cameron; “Organizational
Life Cycles and Shifting Criteria of Effectiveness,” Management Science29 (1983): 33-51.

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Daft, Organizational Theory and Design, 7/e
8-29
Weber’s Dimensions of
Bureaucracy and Bases of
Organizational Authority
•BUREAUCRACY
1.1. Rules and
procedures
2.Specialization and
division of labor
3.Hierarchy of
authority
4.Technically
qualified personnel
5.Separate position
and incumbent
6.Written
communications
and records
•LEGITIMATE
BASES OF
AUTHORITY
1.Rational-legal
2.Traditional
3.Charismatic

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Percentage of Personnel
Allocated to Administrative and
Support Activities
50
75
25
0
Organization Size
Small Large
Line employees
Top administrators
Clerical
Professional staff
Percentage
of
Employees

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8-31
Three Organizational
Control Strategies
TYPE
Bureaucratic
Market
Clan
REQUIREMENTS
Rules, standards, hierarchy,
legitimate authority
Prices, competition,
exchange relationship
Tradition, shared values and
beliefs, trust
Source: Based upon William G. Ouchi, “A Conceptual Framework
for the Design of Organizational Control Mechanisms,” Management
Science 25 (1979): 833-48.

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8-32
Management Control Systems
Used as Part of Bureaucratic
Control
Subsystem
Budget
Statistical
reports
Reward
systems
Operating
procedures
Content and Frequency
Financial, resource expenditures,
monthly
Non-financial outputs, weekly or
monthly, often computer-based
Annual evaluation of managers based
on department goals and
performance
Rules and regulations, policies that
prescribe correct behavior,
continuous
Source: Based on Richard L. Daft and Norman B. Macintosh,
“The Nature and Use of Formal Control Systems for Management
Control and Strategy Implementation,” Journal of Management
10 (1984): 43-66.

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8-33
Major Perspectives of
the Balanced Scorecard
Mission
Strategy
Goals
Internal Business Processes
Does the chain of internal activities and
processes add value for customers and
shareholders?
Examples of measures: order-rate
fulfillment, cost-per-order
Financial
Do actions contribute to improving
financial performance?
Examples of measures: profits,
return on investment
Learning and Growth
Are we learning and changing?
Examples of measures: continuous
process improvement, employee
retention, new product introductions
Customers
How well do we serve our customers?
Examples of measures: customer
satisfaction, customer loyalty
Sources: Based on Robert S. Kaplan and David P. Norton, “Using
The Balanced Scorecard as a Strategic Management System,”
Harvard Business Review, January-February 1996, 71-79;
Chee W. Chow, Kamal M. Haddad, and James E. Williamson,
“Applying the Balanced Scorecard to Small Companies,”
Management Accounting79, No. 2 (August 1997), 21-27; and
Cathy Lazere, “All Together Now,” CFO, February 1998, 28-36.

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Daft, Organizational Theory and Design, 7/e
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Evaluation of Control
On the Job
Workbook
Activity
1.
2.
3.
4.
Your job
responsibilities
How your
boss controls
Positives of
this control
Negatives of
this control
How you would
improve control

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Evaluation of Control
At the University
Workbook
Activity
1.
2.
3.
4.
Item
How Prof. A
(small class)
controls
How these
controls
influence you
What you think
is a better
control
How Prof. B
(large class)
controls