organisational transformations - week 9
TRANSCRIPT
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1. Appreciate the problems involved in surviving the perils of
organizational birth and what founders can do to help theirnew organizations to survive2. Describe the typical problems that arise as an organization
grows and matures, and how an organization must change ifit is to survive and prosper
3. Discuss why organizational decline occurs, identify the stagesof decline, and how managers can change their organizationsto prevent failure and eventual death or dissolution
Week 9 Organizational Transformations: Birth, Growth, Decline, and Death
Learning Objectives
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Summary
1. Appreciate the population ecology model2. Understand of life cycle in order to survive and prosper3. Examine Organisation growth model4. Examine Organizational Decline model
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The Organizational Life Cycle Organizational life cycle: a
predictable sequence of stages ofgrowth and change
The four principal stages of theorganizational life cycle:
Birth
Growth
Decline
Death
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Figure 11.1: A Model of the Organizational Life Cycle
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Organizational Birth
Organizational birth: the foundingof an organization
Occurs when entrepreneurs take advantageof opportunities to use their skills andcompetences to create value
A dangerous life cycle stage associated with
the greatest chance of failure
Liability of newness: the dangers associatedwith being the first in a new environment
A new organization is fragile because it lacks aformal structure
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Developing a plan for a new business
Begins when an entrepreneur notices an opportunityto develop a new or improved product or service
Tests the feasibility of the new product idea SWOT analysis
Examine the strengths and weaknesses of the idea
Decide whether the new product idea is feasible
Plan should include:
Statement of the organizations mission, goals, andfinancial objectives
Statement of the organizations strategic objectives List of all the functional and organizational
resources required to implement the idea
Timeline that contains specific milestones used tomeasure the progress of the venture
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Developing a plan for a new business(cont.)
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A Population Ecology Modelof Organizational Birth Population ecology theory: a
theory that seeks to explain the factorsthat affect the rate at which neworganizations are born (and die) in apopulation of existing organizations
Population of organizations: theorganizations that are competing for the
same set of resources in the environment Environmental niches: particular sets
of resources or skills
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Number of births determined by the availability ofresources
Population density: the number of organizations that
can compete for the same resources in a particularenvironment
Factors that produce a rapid birthrate
Availability of knowledge and skills to generate similar neworganizations
New organizations that survive provide role models and conferlegitimacy
As the environment is populated with a number ofsuccessful organizations, birthrate tapers offbecause:
Fewer resources are available for newcomers
First-mover advantages: benefits derived from being an earlyentrant into a new environment
Difficulty of competing with existing companies
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Figure 11.2: Organizational Birthrates Over Time
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Survival strategies
Strategies that organizations can use to gainaccess to resources and enhance their chances of
survival in the environment
r-strategy versus K-strategy
r-strategy: a strategy of entering a new environmentearly
K-strategy: a strategy of entering an environmentlate, after other organizations have tested theenvironment
Specialists: organizations that concentrate theirskills to pursue a narrow range of resources in asingle niche
Generalists: organizations that spread their skills
thin to compete for a broad range of resources inmany niches
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Survival strategies (cont.)
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Figure 11.3: Strategies for Competing in theResource Environment
P f t l l ti
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Process of natural selection Two sets of strategies result in: r-Specialist, r-Generalist, K-
Specialist, K-Generalist Early in an environment, new organizations are likely to become r-
Specialists Move quickly to focus on serving the needs of a particular group
As r-Specialists grow, they often become generalists andcompete in new niches
K-Generalists often move into the market and threaten the weaker r-
Specialists Eventually, the market is dominated by the strongest r-Specialists, r-
Generalists, and K-Generalists
Natural selection: the process that ensures the survival of
organizations that have the skills and abilities that best fit withthe environment
Over time, weaker organizations die because they cannot adapt theirprocedures to fit changes in the environment
Natural selection is a competitive process
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h i i l h f
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The Institutional Theory ofOrganizational Growth
Organizational growth: the life-cyclestage in which organizations develop value-creation skills and competences that allowthem to acquire additional resources
Organizations can develop competitiveadvantages by increasing division of labor
Creates surplus resources that foster greatergrowth
Growth should not be an end-in-itself
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Institutional theory: a theory that studieshow organizations can increase their ability
to grow and survive in a competitiveenvironment by becoming legitimate in theeyes of their stakeholders
Institutional environment: values andnorms in an environment that govern thebehavior of a population of organizations
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Coercive isomorphism: exists when anorganization adopts certain norms because ofpressures exerted by other organizations and bysociety in general
Increasing dependence of one organization on anotherleads to greater similarity
Mimetic isomorphism: exists when organizationsintentionally imitate one another to increase theirlegitimacy
Environmental uncertainty increases the likelihood ofimitation
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Normative isomorphism: exists when
organizations indirectly adopt the norms andvalues of other organizations in theenvironment
Organizations acquire norms and values when: Employees move from one organization to another and
bring with them the norms and values of their formeremployer
They participate in the activities of industry, trade, and
professional associations
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Disadvantages of isomorphism
Organizations may learn ways to behave thathave become outdated and no longer lead toorganizational effectiveness
Pressure to imitate may reduce the level ofinnovation in the environment
G i M d l f
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Greiners Model ofOrganizational Growth
Greiner proposes 5 sequential growthstages Each stage results in a crisis
Advancement to the next stage requires
successfully resolving the crisis in the previousstage
Stage 1: Growth through creativity
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Stage 1: Growth through creativity
Entrepreneurs develop the skills to create and introduce new products
Organizational learning occurs
Crisis of leadership entrepreneurs may lack management skills
Stage 2: Growth through direction
Crisis of leadership results in recruitment of top-level managers who takeresponsibility for the organizations strategy
Crisis of autonomy
Creative people lose control over new product development Professional managers run the show
Decision making becomes centralized
Stage 3: Growth through delegation
To solve the crisis of autonomy, managers must delegate Strike a balance between the need for professional management and the
opportunity for entrepreneurship
Movement toward product team structure
Crisis of control as power struggles over resources emerge between top-
level and lower-level managers
Stage 4: Growth through coordination
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Stage 4: Growth through coordination
To resolve crisis of control, managers must find right balance of centralizedand decentralized control
Top management takes on role of coordinating different divisions
Crisis of red tape
Increasing reliance on rules and standard procedures Organization becomes overly bureaucratic and stifles entrepreneurship
Stage 5: Growth through collaboration
Emphasizes greater spontaneity in management action
Social control and self-discipline take over formal control
Greater use of product team and matrix structures
Collaboration makes an organization more organic which can be a difficulttask
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Figure 11 4: Greiners Model of
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Figure 11-4: Greiner s Model ofOrganizational Growth
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Organizational Decline and Death
Organizational decline: the life-cycle stage that an organization enterswhen it fails to anticipate, recognize,avoid, neutralize, or adapt to externalor internal pressures that threaten itslong-term survival
May occur because organizations grow
too much
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Effectiveness and profitabilityAssessing an organizations effectiveness involves
comparing its profitability relative to others
Profitability: measures how well a company ismaking use of its resources by investing themin ways to create goods and services thatgenerate profit when sold Short-term profits say little about how well
managers are using resources to generate futureprofits
Figure 11 5: The Relationship Between Organizational
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Figure 11.5: The Relationship Between OrganizationalSize and Organizational Effectiveness
Organizational inertia: the forces inside an organization that
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Organizational inertia: the forces inside an organization thatmake it resistant to change
Risk aversion: managers become unwilling to bear theuncertainty of change as organizations grow
The desire to maximize rewards: managers may increasethe size of the company to maximize their own rewards evenwhen this growth reduces organizational effectiveness
Overly bureaucratic culture: in large organizations,
property rights can become so strong that managers spendall their time protecting their specific property rights insteadof working to advance the organization
Uncertain and changing environment
Affect an organizations ability to obtain scarce resources,thereby leading to decline
Makes it difficult for top management to anticipate the need
for change and to manage the way organizations change andadapt to the environment
Organizational Decline and
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Organizational Decline andDeath(cont.)
Organizational inertia (cont.)
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Weitzel and Jonssons Model of Organizational Decline
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Weitzel and Jonssons Model of Organizational Decline 5 stages of decline
Stage 1: Blinded: organizations are unable to recognize
the internal or external problems that threaten their long-term survival
Stage 2: Inaction: despite clear signs of deterioratingperformance, top management takes little actions to correct
problemsGap between acceptable performance and actual performance
increases
Stage 3: Faulty action: managers may have made thewrong decisions because of conflict in the top-management
team, or they may have changed too little too late fearingmore harm than good from reorganizationStage 4: Crisis: by the time this stage has arrived, only
radical changes in strategy and structure can stop thedecline
Stage 5: Dissolution: decline is irreversible and theor anization cannot recover
Weitzel and Jonssons Model
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Weitzel and Jonssons Model(cont.)
5 stages of decline (cont.)
Figure 11 7: Weitzel and Jonssons Model of
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Figure 11.7: Weitzel and Jonsson s Model ofOrganizational Decline