Growth & Life Cycle Of Organisations
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Organisations grow and change overtime. They are not static; they grow, shrink and change overtime. They begin small, then they begin to prosper and grow, leading to hiring, training, specialisation and delegation. In order for organisations to grow in todays world, they must not fail. Organisations change as they grow and decline and they have to keep up with changes or they may fail. They have to change in response to various internal and external forces. They must overcome the organisational inertia that continuously threatens its ability to adapt to environmental changes. There are many challenges facing organisations such as competitiveness in the industry with regards to speed, reliability, quality, flexibility etc. Empowerment would be another challenge – you have to put power on your staff so that they will make the right decisions without having to go to their manager or supervisor. Global marketing and manufacturing would also be a big challenge for organisations as they would need to make sure that it is worthwhile and they would not end up failing. An organisation must make changes to its structure and culture at critical points in its life cycle. If effectively managed, an organisation continues to grow and differentiate.
Organisations are social entities, that are goal directed, deliberately structured activity systems, with a boundary. They can also be defined as a collection of individuals working within a structure to achieve the business objectives. Organisations search for ways to change themselves so as to achieve control over limited resources and to reduce uncertainty. They can increase their control over resources by growing and becoming larger. Growth allows an organisation to increase its division of labour and specialisation and thus develop a competitive advantage. An organisation that is able to acquire resources is likely to generate additional resources that allow it to grow further. Over time, organisations transform themselves – they become something very different than they were when they started.
The organisational life cycle is a sequence of stages of growth and development through which organisations may pass. The four stages of the organisational life cycle are birth, growth, decline and death. They pass through these at different rates. Some organisations do not experience every stage.
Organisational Life Cycle (Figure):
Organisational birth is the founding of an organisation. It occurs when entrepreneurs recognise and take advantage of opportunities to use their skills and competences to create value. It is a dangerous stage of the life cycle as it is associated with the greatest chance of failure. The failure rate is high because new organisations experience the liability of newness, which is the dangers associated with being the first in a new environment. This liability of newness is due to the following: 1. Entrepreneurship is a risky process, 2. New organisations lack formal structure and, 3. Resources may be scarce because of established organisations.
The population ecology theory seeks to explain the factors that affect the rate at which new organizations are born in a population of existing organizations. A population of organizations comprises the organizations that are competing for the same set of resources in the environment. The availability of resources determines the number of organizations in a population. The amount of resources in an environment limits population density. Population density is the number of organizations that can compete for the same resources in a particular environment. The growth in the number of organizational births in a new environment is rapid at first as new organizations are founded to take advantage of new environmental resources.
In a new environment, growth is rapid and two factors account for this: 1. As new organizations are founded, there is an increase in the knowledge and skills available to start similar new organizations. Many new organizations are founded by entrepreneurs who leave companies and start up their own. 2. When a new kind of organization is founded and survives, it provides a role model. The success of a new organization makes it easy for entrepreneurs to found similar new organizations.
Organisational growth is the life cycle stage in which organisations develop value-creation skills and capabilities that allow them to acquire further resources. The study of how organisations can increase their ability to grow and survive in a competitive environment by satisfying their stakeholders is called the institutional theory. New organisations suffer from the liability of newness and many die because they so not develop the competences they need to attract customers and obtain scarce resources. To increase their chances of survival, new organisations adopt many of the rules and codes of conduct found in the institutional environment surrounding them.
The institutional environment is the set of values and norms that govern the behaviour of a population of organisations. A new organization can strengthen its legitimacy by imitating the goals, structure and culture of successful organisations in its population.
The most popular model of organizational growth is Greiners model which says that an organisation passes through five stages. Each stage ends with a crisis that must be resolved before the organisation can go to the next stage.
The stages include:
Stage 1 – Growth through creativity
Stage 2 – Growth through direction
Stage 3 – Growth through delegation
Stage 4 – Growth through coordination