Organization Size, Life Cycle,

and Decline
Chapter

9
Organization Theory and Design
Eleventh Edition
Richard L. Daft
Introductory Questions …

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 Organization Size: Is Bigger Better?
Pressures for Growth
– Industry consolidation, global expansion, and
diversification have made firms grow.
– Size enables companies to take risks.

Dilemmas of Large Size:

– Huge resources and economies of scale are needed
for many firms to compete globally.
– Large firms can get back to business more quickly
following a disaster, giving employees a sense of
security.
– Large firms are standardized, mechanistic structure
emphasizing vertical hierarchy and are complex.
– Large firms stabilize a market for years.
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Can mergers always go well?!

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Organization Size: Is Bigger Better?
Dilemmas of small size:
– Small companies provide quick reaction to
changing customer needs or shifting
environmental conditions.
– They enjoy greater employee commitment.
– Small firms have a flat structure and an organic,
free-flowing management style that encourages
entrepreneurship and innovation

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Differences Between Large and
Small Organizations

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 Big-company/small-company hybrid
• It combines a large corporation’s resources and reach
with a small company’s simplicity and flexibility.
• Focus on decentralizing authority and cutting out layers
of the hierarchy while increasing the use of IT.
• The hybrid structure can be obtained by using the
divisional structure or the front/back approach.
• This approach divides the company into units with
different roles. The back part of the organization focuses
on creating and producing products and services, while
the front focuses on integrating and delivering products
and services to customers.

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 Big-company/small-company hybrid
Examples of Hybrid Structures ..
• Johnson & Johnson is actually a group of 250
separate companies operating in fifty-seven
countries.
• Shell encourages innovation in its exploration-
and-production division by setting aside 10
percent of the division’s research budget for
“crazy” ideas!

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 Organizational Life Cycle
• Life cycle: suggests that organizations are
born, grow older, and eventually die.
• Four major stages characterize organizational
development.

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 Stages of Life Cycle Development
• Entrepreneurial Stage- company is created
Crisis: need for leadership
Amazon CEO Jeff Bezos’s leadership style has the
company stuck at early stages of the life cycle!
• Collectivity Stage- identifying with the mission
Crisis: need for delegation
• Formalization Stage- use of rules/procedures
Crisis: too much red tape/ bureaucracy
• Elaboration Stage- collaboration/teamwork
Crisis: need for revitalization
Organizational Life Cycle

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 Exercise
• It is wise for the entrepreneur who starts a
new company to maintain hands-on
management control as the company grows.

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 Statistics ..
• 84% of businesses that make it past the first
year still fail within five years because they
can’t make the transition from the
entrepreneurial stage.
• Transitions become even more difficult as
organizations progress through future stages
of the life cycle.

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Organization Characteristics During
Four Stages of Life Cycle

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 OLC
• The life cycle phenomenon is a powerful
concept used for understanding problems
facing organizations and how managers can
respond in a positive way to move an
organization to the next stage!

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 What is Bureaucracy?
• Weber defined bureaucracy as
─ a threat to personal liberty.
─ the most efficient system for organizing.
It ensures more efficient functioning of organizations
─ rational control as a new form of organization.

• Bureaucracy includes:
– Rules and standard procedures
– Clear tasks and specialization
– Hierarchy of authority
– Technical competence
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Weber’s Dimensions of Bureaucracy

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 Size and Structural Control
• Large organizations are different from small
organizations along several dimensions of
bureaucratic structure, including formalization,
centralization, and personnel ratios.
• Formalization – rules, procedures, and written
documentation (policy manuals and job
descriptions).
• Centralization – level of hierarchy with authority
to make decisions
• Personnel Ratios – clerical and professional
support staff ratios
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 Decentralization Paradox
• In the perfect bureaucracy, all decisions would
be made by the top administrator, who would
have perfect control..
• However, as an organization grows larger and
has more people and departments, decisions
cannot be passed to the top because senior
managers would be overloaded!

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 Percentage of Personnel Allocated to
Administrative and Support Activities
The ratio of top administration to total employees is
actually smaller in large organizations whereas, clerical
and professional support staff ratios tend to increase
with size.

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 Bureaucracy in a Changing World
• Bureaucracy worked well for the industrial
revolution era.
• The system no longer works for today’s challenges!
• Organizations face new challenges and need to
respond quickly.
• Over-bureaucratization is evident in the inefficiencies
of large U.S. government organizations because,
narrowly defined jobs and rules limit creativity,
flexibility, and rapid response
• Organizations use temporary structures for crises! 21
 Organizing Temporary Systems
• The organization can switch between a highly
formalized/ hierarchical structure effective
during times of stability and a more flexible/
loosely structured one needed to respond well
to unexpected and demanding environmental
conditions ..
Check Salvation Army organization!

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 Approaches to Busting Bureaucracy
1. Cutting layers of the hierarchy, keeping
headquarters staff small, delegating DM
authority to lower levels,
2. Small geographic based teams and
professional partnerships (accounting,
consultancy, and law firms).
3. Professional training of employees substitutes
for bureaucratic rules and procedures that can
constrain their creativity.

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 Three Organizational
Control Strategies

1. Bureaucratic control is the use of rules, policies,

hierarchy of authority, written documentation,
standardization, and other bureaucratic mechanisms
to standardize and control behavior and assess
performance.
2. Market control when price competition is used to
evaluate the output and productivity of an
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organization or its major departments.
 Three Organizational
Control Strategies
Clan control is the use of social characteristics,
such as shared values, commitment, traditions,
and beliefs, to control behavior.
This happens in NPOs, religious entities, etc.

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 Exercise ..
• A manager should emphasize shared values,
trust, and commitment to the organization’s
mission as the primary means of controlling
employee behavior?

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Organizational Decline and Downsizing

The decrease of an organization’s

resources over time is caused by:
• Organizational atrophy: occurs when
organizations grow older and become
inefficient and overly bureaucratized
• Vulnerability: an organization’s strategic
inability to prosper in its environment.
• Environmental decline or competition.
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Stages of Decline and the Widening
Performance Gap

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 Stages of Decline and the Widening
Performance Gap
1. The blind stage: Leaders often miss the signals of
decline at this point!
2. The inaction stage: Leaders may try to decline
deterioration and persuade employees that all is
well.
3. Faulty action stage: Leaders are forced by indicators
of poor performance.
4. Crisis stage: organizations experience chaos, efforts
to go back to basics, sharp decline.
5. Dissolution stage: shut down the organization.
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Organizational Decline and Downsizing

Downsizing refers to intentionally reducing

the size of a company’s workforce
Establish Criteria for future work needs
Search for Alternatives
Communicate more not less
Provide assistance to displaced workers
Help the survivors thrive
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 Video ..
• https://hbr.org/2008/03/when-growth-stalls

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 Design Essentials
Organizations experience pressures to grow
Organizations evolve through stages of the
life-cycle
Larger organizations usually adopt
bureaucratic characteristics
All organizations require systems for
control
 Many organizations experience decline