Chapter 9 Organization Size, Life Cycle, and Decline PDF

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12th Ed Chp 9...

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Organization Size, Life Cycle, and Decline Differences between Large and Small Organizations

Organization Size: Is Bigger Better? Pressures for Growth – Companies in all industries strive for growth to acquire the size and resources needed to compete globally – Size enables companies to take risks Dilemmas of Large Size – Large organizations are able to get back to business more quickly following a disaster – Large companies are standardized, mechanistic, and complex – Small companies are flexible and can be responsive – Many companies aim to have a big company/small-company hybrid The solution is what Jack Welch, retired chairman and CEO of General Electric, called the “big-company/small-company hybrid” that combines a large corporation’s resources and reach with a small company’s simplicity and flexibility. Small Small scale can provide significant advantages in terms of quick reaction to changing customer needs or shifting environmental and market conditions. In addition, small organizations often enjoy greater employee commitment because it is easier for 1

people to feel like part of a community. Five Famous Mergers and Acquisitions Gone Wrong

Organizational Life Cycle

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Entrepreneurial stage. When an organization is born, the emphasis is on creating a product or service and surviving in the marketplace. Crisis: Need for leadership. As the organization starts to grow, the larger number of employees causes problems. At this time of crisis, entrepreneurs must either adjust the structure of the organization to accommodate continued growth or else bring in strong managers who can do so. Collectivity stage. If the leadership crisis is resolved, strong leadership is obtained and the organization begins to develop clear goals and direction. Crisis: Need for delegation. If the new management has been successful, lower-level employees gradually find themselves restricted by the strong top-down leadership. The organization needs to find mechanisms to control and coordinate departments without direct supervision from the top. Formalization stage. The formalization stage involves the installation and use of rules, procedures, and control systems. Crisis: Too much red tape. At this point in the organization’s development, the proliferation of systems and programs may begin to strangle middle-level executives. Elaboration stage. The solution to the red tape crisis is a new sense of collaboration and teamwork. Crisis: Need for revitalization. After the organization reaches maturity, it may enter periods of temporary decline.A need for renewal may occur every ten to twenty years.

Organization Characteristics During Four Stages of Life Cycle 3

What is Bureaucracy? • Weber defined bureaucracy as a threat to liberty • Bureaucracy includes: – Rules and standard procedures – Clear tasks and specialization – Hierarchy of authority – Technical competence • Bureaucracy is the most efficient system for organizing • The control introduced by Weber was rational and a significant idea Although bureaucratic characteristics carried to an extreme are widely criticized today, the rational control introduced by Weber was a significant idea and a new form of organization. Bureaucracy provided many advantages over organization forms based on favoritism, social status, family connections, or graft. Weber’s Dimensions of Bureaucracy and Bases of Organizational Authority

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Size and Structural Control • Formalization – rules, procedures, and written documentation • Centralization – level of hierarchy with authority to make decisions • Personnel Ratios – clerical and professional support staff ratios Two patterns have emerged. The first is that the ratio of top administration to total employees is actually smaller in large organizations, indicating that organizations experience administrative economies as they grow larger. The second pattern concerns clerical and professional support staff ratios. These groups tend to increase in proportion to organization size. The clerical ratio increases because of the greater communication and reporting requirements needed as organizations grow larger. The professional staff ratio increases because of the greater need for specialized skills in larger, complex organizations.

Percentage of Personnel Allocated to Administrative and Support Activities

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Bureaucracy in a Changing World • Bureaucracy worked for the industrial age • 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 • Narrowly defined jobs and rules limit creativity, flexibility, and rapid response • Some organizations are using temporary structures for emergencies or crisis situations The basic idea is that the organization can glide smoothly between a highly formalized, hierarchical structure that is effective during times of stability and a more flexible, loosely structured one needed to respond well to unexpected and demanding environmental conditions. Approaches to Busting Bureaucracy • Google uses bullpen sessions every afternoon • Small geographic based teams • Increasing authority of workers • The increasing professionalism of employees is attacking bureaucracy 6

Three Organizational Control Strategies

Bureaucratic control is the use of rules, policies, hierarchy of authority, written documentation, standardization, and other bureaucratic mechanisms to standardize behavior and assess performance. To make bureaucratic control work, managers must have the authority to maintain control over the organization. Rational-legal authority is based on employees’ belief in the legality of rules and the right of those elevated to positions of authority to issue commands. Rationallegal authority is the basis for both creation and control of most government organizations and is the most common base of control in organizations worldwide. Traditional authority is the belief in traditions and in the legitimacy of the status of people exercising authority through those traditions. Traditional authority is the basis for control for monarchies, churches, and some organizations in Latin America and the Persian Gulf. Charismatic authority is based on devotion to the exemplary character or to the heroism of an individual person and the order defined by him or her. Revolutionary military organizations are often based on the leader’s charisma, as are North American organizations led by charismatic individuals such as Steve Jobs of Apple, Tom Anderson of MySpace, or Oprah Winfrey of Harpo Productions. Market control occurs when price competition is used to evaluate the output and productivity of an organization or its major departments and divisions. The use of market control requires that outputs be sufficiently explicit for a price to be assigned and that competition exist. Market control was once used primarily at the level of the entire organization, but it is increasingly used in product divisions or individual departments. Clan control is the use of social characteristics, such as shared values, commitment, traditions, and beliefs, to control behavior. Organizations that use clan control have strong cultures that emphasize shared values and trust among employees. There is strong pressure to conform to group norms, which govern a wide range of employee behaviors. Managers act primarily as mentors, role models, and agents for transmitting values. Traditional control mechanisms based on strict rules and close supervision are ineffective for controlling behavior in conditions of high uncertainty and rapid change 7

Clan control or self-control may also be used in some departments, such as strategic planning, where uncertainty is high and performance is difficult to measure. Managers of departments that rely on these informal control mechanisms must not assume that the absence of written, bureaucratic control means no control is present. Clan control is invisible yet very powerful.

Stages of Decline and the Widening Performance Gap

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Blinded stage. The first stage of decline is the internal and external change that threatens long-term survival and may require the organization to tighten up. The organization may have excess personnel, cumbersome procedures, or lack of harmony with customers. With timely information, alert executives can bring the organization back to top performance. Inaction stage. The second stage of decline is called inaction in which denial occurs despite signs of deteriorating performance. Leaders may try to persuade employees that all is well. The solution is for leaders to acknowledge decline and take prompt action to realign the organization with the environment. Leadership actions may include new problem-solving approaches, increasing decision-making participation, and encouraging expression of dissatisfaction to learn what is wrong. Faulty action stage. Ithe organization is facing serious problems, and indicators of poor performance cannot be ignored. Failure to adjust to the declining spiral at this point can lead to organizational failure. Leaders are forced by severe circumstances to consider major changes. Actions may involve retrenchment, including downsizing personnel. Leaders should reduce employee uncertainty by clarifying values and providing information. A major mistake at this stage decreases the organization’s chance for a turnaround. 9

Crisis stage. the organization still has not been able to deal with decline effectively and is facing a panic. The organization may experience chaos, efforts to go back to basics, sharp changes, and anger. It is best for managers to prevent a stage-4 crisis; at this stage, the only solution is major reorganization. The social fabric of the organization is eroding, and dramatic actions, such as replacing top administrators and revolutionary changes in structure, strategy, and culture, are necessary. Workforce downsizing may be severe. Dissolution stage. This stage of decline is irreversible. The organization is suffering loss of markets and reputation, the loss of its best personnel, and capital depletion. The only available strategy is to close down the organization in an orderly fashion and reduce the separation trauma of employees.

Organizational atrophy. Atrophy occurs when organizations grow older and become inefficient and overly bureaucratized. The organization’s ability to adapt to its environment deteriorates. Vulnerability. Vulnerability reflects an organization’s strategic inability to prosper in its environment. This often happens to small organizations that are not yet fully established. They are vulnerable to shifts in consumer tastes or in the economic health of the larger community. Environmental decline or competition. Environmental decline refers to reduced energy and resources available to support an organization. When the environment has less capacity to support organizations, the organization has to either scale down operations or shift to another domain.

Easing Downsizing Tension 1) Search for alternatives 2) Communicate more, not less 3) Provide assistance to displaced workers 4) Help the survivors thrive (the “layoff survivor syndrome. ”Many people experience guilt, anger, confusion, and sadness after the loss of colleagues, and leaders should acknowledge these feelings.)

Design Essentials 1. Organizations experience pressures to grow 2. Organizations evolve through stages of the life-cycle 3. Larger organizations usually adopt bureaucratic characteristics 4. All organizations require systems for control 10

5. Many organizations experience decline

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