Chapter 10: Designing Organizations for Growth

Lecture 13

What are the organizational Life Cycle Stages?

Entreprenurial, Collectivity, Formalization, Elaboration

Entreprenurial Stage

Char:

• Small size <50

• young organization with founder as the organization

• informal, flexible

Structure:

• Simple Structure

• Highly centralized

• Minimal fomalization

Entreprenurial Crisis?

NEED LEADERSHIP

• Founder can’t do everything

• Need for professional management

• Delegation is needed

Collectivity Stage

Char:

• Growing Size 50-200

• Strong mission and identity

• High Commitment and Cohesion

Structure:

• Still informal

• Some specialization and functional departments forming

• Founder is starting to delegate

Collectivity Crisis?

NEED DELEGATION

• Too much for top management to handle

• Middle management need authority

• Systems and procedures are needed

• Tension between new managers and upper management

Formalization Stage

Char:

• Large size 200-1000

• Established Market position and operational efficiency

Structure:

• Division or Functional structure

• Decentralized operation wtih high fomalization

• formal communication and specialized departments

Formalization Crisis?

TOO MUCH RED TAPE

• Slow decision making

• Bureaucracy hurts innovation

• Employees disconnected from mission

Ellaboration Stage

Char:

• Large and mature 1000+

• multiple products and markets

• complex operations

Structure:

• Divisional or Matrix structure

• Decentralized Decision Making

• Teams and task forces

Ellaboration Crisis?

NEED TO REVITLIZE COMPANY

• risk of decline if company does not adapt

• need for renewal or innovation

• need for restructuring or transformation

What is bureaucracy and its purpose?

What

• rules and procedures

• career advancements based on merit

• written documentation

• division or labour and specialization

• hierarchy of authority

Goal

• efficiency through standardization

• accountability, coordination at scale

• predictability

When does it work?

• tasks are routine and predictable

• large size requires coordination

• environment is stable

• efficiency through standardization works

When is it a problem?

• slow decision making

• hurts innovation and creativity

• red tape and execessive rules

• following the rules becomes more important than the job

• “that’s not my job“

What are strategies to overcome bureaucracy pitfalls?

1. Reduce formalization where possible

2. increase decentralization

3. Use teams and task forces

4. Create innovation structures

5. Focus on the outcomes, not processes (results focused)

What is Organizational Decline and what causes it?

substantial decrease in an organization resources over time

Causes:

• Environmental changes

• poor management decisions

• loss of comp. advantage

• economic downturns

Decline Stages?

• Blinded Stage (denial and early signs are ignored)

• Inaction Stage (problem is recognized but action is not taken)

• Faulty Action Stage (Wrong solution is implemented)

• Crisis Stage (Survival of the organization is threatened)

• Dissolution (the organization is either acquired or has failed)

How do you respond to decline?

Downsizing

• Attrition, don’t replace the people that have left

• HIring freeze

• Provide Early retirement incentives

• Layoffs

What do you consider when implementing it and the pros and cons

• across-the-board cuts or strategic cuts

• transparency and honesty

• support remaining employees

• be fair and provide severance

pro: short term cost reductions

cons: doesn’t improve long term performance, destroys morale and trust, loss of knowledge and capabilities