Life cycle of organization

From CEOpedia | Management online

Life cycle of organization is used to plan a specific series of adjustments in the existing condition or to start a completely new organization in order to gain market share. In such a plan there are several phases during which the company and the management should focus the attention on.

New organizations are created every day as a result of the shifting economic climate. Hundreds of organizations are permanently liquidated every day at the same time. The activities of more adaptable and stable organizations continue as a result of these changes and adaptations, whereas dependent ones cease to exist.

There are certain businesses that are growing more quickly than others and developing their potential more effectively than competitors. In order to evaluate whether the chosen strategy complies with the organization's financial policy and the stage of its formation, it is advised to ascertain the enterprise's stage of development and current location (Eliseeva, Mottaeva, 2021).

Stages of an organization's life cycle

Based on an analogy with the lifespan of biological objects, the idea of the life cycles of an enterprise's position in the market is developed. The following stages are part of an organization's life cycle (Eliseeva, Mottaeva, 2021):

  1. Birth stage - he development of an idea, establishment of an organization, entry into the market, and formation
  2. Growth stage - he expansion of potential, positioning in the market, and image
  3. Maturity stage - he culmination of development, maturity, and market visibility
  4. Decline stage - the decline in demand and activity, the gradual loss of potential
  5. Recovery stage - either bankruptcy, liquidation, or revival

Characteristics of life cycle stages

Here are the characteristics of each of life cycle stage:

  • Birth stage - The organization is created as the entrepreneur starts to take action, turning ideas into a real product or service. The finished product or service is then introduced to the market. The term "marketplace" is used quite widely in this paradigm to refer to the organization's operating contexts, both overall and in terms of competition. Market acceptance denotes the existence of a demand for the good and the willingness of consumers to buy the good or service offered by the company.
  • Growth stage - Rapid expansion presents the organization with new difficulties. Production capacity must be increased, and more workers must be hired, to satisfy the rising demand for products. The organization must develop the capacity to create and distribute its goods or services in large quantities to a range of clients. Existing material, financial, human, and informational resources are fully utilized. A significant task becomes ensuring enough supplies of these materials. During this phase, some economies of scale and experience should be obtained.
  • Maturity stage - In the maturity stage, the organization is bigger than it was in the growth stage, although growth is happening more slowly now. As the emphasis shifts from expansion to profitability, cost control and productivity emerge as major issues. The product line has been somewhat consolidated, but it is still sold in a variety of ways. Product innovations are modest and frequently come after modifications to rival products. In order to increase production efficiency and lower unit costs, process innovation is increasingly prioritized over product innovation. Major investments are made in plant upkeep and market share retention.
  • Decline stage - As the organization's market acceptance declines, decline takes place. Any of the earlier stages can lead to a company into decline. It is distinguished by diminishing size and sales, as well as market and product line consolidation. The organization's business strategy is likely to have an impact on the level of product development at this point. Little to no product development will occur if the company is pursuing a harvest strategy. The pace of product creation may be rapid, however, if the company is pursuing a turnaround strategy. Organization renewal is the main business job for decreasing organizations (Hanks, 1990).
  • Recovery stage - If the company wants to keep growing when it reaches the point of stagnation and decline, it must realign itself in light of consumer needs. Renewal can be achieved by actions including system and internal structure reconfiguration, innovation, renewal, diversity, and adaptation. If realignment increases consumer acceptance, it is a success. The organization is now back on the Life Cycle. The cycle can reoccur if realignment does not lead to more market adoption (Hanks, 1990).

Greiner Six Phases of Organizational Growth Model

Each of the six phases in the Greiner Organizational Growth Model has two aspects. The first dimension is evolutionary, where organizational progress is steady and peaceful, and the second is revolutionary, where each phase sets off the next. Evolutionary dimensions are represented by the different growths, the revolutionary dimensions are represented by the different crisises (Hotamisli, 2009):

  1. Growth with creativity = Leadership crisis
  2. Growth with direction = Autonomy Crisis
  3. Growth with decentralization = Control Crisis
  4. Growth with harmonization = Officiality Crisis
  5. Growth with cooperation = Growth Crisis
  6. Growth with alliances = Identity Crisis

Life cycle of organizationrecommended articles
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Author: Kacper Szymski