Organization life cycle

From CEOpedia | Management online

The concept of the life cycle of the organization can be described through a sequence of successive phases of organizational development in time.

Overall organization life cycle

Overall organization life cycle takes place in the following stages:

  • At the stage of the formation the most important is to attract people with the highest qualifications who will be a source of motivation and professionalism of the organization.
  • At the stage of development the organization invests in expansion of business on the market. Employees have to meet the market demand for products and services.
  • In the maturity stage - its organization structure and culture are stabilized. Managers seek to maintain turnover providing a sufficient number of new jobs. At the same time it becomes important to maintain costs control and sustainable development of work force.
  • At the stage of recession, organizations are faced primarily with resistance to change. An important aspect is to help employees find themselves in a new situation by providing them with career counselling and retraining opportunities.

L.E. Greiner description of life cycle stages of organizations

L.E Greiner identified following phases of the life cycle of the organization:

  • Phase I. Growth through creativity. Management of the organization in this phase is based on entrepreneurship, personal contacts and leadership. In this phase, there is a contradiction between the aspirations for growth of the organization and the effectiveness of management. It could lead to conflict in the relationship between lower-level managers and executives, as well as between young workers and workers with extensive experience.
  • Phase II. The increase in the formalization. In this phase, the increase in the degree of formalization of the organization is observed, as well as centralization of decision-making powers. Conflicts arise against the delay in solving decision problems arising from centralized decision-making rules.
  • Phase III. Growth through delegation. In this phase, the transfer of broad powers to lower-level managers is observed. The main threat to the organization are conflicts between the interests of the organization as a whole and the particular interests of its parts. Such a situation may lead to autonomy (alienation) of the individual units of the organization.
  • Phase IV. Growth through coordination. At this stage of the life cycle managers strengthen internal controls and position of staff units. Conflicts arise between line and staff workers.
  • Phase V. The increase in the interaction. The concept of organization changes: followed by "recovery" organization is in transition to organic structures and collaborative problem solving in group decision-making. Conflicts arise as a result of resistance to new ways of working (e.g., job enrichment, management by objectives) and the reduction of staff (employees who could not adapt must go).

Integrated model of organization life cycle

Phase 1. Entrepreneurship

  • Organizing of resources
  • Lot of ideas
  • Entrepreneurial actions are taken
  • Little need for planning and coordination
  • Started by owner
  • Authority of "causative spring"

Phase 2. Collectivity

  • Communication in informal, structure is loose
  • There is a sense of collective spirit
  • Employees are working over hours
  • Employees have sense of mission
  • Considerable innovation
  • Employees are very involved

Phase 3. Formalization and control

  • Formalizing of rules
  • Stable structure
  • Emphasis on efficiency and balance
  • Organization is more conservative
  • Institutionalization and procedure creation

Phase 4. Refinement of structure

  • Refining of structure
  • Decentralization
  • Extending domain of activities
  • Constant improvement and adjustment
  • Renewal of organization

Not all organizations go through a full life cycle. Many of them never go beyond the early stage of development - some having reached a certain stage remains static maintaining the position, some falls apart.

See also:

Examples of Organization life cycle

  • The first example of a life cycle of an organization is the start-up phase. This is when an organization is first established and is typically characterized by a period of rapid growth, often with limited resources. During this phase, the organization will develop its operations and create its core values and mission. This is typically followed by a period of rapid growth in the market and the organization will begin to expand its operations and customer base.
  • The second example is the growth phase. This is when the organization begins to focus on increasing revenue, expanding staff, and developing new products or services. During this phase, the organization will also seek to establish more strategic relationships with customers and partners. Additionally, the organization will start to invest in marketing and other means to expand their customer base.
  • The third example is the maturity phase. This is when the organization has been operating for some time and has achieved a steady state of operations. During this phase, the organization will focus on improving efficiency and developing new strategies for growth. In addition, the organization may also focus on increasing its customer base, expanding into new markets, or diversifying its products and services.
  • The fourth example is the decline phase. This is when the organization begins to experience a decline in revenue and/or customer base and may be forced to reduce staff or make other changes in order to remain viable. During this phase, the organization may need to restructure its operations in order to survive and may need to seek out new ways of doing business.
  • The fifth and final example is the dissolution phase. This is when the organization is no longer able to remain viable and must be disbanded. During this phase, the organization’s assets and liabilities will be dissolved, and the organization will cease to exist.

Advantages of Organization life cycle

The organization life cycle is a useful tool for understanding the development stages of an organization and the challenges associated with each stage. The following are some of the advantages of understanding and managing the life cycle of an organization:

  • Effective Change Management: Understanding the organizational life cycle helps managers identify areas in which they can make changes to improve performance and increase efficiency. This allows them to better plan and implement changes that will improve the organization's overall performance.
  • Improved Financial Planning: By understanding the life cycle of an organization, managers can better plan their financial resources and allocate them to areas that will generate the most value for the organization. This helps ensure that the organization's resources are being used in the most effective way possible.
  • Improved Risk Management: Knowing the life cycle of an organization helps managers to anticipate and mitigate risks associated with different stages of the organization's development. This helps ensure that the organization can remain healthy and profitable in the long term.
  • Improved Strategic Planning: Understanding the life cycle of an organization helps managers to develop strategies that align with the organization's current stage of development and its future goals. This helps ensure that the organization is able to achieve its goals in a timely and efficient manner.

Limitations of Organization life cycle

The life cycle of an organization is a useful tool for understanding the stages of organizational development and the potential obstacles it may face. However, it is important to recognize that the life cycle of an organization is not always linear and can contain some limitations:

  • It is difficult to determine the exact number of stages an organization may go through, as the stages can vary widely depending on the context and the organization’s goals.
  • It is also difficult to accurately predict when an organization will move from one stage to the next, as each organization is unique.
  • The life cycle model does not take into account the effects of external factors, such as the economy or changes in the competitive environment, on organizational performance.
  • The life cycle model may not be applicable to non-profit organizations, as they may not experience the same stages of growth and decline as a traditional business.
  • Lastly, the life cycle model may not be applicable to global organizations, as their growth and development may be more complex and unpredictable than a traditional organization.

Other approaches related to Organization life cycle

Organizational life cycle is a concept describing the stages of development of an organization over time. Other approaches related to organization life cycle are:

  • The Stages of Growth Model, which focuses on the company’s growth and maturity in terms of its size, complexity and capabilities.
  • The Resource-Based View, which sees the organization as a collection of resources and capabilities, and how these can be used to create competitive advantage.
  • The Environmental Model, which takes into account the external factors that can influence an organization’s development.
  • The Process Model, which examines the internal processes and their interactions within the organization.

In summary, the concept of organizational life cycle is a useful tool for understanding the evolution of an organization over time, and there are several complementary approaches that can be used to gain a more in-depth understanding of the organization’s life cycle.


Organization life cycle — recommended articles
Strategic management — Change management — Structure follows strategy — Strategic fit — Importance of strategic management — Functional strategy — Strategic goal — Organizational change — Knowledge gap strategy

References

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