Organizational Life Cycle

People, Process and Leadership: Session 6

Session Plan
• Previous session
• Phases of organizational
development

• Case Appex Corporation

• Phases of organizational decline

• Video: Nokia
Objectives
• Appreciate the problems involved in surviving the perils of organizational
birth and what actions founders can take to help their new organizations
survive

• Describe the typical problems that arise as an organization grows and

matures, and how an organization must change if it is to survive and
prosper

• Discuss why organizational decline occurs, identify the stages of decline,

and describe how managers can work to prevent the failure and even the
death or dissolution of an organization
Key Dimensions of Organization
Development
• Age of the Organization
• Organizational practices are not maintained
throughout a long life span
• Management problems and principles are
• Stages of Evolution
rooted in time • Periods of prolonged growth,
• Institutionalization of managerial attitude without major economic setbacks
• Rigid and outdated

• Size of the Organization • Stages of Revolution

• Increases in…
• Number of employees
• Stages of crisis
• Sales volume increases • Practices become outdated
• Hierarchy levels increases
• Formalization increases • Companies that do not change
• More difficult coordination and communication will cease to grow or decline
• New functions emerge
5 Phases of Growth

Creativity Direction Delegation Coordination Collaboration

Appex Corporation: What happened in 30 months?
• No structure (project-based) • Divisional structure
• Shikhar Ghosh (external) • Problems from functional structure
• Circular (Japanese) structure persisted
• Horizontal structure • Evolution at the division level

• Functional (hierarchical) structure • Shikhar’s Structure Philosophy?

• Change every 6 months
• Functional managers (external)
• Growth 10%/month
• Product teams
• Product managers (external)
• Intermediate hybrid structures
• Circumstances?
• Business teams • Cast of characters (egos)

• Acquisition
Creativity
• The birth stage of an organization • Eventual Problems
• “Crisis of Leadership”
• The founders are usually technically or • Informal communication
entrepreneurially oriented
becomes infeasible
• Additional functions must be
• Communication is frequent and informal
implemented
• Long hours of work are rewarded with
modest salaries and the promise of • *The first critical decision in
ownership benefits
organizational development is to
• Decisions and motivations are highly locate and install a strong
sensitive to market feedback business manager
Appex Corporation
Crisis of leadership
Why did the circular structure fail to achieve its desired outcome?
What does this tell us about the role that structure plays in an organization?
Were these structures a waste of time?
Functional Structure
Circular Structure
Direction
• Functional organizational structure • Eventual Problems
• “Crisis of Autonomy”
• Impersonal environment
• Different departments are designed
• Lower-level employees often
possess more knowledge about
• Formalization and standardization markets and machinery than
management
• Formal communication
• Hierarchy as the number of
employees increase • *The next decision for
• Systems need to be set up for
management is delegation
inventory control, accounting, order
processing • Decentralization of decision-making
Functional Structure

Crisis of autonomy?
Delegation
• Eventual Problems
• Greater empowerment of • “Crisis of Control”
managers • Lower-level management begins
running its own show
• Greater responsibility given to
lower management
• *Need for coordination: Cross-
• Profit centers and bonuses are level, cross-functional, cross-
used to motivate employees division, etc.
Paul Gudonis: Senior Vice-President of Sales and Marketing &
General Manager Crisis of control

Observations about the functional structure

Recommendations
 Matrix?
Functional structure with product teams
Functional structure (with internal divisions) Crisis of control

Product Team Structure for RoamAmerica

Functional structure overlaid with a product
team/business team structure Crisis of control

Product Team/Business Structure

Functional Structure (with internal divisions)
 Divisional structure
Intercarrier Services (ICS), Cellular Management
Coordination Information Systems (IS), and Operations

• Formation of product groups • Eventual Problems

• Decentralized units are grouped together • “Red Tape Crisis”
• Formal planning procedures take
• Each group is treated like an investment center precedence over problem solving
• Everything has a procedure

• Staff members are hired to initiate company- • Company becomes too large and
wide control programs complex to manage formally
• Conflict between line and staff
functions
• Stock options and company wide profit sharing • Conflict between headquarters and
are used to motivate employees field

• Growth of the headquarters to review

initiatives of the line managers
• *Management must promote
interpersonal collaboration
Divisional Structure
Crisis of control?
• Could Appex have
implemented a divisional
structure right after the
functional structure?

• Could Appex have

implemented a matrix
structure right after the
functional structure?

• What was the role of these

interim structures?
Collaboration
• Matrix structure to handle the right teams for right problems
• At the top management level

• Social control and self-discipline replace formal control

• Formal control systems are simplified

• Conferences are held weekly

• Rewards are geared for team performance

Case: Appex Corporation
• What implications the acquisition by
• What would you have done EDS might have for the structure of
differently? Appex?
• What do you think about Shikhar’ • Would you anticipate making another
philosophy? major structural change in six months?

• How important is the “cast of • Under what circumstances are

characters” in choosing a structural structural changes useful management
intervention? interventions?
• When might such changes be undesirable?
• Why did Shikhar hired managers from
outside of the organization?
• What was the role of the venture • What do you conclude from this case?
capitalists?
Stages of Decline
Model of Organizational Decline
Inertia (Weitzel and Jonsson)
• Risk aversion • Blinded
• Inexpensive projects
• Similar projects

• Inaction
• Managers maximize rewards
• Personal incentives
• Increase prestige
• Secure job
• Faulty action

• Overly bureaucratic culture • Crisis

• Power
• Multiply subordinates, not rivals
• Multiply levels below (authority, scrutiny)
• Strong property rights • Dissolution
Video: How Is Nokia Even Still Alive? (2-
12m)
• https://www.youtube.com/watch?v=PL83PinTIkI&ab_channel=Logical
lyAnswered
 Model of Organizational Decline (Weitzel & Jonsson)
• STAGE 1: BLINDED • STAGE 2: INACTION
• Inability to recognize problems that threaten • Managers might misinterpret available
long-term survival information
• Lack the monitoring and information systems to
measure organizational effectiveness and to
identify sources of organizational inertia • Managers might focus on the pursuit of
personal short-term goals
• Internal signals that indicate potential
problems • Management may follow inappropriate tried-
• Excessive number of personnel and-true approaches to solve the organization’s
• Slowdown in decision making
problems
• Rise in conflict between functions or divisions
• Fall in profits • Prompt wide-ranging action is vital to reverse
the decline
• Downsizing and laying off employees
• Remedial action
• Scaling back the scope of operations
• Gain access to good information
• Major reorganization and change to a new form of
• Effective top managers who react quickly and put structure might be necessary to overcome the
in place the right strategies and structures inertia
 Model of Organizational Decline (Weitzel & Jonsson)
• STAGE 3: FAULTY ACTION
• Wrong decisions because of conflict in the top-
management team

• Changed too little too late • STAGE 5: DISSOLUTION

• Fear that radical change may put the organization at risk • The organization cannot recover, and
• Overcommitment to the present strategy and structure
decline is irreversible

• STAGE 4: CRISIS • The organization has lost the support of its

• Only radical top-down changes to the strategy and structure
can stop the rapid decline and increase the chances of stakeholders
survival
• New leaders lack the organizational
• Stakeholders dissolve their relationships with the
organization resources to institute a successful
• The best managers leave because of fighting in the top- turnaround
management team
• Investors are unwilling to risk lending their money
• Suppliers are worried about getting paid • The organization divests its remaining
resources or liquidate its assets and enter
• Only a new top-management team might turn the company
around
into final bankruptcy proceedings
Summary
• Organizational decline
• Stage an organization enters when it fails to anticipate, recognize, or adapt to external or internal pressures that threaten
its survival

• Factors that can precipitate organizational decline include

• Organizational inertia
• Changes in the environment

• Five stages of decline:

• (a) blinded, (b) inaction, (c) faulty action, (d) crisis, and (e) dissolution
• Managers can turn the organization around at every stage except the dissolution stage

• Organizational death
• When an organization divests its remaining resources or liquidates its assets
• As the disbanding process begins, the organization severs its links to its stakeholders and transfers its resources to other
organizations
Next Sessions
• Sessions 7 & 8
• MOOC

• Mid-term

• Session 9
• Chapter 4
• Article: Do you have a well-designed organization?
• Case Group 3: Airstar