MBH1683 | Leading Organisational Change · –Eg. large department store stock many different types of clothing but can stock a limited amount of each type, eg sportswear. Specialist

1

MBH1683 | Leading Organisational ChangePrepared by Dr Khairul Anuar

L10 – Organizational Transformations:

Birth, Growth, Decline, and Death

www.mba638.wordpress.com

2

• 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

Learning Objectives

3

• Why do some organisations survive and prosper while others fail or die?

Researchers suggest that we need to understand the dynamics that affect organizations as they seek a satisfactory for with their environment

• Organizational life cycle: A sequence of stages of growth and development through which organizations may pass

• The four principal stages of the organizational life cycle:

– Birth

– Growth

– Decline

– Death

The Organizational Life Cycle

4

Figure 11.1 - A Model of the Organizational Life

Cycle

5

• Organisations pass through these stages at different rates, and

some do not experience every stage

Some companies go directly from birth to death without enjoying

any growth if they do not attract any consumers or resources

Some organisations spend a long time in the growth stage , and

researchers have identified various sub-stages of growth which

an organisations must navigate

There are also sub-stages of decline

Some organisations in decline take corrective action, change

quickly, and turn themselves around

• The way an organization can change in response to the problems it

confronts determines whether and when it will go on to the next

stage in the life-cycle and survive and prosper or fail or die.

The Organizational Life Cycle

6

• Organizational birth: The founding of an organization

• Occurs when entrepreneurs take advantage of

opportunities to use their skills and competences to

create value

• Dell - found new way to market low-priced computers

They saw an opportunity to found an organisation

that could produce lower price products than the

competition

Organizational Birth

7

• A dangerous life cycle stage associated with the greatest chance of failure

– Liability of newness: The dangers associated with being the first in a new environment

– It lacks a formal structure to give its value creation processes and actions reliability and stability.

At first, all it activities are performed by trial and error, organizational structure emerges gradually as decisions are made about roles, rules, and SOPs should be implemented.

In this stage, the structure is flexible and responsive, allowing the org to adapt and perfect its routines to meet the needs of its environment

– Conditions in the environment may be hostile to a new organization – eg resources for example may be scarce or difficult because many established organizations are competing for them

• Entrepreneurs bear this uncertainty because they stand to earn potentially enormous returns if their business takes off

Organizational Birth (cont.)

8

• Population ecology theory: A theory that seeks to explain the factors that affect the rate at which new organizations are born (and die) in a population of existing organizations

– Population of organizations: The organizations that are competing for the same set of resources in the environment

Eg. restaurants in university town (like Cyberjaya) competing to attract environmental resources in the from of $$$ from the student population

Dell, HP, Acer etc to attract environmental resources in the form of $$$ from consumers willing spend in personal computing

– Different organisations within a population may choose to focus on different environmental niches, or particular sets of resources or skills.

– Eg. Initially Dell chose to focus on the mail-order niche of the PC environment, HP focused on business niche, and apple on publishing and higher education niche. Their choices have changed over time to gain access to more resources. Apple started its chain of stores to attract individual customers, and in 2007 Dell decided to expand its sales channels to reach more customers by selling in PCs stores

A Population Ecology Model of Organizational

Birth

9

• Number of births determined by the availability of

resources

– Population density: The number of organizations that

can compete for the same resources in a particular

environment

– Factors that produce a rapid birthrate

• Availability of knowledge and skills to generate

similar new organizations

• New organizations that survive provide role models

and confer legitimacy

• Eg Amazon/Groupon/Uber spin-offs

Population Ecology Model (cont.)

10

• As the environment is populated with a number of successful organizations, birthrate tapers off because:

– Fewer resources are available for newcomers

• First-mover advantages: Benefits derived from being an early entrant into a new environment

• Eg Uber/Amazon/Microsoft

• Includes customer support, recognized brand name, and the best locations for new business like restaurants

• Latecomers enter environ that is partially depleted of the resources that they need to grow – eg banks reluctant to lend money to new comers because chance of survival in competitive environment may be poor


11

• Have to compete for resources – which may be more

difficult and expensive to obtain. For new customers,

new company may need to overspend on advertising or

innovation, or they may need to reduce their prices too

much. Existing companies may band together and make

it very hard for new companies to enter the market –

collusion, agreeing to set prices at artificially low levels to

drive out new rivals out of the industry, or erect barriers

to entry


12

Figure 11.2 - Organizational Birthrates Over

Time

13

• Survival strategies

– Strategies that organizations can use to gain access

to resources and enhance their chances of survival in

the environment

– r-strategy versus K-strategy

• r-strategy: A strategy of entering a new environment,

they are early entrants

• K-strategy: A strategy of entering an environment late,

after other organizations have tested the environment


14

• r-strategy – advantages – first mover advantage and first pick

of the resources in the environment. If able to grow rapidly,

and develop skills and procedures it will increase its chance

of surviving and prospering

• K-strategy – organisation which are established in other

environments and wait to enter a new environments until the

uncertainty in that environments is reduced and the correct way to

compete is apparent.

• Eg Samsung and Sony only entered the cellphone market after

Motorola and Nokia had showed how big the global market size

was. They then use the skills developed in other environment and

use them to develop effective procedures that allow them to

compete with and often dominate organisations following r-strategy.

• In the PC market, IBM which was dominate seller of main frame

computes entered into the PC mkt


15

• Specialist strategy versus generalist strategy

– Specialists: Organizations that concentrate their skills

to pursue a narrow range of resources in a single

niche. Eg smartphones

– By focusing their activities in one niche specialists

are often to dev core competencies that allow them to

outperform generalists in that niche.

– Eg offer better customer service. Nvidia – leader in

graphics chips invest all its resources to produce

these state-of-the-art chips and does not invest

resources to compete with Intel or AMD in making

microprocessors or memory chips


16

• Specialist strategy versus generalist strategy

– Generalists: Organizations that spread their skills thin to compete for a broad range of resources in many niches . Eg smartphones, inexpensive cell phones, landline phones, pagers, etc

– Generalist can often outcompete specialists when there is considerable uncertainties in the environment and they when resources are changing so that niches emerge and disappear continually.

– Generalist can survive in an uncertain environment because they have spread their resources over many niches.

– If specialist’s niche disappears, however, there is a much higher chance of org failure and death.


17

– Specialist & generalist strategy – normally co-exist

in many environments because generate create the

conditions that allow specialist to operate

successfully.

– Eg. large department store stock many different

types of clothing but can stock a limited amount of

each type, eg sportswear. Specialist stores can

stock may offer extensive type of clothing eg

sportswear, and therefore charge a premium price

for their selection of unique cloths.

• Even though there were powerful generalist

around – as Apple has showed with its iPods

and iPhones


18

• Process of natural selection

– Two sets of strategies result in: r-Specialist, r-

Generalist, K-Specialist, K-Generalist

• Early in an environment, new organizations are likely to

become r-Specialists

– Move quickly to focus on serving the needs of a

particular group

– As r-Specialists grow, they often become generalists and

compete in new niches


19

– K-Generalists move into the market and threaten the

weaker r-Specialists

– The market is dominated by the strongest r-

Specialists, r-Generalists, and K-Generalists


20

Figure 11.3 -Strategies for Competing in the

Resource Environment

21

• Natural selection: the process that ensures the survival

of organizations that have the skills and abilities that best

fit with the environment

– Over time, weaker organizations die because they

cannot adapt their procedures to fit changes in the

environment

– Natural selection is a competitive process


22

• Organizational growth: The life-cycle stage in which organizations develop value-creation skills and competences that allow them to acquire additional resources

– Organizations can develop competitive advantages by increasing division of labor

– Creates surplus resources that foster greater growth

– Growth should not be an end-in-itself

– Microsoft – took its resources from MS-DOS to develop new software applications to bring in new additional resources. Reason why in 2007 it try to acquire yahoo to compete with google, to acquire Nokia to compete in mobile telecommunications

The Institutional Theory of Organizational

Growth

23

• Institutional theory: A theory that studies how organizations can increase their ability to grow and survive in a competitive environment by becoming legitimate in the eyes of their stakeholders.

• To increase their chances of survival, new orgs adopt many of the rules and codes of conduct found in the institutional environment surrounding them

• Institutional environment: Values and norms in an environment that govern the behavior of a population of organizations.

• For example, in the banking environment comprises of strict rules and regulations on what they can and cannot do, and penalties for breaking the rules.

• Those who follow the rules are considered trust worthy and legitimate by stakeholders, and able to attract resources and improve their chances of survival.

• The best way for a new org to gain and strengthen its legitimacy is to imitate the goals, structure, and culture of successful org in its population.


Growth (cont.)

24

• Organizational isomorphism: the similarity

among organizations in a population

– Three processes that explain why organizations

become similar are:

• Coercive isomorphism

• Mimetic isomorphism

• Normative isomorphism


Growth (cont.)

25

• Disadvantages of isomorphism

– Organizations may learn ways to behave that have

become outdated and no longer lead to organizational

effectiveness

– Pressure to imitate may reduce the level of innovation

in the environment


Growth (cont.)

26

• Greiner proposes 5 sequential growth stages

– Each stage results in a crisis

– Advancement to the next stage requires successfully

resolving the crisis in the previous stage

Greiner’s Model of Organizational Growth

27

Figure 11.4 - Greiner’s Model of Organizational

Growth

28

• Organizational decline: the life-cycle stage that

an organization enters when it fails to anticipate,

recognize, avoid, neutralize, or adapt to external

or internal pressures that threaten its long-term

survival

– May occur because organizations grow too much

Organizational Decline and Death

29

• Effectiveness and profitability

– Assessing an organization’s effectiveness involves

comparing its profitability relative to others

• Profitability: Measures how well a company is

making use of its resources by investing them in

ways to create goods and services that generate

profit when sold

– Short-term profits say little about how well managers

are using resources to generate future profits

Organizational Decline and Death (cont.)

30

Figure 11.5 - The Relationship Between Organizational

Size and Organizational Effectiveness

31

Figure 11.6 - Differences in Profitability

32

• Organizational inertia: The forces inside an

organization that make it resistant to change

– Risk aversion: Managers become unwilling to bear

the uncertainty of change as organizations grow

– The desire to maximize rewards: Managers may

increase the size of the company to maximize their

own rewards even when this growth reduces

organizational effectiveness


33

– Overly bureaucratic culture: In large organizations,

property rights can become so strong that managers

spend all their time protecting their specific property

rights instead of working to advance the organization


34

• Changes in the environment

– Affect an organization’s ability to obtain scarce

resources, thereby leading to decline

– Makes it difficult for top management to anticipate the

need for change and to manage the way

organizations change and adapt to the environment


35

• 5 stages of decline

– Stage 1: Blinded

– Stage 2: Inaction

– Stage 3: Faulty action

– Stage 4: Crisis

– Stage 5: Dissolution

Weitzel and Jonsson’s Model of Organizational

Decline

Documents

MBH1683 | Leading Organisational Change · –Eg. large department store stock many different types of clothing but can stock a limited amount of each type, eg sportswear. Specialist