Organizations, like living organisms, undergo predictable stages of growth, decline, and renewal over time. Understanding organizational life cycles helps leaders anticipate crises, promote proactive adaptation, and enhance long-term success.
By Brad Nakase, Attorney
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The organizational life cycle describes the typical progression of events that occur throughout a company’s lifecycle. In what ways do these life cycles impact organizations? How do the tactics and actions of managers at pivotal stages of an organization’s growth impact its structure and design, as well as its chances of success or failure? Let’s investigate.
The organizational life cycle is a theory that describes the changes that businesses go through as they get bigger and more established.
Organizational growth and decline follow predictable patterns, just like living organisms.
According to most up-to-date sources, the first research to use a biological model for organizational growth was Mason Haire’s Modern Organizational Theory (1959).
In Principles of Economics, published in 1890, Alfred Marshall compared organizations to trees in a forest, providing the earliest historical reference to organizational life cycles.
A new organization, according to Marshall, is like a seedling fighting for light under the canopy of its taller neighbors.
Those that make it to adulthood stand tall enough to dominate their surroundings and seem as though they might go on forever. Yet they all eventually succumb to the elements and collapse.
What makes knowledge of the organizational life cycle so important?
Contrary to popular belief, traditional life cycles are more important in today’s age of competitive upheaval.
Given the rapidity of technological advancement, life cycles and the factors that influence them are of utmost importance in today’s business landscape. Once lasting years or even decades, cycles can now be completed in a matter of months.
A company is more prone to crisis and decline if its leaders do not actively address changes that occur throughout an organization’s life cycle.
Our actions as individuals cause organizations to go through various stages of existence. In businesses, that kind of behavior follows trends that make crises easy to spot. If a company isn’t ready for those kinds of crises, it might not make it to the next level of development.
Consider a well-established company: its members often mistakenly believe that “the way we do things” will remain unchanged. Stagnation is the unavoidable outcome.
The transition to the next stage doesn’t have to be a disaster if leaders and people are aware of potential problems in advance.
An organization has the ability to prepare for the transition from one phase to another.
If, for instance, individuals cling to rules and processes in order to safeguard their own little domains, it’s a red flag that stagnation is setting in, and you can head off a potential catastrophe by transferring leadership roles beforehand.
You can also be proactive and aim to renew often. That is, have some departments try out new ideas without affecting the rest of the company.
Experts in the field put forth a plethora of life cycle models between the years 1960 and 1990. While there are many shared features throughout the models, the viewpoints and research methodologies used to develop them are unique.
To help you compare, we’ve included some of the best-known models below.
Gordon L. Lippitt and Warren H. Schmidt applied theories of personality development to the lifecycle of a company in 1967.
They set out to predict what would happen at the birth, adolescence, and maturity periods of a lifecycle in terms of dealing with key challenges.
It wasn’t the company’s size, market share, or level of complexity that dictated its evolutionary stage, but rather how its managers dealt with six predicted crises.
Birth
At this early period, when the system is still developing, its survival and the establishment of the new organization are of paramount importance. Making choices about what to sacrifice and what to risk are the most important problems.
Youth
While the company is still young, its members are beginning to take pride in their work and the stability it has brought them. Its internal structure and assessment are further areas of focus.
Maturity
When an organization reaches maturity, its primary focus should be on becoming unique and flexible. In order to remain competitive, it must determine how to transform itself. And it has to decide what to share in order to add to society.
Organizational practices evolve with time, according to Larry E. Greiner’s age-and size-based growth model. This model relies on the idea that management challenges and principles are entrenched in time.
He drew inspiration from the work of European psychologists who argue that our actions are shaped by our past.
Leaders, as Greiner demonstrated, cling to outmoded systems in order to solidify their control.
Therefore, they ignore internal factors in favor of focusing solely on external influences in their pursuit of organizational growth. As a result, the organization experiences revolutionary stages that cause stagnation.
If the revolution is successful or fails, the company will continue to grow or shrink.
Market dynamics dictate how long an organization’s developmental and revolutionary stages last.
Evolution is successful when revenues are abundant, but such earnings merely buy time until a revolutionary change.
Greiner talks about five stages of growth, with times of revolution in between. The chain reaction begins with one stage and continues with the next.
Step One: Imagination
The company develops a product and a customer base during the creative phase. Entrepreneurial and visionary leaders respond to market demands. There is a leadership problem due to the disorganization and lack of supervision.
Second Stage: Guidance
Systematization, job standards, and a reporting hierarchy might emerge when enterprising individuals are clever enough to enlist competent business management.
Step 3: Relying on Others
When power gets overly concentrated, people start to feel like they don’t have control over their own lives. Companies strive to change by delegating more responsibilities, but if they aren’t prepared, top individuals will go elsewhere.
While effective delegation paves the way for business growth, it frequently produces managers who are too independent and too focused on their own areas of responsibility, leading to a “silo” effect and a subsequent control crisis.
Step Four: Collaboration
Official methods for planning, controlling, and managing resources are an effective response to the control crisis.
A “red-tape crisis” occurs when an organization’s size and complexity make it impossible to function under formal and inflexible processes, and a chasm opens up between HQ and field managers as a result.
Fifth Stage: Teamwork
If the company makes it through the fourth revolution unscathed, self-discipline, social control, and cooperation will have replaced bureaucracy.
Employees who were already mentally and physically drained would finally snap under the strain of too much teamwork and innovation pressure in Phase 5, as Greiner had foretold.
The impact of the revolutionary phase is already evident as more and more organizations prioritize the health, relaxation, and renewal of their employees.
Now that leaders have realized that their employees are the company’s most valuable asset, we can see that Phase 6 has already begun with a new social contract.
Dr. Ichak Adizes has been using the same concept he developed in 1979.
Nonetheless, his approach adapts to new circumstances by incorporating modern organizational techniques and technology.
According to Adizes’s theory, there are four main causes of life cycle changes:
Getting results
As the life cycle progresses, the organization takes on new responsibilities that shape its behavior.
Adizes outlines eleven phases that occur as an organization expands. When a company succeeds in overcoming the challenges presented by each stage of its growth, it has progressed.
Courting
In the first stage, you work on the idea, get funding, and establish your company.
Infant
Starting a business is exactly what it sounds like at this stage. The business can face the problem of infant mortality.
Get moving!
It all becomes really chaotic and frenetic. The founder/family trap occurs when a company’s priorities—work and family—become incompatible.
Young adults
As it enters its teenage years, a company starts to find its identity and carve out its niche. Due to early age or a dissatisfied entrepreneur, it can go through a divorce.
Prime
In its zenith, the company is robust, healthy, and making money.
The Demise
When a company’s competitive advantage begins to erode, the prime phase comes to a close.
Upper class
The organization’s presence and successes keep it strong, but it’s losing market share due to changes in technology and trends in the market.
Recrimination
The organization risks becoming meaningless due to internal strife, doubt, and challenges brought on by the downturn.
Bureaucracy
The company is trying to find a way out, either by selling itself or by simplifying its internal processes. It’s ready to be taken over for a low price.
Death
An organization will shut down, dissolve, declare bankruptcy, or liquidate its assets if it is unable to renew itself.
Miller and Friesen’s methodology followed a standard five-step approach.
They used data from a 36-company longitudinal study to inform their model proposal.
Emory University’s Robert K. Kazanjian and Robert Drazin reanalyzed their work and found that, instead of presuming the presence of various phases, it was a rare opportunity to evaluate real evidence.
The research by Miller and Friesen consists of five stages:
Birth
The owner-manager has the sway in the company, which is less than a decade old.
Growth
Revenue is increasing at a rate of more than 15%. Some formal policies and a functional structure are in place at the organization.
Maturity
The company’s increase in sales slows down, and it also gets more bureaucratic.
Revival
Sales start to grow again, and the business adds new products to its line. It is organized into divisions and has complex systems.
Decline
As sales plateau and innovation comes to a standstill, profitability begins to fall.
When compared to corporate models, small business models are characterized by the fact that the company’s success or failure is frequently dependent on the ideas, abilities, and resolve of a single owner.
Reluctance to let go of control is often the root cause of problems.
In this article, we will take a look at two models that illustrate the path to stability for small firms as they face an assortment of challenges.
Neil C. Churchill and Virginia L. Lewis investigated the stages of a small company’s life cycle in 1983. They began with ideas put out by Greiner and research conducted by Lawrence L. Steinmetz, who examined the progression of small business growth stages.
Churchill and Lewis were unhappy with earlier studies for a number of reasons, one of which was that they employed the wrong dimensions—size and maturity—and failed to account for the early phases of development.
In addition to size, diversity, and complexity, their approach takes into account five management factors: organizational style, systems, structure, strategic objectives, and owner participation.
There are five phases that small businesses go through, according to Churchill and Lewis:
Step One: Becoming
In the existence phase, a business’s owner works to maintain operations by attracting enough clients and satisfying their needs.
From managing employees to providing funding, the owner is involved in every step.
The aim is to stay in business without draining the bank account.
Step Two: Staying Alive
The business will transition into survival mode if it is able to survive and develop into a sustainable enterprise. Maintaining viability and breaking even are the objectives.
In the event that they are unable to progress beyond this stage, they will either sell or close their business.
Step Three: Success
When the business is in good financial shape, the owner can stay in this stage and maybe use it as a springboard for growth (Substage III-G) or step away (Stage III-D), hire leadership, and use it as a way to make money.
Step Four: Liftoff
The main concern during the takeoff phase is figuring out how to fund and implement quick expansion. The challenges lie in producing expansion capital and delegating to capable managers.
The process either fails or returns to an earlier step if the take-off does not occur.
Step Five: Maturity of Resources
At maturity, a company has all the necessary components for success: enough capital, competent leadership, efficient processes, and competent employees.
The objective is to stay afloat and stay out of trouble.
Lawrence L. Steinmetz came up with an S-curve growth model for startups in 1969. It has three important steps.
He laid out the steps in terms of leadership, beginning with the top-down management style typical of a startup and progressing to a more decentralized, divisional structure.
As the character of supervision evolves through each step, a leadership dilemma inevitably arises.
First Stage: Live or Die Supervision
Leadership in the first phase is not dependent on natural abilities but on the owner’s financial stake in the company.
If it doesn’t go under like half of the businesses out there, it will grow until the owner can’t keep tabs on everyone.
Managing the business, which the owner might not have the necessary skills for, consumes the majority of the day.
The company will collapse if the owner can’t go on to Stage II.
Second Stage: Working Under Supervision (Management Role)
The second stage is all about the owner learning to delegate and successfully managing the business so that they may take advantage of economies of scale and increase their profits.
But once the people, manufacturing, and organizational problems that every company faces start to eat away at profits, the rapid ascent flattens out.
Third Stage: Stability via Indirect Control
When the company reaches steady performance after Stage II, the owner will have to handle:
Fourth Stage: Organization by Department
Following a successful crisis management and advancement to Stage IV, the organization must decide whether to continue operating as a small business, develop through acquisitions or organic means, or combine with other businesses.
It might look like there isn’t an agreement when models show three, four, five, or ten steps. However, if you look closer, you’ll see that all of them have parts that are similar to the five stages of life for living things:
Lippitt and Schmidt list three phases, but they don’t mention decline or renewal. Additionally, they raise six important issues that require management attention; these issues may each indicate a separate stage.
The eleven phases of the Adizes model represent critical junctures that call for action. All of those things have evolved to fit the way people do things in the modern day.
A lot of companies these days are decentralized, meaning that various areas of the company could be in different phases.
A stable central core and innovative sub-organizations in the start-up or expansion phase are common components of such structures.
If you know how an organization changes over time at each stage of its life cycle, you can use that knowledge to make your organizational plan work for your business.
To avoid a catastrophe and have a smooth transition to the next stage of your business, it is important to start planning for the next phase of development early on. Thus, you will be prepared to face the new difficulties.
Above all, you may avoid the inevitable lethargy that comes with sustained success.
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