Organization Size, Life Cycle, and Decline<\/p>\n
Overview<\/p>\n
Viacheslav Lopatin\/Shutterstock.com. Data from INTERPOL.<\/p>\n
Learning Objectives<\/p>\n
After reading this chapter, you should be able to:<\/p>\n
Explain the advantages and disadvantages of large organization size.<\/p>\n
Describe how an organization progresses through four stages of the organizational life cycle.<\/p>\n
Define the characteristics of bureaucracy.<\/p>\n
Compare large organizations and small organizations along the dimensions of formalization, centralization, and personnel ratios.<\/p>\n
Identify approaches to reducing bureaucracy in large organizations.<\/p>\n
Contrast market and clan control with bureaucratic control.<\/p>\n
Describe the model of decline stages.<\/p>\n
Organization Size: Is Bigger Better?<\/p>\n
Pressures for Growth<\/p>\n
Dilemmas of Large Size<\/p>\n
Organizational Life Cycle<\/p>\n
Stages of Life-Cycle Development<\/p>\n
Organizational Characteristics during the Life Cycle<\/p>\n
Organizational Bureaucracy and Control<\/p>\n
What Is Bureaucracy?<\/p>\n
Size and Structural Control<\/p>\n
Bureaucracy in a Changing World<\/p>\n
Organizing Temporary Systems for Flexibility and Innovation<\/p>\n
Other Approaches to Reducing Bureaucracy<\/p>\n
Organizational Control Strategies<\/p>\n
Bureaucratic Control<\/p>\n
Market Control<\/p>\n
Clan Control<\/p>\n
Organizational Decline and Downsizing<\/p>\n
Definition and Causes<\/p>\n
A Model of Decline Stages<\/p>\n
Downsizing Implementation<\/p>\n
Summary and Interpretation<\/p>\n
A Look Inside Interpol<\/p>\n
The International Criminal Police Organization (INTERPOL) was created in 1923 and is the world\u2019s largest police organization. INTERPOL has a membership from 190 countries and 11 territories; its permanent headquarters is in Lyon, France (see photo). INTERPOL works with countries around the globe, fostering cooperation among people with different cultural values, languages, and legal and political systems. INTERPOL operates through National Central Bureaus in its member countries. Canada joined INTERPOL in 1949, and the Royal Canadian Mounted Police (RCMP) was delegated responsibility for INTERPOL in Canada.* In 2005, the then Secretary General of INTERPOL, Ronald Noble, visited Canada. \u201cIn a world where the law enforcement community faces increasing and changing threats from criminals and terrorists, the need for international police co-operation and communication has never been greater,\u201d he said. \u201cCanada, through the RCMP, has recognized the need for increased integration and coordination, and continues to play an important role in supporting INTERPOL and the world\u2019s police.\u201d*<\/p>\n
When INTERPOL works, it works very well, leading to the quick capture of international terrorists, murderers, and other fugitives. But when Noble took over the international police organization in 2000, it wasn\u2019t working very well. Rather than a fast-moving, crime-fighting organization, Noble found at INTERPOL a clumsy, slow-moving, bureaucratic agency that was ill-equipped to respond to the massive challenges of a world increasingly reliant on worldwide coordinated law enforcement to prevent tragedies such as the World Trade Center attacks of September 2001. If a request for assistance and information on Mohammed Atta, one of the terrorist leaders, for example, came into INTERPOL on a weekend, too bad\u2014the agency was closed until Monday morning. INTERPOL \u201cRed Notices\u201d (urgent, global wanted-persons alerts) took up to six months to process and were sent out by third-class mail to save postage costs.<\/p>\n
Noble knew that kind of slow response had to change. Since taking over as head of INTERPOL, he has moved the organization forward by leaps and bounds, reducing bureaucracy and transforming INTERPOL into a modern, fast-moving organization. Keeping INTERPOL open 24 hours a day, seven days a week, was one of his first changes. A policy of issuing red alerts for terrorists within 24 hours and notices for less-threatening criminals within 72 hours went into effect immediately after the attacks on September 11, 2001. Noble has reorganized INTERPOL to increase speed and flexibility and to focus on the \u201ccustomer\u201d (law enforcement groups in its member countries). Today, the most critical notices are translated immediately, posted online, and sent by express-delivery service.<\/p>\n
The reorganization also includes mechanisms for better coordination and information gathering. Noble\u2019s goal is for INTERPOL to become the number-one global police agency, one that coordinates and leads a multidimensional crime-fighting approach. Combating terrorism and organized crime, Noble knows, requires that everyone have the information they need when they need it and that local police, judicial, intelligence, diplomatic, and military services all work together. A major step toward a more coordinated worldwide effort came when INTERPOL recently appointed its first-ever representative to the United Nations.* INTERPOL is now directed by J\u00fcrgen Stock of Germany, who was appointed in 2014.* INTERPOL has a global structure and has various subunits. For example, based in Singapore since 2015, the INTERPOL Global Complex for Innovation is the centre of its activities in cybercrime, research and development, and capacity building. It also provides an Asian base for the organization in several crime areas.<\/p>\n
Purpose of This Chapter<\/p>\n
In this chapter, we explore the question of large versus small organizations and how size relates to structure and control. Organization size is a contextual variable that influences organizational design and functioning in the same way as contextual variables such as environment and goals. In the first section, we look at the advantages of large versus small size. Then, we explore an organization\u2019s life cycle and the structural characteristics at each stage. Next, we examine the historical need for bureaucracy as a means to control large organizations and compare bureaucratic control to various other control strategies. Finally, the chapter looks at the causes of organizational decline and discusses some methods for dealing with downsizing. By the end of this chapter, you should be able to recognize when bureaucratic control can make an organization effective and when other types of control are more appropriate.<\/p>\n
As organizations grow large and complex, they need more complex systems and procedures for guiding and controlling the organization. Unfortunately, these characteristics can also cause problems of inefficiency, rigidity, and slow response time. Every organization\u2014from international agencies to locally owned restaurants and auto body shops\u2014wrestles with questions about organizational size, bureaucracy, and control. Most entrepreneurs who start a business want their organization to grow. Yet, as organizations become larger, they often find it difficult to respond quickly to changes in the environment. Today\u2019s organizations are looking for ways to be more flexible and responsive to a rapidly changing environment while continuing to grow.<\/p>\n
During the 20th century large organizations became widespread, and bureaucracy has become a major topic of study in organizational theory.* Most large organizations have bureaucratic characteristics, which can be very effective. These organizations provide us with abundant goods and services and accomplish astonishing feats\u2014explorations of Mars, overnight delivery of packages to any location in the world, scheduling and coordination of thousands of airline flights a day\u2014that are testimony to their effectiveness. On the other hand, bureaucracy is also accused of creating inefficiency, rigidity, and demeaning routinized work that alienates both employees and the customers an organization is trying to serve.<\/p>\n
Now, take a few minutes to complete the You & Design feature to see whether you prefer to work for a small or large organization.<\/p>\n
You & Design What Size Organization for You?<\/p>\n
How do your work preferences fit organization size? Answer the following questions as they reflect your likes and dislikes. Please answer whether each item is Mostly True or Mostly False for you.<\/p>\n
Mostly True<\/p>\n
Mostly False<\/p>\n
1.<\/p>\n
I value stability and predictability in the organization I work for.<\/p>\n
2.<\/p>\n
Rules are meant to be broken.<\/p>\n
3.<\/p>\n
Years of service should be an important determinant of pay and promotion.<\/p>\n
4.<\/p>\n
I generally prefer to work on lots of different things rather than specialize in a few things.<\/p>\n
5.<\/p>\n
Before accepting a job, I would want to make sure the company had good benefits.<\/p>\n
6.<\/p>\n
I would rather work on a team where managerial responsibility is shared than work in a department with a single manager.<\/p>\n
7.<\/p>\n
I would like to work for a large, well-known company.<\/p>\n
8.<\/p>\n
I would rather earn $90,000 a year in a small company than earn $100,000 a year as a middle manager in a big company.<\/p>\n
SCORING: Give yourself one point for each odd-numbered item you marked as Mostly True and one point for each even-numbered item you marked Mostly False.<\/p>\n
INTERPRETATION: Working in a large organization is a very different experience from working in a small organization. The large organization is well-established, has good benefits, is stable, and has rules, well-defined jobs, and a clear management hierarchy of authority. A small organization may be struggling to survive, has excitement, multitasking, risk, and sharing of responsibility. If you scored 6 or more, a large organization may be for you. If you scored 3 or less, you may be happier in a smaller organization.<\/p>\n
Organization Size: Is Bigger Better?<\/p>\n
The question of big versus small begins with the notion of growth and the reasons so many organizations feel the need to grow large.<\/p>\n
Pressures for Growth<\/p>\n
The vision of practically every businessperson is to have his or her company become a member of the Fortune 500 list\u2014to grow fast and to grow large.* Sometimes this goal is more urgent than it is to make the best products or show the greatest profits. A decade ago, analysts and management scholars were heralding a shift away from \u201cbigness\u201d toward small, nimble companies that could quickly respond in a fast-changing environment. Yet, despite the proliferation of new, small organizations, the giants such as Procter & Gamble, Toyota, General Electric (GE), and Canadian Pacific Railway Ltd. (CPR) continue to grow. GE, for example, founded in 1878, now has 300,000 employees in 100 countries and competes in a variety of industries such as energy, transportation, finance, and television.* Similarly, CPR is growing through acquisition; it bought Dakota Minnesota & Eastern Railroad for $1.48 billion as its first step in its multibillion-dollar plan to haul U.S. coal.*<\/p>\n
Today, the business world has entered an era of the mega-corporation. Merger mania has given rise to behemoths such as DaimlerChrysler AG (now Daimler AG) and Citigroup.* The advertising industry is controlled by four giant agencies: the Omnicom Group and the Interpublic Group of Companies, both with headquarters in New York; London\u2019s WPP Group; and Publicis Groupe, based in Paris.* These huge conglomerates own scores of companies that soak up more than half the ad industry\u2019s revenues and reach into the advertising, direct-mail marketing, and public relations of every region on the planet. Moreover, these agencies grew primarily to better serve their clients, which were themselves growing larger and more global. Companies in all industries, from aerospace to consumer products to media, strive for growth to acquire the size and resources needed to compete on a global scale, to invest in new technology, and to control distribution channels and guarantee access to markets.*<\/p>\n
There are other pressures for organizations to grow. Many executives have observed that firms must grow to stay economically healthy and believe that to stop growing is to stagnate. To be stable means that customers may not have their demands fully met or that competitors will increase market share at the expense of your organization. For example, Digital Extremes, a computer games creator based in London, Ontario, has the goal of creating at least one new product each year. Digital Extremes was founded in 1994 and has 63 employees and generates about $8 million a year in revenues. According to the company\u2019s chief financial officer (and brother of the founder), Michael Schmalz, \u201c[What] you need to survive, much less prosper today, are blockbuster releases, \u2026 [better] yet what you want to do is to create a new game that will become a franchise, with each release breaking ground for the next.\u201d* Similarly, Neal Brothers Foods Inc., which sells organic snacks and food items, is looking to expand beyond its regional bases of Ontario and Qu\u00e9bec across the country. It is facing pressure from the large food brands as they have \u201cdeep pockets\u201d and \u201ccoast-to-coast name recognition.\u201d* Growth alone, however, is insufficient for success as companies such as The Loewen Group, Cinar Films, and 724 Solutions illustrate\u2014their global promise fizzled out.*<\/p>\n
Declining freight rates have pushed consolidation in the shipping industry. Danish giant M\u00f8ller-Maersk recently split its transport and logistics businesses and its oil-related businesses into two independent divisions so that each will have greater flexibility to continue growing through acquisitions. Maersk group CEO S\u00f8ren Skou said the company wanted to make sure it has \u201cthe fire power to do big things if opportunities come up.\u201d*<\/p>\n
Scale is crucial to economic success in marketing-intensive companies such as Coca-Cola, Procter & Gamble, and Molson-Coors. Greater size gives these companies power in the marketplace and thus increases revenues.* In addition, growing organizations can be vibrant, exciting places to work, which enables these companies to attract and keep quality employees. When the number of employees is expanding, an organization can offer many challenges and opportunities for advancement.<\/p>\n
Dilemmas of Large Size<\/p>\n
Most organizations feel compelled to grow, but how much and how large? What size organization is better poised to compete in a global environment? The arguments are summarized in Exhibit 8.1.<\/p>\n
Exhibit8.1.<\/p>\n
Source: Based on John A. Byrne, \u201cIs Your Company Too Big?\u201d BusinessWeek (March 27, 1989), 84\u201394; and Lawler, III, E.E. (1997) \u201cRethinking Organization Size,\u201d Organizational Dynamics 26, 2, 24\u201335.<\/p>\n
Differences between Large and Small Organizations<\/p>\n
Large<\/p>\n
Huge resources and economies of scale are needed for many organizations to compete globally. Only large organizations can build a massive pipeline in the North. Only a large corporation like Airbus Industrie can afford to build the A380, the world\u2019s first double-deck passenger airline, and only a large Virgin Atlantic Airways can buy it. Only a large Johnson & Johnson can invest hundreds of millions in new products such as bifocal contact lenses and a patch that delivers contraceptives through the skin. In addition, large organizations have the resources to be a supportive economic and social force in difficult times. In 2006, the Canadian Government undertook the largest evacuation in our country\u2019s history. Over<\/p>\n
14,000 citizens were evacuated from Lebanon to Cyprus and Turkey in ships and airplanes chartered by the government. While there was considerable criticism of the evacuation, only a large organization like the federal government would have been able to mobilize the necessary resources to conduct the rescue.* Large organizations also are able to get back to business more quickly following a disaster, giving employees a sense of security and belonging during an uncertain time.<\/p>\n
Large companies are standardized, often mechanistically run, and complex. The complexity offers hundreds of functional specialties within the organization to perform multifaceted tasks and to produce varied and complicated products. Moreover, large organizations, once established, can be a presence that stabilizes a market for years and at which managers can work for many years. The organization can provide longevity, raises, and promotions.<\/p>\n
Small<\/p>\n
The competing argument says small is beautiful because the crucial requirements for success in a global economy are responsiveness and flexibility in fast-changing markets. Small scale can provide significant advantages in terms of quick reaction to changing customer needs or shifting environmental and market conditions.*<\/p>\n
Small organizations have a flat structure and an organic, free-flowing management style that encourages entrepreneurship and innovation. Today\u2019s leading biotechnological drugs, for example, were all discovered by small, young firms, such as Montr\u00e9al\u2019s Theratechnologies, which developed a compound to treat HIV lipodystrophy, rather than by huge pharmaceutical companies.* Moreover, the personal involvement of employees in small firms encourages entrepreneurial motivation and commitment, because employees personally identify with the company\u2019s mission.<\/p>\n
Although the North American economy contains many large and successful organizations, research shows that as global trade has accelerated, smaller organizations have become the norm. Since the mid-1960s, most of the then-existing large businesses have lost market share worldwide.* Many large companies have grown even larger through merger or acquisition in recent years, yet research indicates that few of these mergers live up to their expected performance levels.* A study of ten of the largest mergers of all time, including AOL\/Time Warner, Glaxo\/SmithKline, and Daimler\/Chrysler, showed a significant decline in shareholder value for eight of the ten combined companies. Only two, Exxon\/Mobil and Travelers\/Citicorp, actually increased in value.* Although there are numerous factors involved in the decline in value, many researchers and analysts agree that, frequently, bigness just does not add up to better performance.* One interesting exception is the 2000 merger between Toronto Dominion Bank and Canada Trust. It remains one of the largest mergers and the most successful in Canada. One of the outcomes of the merger was the creation of a new approach to customer service: \u201c[One] of the most apparent manifestations of the Canada Trust DNA is in the TD Canada Trust \u201c8 to Late\u201d banking hours, in which many of the branches stay open until 8 p.m.\u201d* The company has been recognized for its customer service initiatives.<\/p>\n
Despite the increasing size of many companies, the economic vitality of Canada, as well as most of the world, is tied to small and mid-sized businesses. As of December 2018, there were 1.2 million employer businesses in Canada. Of these, 1.18 million (97.9 percent) were small businesses, 22,266 (1.9 percent) were medium-sized businesses, and 3,010 (0.2 percent) were large businesses.*<\/p>\n
The growing service sector also contributes to a decrease in average organization size, as many service companies remain small to better serve customers. The next In Practice illustrates the impact of small business in Canada.<\/p>\n
In Practice KinkyCurlyYaki<\/p>\n
Vivian Kaye started KinkyCurlyYaki after she noticed that many hair extension companies did not supply textures that looked like her hair.* Black hair care is a $6 billion business dominated by Asian manufacturers and suppliers that typically sell silky hair. Kaye wanted kinky curly hair instead. As she put it, \u201cI was so ready to say goodbye to that whole \u2018African in the front, Indian in the back\u2019 thing.\u201d Because she could not find a suitable supplier, she started her own company in 2012. The company is completely owned by Black women. It also partners and works with Black women entrepreneurs and artisans around the world. Vivian Kaye, in short, is an entrepreneur and an activist.<\/p>\n
It was not easy for Kaye to start and expand her business. She was overlooked by banks, accelerators, and other small-business development organizations. As well, she experienced racism as she was building her business. She received no financial assistance but even so was able to create a $1 million business. Kaye says she accomplished it because \u201cThe demographic I serve looks like me.\u201d* Her company is located in Hamilton, Ontario. In 2013, one year after opening, KinkyCurlyYaki had just under $500,000 in sales in the USA.<\/p>\n
Kaye is actively involved in the Founders Fund, an organization that acts as an accelerator for women\u2019s enterprises. Kaye wants to build the confidence of women \u201cwho don\u2019t fit into that girl boss criteria, that skinny white woman drinking lattes with her white friend and Gucci purse. I\u2019m the exact opposite of that. I\u2019m a plus-sized, Black, single mother who shops at Dollarama and understands the struggle.\u201d*<\/p>\n
Big-Organization\/Small-Organization Hybrid<\/p>\n
The paradox is that the advantages of small organizations sometimes enable them to succeed and, hence, grow large. Most of the 100 firms on Fortune\u2019s list of the fastest-growing companies are small firms characterized by an emphasis on being fast and flexible in responding to the environment.* Small companies, however, can become victims of their own success as they grow large, shifting to a mechanistic structure emphasizing vertical hierarchies and spawning \u201ccorporate drones\u201d rather than entrepreneurs. Giant companies are \u201cbuilt for optimization, not innovation.\u201d* Big companies may become committed to their existing products and technologies, and have a hard time supporting innovation for the future.<\/p>\n
The solution is what Jack Welch, retired chair of GE, called the \u201cbig-company\/small-company hybrid\u201d that combines a large corporation\u2019s resources and reach with a small company\u2019s simplicity and flexibility. Full-service global firms need a strong resource base and sufficient complexity and hierarchy to serve clients around the world. Size is not necessarily at odds with speed and flexibility, as evidenced by large companies such as GE, eBay, and Apple, which continue to try new things and move quickly to change the rules of business. The divisional structure, described in Chapter 4, is one way some large organizations attain a big\/small design. By reorganizing into groups of small companies, huge corporations such as Johnson & Johnson capture the mindset and advantages of smallness. Johnson & Johnson is actually a group of 204 separate companies. When a new product is created in one of Johnson & Johnson\u2019s 56 labs, a new company is created along with it.* According to the late Steve Jobs, Apple is still a start-up even though it is the world\u2019s largest technology company. He kept the start-up culture at Apple by<\/p>\n
(1)focusing the company\u2019s strategy on one cohesive vision,<\/p>\n
(2)encouraging debate and eliminating passive-aggressiveness about ideas, and<\/p>\n
(3)setting up cross-disciplinary reviews of how the company would succeed.*<\/p>\n
The development of new organizational forms, with an emphasis on decentralizing authority and cutting out layers of the hierarchy, combined with the increasing use of information technology, is making it easier than ever for organizations to be simultaneously large and small, thus capturing the advantages of each. Big companies also find a variety of ways to act both large and small. Retail giants Home Depot and Walmart, for example, use the advantage of size in areas such as advertising, purchasing, and raising capital; however, they also give each individual store the autonomy needed to serve customers as if it were a small, hometown shop.* To encourage innovation, the giant corporation Royal Dutch\/Shell created a strategy in its exploration-and-production division to set aside 10 percent of the division\u2019s research budget for so-called outlandish ideas. Anyone can apply for the funds, and decisions are made not by managers but by a small group of nonconformist employees.* Small organizations that are growing can also use these ideas to help them retain the flexibility and customer focus that fuelled their growth.<\/p>\n
Organizational Life Cycle<\/p>\n
A useful way to think about organizational growth and change is the concept of an organizational life cycle,* which suggests that organizations are born, grow older, and eventually die. Organizational structure, leadership style, and administrative systems follow a fairly predictable pattern through stages in the life cycle. Stages are sequential and follow a natural progression. See the next In Practice for an example of an aspiring small giant.<\/p>\n
In Practice The Grackle Coffee Company<\/p>\n
The Grackle Coffee Company (Grackle) was founded in 2006 and in its first year of operation made $500! Since then, it has steadily increased its sales and profits. The Grackle Coffee Company is located in Schomberg, a small Ontario town, and is situated on its main street. Its mission is to \u201cprovide good, healthy food and drink that make sense both environmentally and economically, \u2026 [using] high quality materials, with as much local sourcing and fair trading as possible, and ensuring it is skillfully prepared.\u201d* It now offers not only coffee but also ice cream, sandwiches, and various sweet treats from organizations that share its values. It sells fair trade coffee and chocolate and supports local artists and artisans by showcasing and selling their work. One of Grackle\u2019s baristas successfully competed against baristas from large coffee chains, and made it to the finals of the 2008 Canadian Barista Championship held in Montr\u00e9al.<\/p>\n
One of its distinguishing features is its green commitment. It uses biodegradable cups and spoons, which are more expensive than nonbiodegradable ones, to demonstrate its commitment to the environment. Grackle produces an occasional quarterly newsletter to share its financial successes and its plans for improvement of its facilities and its offerings. It appears not to have any interest in getting larger but is focused on improving the local customer experience. Grackle has continued to increase its sales and profit, year over year. As the owners note, \u201c[so] this is good! We seem to have a grasp on the new products and pricing of same, we sold most of what we bought, and in [general] things are pretty ok.\u201d*<\/p>\n
Stages of Life-Cycle Development<\/p>\n
Research on the organizational life cycle suggests that four major stages characterize organizational development.* These stages are illustrated in Exhibit 8.2, along with the problems associated with transition to each stage. Growth is not easy. Each time an organization enters a new stage in the life cycle, it enters a whole new arena with a new set of rules for how the organization functions internally and how it relates to the external environment.* For technology companies today, life cycles are getting shorter; to stay competitive, companies such as eBay and Google have to successfully progress through stages of the cycle faster.<\/p>\n
Exhibit8.2.<\/p>\n
Source: Adapted from Robert E. Quinn and Kim Cameron, \u201cOrganizational Life Cycles and Shifting Criteria of Effectiveness: Some Preliminary Evidence,\u201d Management Science 29 (1983), 33\u201351; and Larry E. Greiner, \u201cEvolution and Revolution as Organizations Grow,\u201d Harvard Business Review 50 (July\u2013August 1972), 37\u201346.<\/p>\n
Organizational Life Cycle<\/p>\n
Entrepreneurial stage. The entrepreneurial stage is the start-up of an organization. When an organization is born, the emphasis is on creating a product or service and surviving in the marketplace. The founders are entrepreneurs, and they devote their full energies to the technical activities of production and marketing. The organization is informal and nimble. The hours of work are long. Control is based on the owners\u2019 personal supervision. Growth is from a creative new product or service. Apple was in the entrepreneurial stage when it was created by Steve Jobs and Stephen Wozniak in Wozniak\u2019s parents\u2019 garage.<\/p>\n
Crisis: Need for leadership. As the organization starts to grow, the larger number of employees causes problems. The creative and technically oriented owners are confronted with management issues, but they may prefer to focus their energies on making and selling the product or inventing new products and services. At this time of crisis, entrepreneurs must either adjust the structure of the organization to accommodate continued growth or else bring in strong managers who can do so. When Apple began a period of rapid growth, A.C. Markkula was brought in as a leader because neither Jobs nor Wozniak was qualified or cared to manage the expanding company.<\/p>\n
Collectivity stage. In the collectivity stage, the organization grows and develops a more elaborate design. If the leadership crisis is resolved, strong leadership is obtained and the organization begins to develop clear goals and direction. Departments are established along with a hierarchy of authority, job assignments, and a beginning division of labour. Web search engine Google has quickly moved from the entrepreneurial to the collectivity stage. Founders Larry Page and Sergey Brin devoted their full energy to making sure Google is the most powerful, fastest, and simplest search engine available, and brought in a skilled manager, former Novell CEO Eric Schmidt, to run the company. Google has hired other experienced executives to manage various functional areas and business units as the organization grows.* In the collectivity stage, employees identify with the mission of the organization and spend long hours helping the organization succeed. Members feel part of a collective, and communication and control are mostly informal although a few formal systems begin to appear. Apple was in the collectivity stage during the rapid-growth years from 1978 to 1981. Employees threw themselves into the business as the major product line was established and more than 2,000 dealers signed on.<\/p>\n
Crisis: Need for delegation with control. If the new management has been successful, lower-level employees gradually find themselves restricted by the strong top-down leadership. Lower-level managers begin to acquire confidence in their own functional areas and want more discretion. An autonomy crisis occurs when top managers, who were successful because of their strong leadership and vision, do not want to give up responsibility. Top managers want to make sure that all parts of the organization are coordinated and pulling together. The organization needs to find mechanisms to control and coordinate departments without direct supervision from the top.<\/p>\n
Formalization stage. At this stage, the organization becomes more bureaucratic. The formalization stage involves the installation and use of rules, procedures, and control systems. Communication is less frequent and more formal. Engineers, human resource specialists, and other staff may be added. Top management becomes concerned with issues such as strategy and planning and leaves the operations of the firm to middle management. Product groups or other decentralized units may be formed to improve coordination. Incentive systems based on profits may be implemented to motivate managers to work toward what is best for the overall company. When effective, the new coordination and control systems enable the organization to continue growing by establishing linkage mechanisms between top management and field units. Apple was in the formalization stage in the mid-to-late 1980s.<\/p>\n
Crisis: Need to deal with too much red tape. At this point in the organization\u2019s development, the proliferation of systems and programs may begin to strangle middle-level executives. The organization seems bureaucratized. Middle management may resent the intrusion of staff. Innovation may be restricted. The organization seems too large and complex to be managed through formal programs. It was at this stage of Apple\u2019s growth that Jobs resigned from the company and a new CEO took control and faced his own management challenges.<\/p>\n
Elaboration stage. In the elaboration stage, the organization becomes more flexible in its design. The solution to the red-tape crisis is a new sense of collaboration and teamwork. Throughout the organization, managers develop skills for confronting problems and working together. Bureaucracy may have reached its limit. Social control and self-discipline reduce the need for additional formal controls. Managers learn to work within the bureaucracy without adding to it. Formal systems may be simplified and replaced by manager teams and task forces. To achieve collaboration, teams are often formed across functions or divisions of the company. The organization may also be split into multiple divisions to maintain a small-company philosophy. Apple is currently in the elaboration stage of the life cycle. It appears that Apple is looking<\/p>\n
(1)to create a vehicle that defines transportation in the same way the iPhone defined mobile;<\/p>\n
(2)to develop an end-to-end ecosystem of products and services for highly immersive AR\/VR experiences for both consumer and business use; and<\/p>\n
(3)to develop integrated edge intelligence models.*<\/p>\n
Crisis: Need for revitalization. After the organization reaches maturity, it may enter periods of temporary decline.* A need for renewal may occur every 10 to 20 years. The organization shifts out of alignment with the environment or perhaps becomes slow moving and over-bureaucratized and must go through a stage of streamlining and innovation. Top managers are often replaced during this period. At Apple, the top spot has changed hands a number of times as the company struggled to revitalize. CEOs John Sculley, Michael Spindler, and Gilbert Amelio were each ousted by the board as Apple\u2019s problems worsened. Steve Jobs returned in mid-1997 to run the company he had founded nearly 25 years earlier. During those 25 years, Jobs had gained management skills and experience he needed to help Apple through its problems. An older and smarter Jobs quickly reorganized the company, weeded out inefficiencies, and refocused Apple on innovative products for the consumer market, introducing a sleek new iMac in one of the hottest new product launches ever. Even more importantly, Jobs brought the entrepreneurial spirit back to Apple by moving the company into a whole new direction with the iPod music system. The iPod jump-started growth at Apple as the personal computer market continued to decline. Sales and profits are booming at Apple thanks to the iPod, the iPhone, the Apple Watch, and an expanding line of innovative consumer electronics products.* In 2010, Apple surpassed Microsoft to become the world\u2019s largest technology company and maintained its position in 2020.* All mature organizations have to go through periods of revitalization or they will decline, as shown in the last stage of Exhibit 8.2.<\/p>\n
The next In Practice box highlights near-death experiences that one large traditional Canadian business has endured and survived\u2014so far.<\/p>\n
In Practice Stelco<\/p>\n
Stelco was founded in 1910, the result of a merger between several mills in Hamilton and Montr\u00e9al and smaller ones between Gananoque and Brantford. William McMaster and Max Aitken, key industrialists at the time, worked together to create The Steel Company of Canada. Stelco survived the depression of the early 1920s and the Great Depression of the 1930s. It played a significant role in World War II as it re-engineered its facilities to meet the demands of the war. Interestingly, Stelco maintained pre-war prices during the war.<\/p>\n
Fast forward a few decades, Stelco suffered two setbacks. In 2004, it filed for bankruptcy protection as the company faced a \u201cserious viability issue\u201d: costs were too high and it was unable to compete with other steel manufacturers.* In 2014 Stelco again faced bankruptcy, emerging three years later when it was sold to U.S.-based Bedrock Industries.<\/p>\n
In a surprising move, the CEO of Stelco decided during the 2020 COVID-19 pandemic to invest $110 million to make Stelco more efficient. CEO Alan Kestenbaum comments, \u201cYou have to have the audacity to spend money at a time like this.\u201d* Meanwhile, other steel companies such as ArcelorMittal S.A., U.S. Steel, and Kobe Steel were reducing spending.<\/p>\n
It is too early to tell if Kestenbaum\u2019s gamble will pay off, but it is a bold strategy to go larger when others are going smaller.<\/p>\n
Eighty-four percent of organizations that make it past the first year still fail within five years because they can\u2019t make the transition from the entrepreneurial stage.* The transitions become even more difficult as organizations progress through future stages of the life cycle, as you will see from the Nike example. Organizations that do not successfully resolve the problems associated with these transitions are restricted in their growth and may even fail. From within an organization, the life-cycle crises are very real. For example, Sam the Record Man was not able to survive the significant decline in CD sales as consumers shifted to digital downloading as their preferred method for buying music. In the first quarter of 2007, CD sales dropped 35 percent in Canada! According to Bobby Sniderman, son of the founder, \u201c[we] are making a responsible decision [to close on June 30, 2007] in recognizing the status of the record industry and the increasing impact of technology.\u201d*<\/p>\n
In Practice Nike<\/p>\n
Nike has always been sort of the \u201cbad boy\u201d of sports marketing. Phil Knight and his college track coach, Bill Bowerman, started the company with $500 each and got the inspiration for their first training shoe from a waffle iron (the shoe was named the Waffle Trainer because of its unique treads). Nike reveres creativity above all; leaders have supported a free-wheeling culture and seemed to almost scoff at the business side of things. Until recently, the company had been run largely on instinct and bravado.<\/p>\n
But Nike began to suffer from its anti-establishment attitude, and Phil Knight recently made some major changes to move the company out of its lingering adolescence into a new stage of the life cycle. After hitting the $9.6 billion mark in 1998, sales stagnated. The company\u2019s previous approach of guessing how many shoes to manufacture and then flooding the market with them backfired when Nikes were left gathering dust on store shelves. A series of poorly conceived acquisitions and accusations that workers were being exploited in Nike\u2019s Asian factories didn\u2019t help matters. Nike didn\u2019t have the discipline and the formal systems it needed to cope with these kinds of problems. Consider that for a couple of years in the 1990s, the huge company didn\u2019t even have a chief financial officer. When Nike\u2019s French division went millions over budget in a promotional effort, Wall Street started asking if anyone was in charge at the company.<\/p>\n
Although the Nike culture was powerful in terms of design and marketing, Knight realized the company could no longer operate like it was a young, small, entrepreneurial firm. Getting the basic pieces of the business side right\u2014operating principles, financial management, supply chain and inventory management, and so forth\u2014became a priority. He started by putting together a new team of experienced managers, including some Nike veterans but also some outsiders, such as CFO Donald Blair, who was lured from Pepsi. These managers, in turn, have brought the discipline Nike needs, such as establishing clear lines of authority, setting up top-flight systems for inventory and supply-chain management, and creating a department to deal with labour issues.<\/p>\n
Nike seems to have successfully moved into the formalization stage, and the new-found discipline is paying off. After four years under the new management team, Nike\u2019s sales climbed 15 percent and the company earned almost $1 billion.*<\/p>\n
Phil Knight\u2019s management overhaul didn\u2019t stop until it reached the top. In early 2005, Knight retired as CEO of the company and picked Bill Perez, former CEO of S.C. Johnson Company, as his successor.<\/p>\n
Some observers worried that without Knight, Nike would again flounder. However, Knight believed Perez was the right leader for the organization\u2019s current stage of the life cycle. Knight continues to provide vision and guidance in his role as chairman, but the day-to-day running of the company is now in the hands of others.* Mark Parker became president and chief executive officer in 2006.<\/p>\n
Nike has had to deal with significant criticism about the working conditions of its factories. The global anti-sweatshop movement has been targeting Nike since 1996 as it is the world\u2019s largest shoe supplier.* Nike responded by setting up an inspection system whereby its staff inspects several hundred factories a year, grades them on labour standards, and works with managers to improve problems. Nike also allows random factory inspections by the Fair Labour Association.*<\/p>\n
More recently Nike burnished its \u201cbad boy\u201d image by making an advertisement, Dream Crazy, with Colin Kaepernick. Kaepernick was reviled by Donald Trump and others for taking a knee during the playing of the American national anthem to protest racial injustice. Not only did the advertisement garner awards, Nike\u2019s sales increased 31 percent after the advertisement was aired.* Kaepernick has been shunned by the National Football League since he took a knee. However, Kaepernick has many, many supporters\u2014in sports, in other professions, and around the world.<\/p>\n
Organizational Characteristics during the Life Cycle<\/p>\n
As organizations evolve through the four stages of the life cycle, changes take place in structure, control systems, innovation, and goals. The organizational characteristics associated with each stage are summarized in Exhibit 8.3.<\/p>\n
Exhibit8.3.<\/p>\n
CHARACTERISTIC<\/p>\n
1. ENTREPRENEURIAL<\/p>\n
2. COLLECTIVITY<\/p>\n
3. FORMALIZATION<\/p>\n
4. ELABORATION<\/p>\n
NONBUREAUCRATIC<\/p>\n
PRE-BUREAUCRATIC<\/p>\n
BUREAUCRATIC<\/p>\n
VERY BUREAUCRATIC<\/p>\n
Structure<\/p>\n
Informal, one-person show<\/p>\n
Mostly informal, some procedures<\/p>\n
Formal procedures, division of labour, new specialties added<\/p>\n
Teamwork within bureaucracy, small-company thinking<\/p>\n
Products or services<\/p>\n
Single product or service<\/p>\n
Major product or service, with variations<\/p>\n
Line of products or services<\/p>\n
Multiple product or service lines<\/p>\n
Reward and control systems<\/p>\n
Personal, paternalistic<\/p>\n
Personal, contribution to success<\/p>\n
Impersonal, formalized systems<\/p>\n
Extensive, tailored to product and department<\/p>\n
Innovation<\/p>\n
By owner-manager<\/p>\n
By employees and managers<\/p>\n
By separate innovation group<\/p>\n
By institutionalized R&D department<\/p>\n
Goal<\/p>\n
Survival<\/p>\n
Growth<\/p>\n
Internal stability, market expansion<\/p>\n
Reputation, complete organization<\/p>\n
Top management style<\/p>\n
Individualistic, entrepreneurial<\/p>\n
Charismatic, direction-giving<\/p>\n
Delegation with control<\/p>\n
Team approach, attack bureaucracy<\/p>\n
Source: Adapted from Larry E. Greiner, \u201cEvolution and Revolution as Organizations Grow,\u201d Harvard Business Review 50 (July\u2013August 1972), 37\u201346; G. L. Lippitt and W. H. Schmidt, \u201cCrises in a Developing Organization,\u201d Harvard Business Review 45 (November\u2013December 1967), 102\u2013112; B. R. Scott, \u201cThe Industrial State: Old Myths and New Realities,\u201d Harvard Business Review 51 (March\u2013April 1973), 133\u2013148; Robert E. Quinn and Kim Cameron, \u201cOrganizational Life Cycles and Shifting Criteria of Effectiveness,\u201d Management Science 29 (1983), 33\u201351.<\/p>\n
Organization Characteristics during Four Stages of the Life Cycle<\/p>\n
Entrepreneurial<\/p>\n
Initially, the organization is small, nonbureaucratic, and a one-person show. The top manager provides the structure and control system. Organizational energy is devoted to survival and the production of a single product or service. For example, Michael Cowpland, founder of Corel Corporation and co-founder of Mittel, took over the tiny ZIM Technologies International in 2001 so he could \u201cget his hands dirty and work with start-up companies [again].\u201d*<\/p>\n
Collectivity<\/p>\n
This is the organization\u2019s youth. Growth is rapid, and employees are excited and committed to the organization\u2019s mission. The structure is still mostly informal, although some procedures are emerging. Strong charismatic leaders like Steve Jobs of Apple or Phil Knight at Nike provide direction and goals for the organization. Continued growth is a major goal.<\/p>\n
Formalization<\/p>\n
At this point, the organization is entering mid-life. Bureaucratic characteristics emerge. The organization adds staff support groups, formalizes procedures, and establishes a clear hierarchy and division of labour. At the formalization stage, organizations may also develop complementary products to offer a complete product line. Innovation may be achieved by establishing a separate innovation department. Major goals are internal stability and market expansion. Top management delegates, but it also implements formal control systems.<\/p>\n
At this stage, for example, Microsoft founder Bill Gates turned the daily management of the company over to Steven Ballmer, who developed and implemented formal planning, management, and financial systems throughout the company. Gates wanted someone who could manage daily business operations so that he could focus his energies on technological innovation.*<\/p>\n
Elaboration<\/p>\n
The mature organization is large and bureaucratic, with extensive reward and control systems, rules, and procedures. Top managers attempt to develop a team orientation within the bureaucracy to prevent further bureaucratization. Their goal is to establish a complete organization that provides multiple product or service lines well. Innovation is institutionalized through an R&D department. Management may attack the bureaucracy and streamline it.<\/p>\n
Growing organizations move through stages of a life cycle, and each stage is associated with specific characteristics of structure, control systems, goals, and innovation. The life-cycle phenomenon is a powerful concept used for understanding problems facing organizations and how managers can respond in a positive way to move an organization to the next stage. Exhibit 8.4 illustrates how a huge company might evolve!<\/p>\n
Exhibit8.4.<\/p>\n
Bradford Veley, www.CartoonStock.com<\/p>\n
Organizational Bureaucracy and Control<\/p>\n
As organizations progress through the life cycle, they usually take on bureaucratic characteristics as they grow larger and more complex. The systematic study of bureaucracy was launched by Max Weber, a sociologist who studied government organizations in Europe and developed a framework of administrative characteristics that would make large organizations rational and efficient.* Weber wanted to understand how organizations could be designed to play a positive role in the larger society.<\/p>\n
What Is Bureaucracy?<\/p>\n
Although Weber perceived bureaucracy as a threat to basic personal liberties, he also recognized it as the most efficient possible system of organizing. He predicted the triumph of bureaucracy because of its ability to ensure more efficient functioning of organizations in both business and government settings. Weber identified a set of organizational characteristics, listed in Exhibit 8.5, that could be found in successful bureaucratic organizations.<\/p>\n
Exhibit8.5.<\/p>\n
Weber\u2019s Dimensions of Bureaucracy<\/p>\n
In a bureaucracy, rules and standard procedures enable organizational activities to be performed in a predictable, routine manner. Specialized duties mean that each employee had a clear task to perform. Hierarchy of authority provides a sensible mechanism for supervision and control. Technical competence was the basis by which people were hired rather than friendship, family ties, and favouritism, which dramatically increased work performance. The separation of the position from the position holder means that individuals did not own or have an inherent right to the job, which promoted efficiency. Written records provided an organizational memory and continuity over time.<\/p>\n
Although bureaucratic characteristics carried to an extreme are widely criticized today, the rational control introduced by Weber was a significant idea and a new form of organization. Bureaucracy provided many advantages over organization forms based on favouritism, social status, family connections, or graft. The tradition of giving government posts to relatives was widespread in places such as China; however, China\u2019s emerging class of educated people does not like seeing the best jobs going to children and other relatives of officials.* By comparison, the logical and rational form of organization described by Weber allows work to be conducted efficiently and according to established rules.<\/p>\n
The bureaucratic characteristics listed in Exhibit 8.5 can have a positive impact on many large firms. Consider United Parcel Service (UPS), one of the most efficient large organizations in North America.<\/p>\n
In Practice United Parcel Service<\/p>\n
United Parcel Service, sometimes called Big Brown for the colour of its delivery trucks and employee uniforms, is the largest package-distribution company in the world, delivering more than 13 million packages every business day. UPS is also gaining market share in air service, logistics, and information services. Television commercials ask, \u201cWhat can Brown do for you today?\u201d signifying the company\u2019s expanding global information services.<\/p>\n
How did UPS become so successful? Many efficiencies were realized through adoption of the bureaucratic model of organization. UPS is bound up in rules and regulations. It teaches drivers an astounding 340 precise steps to correctly deliver a package. For example, it tells them how to load their trucks, how to fasten their seat belts, how to walk, and how to carry their keys. Strict dress codes are enforced\u2014clean uniforms (called browns) every day, black or brown polished shoes with non-slip soles, no shirt unbuttoned below the first button, no hair below the shirt collar, no beards, no smoking in front of customers, and so on. The company conducts three-minute physical inspections of its drivers each day, a practice begun by the founder in the early 1900s. There are safety rules for drivers, loaders, clerks, and managers. Employees are asked to clean off their desks at the end of each day so they can start fresh the next morning. Managers are given copies of policy books with the expectation that they will use them regularly, and memos on various policies and rules circulate by the hundreds every day.<\/p>\n
Despite the strict rules, employees are satisfied and UPS has a retention rate of more than 90 percent. Employees are treated well and paid well, and the company has maintained a sense of equality and fairness. Everyone is on a first-name basis. The policy book states, \u201cA leader does not have to remind others of his authority by use of a title. Knowledge, performance, and capacity should be adequate evidence of position and leadership.\u201d Technical qualification, not favouritism, is the criterion for hiring and promotion. Top executives started at the bottom\u2014the current chief executive, James Kelly, for example, began as a temporary holiday-rush driver. The emphasis on equality, fairness, and a promote-from-within mentality inspires loyalty and commitment throughout the ranks.<\/p>\n
UPS has also been a leader in using new technology to enhance reliability and efficiency. Drivers use a computerized clipboard, called DIAD (Delivery Information Acquisition Device), to record everything from drivers\u2019 miles per gallon to data on parcel delivery. Technology is enabling UPS to expand its services and become a global mover of knowledge and information as well as packages. Top managers know the new technology means some of UPS\u2019s rigid procedures may have to bend. However, it\u2019s likely they won\u2019t bend too far. When you\u2019re moving more than 13 million items a day, predictability and stability are the watchwords, whether you\u2019re using the company\u2019s first Model T Ford or its latest technological wizardry.*<\/p>\n
UPS illustrates how bureaucratic characteristics increase with large size. UPS is so productive and dependable that it dominates the small package\u2013delivery market. As it expands and transitions into a global, knowledge-based logistics business, UPS managers may need to find effective ways to reduce bureaucracy. The new technology and new services place more demands on workers, who may need more flexibility and autonomy to perform well. Now, let\u2019s look at some specific ways size affects organizational structure and control.<\/p>\n
Size and Structural Control<\/p>\n
In the field of organizational theory, organization size has been described as an important variable that influences structural design and methods of control. Should an organization become more bureaucratic as it grows larger? In what size organizations are bureaucratic characteristics most appropriate? More than 100 studies have attempted to answer these questions.* Most of these studies indicate that large organizations are different from small organizations along several dimensions of structure, including formalization, centralization, and personnel ratios.<\/p>\n
Formalization and Centralization<\/p>\n
Formalization, as described in Chapter 1, refers to rules, procedures, and written documentation, such as policy manuals and job descriptions, which prescribe the rights and duties of employees.* The evidence supports the conclusion that large organizations are more formalized, as at UPS. The reason is that large organizations rely on rules, procedures, and paperwork to achieve standardization and control across their large numbers of employees and departments, whereas top managers can use personal observation to control a small organization.*<\/p>\n
Centralization refers to the level of hierarchy with authority to make decisions. In centralized organizations, decisions tend to be made at the top. In decentralized organizations, similar decisions would be made at a lower level.<\/p>\n
Decentralization represents a paradox because, in the perfect bureaucracy, all decisions would be made by the top administrator, who would have perfect control. However, as an organization grows larger and has more people and departments, decisions cannot be passed to the top because senior managers would be overloaded. Thus, the research on organization size indicates that larger organizations permit greater decentralization.* Consider Microsoft, where former CEO Steven Ballmer and Chairman Bill Gates used to make every important decision. In a company with 50,000 employees and multiple product lines, however, the traditional structure was too top-heavy; decision making had slowed to a snail\u2019s pace. Ballmer reorganized the 50,000-employee firm into seven divisions and gave division heads greater decision-making authority.* In small start-up organizations, on the other hand, the founder or top executive can effectively be involved in every decision, large and small.<\/p>\n
Personnel Ratios<\/p>\n
Another characteristic of bureaucracy relates to personnel ratios for administrative, clerical, and professional support staff. The most frequently studied ratio is the administrative ratio.* Two patterns have emerged. The first is that the ratio of top administration to total employees is actually smaller in large organizations,* indicating that organizations experience administrative economies as they grow larger. The second pattern concerns clerical and professional support staff ratios.* These groups tend to increase in proportion to organization size. The clerical ratio increases because of the greater communication and reporting requirements needed as organizations grow larger. The professional staff ratio increases because of the greater need for specialized skills in larger, complex organizations.*<\/p>\n
The net effect for direct workers is that they decline as a percentage of total employees. Although large organizations reduced overhead during the difficult economic years of the 1980s, overhead costs for many North American corporations began creeping back up again as revenues soared during the late 1990s.* With the declining North American economy following the crash of the technology sector, threats of war and terrorism, and general feelings of uncertainty, many companies have again been struggling to cut overhead costs. Keeping costs for administrative, clerical, and professional support staff low represents an ongoing challenge for large organizations.* Similarly, organizations, particularly those in the United States, that are trying to recover from the 2008\u20132009 recession are neither hiring individuals nor creating jobs.*<\/p>\n
Exhibit 8.6 illustrates administrative and support ratios for small and large organizations. As organizations increase in size, the administrative ratio declines and the ratios for other support groups increase.* The net effect for direct workers is that they decline as a percentage of total employees. In summary, whereas top administrators do not make up a disproportionate number of employees in large organizations, the idea that proportionately greater overhead is required in large organizations is supported.<\/p>\n
Exhibit8.6.<\/p>\n
Percentage of Personnel Allocated to Administrative and Support Activities<\/p>\n
Bureaucracy in a Changing World<\/p>\n
Weber\u2019s prediction of the triumph of bureaucracy proved accurate. Bureaucratic characteristics have many advantages and have worked extremely well for many of the needs of the industrial age.* By establishing a hierarchy of authority and specific rules and procedures, bureaucracy provided an effective way to bring order to large groups of people and prevent abuses of power. Impersonal relationships based on roles rather than people reduced the favouritism and nepotism characteristic of many pre-industrial organizations. Bureaucracy also provided for systematic and rational ways to organize and manage tasks too complex to be understood and handled by a few individuals, thus greatly improving the efficiency and effectiveness of large organizations.<\/p>\n
The world is rapidly changing, however, and the machine-like bureaucratic system of the industrial age no longer works so well as organizations face new challenges. With global competition and uncertain environments, many organizations are fighting against increasing formalization and professional staff ratios. The problems caused by over-bureaucratization are evident in the inefficiencies of some government organizations. Some agencies have so many clerical staff members and confusing job titles so that no one is really sure who does what. Some confusing titles include initiative officer, undersecretary to the subcommittee, and associate vice president!*<\/p>\n
Some critics have blamed government bureaucracy for intelligence, communication, and accountability failures related to the September 11, 2001, terrorist attacks in the United States; the space shuttle disasters; the December 2004 tsunami; and the 2010 earthquake in Haiti. \u201cEvery time you add a layer of bureaucracy, you delay the movement of information up the chain of command. \u2026 And you dilute the information because at each step some details are taken out.\u201d*<\/p>\n
The Vatican\u2019s bureaucracy, for example, has been blamed for the inability of the Catholic Church to respond to scandals and better serve its members. Pope Francis is only the latest of popes who have tried for decades\u2014and, so far, failed\u2014to change the Vatican. \u201cInstead of transforming the structure,\u201d said a former superior general of a Roman Catholic religious order, \u201cthe structure transforms you.\u201d Communication among the various departments moves at a snail\u2019s pace.*<\/p>\n
Many business organizations, too, need to reduce formalization and bureaucracy. Narrowly defined job descriptions, for example, tend to limit the creativity, flexibility, and rapid response needed in today\u2019s knowledge-based organizations. A survey of 7,000 people to determine how bureaucracy affected their work and found a decided increase in the number of days it takes to get a decision as companies grow larger. In organizations with 100 to 1,000 employees, the average number of days needed to get a decision about a non-budgeted expenditure was about 15. In organizations with 5,000 or more employees, the time required had increased to 20 days.* At Microsoft, some employees say getting approval for even routine matters can take weeks. One employee left the company because he was tired of being inundated with paperwork. \u201cThe smallest issue would balloon into a nightmare of a thousand e-mails,\u201d he says.* Managers are trying to find ways to cut the bureaucracy so people can do their jobs more effectively and help Microsoft stay competitive. Like Microsoft, many organizations are fighting against increasing formalization and professional staff ratios.<\/p>\n
Organizing Temporary Systems for Flexibility and Innovation<\/p>\n
How can organizations overcome the problems of bureaucracy in rapidly changing environments? Some are implementing innovative structural solutions. One structural concept, called the incident command system (ICS), is commonly used by organizations such as police and fire departments or other emergency management agencies that have to respond rapidly to emergency or crisis situations. The incident command system was developed to maintain the efficiency and control benefits of bureaucracy yet prevent the problem of slow response to crises.* The approach is being adapted by other types of organizations to help them respond quickly to new opportunities, unforeseen competitive threats, or organizational crises.<\/p>\n
The basic idea behind the ICS is that the organization can glide smoothly between a highly formalized, hierarchical structure that is effective during times of stability and a more flexible, loosely structured one needed to respond well to unexpected and demanding environmental conditions. The hierarchical side with its rules, procedures, and chain of command helps maintain control and ensure adherence to rules that have been developed and tested over many years to cope with well-understood problems and situations. However, during times of high uncertainty, the most effective structure is one that loosens the lines of command and enables people to work across departmental and hierarchical lines to anticipate, avoid, and solve unanticipated problems within the context of a clearly understood mission and guidelines.<\/p>\n
The approach can be seen on the deck of a nuclear aircraft carrier, where there is a rigid chain of command and people are expected to follow orders promptly and without question.* Formalization is high, with manuals detailing proper procedures for every known situation. However, at times of high uncertainty, such as the launching and recovery of planes during real or simulated warfare, an important shift occurs. The rigid hierarchy seems to dissolve, and a loosely organized, collaborative structure in which sailors and officers work together as colleagues takes its place. People discuss the best procedures to use, and everyone typically follows the lead of whoever has the most experience and knowledge in a particular area. During this time, no one is thinking about job titles, authority, or chain of command; they are just thinking about the best way to accomplish the mission safely.<\/p>\n
A variety of mechanisms ensure smooth functioning of the ICS.* For example, despite the free-flowing and flexible nature of crisis response, someone is always in charge. The incident commander is ultimately responsible for all activities that occur, and everyone knows clearly who is in charge of what aspect of the situation. This helps maintain order in a chaotic environment. The key is that, whereas formal authority relationships are fixed, decision-making authority is dispersed to individuals who best understand the particular situation. The system is based on trust that lower-level workers have a clear understanding of the mission and make decisions and take actions within guidelines that support the organization\u2019s goals. Developing an ICS requires a significant commitment of time and resources, but it offers great potential for organizations that require extremely high reliability, flexibility, and innovation. One organization that effectively uses the incident command model is the Salvation Army, as described in this chapter\u2019s Leading by Design box.<\/p>\n
Leadingby Design<\/p>\n
The Salvation Army<\/p>\n
The Salvation Army has been called \u201cthe most effective organization in the world\u201d by leading management scholar the late Peter Drucker. One reason the organization is so effective and powerful is its approach to organizing, which makes use of the incident command system to provide the right amount of structure, control, and flexibility to meet the requirements of each situation. The Salvation Army refers to its approach as \u201corganizing to improvise.\u201d<\/p>\n
The Salvation Army provides day-to-day assistance to homeless and economically disadvantaged people. In addition, the organization rushes in whenever there is a major disaster\u2014whether a tornado, flood, hurricane, airplane crash, or terrorist attack\u2014to network with other agencies to provide disaster relief. Long after the most desperate moments of the initial crisis have passed, the Salvation Army continues helping people rebuild their lives and communities\u2014offering financial assistance; meeting physical needs for food, clothing, and housing; and providing emotional and spiritual support to inspire hope and help people build a foundation for the future. The Army\u2019s management realizes that emergencies demand high flexibility. At the same time, the organization must have a high level of control and accountability to ensure its continued existence and meet its day-to-day responsibilities. As a former national commander puts it, \u201cWe have to have it both ways. We can\u2019t choose to be flexible and reckless or to be accountable and responsive. \u2026 We have to be several different kinds of organizations at the same time.\u201d<\/p>\n
In the early emergency moments of a crisis, the Salvation Army deploys a temporary organization that has its own command structure. People need to have a clear sense of who\u2019s in charge to prevent the rapid response demands from degenerating into chaos. For example, when the Army responds a crisis, manuals clearly specify in advance who is responsible for talking to the media, who is in charge of supply inventories, who liaises duties with other agencies, and so forth. This model for the temporary organization keeps the Salvation Army responsive and consistent. In the later recovery and rebuilding phases of a crisis, supervisors frequently give people general guidelines and allow them to improvise the best solutions. There isn\u2019t time for supervisors to review and sign off on every decision that needs to be made to get families and communities re-established. On September 11, 2001, the Salvation Army in Corner Brook, Newfoundland and Labrador, had to support 150 people whose flight had been diverted to Stephenville. According to Major Ross Bungay, \u201c[It] was an operation of mercy in a crisis environment, and even in situations we had not been specifically trained for\u2026 the cumulative talent and expertise served us all well.\u201d*<\/p>\n
The Salvation Army has people simultaneously working in all different types of organizational structures, from traditional vertical command structures, to horizontal teams, to a sort of network form that relies on collaboration with other agencies. Operating in such a fluid way enables the organization to accomplish amazing results. It has been recognized as a leader in putting money to maximal use, meaning donors are willing to give because they trust the organization to be responsible and accountable at the same time it is flexible and innovative in meeting human needs.*<\/p>\n
Other Approaches to Reducing Bureaucracy<\/p>\n
Organizations are taking a number of other, less-dramatic steps to reduce bureaucracy. Many are cutting layers of the hierarchy, keeping headquarters staff small, and giving lower-level workers greater freedom to make decisions rather than burdening them with excessive rules and regulations. The point is to ensure that organizations are not top-heavy with lawyers, accountants, and financial analysts who inhibit the flexibility and autonomy of divisions. The rise in the Canadian dollar has challenged the manufacturing sector to become lean and flexible so that it can better compete globally. Manufacturers such as Edson and Elettra Technologies in Hamilton, Ontario, have responded by streamlining their internal processes and organizational designs.*<\/p>\n
Of course, many companies must be large to have sufficient resources and complexity to produce products for a global environment, but companies such as 3M, Coca-Cola, Weyerhaeuser, and Heinz are striving toward greater decentralization and leanness. They are giving frontline workers more authority and responsibility to define and direct their own jobs, often by creating self-directed teams that find ways to coordinate work, improve productivity, and better serve customers.<\/p>\n
Another attack on bureaucracy is from the increasing professionalism of employees. Professionalism is defined as the length of formal training and experience of employees. More employees need college or university degrees, MBAs, and other professional degrees to work as lawyers, researchers, or doctors at large organizations. Internet-based companies may be staffed entirely by well-educated knowledge workers. Studies of professionals show that formalization is not needed because professional training regularizes a high standard of behaviour for employees that acts as a substitute for bureaucracy.* Organizations also enhance this trend when they provide ongoing training for all employees, from the front office to the shop floor, in a push for continuous individual and organizational learning. Increased training substitutes for bureaucratic rules and procedures that can constrain the creativity of employees in solving problems and increases organizational capability.<\/p>\n
A form of organization called professional partnership has emerged that is made up completely of professionals.* These organizations include medical practices, law firms, and consulting firms, such as McKinsey & Company and the now defunct Monitor Company.* The general finding concerning professional partnerships is that branches have substantial autonomy and decentralized authority to make necessary decisions. They work with a consensus orientation rather than the top-down direction typical of traditional business and government organizations. Thus, the trend of increasing professionalism, combined with rapidly changing environments, is leading to less bureaucracy in North America.<\/p>\n
Organizational Control Strategies<\/p>\n
Even though many organizations are trying to decrease bureaucracy and reduce rules and procedures that constrain employees, every organization needs systems for guiding and controlling the organization. Employees may have more freedom in today\u2019s organizations, but control is still a major responsibility of management.<\/p>\n
Managers at the top and middle levels of an organization can choose among three overall control strategies. These strategies come from a framework for organizational control proposed by William Ouchi. Ouchi suggested three control strategies that organizations could adopt\u2014bureaucratic, market, and clan.* Each form of control uses different types of information. However, all three types may appear simultaneously in an organization. The requirements for each control strategy are given in Exhibit 8.7.<\/p>\n
Exhibit8.7.<\/p>\n
TYPE<\/p>\n
REQUIREMENTS<\/p>\n
Bureaucracy<\/p>\n
Rules, standards, hierarchy, legitimate authority<\/p>\n
Market<\/p>\n
Prices, competition, exchange relationship<\/p>\n
Clan<\/p>\n
Tradition, shared values and beliefs, trust<\/p>\n
Source: Based on William G. Ouchi, \u201cA Conceptual Framework for the Design of Organizational Control Mechanisms,\u201d Management Science 25 (1979), 833\u2013848.<\/p>\n
Three Organizational Control Strategies<\/p>\n
Bureaucratic Control<\/p>\n
Bureaucratic control is the use of rules, policies, hierarchy of authority, written documentation, standardization, and other bureaucratic mechanisms to standardize behaviour and assess performance. Bureaucratic control uses the bureaucratic characteristics defined by Weber and illustrated in the UPS In Practice feature. The primary purpose of bureaucratic rules and procedures is to standardize and control employee behaviour.<\/p>\n
Recall that as organizations progress through the life cycle and grow larger, they become more formalized and standardized. Within a large organization, thousands of work behaviours and information exchanges take place both vertically and horizontally. Rules and policies evolve through a process of trial and error to regulate these behaviours. Some degree of bureaucratic control is used in virtually every organization. Rules, regulations, and directives contain information about a range of behaviours.<\/p>\n
To make bureaucratic control work, managers must have the authority to maintain control over the organization. Weber argued that legitimate, rational authority granted to managers was preferred over other types of control (e.g., favouritism or payoffs) as the basis for organizational decisions and activities. Within the larger society, however, Weber identified three types of authority that could explain the creation and control of a large organization.*<\/p>\n
Rational-legal authority is based on employees\u2019 belief in the legality of rules and the right of those elevated to positions of authority to issue commands. Rational-legal authority is the basis for both creation and control of most government organizations and is the most common base of control in organizations worldwide. Traditional authority is the belief in traditions and in the legitimacy of the status of people exercising authority through those traditions. Traditional authority is the basis for control for monarchies, religious institutions, and some organizations in Latin America and the Middle East. Charismatic authority is based on devotion to the exemplary character or to the heroism of an individual person and the order defined by him or her. Revolutionary military organizations are often based on the leader\u2019s charisma, as are North American organizations led by charismatic individuals such as Steve Jobs. The organization reflects the personality and values of the leader.<\/p>\n
More than one type of authority\u2014such as long tradition and the leader\u2019s special charisma\u2014may exist in organizations, but rational-legal authority is the most widely used form to govern internal work activities and decision making, particularly in large organizations. Bureaucratic control can be highly effective, but when carried to an extreme it can also create problems.<\/p>\n
In Practice Shizugawa Elementary School Evacuation Centre and Toyota Motors<\/p>\n
One newspaper reporter recently characterized Japan as \u201ca rule-obsessed nation with a penchant for creating bureaucracy, designating titles and committees for even the most mundane of tasks.\u201d When the fishing village of Minamisanriku was ravaged by a tsunami in the spring of 2011, that propensity served a valuable purpose. The creation of rules, procedures, and authority structures helped create a sense of normalcy and comfort at the Shizugawa Elementary School Evacuation Centre. The group of evacuees created six divisions to oversee various aspects of daily life, such as cooking, cleaning, inventory control, and medical care, and each function had detailed rules and procedures to follow. The cleaning crews, for instance, followed an instruction sheet describing in minute detail how to separate types of garbage and recyclables, how to replace the garbage bags, and so forth. The exhaustive and meticulous procedures kept the centre running smoothly and helped people cope with a devastating situation. \u201cThe Japanese people are the type to feel more reassured the more rules are in place,\u201d said Shintaro Goto, a 32-year-old actor and electrician who moved back to the village from Tokyo just months before the tsunami.<\/p>\n
However, while rules, procedures, and detailed lists were highly beneficial at the tsunami evacuation centres, they have been partially blamed for quality and safety problems that have plagued Japan\u2019s Toyota Motors in recent years. \u201cThe bottom line is that we succumbed to \u2018Big Company Disease,\u2019\u201d said Shinichi Sasaki, a Toyota board member and executive vice president in charge of quality. \u201cThat has led us to question some of our basic assumptions.\u201d Toyota\u2019s strong top-down bureaucratic system helped obscure problems. For example, the company wanted suppliers, dealers, and other partners, as well as employees, to follow strict guidelines to the letter. The rules and checklists got in the way of executives seeing when things started going wrong, however, and customer complaints started piling up. Toyota has since implemented a number of reforms to its operations, many of them designed to overcome the problems brought about by large size and bureaucracy.*<\/p>\n
Toyota isn\u2019t the only large company to find that too many rules can get in the way of serving customers. Employees at Starbucks, which grew rapidly from six stores in 1987 into a huge corporation with thousands of stores around the world, are being strangled by meticulous rules and policies that no longer work. Consistency is important for any company, and rules and procedures that facilitated predictable outcomes enabled Starbucks to grow and succeed. However, applying rules inflexibly and blindly soon started to cause problems. One software entrepreneur and Inc. magazine contributor tells a story about an order taker in a Starbucks store who got into a prolonged shouting match with a customer who wanted to pick up her sandwich at the front counter. \u201cThey\u2019re not allowed to give it to you up here!\u201d the employee kept shouting at the shocked and frustrated customer.*<\/p>\n
Market Control<\/p>\n
Market control occurs when price competition is used to evaluate the output and productivity of an organization. The idea of market control originated in economics.* A dollar price is an efficient form of control, because managers can compare prices and profits to evaluate the efficiency of their corporation. Top managers nearly always use the price mechanism to evaluate performance in organizations. Corporate sales and costs are summarized in a profit-and-loss statement that can be compared against performance in previous years or with that of other corporations.<\/p>\n
The use of market control requires that outputs be sufficiently explicit for a price to be assigned and for competition to exist. Without competition, the price does not accurately reflect internal efficiency. Increasingly, governments and nonprofit organizations are turning to market control. For example, nonprofits are entering the market through social purpose businesses that integrate both financial and social bottom lines.* Market control was once used primarily at the level of the entire organization, but it is increasingly used in product divisions. Profit centres are self-contained product divisions, such as those described in Chapter 4. Each division contains resource inputs needed to produce a product. Each division can be evaluated on the basis of profit or loss compared with other divisions.<\/p>\n
In Practice East Resources Inc. and Royal Dutch Shell PLC<\/p>\n
East Resources Inc. was among the first companies to drill into the Marcellus Shale, starting in 2008, and regulators cited the company for spills or other environmental infractions repeatedly. Then, Royal Dutch Shell bought East Resources and brought its bureaucratic control to the operation.<\/p>\n
The first thing Shell did was shut down the rigs and retrain all the workers. Since taking over, Shell has averaged less than one violation for every four wells. The same pattern can be seen across the Marcellus Shale. As larger companies with standardized procedures buy out smaller firms, environmental and safety records are improving. The larger firms have developed more rigorous approaches because they know that even one mistake can affect their ability to do business in all areas. Most of these companies have learned from the BP Deepwater Horizon oil spill disaster that it is better to be safe than sorry. Smaller firms typically use riskier procedures. Inspection records show that large companies such as Shell, Exxon, and Chevron averaged 38 violations for every 100 Marcellus wells they drilled. Mid-sized companies averaged 69 citations per 100 wells; and the smallest firms averaged 139 citations per 100 wells.*<\/p>\n
Asea Brown Boveri (ABB), a multinational electrical contractor and manufacturer of electrical equipment, includes three different types of profit centres, all operating according to their own bottom line and all interacting through buying and selling with one another and with outside customers.* The network organization, also described in Chapter 4, illustrates market control as well. Different companies compete on price to provide the functions and services required by the hub organization. The organization typically contracts with the company that offers the best price and value.<\/p>\n
Some firms require that individual departments interact with one another at market prices\u2014buying and selling products or services among themselves at prices equivalent to those quoted outside the firm. To make the market control system work, internal units also have the option to buy and sell with outside companies.<\/p>\n
Market control can be used only when the output of an organization, division, or department can be assigned a dollar price and when there is competition. Organizations are finding that they can apply the market control concept to internal departments such as accounting, data processing, legal, and information services.<\/p>\n
Clan Control<\/p>\n
Clan control is the use of social characteristics, such as organizational culture, shared values, commitment, traditions, and beliefs, to control behaviour. Organizations that use clan control require shared values and trust among employees.* Clan control is important when ambiguity and uncertainty are high. High uncertainty means the organization cannot put a price on its services, and things change so quickly that rules and regulations are not able to specify every correct behaviour. Under clan control, people may be hired because they are committed to the organization\u2019s purpose, such as in a religious organization. New employees may be subjected to a long period of socialization to gain acceptance by colleagues. Clan control is most often used in small, informal organizations or in organizations with a strong culture, because of personal involvement in and commitment to the organization\u2019s purpose. For example, St. Luke\u2019s Communications Ltd., a London, England, advertising firm committed to equal employee ownership, is especially careful to bring in only new employees who believe in the agency\u2019s philosophy and mission. The company even turned down a $90 million contract because it meant rapidly recruiting new employees who might not fit with St. Luke\u2019s distinctive culture. Clan control works for St. Luke\u2019s; the agency is highly respected and its revenues continue to grow.* It is London\u2019s longest-running creative agency in which every employee has a share.<\/p>\n
Traditional control mechanisms based on strict rules and close supervision are ineffective for controlling behaviour in conditions of high uncertainty and rapid change.* In addition, the growing use of computer networks and the Internet, which often leads to a democratic spread of information throughout the organization, may force many companies to depend less on bureaucratic control and more on shared values that guide individual actions for the corporate good.* Labatt Brewing Company Limited, described in the next In Practice, represents a good example of clan control.<\/p>\n
In Practice Labatt Brewing Company Limited<\/p>\n
\u201cDon\u2019t expect working life [at Labatt] to be like one continuous beer commercial.\u201d* New employees learn immediately that they need to fit into the organization\u2019s culture or leave. They are told, on their first day at work, that those who cannot or will not embrace the InBev Way are in the wrong organization. (InBev SA is the Belgium-based company that owns Labatt.) According to John Stacey, vice president, People Matters, it is not enough to deliver results; people must fit into Labatt or leave. He says, \u201cYou may think that it\u2019s a harsh comment but we want both [fit and performance].\u201d* He goes on to say that there\u2019s zero tolerance for complacency at Labatt and describes Labatt as a hard-driving environment.<\/p>\n
John Stacey\u2019s principal role at Labatt is to ensure that the values of the InBev Way permeate the organization. InBev has a global training program so that it can develop its own leadership from within the organization. Management trainees spend ten months learning all aspects of the business and then they are assigned junior management positions. The trainees are selected through a rigorous process\u2014only 14 of more than 3,000 applicants are hired.<\/p>\n
Labatt has been through several organizational changes and now brews more than 60 brands of beer worldwide. The InBev Way is designed to inspire and to control behaviour among the 3,200 Canadian employees.<\/p>\n
Labatt is successfully using clan control, but the story also illustrates that large size increases the demands on managers to maintain strong cultural values that support this type of control. Today\u2019s companies that are trying to become learning organizations often use clan control or self-control rather than relying on rules and regulations. Self-control is similar to clan control, but whereas clan control is a function of being socialized into a group, self-control stems from the values, goals, and standards of individuals. The organization attempts to induce a change such that individual employees\u2019 own internal values and work preferences are brought in line with the organization\u2019s values and goals.* With self-control, employees generally set their own goals and monitor their own performance, yet companies relying on self-control need strong leaders who can clarify boundaries within which employees exercise their own knowledge and discretion.<\/p>\n
Clan control or self-control may also be used in some departments, such as strategic planning, where uncertainty is high and performance is difficult to measure. Managers of departments that rely on these informal control mechanisms must not assume that the absence of written, bureaucratic control means no control is present. Clan control is invisible yet very powerful. One study found that the actions of employees were controlled even more powerfully and completely with clan control than with a bureaucratic hierarchy.* When clan control works, bureaucratic control is not needed.<\/p>\n
Organizational Decline and Downsizing<\/p>\n
Earlier in the chapter, we discussed the organizational life cycle, which suggests that organizations are born, grow older, and eventually die. Every organization goes through periods of temporary decline. In addition, a reality in today\u2019s environment is that for some organizations, continual growth and expansion may not be possible.<\/p>\n
All around, we see evidence that some organizations have stopped growing, and many are declining. Huge organizations such as Enron, WorldCom, and Arthur Andersen have collapsed partly as a result of rapid growth and ineffective control. The Catholic Church continues to lose membership following reports of child molestation by priests and the failure in higher levels of the organization to remove molesters and prevent further abuse. Municipalities have been forced to close schools and lay off teachers as tax revenues have declined. Many big companies, including Daimler, Bell Canada, General Motors, and General Electric, have had significant job cuts in recent years, and hundreds of Internet companies that once looked poised for rapid growth have gone out of business.<\/p>\n
In this section, we examine the causes and stages of organizational decline and then discuss how leaders can effectively manage the downsizing that is often a reality in today\u2019s organizations.<\/p>\n
Definition and Causes<\/p>\n
The term organizational decline is used to define a condition in which a substantial, absolute decrease in an organization\u2019s resource base occurs over a period.* Organizational decline is often associated with environmental decline in the sense that an organizational domain experiences either a reduction in size (such as shrinkage in customer demand or erosion of a city\u2019s tax base) or a reduction in shape (such as a shift in customer demand). In general, three factors are considered to cause organizational decline.<\/p>\n
Organizational atrophy. Atrophy occurs when organizations grow older and become inefficient and overly bureaucratized. The organization\u2019s ability to adapt to its environment deteriorates. Often, atrophy follows a long period of success, because an organization takes success for granted, becomes attached to practices and structures that worked in the past, and fails to adapt to changes in the environment.* For example, Blockbuster, which was king of the video-store industry in the 1980s and 1990s, had trouble adapting to the new world of video-on-demand (VOD) and digital downloading. Blockbuster was way behind upstarts like Netflix in pay-VOD delivery because managers had trouble giving up the traditional successful approach of renting out videos in stores and online. Blockbuster declared bankruptcy in Canada in 2011 and had sought Chapter 11 protection in 2010 in the United States.* Experts warn that companies risk becoming obsolete by sticking to patterns that were successful in the past but might no longer be effective.* Some warning signals for organizational atrophy include excess administrative and support staff, cumbersome administrative procedures, lack of effective communication and coordination, and outdated organizational structure.*<\/p>\n
Vulnerability. Vulnerability reflects an organization\u2019s strategic inability to prosper in its environment. This often happens to small organizations that are not yet fully established. They are vulnerable to shifts in consumer tastes or in the economic health of the larger community. Small e-commerce companies that had not yet become established were the first to go out of business when the technology sector began to decline. Some organizations are vulnerable because they are unable to define the correct strategy to fit the environment. Vulnerable organizations typically need to redefine their environmental domain to enter new industries or markets.<\/p>\n
Environmental decline or competition. Environmental decline refers to reduced energy and resources available to support an organization. When the environment has less capacity to support organizations, the organization has to either scale down operations or shift to another domain.* New competition increases the problem, especially for small organizations. Consider what\u2019s happening to North American toolmakers, the companies that make the dies, moulds, jigs, fixtures, and gauges used on factory floors to manufacture everything from car doors to laser-guided bombs. Many have gone out of business in recent years, unable to compete with the super-low prices their counterparts in China are offering. As a result, there was a decrease of 8 percent, between 1997 and 2004, in the number of workers employed in the toolmaker sector.*<\/p>\n
A Model of Decline Stages<\/p>\n
Based on an extensive review of organizational decline research, a model of decline stages has been proposed and is summarized in Exhibit 8.8. This model suggests that decline, if not managed properly, can move through five stages, resulting in organizational dissolution.*<\/p>\n
Exhibit8.8.<\/p>\n
Source: William Weitzel and Ellen Jonsson, \u201cDecline in Organizations: A Literature Integration and Extension,\u201d Administrative Science Quarterly 34 (March 1989), 99\u2013109. Reprinted by permission of SAGE Publications.<\/p>\n
Stages of Decline and the Widening Performance Gap<\/p>\n
Blinded stage. The first stage of decline is the internal and external change that threatens long-term survival and may require the organization to tighten up. The organization may have excess personnel, cumbersome procedures, or lack of harmony with customers. Leaders often miss the signals of decline at this point, and the solution is to develop effective scanning and control systems that indicate when something is wrong. With timely information, alert executives can bring the organization back to top performance.<\/p>\n
Inaction stage. The second stage of decline is called inaction, in which denial occurs despite signs of deteriorating performance. Leaders may try to persuade employees that all is well. \u201cCreative accounting\u201d may make things look fine during this period. The solution is for leaders to acknowledge decline and take prompt action to realign the organization with the environment. Leadership actions may include new problem-solving approaches, increasing decision-making participation, and encouraging expression of dissatisfaction to learn what is wrong.<\/p>\n
Faulty action stage. In the third stage, the organization is facing serious problems, and indicators of poor performance cannot be ignored. Failure to adjust to the declining spiral at this point can lead to organizational failure. Leaders are forced by severe circumstances to consider major changes. Actions may involve retrenchment, including downsizing personnel. Leaders should reduce employee uncertainty by clarifying values and providing information. A major mistake at this stage decreases the organization\u2019s chance for a turnaround.<\/p>\n
Crisis stage. In the fourth stage, the organization still has not been able to deal with decline effectively and is facing a panic. The organization may experience chaos, efforts to go back to basics, sharp changes, and anger. If managers cannot prevent a stage-4 crisis, then the only solution is major reorganization. The social fabric of the organization is eroding, and dramatic actions, such as replacing top administrators and revolutionary changes in structure, strategy, and culture, are necessary. Workforce downsizing may be severe.<\/p>\n
Dissolution stage. This stage of decline is irreversible. The organization is suffering loss of markets and reputation, the loss of its best personnel, and capital depletion. The only available strategy is to close down the organization in an orderly fashion and reduce the separation trauma of employees.<\/p>\n
The following example of a once-respected Canadian retailer shows how failure to respond appropriately to signs of decline can lead to disaster.<\/p>\n
In Practice T. Eaton Company Limited<\/p>\n
The T. Eaton Company Limited (Eaton\u2019s) was founded by Timothy Eaton in 1869 on Yonge Street in downtown Toronto. His first venture, a bakery in St. Marys, Ontario, failed but he successfully changed the shop from a bakery to a dry goods store. He worked very hard and took the view that \u201cwe never close the store in the evening while there is anybody on the street.\u201d* Timothy Eaton was an innovator\u2014he pioneered \u201csales in cash only\u201d and \u201csatisfaction guaranteed or money refunded\u201d approaches to retail. By the mid-1880s, Eaton\u2019s had electric lights and a sprinkler system and, in 1884, Eaton\u2019s distributed its first mail-order catalogue. The Eaton family ran the company without interruption for many years. During World War II, Eaton\u2019s had a staff of 30,000. Eaton\u2019s had a strong culture\u2014employees referred to themselves proudly as Eatonians. Eatonians received lavish presents from the family considered by many to be royalty. Even so, workers tried, unsuccessfully, to unionize Eaton\u2019s in 1952 in response to the long hours and low wages that they endured. In 1984, they tried again and failed again to unionize the chain.*<\/p>\n
From the 1960s onward, Eaton\u2019s faced increasing competition from Simpsons-Sears and boutiques across the country. In 1997, the Eaton family, who owned all the shares in Eaton\u2019s, sought bankruptcy protection. At the time, Eaton\u2019s had 90 stores and 24,500 employees. In 1998, Eaton\u2019s went public and reduced the number of its stores to 64. Even so, Eaton\u2019s suffered a net loss of $72 million and in 1999 it closed more stores and restructured. In August 1999, after its share price had plummeted from a June 1998 high of $16 to 71\u00a2, Eaton\u2019s went bankrupt.* The restructuring effort had failed and what was once the largest privately held department chain in the world became not much more than a real estate play. The Royal Canadian Air Farce gave Eaton\u2019s a funeral and noted that Eaton\u2019s was Walmarted!*<\/p>\n
While there are many possible explanations for the chain\u2019s demise, one important factor was Timothy Eaton\u2019s children\u2019s and grandchildren\u2019s lack of interest in the business. \u201cFundamentally, it appears that the problem-sensing ability of management was missing at the troubled Eaton\u2019s.\u201d* Sears Canada bought the rights to the Eaton name but, on February 26, 2002, conceded defeat in its efforts to relaunch Eaton\u2019s as an upscale retailer. Sears Canada is now facing significant threats to its future. It has sold five of its properties, including its flagship store in the Eaton Centre. Nordstrom Inc., an American high-end retail chain, opened its flagship Canadian store in Sears\u2019 space in the Eaton Centre.*<\/p>\n
As this example shows, properly managing organizational decline is necessary if an organization is to avoid dissolution. Leaders have a responsibility to detect the signs of decline, acknowledge them, implement necessary action, and reverse course. Some of the most difficult decisions pertain to downsizing, which refers to intentionally reducing the size of a company\u2019s workforce.<\/p>\n
Downsizing Implementation<\/p>\n
The economic downturn that began in 2000 has made downsizing a common practice in North American corporations. When an organization is downsized, individuals are laid off permanently or are not replaced when they retire. In addition, downsizing is a part of many change initiatives in today\u2019s organizations.* Re-engineering projects, mergers and acquisitions, global competition, and the trend toward outsourcing have all led to job reductions.*<\/p>\n
Some researchers have found that massive downsizing has often not achieved the intended benefits and in some cases has significantly harmed the organization.* Nevertheless, there are times when downsizing is a necessary part of managing organizational decline. During the most recent recession, U.S.-based banks cut 65,000 employees and many companies around the world also cut back their workforce.* A number of techniques can help smooth the downsizing process and ease tensions for employees who leave and for those who remain.*<\/p>\n
Communicate more, not less. Some organizations seem to think the less that\u2019s said about a pending layoff, the better. Not so. Organizational managers should provide advance notice with as much information as possible. At 3Com Corporation, managers drew up a three-stage plan as they prepared for layoffs. First, they warned employees several months ahead that layoffs were inevitable. Soon thereafter, they held on-site presentations at all locations to explain to employees why the layoffs were needed and to provide as much information as they could about what employees should expect. Employees being cut were given the required full 60 days\u2019 notice.* Managers should remember that it is impossible to over-communicate during turbulent times. Remaining employees need to know what is expected of them, whether future layoffs are a possibility, and what the organization is doing to help co-workers who have lost their jobs.<\/p>\n
Provide assistance to displaced workers. The organization has a responsibility to help displaced workers cope with the loss of their jobs and get re-established in the job market. The organization can provide training, severance packages, extended benefits, and outplacement assistance. In addition, counselling services for both employees and their families can ease the trauma associated with a job loss. Another key step is to allow employees to leave with dignity, giving them an opportunity to say goodbye to colleagues and meet with leaders to express their hurt and anger.<\/p>\n
Help the survivors cope. Leaders should remember the emotional needs of survivors as well. Many people experience survivor guilt, anger, confusion, and sadness after the loss of colleagues, and these feelings should be acknowledged. Survivors might also be concerned about their own jobs and have difficulty adapting to the changes in job duties, responsibilities, and so forth.<\/p>\n
Even the best-managed organizations may sometimes need to lay off employees in a turbulent environment or to revitalize the organization and reverse decline. Leaders can attain positive results if they handle downsizing in a way that lets departing employees leave with dignity and enables remaining organization members to be motivated, productive, and committed to a better future.<\/p>\n
In Practice Dofasco (now ArcelorMittal Dofasco)<\/p>\n
C. W. Sherman created the Dominion Steel Casting Company in 1912 to make steel castings for Canadian railways. It was not until 1918 that its name was changed to Dofasco. In 1938, Dofasco became the first Canadian manufacturer to introduce profit sharing. \u201c[World War II] put added pressure on Canada\u2019s heavy industries. In 1941, production started at Dofasco\u2019s armour plate shop. Every inch of armour plate used to protect Canadian soldiers was manufactured by Dofasco.\u201d*<\/p>\n
In the 1970s, the North American steel industry shrank considerably\u201432 percent of its steelmaking capacity disappeared. Dofasco, however, survived by improving customer service and automating many of its processes. A 1985 article in The Globe and Mail reported that \u201csteel industry watchers are beginning to run out of superlatives to describe the continued robust performance of Dofasco.\u201d* However, in the late 1980s and early 1990s, Dofasco downsized considerably. The number of employees dropped from 12,800 to 7,000 through attrition and voluntary early retirements.<\/p>\n
In April 1994, when 650 employees were laid off, their layoffs were handled through the Canadian Steel Trade and Employment Congress, a joint venture between Canadian steel companies and the United Steelworkers of America. The Congress provides various services to steel industry workers such as worker adjustment services, helping workers affected by layoff and\/or shutdowns, and providing training services for the workforce.* Dofasco created an action committee from all its stakeholders and 14 people were assigned to develop a program to assist employees to adjust to the layoffs. The resulting program was called the Dofasco Transition Assistance Program. The laid-off workers received new skills training, career counselling, and job placement. At the same time, Dofasco introduced a program called Play-to-Win designed to reduce the negative impact of the layoffs on those who were not laid off. The program consisted of a three-day experiential session that focused on topics such as coping with change, rebuilding trust, and working together in a team environment.*<\/p>\n
Summary and Interpretation<\/p>\n
The material covered in this chapter contains several important ideas about organizations. Organizations evolve through distinct life-cycle stages as they grow and mature. Organizational structure, internal systems, and management issues are different for each stage of development. Growth creates crises and revolutions along the way toward large size. A major task of managers is to guide the organization through the entrepreneurial, collectivity, formalization, and elaboration stages of development. As organizations progress through the life cycle and grow larger and more complex, they generally take on bureaucratic characteristics, such as rules, division of labour, written records, hierarchy of authority, and impersonal procedures. Bureaucracy is a logical form of organizing that lets firms use resources efficiently. However, in many large corporate and government organizations, bureaucracy has come under attack with attempts to decentralize authority, flatten organizational structure, reduce rules and written records, and create a small-company mindset. These companies are willing to trade economies of scale for responsive, adaptive organizations. Many companies are subdividing to gain small-company advantages. Another approach to overcoming the problems of bureaucracy is to use a structural concept called the incident command system, which enables the organization to glide smoothly between a highly formalized, hierarchical style that is effective during times of stability and a more flexible, loosely structured one needed to respond to unexpected or volatile environmental conditions.<\/p>\n
In large organizations, greater support is required from clerical and professional staff specialists. This is a logical outcome of employee specialization and the division of labour. By dividing an organization\u2019s tasks and having specialists perform each part, the organization can become more efficient.<\/p>\n
All organizations, large and small, need systems for control. Managers can choose among three overall control strategies: bureaucratic, market, and clan. Bureaucratic control relies on standard rules and the rational-legal authority of managers. Market control is used where product or service outputs can be priced and competition exists. Clan control and self-control are associated with uncertain and rapidly changing organization processes. They rely on commitment, tradition, and shared values for control. Managers may use a combination of control approaches to meet the organization\u2019s needs.<\/p>\n
Many organizations have stopped growing, and some are declining. Organizations go through stages of decline, and it is the responsibility of managers to detect the signs of decline, implement necessary action, and reverse course. One of the most difficult decisions is downsizing the workforce. To smooth the downsizing process, managers should communicate with employees and provide as much information as possible, provide assistance to displaced workers, and remember to address the emotional needs of those who remain with the organization.<\/p>\n","protected":false},"excerpt":{"rendered":"
Organization Size, Life Cycle, and Decline Overview Viacheslav Lopatin\/Shutterstock.com. Data from INTERPOL. Learning Objectives After reading this chapter, you should be able to: Explain the advantages and disadvantages of large organization size. Describe how an organization progresses through four stages of the organizational life cycle. Define the characteristics of bureaucracy. Compare large organizations and small […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1],"tags":[10],"class_list":["post-79123","post","type-post","status-publish","format-standard","hentry","category-research-paper-writing","tag-writing"],"_links":{"self":[{"href":"https:\/\/papersspot.com\/blog\/wp-json\/wp\/v2\/posts\/79123","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/papersspot.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/papersspot.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/papersspot.com\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/papersspot.com\/blog\/wp-json\/wp\/v2\/comments?post=79123"}],"version-history":[{"count":0,"href":"https:\/\/papersspot.com\/blog\/wp-json\/wp\/v2\/posts\/79123\/revisions"}],"wp:attachment":[{"href":"https:\/\/papersspot.com\/blog\/wp-json\/wp\/v2\/media?parent=79123"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/papersspot.com\/blog\/wp-json\/wp\/v2\/categories?post=79123"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/papersspot.com\/blog\/wp-json\/wp\/v2\/tags?post=79123"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}