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“Organizational Life Cycle Features”.

Table 1.6 Organizational Life Cycle Features

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Feature Birth Cycle Youth Cycle Midlife Cycle Maturity Cycle

Size Small Medium Large Very large

Bureaucratic Nonbureaucratic Prebureaucratic Bureaucratic Very bureaucratic

Division of labor Overlapping tasks Some departments Many departments

Extensive, with small jobs and many descriptions

Centralization One-person rule Two leaders rule Two department heads Top-management heavy

Formalization No written rules Few rules Policy and procedure manuals Extensive

Administrative intensity

Secretary, no professional staff

Increasing clerical and maintenance

Increasing professional and staff support

Large-multiple departments

 

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Feature Birth Cycle Youth Cycle Midlife Cycle Maturity Cycle

Internal systems Nonexistent Crude budget and information

Control systems in place: budget, performance, reports, etc.

Extensive planning, financial, and personnel added

Lateral teams, task forces for coordination None Top leaders only

Some use of integrators and task

Frequent at lower levels to break down bureaucracy

Source: Richard L. Daft, Organizational Theory and Design (St. Paul, MN: West Publishing,

1992), as cited in Carter McNamara, “Basic Overview of Organizational Life Cycles,” accessed

October 7, 2011,http://managementhelp.org/organizations/life-cycles.htm.

A small business will always be somewhere on the OLC continuum. Business success will often

be based on recognizing where the business is situated along that continuum and adopting

strategies best suited to that place in the cycle.

 

Industry Life Cycle

The industry life cycle (ILC) is another dimension of small business evolution, which needs to be

understood and assessed in concert with the stages of small business growth and the OLC. All

small businesses compete in an industry, and that industry will experience a life cycle just as

products and organizations do. Although there may be overlap in the names of the ILC stages,

the meaning and implications of each stage are different.

The industry life cycle refers to the continuum along which an industry is born, grows, matures,

and eventually experiences decline and then dies. Although the pattern is predictable, the

duration of each stage in the cycle is not. The stages are the same for all industries, but every

industry will experience the stages differently. The stages will last longer for some and pass

quickly for others; even within the same industry various small businesses may find themselves

at different life cycle stages. [18] However, no matter where a small business finds itself along the

ILC continuum, the strategic planning of that business will be influenced in important ways.

 

 

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According to one study, the ILC, charted on the basis of the growth of an industry’s sales over

time, can be observed as having four stages: introduction, growth, maturity, and

decline. [19] The introduction stage[20] finds the industry in its infancy. Although it is possible for a

small business to be alone in the industry as a result of having developed and introduced

something new to the marketplace, this is not the usual situation. The business strategy will

focus on stressing the uniqueness of the product or the service to a small group of customers,

commonly referred to as innovators or early adopters. A significant amount of capital is

required. Profits are usually negative for both the firm and the industry.

The growth stage [21] is the second ILC stage. This stage also requires a significant amount of

capital, but increasing product standardization may lead to economies of scale that will, in turn,

increase profitability. The strategic focus is product differentiation, with an increased focus on

responding to customer needs and interests. Intense competition will result as more new

competitors join the industry, but many firms will be profitable. The duration of the growth

stage will be industry dependent.

The maturity stage [22] will see some competition from late entrants that will try to take market

share away from existing companies. This means that the marketing effort must continue to

focus on product or service differentiation. There will be fewer firms in mature industries, so

those that survive will be larger and more dominant. Many small businesses may move into the

ranks of midsize or big businesses.

The decline stage [23] occurs in most industries. It is typically triggered by a product or service

innovation that renders the industry obsolete. Sales will suffer, and the business goes into

decline. Some companies will leave the industry, but others will remain to compete in the

smaller market. The smaller businesses may be more agile for competing in a declining industry,

but they will need to carefully formulate their business strategies to remain viable.

KEY TAKEAWAYS

• Small-business management should consider the growth stages, the OLC, and the ILC in its planning.

 

 

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• There are five stages of small business growth: existence, survival, success, take-off, and resource maturity. The success stage includes two substages, growth and disengagement. Ossification may result if a mature small business loses its entrepreneurial spirit and becomes more risk averse.

• Some small businesses may not be looking to grow, so they may remain in the survival stage.

• The OLC refers to the four stages of development that organizations go through: birth, youth, midlife, and maturity.

• Some small businesses may stick with the very simple organizational structures because they are not interested in growing to the point where more complicated structures are required.

• The ILC is the time continuum along which an industry is born, grows, matures, declines, and dies.

• There are four stages in the ILC: introduction, growth, maturity, and decline.

EXERCISE

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