Lecture 50: MANAGING ORGANIZATIONAL EVOLUTION: I

Welcome viewers. In this lecture we'll be discussing about how to manage organizational evolution. In this context I'll be discussing about organizational transformation, birth, growth, decline, and death. The learning objective here is we will discuss about the problems which are involved in organizations birth and what founders can do to help organizations in order to sustain and survive. The role of founders in organizational survival. Further we will also discuss about the typical problems that arise when an organization grows and matures and how an organization must change in order to be sustainable, to survive and prosper. We would like to discuss why organizations decline. Why some organizations quickly grow and they sustain whereas some organizations decline. We identify the various stages of decline and how managers can play a role to change their organizations to prevent from facing failure and eventual death of or dissolution. So we will be discussing about the entire life cycle of an organization. Organizational life cycle is a sequence of stages of growth and change. There are four principal stages of organizations life cycle. Introduction or birth, uh growth, and uh maturity, or decline and death. So, we discuss a model of organizational life cycle. Organizational life cycle, as we have already discussed, uh on one axis, we discuss about the stages of life life cycle of an organization. And on the other axis, that is Y axis, we discuss about organizational effectiveness. As an organization, it is introduced, or it is in the formative years of establishment, which is called the birth stage. Organization is not very effective, but as it slowly grows, and uh or during the evolutionary phase, it starts catching up with the pace of development, where it is uh slowly being effective. Then, as it is responding to the environment, it is uh growing in size, it is coming up with new products and services. So, slowly, uh the organization starts gaining recognition in the market, and it is also gaining earning in terms of its profit, and slowly it becomes mature. So, organization grows, and it is effective, uh starts getting more uh it's recognized, its image and identity develops, it has uh a customer base which starts developing, and the organization matures. So, when it matures, during that phase, the organization's growth becomes stagnant, no more product, there are more competitors in the market which are coming up with new ideas, new uh products and services. So, as a result, they need to come up with innovation, new ideas, they need to uh explore new markets, and if they do not do so, then the organization moves towards a decline stage. The organization's performance declines and it slowly moves towards a negative direction that is moving towards the decline and death. Basically, the four stages which starts with organizational introduction or birth, then for the next stage talks about growth. The third stage talks about maturity where if it does not innovate, does not come up with a creative idea, does not explore to the new market, it will slowly start moving towards a decline phase and finally will meet its death. So, these are basically the four stages of organizational life. Organizational birth, the founding of an organization, it occurs when entrepreneurs take advantage of opportunities to use their skills and competencies to create value. A dangerous life cycle stage associated with chance of failure where liability of being new to the market, the dangers associated with being the first in the new environment. A new organization is fragile because it lacks a formal structure. It's very small, owner is doing maximum task and the firm has less number of managers, less employees, less managerial levels. In the organizational birth stage, developing a plan for new business begins with an entrepreneur who notices an opportunity to develop a new or improved product or service. Tests the feasibility of the new product or ideas, does a SWOT analysis, strength, weakness, opportunities and threat analysis of the strengths and weaknesses of its own firms and what are the opportunities and threats available in the market. I will give you one example of when Bisleri was launched in the Indian market. Bisleri came to India in the year 1960s or 66 where there was no demand for bottled water. So when this the concept came to India at that point of time, they had to find out what are their strengths and weaknesses. The strength being sold under the umbrella brand of Bisleri, which is an Italian brand and it's a foreign brand. Whereas the weaknesses was the Indian market which was less aware of the bottled water concept. Though water is necessary, but people would not mind to would not want to spend even five rupees for bottle of water. So that was the concept. So there were opportunities in the market because the environment was conducive. There is a need or need for water everywhere and the weather conditions were hot and humid. So people would like to have water and threat was because people would not people did not have a mindset for spending money for buying a bottled water. So that's how the company has to take all these things into consideration. Examining the strength and weakness of the idea. Decide whether the new product idea is feasible. So the organization during the formative years need to think a lot about their own whether the product is feasible, whether the idea is feasible or not. The plan should be statement of organization's mission. Organization has to take care of several aspects like the mission, goals, the strategy, the financial objectives and the strategic objectives like list of all functions and organizations organizational resources which are resource availability which are required to implement the idea. What is a timeline that contains specific milestones which are used to measure the progress of the venture? And so while developing the plan there has to be a product opportunity and develop a business idea what type of goods and services who are the customers and which is the market they would target the product which geographical area they would sell the product. Conduct a SWOT analysis like identify the opportunities identify threats strengths and weaknesses. Decide whether the business opportunity is feasible or not prepare a detailed business plan the statement of mission goals financial objectives statement of strategic objectives and list of necessary resources the tangible and intangible resources like the brand name what how to do the packaging what are the augmented benefits or what are the core benefits how they are different from the competitors organizational timeline of events then we further move towards understanding the population ecology model of organizational birth. Population ecology theory is a theory that seeks to explain what are the factors which affect the rate at which new organizations are born new organizations are formed in a population of existing organizations the organizations that are competing for the same set of resources in the environment. And environment niches like particular sets of resources or skills which are required for formation of organization. Number of new organizations are formed determined by the availability of resources. Population ecology theory or model discusses about the population density, the number of organizations that can compete for the limited or the scarce resources in a particular environment. In each industry, there are several organizations which are trying to compete. Some industries which are replete with lot of competitors like in the mobile phone segment, there are several competitors. Automobile market, there are several competitors which all of them are vying for the limited resources which are available in the market. New company is formed, it has to face several challenges. Factors that produce a rapid birth rate, availability of knowledge and skills to generate similar new organizations. New organizations that survive provide role models and they confer legitimacy. As the environment is populated with a number of successful organizations, resources are available to the newcomers. First movers advantage, those who are who enter into the market in the first instance are the first movers who have lots of advantage and benefit which is derived from being an early entrant into the new environment. While there is a difficulty of competing with the existing companies. As going back to the example of Bisleri, Bisleri entered in the Indian market as the first company to take its baby steps. So, it had first mover advantage and till date, Bisleri has developed itself as a brand name. There are several late entrants in the this segment of bottled water like Himalayas, so Aquafina which have still not developed itself as a it could not gain the advantage which Bisleri has acquired. Continuing with the discussion of population ecology model, there are survival strategies when the business environment is replete with a lot of competition, uh the firm has to or the organization need to adopt survival strategies. Strategies that organizations can use to gain access to resources because resources are limited and how to enhance their chance of survival in the environment. Success comes much later, but survival is very important. So, there are various strategies, R strategy versus K strategy. R strategy is a strategy to enter a new environment early or early entrance. K strategy is a strategy to enter an environment late. So, the late comers after other organizations have tested the environment. So, survival strategy is either to become generalist or uh specialist. Specialist is organizations that concentrate their skills to produce a narrow range of resources in a single niche. To focus on a niche niche market and concentrate on the skills to pursue a narrow range of resources of a single uh in a single niche. Generalist organizations that spread their skills thin to compete for a broad range of resources in many nations. And process of natural selection talks about two sets of strategies that results in R specialist or R generalist, K specialist and K generalist. Early in an environment, new organizations are likely to become R specialist. They move quickly to focus on serving the needs of a particular group. As R specialist grow, they often become generalist and compete in new niche markets. K generalists often move into the market and they threaten the weaker R specialist. Eventually, the market is dominated by the strongest R specialist, R generalist, and K generalist. So, let us understand uh through this figure like strategies for competing in the resource environment. As we have understood that resources are uh very few and uh there are situations where the those companies which enter into the market first or early movers and those companies which enter into the market late have several challenges of survival. So, they are late entrants and they adopt various strategies in order to compete for the resources which are available in the market. So, there are uh the R specialist operate in a one niche area, enter early into the environment. Uh they adopt specialist strategy. K specialists, they enter late into the environment. Generalists are those who operate in several niche markets and they are they are enter early into the environment. K generalists are those enter late into the environment and they operate in several niches. So, uh the natural selection process, the process that ensures that survival of organizations that have skills and abilities that best fit with the environment. Over time, weaker organizations die because they cannot adapt their procedures to fit changes in the environment and natural selection is a competitive process. The institutional theory of organizations growth. Institutional theory states how an organization can increase their ability to grow and survive in a competitive environment by becoming legitimate in the eyes of the stakeholders. How they can establish their response, how they can establish their image and identity by being legitimate in the eyes of the stakeholders. The values and norms in environment that govern the behavior of a population of organizations. Organizational isomorphism, the similarity among organizations in a population. Organizations which are similar. Three processes that can explain why organizations become similar. One is coercive isomorphism, mimetic isomorphism, and normative isomorphism. Coercive isomorphism exists when an organization adopts certain norms because pressures exerted by organizations and by society in general. It increases dependence of one organization on other, leads to greater similarity. Mimetic isomorphism exists when organization intentionally try to imitate one another in order to increase their presence or legitimacy during environmental uncertainty increases likelihood of imitation. Normative isomorphism exists when organizations indirectly adopt the norms and values of other organizations in the environment. Organizations acquire norms values when employees move from one organization to another, bring with them the norms and values of their former employees. They participate in activities of industry, trade, and professional associations. So, these are some examples of normative isomorphism. And the disadvantages of normative isomorphism is organizations may learn ways to behave that they have become outdated and no longer leads to organizational effectiveness. The pressures to imitate may reduce the level of innovation in the environment. Greiner has proposed a model of organizational growth with five sequential growth strategies. Each stage results in a crisis. Advancement to the next stage requires successfully resolving the crisis in the previous stage. As we know, in organizational life cycle stages of introduction, growth, maturity, and decline, there are several stages of crisis which may emanate because of several factors, several reasons. Stage one, growth through creativity. Entrepreneurs develop the skills to create and introduce new products. Organizational learning occurs. Crisis of leadership may emanate. Entrepreneurs may lack management skills. And in the second phase, the growth through direction, crisis of leadership results in recruitment of top-level managers who take responsibility to execute organizational strategy. The crisis of autonomy may emanate. Creative people lose control over the new product development. Professional managers run the show and decision-making becomes more centralized. So, there is a lot of autonomy which is leading to crisis and growth through delegation. In the third stage, there is a lot of delegation as the business expands, responsibilities need to be given to different employees at different levels. To solve the crisis of autonomy, managers must delegate responsibilities, strike a balance between the need for professional management and the opportunity for entrepreneurship. In the initial stage, a lot of the command is in the hands of the entrepreneur or the owner. As the organization grows in size, there is a crisis for growth through delegation. So, crisis of control as power struggles over resources emerge between top level and lower level managers. In the fourth stage, the crisis of growth through coordination, crisis of red tapism or excessive bureaucracy evolves, where there is where there has to be growth through coordination. So, in the stage five, growth through collaboration emphasizes greater spontaneity in management action, social control, and self-discipline takes over formal control. Greater use of product team and matrix structure, collaboration makes an organization more organic, which can be a difficult task. So, organization so, decline and death. Organization the life cycle stage that an organization enters when it fails to anticipate, recognize, or avoid, neutralize, or adapt to external or internal pressure that threatens its long-term survival. Organizational decline may occur because organization grows too much and is not able to sense make what is the need for change. So, organizational decline and death, effectiveness and profitability. Assessing the organization's effectiveness involves comparing its profitability relative to others. Profitability measures how well a company is making use of its resources. Optimum utilization of resources by investing in ways to create goods and services that generate profit when sold. Short-term profits say little about how well managers are using resources to generate future profit. And the relationship between organizational size and effectiveness. As size grows, there is likely chance of declining decline and death. Organizational inertia or resistance, the forces inside the organizations that make it resistant to change is aversion to risk. Managers become unwilling to bear uncertainty of change as organization grows. As the organization size grows, there would be resistance from within to take risk, the desire for maximizing rewards. Managers may increase the size of the company to maximize their own reward even when the growth reduces organizational effectiveness. The inertia can be because of the bureaucratic culture. In large organizations, uh property rights can become so strong that managers spend all their time protecting their specific property rights instead of working to advance the organization. Uncertainty and changing environment affect an organization's ability to obtain scarce resources and uh thereby leading to decline. It makes it difficult for top management to anticipate the need for change and to manage the way organizations change and adapt to the environment. So, Wisbord and Johnson's model of organizational decline talks about the stages. On the one hand, on the x-axis is the decline and on the y-axis is performance. So, there are different stages. First stage talks about blinded. The second stage talks about inaction. The third stage talks about faulty action. Stage four talks about crisis and stage five talks about dissolution. The stage one where information is there, but the organization is not responding or not aware of the crisis, which is blinded. The stage two where the organization is supposed to take a prompt action, but the organization is in comfort zone. The faulty action where the organization is slowly accepting the performance decline. A corrective action has to be taken. Crisis is a situation of effective reorganization. So, stage three talks about faulty action. Managers may have made the wrong decisions because of conflict in the top management team or they may have changed too little. In this lecture, we discussed about how the organization evolves. We have discussed about the stages of evolution of an organization. Various problems associated with organizational birth. There are four stages that we discussed, birth, growth, maturity, decline, and death. The problems associated with each phase of organizational birth. What founders can do to help new organizations to sustain and survive. Typical problems that are associated with organizational growth and maturity. And further, we also discussed about the problems associated with when the organization declines or when the organization finally dies. So, identify the various stages of decline, how managers can change their organization to prevent from failure and eventual death or dissolution. So, with this, we have understood that the entire course, organizational theory, structure, and design talks about the various theories of management right from the classical theories of management, the neo-classical theories of management, modern management theories, the modern management theory, how these theories have helped organizations to transform, and how these theories have supported an organization to come up with the various design structures. Then further, we have also discussed about that when an organization starts and till the time it grows and matures and declines, external factors in the environment which compel an organization to change and transform the structure. The structure of an organization which starts in the formative years of formation of an organization does not remain the same in its stage of its evolution, and the management has to rethink, redesign the structure in order to keep it intact. During this process, there are many instances where the organization, in order to be sustainable, somewhere it also has to collaborate with other organizations, and there are many cases of mergers and acquisitions. So, during that process, the organization has to also change the culture and in incorporate new technology, new structure in order to be more viable. So, there we have discussed about several theories which have been in place, which have helped an organization to develop itself as a most viable organization, to create sustainable organization, how to adapt to change. We've also discussed about the basis of power and politics, how overcomes the politics, and it still remains a sustainable organization. Thank you. >> Oh.