Organization Life Cycle Organisation growth nGreiner´s growth model : nGrowth through creativity nLeadership crisis nGrowth through direction nAutonomy crisis nGrowth through delegation nControl crisis nGrowth through coordination nRed-tape crisis nGrowth through collaboration ( cooperation) nCrisis ? n Creativity – crisis of leadership nThe founders of the company are usually technically or entrepreneurially oriented, and they generally disdain management activities; their physical and mental energies are absorbed entirely by making and selling a new product. nCommunication among employees is frequent and informal. nLong hours of work are rewarded by modest salaries and the promise of ownership benefits. nDecisions and motivation are highly sensitive to marketplace feedback; management acts as customers react. n Direction – crisis of autonomy nA functional organizational structure is introduced to separate manufacturing from marketing activities, and job assignments become increasingly specialized. nAccounting systems for inventory and purchasing are introduced. nIncentives, budgets, and work standards are adopted. nCommunication becomes more formal and impersonal as a hierarchy of titles and positions grows. nThe new manager and his or her key supervisors assume most of the responsibility for instituting direction; lower-level supervisors are treated more as functional specialists than as autonomous decision-making managers. n Delegation – crisis of control nMuch greater responsibility is given to the managers of plants and market territories. nProfit centers and bonuses are used to motivate employees. nTop-level executives at headquarters limit themselves to managing by exception based on periodic reports from the field. nManagement often concentrates on acquiring outside enterprises that can be lined up with other decentralized units. nCommunication from the top is infrequent and usually occurs by correspondence, telephone, or brief visits to field locations. n Coordination – red tape crisis 1/2 nDecentralized units are merged into product groups. nFormal planning procedures are established and intensively reviewed. nNumerous staff members are hired and located at headquarters to initiate companywide programs of control and review for line managers. nCapital expenditures are carefully weighed and parceled out across the organization. n Coordination – red tape crisis 2/2 nEach product group is treated as an investment center where return on invested capital is an important criterion used in allocating funds. nCertain technical functions, such as data processing, are centralized at headquarters, while daily operating decisions remain decentralized. nStock options and companywide profit sharing are used to encourage employees to identify with the organization as a whole. n Collaboration - ? Crisis 1/2 nThe focus is on solving problems quickly through team action. nTeams are combined across functions to handle specific tasks. nStaff experts at headquarters are reduced in number, reassigned, and combined into interdisciplinary teams that consult with, not direct, field units. nA matrix-type structure is frequently used to assemble the right teams for the appropriate problems. nFormal control systems are simplified and combined into single multipurpose systems. nConferences of key managers are held frequently to focus on major problems. nEducational programs are used to train managers in behavioral skills for achieving better teamwork and conflict resolution. nReal-time information systems are integrated into daily decision-making processes. nEconomic rewards are geared more to team performance than to individual achievement. nExperimenting with new practices is encouraged throughout the organization. n Collaboration - ? Crisis 2 /2 Life cycle of the enterprise The existence of an enterprise is limited in time by its origin - the beginning of the business and the termination of its business activity. An enterprise passes four phases of the life cycle 1. Establishment, start up, launch 2. Growth, 3. Maturity 4. Decline . VW – How big is VW ( Honda)? nhttps://www.youtube.com/watch?v=ws1o-024es nhttps://www.youtube.com/watch?v=DNnV3Jb3pkA n Enterprise Lifecycle Life cycle of enterprise Establishment, start up nBirth of the business, nProfit is negative nBusiness is very vulnerable at this time. nSmall businesses, such as a sole trader or partnership, have unlimited liability: when the business owner is personally responsible for all the debts of his or her business. nDetailed planning during this stage can greatly increase the chances of success. nThe main challenge at the establishment stage is to get the business on a solid foundation by generating enough sales to create a positive cash flow. n Growth nbusiness is continually gaining regular customers. nSales are increasing and cash flow is almost always positive. nSME (10 and 15 employees) nneed for long term planning. nAdvertisement is important nneed to make investments in relevant equipment or employees to ensure a good reputation. nOwners must be careful not to expand faster than their business can adapt to the changes. n nGrowth and expansion can occur either through a merger or acquisition (takeover). nA merger occurs when the owners of two separate businesses agree to combine their resources and form a new organisation nAn acquisition (takeover) occurs when one business takes control of another business by purchasing a controlling interest in it. nVertical integration occurs when a business expands at different but related levels in the production and marketing of a product. nHorizontal integration occurs when a business acquires or merges with another firm that makes and sells similar products. nDiversifi cation (or conglomerate integration) occurs when a business acquires or merges with a business in a completely unrelated industry Maturity nSales are increasing in lower rate. nbusiness is thriving with a good customer base and regular cash flow nmore formal and detailed approach towards planning n it is important to make quick decisions with a good chance of success nthe rate of change has slowed; more detailed long term plans can be made nIt may be wise to re-evaluate the businesses mission and vision statements to match when the business is now. There is a good chance they will have changed since establishment; assuming the owner has been flexible to ensure success. nThe goal is to maintain profits at pre-existing levels. nMarketing and financial management are center to ensure your position . n Post-Maturity nThe final stage consists of three possible outcomes: nRenewal: New areas of growth cause increased sales and profits nSteady State: A continuing state of maturity. nDecline: Profits begin to fall as a result of poor management; often a direct result of a drop in sales or excess expenses. n Renewal n Often a direct result of new markets being tapped to create new areas of growth, expanding the reach of products and services the business provides. Steady State nTo maintain a steady state, focus should be on what existing customers are currently demanding. This requires market research for accurate results. A steady state stops expenditure on research and development required for renewal. Be warned, a steady state cannot be maintained forever and will fall into decline if not forced into renewal. Decline nDecline is difficult to reverse for the following reasons: nFinancial institutions are reluctant to lend money to high risk businesses nSuppliers will restrict credit facilities and may insist on cash payments nProducts may have become obsolete nWell qualified employees may begin to leave to seek out better opportunities, without a strong workforce, the rate of decline increases. n n Cessation nVoluntary cessation - of own accord nInvoluntary cessation – forced by others nThe two main causes of business decline (and possible failure) are lack of management expertise or undercapitalisation Voluntary cessation nA business may cease operations and voluntarily wind up its affairs. Any assets owned by the business are sold. The business stops operating because the owner may wish to retire, wants a change of lifestyle or, in the case of a sole trader, has died nHowever, most businesses cease to trade due to business failure. With debts increasing and a negative cash fl ow, a business owner will soon realise if their business is underperforming. To prevent this accumulation of debt, the owner will need to cease operating the business of their own accord; that is, undergo voluntary cessation. Involuntary cessation nMany businesses, however, fi nish involuntarily. The owner is forced to cease trading by the creditors of the business; that is, undergo involuntary cessation. Creditors are those people or businesses who are owed money. nEven though a business appears to be in fi nancial diffi culty, many owners ncontinue operating in the hope that ‘things will get better’. In many cases they do not. As the business continues its decline, creditors become worried about the money they are owed and force the business owner into winding up the business. n nSole traders and partnerships may voluntarily or involuntarily go into bankruptcy: na declaration that a business, or person, is unable to pay his or her debts. nA company has two options when facing financial difficulties: n(a) voluntary administration occurs when an independent administrator is appointed to operate the business in the hope of trading out of the present financial problems. n(b) voluntary or involuntary liquidation is the process of an appointed liquidator converting the business’s assets into cash nLiquidation normally occurs because the company is insolvent nIt is estimated that an average 30 to 40 people are personally affected by one company insolvency. nL.E. Greiner (1998) Harvard Business Review. nBusiness studies in action ( chapter4) n