Organizational Life Cycle

The Organizational Life Cycle refers to the various stages an organization typically goes through from its inception to its eventual decline. This concept is generally broken down into several key phases: startup, growth, maturity, and decline. Each stage presents unique challenges and opportunities that can influence the organization's strategies, structure, and culture.

During the startup phase, organizations focus on establishing their identity and market presence. As they transition into growth, scaling operations and increasing market share become priorities. In the maturity phase, organizations often seek to optimize processes and maintain stability. However, if not managed effectively, they may face decline, requiring strategic reevaluation and potential transformation to revitalize the organization. Understanding these stages can help leaders navigate change and make informed decisions to promote longevity and sustainability in their organizations.

Overall, the Organizational Life Cycle serves as a framework for analyzing the evolution of organizations and can be a valuable tool for both management strategies and academic study.

Published in: 2021

By: Scott Zimmer, JD

Subject Terms

Organizational Life Cycle

Last reviewed: February 2017

Abstract

Organizational life cycle theory acknowledges that, just like living organisms, organizations go through identifiable stages from the time they are established until their eventual dissolution. The hope is that by studying the ways organizations grow and develop, people within the organization will be better able to recognize the stage they are at and take appropriate steps to guide it toward the most favorable outcomes available to it. This goal applies to the end of life stage for organizations just as much as to the earlier stages, because an orderly dissolution is vastly preferable to a sudden collapse.

Overview

Several models have been proposed to help describe the stages an organization goes through. The most widely used model breaks the life cycle down into the five stages of creation, survival, maturity, renewal, and decline. These stages, not coincidentally, correspond to the traditional stages of the human life cycle: birth, youth, adulthood, middle age, and old age. Each of these stages is characterized by certain types of activities that the organization undertakes during that phase. This does not preclude these activities from occurring during other phases, it simply means that some activities predominate at certain times.

During the creation phase of the life cycle, an organization is first established. When the organization is a business entity, the creation phase is sometimes called the entrepreneurial stage (Beuren, Rengel & Rodrigues, 2015). Typically, one or more people engage in business activities on an informal, freelance basis for some time as they discover there is a demand for a set of services or products that they are able to provide. This may carry on for a period of weeks, months, or even years before the decision is made to formalize the business or organizational structure and create the organization as its own distinct entity.

The creation stage begins, and for the remainder of this stage the organization usually expands as more and more people become aware of it and the resources it has to offer. An example of this might be a corner market that opens in a neighborhood that has long been without a grocery store. After the opening, more people each day will come across the store or hear about it from friends, expanding the market’s base of current and potential customers (Primc & Čater, 2016). During the creation phase, the primary transition requires that one move from the realization that there may be a large enough number of customers to support an ongoing business, to actually locating those customers and connecting with them in a way that makes it possible for the business to survive.

After the creation phase, the next stage for an organization is that of survival. This is perhaps the most critical stage in the organizational life cycle, because what happens during this period, as well as how the organization responds, defines the difference between those organizations that will continue and those that fold almost as soon as they begin. This is a period of great energy and activity in the organization, with various projects and initiatives drawing upon the organization’s resources and pulling its attention in numerous directions. There is an urgently felt need for the organization to “get on track” and establish its own internal structure and processes, but at the same time there is a constant drive for more growth in order to stay afloat and, ideally, to begin building up reserves that can be drawn upon for new projects or to respond to unforeseen emergencies. If these competing demands can be kept in balance and the environment in which the organization operates does not experience any sudden upheavals, then it is likely that the organization will survive. If there are unexpected shifts in the landscape or if the leaders of the organization miscalculate as they balance growth with security, then the organization may very well cease to exist (Elsayed & Wahba, 2016).

The third phase of organizational life is maturity, also referred to in some circles as consolidation. During the rapid growth of the survival phase, it often happens that the organization reaches a plateau in terms of growth. Efforts to grow beyond this point begin to fail because of the organization’s lack of the internal systems and structures needed to be able to both serve existing clients and acquire new clients. When this plateau is reached, the organization has a choice to make between two different pathways: pull back on the growth initiatives while establishing and solidifying internal infrastructure, or continue expansion efforts and hope that internal systems develop either on their own or with minimal supervision.

As one might expect, the latter option is rarely if ever successful, as there are simply too many factors at work in the contemporary business environment for matters to have a significant chance of working out on their own. The better option at this stage is for the organization to perform a thorough and honest self-assessment to identify strengths, weaknesses, opportunities, and threats—a SWOT analysis, to use the term that is common in the business world (Souza, Guerreiro & Oliveira, 2015).

The purpose of this self-analysis is to give the organization a realistic view of itself and what it needs to do. If this step is not taken, then it is all too easy for an organization to follow the whims and predilections of its leaders, rather than developing a strategy appropriate to the circumstances. In most situations the analysis reveals that the organization needs to devote additional resources to developing its internal structure. The reason for this is that during the previous phases, growth and expansion are the priorities. Little time is given to make sure that consistent processes and procedures are in place, so many functions of the organization are accomplished somewhat haphazardly. For example, the manager in charge of payroll might be so busy that she does not have time to process paychecks until the night before they are due, instead of doing so well in advance and in an orderly fashion, with meticulous attention to detail to ensure that no mistakes are made.

The maturity phase is the time for organizations to correct shortcomings like these, hiring additional staff as needed and following best practices wherever possible. The danger to be avoided during this work is of going overboard and making the organization needlessly complex. As with so many other aspects of life, the maturity phase teaches the lesson that balance is needed—the organization must create for itself a structure that is elaborate enough to sustain its operations in prosperous times and in less favorable ones, but not so labyrinthine that it becomes challenging to navigate (Deokro, Soyoung & Sung-Hyun, 2014).

For example, before the organization decides whether to establish a field office in a new state, there needs to be a process of gathering data and evaluating it to make sure that the new office is warranted and will have enough activity to support its operations. At the same time, if the data collection and evaluation process is too onerous and time consuming, it may ultimately act as a disincentive for the organization to expand, even at a healthy pace and even when expansion makes sense.

Further Insights

Finding the middle ground between these extremes is an inexact science, and even when it is achieved it rarely lasts for a long time. The maturity phase of the organizational life cycle is characterized by a continuing process of refinements and adjustments to try to find and maintain this balance (Rahimi & Fallah, 2015).

The fourth stage of an organization’s existence actually exemplifies this ongoing balancing act, and is known as the renewal stage. During the maturity phase, which ideally will last many years, it is almost inevitable that at some point the organization will stray from its original purpose in some fashion. This can take the form of distractions such as pursuing growth over quality or neglecting the organizational mission in favor of short-term gains. When this happens, the most positive outcome is for the organization to reinvent or rediscover itself, thus initiating the renewal phase.

Usually reinvention happens as a result of conscious effort that is undertaken once the organization realizes that it has lost its way. This series of events is frequently played out in the media for all to see—a company or similar institution makes a major misstep with a product launch or an offensive advertising campaign and determines that it needs to get back on track in some way. Sometimes this involves an organization-wide training initiative and/or a rearrangement of senior management. At the conclusion of this corrective action, the organization is renewed in the sense that its members collectively have recalled what their true purpose is and have regained their passion for it. This allows the organization to continue its operations in a manner similar to that seen in the maturity phase, at least until the organization once again loses its way at some point in the (hopefully distant) future (Carson & Cumber, 2013).

The fifth and final stage of the organizational life cycle is that of decline. An organization may begin this stage and then return to the renewal stage, and this sometimes occurs multiple times before the final decline. During this stage, the organization loses track of its mission and instead focuses on short–term gains and internal politics. Instead of the organization’s members working together toward a common goal, internal stakeholders pursue personal agendas, sometimes maneuvering to get ahead of each other and constantly looking for any means to gain an advantage that they can leverage into financial or political gain.

This loss of collective direction is more damaging to an organization than most outside threats that might arise, and once the process of decline gains momentum it is extremely difficult to reverse. While this can be distressing for those who rely on the organization and its services as well as the organization’s employees, ultimately it is for the best in many cases, because the dissolution of the organization frees up resources that were being underused or misused and makes them available for more productive application elsewhere (Md. Auzair, 2015).

Issues

During each phase of the organizational life cycle, some degree of growth is desirable, though not always feasible. Researchers have distinguished several different types of expansion, each one bearing some similarity to one or more phases of the life cycle. The creative form of growth tends to occur early in the organization’s life, as the organization first comes into being and decisions are made about its character and purpose; eventually this creativity is brought back to earth by the need for organization and direction. This ushers in directional growth, which seeks to channel the creative growth into a particular direction so that the organization can make progress toward a goal rather than pursuing growth in all directions.

Directional growth can produce friction in the organization as not everyone is likely to agree on a single direction, at least at the outset. This friction can lead to the development of various factions within the organization, each with its own hierarchy and agenda. As directional growth continues and the organization becomes more successful, it also becomes more complex and this makes possible delegation-based growth, in which an organization’s senior members learn to delegate some of their functions to their subordinates, making it possible for the organization to operate more efficiently. Eventually, some organizations move beyond the delegation form of growth to exhibit growth based on cooperation or collaboration, much more productive forms of interaction in which members of the organization work together to accomplish shared objectives rather than individual goals (Gray & Farminer, 2014).

It is important to keep in mind that as laudable a pursuit as expansion is, it is not possible under every circumstance, and it should not override all other considerations. This is why the significance of growth as an organizational motivator goes up and down from one phase of the life cycle to the next. In some situations, such as the maturity stage, it is more important for an organization to consolidate its gains and use them to make itself stronger, instead of pushing for more growth and potentially running the risk of overextending itself and risking huge losses. Some in the business world are fond of saying that one of the golden rules of corporations is that “If you are not growing, you are dying” (Paulo Roberto da, Roberto Carlos & Facin, 2013). Such a dramatic statement should hardly be taken at face value. Not every organization is driven solely by profits and the desires of shareholders. For many organizations, reputation, integrity, and dedication are more important than income.

Terms & Concepts

Human Factors Psychology: Human factors psychology is a branch of psychology that focuses on developing insights about human behavior which can be used to inform the design of organizational structures and systems. It is frequently used as a source of information by those studying the organizational life cycle.

Industrial/Organizational Psychology: Industrial/organizational psychology is a sub-discipline within the field of psychology. Its area of concentration is the study of human behavior within the world of work. Along with human factors psychology, industrial/organizational psychology helps researchers learn about how the workforce and the workplace interact with one another and exert influences upon each other.

Mission: The mission of an organization is its overarching reason for existing. Ideally, every activity the organization undertakes should help further the mission. At each stage of the organizational life cycle the mission should continue to be the driving force behind the organization’s activities.

Productivity: Productivity is a measure of the useful output of an organization; it can take the form of the number of products produced, the number of hours of service offered, or similar metrics. Productivity is an important factor in determining how well an organization is functioning, and it can vary from one stage of the life cycle to another. Productivity is also a subjective assessment as it depends on what kind of activity one is interested in measuring. For example, a company that makes sailboats might experience a period of what appears to be low productivity while renewing itself, if one only measures the number of sailboats built. However, if one measures productivity during this period by the higher levels of employee satisfaction resulting from the renewal efforts, then productivity might appear to be quite high.

Reorganization: A reorganization is an organizational strategy often used in the renewal phase. It can involve some individuals in the organization changing duties—adding new tasks or removing ones that no longer serve a useful purpose. It can also involve members of the organization leaving to pursue other opportunities as well as new members joining the organization.

Small- and Medium-sized Enterprises (SME): Small and medium-sized enterprises are the types of organizations often studied in research involving organizational life cycles and dynamics. In part, this is because SMEs are less difficult to study than huge, multinational conglomerates. Their members also tend to be more approachable than top executives in major firms.

Bibliography

Beuren, I. M., Rengel, S., & Rodrigues, M. J. (2015). Relation of management accounting attributes and the organizational life cycle stages. Revista Innovar, (57), 63.

Carson, C. M., & Cumber, C. J. (2013). Carson’s department store: When to stay and when to go. Journal of the International Academy for Case Studies, 19(4), 61. Retrieved October 23, 2016, from EBSCO Online Database Business Source Ultimate. http://search.ebscohost.com/login.aspx?direct=true&db=bsu&AN=109354101&site=ehost-live

Deokro, L., Soyoung, K., & Sung-Hyun, C. (2014). Evaluating the effectiveness of research centers and institutes in universities: Disciplines and life cycle stages. KEDI Journal of Educational Policy, 11(1), 119.

Elsayed, K., & Wahba, H. (2016). Reexamining the relationship between inventory management and firm performance: An organizational life cycle perspective. Future Business Journal, 2, 65–80.

Gray, B., & Farminer, A. (2014). And no birds sing-reviving the romance with international entrepreneurship. Journal of International Entrepreneurship, 12(2), 115. Retrieved October 23, 2016, from EBSCO Online Database Business Source Ultimate. http://search.ebscohost.com/login.aspx?direct=true&db=bsu&AN=97227451&site=ehost-live

Md. Auzair, S. (2015). A configuration approach to management control systems design in service organizations. Journal of Accounting & Organizational Change, 11(1), 47. Retrieved October 23, 2016, from EBSCO Online Database Business Source Ultimate. http://search.ebscohost.com/login.aspx?direct=true&db=bsu&AN=101051027&site=ehost-live

Rahimi, F., & Fallah, S. (2015). Study of organizational life cycle and its impact on strategy formulation. Procedia—Social and Behavioral Sciences, 207(11th International Strategic Management Conference), 50–58.

Paulo Roberto da, C., Roberto Carlos, K., & Carlos Eduardo Facin, L. (2013). Organizational Life Cycle And Management Control: An Analysis Of Articles In International Journal Of Accounting. Revista De Gestão, Finanças E Contabilidade, (3), 170.

Primc, K., & Čater, T. (2016). The influence of organizational life cycle on environmental proactivity and competitive advantage. Organization & Environment, 29(2), 212–230. Retrieved October 23, 2016, from EBSCO Online Database Business Source Ultimate. http://search.ebscohost.com/login.aspx?direct=true&db=bsu&AN=115288512&site=ehost-live

Souza, R. P., Guerreiro, R., & Oliveira, M. V. (2015). Relationship between the maturity of supply chain process management and the organisational life cycle. Business Process Management Journal, 21(3), 466–481. Retrieved October 23, 2016, from EBSCO Online Database Business Source Ultimate. http://search.ebscohost.com/login.aspx?direct=true&db=bsu&AN=102913536&site=ehost-live

Organizational Life Cycle

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Subject Terms

Organizational Life Cycle

Abstract

Overview

Further Insights

Issues

Terms & Concepts

Bibliography

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