The organizational life cycle is the life cycle of an organization from its creation to its termination. It also refers to the expected sequence of advancements experienced by an organization, as opposed to a randomized occurrence of events. The relevance of a biological life cycle relating to the growth of an organization, was discovered by organizational researchers many years ago. This was apparent as organizations had a distinct conception, periods of expansion and eventually, termination.
Sometimes the term business life cycle is used interchangeably with the organizational life cycle, while the two are different. The organizational life cycle is a more inclusive term for all kinds of organizations which includes even government organizations, but the business life cycle refers more specifically only to for-profit companies.Miller, D., & Friesen, P. H. (1980). Organizational life cycles and shifting criteria of effectiveness: Some preliminary evidence. Management science, 26(10), 1079-1095.Bento, R., & Alves, H. (2014). Exploring the Life Cycle of Public Organizations: Implications for Strategic Management. International Journal of Public Administration, 37(10), 639-650. Other than this, within the scope of business, the organizational life cycle and business life cycle can be distinguished by their primary focus. The organizational life cycle is primarily concerned with the internal development and evolution of the organization itself, while the business life cycle is primarily concerned with the external development and evolution of the business within its market environment.Jenkins, M. (2016). Business life cycle and organizational life cycle: A review, synthesis and extension. International Journal of Management Reviews, 18(1), 42-64. https://doi.org/10.1111/ijmr.12074 In other words, the organizational life cycle is an inward-looking process, while the business life cycle is an outward-looking process.Jenkins, M. (2016). Business life cycle and organizational life cycle: A review, synthesis and extension. International Journal of Management Reviews, 18(1), 42-64. https://doi.org/10.1111/ijmr.12074
Development Comparisons between organisations and living organisms originated as early as 1890 by the economist Alfred Marshall who compared firms with trees in the forest, using the metaphor: "But here we may read a lesson from the young trees of the forest as they struggle upwards through the benumbing shade of their older rivals". Sixty years later, Kenneth Boulding presented the idea that organisations pass through a lifecycle similar to that of living organisms. Shortly after, Mason Haire was among the initial researchers who suggested that organisations may adhere to a certain path of uniformity in their course of expansion.
Subsequently, research has been done on the organizational life cycle for more than 120 years and can be found in various literature on organizations. Examples include the various stages in an organization's life cycle, phases of growth experienced by an organization during expansion and implications for these phases of growth. Review of the main organizational life cycle theories, with stages, main idea and authors is given in the table below. +Review of the life cycle stages in organizational literatureLife cycle stagesMain ideaReferenceGrowth, competition, top position, stagnation, decline and (eventually) deathGrowing trees in the forest as the analogy for the firm.(Marshall, 1890)Birth, growth, decline, deathOrganisations follow the same lifecycle as living organisms.(Boulding, 1950)Born stage, growth - establishing of legitimacy, rapid growth -innovation and expansion, aging phase formalisation and controlDescribes the dynamics of bureaucratic organisations.(Downs, 1967)Birth, youth-developing, stability and reputation, and maturity.Organisation goes through stages in the lifecycle, and thus the crises which occur in every organisation could be predicted according to the stage.(Lippitt and Schmitdt, 1967)Informal "one-man- show", formalized bureaucracy, and diversified conglomerate Organisational lifecycle is based on strategy and structure.(Scott, 1971)High-growth phase and low–growth (mature) phaseResearched how dividends fit in the lifecycle followed by the empirical evidence on dividend policy as it relates to the lifecycle theory. Value-maximizing firm should maintain a zero pay-out ratio at the initial stages and increase thepay-outs to 100% upon reaching maturity.(Mueller,1972)Creativity, direction, delegation, coordination, collaboration and alliances stageThe speed at which an organisation experiences phases of evolution and revolution is closely related to the market environment of its industry. Each phase is both an effect of the previous phase and a cause for the next phase.(Greiner, 1972, 1998)First stage of new agency, second stage of new agencyBased on organisational functional problems and how they can be applied to the analysis of complex public organisations. Problems provide criteria for identifying the functional effects of the efforts of an organisation both internally and as they contribute to the goals of larger systems.(Lyden, 1975)Primitive system stage, stable organisation stage and elaborative supportive structure stageOrganisational structures develops over timeframe of organisational growth.(Katz and Kahn, 1978)Courtship, infancy, go-go, adolescence, prime, stability, aristocracy, recrimination (early bureaucracy), bureaucracy and death.Comparison of lifecycle of a company to lifecycle of living organism, with the crucial exception -company does not have to die, it can be rejuvenated. Organisations go through the normal struggles and difficulties accompanying each stage.(Adizes,1979)Initiation, innovation and institutionalization.Features of the organisation that led to its success as an innovation in the short run were incompatible with requirements for survival in the longer run. These findings underscore the advantages of a biographical approach to organisational analysis.(Kimberly,1979)Entrepreneurial stage, collectively, formalization and elaboration of structure stage.Changes that occur in organisations follow a predictable pattern that can be characterized by developmental stages. The stages are sequential, and changes target:cognitive orientations of organisation members, organisational structures and environment relation.(Quinn and Cameron 1983)Existence, survival, success, take-off and resource maturity Small business growth depends on success factors as: business size, diversity, complexity, owner's management style and organisational goals.(Lewis and Churchill 1983)Birth, growth, maturity, revival and decline Each stage would manifest integral complementariness among variables of environment, strategy, structure and decision making methods; Organisation growth and increasing environmental complexity would cause each stage to exhibit certain significant differences from all other stages along these four classes of variables(Miller and Friesen 1984)Inception, survival, growth, expansion and maturity.Transition from one stage to the next requires change, it will be accompanied by some crisis or another. Proactivity of management can minimize those crisis.(Scott and Bruce, 1986)Growth, decline, deathFocus on causes and consequences of growth and decline processes in organisations has focused on the role of environmental, structure al, and individual factors.(Whetten, 1987)Entrepreneurial Stage, Collectivity Stage, Control Stage, Elaboration of Structure-Decline StageFocus is on two outcomes of formalization: administrative efficiency, and influence. Formalization (as efficiency) contribute to effectiveness early in an organisation's history. Later in the lifecycle, formalization (as influence) may contribute to organisational ineffectiveness and decline.(Walsh and Dewar, 1987)Conception, Investment, Incorporation, Investments, Incorporation, Experiments, Systematic production, Social network, Collaborative inquiry, Foundational community of inquiry, Liberating disciplines Analogous to E. Erikson's (1959) theory of individual development. The main idea is to provide a new perspective on the problems of creating new organisations, changing bureaucratic organisations, and envisioning qualitatively different kinds of organising. Final phase enables rebirth by awareness of and skills for resolving gaps between mission, strategy and outcomes.(Rooke & Torbert 1998; Sherman & Torbert 2000; Cacioppe and Edwards, 2005)Existence, survival, success, renewal, declineResembling general Miller and Friesen viewpoint and 5 stages model, and developed a scale to classify organisations, and examines relationships between organisational lifecycle, competitive strategy, and performance.(Lester, Parnell and Carraher, 2003)The absorptive capacities: ignorance, awareness, knowledge, implementation. The tipping points: Market entry, operational improvement, people management, obtaining finance, formal systems, strategy.As analogy to lifecycle stages they chose 6 tipping points with two dimensions (absorptive capacity and tipping point solutions) provide a framework within which to examine the growth needs of firms. Their reconceptualization of firm growth contrasts with the linear model described by the organismic metaphor and proposes that, over time, firms encounter tipping points which are the consequence of growth or of environmental changes. To navigate beyond the tipping point, the firm must have the capability to identify, acquire and apply new and requisite knowledge to resolve the new challenges and succeed in a competitive environment.(Phelps, Adams, and Bessant, 2007)Start-up, growth, maturity, and declineFollow the framework of the resource-based theory to explain relations between managers and firm's resources. They use and explain synthesis of existing lifecycle research(Sirmon, Hitt, Ireland&Gilbert, 2011)Introduction, Growth, Maturity, Saturation, RecessionSynthesize earlier theoretical research in order to connect lifecycle with organisational structure management and transaction costs(Gurianova, Gurianov and Mechtcheriakova, 2014)Start-up phase, phases of expansion, maturity and subsequent diversification (or decline)Lifecycle is unique configuration of variables related to organisation context, strategy, and structure. The number and nature of the stages varies extensively.(Hanks, 2015)Inception, High growth, MaturityAuthor synthesize work of previous author to suggest usable model generic to all organisations (Tam and Gray, 2016)
Stages Generally, there are five stages to an organization's life cycle Stage 1: Existence : Commonly known as the birth or entrepreneurial stage, "existence" signifies the start of an organization's expansion. The main importance is centered around the acknowledgement of having an adequate number of customers to keep the organization or business active. Stage 2: Survival : At this stage, organizations look to pursue growth, establish a framework and develop their capabilities. There is a focus on regularly setting targets for the organization, with the main aim being to generate sufficient revenue for survival and expansion. Some organizations enjoy adequate growth to be able to enter the next stage, whilst others are unsuccessful in achieving this and consequently fail to survive. Stage 3: Maturity : This stage signifies the organization entering a more formal hierarchy of management (hierarchical organization). A frequent problem encountered at this stage would be those associated with "Red Tape". Organizations look to safeguard their growth as opposed to focusing on expansion. Top and middle-level management specialize in different tasks, such as planning and routine work respectively. Stage 4: Renewal : Organizations experience a renewal in their structure of management, from a hierarchical to a matrix style, which encourages creativity and flexibility.