Factors Influencing Organizational Design
Growth Cycle
Larry Greiner's model of growth offers an organic view of the business life cycle. Like people, organizations change as they age and grow. Each growth stage encompasses an evolutionary phase of growth and a revolutionary phase where an organizational crisis will occur, and the business's ability to handle these crises can determine its future.
Phase 1: Creativity
The creativity phase is marked by early growth of a company due to an emphasis on creating a product or service. The founders of the company are usually technically or entrepreneurially oriented, and they generally disdain management activities. As the complexity of the business increases, the founders will struggle to both grow and manage the business.
Phase 2: Direction
A strong business manager will be brought in to install a functional organizational structure, with formal communication channels and hierarchy. A strong focus on accounting and capital management will drive most business decisions. Top management's control of all operations diminishes the autonomy that middle-level managers enjoyed, despite their superior knowledge of markets and products.
Phase 3: Delegation
The delegation phase is marked by the application of a decentralized organizational structure. Middle managers are freed up to make decisions and executives monitor the operation and focus on bigger issues, such as mergers or acquisitions. Better coordination of all the operations will be required as the executives feel a loss of control over the middle managers.
Phase 4: Coordination
The coordination of the business structure involves the merging of local units into product groups, a centralization of support functions, and establishment of formal planning procedures. Although resource use becomes more efficient and growth occurs, managers become frustrated with the bureaucratic red tape. The rules and procedures appear more important than productivity and innovation. In turn, corporate staff becomes frustrated with the uncooperative and uninformed managers.
Phase 5: Collaboration
All parts of the organization criticize the resulting bureaucratic structure, and it will take all the key leaders, managers, and employees to collaborate in an attempt to create a better structure. The formal systems and procedures will have to give way to social control and self-discipline. A shift to a problem solving-based approach is needed as teams combine across various business functions and previous systems are simplified.