The life cycle of an organization proposes that over a certain period of time, for-profit companies move through a predictable sequence of development. Life cycles have been the subject of extensive study over the years and these are linked to organizational growth and development studies. It has been found that organizations are similar to living beings because they have a pattern of developmental stages and are impacted largely by the circumstances of the internal and external environments.
There are many frameworks used to determine the life cycle of an organization. However, the most basic, which others have based their framework upon, is a three-phased cycle. This framework comprise of the following phases: phase 1: emerging, phase 2: maturing, and phase 3: declining and exit.
Phase 1: Emerging
Emerging phase begins with a vision where business owners see opportunity and potential. Plans are then created and laid out to determine if it is feasible and sustainable enough to grow the business. This phase is composed of the first 5 years that a business is in operation. There are 5 growth sub-phases that form the emerging phase, and developing these will likely be the most challenging aspects of the life cycle.
- Growth through creativity: This is when members of the organization adopts formalized management practices, particularly for the leadership roles who need to take on significant authority over subordinates.
- Growth through direction: Lower level managers are given appropriate authority in order for the organization to continue growing; top level managers give up a portion of their authority and delegate it to lower level managers.
- Growth through delegation: After delegation has taken place, employees may show signs of reluctance especially if they feel that they are given limitations and losing control over their way of fulfilling their job functions. Top level and lower level managers must properly address this.
- Growth through coordination: Techniques of coordination such as formal planning processes and product groups need to be efficient and less bureaucratic as possible to prevent delays in decision-making and limitations in innovations.
- Growth through collaboration: The use of teams is given due importance because of the benefits it can give to the company. Teams and teamwork are enhanced and developed as a means to move forward to achieving overall purpose.
Phase 2: Maturing
This phase is almost on the peak of the life cycle and when successful, is characterized by high visibility for the business owner. Its members have already gained a strong understanding and sense of purpose, and make plans on how to accomplish individual and organizational goals. New members come in and are being introduced to the culture of the organization. Positive and effective delegation is now made more possible as people become more committed to excellent performance.
Leadership roles continue to maintain balance between creating changes and managing their employees. Although responsibilities may become repetitive, methods and systems are created to put variations and new challenges, and keep everyone driven for success. Members of the organization have already learned from the mistakes committed during the emerging phase. Rules and procedures are created and structured, and norms and values have become part of the organization’s identity.
Phase 3: Declining and Exit
Just like living beings, organizations also age and die. Once the maturing phase is over, an organization may very well have reached its peak and begins to decline. As it enters this phase, there is a gradual yet continuous reduction in revenues and resources and stagnation becomes a primary concern. There are dedicated employees and customers but they have been reduced significantly as compared to how it was during the maturing phase. With reduced workforce, market share, and profit due to fierce competition, lack of talents, and economic downfall, there is nowhere else for an organization to go but down. Once the organization begins to decline, it must make a decision to either close down permanently, or to start a whole new campaign entirely. This will require a complete overhaul in the organization, restructuring roles and functions, creating and adopting new systems, and even touching a new market. When this happens, it will once more start a brand new life cycle.