Journal number 1 ∘ Bondo Gasviani ∘
Organizational development stages and growth trends of entrepreneurial company

Expanded Summary

The article reviews the history and significance of the "life cycles" theories. Thoroughly reviewed, compared and analyzed two basic models. In addition, to confirm the adequacy of the practical use of models in Georgian reality, relevant studies were conducted. In particular, it questioned 100 Georgian companies and was established stage of their development, what generated a general picture about the level of organizational development and major organizational problems of companies operating in the country.

Keywords: Organizational development, Life cycles of the organization.

Content

Nowadays, organizational development has received a lot of attention. Basically, this concept refers to certain target changes made by managers to improve organizational performance. Some organizations are more successful and dynamic compared to others, others seem to have stopped, while third ones constantly face certain obstacles.

Kenneth Boulding was the author who firstly used the concept 'life in 1950 [Lorena, 2016:35]. Since that time, the management, marketing, sociology, psychology and state governance schools started to discuss and develop this theory. John Gardner doctor of Stanford University in an article that was published in 1965, “How to Prevent the Rape of the Organization” noted: “"Like people and plants, organizations have a life cycle.  They have a green and supple youth, a time of flourishing strength, and a gnarled old age... An organization may go on from youth to old age in two or three decades, or it may last for centuries.” [Gardner, 1965:20]. Thus, we can say that organizations in a period of development by overcoming the crisis, move to a new stage of development, they reach the highest peak of development and die.

* * *

In the second half of the 20th century, there was created several models of organizational development, where organization was perceived as a "personality" and its development as a "living organism" growth.

Many life cycle models have already been presented by different researchers, suggesting that the organization is developed by a number of life-cycle stages during its life. This number varies mainly from 3 to 10 stages (Table N1).

Table N1. Taxonomy of life-cycle models – number of stages

Surce: Selvarajah, C., Muthaly, S., 2011. Investigating the firm life-cycle theory on Australia SMEs in the ICT Sector," by Pereneyi. “Journal of Asia Entrepreneurship and Sustainability”.

To create a clearer view about life cycle theory, let's review, analyze and compare the two main models.

The classic example of the company’s organizational development and life cycle theory is the model of the evolutionary development of the company, created by Harvard Business School professor Larry Grainer [Larry Greiner, 1973]. It was developed in the 70s of the last century. Grainer identifies five stages of the company's development, which calls “Phases of Growth” (Diagram N1): creativity, direction, delegation, coordination and collaboration. Each stage of company’s growth has two phases: evolutionary and revolutionary development. In the stage of evolution, company’s sales da revenues gradually increase. In the stage of revolution, company has internal conflicts, which is the cause of incompatibility of the organizational aims and management, sales and earnings may decline, but then can be able to keep growing trend again. In fact, each stage is proceed of the previous stage and the cause of the next stage. Each periods of development are characterized by appropriate management style and involves management problems, which must be resolved, before moving to the next stage, to maintain the growth of the company. 

Diagram N 1. Greiner’s six phases and their crises

More details Consider each period:Source: Larry Greiner - “Organizational growth model” (1973).

1)   Growth by creativity representsthe born of the company in the level of idea. At this stage founder tries to realize his inspiration, creates a team and convinces its members in future success. This phase ischaracterizedbyhard work and low salary, often even on enthusiasm. Gradually, the company begins to grow and the entrepreneur loses control over his subordinates. Arises the need of the professional managers and the issue of delegation of powers over them becomes actual. Begins the crisis of leadership.

2)   Growth by Direction. At this stage, an organizational structure is created, roles and responsibilities in each positions are defined. Formal communication system appears, incentive and punishment mechanisms are implemented, and by the end a control system is created. Organization starts diversification and development. However strict functional system reveals its minuses – lack of information in the lower levels. In critical situation, for operative reaction, decision-making freedom is limited. Crisis of Autonomy Begins.

3)   Growth by Delegation. At this stage decentralization of organizational structure starts, what is expressed by giving power to the heads of individual business units and managers of geographical units. A middle level managers have enough power to develop products and enter a new market. At this moment, top managers pay attention to the general strategic development. What causes to gradually losing of controls on large and complex organization. Managers of units, often, loses a lot of time on achieving their own aims, than company’s basic aims. Also, to change them quickly is not easy because of that reason crises of control begins.

4)   Growth by coordination and monitoring. At this stage head office becomes larger. Head office is creating plan and control systems to realize it, however, the freedom to make basic production decisions remains the prerogative of the divisions. Complex planning, financial and overloaded control systems, causes reduction of reaction on the events and organizational effectiveness. There are crisis called “red tape”.

5)   Growth by collaboration. The organization understands the bureaucracy of the entire management and organizational system and gradually tries to make it flexible. The consultants-advisors institute is implemented, which helps top management with professional recommendations. Any new idea is encouraged and old system is criticized. Head office and level of control system are decreasing. At this stage it is possible to implement matrix system.

It should be noted, that in 1998 Greiner added the sixth stage – “Increasing by Alliances” and the fifth stage crisis was defined as "growth crisis".

In fact, Greiner’s model is based on two factors, on the size and age of organization. By the author’s opinion, the company has been growing for years, but the model doesn’t identify what time it takes for it. But truly this factors aren’t depend to each other. Practice shows that in fast growing industry company’s sometimes goes faster through stages of evolution. However this doesn’t effect on the organization size.

The idea of Greiner was developed by Ichak Adizes. In his opinion, organizational development has cyclic character, like the functioning of the physical, biological and social system. According to the Adizes model it is possible to distinguish ten consistent, gradual phases (Diagram N2).      

Diagram N 2. Company life cycles by I. Adizes.

Source: http://adizes.com/lifecycle/

1)   Courtship. This stage represents the very beginning of the business, where it is initially formed from an idea, and an initial embryonic product or service begins its life;

2)   Infancy.  Here the product or service has reached a point where the first sale can be made and the business begins to trade. At this stage the business will still be very small and fragile;

3)    Go-Go.  This is when the business really starts to become energetic with lots of different things happening at the same time. The business is still very young and so its business model could still change at any time. The business is often very chaotic at this stage with particular individuals often fulfilling multiple roles and minimum process and procedure in place;

4)   Adolescence. Just like with humans, in this stage the organization is still developing but it has form and it is possible to see its shape when it reaches its prime. The business is still not yet mature;

5)   Prime. Here the business has reached its peak of fitness – it is profitable, lean, and very competitive in the market. The business has processes in place but they are balanced, and information flows smoothly and regularily throughout the business;

6)   The fall. At this stage of its life a business is slightly past its prime. It can still be hugely profitable and lean but it is beginning to lose its edge, and on the verge of becoming complacent and losing its way;

7)   Aristocracy. By this stage the business is an incumbent – big and slow to change its ways. It will naturally be the target of disruptive smaller companies that will try to steal (sometimes successfully) its market share;

8)   Recrimination. By the time the business reaches this stage internal issues start to surface, and focus is being lost on the original customer needs;

9)   Bureaucracy. By this stage the business is so large and complex that it begins to trip over its own feet. Bureaucracy and administration which serve no customer purpose begins to dominate, as does interdepartmental politics;

10)    Company death is a slow and drawn-out process which can take several years. Once the company can’t generate the cash it needs to cover its costs, it starts reducing its size and selling its assets.

The first five phases of the Adizes’s model actually include the Greiner’s company evolutional development model, while the rest stages may be considered as a precondition inevitable end (dead of company), which is matter of controversy. Especially if we consider that there isn’t clear reference about company’s opportunity to operate abroad (which was added by Greiner like a sixth stage – “Increasing by Alliances”), its re-branding, or other possibilities for continuing its vitality and renewal. Also, the global market is full of companies whose appearance history counts centuries and progressively continues operating (E.g. Swiss company "Nestle” in 2016 celebrated 150 years since its foundation[1], American company “IBM” was founded in 1911[2], Italian company “Beretta” 5th century have been operating on the market (since 1526) [3]), Which definitely makes the theory of the imminent death of the organization doubtful.

Despite disadvantages described above, in both models each stages are characterized by its unique structure, system and management style. Moving from one stage to another isn’t happening naturally and smoothly, independently without influence of top management. In practical terms it’s important to establish and identify the current stage in the organization.

Taking into consideration, the different entrepreneurial areas, primary resources and managerial experiences, standard (similar) criteria, in practice can’t determine a current stage of company development. Therefore, to find the stage of development, it’s advisable to use a more flexible system.  

After long time of theoretical research and accumulation empirical experience, Adizes’s institute created questionnaire that establishes the current development stage of the company and nowadays is the newest practical method.

There are certain restrictions on the use of Adizes's theory in practice in Georgian reality. For some organizations the initial assumptions of the theory can’t be applied. For example, in theory nothing is said about the state enterprises, the number of which isn’t small in the country (According to the official data in 2017 there are registered 7954 economical entities of which more than 50% authorized capital owns State[4]) and their creator can’t be identified. Behind this, the social environment has a significant impact on business. We don’t have a high level of stability and prediction. The country still has a high level of regular changes. So, the problem of stability and long-term strategic planning in itself isn’t just fault of managers' low professionalism.  it should be mentioned, that Georgia has tense relations with neighbor country, which periodically expends in “creeping occupation”. Besides, frequent changes in legalization, did not gives the opportunity to make right prognoses.  

By the interviews which was made during the period of research, we can say, that business plans of the SMEs owners have designed only for several months, rarely for one or two years, and in other causes so-called “business plan” is a fantasy that is often called “business vision”. Close vison of planning is also confirmed by statistical data. Particularly in country are registered 653640 economical entities in 2017, of which 25.6% (167554) entities were active[5].

Hundreds of Georgian companies selectively were interviewed by using Adizes’s method and was established their stage of development (Diagram N3).

Diagram N 3. Stage of development of 100 Georgian companies

 

According to the data’s presented in diagram, it’s clear that 86% of companies are on the stage of infancy and go-go (childhood) or transitional stages. In fact, generally, in Georgian companies aren’t established structure, orderly subordination and there are no strict separation between functional rights and responsibilities.

Finally, we can say that there are two main problems of organizational development in Georgian reality:

1.  In our country structural changes are starting late every time. All of the top managers avoid structural changes. Generally, maybe, because of structural changes are perceived in very personal level in Georgia. Therefore, until it will not be too completed, decision making process will not became more difficult and slow, initiatives  from employees has not started decrease, tensions and conflicts doesn’t reach the pick, in middle and top level of management, until then almost none of organizations  start important changes. Because of this a lot of things are ruined and a lot of opportunities are lost [Toliashvili. 2012];
2.  There is a trend in Georgia to compere own business with successful western companies and adopting their experience. Most of the businessmen don’t take in account, that in this case, their indicator becomes companies where more attention is paid on administration, there is a high administrative function and systemize (well established rules and procedures). They are on adolescence, prime, or on fall stages. The research result shows, that there are not many companies on prime stage in Georgia, so increasing system ability at the early stages of development, can bring negative results. Therefore, often, attempts to introduce the best practices of foreign organizations in Georgian young business units, ends with frustration and unproductive use of resources. 

Consequential, managers must analyze the current situation and implement relevant organizational structure at the appropriate moment. Because, implementation of control mechanisms too early, or too late, in company’s system may cause negative result and obstruct the effective, economical and productive development of the organization.

The Adizes’s curve gives an opportunity to analyze the dynamics of the organization and the possible script of its development, what allows to make some conclusions about timeliness of the management decisions.

Conclusion

Organizational development is a continuously process. It constantly happens in almost organizations, at different levels and scales. Each organizations goes through several stages of development. The task of managers is to identify these stages. Otherwise, without relying on the correct diagnosis, when the time comes to make changes, there may be made a wrong decision.

In Georgian reality, low professionalism of managers, unstable social environment and high quality of regular changes creates additional problems in long-term strategic planning. As a result of the research, the main problem was implementation of adequate control mechanisms very early or too late.

To solve this problem, it was offered to use a method which was developed according to the Adizes’s model. Which with high accuracy determines the degree of development and helps to identify current and expected problems. Taking into account these forecasts, in case of an adequate actions from manager’s side, ensures effective, productive and economical management of organizational assets.

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