[Music] have you ever taken a human development class if so you might have learned about the human life cycle this cycle is based on the idea that we all pass through a number of stages after birth such as infant toddler child teenager adult i think there's a midlife crisis in there old age and then ultimately we all hit the final stage of death well organizations are a little bit like living things we sometimes talk about organizations being born maturing and even dying it turns out that organizations kind of like humans tend to go through fairly common and predictable patterns or stages these stages form what is often referred to as an organizational life cycle the idea behind organizational life cycles is that at each stage organizations tend to have similar structures and features they also tend to face similar problems or crises at each stage if firms are going to move from one stage to the next they have to overcome the crisis of that particular stage so it's useful to understand these stages so that you can anticipate and effectively respond to the challenges that are likely to occur at each stage now there are actually quite a few different organizational life cycle models out there and there's lots of variants of any particular model i'm going to introduce you to a well-known one that will give you the basic idea this particular life cycle model explains four different stages that organizations typically go through these are the entrepreneurial collectivity formalization and elaboration stages so stage one is the entrepreneurial stage we often think of the classic case of an entrepreneur making some great discovery in the garage actually apple started this way as steve jobs and steve wozniak tinkered in wozniak's parents garage companies often start as a one-person show with an idea a product or a new technology now while lots of potential companies start in the garage not very many get out of this stage and the crisis that has to be overcome at this stage is the need for leadership and vision if the company grows you need someone that can step into a leadership role sometimes that's the founder or founders but sometimes the people who have the big idea aren't necessarily the best people to lead the company now the second stage is what we'll call the collectivity stage the idea is that at this point we've become a real organization that encompasses more than just the founder and the big idea in this stage we have a clear vision for the company and leadership has emerged structure begins to be put in place to divide work into different specialties an organizational culture is formed as people have a shared sense of purpose working norms are formed and informal structures begin to emerge at this point as the organization grows there's a need to give lower level employees more autonomy top management can't do it all and needs to delegate responsibility throughout the organization so we'll call the crisis at this stage the need for delegation so now we move into the third stage and this is what we call the formalization stage of the life cycle this is where more formal control becomes necessary even though we may have had some structure before as the firm continues to grow managers often institute rules and procedures and other type of formal structure and even bureaucratic control you might see more formalized reward systems and firms often begin to add new product lines or services at this point the crisis at this point is too much red tape because of the focus of putting in formal structures and systems there's a tendency to become overly bureaucratic which can stifle innovation and it can make coordination much more difficult so now the last stage this is what we'll call the elaboration stage in the elaboration stage there's a renewed focus on collaboration and teamwork within the context of the bureaucratic control systems that were instituted in the previous stage so sometimes parts of the company are split into separate units to maintain a more responsive smaller company feel there's a renewed emphasis on integration so you might see firms implement a number of integrating mechanisms the crisis at this stage is revitalization the challenge that all companies have is to make sure that they can successfully adapt to a changing external environment let's go back to the example of apple the company that started in a garage making personal computers well they've had to reinvent themselves a couple of times and now they've become a company that derives most of its revenue from iphone sales this need for revitalization never ends and few companies are able to resolve this crisis over long periods of time those that don't resolve this crisis and to enter into a period of decline or even death as they fail to remain effective in the face of a changing external environment part of what you see during these different stages of the life cycle is the need for different types of structures in the early stages of the life cycle more organic structures allow for maximum flexibility small nimble startups that aren't burdened by excessive bureaucracy they can act quickly to provide innovative solutions to the market there isn't much need for specialization since there's a small core group of people that work on every aspect of the business but as the business grows there's a need for more structure to make sure things don't become overly chaotic more mechanistic structures are put in place to exert some level of control but sometimes these efforts go too far and so you have to look for ways to add coordination mechanisms and create other more organic structural solutions that can facilitate flexibility so you can see that managers are constantly trying to find the right balance between too much structure and not enough structure that's the challenge that managers face throughout the life cycle how do we maintain stability and efficiency while also making sure that we have the flexibility to be innovative and adapt history shows that's not an easy thing for managers to accomplish you