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What Is Organizational Life Cycle?

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  • Written By: Mary McMahon
  • Edited By: Kristen Osborne
  • Last Modified Date: 25 August 2014
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Organizational life cycle is a series of stages a business goes through from inception to eventual closure. These follow a predictable and stable model. By being aware of the organizational life cycle, people can take steps to address the decline of a business before it happens, with the goal of keeping the business functional for a longer period of time. Failure to adapt to changes in a business or economic climate can result in eventual loss of the business as it loses relevancy and efficiency and declines into obscurity.

The first stage of the organizational life cycle is initial development, where people decide to create a new business and work together to make it happen. This may also be called the entrepreneurial stage. It is necessary to come up with a solid business model, seek financing to assist with getting the business started, hire personnel, and so forth. There are a number of challenges at this phase as people work to get a business off the ground.

In the growth stage, the business is established, and begins to grow. It may produce more products, expand service area, hire more personnel, and so forth. This stage can be very rapid and is an important part of the organizational life cycle. If people plan and operate a business well, they can lay the groundwork for future success. If they do not, problems from the growth stage can haunt the business later on.

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At the maturity stage, a business has a firm foothold in the industry, a respected name, and a functioning business model. At this point, people need to innovate to keep the business functional. They may expand, change missions, or take other steps to keep the business at the forefront of the industry. If they do not, the business can enter the fourth stage, decline. Shrinkage occurs, customers drift away, rival companies take over market share, and the business begins to fail, entering the fifth stage, death.

Each stage of the organizational life cycle has different challenges and people can meet them in a variety of ways. Flexibility is usually important, as it will allow people to adapt to changes in the industry like tighter regulation, the emergence of competition, or the elimination of a need for a given product. Changing administration, encouraging bottom-up innovation by listening to employee suggestions, and similar measures can help a business stay strong and grow at maturity, instead of faltering when people expect the industry to remain static and make no changes in a business to keep it operational.

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