The Organizational Life Cycle

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  • 0:05 The Organizational Life Cycle
  • 0:45 Start-Up Stage
  • 1:51 Growth Stage
  • 2:41 Maturity Stage
  • 4:20 Decline Stage
  • 5:41 Lesson Summary
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Lesson Transcript
Instructor: John McLaughlin
In this lesson, you will learn about the four stages of the organizational life cycle and how organizations change as they pass through these sequential stages.

The Organizational Life Cycle

Just like people, organizations have life cycles. Organizations are born, they grow bigger and mature, and as they pass through midlife, they start to decline. In many cases, organizations die, just like every other living thing.

Some organizations live long lives, and some live short lives, but each stage of development in the organizational life cycle is sequential and predictable for all organizations. It is important that managers of organizations realize which phase of the life cycle their organization is currently in so that they can adopt strategies that work best for their current situation.

Start-up Stage

The start-up stage begins when an organization is founded. During this stage, organizations accumulate capital, hire workers, and begin developing their products and services. Organizations in the start-up stage are small and managed informally, usually by one person.

Hazel Hudson was well known for her delicious homemade candy. One night when she was helping her daughter with her homework, she noticed her daughter chewing on the end of her pencil.

The next time Hazel made lollypops, she substituted pencils for lollypop sticks so that instead of an eraser on the end, each pencil would have a brightly colored lollypop. She gave her daughter some of these lollypop pencils in hopes of breaking her of her pencil-chewing habit.

Hazel's daughter took a few of these tasty pencils to school, and all her friends wanted one of their own. Soon, Hazel was making them for her neighbors, friends, and even the local office supply store. Hazel called her invention the lollipencil, and just like that, a business was born.

Growth Stage

As business opportunities exceed the infrastructure and resources of a new organization, the organization enters into the growth stage. At this stage of the organizational life cycle, organizations increase their resources, hire workers and managers, begin to develop a formal structure, create rules and procedures, and departmentalize jobs within the organization.

As Hazel's business entered the growth stage and she realized that she could no longer make enough lollipencils in her kitchen to meet the growing demand, Hazel rented space in a commercial kitchen, bought packaging equipment, and hired a full time cook, delivery truck driver, and salesperson. Her small organization began to form a structure, and Hazel's role changed from lollipencil maker to the manager and CEO of Lollipencil, Inc.

Maturity Stage

The next stage of the organizational life cycle is the maturity stage, which occurs when an organization reaches a size that fits its environment and no further growth is necessary. An organization that reaches the maturity stage is large, well established, and bureaucratic, and it has an extensive set of rules and regulations. Mature organizations no longer need to hire new people because they have all the people and resources they need to handle their current market conditions.

Lollipencils sold well for many years, and Hazel's company grew exponentially. Twelve years after she made her first lollipencil, Lollipencil, Inc. had over one hundred employees and had sold more than five million lollipencils all over the world. But then, the growth stopped. Other companies were making similar products and selling them for less. The Lollipencil, Inc. board of directors soon realized that their remarkable growth had stagnated.

Organizations in the maturity stage often take actions to attempt to renew growth, such as acquiring other companies or expanding their product lines.

The marketing department of Lollipencil, Inc. went to work trying to come up with some new concepts that would give their organization a much needed boost. They test marketed the lollipen, the lollibrush and even the lolliscrewdriver, but none of these products were well received by consumers.

Organizations that are able to regenerate growth can avoid the decline stage, enter into the revival stage, and continue along on a path of growth.

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