As in the natural sciences, there is a life cycle phenomenon in management. In this case, it refers to the company’s operations and is a handy tool to support decision-making processes. If you want to know when you should make changes in your organization, read the article below!
The life cycle of an organization – table of contents:
- What is the life cycle of an organization?
- Stages of the organization’s life cycle
- Concept and market entry
- What does the life cycle of an organization depend on?
- When to make changes in the organization?
- An example of an organization’s life cycle – Kodak
What is the life cycle of an organization?
In the course of their operation, companies go through several stages, which can be referred to as the life cycle of an organization. Depending on internal and external conditions, many changes take place in it, which can lead to success and survival amid fierce competition, as well as decline. The concept is related to the product life cycle, knowledge of which also enables a company to realize its potential and maximize profits.
Stages of the organization’s life cycle
The 4 phases outlined below can have different timing. Each requires a separate way of managing and allocating financial capital.
Concept and market entry
The beginning of any enterprise is the business idea and the construction of the organization model, which is necessary to achieve the set goals. This is the stage of exploring capabilities, meeting formal conditions, obtaining sources of financing (e.g. loans, own funds) or investors. It also involves identifying recruitment needs. In this phase, the risk of failure is greatest, as the company faces low profits, difficulties in reaching its target group as well as fierce competition.
Overcoming initial obstacles manifests in increased consumer interest and rising sales. The cash flows in and profitability goes up. At the same time, competition is getting fiercer, so pay attention to raising customer service standards and improving process efficiency. Carefully dispose of your budget – initial success always fills you with enthusiasm and the desire to invest in further ventures, but sometimes you may have a distorted perception of the situation. Don’t sharply increase your expenses, which will become your debt if the market deteriorates.
To secure yourself for the future, think about creating a stable product that would bring you a steady income. You will have an alternative source of profit in case of an unforeseen situation that could impair your business efficiency. Analyze your competitors (especially entities at a similar stage of the cycle as yours) with whom you could co-petition. Exchanging experience, and knowledge and combining your services can help create new value in the market that will benefit both parties.
This period is characterized by the achievement of financial stability and balance. The company has succeeded in gaining consumer confidence and creating a positive image. However, an exaggerated sense of security can mislead you. As the market becomes increasingly saturated, it becomes difficult to achieve profits comparable to the intensive growth phase. Underestimating this moment can lead to rivals taking over and exerting price pressure. It’s worth looking for ways to diversify, expand your offerings, enter new markets, and invest in innovation.
In the final stage, the enterprise experiences stagnation and begins to make losses. The first symptoms of irregularities in the management system can manifest, for example, in the poor organization of work and dissatisfaction of employees, but these are often overlooked or deliberately ignored. Only when there is a negative financial result, an increase in liabilities and debts, the problem becomes apparent and the company may attempt their prevention made, but it may be too late. Such a situation should not be allowed to occur, for it threatens a crisis or even the collapse of the company.
To avoid a reduction in revenue levels, you should regularly monitor all areas of your business and make changes where necessary. The company must invest in improving its technological facilities and processes, look for an additional group of customers as well as propose improvements to existing offerings or create a completely new one.
What does the life cycle of an organization depend on?
The residence time in a given life cycle is a result of several factors of the external environment, as well as the behavior of decision-makers inside the organizational structures. The main ones include, for example:
- Size and resources (human, financial, technological, etc.) of the company;
- The specifics of the industry in which the company operates;
- Laws that apply to the company in question;
- The management style of management.
When to make changes in the organization?
Neglecting certain aspects of the business at the strategy development stage can carry unpleasant consequences. It is extremely difficult and fraught with the risk of failure to make abrupt changes when problems begin to mount. Therefore, it is worth thinking about this issue when defining the goals and mission of the company. A previously prepared action plan will act as a “rescue board” when the need arises.
The most common scenario involves forcing the implementation of modifications by noticing increasing losses – lower profits, loss of customers to competitors, etc. Trying to identify the causes of such a situation is then done in a hurry to react quickly and stop the downward trend. Because of this, you will obtain incomplete assessment and selected actions will come inadequate for the problem. Instead, reorganization should take place when you notice the first symptoms of a faulty system followed by actions aligned with business objectives aimed at facing the challenges in the market.
Each life cycle of an organization requires proper control and supervision, taking advantage of opportunities for rapid growth and expansion as well as monitoring against excessive stagnation, which can herald regression and bankruptcy.
An example of an organization’s life cycle – Kodak
The company came out with a new technology for taking pictures, which it patented in 1888. The Kodak camera, which was created at the time, revolutionized the world of photography at the time and pointed the way forward for other businesses.
Kodak invested heavily in innovation, providing several new inventions and solutions. These included 35 mm roll film, the creation of the first amateur Kodachrome film. Subsequent successes led to the creation of a network of laboratories tasked with research and development for the company. In 1900, the popularization of the Brownie camera, which was sold at such a low price that almost everyone could afford it, greatly spread the art of photography among the public.
During World War I, the company created an apparatus used in military aviation film tape to record images along with sound. In the early 20th century. Kodak’s competitive advantage made it a pioneer in the industry. In 1962, more than 75,000 people were employed at the time, and sales in the United States totaled $1 billion. However, in the 1990s, other market players increasingly made their presence felt.
Just 10 years later, Kodak was in danger of ignoring the potential of digital photography. The company continued to focus most of its activities and resources on traditional solutions, which became a great opportunity for competitors such as Nikon, Samsung, and Canon. The patent wars that Kodak fought with Apple, Sony and LG, among others, were also a distraction. Paradoxically, the initiator of important changes in the history of technology was at fault, losing the opportunity to move from the traditional industry to the digital photography industry. Executives proved too attached to the old technology and were unwilling to make the effort to implement changes while competitors were developing new products and offerings.