Just like a living being progresses through growth stages, organizations and businesses advance through predictable stages of development. A leader who wants to grow an organization or business can have a better understanding of his organization’s needs by knowing his company's stage of development.
An organizational life cycle (OLC) is the progressive stages of business or organizational development. Some models have more stages than others, but the typical stages include startup, birth or inception phase; growth and maturity phase; decline phase; renewal or redevelopment phase; and death.
In the startup phase, an entrepreneur thinks about a business model, forms a management group and writes a business plan. Her primary concern is securing funds for development and survival. At this stage, the organization is a one-person show with the founder bearing all responsibility for development and management.
According to Murray Johannsen of Legacee Leadership Development, a company needing startup funds goes into the growth phase once it secures investors. Companies not needing outside funds end their start-up phase as soon as doors are open for business. The growth stage means rapid expansion of product line and personnel, increased operational complexity and climbing revenue. Emphasis on procedures and rules stabilizes and formalizes the organizational structure. The founder must learn to delegate authority and separate tasks for his organization to survive and thrive during the growth stage.
As organizations mature, however, the very rules and procedures set up for growth and stability reduce innovation and hinder adaptability and flexibility. These conditions develop what Johannsen refers to as dry rot. Symptoms include lack of teamwork; project stagnation; leadership frustration and lack of communication; repeated organizational mistakes; missed deadlines; ineffective meetings; and unclear vision, strategies and objectives. This all leads to decline.
Research published in the Mid-Atlantic Journal of Business points out that initial rapid successes lead to self-deception, lack of flexibility and shortsightedness, moving the organization into a phase of decline. Characteristics of this phase include rigid commitment to past strategies; resistance to change; group conformity and over-conservatism. If an organization carries a heavy debt load (due to capital expenses, technological upgrades, increased supply or labor costs or other overhead) and the leadership is unable or refuses to adapt and find solutions, the results are declining sales, narrower profit margins and increasing debt loads.
Decline continues unless the leadership chooses to transform in key areas, prompting renewal. Choosing renewal requires tremendous commitment from leadership. According to leadership teachers Jim Kouzes and Barry Posner (creators of "The Leadership Practices Inventory" assessment), five key leadership actions lead to organizational renewal. These include modeling (leaders adopt the behavior they want to see in the organization), inspiration (leaders communicate a vision in a way that causes others to adopt it as their own), innovation (leaders challenge the processes and adopt change), enabling action (leaders create a climate and opportunity to put ideas into action) and passion (leaders instill enthusiasm into their organization).
Persisting in practices of decline leads to organizational failure. Failure to instill or promote transformation leads to organizational death. Up to 80 percent of business failures and bankruptcies result from business leaders continuing to practice failed strategies and neglecting to make transformational changes that prompt a renewal phase.