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Organizational Life Cycle

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Organizational Life Cycle: in this article you will !nd a practical explanation of the Organizational
Life Cycle theory by Ichak Adizes. After reading this, you will know the basic concepts of this #winterlove
powerful tool.

Ichak Adizes’s Organizational Life Cycle theory is a cycle of organizational models, which helps
managers understand and predict the challenges an organization could face throughout its life.
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As indicated, the idea of the organization’s life cycle was developed by business consultant and
former professor Ichak Adizes. He says that organizations go through !ve stages of development:
birth, growth, maturity, decline, and death. Each stage lasts for a certain amount of time before E-mail

moving on to the next stage.

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This article aims to provide an introduction to the Organizational Life Cycle model and provide
some insights into how managers can deal with these challenges.

This article covers the following topics:

What is the Organizational Life Cycle?

Organizational Life Cycle model
The 4 stages of Organizational Life Cycle
Organizational Life Cycle theory
Organizational Life Cycle of Apple

What is the Organizational Life Cycle?

The Organizational Life Cycle Model is a process model which identi!es how organizations grow,
mature and decline over time. The growth phase of an organization begins as it establishes a
foothold in a market and develops its product or service o"ering.

As the business becomes established within its operating environment, competition intensi!es,
leading to maturity as the !rm strives to continue achieving higher levels of e#ciency through cost
minimization and quality control. In this stage, some !rms may seek opportunities for
diversi!cation into new products or services with the aim of augmenting their current revenue
stream or creating a new one entirely.

Over time, markets can become saturated so that further growth becomes more di#cult, even
posing the risk of entering a period of decline where there are no foreseeable prospects for
improving market share. This may lead to organizations advocating for new growth strategies
even if the time is not yet right, perhaps leading to diversi!cation into emerging markets or the
development of new products before they are actually needed.

Organizational Life Cycle model

The Organizational Life Cycle model proposes that there are four phases in an organization’s
existence: birth, growth, maturity, and decline. Each phase is characterized by speci!c factors
which in$uence organizational performance at the time, helping develop appropriate strategies
for dealing with each situation e"ectively. The phases will be considered below in more detail,
including management challenges faced during each stage and suggested strategies for moving
forward.

The 4 stages of Organizational Life Cycle

The Organizational Life Cycle is the theoretical pattern of phases that are typically followed by an
organization.

The Organizational Life Cycle consists of four phases: planning, growth, maturity, and decline.
Each phase in the Organizational life cycle is characterized by speci!c activities and problems.

Start-up / planning
Planning for an organization means determining what type of activity it will engage in and how it
will grow.

Growth
Growth generally represents the period when an organization becomes more stable and
increases its size and number of employees.

Maturity
Maturity includes a stable workforce with good working relationships among employees.

Decline
Decline is characterized by an aging workforce, fewer customers, and shrinking pro!ts or losses.

Organizational Life Cycle theory

The theory was created by Ichak Adizes in his book titled “Corporate Lifecycles: The Role and
Interaction of Management and Markets,” and it has been adopted by many organizations to help
them plan for their future.

Ichak Adizes was born in Israel in 1936 and earned his bachelor’s degree from Tel Aviv University
before moving to America for his MBA at UCLA. After graduating he became one of the founding
partners at Horwitz, Adizes & Company Inc., a consulting company for business management
issues.

The concept of Organizational Life Cycle Model was developed based on three main assumptions:

1. all systems exist within a larger environment;

2. all systems have a boundary that separates them from their environment;
3. all systems must take in materials from their environment to maintain themselves.

By taking the concept of an open system as a starting point, a model can be created to track
relationships between functions within any given organization.

His model allows for changes that occur during each phase of an organization’s life cycle by
describing the major factors that in$uence organizational performance at the time. In addition, it
helps develop appropriate strategies for dealing with those situations e"ectively.

Applying the Organizational Life Cycle model

There are !ve main stages of the Organizational Life Cycle model which need to be identi!ed
before implementation can begin:

1. The “what” stage – where decisions are made about what type of activity an organization will
engage in and how it will grow;
2. The “where” stage – where decisions are made on where to locate resources or facilities e.g.
o#ces, warehouses etc.;
3. The “how” stage – where you make decisions about how to use new capacity, like a building or
factory, which could be done by using departments or outsourcing;
4. The “situation” stage – where decisions are made on how to !ll new organizational capacity
created e.g. what roles will be performed by individuals employed in the organization;
5. The “control” stage – where managers ensure that controls are implemented so that the
objectives set out in the !rst ‘what’ stage are achieved during all of the remaining stages of
planning, growth, maturity and decline.

Key challenges in the planning phase

Choosing between diversi!cation and market penetration strategies that can a"ect long-term
!nancial performance – more commonly known as a portfolio choice.
Determining whether to outsource non-core services.
Determining how many resources and sta" are required to ful!ll the organization’s objectives
(include key positions).
How to best attract new customers and market share.

Key challenges in the growth phase

1. High costs due to the need to achieve economies of scale e.g. employing more sales
representatives or increasing production capacity.
2. Dealing with increased competitiveness, especially if the business has expanded into a
markedly di"erent type of industry.
3. Organization may go through periods of rapid expansion requiring greater investment in
order to sustain success which could increase its gearing ratio beyond manageable levels.
4. A drive for greater e#ciency requires more e"ective control systems to manage the increase
in organizational complexity.
5. It may become increasingly di#cult to maintain standards of customer service.
6. Control of key resources may pose particular problems, especially if they are distant from the
organization’s head o#ce.
7. Control structures become more complex as organizations grow. For example, managers
dealing with branch o#ces !nd it far more di#cult to monitor activities.
8. The need for strategic alliances can present additional management challenges by increasing
levels of interdependence between organizations, which could be problematic if proper
controls are not put into place.

Key challenges maturity phase

Stagnant growth rates due to saturated markets making it di#cult to achieve economies of
scale, so it becomes necessary to seek new ways to expand the business.
Resistance from managers toward any change in strategy despite lower growth rates due to
disinterest with the current strategy and/or realization that there are no better alternatives.
Some industries will experience saturation resulting in lower pro!tability, making it di#cult for
management to justify further investment without evidence of good returns on capital.
Competition can force organizations into a price war or excessive discounting, which could
lead to a temporary increase in market share but at a cost that may undermine long-term
pro!tability.
Di"erentiation strategies become less e"ective as customers purchase products based on the
lowest price, while brand loyalty decreases.
Pro!tability tends to decline as organizations mature and face greater price pressure from
competitors.

Key challenges decline phase

The need to diversify into new markets, products, or activities as growth slows down.
Problems arise due to a lack of demand for current products or services, where excess
capacity needs to be managed.
Outdated technology becomes problematic, resulting in loss of market share.
Increased trade union activity: Any industry where union in$uence is strong may su"er unrest
and strike action if demands are not met, resulting in cost implications and production
disruption with an impact on pro!tability. If this results in legal disputes and compensation
charges, it can involve signi!cant costs.
With lower levels of pro!tability, organizations risk becoming takeover targets.

Strategies in di!erent phases

Growth
Organizations need to widen their geographical spread to bring access to new markets and
customers, as well as extend the range of products or services o"ered. There may also be a need
for diversi!cation into related activities to complement the existing business.

Maturity
This is a crucial time for management as they will need to develop a strategy that manages decline
e"ectively while at the same time ensuring that resources are not wasted on expanding into loss-
making areas of the business too early.

Decline
It is important that once an organization recognizes that demand has reduced, then no further
funds should be invested in development; instead, management should seek ways to withdraw
from certain activities if this is economically viable.

Organizational Life Cycle of Apple

Apple as a practical example of the Organizational Life Cycle

Apple is a company with a long and interesting history. They have gone through many changes in
the past few decades, and some of those changes can be examples of the Organizational Life
Cycle.

The !rst stage of the Apple’s Organizational Life Cycle was an entrepreneurial start-up. Steve Jobs
and Steve Wozniak were focused on creating new technology and on advancing the state of
computers.

They were successful in doing so, but their success came at a price: they had to sacri!ce other
things like employee salaries and customer service. This is all because they chose to focus on the
new technology aspect of Apple rather than on customer satisfaction or !nancial stability

The second stage comes after Apple became publicly traded for ten years under Jobs’s leadership.
At this point, Apple was more focused on the customer’s experience and their products were
more pro!table. This second stage was a great success for Apple, but it wasn’t all sunshine and
rainbows: Jobs became increasingly focused on creating better technology rather than focusing
on customers, which led to his departure from Apple in 1985.

The third Organizational Life Cycle of Apple is what we see today. Tim Cook has taken over as CEO
since then, and he focuses much more heavily on marketing/branding while remaining committed
to technological innovation. He’s also been successful with this Organizational Life Cycle because
they have created two new product categories under his leadership (iPad & Smartwatch).
However, there are some challenges that come with being one of the biggest companies in the
world: Apple is now facing issues with pro!tability, and it’s becoming more di#cult for them to
innovate in a way that feels fresh.

This Organizational Life Cycle of Apple can be seen as a microcosm of what happens within most
companies when they go from entrepreneurial start-ups to publicly traded corporations, and
!nally towards being one of the biggest brands in the world. The only di"erence is that there are
usually at least 20 years between each Organizational Life Cycle phase, whereas Apple has
experienced all three phases in just 40 years’ time.

Some important highlights to understand the

Organizational Life Cycle
The Organizational Life Cycle is the general pattern of phases that are typically followed by an
organization.

The four main phases of the cycle are planning, growth, maturity, and decline, which take place in
sequence with each other. Each phase has its own unique characteristics associated with it, which
managers need to understand if they are to lead their organizations successfully through the
cycle.

The length of time for each phase may vary according to several factors, such as resource
constraints or external forces that inhibit movement between stages. For example, the
organizational decline can be hastened when there is insu#cient cash $ow to fund projects or an
increase in taxation rates will reduce pro!t margins while demand for products decreases due to
downturns reducing sales revenue, etc.

The Organizational Life Cycle Theory is more applicable to non-pro!t, public, or voluntary
organizations than for-pro!t !rms. For example, the decline stage in a !rm’s life cycle often means
that it can no longer generate enough pro!ts to cover costs and therefore has to declare
insolvency and close down. In contrast, charities do not need to be pro!table and can continue
with limited resources if they have a su#ciently large donor base who give regularly for this
purpose.

Organizational Size: As one would expect from any model of organizational development, size
matters when it comes to the adoption of the Adizes’ theory. The Organizational Life Cycle model
is only applicable in larger organizations, as its e"ectiveness diminishes in small to medium-sized
!rms.

The Organizational Life Cycle model is very e"ective for strategic planning, especially in the
organizational growth and maturity phases, when managers are more able to look at long-term
development issues.

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More information
1. Adizes, I. (2004). Managing corporate lifecycles. The adizes institute publishing.
2. Givhan, R. N. (2014). Aligning Corporate Lifecycles and Product Lifecycles. AuthorHouse.
3. Adizes, I. (1979). Organizational passages—diagnosing and treating lifecycle problems of
organizations. Organizational dynamics, 8(1), 3-25.

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