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.

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.

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.

Decline

In the final stage of the business life cycle, sales, profit, and cash flow all decline. During this phase, companies accept their failure to extend their business life cycle by adapting to the changing business environment. Firms lose their competitive advantage and finally exit the market.

Question to Consider: 

1. What are the four stages of the business life cycle?
2. What is Organizational Life Cycle?