Mastering Organizational Growth and Institutional Theory

Organizational Growth and Institutional Theory

Organizational Growth is the phase in the life cycle where organizations develop competencies and value-creation capabilities that allow them to acquire additional resources.

Institutional Theory

Institutional Theory examines how organizations can increase their capacity to grow and survive in a competitive environment by becoming perceived as reliable and legitimate in the eyes of stakeholders.

As organizations grow, they may imitate competitors, believing this will increase their chances of survival. This leads to organizational isomorphism—the increasing similarity among organizations within the same population.

Three Processes of Organizational Isomorphism

1. Coercive Isomorphism: Occurs when there is a strong dependency between two organizations and the weaker one imitates the stronger.
2. Mimetic Isomorphism: Happens when a company copies the structure and processes of successful organizations, especially in situations of high uncertainty.
3. Normative Isomorphism: Arises when organizations adopt the norms and values of others in the same environment.

Disadvantages of Isomorphism

• Imitation of outdated or ineffective practices.
• Reduced level of innovation.

Greiner’s Growth Model

This model suggests that an organization goes through five phases of growth, each followed by a corresponding crisis.

Phase 1: Growth Through Creativity

In this phase, entrepreneurs develop the competencies and skills needed to create and introduce new products. The organization learns which products and procedures are effective in order to survive in the market. Innovation and entrepreneurship go hand in hand.

Crisis of Leadership: Entrepreneurs are so focused on launching the organization that they neglect the need to manage resources efficiently.

Phase 2: Growth Through Direction

A new top management team takes over responsibility for setting the organization’s strategy, while lower-level managers take on key functional responsibilities.

Crisis of Autonomy: R&D leaders become frustrated by their lack of control over innovation, and the structure imposed by top executives limits their freedom to experiment.

Phase 3: Growth Through Delegation

To resolve the autonomy crisis, the organization must delegate authority to lower-level managers.

Crisis of Control: Top executives begin to compete with functional managers for control over resources.

Phase 4: Growth Through Coordination

Top management takes responsibility for coordinating functional managers and decision-makers.

Crisis of Bureaucratic Complexity: High coordination costs become problematic.

Phase 5: Growth Through Collaboration

Product teams and matrix structures are used to enhance collaboration and responsiveness to customer needs. There is more spontaneity in actions, and social control and self-discipline replace formal control.