Organizational life cycle

The organizational life cycle is the life cycle of an organization from its creation to its termination. It also refers to the expected sequence of advancements experienced by an organization, as opposed to a randomized occurrence of events. The relevance of a biological life cycle relating to the growth of an organization, was discovered by organizational researchers many years ago. This was apparent as organizations had a distinct conception, periods of expansion and eventually, termination.

Sometimes the term business life cycle is used interchangeably with the organizational life cycle, while the two are different. The organizational life cycle is a more inclusive term for all kinds of organizations which includes even government organizations, but the business life cycle refers more specifically only to for-profit companies. Other than this, within the scope of business, the organizational life cycle and business life cycle can be distinguished by their primary focus. The organizational life cycle is primarily concerned with the internal development and evolution of the organization itself, while the business life cycle is primarily concerned with the external development and evolution of the business within its market environment. In other words, the organizational life cycle is an inward-looking process, while the business life cycle is an outward-looking process.

Comparisons between organisations and living organisms originated as early as 1890 by the economist Alfred Marshall who compared firms with trees in the forest, using the metaphor: "But here we may read a lesson from the young trees of the forest as they struggle upwards through the benumbing shade of their older rivals". Sixty years later, Kenneth Boulding presented the idea that organisations pass through a lifecycle similar to that of living organisms. Shortly after, Mason Haire was among the initial researchers who suggested that organisations may adhere to a certain path of uniformity in their course of expansion.

Subsequently, research has been done on the organizational life cycle for more than 120 years and can be found in various literature on organizations. Examples include the various stages in an organization's life cycle, phases of growth experienced by an organization during expansion and implications for these phases of growth. Review of the main organizational life cycle theories, with stages, main idea and authors is given in the table below.

Generally, there are five stages to an organization's life cycle

According to Larry Greiner, there are 5 phases of growth in an organization, each indicated by an evolutionary and subsequently, a revolutionary phase.

An evolutionary phase, refers to an extended duration of expansion enjoyed by the organization with no significant disruptions. In contrast, a revolutionary phase refers to a period of considerable disturbance within an organization.

Creative expansion (evolutionary phase) leads to a leadership crisis (revolutionary phase). Initially, the organization enjoys expansion through the creativity and proactive nature of its founders. However, this leads to a crisis of leadership, as a more structured form of management is required. The founding members must either assume this role, or empower a competent manager to fulfill this if they are unable to.