Introduction
Early management scholars have recognized the importance of organizational design (e.g., March and Simon
1958; Burns and Stalker
1961; Lawrence and Lorsch
1967; Thompson
1967). Nevertheless, over the past several decades, the same literature has demonstrated a reduced interest in new research related to organization design. According to Greenwood and Miller (
2010), this reduced interest is because of a shift in the level of analysis from the organization to the field, population and community; to the complex nature of today’s organizations demanding detailed, qualitative and time-consuming studies that do not align with actual publication pressures; and to an increasing interest in understanding the single dimensions of the organization (e.g., coordination mechanisms) rather than their interactions in the whole organizational configuration (Miller et al.
2009).
At the same time, new challenges have fostered renewed attention to organization design, such as globalization, outsourcing and capability development (Miller et al.
2009; Gulati et al.
2012; Van de Ven et al.
2013); indeed, Burton et al. (
2020, p. 1) argue that ‘the field of organization design is undergoing a renaissance’. In this modern context, firms require fitting organizational designs (Galbraith
1999; Miller
2003) to renew their existing capabilities (Teece et al.
1997; Zollo and Winter
2002).
This scenario calls for a significant return to organization design studies that embrace a holistic approach (Meyer et al.
1993; Snow et al.
2005), focusing on the simultaneous interactions of multiple organizational design elements. Organizational life cycle (OLC) models provide a fitting response to this call.
OLC models consider a firm’s life to be a sequence of different developmental stages. Developed between the 1960s and 1990s, the most relevant OLC models shared the organism life cycle analogy proposed by Gardner (
1965). Indeed, like people and plants, organizations ‘have a green and supple youth, a time of flourishing strength, and a gnarled old age’ (Gardner
1965, p. 20). A central tenet of life cycle theory is that organizations move through a series of phases. Hanks et al. (
1993, p. 7) defined a life cycle phase as ‘a unique configuration of variables related to organization context or structure’. Therefore, the OLC includes a sequence of events that describe how things change over time (Van De Ven
1992), a hierarchical progression that is not easily reversed and a composite of a broad range of organizational activities and structures (Quinn and Cameron
1983). In short, OLC models simplify a myriad of facts associated with transformational change, reducing the complexity to a uniform, appealing, predictable and deterministic pattern (Stubbart and Smalley
1999).
Researchers have tested the empirical validity of these models (e.g., Dodge and Robbins
1992; Lester et al.
2003; Primc et al.
2020), and they have also applied these models as guiding frameworks for studying the development of specific managerial practices (e.g., human resources management, corporate governance), reaching only partially conclusive findings (see, e.g., Jawahar and McLaughlin
2001; Kallunki and Silvola
2008; Wang and Singh
2014). Despite these contributions, an organizational design inquiry into such models is still missing.
Therefore, building on the five primary elements of good theory (i.e., why, when, who, what and how) suggested by Whetten (
1989), we (1) review five seminal OLC models—Lippitt and Schmidt (
1967), Greiner (
1972), Adizes (
1979), Galbraith (
1982) and Churchill and Lewis (
1983)—proposing an in-depth analysis of their organizational design characteristics, and we (2) discuss the relevance of the OLC perspective for describing the evolution of the firms in the actual business environment. By reviewing the seminal OLC models through Whetten’s five primary elements of good theory, we not only extend Levie and Lichtenstein’s (
2010) analysis, which was limited to three theoretical elements (what, how and why), but we also add to previous reviews on OLC models (e.g., Phelps et al.
2007; Muhos et al.
2010; Muhos
2015; Tam and Gray
2016; Jirásek and Bílek
2018), which have neglected to analyze the organizational design characteristics inherently associated with each stage of the models (namely vertical and horizontal differentiation, coordination mechanisms, centralization and decentralization, standardization and mutual adjustment).
Overall, our analysis demonstrates that the OLC models propose a deterministic trajectory of organizational development showing limited explanatory power when confronted with the challenges of the actual business environment. Therefore, we propose of conceiving of the OLC as a process in which the ‘engine’ is the changes associated with the variety and uncertainty of the environment: addressing those changes, companies evolve independently from their size following unpredictable paths with a variety of equifinal organizational configurations.
The remainder of the current paper is organized as follows: the next two sections describe the research methodology and illustrate the selected OLC models. Then, we present an analysis of the organizational design characteristics of the models through the five primary elements of good theory. Finally, we discuss the limitations and ongoing relevance of the OLC perspective in the actual business environment.
Research methodology
Our literature review focuses on the OLC models published in management journals and considers three steps. First, to provide a revised and up-to-date overview of the OLC models, we searched the ‘ISI Web of Knowledge’ database (time span: 2000–2020 and Social Sciences Citation Index) using the following keywords: ‘review life cycle of organization’ and ‘review organizational stages and growth’. This search produced six review articles: Phelps et al. (
2007), Levie and Lichtenstein (
2010), Muhos et al. (
2010), Muhos (
2015), Tam and Gray (
2016) and Jirásek and Bílek (
2018).
Second, using the snowball approach, we analyzed the OLC models presented in the six reviews. Then, we selected the OLC models meeting the following three criteria: (1) the model should be novel and not based on previous models; (2) the model should present and discuss how organizational design characteristics change in firms’ life cycles and (3) the model should be an original intellectual source and not only an empirical test. As a result, we excluded the papers that adopted OLC models to study managerial problems not related to organizational design, including, for instance, Koberg and colleagues (
1996) and Kallunki and Silvola (
2008), both of which use Greiner’s model to study, respectively, the organizational innovation and the use of activity-based costing in firms’ life cycles. Through this analysis, we selected five models: Lippitt and Schmidt (
1967), Greiner (
1972), Adizes (
1979), Galbraith (
1982) and Churchill and Lewis (
1983).
Third, both of the literature reviews used during the first step of analysis considered articles and contributions published between 1960 and 2006. Therefore, we ran a search in the ‘ISI Web of Knowledge’ database, selecting the time span of 2006–2020. To search for other OLC models, we chose the same keywords adopted by previous reviews: life cycle growth, stages theory of growth, stages of organizational growth and organizational life cycle model. We then applied the three criteria for selecting new models but without success; we did not discover any other model. Therefore, we continued our analysis based on the five previously mentioned models.
OLC models: empirical validation
In this section, we explore whether and how the selected five OLC models have been empirically validated. To do so, we searched the ‘ISI Web of Knowledge’ database and manually reviewed all the empirical studies that cited such models.
Overall, it emerges that organizational scholars have mostly utilized the OLC models to leverage their theoretical assumptions (e.g., firms grow over time) in a variety of domains (family businesses, circular economy) and industries (e.g., service, engineering, building, healthcare, media, chemicals, finance) or to explore specific managerial practices (e.g., human resources management, corporate governance) (Dodge and Robbins
1992; Jawahar and McLaughlin
2001; Lester et al.
2003; Kallunki and Silvola
2008; Brettel et al.
2010; Wang and Singh
2014; Primc et al.
2020).
More limited are the studies have tested their predictions about a firm’s stages of development (Phelps et al.
2007; Levie and Lichtenstein
2010; Muhos
2015). In particular, we found three studies (i.e., Tushman et al.
1986; Eggers et al.
1994; Sukova
2020) aimed to conduct an empirical validation of only two of the OLC models analyzed in the present study, namely Churchill and Lewis (
1983) and Greiner (
1972).
The study by Eggers et al. (
1994) tests Churchill and Lewis’ (
1983) model through the exploration of the development of a sample of small firms that were randomly selected for geographical location and industry. The authors find substantial support for the model. However, even if most of the firms follow predictable stages of development and adopt similar organizational forms in different stages of their life cycle, considerable variability still remains.
More recently, Sukova (
2020) conducts an empirical validation of Greiner’s (
1972) model by studying six large automotive firms based in the Czech Republic. The author finds empirical validation for Greiner’s (
1972) model by showing that large firms increase vertical differentiation and centralization in the third and fourth stages of firms’ lives. Previously, Greiner’s (
1972) model inspired the study by Tushman et al. (
1986) on a large sample of firms of different sizes (both small and large firms), operating in different industries and located in different countries. The authors, however, do not find empirical evidence for this model, showing that there are no general patterns in the sequence of frame-breaking changes and growth stages.
The limited empirical support for the predictions of the OLC models casts doubts about their suitability in describing companies’ development. As a consequence, in the following section, we discuss their relevance to the actual business environment.
OLC models: present and future
The results of the literature review demonstrate that OLC models advance how growth in size—which is considered unavoidable—is linear and sequential and generates business issues that the firm is forced to solve by adopting a predetermined sequence of organizational configuration (Quinn and Cameron
1983; Stubbart and Smalley
1999; Rutherford et al.
2003). In particular, as companies become larger and older, they move from a simple/entrepreneurial structure to a functional and then a divisional structure. The reference to such organizational models is (most likely) intentionally loose and vague: for instance, Churchill and Lewis (
1983) refer to a ‘line and staff’ organization as the last stage of organizational development. Providing a limited amount of details about the actual structures adopted by companies in the different stages, the authors of the OLC models open further avenues of research about the organizational complexity hidden behind those simplified and generic labels. In addition, it is worth noting that all the models considered in our analysis were published by American scholars to describe their national business context, which between the late 1960s to the early 1980s was characterized by a positive cycle and steady economic growth (Hodrick and Prescott
1997). Today’s business environment is instead characterized by volatility, uncertainty, complexity and ambiguity (Whiteman
1998; Bennett and Lemoine
2014). The international economy is highly interconnected, and sudden and unpredictable shocks may upset the markets where companies are competing, challenging their possibility of growing or even surviving. In such situations, firms must quickly frame the cause of the crisis, identify the most appropriate organizational structure and adjust accordingly while preserving the evolutionary capabilities for the next stage.
In this
new setting, growth in size cannot be taken for granted. First, companies can remain stable in their size while growing in their other relevant business dimensions, such as relationships and capabilities (Furlan and Grandinetti
2011; Nason and Wiklund
2018). Second, during their life cycles, companies are more likely to sustain phases of growth that could be followed by phases of rightsizing (associated with shocks and crisis management) instead of continuous growth. Therefore, we sustain that the OLC of a company is better conceived as an evolutionary process instead of a sequence of growth (in size) stages: companies characterized by structural inertia (Hannan and Freeman
1984) and, therefore, inherently resistant to changes proceed in their life cycle continuously adapting—sometimes successfully and sometimes not—to relevant internal and external changes. Because these changes are scarcely predictable, they are likely to affect companies to a different degree, reducing the explanatory power of universal prescriptive OLC models.
Notwithstanding these limitations, we believe that the OLC perspective might preserve its validity if further developed along the trajectory of an enhanced understanding of the interdependences across the why, when, who, how and what. As a consequence, we discuss the OLC perspective that addresses Whetten’s five questions in the actual business environment. In particular, in the remaining part of this section, we explore what could be the organizational design consequences (the ‘what’) of the current why, when, who and how of a firm’s evolutionary process. Establishing the appropriate levels of vertical and horizontal differentiation, identifying effective coordination mechanisms and deciding the level of centralization and formalization are challenges that are constantly renewed over the evolution of the firm and that hardly find a unique (deterministic) answer.
As for the answer to ‘why’ firms evolve, traditional OLC models suggest that both external (e.g., market share, customer needs) and internal (e.g., strategic objectives, human resources management issues) factors trigger organizational development. These forces are still relevant in the actual business environment; however, when the OLC models were developed, business volatility and uncertainty were lower, while nowadays, markets appear less predictable. Therefore, strategic and operating planning activities aimed at sustaining firms’ growth may suffer from a lack of effectiveness if they cannot adapt to changing conditions. To be ready to react to such reduced predictability, firms need to find a right balance between standardization and mutual adjustment, most likely favoring the latter. For instance, one of the consequences related to an unforeseen and unpredictable event such as COVID-19 is the diffusion of remote working: estimates from Eurofound (
2020) suggest that close to 40% of those currently working in the European Union began to telework full time as a result of the pandemic. Some big companies all over the world (e.g., Facebook) are evaluating the adoption of remote working as the standard way to organize employees. Many firms were ill-prepared to manage this change because remote working used to be marginal: in 2019, 5.4% of employed people in the European Union usually worked from home, and that percentage has been constant throughout the last decade. Hence, standardized procedures may be of limited effectiveness to sustain an organizational development that must face the growing and emerging demands related to remote working (Tietze and Musson
2005). On the contrary, organizations may lean on mutual adjustments to redesign workplaces and redefine time schedules according to the workers’ needs.
As the question about ‘when’ is concerned, our literature review demonstrated that OLC models suggest that transitions from one stage to the next are related to a combination of ageing and growing: as companies become older and larger, new management issues emerge, and they are forced to proceed along their natural evolutionary pattern. Even if the duration of the stages and their relationship with the organization’s chronological age are debated (Bailey and Grochau
1993; Rutherford et al.
2003), all the models implicitly adopt a linear perspective about growth in size. In today’s business environment, the lifespan of firms is shorter, and firms’ growth may be exponential. A recent study by McKinsey (
2019) found that the average lifespan of companies listed in the Standard and Poor’s 500 was 90 years in 1935, 61 years in 1958, 35 years in 1970, and today less than 18 years. Young firms are more profitable compared with the older ones: companies in the Standard and Poor’s Global 1200 that were founded within the past 30 years generated four times as much shareholder value as longer-standing companies. However, such growth is not a guarantee of survival in their actual form because the same McKinsey (
2019) report estimates that in 2027, 75% of the companies currently quoted on the Standard and Poor’s 500 will have disappeared because they will be bought-out, be merged or go bankrupt. In this competitive context, companies are required to be
agile to successfully manage uncertainties (Sull
2009) and to be
resilient to react to crises and adversities (Linnenluecke
2017; Gubitta and Campagnolo
2020). Organizational agility can be defined as ‘the capacity of an organization to efficiently and effectively redeploy/redirect its resources to value creating and value protecting (and capturing) higher-yield activities as internal and external circumstances warrant’ (Teece et al.
2016, p. 17). Similarly, organizational resilience refers to the ‘maintenance of positive adjustment under challenging conditions’ (Sutcliffe and Vogus
2003, p. 95) and is usually articulated as bouncing back from adversity (Williams et al.
2017) and as having the ability to ‘anticipate, avoid, and adjust to shocks in their environment’ (Ortiz-De-Mandojana and Bansal
2016, p. 1615). Companies can foster their agility and resilience, balancing the number of hierarchical levels and degree of centralization of decision-making processes. Indeed, flat and decentralized structures ‘where employees are given significant autonomy in how to carry out their work or which projects to undertake’ (Billinger and Workiewicz
2019, p. 17), such as collaborative organizational forms (Kolbjørnsrud
2018) are more agile and resilient than vertical and centralized structures. A trend toward a flat organization has been reported by several scholars (Cunha et al.
2011; Foss and Dobrajska
2015; Lee and Edmondson
2017; Burton et al.
2020). This evidence notwithstanding, other scholars (Sanner and Bunderson
2018) contend that in the case of team-based organizations, hierarchy is essential for helping a team engage in and get the most out of its efforts to learn and innovate. Burton et al. (
2017) claim that even novel organizations—see, for instance, the case of GitHub—redesign their structure to introduce traditional hierarchical characteristics, thus showing that in novel (growing) organizations, the hierarchy preserves its role. These opposite views are the consequence of the contested nature of the hierarchy in today’s competitive setting, calling for a better understanding of how vertical differentiation and decision-making processes are executed. A recent contribution of Romme (
2019), while providing a systemic perspective on the argument, defines organizational hierarchy ‘as a sequence, or ladder, of accountability levels’ (p. 8). As a ladder of accountability levels, hierarchy can be seen both as a chain of command, that is, as a ladder of decision-making authority levels (in line with the mainstream view of top-down organizational structures) and as individuals taking responsibility for higher-level tasks, that is, as a ladder of self-organized responsibility levels [in line with the recent trend of flat, bottom-up organizational structures, such as a holacracy (Robertson
2016)]. The difference between the two approaches resides in the distinction between
authority and
responsibility. Although
authority deals with the ‘power to decide’ and is externally assigned,
responsibility deals with ‘getting the job done’ and is somehow internally driven because it derives from an intrinsic obligation that individuals feel. Responsibility ladders are emergent in nature, thus showing a better fit with dynamic environments that require continuous evolution. Conversely, authority ladders are planned, thus adjusting better to stable environments that call for control and predictability. As a consequence, the presence of both ladders of accountability would be synergistic because they simultaneously promote adaptation and control. According to the analysis of mainstream OLC models, we can assert that ladders of responsibility are typical of new ventures or small and medium enterprises (SMEs) at the beginning of their life cycle, whereas a ladder of authority emerges as organizations grow and is likely common in established (large) organizations. In our view and in line with the new competitive setting that we described above, ladders of authority and of responsibility must coexist simultaneously rather than sequentially. As organizations grow, they should develop a top-down chain of command (ladder of authority) without stifling existing bottom-up ladders of responsibility. Although such coexistence can be challenging, it is a responsibility of the ladder of authority to develop simple guidelines and practices for the management of their interplay (Romme
2019).
The third question in Whetten’s model refers to ‘who’. All the OLC models converge in identifying the managers (and the owners) as the main actors in determining company development. We contend that in the contemporary business environment, particularly from the development of the stakeholder theory (Freeman et al.
2010), this view offers a limited perspective of the multitude of interacting actors who can affect the strategic objectives of the firms and, as a consequence, their growth and survival. For example, discussing stakeholder identification, Crane and Ruebottom (
2011) propose a matrix counting over 60 possible actors. To understand how the companies’ growth and survival may be affected by new categories of stakeholders, we present some examples. In February 2018, with the rise of the #metoo movement, Guess cofounder Paul Marciano was accused of sexual harassment by a former model, and hours after the allegation (communicated via Twitter), the company’s shares dropped almost 18%. Again, according to a survey reported by the World Economic Forum (
2020), companies increased their awareness of sustainability and energy issues because of the worldwide strikes inspired by Swedish activist Greta Thunberg. The multiplication of relevant stakeholders is reflected, among others, in the CEO’s average span of control, which, over the past two decades, has doubled, rising from about five in the mid-1980s to almost 10 in the mid-2000s (Neilson and Wulf
2012). As suggested by the authors, the increase in the chief executive’s direct reports is not surprising because companies today are vastly more complex, globally dispersed and strictly scrutinized than those of previous generations. Therefore, to manage such a vast array of actors potentially influencing their development, companies need to properly manage their horizontal differentiation. Following the well-known Ashby law of requisite variety (Ashby
1961), to thrive in a complex environment where a number of potentially contrasting but interdependent objectives arise, an organization must respond by increasing its level of internal complexity accordingly, that is, by creating new organizational units dedicated to a portion of the task environment and simultaneously increasing the level of integration among them.
Finally, addressing Whetten’s ‘how’ question, we showed that companies described in the traditional OLC models progress in their evolutionary process, solving crises and changing their internal organization. In particular, as in every stage of the model, the survival of the company is threatened by internal and external tensions, companies adopt different coordination mechanisms to maintain company manageability and prevent disruptive effects. Those mechanisms are aimed at solving the contrasting needs of larger and older companies. Considering company growth mainly as organic, the OLC models have failed to consider external strategies of growth, including mergers and acquisitions, strategic alliances or network forms. In all these circumstances, a firm sustains its growth by leveraging the combination of its own firm-specific capabilities with complementary knowledge of third-party sources. These modes of growth have become common over the years because of increasing competition, global dispersion of knowledge and the need for rapid new product development processes. For example, a recent survey in Europe on the trends in open innovation, corporate entrepreneurship and start-ups suggests that 97% of the innovation leaders interviewed will adopt co-development practices, and 90% will invest in start-ups (Mind the Bridge-Nesta
2019). The adoption of such practices shows the needs for using relevant coordination mechanisms because the outcome of external opportunities of growth is contingent on both the initial recognition (i.e., access to the resources and capabilities held by external sources) and its subsequent exploitation within the firm once resources have crossed organizational boundaries (Burton and Obel
1998; Jansen et al.
2005; Foss et al.
2011,
2013).
Discussion
The OLC models provide a holistic approach toward firms’ organizational development over its life cycle. The fascinating power of their seminal idea which equates the growth of the company with the development of a person or plant, their comprehensive view on both the internal characteristics and the external conditions of a company, their focus on the simultaneous interactions of multiple elements, and their longitudinal perspective which is much needed since the speed of change and development is ever increasing and the research phenomena are far from static, represent the main reasons for their permanence in management studies (e.g., Kallunki and Silvola
2008; Wang and Singh
2014).
However, our analysis of their empirical validation and of their explanatory power in the actual business environment suggests several arguments against the continued use of OLC models in understanding organizations. Blurring industry boundaries, diminishing geographical barriers and pervasive new technologies make the distinction among stages seamless, while organizations can even leap-frog stages that they would have traditionally gone through. In addition, growth processes are endogenous and cannot be fully separated from the stages that the OLC models are supposed to explain. Finally, traditional OLC models underestimate the possible resistances associated with the change management process between one step and the other (Kotter
2012). Differently, firms face a variety of contrasting needs that make demands on their organizational structure. For instance, a company deals simultaneously with the need to maintain control and adaptation, efficiency and effectiveness, predictability of behaviors and innovation, agility and learning all while facing market volatility and continuing its development. Hence, organizational solutions must combine the choices usually considered in a trade-off, including, for example, the presence of self-managed teams and a line of authority, the adoption of formal practices and mutually evolving procedures or multiple horizontal differentiation logics.
Notwithstanding these limitations, we maintain the validity of the OLC perspective in today’s world but anchored on different assumptions. First, whereas
original OLC models adopted growth in size as the engine of organizational evolution,
new OLC models should move the focus to the environment to anticipate the need for organizational adaptation. Ageing companies should not be worried about their size to establish their level of organizational maturity, but instead, their development should be measured by their adaptations to the changing environmental conditions independently of growth. In particular, we advance the idea that the OLC models could be depicted as a sequence of organizational changes that represent life cycle turning points originating from different organizational alternatives. These alternatives represent temporary states of stability (i.e., what the original OLC models would call a ‘stage’) in the life cycle of a company: persistent change would increase the risks of role ambiguity and conflicts (Rivkin and Siggelkow
2003), hence threatening the survival of the company (Hannan and Freeman
1984). As a consequence, analyzing companies’ development according to an OLC perspective, we expect to recognize a sequence of temporary states of organizational stability (i.e., stages), but their duration and sequence cannot be generalized across different companies. Second, whereas the
original OLC models proposed model organizational evolution according to a predetermined sequence of structural configurations,
new OLC models should acknowledge that companies are characterized by a continuous search for a dynamic fit between environmental conditions and strategic and organizational choices (Soda and Furnari
2012), hence reducing the predictability of the resulting organizational features (Terziovski
2010; Brahm and Tarziján
2016). The outcome is not universal, but several organizational solutions are possible through an original combination of basic design elements (Sinha and Van de Ven
2005; Van de Ven et al.
2013). These solutions are
equifinal, that is, they reach similar performance by means of different design options for a given environmental situation (Drazin and Van de Ven
1985; Gresov and Drazin
1997). Equifinality holds the idea that ‘a system can reach the same final state from different initial conditions and by a variety of different paths’ (Katz and Kahn
1978, p. 30). Our revision of OLC models suggests that organizational configurations are equifinal instead of universal either because organizational dimensions depend on one another or because organizational configurations must solve contrasting needs. Therefore, analyzing companies’ development according to an OLC perspective, we expect to
not find similar sequences of organizational configurations and—
ceteris paribus in terms of environmental situations—to find different (and equally effective) organizational structures.