Organizational Decline Models and Bottom-Up Design Methodology
Organizational Decline and Organizational Death
Organizational Decline is the stage in the life cycle where an organization fails to anticipate, recognize, avoid, neutralize, or adapt to internal or external pressures that threaten its long-term survival. When the company generates few profits and makes too many investments, executives may decide to sell its assets or shut it down.
Greiner’s Model: Crises and Hindrances to Growth
Each growth stage is followed by a crisis. Further growth may be hindered by:
- Organizational Inertia: Internal forces within the organization that make it resistant to change. These forces include:
- Risk Aversion: Managers’ concern about making risky investments.
- Desire to Maximize Rewards: Managers aim to maximize their own rewards, even if it reduces organizational effectiveness.
- Bureaucratic Culture: Managers protect their personal interests instead of working for the organization’s good.
- Environmental Changes: External factors that affect the company’s ability to obtain resources.
Weitzel and Johnson Model of Organizational Decline
Weitzel and Johnson identified five stages of decline. In all of them—except the dissolution stage—management action can reverse the process.
Stage One: Blinded
The organization fails to recognize internal or external problems that threaten its survival.
To avoid decline: Executives must monitor and gather valid information.
Stage Two: Inaction
Despite clear signs of performance deterioration, managers do not intervene because they still do not fully understand that a problem exists.
Solution: Rapid action.
Stage Three: Faulty Action
If the problem is not resolved in the previous stage, faulty action follows. Managers may make poor decisions due to conflicts within the top management team.
Solution: Corrective action.
Stage Four: Crisis
Once the crisis stage is reached, only radical changes in strategy and structure can stop the decline.
Solution: Effective and radical reorganization.
Stage Five: Dissolution
At this point, the company has lost stakeholder support. Its access to resources is severely limited, and its market reputation disappears. Assets are liquidated and bankruptcy procedures are initiated.
The Bottom-Up Design Process
Top-Down vs. Bottom-Up Design
Top-down design: Design begins with formulating an overall vision of the system, describing its main purpose without going into detail.
Bottom-up design: The individual parts of the system are specified in detail first. These are then connected to form larger components, which are in turn interconnected until a complete system is built.
Requirements of the Bottom-Up Process
- Activity Identification
- Connection Modes
- Grouping
- Coordination
1. Activity Identification
This is achieved by using tacit and explicit knowledge to generate a List of Elementary Operations (LOE – Lista de Operaciones Elementales), which are the activities that must be performed.
2. Connection Modes
Knowledge provides information about the type of interdependencies (complementarity and specificity) between activities, in order to group the elementary operations.
3. Grouping
Grouping involves assessing effectiveness and efficiency:
- Effectiveness: Indicates the ability to achieve objectives.
- Efficiency: Assesses the capability to achieve objectives using human resources appropriately.
Grouping Organizational Units (LUOs)
This involves creating Homogeneous Activity Nuclei (NAHs) or Complementary Activity Nuclei (CANs) based on:
- Degree of interdependence
- Degree of technical affinity
- Degree of cultural affinity
The most complementary tasks are grouped first to form an organizational unit. Then, less complementary tasks are grouped, resulting in a List of Organizational Units (LUO).
Grouping Tasks and Teams
Elementary operations are grouped into individual tasks (LCUs). Then, individuals assigned to those tasks are grouped into work teams.
4. Coordination
The grouping of functions into a unit is a fundamental form of work coordination because it:
- Introduces a common supervision system.
- Requires units and positions to share resources.
- Promotes mutual adjustment.