The business life cycle of an organization or company is very similar to the theory of the product life cycle and refers to 5 main successive stages of development of the company: start, growth, maturity, recession and reactivation of the company. At the moment, when you make the decision to set up a business, you are in the business life cycle.
Each phase of the life cycle of an organization requires an organizational structure and specific management instruments. Each development period of the organization’s life cycle is considered in more detail.
In the initial stage, all companies have a very simple organizational structure with centralized power, where all decisions are made by the founder of the company. The main tasks of the company in the start-up phase are to build an audience and create a product by defining its key competencies that are fit for the market (that has demand and repeated sales). In the start-up phase, the company usually chooses a niche competition strategy to avoid direct confrontation with the main players in the sector.
In the first phase, the company lacks human resources, so that the company’s employees usually perform several functions simultaneously, in addition to the manager being actively involved in the product development and creation process. When a company’s product is successful and can provide a stable revenue stream, the company grows, new departments appear, and processes within the company become more sophisticated, requiring more complex and formalized management methods.
In the growth phase, the company begins to expand its range of products, beginning to exit the niche and attract new segments and markets. There is a growth in sales by implementing valuable techniques such as process automation. The company does not intend to make major innovations, but rather small changes and improvements in the product, which will allow it to capture the target markets at the lowest cost. In the second stage of the business life cycle, the company is reaching a level of profit that allows it to dispense with external financing.
During the growth stage, the management system of the company changes: the business owner moves away from tactical tasks and begins to dedicate himself to strategic planning, and part of his authority is delegated to middle management. All processes in the company begin to take a formalized version. And the accumulated customer base begins to influence company strategy and assortment development. The company seeks to grow where it has achieved some success.
Upon reaching the growth stage, a crisis of autonomy can occur caused by the manager’s unwillingness to delegate his responsibilities, leading to a slowdown in development and processes: the company ceases to function at the top of its efficiency. The growth stage comes to an end when the sales growth rate slows.
When the organization reaches maturity, the level of sales stabilizes and growth slows down. This situation is due to the high level of competition and the saturation of the market. In the maturity stage, companies can also generate a good level of profits if they have a properly balanced product portfolio. The main task of the company is to maximize profits, which can be achieved by increasing job stability and management efficiency. All the company’s management resources are focused on internal effectiveness, establishing strict control over key processes.
Upon reaching maturity, the delegation of power is reduced, conservatism appears in decision-making and the structure of the company becomes bureaucratized. The implemented processes of control and coordination of these, create a certain amount of paperwork, which slows down the decision-making process. Now every decision is analyzed from all sides and taken with great care. The purpose of such work is not to balance the business, nor to take risks, but to improve what the company has already achieved.
The company also takes a balanced approach to the development of its assortment: it controls costs in detail and optimizes the whole. The development is aimed at maintaining the product, not creating really risky innovations. As long as sales and profits are stable, the company makes no decision to change its course. The innovative potential of the company is declining and all new projects and solutions are not receiving the necessary support or funding.
In this phase of the business life cycle, the company loses its competitiveness, sales, and profits decline. The lack of innovation reduces the profitability of the company. All solutions become very conservative. The company rejects any novelty and does not even take the minimal risk. The company enters a mode of austerity and cost reduction, it may begin to withdraw from the industry or move to the reactivation phase.
The evolution stage of the organization occurs when the company understands that it loses competitive capacity. If a company has the strength and capabilities, it begins to fight for its existence and moves on to a strategy of business diversification, innovation and new acquisitions.
The company no longer imitates the innovations of its competitors but begins to invest in the creation of completely original solutions. Often the management of the company is completely updated and working groups are created for the rapid modernization of internal processes. Decision-making is accelerated, bureaucratization is reduced. The company focuses on developing new products by considering useful tips to write powerful product or service description and increasing business competitiveness.