Business leaders and consultants hold the bias that the only normal and healthy state for an organization is one of growth. However, decline is actually a natural part of the organizational lifecycle and can lead to enhanced abilities for adaptation and renewal. Both small and large, obscure and reputable companies are vulnerable to decline. However, very limited research and few best practices are available on the topic. When decline naturally occurs, organizational insiders and outsiders tend to form self-fulfilling prophecies about what the organization is and what it is becoming, and these predictions inadvertently precipitate further decline, leading even to organizational death.
It is critical for business leaders and consultants to understand organizational decline, including what causes it, what results from it, and how organizations can be supported in emerging from it. In this article, I discuss organizational decline and what happens to organizational identity (“who” the organization is) during times of decline. I also propose a five-part model to spark organizational turnaround rather than precipitate further decline. I then discuss the decline and—in some cases—recovery of organizations as diverse as Blockbuster, Pennsylvania State University, Apple Computer, and Western Union using the lens of identity. The article closes with recommendations for what practitioners can do to help organizations pass through this normal stage of evolution.
Organizational lifecycle models have four and sometimes five stages: birth, growth, maturity, decline, and turnaround. Organizational decline refers to an involuntary, steady, and significant decrease in the organization’s resource base, headcount, and performance over at least two years. Decline also typically involves the organization’s stagnation and misalignment with its environment. Decline typically begins several years before visible signs are detectable to leaders and then often persists undetected by many as managers ignore, hide, or fail to respond in a helpful way to it.
Four factors are believed to precipitate organizational decline:
- The organization’s external environment, characterized by conditions such as increasing global competition, a shrinking customer base, and deregulation.
- The organization’s internal environment, which may be characterized by a lack of internal efficiency or a lack of resources, capabilities, and competitive advantage as a result of being too new or too small.
- A lack of strategic and operational responsiveness to industry and environmental changes, such as failing to keep pace with technological advancements in the industry, inflexibly sticking with its own ways of doing things, or neglecting innovation.
- Organization members’ and stakeholders’ self-fulfilling prophecies of failure, leading to behaviors that assure decline, such as hiring freezes, budget cuts, project cancellations, and reduced credit lines.
Although organizational decline can trigger adaptation and innovation, more often, insiders’ and outsiders’ responses to decline only make matters worse. Moreover, once one internal or external constituent predicts and inadvertently begins precipitating an organization’s decline, a contagion effect occurs, wherein enactment of the decline becomes a group phenomenon, assuring the eventual demise of the organization. In particular, the way members and stakeholders view the organization’s identity plays a role in both the dynamics of decline and the possibilities for turnaround.
Organizational identity refers to “who we are” as an organization and is reflected in those attributes that are central, distinctive, and enduring about the organization. Identity is distinct from concepts such as culture. Whereas identity refers to stakeholders’ thoughts, feelings, and evaluations regarding the organization that distinguish the organization from others, culture is the pattern of basic assumptions, values, and behavioral norms that group members have socially constructed and propagated over time as a pathway to success.
Organizational identity is important for attracting the participation, support, and loyalty of organization members, stakeholders, and other constituents, and increasing the organization’s access to resources. On the other hand, threats to an organization’s identity can undermine the organization’s legitimacy and place its access to capital, human, and other resources and advantages at risk.
Four factors shape an organization’s identity:
- Leaders’ claims about what is central, enduring, and distinctive about the organization.
- Organizational members’ and stakeholders’ interpretations. Ultimately, the shared understandings about the organization’s identity form broad agreements that become self-reinforcing through the perception, behavior, and subsequent experience of the organization.
- Language and ongoing narration about the organization, including metaphors, storytelling, labels, and power and political plays.
- Bodily experiences related to the organization (e.g., surrounding external environment, furnishings and decor, office ambiance) that provide conscious and subconscious cues about the organization.
These various forces interact to propagate an understanding of the organization’s identity across its stakeholders. Importantly, organizational identity is dynamic rather than static, as stakeholders constantly reassess and reconstruct the characteristics of an organization. Identity is particularly malleable during times of threat, such as when the organization is in decline, as members often inadvertently accelerate the organization toward failure. It is important for business leaders and consultants to know how the organization’s identity may be revisited and revised to help the organization move through decline and toward organizational turnaround.
When organizations are in a state of decline, threats to organizational survival can trigger internal and external stakeholder behaviors that accelerate the spiral of decline. Organization members can quickly lose sight of who the organization is in the midst of the associated turbulence. When this occurs, concerted attention to the organization’s identity is needed to avoid the self-fulfilling prophecy of decline.
Essential to designing a recovery-oriented identity is taking stock of the organization’s current identity. Although identity may have been clear at the organization’s inception or in its heyday, over time, core identity attributes are subject to different amounts of attention and subsequent reinforcement. As a result, some attributes may atrophy and diminish in strength, while others may remain strong and active in members’ thoughts and behaviors. The degree to which the attribute is active in the current organization is referred to as Attribute Strength.
In times of decline, it is likely that the organization’s identity and core attributes are misaligned with the identity and core attributes needed to support and propel renewal. Moreover, based on how strong each attribute is, it will take different degrees of effort to align it with a revisited or revised identity. For example, an atrophied but critical attribute may require a tremendous dedication of time and resources to rebuild and sustain, whereas a strong and active attribute may require little or no attention because members are already fully enacting it. A deeply entrenched attribute that undermines ongoing success may require equally significant effort to unlearn, whereas an already atrophied attribute may require little effort to be completely eliminated from the organization’s identity. The degree of effort required to align an attribute with the desired organizational identity is referred to as Alignment Effort Needed.
These two axes—Attribute Strength and Alignment Effort Needed—result in five social processes organization members need to engage in during times of decline to spark turnaround and recovery. I call these processes reclaiming, regenerating, retiring, reaffirming, and reimagining (see Figure 1).
Figure 1. The 5R model: Organizational identity processes to avoid organizational decline
In retiring, identity claims and attributes that are active and conscious within the organization, but which undermine turnaround and the desired identity, are released. Retiring typically requires that organization members unlearn existing ways of perceiving, thinking, and behaving as well as release old processes. For example, Blockbuster’s demise in 2010 may have been avoided by retiring its primary focus on brick-and-mortar traditional DVD and video rentals in favor of a stronger focus on alternative rental models and emerging technologies, such as streaming on-demand videos. Shifting its identity in this way accordingly would have been associated with strategic decisions and other actions aligned with the shifted identity.
In reclaiming, organizational traits that are central to turnaround and the desired identity, but which have been abandoned by organization members, are restated and carried forward in an unchanged manner. For example, my study of 468 active, licensed ministers’ support and identification with core identity attributes of the Foursquare Church revealed only moderate support for an originally central identity claim of including ethnicities and diverse cultures. Organizational leaders have since reclaimed this attribute by creating a new Hispanic district within the church in 2014 and opening more non-White ethnic churches than ever before in its history over the last several years.
In reaffirming, traits vital to turnaround and already active within the organization are reasserted and carried forward in an unchanged manner. For example, Pennsylvania State University experienced a substantial threat to its identity and survival starting in 2008 when Pennsylvania Governor Rendell cut its budget and declared it a nonpublic university. Various university stakeholders reacted, such as Geoff Rushton, spokesperson for the institution, who publicly emphasized that the governor’s proposal would be devastating for the university if enacted. University President Spanier appealed in writing to the Secretary of Education, reasserting the university’s status as a public institution and urging him to decline Governor Rendell’s applications. Due to these and other stakeholders’ actions, state support ultimately was restored in December 2009.
In regenerating, organizational traits central to turnaround or recovery, but which need repair, are restored. Regenerating can require substantial effort, as it requires a great deal of attention and resources to reframe these identity attributes and create a comprehensive linguistic and visceral experience to support their re-creation. The history of Apple Computer offers an example. In its beginnings in the late 1970s, Jobs and Wozniak priced their Apple I at $500. Over time, Jobs maintained a focus on affordability as the company produced new products. Once Jobs was fired in 1985, Apple shifted its focus under the leadership of Jean-Louis Gassée to producing and selling very high-end machines priced upward of $5,500. Increasing competition from lower-priced substitutes and a drop in sales in 1989 prompted Apple to return to (regenerate) its initial focus of offering more affordable machines, which required subsequent shifts in its design and manufacturing procedures. The lower-priced machines sold very well and the company soon experienced a turnaround.
In reimagining, the organizational trait must be created in a new form to support the organization’s future. This may require a complex process of reclaiming, retiring, regenerating, and reaffirming certain aspects of the trait. For example, Western Union was originally founded in 1851 as a telegraph company and quickly dominated its industry. For the next 130 years, the company was a prominent figure in telecommunications. However, as declining profits and mounting debts increasingly plagued the organization, Western Union started divesting itself of telecommunications-based assets and began recasting itself as “the fastest way to send money worldwide.” Its money transfer revenue exceeded telecommunications revenue for the first time in 1980 and the company completely discontinued telegrams in 2006. As of 2013, the company boasts that consumers can send and receive money via more than 100,000 ATMs around the world.
The 5Rs discussed above require an integrative effort of meaning-making among leaders and members. Additionally, an organizational environment consistent with the identity work underway must also be created. In this way, organization members’ attention and experiences in the organization are deliberately managed to promote self-fulfilling prophecies of turnaround rather than of decline.
Organization consultants can play important roles to support these exchanges by promoting dialogue that cultivates supportive attitudes about the past, present, and future. For example, stirring discontent about the present and pleasant memories about the past can lead to reclaiming forgotten attributes, reaffirming active and vital attributes, and regenerating neglected attributes. Dialogues that idealize the future and disdain the past can help with retiring active but unhelpful attributes.
Reimagining activities requires complex combinations of action and dialogue customized for the various identity attributes organization members want to retire, reclaim, reaffirm, and regenerate. During reimagining, it is particularly critical that identity-related dialogues and experiences are deliberate and robust due to the multitude of changes being attempted.
Applying the 5R model to support organizational turnaround would involve four key steps:
- Define the ideal identity. Determine the core organizational attributes (culminating in an organizational identity) that would support turnaround. This could be done by first defining the organization’s vision, strategy, and organization design components that reflect a recovered future state of the organization and then deducing the needed identity.
- Diagnose the current identity. A diagnosis of the current organizational identity should be conducted to identify and assess the strength of the organization’s current identity attributes.
- Define the gap and needed change actions. Compare the current and future organizational identity attributes and identity change actions required as a result.
- Plan and execute change processes. Define appropriate strategies to achieve the needed shift.
With a clear map of what the organization’s current identity is, what it needs to be, and what activities may help the organization bridge the gap (e.g., use of metaphors and stories to emphasize desired traits, shifts in business processes, training to restore forgotten traits), the organization may be supported in achieving turnaround. It will be important to conduct further research and enact interventions based on this model to deepen our collective knowledge of the relationship between organizational identity and decline.
Identity is an important aspect of the organization that can help it to attract human, financial, and other resources critical for success. Over time, and especially in times of organizational decline, organizational identity can suffer threats and important aspects can atrophy, leaving the organization misaligned with its current and future competitive demands. This article proposes a model of identity-related social processes during decline, including retiring, reclaiming, reaffirming, regenerating, and reimagining attributes as needed to support organizational turnaround and avoid organizational death. Business leaders and consultants can play key roles in helping organizations revisit and revise identity to support recovery. As such, it is important to become familiar with the reality of organizational decline, understand the role of organizational identity, and learn ways to leverage identity to promote turnaround.
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