Harvard Business Review: Evolution and Revolution as Organizations Grow

Key executives of a retail store chain hold on to an Organizational structure long after it has served its purpose because the structure is the source of their power. The company eventually goes into bankruptcy.

A large bank disciplines a “rebellious” manager who is blamed for current control problems, when the underlying causes are centralized procedures that are holding back expansion into new markets. Many young managers subsequently leave the bank, competition moves in, and profits decline.

The problems at these companies are rooted more in past decisions than in present events or market dynamics. Yet management, in its haste to grow, often overlooks such critical developmental questions as, Where has our organization been? Where is it now? and What do the answers to these questions mean for where it is going? Instead, management fixes its gaze outward on the environment and toward the future, as if more precise market projections will provide the organization with a new identity.

In stressing the force of history on an organization, I have drawn from the legacies of European psychologists who argue that the behavior of individuals is determined primarily by past events and experiences, rather than by what lies ahead. Extending that thesis to problems of organizational development, we can identify a series of developmental phases through which companies tend to pass as they grow. Each phase begins with a period of evolution, with steady growth and stability, and ends with a revolutionary period of substantial organizational turmoil and change—for instance, when centralized practices eventually lead to demands for decentralization. The resolution of each revolutionary period determines whether or not a company will move forward into its next stage of evolutionary growth.

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