Life-Cycle Analysis

Applied to Social Enterprises and Co-operatives

Wales Institute for Research into Cooperatives

Adizes, I., (1999), Corporate Lifecycles: How and why Corporations Grow and Die and What to do about it (Prentice Hall, London).

Stage Characteristics

Courtship The organisation exists only as an idea. The founder must fall in love with the idea before making a commitment to its execution. If the courtship is only an affair, the entrepreneur will lose interest before executing the idea. 

Infant Once the organisation is born it is immediately vulnerable and in need of constant care and attention to keep it going. A lack of commitment or of capital may result in infant mortality.

Go-Go Once the idea is working, the confidence of the founder grows. Like a child who has just learned to crawl, the organisation explores every opportunity. As the organisation grows, the energy of the founder may no longer be sufficient to fuel it, resulting in the Founder or Family Trap.

Adolescence After passing the Founder or Family Trap, the organisation is reborn. The transition to delegation and professional management is often painful.  Divorce results where the original entrepreneurs no longer find the environment fulfilling, and this may result in premature aging. Adolescent organisations are characterised by many committees, meetings and a degree of in-fighting.

Prime Prime is the optimal point in the lifecycle curve. The organisation achieves a balance of control and flexibility. A Prime organisation is not at the top of the lifecycle curve - it still has room to grow, limited only by its ability to attract and train enough skilled people.

Stage Characteristics

Stable The Stable stage marks the beginning of the Aging process. The company is still strong, but is starting to lose the flexibility, creativity and innovation. The number of meetings and committees starts to increase.

Aristocracy The organisation is focused on how things get done, and organisational protocol and tradition dominate. Challenges to the status quo are frowned upon, thus stifling innovation. Individual dissatisfactions remain unvoiced, and conflicts are swept under the carpet. 

Early Bureaucracy Early Bureaucracy is characterised by witch-hunting. The writing is on the wall for the organisation, and each area seeks evidence that some other area is to blame. Paranoia freezes the organisation. Energy is spent on in-fighting and the customer is seen as a nuisance.

Bureaucracy The purpose of the Bureaucracy is to support its continued existence. The internal systems acquire a life of their own. The organisation becomes dissociated with its original purpose.  

Death Death occurs as commitment to the organisation dissipates. Clients desert the organisation, followed by employees, until nothing remains.

Bull, M. (2006), ‘Coming from the Heart (The Road is Long)’, paper presented to the 29th Annual ISBE conference, Cardiff, 29 October - 1

November.

Company Founded employees income

A 1990 58 2, 000, 000

B 1994 28 300,000

C 1993 4 580,000

Case AA Charity and Company Limited by Guarantee focusing on public information and sharing information and raising public awareness about AIDS. Growing out the black community.Case BCompany B is a Company Limited by Guarantee which aims to ‘enrich needy people’s lives through empowering disadvantaged groups such as people with disabilities, the elderly and people with mental health problems to live in the community in their own homes.’ It offers domiciliary care and is moving in minor repairs.Case C Registered as a charity it ‘provides a wide range of arts based training and opportunities for local residents of all ages who have or are at risk of experiencing mental ill-health and social exclusion.’

Courtship

• The embryonic years were difficult times. In company A they were cooking for people, tackling isolation, providing one-to-one care and companionship, raising awareness, applying for funding, and generally fire fighting with minimal resources. In company B a similar story was told of chaos, long hours, reactionary management and a lack of structure.

• This stage is a struggle: “We’d have to cook food for people, we’d get our families to cook food, we’d be taking it round – as well as going to do the prevention work, the training, the co-ordinating – the whole lot.” [A]

Infant

Adizes suggests that at this infant stage the organisation is vulnerable and in need of constant care. In all three cases the board of directors/trustees played a major part in the care of these businesses. In A, the board members were self elected through the instigation of the pressure group. The skills they brought to the table were health, social and public sector focused; the people were social care workers, community workers and public sector civil servants. In B, the board was initially largely representative of the local community and social care workers, whose insights and involvement in the start up of the business were brought together. In C, similarly, the board was initially made up of tenants from the locality, community workers and local social care workers.

Go-Go

• All 3 companies had to learn and adapt very quickly. The re-organisation of informal and ad-hoc systems and structures were therefore prominent features within the growth of these three organisations. This shows how one organization responded to the ‘founder trap’:

• “. ……I said to ….[the founder] that we can’t carry on like this, we have got to have a structure, we haven’t got any structure, we have got to introduce training, rotors.”

Adolescence

Adizes calls stage 4 the adolescence stage, as a painful time for learning during the transition from a holistic team to that of delegation and professional management. In A it was noted that the rhetoric changed from a support network to a business. The focus provided by the strategic away days brought people together and the CEO stated the staff began to think of the project work as something more substantial and professional. In B the managers wrestled with company law and organisational development issues. In C it was considered fundamental to the delivery of their service that they remained focused on their core beliefs. The internal capabilities of these organisations were developing which was attributed to a number of factors.

Prime

A comment typical of the prime stage coming from B: “We have evolved into a self sustaining business, and not only that but one that takes into account the service user and a choice of individuality and the quality of service. We have evolved into that and I can see us being the flagship for services offered to people that are vulnerable and disabled in this City. I can see the vulnerable and disabled communities in this City have completely changed and got better because of the service we provide to them and that gives me great pleasure to be able to do that.”

Growth in Social Economy?

• Appropriate scale conflict with economies of scale

• Corporations benefit from hidden subsidies, such as national infrastructure, Lisbon Agenda

• Social enterprises more committed to ‘human scale’

• Co-operatives committed to democratic decision-making

Why does a conventional business seek to grow?

• To meet growing demand for your product

• To restrict competition

• To achieve economies of scale

• To create local employment

• To enrich the stakeholders and venture capitalists

Two contrasting models of growth

• Sustainable growth—using retained profits: a lifestyle company

• Rapid growth—requiring a large injection of capital

• The second can obviously lead to loss of control, although it could be based on equity finance.

• Lifestyle companies can tick along, perhaps as a family unit. They are priotising livelihood and earning a living over making a profit. They stay small and independent and are often run by their founders.

Horizontal growth

Selling more products to more customers

• Rebranding, e.g. lucozade, or greening Groundwork?

• Developing new products, e.g. Smile bank• Attracting new customers, perhaps reducing

prices or marketing• Extending geographically through exports, e.g.

Eroski into France• Linking with other companies via franchises,

licensing, rights and royalties.

Vertical growth

Expanding activities along the supply chain

• Oil companies control the whole chain from oil well to filling stations

• Extending upstream to gain control of raw materials, e.g. the Toad Lane shop

• Extending downstream to gain control of distribution and retail, e.g. co-operative group buying more shops

• Increasing the amount of goods that are controlled, e.g. Co-op own brand

• Partnerships and mergers, e.g. CRS

How do you tell optimum size?• The aim is appropriate scale• Spin-offs rather than empire-building• Naturally limited by governance form• What happens when you expand?

• Capital• Skills• Networks/customers• Work

What do you have to pass on?

What can an apprentice offer?

• Mentoring• Support you later, especially with heavy work• It is about the relationship and community• Pass on the skills you have learned

What models could you use?

• Employ another at fair and negotiated rates• Employ an apprentice for less but share skills• Secondary co-op

And now for something completely different

Degeneration Thesis

• Essentially the degeneration thesis states that worker co-operatives will have to adopt the same organisational forms and priorities as capitalist business in order to survive. As a result co-operatives will gradually become dominated by a managerial elite who will effectively take decisions in the co-operative and so undermine democracy and the influence that other workers can exert.

• (Cornforth, 1995)

Criticism from the Marxist left• Marxists believe that external economic forces make degeneration

inevitable• Marx ‘acknowledged that co-operatives demonstrated the feasibility

of certain aspects of a socialist mode of production, he also felt that while they operated in a capitalist system they were doomed to reflect that system’

• Beatrix Potter and Sidney Webb (1921): ‘The most enthusiastic believer in this form of democracy would be hard put to it to find, in all the range of industry and commerce, a single lasting success. In the relatively few cases in which such enterprises have not eventually succumbed as business concerns they have ceased to be democracies of producers themselves managing their own work; and have become, in effect, associations of capitalists on a small scale...’

• The Marxist tradition is threatened by the syndicalism and loss of central control inherent in e.g. The Miner’s Next Step.

Four stages of degeneration1. High idealism and commitment which enables the association to

get off the ground. However, over time there are clashes ‘between a direct democracy jealous of its prerogatives and an economic activity still badly established’. The need for greater efficiency leads to the establishment of full-time administrators or co-ordinators who come to be seen as a directors.

2. The second phase is a period of transition in which, if the enterprise survives, further economic consolidation takes places and conventional principles of organisation are increasingly adopted. These changes are not always accepted peacefully, and conflicts continue between idealists and managers.

3. In the third phase co-operatives lose their radical ideals and market values are accepted. Democracy becomes restricted to a representative board, and the gap between managers and workers increases as the business develops and production is rationalised.

4. During the fourth phase members and their representatives lose all effective power as control is assumed by managers because of their superior expertise and ability to control information.

Meister A. (1984) Participation, Associations, Development and Change. New Brunswick: Transaction.

Cornforth’s study

Name Sector Period studied

Employees

Suma Wholefood wholesaling

1974–85 35

‘Wholegrain Foods’2

Wholefood retailing, wholesaling and bakery

1971–85 20

Lake Language school

1978–85 8

‘Recycles’2 Bicycle shop and hire

1977–83 7

Concludes degeneration is not inevitable

Pressures toward degeneration include:

• The need for specialisation to achieve efficiency• Growth increases the cost of collective decision-making‘processes of regeneration have followed periods of

degeneration’

Two main challenges to avoid degeneration:

• Need to ‘reproduce’ an active, committed membership• How to introduce greater specialisation and division of

labour without undermining democracy