Organizational Transformation and Financial Sustainability

This chapter argues in favor of organizational transformation as a strategy for financial sustainability. The chapter discusses the history, context, and applications of organizational development, adaptation to change, resistance to change, and transition management.


Organizations have life cycles. They are created. They grow. And sometimes, they die. Other times, they transform themselves into something new, or into a different organization. The process for an organization to survive its cycle by transforming itself is called organizational transformation. Daft (2007) argued that the life cycle of an organization includes four stages: entrepreneurial, collectivity, formalization, and elaboration.

Entrepreneurial: The entrepreneurial stage (birth) is characterized by a need for leadership. At this stage, an organization is relatively small, with almost no bureaucratic structures, and a simple overlapping division of labor. At this stage, everything is centralized around the leader or the founder like a one-man show. There is little to no formalization, administrative structures, and internal coordination system.

Collectivity: The collectivity stage (youth) occurs with a need for delegation. The organization has grown and started to develop some form of bureaucracy and a more formal division of labor. There is the presence of at least another leader involved in decision making. More formalization is taking place. The organization creates needed administrative processes and systems for coordination.

Formalization: The formalization stage (midlife) is the period during which the organization experiences some form of midlife crisis involving too much red tape. The organization has become relatively large and has maintained a bureaucracy within several units or departments led by leaders who share more responsibilities. There are more policies and procedures, administrative systems, and coordination structures in place.

Elaboration: The elaboration stage (maturity) is the period during which the organization feels a need for revitalization. At this stage the organization has become too bureaucratic. Multiple units or departments are involved in decision making. This may delay the ability of an organization to move quickly on important issues. There are strong administrative and coordination structures in place. However, the organization may experience frequent breakdowns in its bureaucracy.

I will caution that this life cycle has its limitations. For example, not every organization or company starts small. In the case of a merger, for example, you may have two experienced organizations that start a brand-new organizational venture without their individual dissolution per se, but they develop a new identity. Two colleges can merge and adopt a new university name, but they still operate under some autonomy. Or a large institution may have an internal unit that they allow to operate with great autonomy for the purpose of funding or accreditation. In these cases, you have technically brand-new organizations that have been through an entire life cycle. These organizations simply renew or transform themselves. This stage of transformation or renewal is lacking in Daft (2007).


Stevens (2001) argues that nonprofit organizations evolve from vitality to regeneration, through seven stages, encompassing idea, start-up, growth, maturity, decline, turnaround, and terminal.

Idea: At this stage, a founder may have a burning desire to make a difference regarding a particular need being observed. The only thing that may exist is a purpose. There are no board members involved yet. There might be some supporters of an idea. The idea may start from a personal experience. For example, someone visited a new place or a country, saw a need, and wants to make a difference. An idea can emerge from a personal loss as well. For example, someone may want to start a nonprofit organization after the loss of a loved one from cancer, smoking, drunk driving, domestic violence, HIV/AIDS, or other similar situations.

Start-up: The start-up is basically the passage from idea to action. The organization is incorporated. The vision is put in writing. A board is created. However, this is the period of little to no budget. There tend to be no strong administrative systems in place.

Growth: During the growth stage, the organization starts implementing programs and offers opportunities to stakeholders. There is more and more need to expand and add further structure. The board develops a sense of ownership about the organization. Activities are rooted in strategic plans. The organization sets more ambitious goals.

Maturity: At the maturity stage, the organization develops its identity and recognition for services provided. The activities have become more focused on the vision and the clients. The organization receives funding from multiple sources of income. The organization is relatively stable.

Decline: This is the stage during which the organization becomes comfortable with the status quo and afraid of change. Decisions are focused primarily on the interests of the internal stakeholders rather than the clients. External stakeholders are losing faith in the credibility of the organization. Projections of opportunities and challenges reflect past experiences rather than current realities. The board is in denial and refuses to admit that there is something wrong.

Turnaround: An organization in decline can turn things around. This choice is made when there is self-awareness about the decline of the organization, and a determination to change course. In that case, a turnaround leader may emerge. Programs are re-assessed in light of current reality. Changes are made in policies and processes. Decisions are made, and concrete steps are taken to restore organizational integrity.

Terminal: An organization reaches the terminal stage when there is no evident reason for the organization to continue to exist. At this stage, programs are underfunded and become unreliable. Staff cannot get paid. The organization is out of money and has accumulated debts. The organization has to dissolve.

It is important to note that there is no set timetable as to when a nonprofit organization may reach a particular stage. Some nonprofit organizations have started and dissolved before they even reached a level of maturity. Some organizations have reached a stage of maturity in a relatively short period while it takes years for other organizations to get there. The fact is there is no rigid stage of evolution of nonprofit organizations. There are key factors, such as the strength of leadership, the commitment to the vision, the diversity and reliability of funding, the unforeseen consequences of internal and external factors, which determine whether a nonprofit organization moves from one stage to another.

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