Question

A friend of yours who is a science graduate who started his/her own pharmaceutical manufacturing company after getting the approval from the Ministry of Health. He/she is asking you explain the concept of Organization Life Cycle.

a. Draw an Organization Life Cycle chart with all the phases for the company mentioned above?

b. Explain the phases involved in OLC .?

Answer 1

(a). The above diagram illustrates how a start-up or a business evolves through time and passes through five different phases of orperation life cycle.

(b). Let us understand each phase of OLC -

1. The launch phase : Every business or a start-up iniciates it's operations by either launching a new product or service into the market. During this phase the expenditures are high like start-up costs, advertising of the product and the revenue is low since the product is new and the customer base is just in building, thus the business may incur some losses in its initial stage.

2. The growth phase : This is the stage when the product's comparitive advantage over its competitors is being realised by the customers and sales increase rapidly during this stage, thus profit also starts increasing.

3. The shake-out phase : This phase is the stage when the product reaches its market saturation and competitors also emerge with new strategies that affect the sales. Although sales doesn't decline much, but profit starts declining leading to increasing costs.

4. The maturity phase : This is the phase when the business matures, the sales start declining, profit alos declines at a faster rate and the market share approach to end. It is important to note that many businesses extend their business cycle by investing into new and innovative technology and emerging markets and thus reinvent themselves to survive in the dynamic market conditions.

5. The decline phase : Those businesses who are not able to reinvent themselves end up with profits becoming zero and sales declining at a rapid rate and thus they take an exit from the market and their company winds up in this stage.