Susan Gross, Karl Mathiasen, and Nancy Franco wrote an article in 1982 describing the life cycles of nonprofit organizations. Now, after 15 years of additional experience assisting nearly 1000 social-purpose groups, we have revised that piece. Here it is!

     Organizations move through distinguishable life cycles - or stages of development - as they mature and grow. Each stage requires a different management style and organizational structure; what worked in one stage does not work in another. In fact, the management solutions of one phase often become the problems of the next.

     Nonprofits are well aware of the need to adapt to changing external factors, such as funding cutbacks, new political realities, or shifting community needs. They generally don't realize, however, that they must also make periodic adjustments in response to their own internal evolution. As organizations pass from one cycle to the next, they must reassess the way they operate and make organizational changes that suit their new stage of development.

     MAG's work often involves helping organizations to recognize and understand what stage of development they are in. This is important because it gives them insight into why their staff or board may be experiencing tensions, confusion, communications breakdowns, or other internal problems. It also helps them to see what adjustments are needed and to anticipate and prepare for the next developmental stage. And it provides them with the relief and reassurance of knowing that the stress they are experiencing is a normal, inevitable concomitant of organizational growth, not a sign of incompetence or dysfunction.

     There are four typical stages that most nonprofit organizations pass through as they mature and grow. Each stage contains a relatively calm period of growth that ends with dislocation or crisis, when the organization finds that it has outgrown its old mode of operation. For example, a group that has operated in an informal, family style hits a crisis when it can no longer coordinate the efforts of its growing staff. It responds by instituting centralized management with more formalized procedures. That solution, however, can eventually lead to a new crisis: a reaction against the constrictions of top-down management and demands for more delegation of authority and decentralization of tasks. Each new stage is thus influenced by the previous one. Management 's response to each crisis period will largely determine how successfully a group moves into the next phase.

Phase I: Informal
     In their early years, nonprofits are characterized by intense creativity and commitment. Their founders are usually highly entrepreneurial and passionately committed to the organization's goals. They attract a few other highly committed people who jump into long hours of work rewarded, not by status or money, but by the satisfaction of advancing the cause.

     Thus, the group focuses on mission and programs. Organizational structure and management style are relaxed, informal, and individualistic. Roles and responsibilities are loosely defined and often overlap. Communication among staff is frequent and fluid, and they feel like one big family - in which everyone is a part of everything.

     This flexibility and informality are essential to the young organization's ability to establish itself. Yet these very features contain the seeds of future problems. As the organization grows, informal, sporadic communication becomes inadequate. New employees seem to be less fiercely dedicated and motivated than those who were there from the start. A loose management style is no longer sufficient to assure accountability and satisfactory communication or to guarantee high performance and productivity. Founders discover they can no longer rely on charisma and cause to keep the organization running. They find themselves burdened with management responsibilities and demands for more structure and clarity. At the same time, fears of bureaucracy begin to surface, particularly among the original staff who long for the good old days when people worked independently, with little direction, and were not constrained by rules, systems, and procedures.

     At this point, a crisis of leadership occurs. The organization needs stronger management, but creative founders classically are neither interested in nor temperamentally suited to provide this kind of managerial direction. At the same time, it's difficult for them to let go of their "baby" and allow the organization to bring in new, more effective management staff.

Phase II: Structured.
     The organization typically gets past this crisis by introducing more structure and tighter management. Job descriptions are written, performance standards and expectations are clarified, and supervisory lines are clearly defined. Personnel policies and a variety of other operational policies and procedures are written and standardized. The organizational structure becomes more centralized, and staff responsibilities are divided in more focused, specialized, and confined ways. Gone are the days of being one big family, in which everyone is involved in everything. Top management adopts a significantly more directive style, communication becomes more formal and impersonal, and authority is increasingly centralized.>

     These structures and systems are a necessary adjustment to growth and to Phase I's informality, but they, too, bring with them the seeds of a crisis that will propel the organization into yet another phase of development. Control becomes too centralized, procedures too rigid, hierarchy too cumbersome, and participation too limited. The staff's sense of investment and ownership wane and they do not have enough freedom to carry out responsibilities effectively on their own. Initiative and creativity become stifled. Eventually, a crisis erupts - this time a crisis of control characterized by demands for more autonomy and for greater staff input into decision-making. To get beyond this crisis, most groups have to move toward a greater delegation of responsibility and authority. However, this is often very difficult for the group's top managers, whose style has been to direct and control, not to let go, guide, and coordinate. Often a leadership transition becomes necessary at this point.

Phase III: Decentralization.
     As management functions become decentralized, the organization typically experiences a burst of initiative and growth, expanding into new issues, approaches, projects, and areas of activity. Most plans and decisions are made at the project or departmental level, with the executive director or other top central managers intervening only when serious problems arise. In fact, most staffers have infrequent communication with the top managers.

     Extensive delegation has made rapid growth possible, but it also leads to a new set of problems. Top management loses control over highly diversified and compartmentalized operations. Fiefdoms develop, little communication or cross-fertilization occur, coordination breaks down, and internal competition for funding, which too often escalates into turf battles, is common. "Projectitis" becomes rampant, with each separate unit focusing on its own interests and goals rather than on the overall purpose of the organization. As a result, increasing calls begin to be heard for greater cohesiveness, coordination, integration, and a renewed sense of connectedness and unified direction.

Phase IV: Consolidation.
     In order to achieve greater coherence, consistency, and coordination, the organization redefines its structure to consolidate and integrate programs and to institute cross-cutting team approaches. The authority of central managers is strengthened, formal planning processes are introduced and institutionalized, and structures and systems are developed for coordinated planning, closer communication, and frequent staff reporting.

     This greater emphasis on coordination, accountability, and planning can lead to a red-tape crisis, which occurs when proliferating meetings, processes, and systems begin to make more work than they facilitate. The challenge thus becomes striking the right balance between overall focus, central planning and direction, on the one hand, and staff freedom, creativity, and effectiveness, on the other.

     In what phase of development is your organization - and at which stage in that cycle?