Processes of Organizational Death

How do we recognize and track organizational success, failure, and death? If we track this data, can we intervene in time?

key ideas

Literature on organizational death looks at why nonprofits fail to come out of crises.

Although there has been little research on this in nonprofits, there has been significant research on this in the for-profit sector. Most scholars agree that many of the same closure threats apply to both nonprofit and for-profit organizations.

Scholars are looking for nonprofit-specific metrics to track and predicts closure—often for-profit ones are applied because metrics of success are less tangible, incredibly specific to the organization (making it hard to manage) and harder to track.

Organizational threats as they relate to closure are often discussed in terms of Singh’s (1987) research. He confirms that there are changes that correlate directly with organizational death and that there are definite patterns we can see—but he notes that the same ‘change’ doesn’t lead to death in every instance.

According to Singh, this might be because the effect might correlate more with where the change exists in the organization (the core vs. periphery) than the type of change. Changes that are closer to the core of the business are more disruptive and catastrophic. Peripheral changes tend to be able to be solved through adaptation.

examples of threats that affect both non & for profit organizations:

Contextual threats:

  • Technological innovations

  • Changes in demand

  • Changes in public opinion

  • Environmental disasters

Intra-organizational hazards

  • Newness

  • Rigid management

  • Group think

  • Leadership successions

threats that are unique to nonprofits:

  • Dependence on insecure funding & resources from the government, donations, and volunteers (Singh et al. 1991)

  • Positive public opinion always correlates with income (Baum & Oliver, 1996)

  • Financial success often rides on the success of one program (Duckles et al., 2005)

  • Nonprofits are bound to 2 unique mission obligations: the non-distribution requirement (orients mission over profit) and the expectation of benefit (compels them to produce socially valuable goods) (Duckles et al., 2005)

  • Missions often provide little/no obvious metrics for evaluation, forcing leadership to make decisions that aren’t grounded in empirical data (Lena, 2018)

    • Baum, Joel A. C. and Christine Oliver. “Toward an Institutional Ecology of Organizational Founding.” Academy of Management Journal, vol. 39, no. 5, 1996, pp. 1378–427, https://doi.org/10.5465/257003.

    • Duckles, Beth, Mark. Hager, and Joseph. Galaskiewicz. 2005. “How Nonprofits Close: Using Narratives to Study Organizational Processes.” In Qualitative Organizational Research: Best Papers from the Davis Conference on Qualitative Research, edited by K. D. Elsbach, 169–203. Greenwich, CT: Information Age Publication Inc.

    • Hager, Mark, et al. “Tales From the Grave: Organizations’ Accounts of Their Own Demise.” The American Behavioral Scientist (Beverly Hills), vol. 39, no. 8, 1996, pp. 975–94, https://doi.org/10.1177/0002764296039008004. Lena, J. (2018). The Process Model of Closure and Nonprofits: The Exit of Exit Art. The Journal of Arts Management, Law, and Society, 48(1), 17-31.

    • Singh, J. V., et al. “Organizational Change and Organizational Mortality.” Administrative Science Quarterly, vol. 31, no. Dec 86, 1986, pp. 587–611.

    • Sutton, Robert I. “The Process of Organizational Death: Disbanding and Reconnecting.” Administrative Science Quarterly, vol. 32, no. 4, 1987, pp. 542–69, https://doi.org/10.2307/2392883.

diving into the literature:

Many scholars point to Sutton’s Process Model for Organizational Closure (1987) as the beginning of this research. For Sutton, organizational death can be tracked by a transformation of perception amongst organizational members. Members transition their understanding of the organization from one that’s fully functioning to one that is temporary and then to one that is defunct.

His research was built for the for-profit sector but has been widely accepted in nonprofit management scholarship because of how it prioritizes stakeholder involvement in organizational legitimacy and success.

Scholars who built on Sutton’s model:

  • Discusses various theories on why organizations cease to exist. They interviewed nonprofit leaders in the Twin Cities from 1980-1994, asking why they thought their organizations closed.

    Ultimately they identify three key factors to look at in understanding why and organization did or didn’t survive:

    1. Whether or not there was disconnect from the community (disconnect = high risk)

    2. Age of the organization (younger orgs are more at risk)

    3. Organizational size (smaller orgs are more at risk)

    Moreover, size and age are the key predictors of survival. Newer and/or smaller organizations are more likely to be disconnected from community, experience personnel loss and/or turnover, and have financial difficulties.

    They then argue that there are both internal and external factors that lead to closure. Internal factors might be losing control of finances, inability to routinize procedures. External factors might look like changing markets, lack of social capital, changing outside regulations, perceptions of legitimacy

    Moreover, leaders often have very different opinions on why their organization closed. Recurring reasons were: organization size, organization age, finances, personnel turnover, public participation and decreased demands for services.

  • They take Sutton’s model and put it in the context of nonprofits. They argue:

    • There’s a gap in the literature discussing how organizations close

    • Nonprofits are tied to the expectation of benefit (they have to create socially valuable goods) and the non-distribution requirement (mission is more important than profit).

    • Missions make metrics hard to track, therefore making it hard for leadership to make empirical decisions (especially in times of change or crisis)

    • Missions change how an organization would close (i.e., its’ more complicated than just closing the doors and stopping production)

  • Points out that there has been little research on successful closures when closure is inevitable. She ultimately argues that closure is often out of the control of anyone involved and moreover its actively harmful to view it as a failure of the people involved with said closure.

    To Lena, closure is not always a reaction to crisis, failure of the staff, or even a negative thing—it might point to an organization meeting its mission. We know that the same risks apply to non and for-profit businesses but we don’t talk about how metrics for success are so different—so its weird to apply the same more judgements to the two.

    For nonprofits, there’s a weird paradox: mission completion is a good thing, but it is always followed by either closure or major other organizational changes (things we often view as inherently bad). We need to stop cornering nonprofits by viewing change, crisis, and closure as failures of management.

    • Duckles, Beth., Mark Hager, and James. Galaskiewicz. 2005. “How Nonprofits Close: Using Narratives to Study Organizational Processes.” In Qualitative Organizational Research: Best Papers from the Davis Conference on Qualitative Research, edited by K. D. Elsbach, 169–203. Greenwich, CT: Information Age Publication Inc.

    • Hager, Mark, et al. “Tales From the Grave: Organizations’ Accounts of Their Own Demise.” The American Behavioral Scientist (Beverly Hills), vol. 39, no. 8, 1996, pp. 975–94, https://doi.org/10.1177/0002764296039008004.

    • Lena, Jennifer C. “The Process Model of Closure and Nonprofits: The Exit of Exit Art.” The Journal of Arts Management, Law, and Society, vol. 48, no. 1, 2018, pp. 17–31, https://doi.org/10.1080/10632921.2017.1398116.

    • Sawhill, John C., and David Williamson. “Mission Impossible?: Measuring Success in Nonprofit Organizations.” Nonprofit Management & Leadership, vol. 11, no. 3, 2001, pp. 371–86, https://doi.org/10.1002/nml.11309.

    • Singh, J. V., et al. “Organizational Change and Organizational Mortality.” Administrative Science Quarterly, vol. 31, no. Dec 86, 1986, pp. 587–611.

    • Sutton, Robert I. “The Process of Organizational Death: Disbanding and Reconnecting.” Administrative Science Quarterly, vol. 32, no. 4, 1987, pp. 542–69, https://doi.org/10.2307/2392883.

Scholars also agree that metrics for success are just as important as ones of failure.

But they’re both really hard to measure at mission driven organizations.

According to Sawhill & Williamson (2001) “One key component of the business model continues to elude nonprofits: they have been unable to duplicate the crisp, straightforward way that businesses measure their performance” (372).

They point to O’Neill & Young’s research (1998), which argues that the sector is kind of lost because we haven’t found a good technological system to empirically measure complex missions. This is further complicated by how ‘political’ the system would need to be to accomodate the various stakeholders of nonprofits.

Sawhill and Williamson ultimately argue that we can track progress through a series of questions relating to impact, activity, and capacity such as:

  • Are we making progress toward fulfilling our mission and meeting our goals?

  • Are our activities achieving our programmatic objectives and implementing our strategies?

  • Do we have the resources and capacity to achieve our goals?

    • O’Neill, Michael, and Dennis R. Young. Educating Managers of Nonprofit Organizations. Praeger, 1988.

    • Sawhill, John C., and David Williamson. “Mission Impossible?: Measuring Success in Nonprofit Organizations.” Nonprofit Management & Leadership, vol. 11, no. 3, 2001, pp. 371–86, https://doi.org/10.1002/nml.11309.