Stage I organization are small, single business enterprise managed by one person. The owner entrepreneur has close daily contact with employees and each phase of operations. The owner makes all the pertinent decisions regarding objectives, strategy, daily operations, and so on. As a consequence, the organization's strengths, vulnerabilities, and sources are closely allied with the entrepreneur's personality, management ability and style, and personal financial situation.
Stage I enterprises are organized very simply with nearly all management decisions and functions being performed by the owner. A problem that sometimes develop in this stage is that as additional employees are added, it becomes increasingly difficult for the manager/owner to adequately handle the business. In the management terms, the span of control becomes to large.
A scale and scope of operations have increased to such an extent to necessitate task specialization and some degree of decentralization of decision making. In practice, there is wide variation. Some Stage II organizations prefer to divide strategic responsibilities along classic functional lines marketing, production finance, personnel, control, engineering, public relations, procurement, planning and so on. In vertical integrated Stage II firms, the main organization units are sequenced according to the flow from one vertical stage to another.
For example, the organizational building blocks of a large oil company usually consist of exploration, drilling, pipelines, refining, wholesale distribution, and retail sales. However, there is point beyond which Stage II structure simply does not the flexibility to handle the very complex business situation. Thus, organization should consider a Stage III Structure.