Re-conceptualizing O rganizational Research in Indonesia - A Future Research Fram ework

16 Re-conceptualizing Organizational Research in Indonesia

Re-conceptualizing Organizational Research in Indonesia -

A Future Research Framework

collusion and nepotism, known by its abbreviation as

KKN that

within the

Indonesian society as acceptable practices, make formal

organizational control

systems - organization,

decouple from their intended role as planning and controlling

considerations, a symbolic window dressing to legitimize managerial conducts - either at macro

or micro levels often becomes the main reason to adopt the systems. Institutional theory provides an alternative

o r g a n i z a t i o n a l a r e a t o s t u d y t h e p h e n o m e n a in their natural contexts - to understand how formal organization,

and accounting adopted

management

techniques

their actual practices.

Keywords: institutional theory; institutionalization; decoupling; myth and ceremony; legitimacy

Introduction

This paper intends to establish a theoretical viewpoint to interpret the adoption o f f o r m a l o r g a n i z a t i o n a n d o r g a n i z a t i o n a l c o n t r o l s y s t e m s in I n d o n e s i a . T h e

a d o p t i o n o f f o r m a l o r g a n i z a t i o n in t h e m o d e r n s t a t e o f I n d o n e s i a c a n n o t b e s e p a r a t e d f r o m t h e r o l e o f N e w O r d e r g o v e r n m e n t u n d e r t h e S u h a r t o e r a . It w a s

P h . D . in a c c o u n t i n g f r o m S c h o o l o f A c c o u n t i n g a n d F i n a n c e t h e U n i v e r s i t y o f W o l l o n g o n g

A u s t r a l i a . C u r r e n t l y , h e is a l e c t u r e r a t P o s t g r a d u a t e B u s i n e s s P r o g r a m P e r b a n a s B u s i n e s s S c h o o l Jakarta

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The International Journal o f Accounting and Business Society 17

during that era the

robustly promoted formal o r g a n i z a t i o n a s a w a y t o b e p a r t o f a m o d e m s t a t e a n d s o c i e t y . H o w e v e r , it w a s the New Order government which promoted values and practices undermined the role and function of formal organization and organizational control systems - Corruption, Collusion and Nepotism known as

Indonesian

government

KK N to the Indonesian society.

As a matter of facts, formal systems had been widely adopting as a

symbolic window dressing.

Institutional theory that provides a theoretical framework for analyzing t h e p r o c e s s t h r o u g h w h i c h t h e o r g a n i z a t i o n r e l a t e s t o i t s e n v i r o n m e n t is

a p p r o p r i a t e t o s t u d y o r g a n i z a t i o n s in t h e s e c o n t e x t s . The way how formal system - organization structure, organizational control systems and accounting - exercised reflects the way how Indonesian society adopting the New Order's

structures, culture and routines.

I n s t i t u t i o n a l t h e o r y p e r c e i v e s t h a t a c t o r s in o r g a n i z a t i o n s a r e p a s s i v e in

a d o p t i n g m a c r o ’ s s t r u c t u r e s , v a l u e s a n d r o u t i n e s . T h i s v i e w is t o s o m e e x t e n t p r o b l e m a t i c g i v e n t h e f a c t t h a t in I n d o n e s i a , t h e a c t o r s a r e o f t e n a c t i v e l y involved and initiate the adoption.

To overcome the problem of actors' passivity, this paper incorporates Weberian perspectives of closure theory of class, status groups and parties to analyze the struggle to hold power and resources among the interest groups within the organizations. Weber asserts that the plurality of contending groups of classes, status groups, and parties within organizations, whose economic, social and political interests could differ and o v e r l a p , is a “ m u l t i p l e - s i d e d p r o c e s s o f c o n f l i c t o n m a n y f r o n t s ” ( C h u a a n d Poullaos, 1998, p. 159) that involves a power struggle inside. A theory of power

c o n c e r n i n g p o w e r m o b i l i z a t i o n t h a t is d e v e l o p e d b y H a r d y ( 1 9 9 6 ) , a c c o r d i n g l y , is e s s e n t i a l t o b e u s e d in t h e m o d e l t h a t w i l l b e d e v e l o p e d in t h i s p a p e r in a n attempt to analyze the power struggle.

The Genesis of Institutional Theory on Organization

Although institutions were identified and analyzed quite early by economists, political

middle of last century, “‘o r g a n i z a t i o n s , a s d i s t i n c t i v e t y p e s o f s o c i a l f o r m s , w e r e n o t d i s t i n g u i s h e d conceptually until relatively recently” (Scott, 1995, p. 16; Powell and DiMaggio,

scientists and

1991; DiMaggio and Powell, 1983; Zucker, 1977; Meyer and Rowan, 1977). The early efforts of institutional studies on organizations can be traced back to the early efforts by the translation of Weber’s work on bureaucracy into the

Fnglish language. The translation stimulated many studies on organizations among sociologist at Columbia University, the Parsonsian institutional approach, the work of Simon

(1945/1957) at Carnegie

Mellon

University and his

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18 Re-conceptualizing Organizational Research in Indonesia ........

c o l l a b o r a t i o n w i t h M a r c h in 1 9 5 8 a n d c o g n i t i v e t h e o r y i n s o c i a l p s y c h o l o g y (Scott, 1995, p. 17-22). New Institutionalism developed during the mid-1970s across the social sciences.

institutional arguments into organizational sociology was made by Meyer and Rowan (1977) and Zucker (1977). Building on the institutional conception of Berger and Luckmann (1967), Meyer and Rowan (1977) believed that organizations were a result of rationalization of cultural rules functioned as myths which were adopted at the expense of organizational efficiency. Meyer and Rowan (1977, p. 341) said that “to maintain ceremonial conformity, organizations that reflect institutional rules tend to buffer their formal structures from the uncertainties of technical activities by becoming loosely coupled, building gaps between their formal structures and

A successful

a c t u a l w o r k a c t i v i t i e s ' ’. Therefore, Meyer and Rowan concentrate on a macro p e r s p e c t i v e o f o r g a n i z a t i o n s b y e m p h a s i z i n g t h e i m p a c t o f c h a n g e s in t h e w i d e r institutional environments on organizational forms.

DiMaggio and Powell (1983) developed and elaborated further this perspective by identifying three important institutional mechanisms - coercive, mimetic and normative through which institutional norms took effects on organizational fields.

They emphasize structural similarity (isomorphism) as a result of competitive and institutional processes. Meyer and Rowan (1992) added the

suggesting that although technical and institutional forces shape organizations, certain types of organizations are more subject to one than the other.

macro perspective

by

Zucker, on the other hand, emphasizes the micro perspective of institutions. She claims that institutional isomorphism among organizations often focuses on the content rather than the process of institutionalization. A micro-level approach focuses upon “institutionalization as a

process rather than

as a state; upon the cognitive processes involved in the creation and transmission of institutions; upon their maintenance and resistance to change; and upon the r o l e o f l a n g u a g e a n d s y m b o l s in t h o s e p r o c e s s e s ” ( Z u c k e r , 1 9 9 1 , p . 1 0 4 ) . T h u s , a micro perspective of institutions emphasizes the power of cognitive beliefs to anchor behaviour.

Institutional Theory and Institutionalization

Institutional theory as a way of looking at organizations draws its name from the existence and importance of objective and exterior social knowledge to o r g a n i z a t i o n a l b e h a v i o u r ( F o g a r t y , 1 9 9 2 , p . 3 3 2 ) . It i s a s s u m e d t h a t t h e p r i m a r y

d e t e r m i n a n t o f o r g a n i z a t i o n a l s t r u c t u r e is p r e s s u r e e x e r t e d b y e x t e r n a l a n d internal constituencies on the organization to conform to a set of expectations (Brignall

and Model!,

a product of

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i n s t i t u t i o n a l i z a t i o n , is d e s c r i b e d a s a n o r g a n i z e d , e s t a b l i s h e d , p r o c e d u r e o f t e n represented as the constituent rules of society that are experienced and analyzable as external to the consciousness of individuals (Jepperson, 1991,

p.

regulatory structures, governmental agencies, laws, courts, professions, interest groups and public opinions (Scott, 1987a, p. 498-499; Oliver, 1991, p. 147) that have the ability to exert pressures on organizations and their members.

143). In

a more practical

, Therefore, since organizations exist in a social environment, with their predictable sequences of action and reaction (Oliver, 1991,

p. 146-148). the

theory primarily concerns cultural and social behavioural influences that construct rules, values and norms to provide legitimacy for the organizations w h e n c o m p l i e d w i t h . T h e s e s o c i a l s y s t e m s p r o v i d e a s o u r c e o f l e g i t i m a c y in t h e forms of social approval for organizations to maintain their activities (Fogarty,

1992, p. 333). In this case, organizational structures, therefore, become "reflections of rationalized institutional rules (Meyer and Rowan, 1977,

p. 340),

“symbolic displays of appropriate conformity” (Scott, 1987a, p. 507), and “shared knowledge and belief systems” (Scott, 1995, p. 13). Adopting structural attributes displayed by other significant organizations occasionally manifests gaining legitimacy through an alignment with rationalized institutional myths.

The institutionalization of an organization depends upon its perceived l e g i t i m a c y . In R i t t i a n d S i l v e r ’ s p o i n t o f v i e w ( 1 9 8 6 , p . 2 7 ) , it d e p e n d s o n t h e ability of the organization to design the myth about itself and that, once created, this myth becomes part of the stock of a “thing taken for granted” within the

c u r r e n t o r g a n i z a t i o n a l c u l t u r e . A c c o r d i n g l y , it is b e l i e v e d t h a t a c o m m o n m e a n s of gaining legitimacy is alliance with some rationalized institutional myth (Meyer and Rowan, 1977) occasionally manifested by the adoption of structural attributes displayed by other influential organizations through the process of

isomorphism (DiMaggio and Powell, 1983). Meyer and Rowan (1977) emphasized the role of rationalized belief systems in providing a structure for meaningful interactions and acceptable p a t t e r n s o f b e h a v i o u r . “ S y m b o l i c e l e m e n t s o f i n s t i t u t i o n s a r e c o n t a i n e d in s o c i a l l y c o n s t r u c t e d s y s t e m s o f s h a r e d m e a n i n g a n d it i s t h r o u g h t h e s e e l e m e n t s t h a t s o c i a l c o n t r o l is e x e r t e d o n o r g a n i z a t i o n s a n d i n t h e i r d e c i s i o n m a k i n g processes. (Accordingly), the symbolic functions of institutions are imposed upon

regulatory mechanisms or processes” (Nicolaou, 1999,

p. 132 - 133).

Accounting, for example, symbolizes a rational tool for the managerial decision-making

process taken within the organization. Accounting as a t e c h n i c a l - c a l c u l a t i v e a p p r o a c h , h i g h l i g h t s t h e m e a n i n g o f r a t i o n a l t o o l s in m o d e m c a p i t a l i s t s o c i e t y ( W e b e r , 1 9 7 8 ) , a n d t h e r e b y it is o b j e c t i v e . D u e t o t h i s

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20 Re-conceptualizing Organizational Research in Indonesia ........

p e r s p e c t i v e , a c c o u n t i n g n u m b e r s o f t e n u s e d a s s y m b o l i c c o n s i d e r a t i o n s in managerial conduct are to be seen as rational and objective. Accounting has become a myth that cannot be tested objectively but is rationalized through the

establishment of rules that have little to do with technical or economic efficiency (Scott, 1987, p. 114).

1.1 As a construct of the social environment, “institutionalization guides the way activities, processes, cultural events and organizations become accepted as

i n s t i t u t i o n s ' a n d b e c o m e v i e w e d a s n o r m a l a n d e x p e c t e d in e v e r y d a y s o c i e t y ’' (Roggenkamp and White, 2001, p. 1060). Jepperson (1991, p. 150) points out that the process can be delivered through formal organization, regimes, and culture.

become routinized,

f o r m a l i z e d a n d e m b e d d e d in t h e o r g a n i z a t i o n a l f a b r i c a n d a r e s e l f m a i n t a i n i n g over long periods of time without justification, and resist change (Zucker, 1987, p. 446).

Since institutionalization has been defined as “the process by which actions become repeated over time and are assigned similar meanings by self and others” (Scott, 1987a, p. 495), institutional theory emphasizes the pressure and constraints of the institutional environment. Institutional theorists recognize that organizational participants can be constrained by institutional arrangements that limit the choice of variables, restraining certain patterns of resources allocation and prohibiting certain courses of actions (DiMaggio and Powell.

1983). It can be inferred that institutional theory sees formal structures of organizations as a reflection of the myths of their institutional environments (Meyer and Rowan. 1977, p. 341) that were built into society as a “reciprocal tvpification of habitualized actions by types of actors” (Burger and Luckmann,

1967, p. 54). “Such rules may be simply taken for granted or may be supported by public opinion or the force of law” (Meyer and Rowan, 1977, p. 341).

Institutional Isomorphism

Weber (1978) contended that bureaucracy, the rational spirit of the modern organization, was so efficient and powerful means of controlling people and. once established, bureaucratization was irreversible. He emphasized the r o l e o f a c c o u n t i n g a s a m e a n s o f e c o n o m i c c a l c u l a t i o n a n d d e c i s i o n m a k i n g in modern capitalism, which was needed, therefore, to calculate the most efficient way of rationally orienting economic transactions. Stated in Brubaker’s words (1984,

p. 11), “social structure of the rational market exchange elicits the subjective disposition to act on the basis of impersonal calculation, money

accounting provides an

objectifiedsupra-individual technology for carrying out

these calculations, for determining unambiguously the ‘best’, meaning the most profitable, opportunity for exchange”.

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However, as mentioned by DiMaggio and Powell (1983, p. 147), the causes of bureaucratization and rationalization have changed. They state that s t r u c t u r a l c h a n g e in o r g a n i z a t i o n s s e e m s t o b e d r i v e n b y p r o c e s s e s t h a t m a k e organizations

more similar without necessarily being more efficient and

c o m p e t i t i v e . T h i s p r o c e s s o f h o m o g e n i z a t i o n is c a l l e d i s o m o r p h i s m . H a w l e y ( 1 9 6 8 ) d e f i n e s i s o m o r p h i s m a s a c o n s t r a i n i n g p r o c e s s t h a t o b l i g e s a u n i t in t h e population to resemble other units that face the same set of environmental conditions.

a tendency for organizations within a given domain to become structurally and practically similar.

This process that leads to organizational homogeneity, is c a l l e d institutional isomorphism (DiMaggio and Powell. 1983; Covaleski, et al, 1993;

C arpenter and Feroz. 2001; Nicolaou, 1999). To cope with environmental uncertainty, organizations may undertake

i s o m o r p h i c a c t i v i t y in a r a t i o n a l a n d d e l i b e r a t e m a n n e r ( G a l a s k i e w i c z a n d W a s s e r m a n , 1 9 8 9 ) . In t h i s c a s e , t h e y a r e a w a r e o f i m i t a t i n g o t h e r s in t h e i r environment. Furthermore, organizations may also undertake actions that are

isomorphic without realizing that they are imitating other environmental players. They may attribute rational objectives to the isomorphic response, when in fact

little rational evidence exists to justify organizational actions. The latter process, w h i l e s e e m i n g l y u n l i k e l y , is c o m p l e t e l y i n a c c o r d a n c e w i t h t h e c o n c e p t o f

institutionalization and the notion that institutional processes and functions are o f t e n t a k e n f o r g r a n t e d . T h e c o n c e p t is a u s e f u l t o o l f o r u n d e r s t a n d i n g t h e p o l i t i c of ceremony that encompass modern organizations (DiMaggio and Powell,

1983, p. 150). This relates to organizational competition for political power, social fitness and institutional legitimacy. DiMaggio and Powell (1983) identify three mechanisms through which institutional isomorphism occur:

1) C o e r c i v e i s o m o r p h i s m t h a t s t e m s f r o m p o l i t i c a l i n f l u e n c e a n d t h e p r o b l e m o f l e g i t i m a c y . It is b a s i c a l l y t h e r e s p o n s e t o "formal and informal pressures exerted on organizations by other organizations u p o n w h i c h t h e y a r e d e p e n d e n t a n d b y c u l t u r a l e x p e c t a t i o n s in t h e s o c i e t y w i t h i n which organizations function” (p. 150); 2) mimetic isomorphism as a result of standard responses to uncertainty. In this situation, organizations tend to model themselves on other successful organizations; and 3) normative isomorphism t h a t is a s s o c i a t e d w i t h p r o f e s s i o n a l i z a t i o n . T h i s a r i s e s w h e n “ p r o f e s s i o n a l s o p e r a t i n g in o r g a n i z a t i o n s a r e s u b j e c t t o p r e s s u r e s t o c o n f o r m t o a s e t o f n o r m s and rules developed by occupational/professional groups” (Abernethy and Cluia,

! 996, p. 573)

C oercive Isomorphism

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22 Re-conceptualizing Organizational Research in Indonesia

C o e r c i v e i s o m o r p h i s m is d r i v e n a t l e a s t b y p r e s s u r e f r o m o t h e r o r g a n i z a t i o n s o n w h i c h a n o r g a n i z a t i o n is d e p e n d e n t a n d a n o r g a n i z a t i o n ' s p r e s s u r e t o c o n f o r m t o t h e c u l t u r a l e x p e c t a t i o n s o f t h e l a r g e r s o c i e t y ( D i M a g g i o a n d P o w e l l , 1 9 8 3 , p.

150). Such cultural expectations that could be an institutional environment reflect the conformity of an organization with public expectations and demands. T h e p r e s s u r e c o u l d b e s e n s e d a s f o r c e , a s p e r s u a s i o n , o r a s i n v i t a t i o n s t o j o i n in collusion. Included within the category of coercive pressures are those that emanate from government mandate, resource interdependence, state-sponsored

l e g i t i m a c y , a n d m o r e s u b t l e p o l i t i c a l p r o c e s s e s ( L a w r e n c e a n d W i n n , 2 0 0 1 , p. 628).

In some situations, organizational change is a d i r e c t r e s p o n s e t o

g o v e r n m e n t m a n d a t e ( D i M a g g i o a n d P o w e l l , 1 9 8 3 ; L a w r e n c e e t a l . , 2 0 0 1 , p. 628); public demand (Nicolaou,

1999); and resource dependence such as

financial dependence (Carpenter and Feroz, 1992; 2001) and knowledge and

e q u i p m e n t / t e c h n o l o g i c a l d e p e n d e n c e . C o n f o r m i t y t o t h e s e p r e s s u r e s is m o r e o f t e n c e r e m o n i a l t h a n a c t u a l s i n c e t h e m a i n p u r p o s e is t o g a i n a n d m a i n t a i n o r g a n i z a t i o n a l l e g i t i m a c y ( D i M a g g i o a n d P o w e l l , 1 9 8 3 ) . A c c o r d i n g l y , it c a n b e said that conformity with institutionally acceptable structures and practices leads to legitimacy.

I m p o s i t i o n is a m e c h a n i s m u s e d b y r e g u l a t o r y i n s t i t u t i o n s t o i n f l u e n c e the organizational structures. This refers to the situation when institutional elements that are created as a social response to organizational conflict with the organizational field, interpret societal standards and impose constraints on the organizational structures and processes (Grewal and Dharwadkar, 2002, p. 86).

Even though the organization can either resist or accept them, there is a tendency that

institutes superficial/ ceremonial

it m e e t s s u c h

impositions with

resistance and

unwanted consequences of noncompliance. Once enacted as laws, the constraints are likely to force o r g a n i z a t i o n s t o m a k e n e c e s s a r y c h a n g e s in t h e i r s t r u c t u r e s a n d p r o c e s s e s (DiMaggio

be distinguished between imposition by means of authority and imposition by means of coercive power (Scott, 1987, p. 501-502).

and Powell,

imposition can

by Covaleski and Dirsmith (1988, p. 585) found that a state’s budget, as the end product of the processes of institutionalization was infused with power and self-interest influence. They also explain how powerful groups and individuals use power to

Research using

e n f o r c e c o m p l i a n c e w i t h i n s t i t u t i o n a l r u l e s w h e n t h e i r i n t e r e s t s a r e t h r e a t e n e d . In this case, DiMaggio and Powell (1983) identify budgeting as a specific form of

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coercive isomorphism

government for funding requirements.

Mimetic Isomorphism

As stated by Palmer et al. (1993. p. 104), institutional theory assumes that at the time an

organization is b e i n g f o u n d e d o r r e o r g a n i z e d , it s e l e c t s a m o n g alternative structures or practices on the basis of efficiency considerations. Subsequently, the organization will adopt forms that are considered legitimate

b y o t h e r o r g a n i z a t i o n s in i t s f i e l d , r e g a r d l e s s o f t h e s t r u c t u r e s ’ o r p r a c t i c e s ’ actual efficiency. This process has occurred as a response to environmental uncertainty caused by organizational technologies that are poorly understood

(March and Olsen, 1976); goals ambiguity; or environment that creates symbolic uncertainty (DiMaggio and Powell,

151). Therefore, faced with u n a v a i l a b i l i t y o f a c l e a r c o u r s e o f a c t i o n , it is s e n s i b l e t h a t o r g a n i z a t i o n a l l e a d e r s m a y d e c i d e t h a t t h e b e s t a c t i o n is t o c o p y a s u c c e s s f u l p e e r .

1983, p.

U n c e r t a i n t y is a p o w e r f u l f o r c e t o p r o m o t e i m i t a t i o n . A s m o d e l i n g is a response to uncertainty (DiMaggio and Powell, 1983), mimetic isomorphism, a n o t i o n i d e n t i f i e d b y S c o t t ( 1 9 9 5 ) a s t h e c o g n i t i v e p i l l a r o f i n s t i t u t i o n a l i z a t i o n , is

a process of organizations to copy similar organizations in their field that they p e r c e i v e t o b e m o r e s u c c e s s f u l a n d l e g i t i m a t e . It c a n b e s a i d t h a t t h e p r o c e s s is a response to organizational uncertainty in identifying the best course of action (Carpenter and Feroz, 2001, p. 571). “The ubiquity of certain kinds of structural arrangements can more likely be credited to the universality of mimetic processes than to any concrete evidence that the adopted models enhance efficiency” (DiMaggio and Powell, 1983, p. 152).

A c c o r d i n g l y , “ c h o i c e - m a k i n g i n i n s t i t u t i o n s i s o f t e n s y m b o l i c in t h e sense

1994, p. 198). To the o r g a n i z a t i o n , it is i m p o r t a n t t o r e a s s u r e e x t e r n a l a u d i e n c e s o f t h e e x i s t e n c e o f rationality . Organizations as institutions need to communicate to their observers t h a t t h e y m a k e l e g i t i m a t e d e c i s i o n s in r a t i o n a l m a t t e r s a s is p r o v e d b y t h e u s e o f the process used by successful organizations within the same field. Borrowing

of window-dressing

activity”

(Mouritsen,

Lawrence et al.’s terminology (2001, p. 628), this behaviour appears to be associated with effectiveness. The phenomenon reflects “symbolic behaviour (whereby) individuals and groups are frequently hypocritical, reciting sacred myths without believing them and while violating their implication” (Mouritsen,

1994, p. 199).

Normative Isomorphism

Professionalization can promote procedural legitimacy to set up a working environment, control output, and create a basis for occupational

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24 Re-conceptualizing Organizational Research in Indonesia ........

autonomy (DiMaggio and Powell, 1983; Scott, 1987). There are two main

sources for the pressure of professionalization: first, formal education and l e g i t i m a t i o n in a c o g n i t i v e b a s e p r o d u c e d b y u n i v e r s i t y s p e c i a l i s t s p r o v i d e s legitimacy for intellectual resources in a society; and second, the growth and

elaboration of professional networks that span organizations propagate similar

and new standards and models (DiMaggio and Powell, 1983, p. 152). Both are

i m p o r t a n t s o u r c e s o f i n s t i t u t i o n a l i s o m o r p h i s m . It i s c o l l e c t i v e m o b i l i z a t i o n o f those with cultural licenses and action by those that have “collective authority

o v e r w h a t is a c c e p t a b l e t h e o r y ” ( M e y e r a n d S c o t t , 1 9 9 2 , p . 2 0 2 ) t h a t c a n o n l y successfully challenge institutional legitimacy. Therefore, they believe that l e g i t i m a c y is a q u e s t i o n o f c u l t u r a l t h e o r y .

B u r e a u c r a c i e s t h a t c o n t i n u o u s l y e n g a g e d in c u l t u r a l i n n o v a t i o n s a r e

more likely to have influence when professional associations support the efforts (Meyer and Scott, 1992, p. 200; Meyer and Rowan, 1977, p. 346-347). Carpenter and Feroz’s study (2001) found that professionalization of the government accounting

a constant

institutional pressure for

governments to adopt and use GAAP. This is consistent with the suggestion by institutional theory that myths constructed by professional associations have robust legitimacy based on the belief that they are rationally effective (Meyer and Rowan,

1977, p. 347). Thus, normative pressures stem from cultural

e x p e c t a t i o n s t h a t a c t o r s f e e l c o m p e l l e d t o h o n o u r b e c a u s e t h e y a r e r o o t e d in professional affiliations (Lawrence et al., 2001, p. 628).

Interests and Institution An institutional perspective assumes that organizational participants can be constrained by arrangements that limit the choices available, restraining certain patterns of resources allocation and prohibiting certain courses of actions (Powell and

DiMaggio, 1991). As viewed by most institutional theorists

(DiMaggio and Powell, 1983; Meyer and Rowan, 1977; Zucker, 1987), besides institutional agents, institutional constituents such as public opinion and interest groups exercise pressures and expectations on organizational actors. As a result, organizations may engage actions that are less motivated by self-interested

p.

191) that once established, will be supported and

adopted by organizations that benefit from prevailing conventions. Elites could

be the architects and products of the institutionalized rules and expectations they create. Although in the institutional literature power is mentioned implicitly, the interaction between the institutional environment and organizations needs to be

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Centre fo r Indonesian Accounting and Management Research Postgraduate Program, Brawijaya University

The International Journal o f Accounting and Business Society 25

related to power as a reflection of elites’ self-interests. Organizations may be interest driven,

socially defined from the institutional perspective (Oliver, 1991, p. 149). DiMaggio (1988, p. 9) supports this argument by saying that “actors’ self-interested behavior tend(s) to be smuggled into institutional arguments rather than theorized explicitly”.

however

interests tend to be

Related to this issue, Scott (1987a) has clearly mentioned that interests tend to be institutionally defined and shaped within the institutional perspective. He clearly

and pursued within o r g a n i z a t i o n s i n t h e f o r m s “ t h a t a c t o r s in o n e t y p e o f s e t t i n g , c a l l e d f i r m s , p u r s u e profits; that actors in another setting, called agencies, seek larger budget; that actors in a third setting, called political parties, seek votes; and that actors in an even stranger setting, research university, pursue publications” (Scott, 1987a, p. 508). Hence, powerful actors within an institution are always committed to some v a l u e s o r i n t e r e s t s in s h a p i n g o r g a n i z a t i o n a l s t r u c t u r e .

modern era (DiMaggio and Powell, 1983, p. 147). Nevertheless, they are not necessarily sharing the same interests. Professional bodies generally develop

d e c e n t r a l i z e d a d m i n i s t r a t i v e s t r u c t u r e s t h a t l e a v e m a x i m u m d i s c r e t i o n in t h e hands of individual practitioners. By contrast, state officials tend to create centralized bureaucratic arrangements that give discretion to those at the top of

the structure and allow relatively little autonomy to local managers. Therefore, s t a t e a c t o r s a r e m o r e l i k e l y t o e m p l o y c o e r c i o n in p u r s u i n g t h e i r e n d s a n d m o r e likely to attempt to create a formal organization network to carry out their purpose. "The professions are expected to rely primarily on normative or mimetic influences and to attempt to create cultural forms consistent with their own aims and beliefs” (Scott, 1987a, p. 509).

Political contests among competing interests will determine the ability of environmental agents to define the reigning forms of institutional structure (Scott, 1987a, p. 509). Institutionalized rules and structures, accordingly, depend o n t h e p o w e r o f t h e o r g a n i z a t i o n a l a c t o r s in t r a n s l a t i n g a n d u s i n g s o c i e t a l expectations.

Scott (1987a, p. 509) provided the insight by arguing that "outcomes will be influenced not only by differential resources and sanctioning facilities but will also be strongly shaped by the agents’ differential ability to lay successful claim to the normative and cognitive facets of political processes: those identified by such concepts as authority, legitimacy and sovereignty”. As

e m p h a s i z e d b y C o v a l e s k i e t a l ( 1 9 9 3 , p . 6 6 ) , t h e p r o c e s s o f i n s t i t u t i o n a l i z a t i o n is ‘p r o f o u n d l y p o l i t i c a l ” a n d r e f l e c t s p o w e r o f i n t e r e s t s a n d a c t o r s w h o m o b i l i z e them. In defining organizational fields, DiMaggio and Powell (1983) explicitly explain the role of actors’ self-awareness and self-interests. They hold the view

Vol. 14, No. I, A ugust 2006 © Centre fo r Indonesian Accounting and Management Research Postgraduate Program, Brawijaya University

26 Re-conceptualizing Organizational Research in Indonesia ........

that “fields only exist to the extent that they are institutionally defined. The process of institutional definition, or ‘structuration’, consists of four parts: an

i n c r e a s e in t h e e x t e n t o f i n t e r a c t i o n a m o n g o r g a n i z a t i o n s in t h e f i e l d ; t h e emergence of sharply defined inter-organizational structures of domination and patterns of coalition; an increase in the information load with which organization m u s t c o n t e n d , a n d t h e d e v e l o p m e n t o f a m u t u a l a w a r e n e s s a m o n g p a r t i c i p a n t s in

a set of organizations that are involved in a common enterprise” (DiMaggio and Powell, 1983, p. 148)

Effects of Institutionalism on Organization

It h a s b e e n r e a l i z e d t h a t i n s t i t u t i o n a l i z a t i o n i s a c u l t u r a l a n d p o l i t i c a l p r o c e s s t h a t

c o n c e r n s l e g i t i m a c y a n d p o w e r m u c h m o r e t h a n e f f i c i e n c y ( C a r r u t h e r s , 1 9 9 5 , p. 315). Many studies demonstrated that the technical surface tends to cover the hidden agenda of political and cultural issues (Grandlund, 2002; Carpenter and Dirsmith, 1993; Carpenter and Ferroz, 1992; 2001; Bealing et al, 1996; Brignall

and Modell, 2000; C'ovaleski, et al, 1993; Collier, 2001). This situation creates conflicts

between institutional/ceremonial

rules

as

organizational rational

c h o i c e s in d e m o n s t r a t i n g l e g i t i m a c y t o t h e p u b l i c a n d t e c h n i c a l r u l e s / e f f i c i e n c y (Meyer and Rowan, 1977; Meyer, 1992). Scott (1995,

125) asserts that organizations that confront both ceremonial and technical rules often respond to them “by developing specialized units equipped and empowered to deal with each type of demand. Loose coupling

p.

a characteristic feature of all organizations, indeed of all open systems”. Even though these responses, according to Meyer and Rowan (1977), are more symbolic than real, Scott (1995, p. 129) maintains that their meanings are shaped and exert great social power and also that symbolic structures represents organizational concern to environmental agents.

between differentiated

units

is

Institutionalized organizations protect their formal structures from evaluation on the basis of technical performance by minimizing inspection, evaluation,

handling coordination, interdependence, and mutual adjustments among structural units informally (Meyer and Rowan,

and control

1977, p. 357). As an activity to maintain ceremonial conformity, the advantages of decoupling or loose coupling are clear. It enables o r g a n i z a t i o n s t o l e g i t i m a t e f o r m a l s t r u c t u r e s w h i l e t h e a c t u a l a c t i v i t i e s d i f f e r in response to technical and practical considerations (Meyer and Rowan, 1977, p.

357). Consistent

organizational formal structures that reflect “a kind of symbolic window-dressing” (Carruthers, 1995,

of decoupling,

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The International Journal o f Accounting and Business Society 27

p . 3 1 5 ) n e e d t o a p p e a r r a t i o n a l in f r o n t o f e x t e r n a l c o n s t i t u e n t s ( M o u r i t s e n , 1 9 9 4 , p. 198), As a response to external pressures, for example, management control systems used by organizations tend to reflect the symbolic and ceremonial role

of appearing efficient and responsive to financial constraints rather than as a technical-rational role consideration (Ansari and Euske, 1987; Covaleski and Dirsmith, 1988; Berry et al, 1985).

T h e a s s u m p t i o n t h a t p e o p l e a r e a c t i n g in g o o d f a i t h k e e p s t h e a c t i v i t i e s o f d e c o u p l e d o r g a n i z a t i o n s in o r d e r l y f a s h i o n ( M e y e r a n d R o w a n , 1 9 7 7 , p . 3 5 7 ­

3 5 8 ) . T h i s l o g i c o f c o n f i d e n c e is d i r e c t e d t o m a i n t a i n p l a u s i b i l i t y a n d l e g i t i m a c y o f t h e o r g a n i z a t i o n i t s e l f in o r d e r t o a v o i d " e m b a r r a s s i n g i n c i d e n t s a n d p r e s e r v e s the organization from the disruption of an implausible performance by an actor” (Meyer and Rowan, 1992, p. 90). The most visible aspect of the logic of confidence in the educational system, for instance, according to Meyer and Rowan (1992, p. 91) is the myth of teacher professionalism even without necessarily having professional training for teaching. This has happened because the environments of all organizations that have maintained high level of confidence and good faith have highly institutionalized rituals of inspection and evaluation

(Meyer and

Thereby, inspection and

e v a l u a t i o n t h a t t e n d t o d e l e g i t i m a t e o r g a n i z a t i o n s is c e r e m o n i a l . T h e f o l l o w i n g d i a g r a m ( f i g u r e 1) s h o w s t h e e f f e c t s o f i n s t i t u t i o n a l isomorphism on organizations.

F i g u r e 1: E f f e c t s o f I n s t i t u t i o n a l I s o m o r p h i s m o n O r g a n i z a t i o n s

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28 Re-conceptualizing Organizational Research in Indonesia ........

Managerial Responses to Institutional Processes

E a r ly institutional

confronted with external

institutional demands, organizations have no option but to comply (see, for example: Berger and Luckmann, 1967; Selznick, 1957). However, recent institutional theorists challenge this idea (Oliver, 1991; Scott, 1995; Beckert,

1999). Focusing attention on the variety of individual organizations’ responses, Oliver (1991) combines institutional and resource dependence .perspectives to accommodate interest-seeking and active organizational

behavior arguing that organizational responses to institutional pressures are not assumed to be invariably passive and conforming across all institutional conditions. Both perspectives have similar assumptions that organizational

c h o i c e is p o s s i b l e w i t h i n t h e c o n t e x t o f e x t e r n a l c o n s t r a i n t s , a n d t h a t o r g a n i z a t i o n s a l w a y s a t t e m p t t o o b t a i n s t a b il it y a n d l e g i t i m a c y ( O l i v e r ,

1991, p. 146-150; see also, Carpenter and Feroz, 2001).

respond to institutional pressures

Within organizations,

a conceptual

framework to examine and evaluate organizational responses to pressure toward

c o n f o r m i t y w i t h i n s t i t u t i o n a l p r o c e s s e s . T h e p a t t e r n i n w h i c h t h e i n s t i t u t i o n is

d i f f u s e d is d i s t i n g u i s h e d b e t w e e n c o e r c i v e p r e s s u r e a n d v o l u n t a r y d i f f u s i o n stemming from mimetic or normative isomorphism (DiMaggio and Powell, 1983). In this case, she proposes five strategic responses, which vary in active

agency by organizations

increasing active resistance:

a c q u i e s c e n c e , c o m p r o m i s e , a v o i d a n c e , d e f i a n c e , a n d m a n i p u l a t i o n a s s e e n in t h e following figure 2.

Following invisible, taken for granted norms Acquiescence

Habit

Imitate

Mimicking institutional models

Comply

Obeying rules and accepting norms

Balancing the expectations of multiple constituents Compromise

Balance

accommodating institutional elements

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The International Journal o f Accounting and Business Society 29

with institutional stakeholders

Bargain

Negotiating

Disguising nonconformity Avoid

Conceal

Buffer

Loosening institutional attachments

Escape

Changing goals, activities or domains

Ignoring explicit norms and values Defy

Dismiss

Challenge

Contesting rules and requirements

Assaulting the sources of institutional pressure

Attack

Importing influential constituents Manipulate

Co-opt

Influence

Shaping values and criteria

institutional constituents and processes

The Problematic Concept of Decoupling

“Modem Western society privileges a particular form of rationality, and so organizations operating within that cultural context will garner more legitimacy if they can emulate or symbolically reproduce that rationality” (Carruthers,

1995, p. 315). Taking this view into account, institutional theory has placed a strong emphasis on symbols in order for an organization to attain legitimacy. Organizational structures become symbolic displays of appropriate conformity to institutionalized rules (Scott, 1987, p. 507). “The way organizations are organized and operate, to the extent they are visible to the public, are purposely designed to accommodate social expectations” (Fogarty, 1992, p. 333).

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30 Re-conceptualizing Organizational Research in Indonesia ........

However, from a technical point of view, what organizations actually do is u n c l e a r l y c o n n e c t e d t o w h a t t h e i r s t r u c t u r e s s u g g e s t t h e y d o . T h a t m e a n s t h e accomplishment of complex and probably indeterminable work of organizations requires decoupled internal operating processes (Meyer and Rowan, 1977, p.

3 4 0 - 3 4 1 ) . D e c o u p l i n g is s i g n i f i c a n t d u e t o a s u b s t a n t i a l d i s c r e p a n c y b e t w e e n formal

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