Conditions of Radical Transformation in State‐Owned Enterprises*
| Published date | 01 December 2005 |
| DOI | http://doi.org/10.1111/j.1467-8551.2005.00467.x |
| Author | Ljiljana Erakovic,Marie Wilson |
| Date | 01 December 2005 |
Conditions of Radical Transformation in
State-Owned Enterprises
*
Ljiljana Erakovic and Marie Wilson
Department of Management and Employment Relations, The University of Auckland Business School,
The University of Auckland, Private Bag 92019 Auckland, New Zealand
Email: l.erakovic@auckland.ac.nz [Erakovic]; m.wilson@auckland.ac.nz [Wilson]
This study analyses the key contributors to radical organizational change in five New
Zealand state-owned enterprises during their ownership transition between 1985 and
1995. Abrupt government reform policies, organizations’ market positions, realization
of rapid technological innovation, proactive managerial actions and the new owners’
strategic intent are established as key conditions of radical change in state-owned
enterprises. We integrate our findings with institutional theory and resource dependency
theory to argue that organizational dynamics in times of uncertainty depend on de-
institutionalization of old and institutionalization of new patterns of resource
dependency.
Introduction
Among OECD countries, New Zealand’s public-
sector reforms are often used as an example of
the successful and rapid government changes
(Aberbach and Christensen, 2001; Boston et al.,
1996). The complexity of corporatization (change
in legal status) and privatization (change in
ownership) have been assessed both individually
and together (Duncan and Bollard, 1992; Spicer,
Emanuel and Powell, 1996; Willalonga, 2000) but
without accounting for parallel changes in the
organizational environment (Zahra et al., 2000).
Organizational transformations in the public
sector have been analysed from a variety of
theoretical perspectives. Many researchers have
examined the changes from the perspective of
transaction cost theory (e.g. Burton and Obel,
1986; Fryklund, 1994), arguing the economic
logic of restructuring. Studies utilizing agency
theory (e.g. Andrews and Dowling, 1998; Estrin,
1998) have stressed the importance of governance
issues in the process of ownership transition.
More recently, conceptualization of privatization
from the institutional theory perspective (John-
son, Smith and Codling, 2000) has advanced our
understanding of privatization. All theoretical
approaches emphasize the expectation of radical
change in privatized organizations.
However, recent empirical studies of organiza-
tional change in privatized companies in different
political and social contexts (Clark and Soulsby,
1995; Czaban and Whitley, 2000; Dean, Carlisle
and Baden-Fuller, 1999; Springdal and Mador,
2004, among others) have shown that organiza-
tions, affected by the same environmental turbu-
lence in the form of ownership change, do not
necessarily undergo successful radical or trans-
formational change. Contrary to the traditional
expectations of privatization (Galal et al., 1994;
Jackson and Price, 1994; Parker, 1995) privatized
companies followed incremental changes in their
behaviour and structures (Czaban and Whitley,
2000) and adopted radical or punctuated change
*
The authors would like to thank Professors Bill
McKelvey, Richard Whitely and Suchitra Mouly, and
two anonymous reviewers for valuable comments on
earlier drafts of this paper.
British Journal of Management, Vol. 16, 293–313 (2005)
DOI: 10.1111/j.1467-8551.2005.00467.x
r2005 British Academy of Management
only when initial incremental change pro-
grammes had not proved successful (Dean,
Carlisle and Baden-Fuller,1999).
With this paper we aim to explore the major
conditions for radical organizational change in
the context of privatization. The transformation
of New Zealand state-owned enterprises (SOEs)
has been extensively researched and their orga-
nizational trajectories – incremental, radical and
reductive – have been established (Erakovic,
2001). Our focus is on the five New Zealand
SOEs that have previously been identified as
undergoing radical change during the corporati-
zation/privatization period.
Radical change reflects comprehensive, quan-
tum structural transformations (Miller, 1982;
Miller and Friesen, 1982) through which organi-
zations attempt to revitalize business orientations
(Miller and Friesen, 1984). Organizations under-
go the process of transition (Nadler and Tush-
man, 1989) by re-creating their past values,
strategy and structure, and moving from one
design archetype to another (Greenwood and
Hinings, 1993). Major economic changes, market
deregulation, industry developments, shifts in
product life cycle, and internal company dy-
namics require from the organization significant
changes in strategy, structure, culture and pro-
cesses (Tushman, Newman and Romanelli, 1986;
Tushman and O’Reilly III, 1996). Such radical
movements do not permit maintenance of exist-
ing systems and processes, but require new
patterns of behaviour, and present ‘frame-break-
ing changes’ (Tushman, Newman and Romanelli,
1986).
Theoretical foundations
Changes on the radical trajectory are best
elaborated by employing two theoretical lenses,
institutional theory (DiMaggio and Powell, 1983)
and resource dependence theory (Pfeffer and
Salancik, 1978). The two perspectives offer a
compelling explanation of how organizations
change in turbulent times. Both theories empha-
size the importance of environmental pressures
upon organizations. Organizational behaviour is
externally influenced by ‘the context in which the
organization is embedded’ (Pfeffer and Salancik,
1978, p. 39). However, institutional theory
focuses on conformity with institutional norms
and acceptance of imposed behaviour, whereas
resource dependence theory stresses a more active
organizational approach in adapting to environ-
mental turbulence (see Oliver, 1991).
Institutional perspective
The institutional perspective within organization
theory focuses on how organizations, through the
process of adaptation, conform to the norms and
values incorporated in their environments (Di-
Maggio and Powell, 1983; Meyer and Rowan,
1977; Rowan, 1982). This theory assumes that
organizations are embedded in institutional en-
vironments that provide organizations with sup-
port and legitimacy, affecting their structure,
practice and processes (Scott and Meyer, 1991).
As such, the institutional framework has often
been criticized for portraying organizations as
passive recipients of change (Ruef and Scott,
1998) and for an overemphasis on isomorphic or
convergent change processes (Scott, 2001).
More recently, institutional theorists have
focused on understanding various issues of non-
isomorphic organizational change. For example,
Greenwood and Hinings (1996) have discussed
the contextual pressures that constrain organiza-
tional change. In this vein, D’Aunno, Succi and
Alexander (2000) have analysed market and
institutional forces that influence divergent
change. Several other studies have focused on
the role of agency in examining institutional
change. For example, Seo and Creed (2002) have
made an attempt to reconcile institutional em-
beddedness and transformational agency in
institutional change, while Townley (2002b) has
highlighted change agents and their power in
shaping the character of change in the public
sector. Furthermore, institutional scholars have
emphasized the process of institutional change.
Diffusion and legitimation of new norms and
values have been theorized by Tolbert and
Zucker (1996) and more recently explored by
Greenwood, Suddaby and Hinings (2002) in
examining institutional change in professional
organizations.
Within the institutional framework, new orga-
nizational forms evolve through a process of
adaptation and incorporation of different
practices into an organizational system (Scott,
1991). Radical transformations, however, can
have dramatic and sometimes destructive con-
294 L. Erakovic and M. Wilson
To continue reading
Request your trial