Sunday, August 21, 2011

Homes for Africans: How reasonability helps understand social institutions

I'm going to tell a story about David, a smart university graduate who volunteered to help build homes in Africa (and now a CEO of his own firm). This story helps elaborate my own stuff on the role of 'discursive institutional work' in creating, maintaining, and disrupting the prevailing social order.

Warning: This post marks the first instance of explicit promotion of my own work on this blog! 

Selling Houses in Africa
While working at Imperial College London, I met an entrepreneur running an IT company, whom I had to give a guest lecture. While we were chatting, he told me had gone to Africa immediately after he had graduated (from Cambridge) to work as a volunteer. He got involved in a big charity building proper houses for the poor in developing countries, using money and volunteer workers from the West. In really poor countries, 40% of energy is consumed by households, a lot of it goes into heating during winter nights because insulation is terrible. The guy was pretty smart, and he soon figured out that the scale of their activities was non-existing. If he could delegate the house-building to entrepreneurial Africans who would do it for profit, they could leverage the donated money and accomplish a substantive improvement. Moreover, selling subsidized houses would allocate the resources effectively for those families most willing to invest (with safeguards in place to make sure the new tenants were not wealthy). Because continued flow of the Western money was not guaranteed, a for-profit-philanthropy hybrid would lead to a more sustained impact. Great idea, so lets do it?

Not so fast. In the 90s most philantrophists were not overly excited about turning volunteer activities into a franchised business. They hated the idea. The reasoning was pretty straight-forward: entrepreneurs making money out of the poor Africans was wrong. Moreover, because nobody else was doing it, it had to be a bad idea (this is a common element in practical reasoning and probably a very good rule of thumb usually). Today, of course the salient reasoning would be quite different: creating entrepreneurship in an African country is a great way to boost its economy and the well-being of the people. The idea of subsidizing entrepreneurship as a form of philanthropy had not yet been institutionalized, the business plan was "rationally speaking" as good in the 90s as it is today, but the plan did not correspond to an existing social institution. Anyhow, during his 3-year stay in Malawi, the charity became the country's largest home builder.

After Africa and some other charity work, David was dead-set on becoming an entrepreneur. He went to do the MBA at Imperial and got involved into a venture while there. He is now the CEO of his IT firm, a portfolio company of the Imperial Innovations.

Social Institutions
Organization theory is hugely occupied with social institutions -- basically, a term usable for any durable, widespread, observable regularities in behavior. Institutions can be anything: the ubiquitous quality management systems, the tenure system in universities, sales commissions, whatever. Why such preoccupation? Because a lot of behaviors and other stuff taking place in companies (and more broadly in industries and countries) does not seem to result solely from rational decision making or technical concerns. If we can explain rational/purposeful decisions in organizations and the social institutions around those decisions then we have a pretty good understanding of what is going on.

Reasonability and Institutions
The notion of 'institutional work' captures the work done by actors, such as David, to create, maintain, or disrupt social institutions. This theory approach is founded on the notion that practices, entities, or social arrangements do not 'sell themselves' to customers, potential employees, government regulators, or the media. For example, when someone seeks to shape the attitudes or regulations concerning immigration or social welfare they are engaging in 'institutional work'. Institutional work is distinct from 'selling' because acceptability ('legitimacy') gained through institutional work tends to help everyone equally. There tends to be a freeriding problem.

This is a topic of a work (see below) I did with Saku Mantere and Eero Vaara. Our commentary suggests that the theory on institutional work -- by focusing what is done or said rather than the cultural context in which things are said -- has tended to ignore the discursively articulated reasoning around the social institutions in question. Thus:
We argue that reasonability plays at least three crucial roles in institutional work: It provides the main contextual constraint of institutional work, its major outcome as well as the key trigger for actors to engage in it.
These are very basic observations, but they are things we should at least control for when explaining why some actors manage to promote novel social order while others fail. These observations also help explain why discourse matters a lot when firms try to shape their industries or when managers try to change the ways things are done inside their own firm. Institutional work involves the creation and circulation of credible justifications to social institutions. On a meta level, the broader background assumptions (propagated by the Media) define how things can be justified in the first place -- for example, what arguments can be used to defend or attack immigration (an unfortunately hot topic in our increasingly xenophobic Finland).
1. Reasoning as a constraint: Any claims put forth by actors need to be justifiable with acceptable reasons, must have some implications that recipients comprehend, and need to avoid clearly acceptable reasons for their refutation.
For David, the salient beliefs donors and volunteers used to reason about philanthropy mattered a lot. The evaluation criteria and beliefs African regulators used to reason of foreign organizations would also define the conclusions these regulators would draw should the organization experiment with alternative approaches. What matters is how premises (the organization is now doing X) leads to conclusions (the organization is "not philanthropic") in reasoning, not just whether the actual or expected measurable outcomes from X are desirable.
2. Reasoning as an outcome: When actors engage in discursive work, they define and refine the generally accepted conditions for beliefs—the reasons why actors ought to believe one thing or another.

If David would engage in successful institutional work and shape how philanthropists perceive the franchising organization, it would likely lead to a broader change in how they reason -- what type of conclusions they draw from any philanthropic 'business model' that involves local entrepreneurship. Institutional work would make employment and economic growth more salient topics  to reason about.

3. Reasoning as a trigger: When new events and outcomes contradict the existing, accepted linkages between premises and conclusions (the established way of reasoning), institutions can only remain reasonable and legitimate if 'maintenance work' again makes them reasonable. We gave the example of the financial crisis in 2007, which questioned the very reasonability of the existing financial order and the premises on which it had been considered legitimate. As always, various experts were ready to provide reasoning to support the system.

The current story is the Euro crisis. Although the common currency has had many reasonable justifications going for it, the near-default of Greece and the continued crisis with Ireland, Portugal, Spain, and now even Italy and France, is suggesting that the reasoning behind Euro may have been flawed. To retain its legitimacy, the proponents of Euro must engage in what we call 'discursive maintenance work' that diminishes criticism and fears raised by recent events and provides solid line of reasoning to support Euro, set of reasons that must be immune to the recent evidence against the viability of Euro. 
We also pose some research questions in the rest of our brief paper that relate to the role of various actors (such as professions) in creating and maintaining reasonability of practices and arrangements. 

To say some some behavior has reasonability means two different things, which I here call weak and strong reasonability (terms I conveniently invented tonight). Weak reasonability means we are able to provide reasons for that behavior; we can comprehend and evaluate the behavior because there are some reasons for it. A merger lacks reasonability if we cannot understand what the purpose of it is, or how it will change things (to the better or the worse). Strong reasonability means that the justifications are broadly acceptable and aligned with the broader beliefs and interests of the actors involved. A merger may be weakly reasonabile if those who decided on it had clear goals, but still lack strong reasonability (or be 'unreasonable') if reasons exist to discredit the justifications. For example, if the costs of the merger exceed the benefits provided by its goals or if there reasons exist to assume that the goals of the merger cannot be accomplished.

In our paper we say that reasonability is "the existence of acceptable justifying reasons for beliefs and practices". It is not clear that we (or at least I) had in mind the first, weak, sense of reasonability. Social institutions may be sustained to the extent they are weakly reasonable, they can be justified in some comprehensive manner by someone. That does not mean that they are strongly reasonable, that there wouldn't be a plausible way to discredit the social institution. After all, the U.S. has a law about debt ceiling that is justified by some pretty good arguments. However, in a broader sense the law is really bad and even the justifications do not really stand to closer scrutiny. The debt ceiling is a weakly reasonable arrangement (social institution, if you will), but it does not really seem to be strongly reasonable.

The story of our paper
The piece we got published on reasonability and institutional work is not really an article. It is an invited commentary in a special issue. Journal of Management Inquiry was publishing a special issue on Institutional Work -- a new research program that seeks to understand how actors create, maintain, and disrupt social institutions (mainly, how they shape the acceptability of things such as the franchising model for philanthropic construction company). The special issue had a big 'agenda setting' paper by Lawrence, Suddaby & Leca, and some invited pieces by various academics. Because the comments were mainly from Americans, the editor thought we could do a more European type of thing with Saku & Eero.

I knew immediately I wanted to write on reasoning. Luckily Saku was keen on this as well, bringing in the notion of linguistic division of labor (Saku is more knowledgeable on Hilary Putnam, whom I've just read a bit recently). While Eero had his own brilliant ideas as well, we needed to retain some focus so he concentrated on just making our initial ideas much better.We didn't have too much time to fine-tune the commentary but I am pretty pleased about how it turned out. Now I just need to finish writing the proper article on reasoning & social institutions.

The most imporant thing: Reference
Schildt, H.A., Mantere, S., Vaara, E. 2011. Reasonability and the Linguistic Division of Labor in Institutional Work. Journal of Management Inquiry. March 2011, Vol. 20: 82-86.

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