Formalization and organicity: managerial controls in the organization of tensions

Abstract

This article analyses the dynamic tension between formal and organic managerial controls as an antecedent of organizational resilience in cooperatives. Under the assumption of complementarity between the theory of social systems (TSS) and the theory of communicative action (TCA), we model the dynamics of managerial controls by reference to the notion of a cusp catastrophe. The distinctive governance principles that characterize the cooperative form are identified as theoretically generative, thereby shaping the meaning of organicity, legitimacy and communicative rationality. The cusp technique was applied to archival research data obtained from 569 Brazilian cooperatives in the context of a panarchy framework. A multilevel analysis revealed that the relationship between mechanicity and organicity exhibits an inverted U-shaped pattern. At the extremes of the panarchical structure (i.e. the macro and micro levels), organicity predominates as a resilience factor, whereas at the meso level, a balance between these two factors must be established. In organizations that lack institutional support, mechanicity is detrimental (negative coefficient), thereby reversing the original proposition. The results of this research demonstrate that the effectiveness of instrumental rationality (TSS) is contingent on the presence of communicative rationality (TCA) and that hierarchical support, which is evident in the panarchical remember mechanism, facilitates the employment of formal strategies that would otherwise be counterproductive in isolated organizations. The results of this research suggest that investments in relational capital, team stability, occupational diversity and horizontal communication should precede the expansion of formal controls. Cooperative centrals that impose uniform formalization standards on affiliated cooperatives risk giving rise to coercive bureaucracy. Variance-based early warning signals provide prudential monitoring of the cooperative credit system. The findings of this research demonstrate that cooperative identity is maintained through scale-differentiated governance mechanisms, thus suggesting that regulatory policies that impose uniform requirements may undermine the democratic and participatory foundations of cooperative organizations. These findings reconceptualize the effective paradox described by Chenhall and Morris (1995) as a phenomenon that is contingent on the relevant organizational level and institutional support and demonstrate the applicability of the cusp model in the context of longitudinal analyses of managerial controls.