How the Iron Cage Evolves: From Accounting to Accountability As the Content of Rationalization

The process of rationalization is usually portrayed as a shift from value-driven or intuitive decision-making to calculative means-ends relationships whose efficiency is to be optimized (Weber 1905). Organizational sociologists have used this image of rationalization as a trope with dramatic properties: “disenchanting,” dehumanizing, and in conflict with a more social orientation of organizations. Departing from this ‘grand’ conception, we view rationalization as a social mechanism associated with multiple processes and competing contents. We argue that there can be different contents for the same process of rationalization, given that rationalization as a process relies on what is considered rational and methodical at the time. The presence of different bureaucratizing pressures over time, and the consequent adoption of purportedly rational responses, may make organizations appear inert, as the image of the iron cage implies. But, if seen as a process, rationalization is ultimately a fluid concept, and rational organizations are dynamic as well. Rather than seeing the iron cage as a static organizational form, we ask: How does the iron cage evolve?

We study this question in the context of increasing professionalism and rationalization in the U.S. nonprofit sector. The demand for managerial practices, drawn largely from the business world, was salient ten years ago (Hwang and Powell 2009). The adoption of rational practices, such as strategically setting and evaluating goals, defining mission statements, and documenting and justifying activities, was particularly carried by professionals in the field. Calls for efficiency and professionalism continue, but new challenges for nonprofit leaders have emerged. Collaboration and communication are high on the agenda for creating a more open, versatile sector that can respond swiftly to policy changes, fiscal strain, and pressing social issues. The idea of opening up the organization to society, however, is in contradiction to previous attempts to turn nonprofits into efficient organizations with sophisticated inward-facing planning and managerial zest. This context provides a compelling setting to study how accountability could supersede accounting as content of rationalization.

We show the fluid meanings of rationalization using rare longitudinal survey and interview data on 175 randomly sampled nonprofit organizations in the San Francisco Bay Area. Whereas the more rational nonprofits from early in the 21st century were managerial and inward-looking, the rational nonprofits of 2015 are collaborative, financially transparent, and outcome-oriented. We find that the factors that explained managerialism ten years ago, such as professional staff and foundation influence, do not account for why new rational practices are adopted today. Even as technological and institutional transformations remain potent drivers of change, internal structures make organizations more susceptible to absorb and modify rational ideas. The increased receptivity to new forms of rationalization is not mere path dependence. Indeed, we find that the adoption of rational practices, such as strategic planning, in the previous decade is the strongest predictor of organizational collaboration today. From these findings we stress that internal organizational practices may increase receptivity to shifts in the external institutional environment, and organizational changes can lead to feedback loops in the wider environment.