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Organizational Crisis, Adaptation and Innovation

in Israel’s Nonprofit Organizations: A Learning Approach

RITA S. MANO

Department of Human Services

University of Haifa, Haifa 31905, Israel

Phone: +972-4-8249180; Fax: +972-9-8249282

e-mail: ritamano@research.haifa.ac.il

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Organizational Crisis, Adaptation and Innovation

in Israel’s Nonprofit Organizations: A Learning Approach

Nonprofit organizations (hereafter NPO) must compete for access to scarce resources and rely

on constantly and proactively assessing environmental influences, and reacting quickly in

accordance to stakeholders’ expectations (Walshe, Harvey, Hyde & Pandit, 2004; Seth,

Maher & Forster, 2006; Medley & Akan. 2008). Proactive adjustment to environmental

turbulence requires that proper channels for adaptation and innovation are developed.

Organizational innovation (hereafter OI) is generally defined as the generation and

implementation of a management practice, process, structure or technique that is new to the

state of the art intended to further an organizational goal (Birkinshaw, Hamel & Mol, 2008).

By contrast, organizational adaptation (hereafter OA) refers to the strategies that enable

operating in synchronicity with the environment that may or may not be related to innovation

(Balser & McKlusky, 2005; Seth, Maher & Forster, 2006).

Indeed, while it is clear that both OA and OI reflect the need for better rationalization of

organizational processes to fit to changing circumstances faster and more efficiently, OA and OI

represent, nevertheless, different aspects of performance; introducing technology based systems for

example leading to innovation does not necessarily enhance adaptation which addresses the

institutional aspects of NPO (Herman & Renz, 2004; Alexander, 2003; Werther & Berman, 2001).

As a result, organizations though, innovate only as a part of the complex social process of

interpreting and acting towards the achievement of organizational goals which is what adaptation

relates to (McCabe, 2002:59).

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The occurrence of a past crisis is conducive to “corrective” and future oriented organizational

responses. As such, the occurrence of a crisis offers a path for increased learning shaping the

organizational potential to OA and OI. It is suggested here that the occurrence of a crisis in the past

(financial, organizational restructuring or changes in the institutional environment) initiate a

learning process, that along with an appropriate organizational configuration can influence OA and

OI, and hence, increase the potential of survival in Israel’s NPO (Durst & Newell, 2001; Schmidt,

1993). NPO that are structurally appropriate for tackling turbulent environmental conditions in

terms of learning from past failures, will ultimately be better able to, and more likely to withstand

adverse circumstances in NPO (Bargal & Schmid, 1992; Galaskiewicz & Bielfeld, 2000; Brayson,

Gibbons & Shaye 2001).

THEORY

Organizational crises occur fairly often now, when NPO are exposed to an irregular situation such

as; reduced budgets, increased competition from non-profit and for-profit organizations, or reduced

institutional support, (Werther & Berman, 2001; Medley & Akan. 2008; Mellahi & Wilkinson,

2004) thus, necessitating performance under financial constraints (Galaskiewicz & Bielfeld, 2000).

These constraints have been experienced in different ways and different degrees among Israeli NPO.

For some organizations, the close down was inevitable for other organizations that were very close

to a formal termination but somehow survived. The occurrence of crisis induced the need for a

deeper understanding which led to the re-evaluation of the vision, values, goals and principles

(Medley & Akan, 2008) the re-organization of management processes and labor force,

(Bezmalinovic Dhebar & Stokes, 2008) or the introduction of a new organizational culture (McCabe,

2002).

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Increasing the degree of OA and OI proved to be a central aspect in attaining a higher leverage

for organizational competiveness (Birkinshaw, Hamel & Mol, 2008, p.826). Indeed, according

to Osborne and Flynn (1997), innovative and adaptable NPO that are “extrovert” and

constantly seeking external opportunities for interactive communication with outside sources

and agents are performing better, whereas non-innovative and non-adaptable organizations

tend to become defensive over time. Not allowing new ideas to percolate the system decreases

the potential development in emerging fields, and hence, NPO become more liable to fail

(Richardson, 1995; Mordaunt, & Otto, 2004). To improve the level of OI and OA, NPO take a

proactive orientation to mitigate the likelihood of failure (Levinthal, 1997), and thus reinforce

survivability. To enable the occurrence of proactive orientation, NPO must adhere to: (a)

learning from past crises (Millar & Heath, 2003; Mordaunt & Otto, 2004) and (b) enable

structural configurations conducive to learning (Stone, Bigelow & Crittenden, 1999; Schmid,

,1992; 1993; Werther & Berman, 2001).

Learning can seriously improve OA and OI. Learning theories relate to the ability to change as

an intangible asset. An organization that ‘learns’ is more open to growth and increased ability

to survive environmental threats, i.e. organizations need to learn from failures, both present and

past; learning is thus an exploration, a search for hidden aspects of past experiences and for

new possibilities (Weick, 1979; Watkins & Bazeman, 2003; Turner & Toft, 2006).

According to Argyris (1985), organizational learning is a process involving the detection and

correction of error. The error might be inefficiency in a subsystem (such as misunderstanding

between departments), or in the relationship with the external environment (e.g. failing to

secure sufficient resources for production). While single-loop (low-level) learning (Argyris &

Schon, 1996) enables gaining information to stabilize and maintain existing systems, double-

loop (high-level) learning goes deeper to examine organisational norms and structures

(Marqudat, 1996: 38). With double-loop learning, the organization learns from previous

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experiences such as the occurrence of crises, and according to Garvin (1994), the ability to

assess previous successes and failures and to capitalize on the knowledge gained through

learning from past experiences (Luscher & Lewis, 2008) enhances OI and increases the

organisational ability to OA (Kontoghiorges & Hanse, 2004).

Indeed, crisis related events have been shown to be of significance in improving the potential

to adapt; crises often derive from unsuccessful coping with organizational changes and can

trigger the re-evaluation and reorganization of values and principles, highlight the importance

of causes and outcomes of previous events in for profit (Mitroff et al, 1996) and non profit

settings (Estes & Alford, 1990). A “double-loop” learning process raises questions about the

validity of previous actions, and results and considers the role of structural configurations in

organization processes (Elliott & Smith, 2006) by either reinforcing past behaviour (slowing

learning), or facilitating the assimilation of new patterns (enhancing learning). As a result,

learning theory clearly states that structures can not only shape present actions, but future

outcomes as well (Weick, 1979). Similarly, crisis theories adhere to the importance of

structural configurations in both the detection of crisis and success in coping with it (e.g.

Richardson, 1993; 1995; Mitroff, Pearson, & Harrington, 1996; Schoichet, 1998).

Studies have indeed shown that organizational design and structure are an important factor in

mitigating the impact of the crisis (Carley & Harrald, 1997) and/or limit managers’

effectiveness (Turner & Toft, 2006; Walshe, Harvey, Hyde & Pandit, 2004). As a result,

crisis-prepared organizations that are more probable to adapt flexible structures become more

able to avoid failures, and hence, enhance OI and OA in NPO (Slappendel, 1996; Obsborne &

Flynn., 1997; Shin & McClomb, 1998). As a result, the occurrence of a crisis is considered as a

turning-point between past failures and future restructuring (Turner & Toft, 2006; Walshe,

Harvey, Hyde & Pandit, 2004).

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SUMMARY AND DISCUSSION

This study introduces the notion that the occurrence of a crisis in the past serves as a learning

tool towards increased innovation and adaptation. Drawing upon a time-contingent perspective,

past and present organizational aspects are combined to show it is possible to influence the

future performance in NPO by diminishing the degree of threat imposed by the environment of

NPO (Shoichet, 1998; Sine, Mitsuhashi & Kirsch, 2006; Casciaro & Piskorski, 2005). The

notion promoted here is that combining crisis and learning theories provides a linkage between

three time-related aspects of the organizational "state of affairs” in NPO: (a) the "past"

occurrence of crisis, (b) the "present" structural configuration and (c) the "future outcomes" OI

and OA.

In Israel, as in other countries, budgets have been considerably reduced. Crises in NPO often

reflect the impact of such budget cutbacks and changes in the institutional environment, either

through policy and legislation, or through financial restrictions. Crises also indicate that the

competition between service carriers is increasing necessitating proactive adjustments in order

for NPO to survive. Thus, it is possible that experience of NPO crises in the past could lead to

a double-loop learning process that teaches NPO how to handle processes towards increased

adaptation and innovation.

To do so, first theories of performance in NPO should be reformulated and assessed as to the

way NPO define performance and success (Baruch & Romelho, 2006). The occurrence of crisis

in NPO often signals gaps between stakeholders' expectations about the essence of social and

financial goals. Second, attention should be placed to the extent that NPO are still dependent on

the provision of public funds. Forcing NPO to cope with imposed changes stresses the

importance of a crisis occurrence and the facilitation of the learning process through properly

inductive structural configurations.

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Practicing in NPO makes it necessary to be able to identify the sources and consequences of

organizational adaptation and innovation, and to take under consideration how learning

practices and structural constraints fit work practices and the provision of social services. This

learning awareness may necessitate a shift in focus from the traditional human service practices

into the area of organizing and managing non profit welfare agencies. To many Israeli NPO,

the links discussed here signify the need to cease viewing the future as stable or at least

predictable as in the past. It means that constant innovation and adaptation strategies are

requested to be able to cope with changes in their task and institutional environments.

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