VDQS Collioure, 29-31 Mai 2008
Impact of Change on Organizational Legitimacy: Application to the Bulgarian Wine Sector Sylvaine Castellano
[email protected] Olga Ivanova
[email protected] EDHEC Business School 393 Promenade des Anglais, BP3116 Nice, France Tel: 00 33 (0)4 03 18 99 66 Fax: 00 33 (0)4 93 83 08 10 Abstract Organizational legitimacy can be viewed as conformity to broadly-accepted standards, or institutions. The main question we are looking to answer with the present study is what happens if these standards change? Which legitimacy strategy will organizations adopt? This paper analyzes how institutional changes affect organizational strategies. A framework was designed to take into consideration the types of changes based on the different levels of the institutional environment of a company. A typology of organizational legitimacy strategies was developed based on a qualitative study carried out on the Bulgarian wine sector. The later represents the perfect setting for the present study since both the country as well as the industry encountered major transformations over the last several years. The results show that the type of strategy adopted depends on the type of change as well as the specific organizational characteristics such as organizational size, and also the management style initiated by the CEO. First, regarding their regulatory environment, organizations respond to change either by conforming to the new law, or by creating their own standards in order to conform also to standards established on a global basis. Furthermore, we found that institutional change influences the type of varietals grown. As for the normative aspect, organizations adopt an ‘inside-out strategy’, hence creating the basis for local reputation before expanding and looking for a global presence. Finally, in the context of institutional change, organizations are looking for the most ‘embedded’ anchor-point, represented by the cognitive dimension of legitimacy. Key words: organizational legitimacy, institutional change, strategy, wine.
INTRODUCTION Gaining legitimacy is an important issue for new organizations (Stinchcombe 1965, Singh, Tucker and House 1986, Shepherd and Zacharakis 2003, Delmar and Shane 2004), organizations that went under transformation due to complex institutional change (Dacin, Goodstein and Scott 2002), and organizations trying to penetrate new markets due to liability of foreignness (Zaheer 1995). Indeed, legitimacy represents an evaluation of the organizational actions given by external constituencies (DiMaggio and Powell 1983). The later make an assessment whether the activities of the organization conform to some regulative, normative and cultural-cognitive systems. The legitimacy concept exists on the border line between the organization and the environment, in which it evolves (Baum and Rowley 2005). As a social system, the environment is multifaceted and comprised of several layers. On each level, stakeholders, sometimes with conflicting interest, confer legitimacy. In addition, the regulative, normative, cultural-cognitive, and industry standards change over time. Thus, some organizations face the challenge of which legitimacy strategy to choose when faced with stakeholders’ conflicting interests and change. Organizations operating in economies in transition represent a typical example of companies that face this double challenge. The transition from centrally planned to open market economy is a process characterized with a profound institutional change that affects most of the environmental layers. Besides the process of internal change, the organizations in economies in transition face the challenge of globalization, which introduces additional forces of new competitive dynamics, especially in some traditional industries. Thus, facing the environmental uncertainty characterized with changing institutional infrastructure, one of the primary goals of those organizations is to gain legitimacy and demonstrate that their activities are proper, desirable and appropriate (Suchman 1995). Thus, the main research question of this study is: Which strategies do organizations adopt to gain legitimacy when faced with a changing system of rules, norms, values, and beliefs? We explored this framework in the context of the Bulgarian wine industry. We found common legitimacy strategies on some dimensions (layers of the change). But overall, depending on the four pillars of legitimacy, the mix of strategies varies across organizations. A typology of legitimacy strategies adopted by organizations facing institutional change was developed. 1. THEORETICAL SETTING Legitimacy is a concept created and existing on the border line between the organization and the socio-cultural environment, in which it exists (Baum and Rowey 2003: 6). Legitimacy implies that the organization is an open system (Katz and Khan 1966). It influences the environment (resource dependency
approach as of Pfeffer and Salancik 1978) and it is influenced (institutional approach) by the environment (DiMaggio and Powell 1983, Scott 2003: 125). Legitimacy is a resource, which organizations need in order to gain an access to other environmental resources (Pfeffer and Salancik 1978). The open system approach emphasizes the importance of the environment by looking at the interdependence and ties that relate the organization to elements and flows surrounding them (Scott 2003: 101). The challenge consists in identifying the relevant layers of the environment to take into consideration when the organizations draw their legitimacy strategies. 1.1 Organizational Legitimacy Organizational legitimacy represents the evaluation of an organization by a social system (Deephouse and Carter 2005). It is conferred by stakeholders who assess an organization’s conformity to specific standards or models (Ruef and Scott 1998: 880). “Legitimacy is possessed objectively, yet created subjectively” (Suchman 1995: 574). Legitimacy is usually defined as an “anchorpoint of vastly expanded theoretical apparatus addressing the normative and cognitive forces that constraint, construct and empower organizational actors” (Suchman, 1995). In the management literature, two main approaches to legitimacy exist – strategic and institutional (Suchman 1995, Elsbach 1994). The strategic approach views legitimacy as operational resource that organizations acquire from the social environment and thereafter use to gain other resources (Suchman 1995, Ashforth and Gibbs 1990, Dowling and Pfeffer 1975). On the other hand, the institutional perspective (DiMaggio and Powell 1983, Meyer and Rowan 1991, Powell and DiMaggio 1991) adopts a more passive view on organizations – they are viewed as being dependent on the social environment and that the managerial decisions are being constructed by widely accepted belief system (Suchman 1995). Herein, for the purpose of this study we adopted an integrative approach to legitimacy combining the two perspectives – institutional and strategic introduced by Suchman (1995: 574): Legitimacy is a generalized perception or assumption that the actions of an entity are desirable, proper, or appropriate within some socially constructed system of norms, values, beliefs, and definitions. 1.2 Types of Legitimacy In the management literature, there is a diverse typology of legitimacy depending on the context examined and the particular research problem addressed (Suchman 1995, Higgins and Gulati 2006, Dacin, Oliver and Roy 2007, among others). In fact, institutions as sources of legitimacy determine the types of legitimacy conferred. Institutions are “composed of cultural-cognitive, normative, and regulative elements that together with associated activities and resources, provide stability and meaning to social life” (Scott 2001: 48). Thus,
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Scott (2001: 61) based on the three pillars of institutions, discussed three main types of legitimacy: regulatory, normative and cognitive. Zimmerman and Zeitz (2002) added a forth type – legitimacy coming from the industry. 1.2.1 Regulatory Legitimacy Regulatory legitimacy is conformity to regulatory standards, rules and laws (Scott 2003: 136, Zimmerman and Zeitz 2002). In general, regulatory bodies (governments, trade associations, professional organizations) set “explicit regulative processes” (Scott 1995: 35), which include rules, monitoring and sanctions in case of non conformity (Scott 1995: 35, Zimmerman and Zeitz 2002). Thus, the legal rules and regulations are the source of regulatory legitimacy and the government bodies that grant it are state agencies on different levels – regional, local, national and international (Ruef and Scott 1998, Baum and Oliver 1991). Previous studies show that regulatory legitimacy is the first type that organizations try to acquire in order to gain legitimacy. For instance, Delmar and Shane (2004) found out that new ventures establishing a legal entity have a higher likelihood of survival. 1.2.2 Normative Legitimacy Normative legitimacy is compliance to broadly-accepted norms and values (Scott 2003: 136). Scott (2001: 54and55) defines values as “conceptions of the desirable” associated with “standards to each existing structures or behaviors can be compared with.” Norms contain the notions of “how things should be done” (Scott 2001: 54and55). Moreover, the normative component places emphasis on “normative rules that introduce a prescriptive, evaluative, and obligatory dimension into social life (Scott 1995: 37). Organizations have to apply not only generalized societal norms but also a variety of standards that have originated in different professional fields (DiMaggio and Powell 1983). Often, the sources of normative legitimacy is the public opinion (expert and non-expert) (Deephouse and Carter 2005), and professional associations (Ruef and Scott 1998). From a normative perspective, Kostova and Zaheer (1999) mentioned the challenge of gaining legitimacy in the context of MNEs (multi-national enterprises) operating in a multi-layer environment. 1.2.3 Cognitive Legitimacy Cognitive legitimacy is conformity to widely-held cultural beliefs and takenfor-granted practices (Scott 2001, Zimmerman and Zeitz 2002, Westphal, Gulati and Shortell 1997). According to Ruef and Scott (1998), “cognitive elements are: rules that specify what types of actors allow to exist, what structural features they
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exhibit, what procedures they can follow, and what meanings are associated with these actions.” The sources of cultural-cognitive legitimacy are the taken-for-granted assumptions underling the social system (Scott 2001: 52, Ruef and Scott 1998). According to Suchman (1995), the cultural-cognitive dimension of legitimacy is “the most subtle and the most powerful” as well as the most difficult to obtain and manipulate. 1.2.4 Legitimacy Derived from the Industry Industry legitimacy is conformity to practices derived from the industry (Zimmerman and Zeitz 2002). In most of the cases an overlap exists between the broader societal and the industry dimensions of legitimacy. However, legitimacy derived from the industry is theoretically justified when different sources of legitimacy are in conflict when assessing the congruence of an organization with its environment. For example, for organizations evolving in globalized industries, there might be a misalignment between local standards and standards set by the industry on an international level. Furthermore, industries vary on their legitimacy level – for example, a new industry provides its member companies with little legitimacy due to lack of history, no established standards, and novel practices (Zimmerman and Zeitz 2002). As Kostova and Zaheer (1999: 67) mentioned the “different types of legitimacy reflect the different types of institutions operating in the environment.” Hence, the challenge for organizations to select which environment will confer the best mix of legitimacy. 1.3 Levels of Environment Organizations are linked to the environment through complex and dynamic relationships (Scott 2003). The concept of “social system” is introduced to describe the surroundings of an organization. According to Zimmerman and Zeitz (2002), the “social system constitutes the environment in which the organization operates and with which it needs to demonstrate consistency.” The authors introduced several ways to look at the environmental levels. The most comprehensive way of viewing the layers of the environment for the purpose of this study is to look at it as being comprised of global (international), national, regional and local levels (Zimmerman and Zeitz 2002). The industry itself is an important environment for many companies (Zimmerman and Zeitz 2002). Different stakeholders belonging to each level of the environment confer different types of legitimacy when assessing the organization’s adherence to requirements of the regulatory, normative, cognitive and industry standards. In general, the focal organization faces challenges of how to prioritize the institutions functioning on different environmental levels. Moreover, layers of the environment change over time and across places (Scott 2001; 59 and 60).
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Even though, institutions defining/structuring the institutional environment of organizations imply some level of stability and persistence, they are also subject to change (Scott 2001: 48, Dowling and Pfeffer 1975). 1.4 Institutional Change Institutions change over time, which creates sources of pressure on organizations and ultimately motivates organizations to change (Dacin, Goodstein and Scott 2002, Dowling and Pfeffer 1975). From a theoretical perspective, several sources can explain institutional change. According to Leblebici et al. (1991), “exogenous elements can penetrate the institutionalized context and produce change in organizational practices.” In example, change of political regime, economic and social processes (Galvin 2002). The source of change can also be endogenous to the organizational field, such as the emergence and decline of powerful actors or activities (Galvin 2002). Moreover, the change processes can be both incremental and discontinuous (Scott 2001: 48), and affect in different ways the different layers of the environment. Thus, one question for organizations concerns their legitimacy strategies under the circumstances of institutional change. 1.5 Legitimacy Strategies In general, organizations operating in changing institutional environments, such as economies in transition, are trying to gain legitimacy. Based on the typology created by Dowling and Pfeffer (1975), organizations can adopt three strategies to become legitimate: (1) adapt to conform to prevailing definitions of legitimacy, (2) alter the definition of social legitimacy and, (3) become identified with legitimated symbols, values or institutions. Since organizations evolve in multi-layered environment, organizations may choose one or a mix of the above-mentioned strategies, depending on the different sources and types of legitimacy conferred. In fact, the biggest challenge for organizations consists in finding the right mix of legitimacy strategies when faced with changing system of rules, norms, values, and beliefs. 2. EMPIRICAL SETTING The Bulgarian wine sector is an appropriate setting to test the impact of institutional change on organizational legitimacy strategies. In Bulgaria, change occurs on several layers of the institutional environment in which the wine organizations operate. Firstly, the socio-political transition from centrally planned to open market economy represents a profound institutional change affecting all levels of the Bulgarian environment. Therefore, some industries existed for centuries but the institutional change created new standards and rules, hence creating new types and sources of legitimacy. Secondly, major changes occur on the level of the global wine industry (new players, globalization, new demand),
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which also represent a source of institutional change, consequently impacting organizational legitimacy. Thus, organizations - from state-owned companies to young entrepreneurial start-ups – struggle to gain legitimacy on local, national and international level. 2.1 The Wine Industry The number, diversity, and inconsistency of authorities empowered to confer legitimacy greatly affect Bulgarian wine growers and wine producers when looking for legitimacy (Scott 2001). With varying degrees of expertise and influence on the overall level of legitimacy (Ruef and Scott 1998), constituencies confer different types of legitimacy by assessing one of the different dimensions of the organization: (1) Research and Development; (2) Wine growing; (3) Wine making; (4) Types of wine, and; (5) Wine marketing. Furthermore, the global wine sector went through major changes that affected organizational decisions. Table 1 shows the changes affecting the wine sector on a worldwide basis. Economies in transition are characterized with the coexistence of both traditional and new institutions yet to be established and eventually adopted on a local level. Hence, organizations evolving in such markets are facing a challenge when considering their legitimacy due to the complexity and diversity of legitimacy sources evolving on different layers of the environment. 2.2 The Wine Sector in Bulgaria According to the Annual Report of the NVWC (National Vine and Wine Chamber) for 2005, the Bulgarian wine sector represented 23 600 registered grape growers and wine producers (221 wine producers and 23379 grape growers). In the last years, there was a decrease in the vineyard (-25% since 2004 according to the Register of Vineyards in Bulgaria) and an increase of the volume of wine produced (+ 50% between 2002 and 2005, NVWN), showing a trend towards increased output. Thus, table wines represented 83% of the volume in 2005, whereas the production of Regional wines and Quality wines dropped tremendously (-40% and -50% respectively). The export of Bulgarian wines between 2001 and 2005 increased by nearly 40%, especially bottled wines (+60%). At the same time, exports were characterized by a high volatility between countries, with an increased share for Russia and some new developed countries – Vietnam, for instance – and a drop for countries, such as the U.S. and Great Britain (NVWC).
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TABLE 1: Tradition and Innovation Dimensions in the Wine Industry (adopted from McCarthy, Ewing-Mulligan, and Cassetari 2001). Tradition Wine type Wine region (blended wine: mix of several wine types) E.g., Saint Emilion Wine expresses a ‘terroir’ (combination of human, geographical, historical factors) Alcohol content controlled
Efficiency
Vitis Vinifera (Vines) Harvest
Innovation Varietal (single ‘cépage’) E.g., Chardonnay Wine expresses a taste E.g., Fruit
Wine free of alcohol content Extra-low alcohol content Research and Development Traditional methods prevail for New technologies prevails for controlled productivity increased productivity Wine making is an art Wine making is a science Applications limited Immediate applications Wine growing Wine regions rather small and Wine regions spread and borders limited shifting Density of plantation Free (#vines/ha) & Distance between the vines (‘ceps’) & output (hl/ha) controlled Cut controlled (eg. ; Guyot) Cut free
Hands Machines Wine making (Changing grapes into wine) “Vinification” According to local usage Free (Rushing & pressing) Wine aging Oak barrels Oak shaving Chaptalization Ration ‘Gr/L.’ of natural sugar Free (adding Controlled sugar) Wine marketing Wine closures Natural cork Synthetic corks Screw caps Vino-Seal Crown caps (Champagne) Zork Packaging Glass bottle Bag-in-Box Tag (Etiquette)
Content controlled
Free/simplified content
‘Route des vins’
Oenotourism (Wine Tourism)
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2.3 The Wine History in Bulgaria Previous research emphasized the importance of historical analysis when studying institutional change (Galvin 2002, Leblebici et al. 1991). Any current situation is partly explained by a specific context and by past actions. Studying the evolution of the Bulgarian wine history is a complex task for several reasons, among which we can mention its rich history; and also the lack of documentation. 2.3.1 The Old Thracian Times Grape growing and wine production in today’s Bulgaria is at least 3000 years old. It is said that typical Bulgarian wine varieties such as Mavrud, Misket, Gamza, or Melnik date back to these Thracian times; and form the wines of modern Bulgaria (NVWC). Wine growing continued with the Greeks, but it was the Romans who developed the Bulgarian wine industry. They brought skilled wine-makers, introduced new methods of viticulture and vilification, and selected new sites for planting vines, some of them still in use today1. 2.3.2 The Middle-Age The history of wine is, to a large extent, linked to the one of Christianity. The spread of Christianity in the 9th century in Bulgaria participated in the creation of standards in making wine. For instance, wine makers of this time were monks who, by storing their wines in the cellars of the thick walled monasteries, saw the importance of storing the wines in cool and constant temperatures1. It is during the 14th and 15th century that Bulgarian wines were traded in the regions of South-Eastern and Central Europe. Wine consumption in Bulgaria, affected during the ruling of the Ottoman Empire, however survived because of Christian traditions kept all over the country (NVWC). 2.3.3 From Liberation to Phylloxera In 1878, Bulgaria, just liberated from the Ottoman Empire, enjoyed a prosperous period of wine production. The importance of the wine and vinegrowing industry for the country was officially institutionalized the first Wine Law enacted as early as 1879. But, not long after, Phylloxera2 destroyed most of the old traditional vineyards. The Ministry of Agriculture and Trade asked Pierre Viala, a French wine expert, to try and test solutions to this problem, which he did. He further recommended for Bulgaria to produce more local varieties, such as Mavrud, Pamid, Gamza, and Miskat (NVWC).
1
www.wine-bg.com
2
Phylloxera is the name of an insect, as well as the name of the epidemic introduced inadvertently from North America that destroyed most of European vineyards between 1860 and 1890.
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2.3.4 The 20th Century During the 1920s and 1930s, the Bulgarian wine industry developed, through the system of cooperatives. This period is also characterized with the introduction of European wine types in Bulgaria – Cabernet Sauvignon and Riesling (NVWC). The wine sector turned into a state industry during the socialist era. A major part of the production was exported, mainly to USSR, and also in the Western world. The Wine Law of 1978 played an important role in establishing the country as a world wine-growing actor. After the fall of communism in 1989, all vineyards were privatized (NVWC). The Association of the Producers and Merchant of Wines and Spirits of Bulgaria (APMWSB), was established during the transition to the market economy (Geogriev 2007). Hence, the major challenge has consisted in created the framework to regulate the wine industry in Bulgaria. Therefore, when studying wine historical developments in Bulgaria, one cannot separate it from contingencies and institutions such as religion, history, politics, and sciences. 2.4 The Four Pillars of Legitimacy in the Bulgarian Wine Industry This section will consist in presenting the current situation, focusing on the major changes that affected the wine sector in Bulgaria. The country experienced changes on all levels of its institutional environment, each level containing different sources of legitimacy. 2.4.1 Regulatory environment – Basis for regulatory legitimacy In the Republic of Bulgaria, the viticulture and wine production is characterized with a high level of self-regulation (Ministry of Agriculture and Forestry and NVWC), and a sector for which the legal environment is becoming more regulated, especially with the entrance in the European Union. Both elements capture the regulatory dimension of legitimacy, and its evolvement over time. In 1999, a Wine and Spirits Act was adopted (Bulgarian State Gazette (SG) 86/1999). Aligned with the European Union wine law, it was created to stimulate the production of quality and regional wines. As a consequence, the National Vineyard and Wine Commerce (NVWC), established in 2000, replaced the APMWSB. The NVWC, a non-governmental association, represents the 67 major wine producers and wine trading companies in Bulgaria (Geogriev 2007). Its mission is to “defend and promote the professional interests of its members, and to guarantee and promote the quality, authenticity, and origin of wines”. The NVWC and its 6 regional units play a strategic role in implementing the regulations established in the wine sector in Bulgaria: “Keep record of all vine growers and wine producers; issue certificates of origin and certificates of authenticity; set up tasting committees to carry out the mandatory analyses” (NVWC).
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Since 1st of January 2007, the Republic of Bulgaria officially became part of the European Union, hence requiring further alignment between the Bulgarian and the European legal framework. Consequently, Bulgarian vine growers and wine producers have to adopt new laws and regulations regarding their industry: common organization of market in wine (1999), establishing enological practices and processes (2000), rules on controls in the wine sector (2000) among others (NVWC). 2.4.2 Globalization From all Eastern European countries, Bulgaria was the most successful in exporting its wines to the Western world – UK, Japan, Scandinavian countries. However, after the fall of the communism, and the wave of privatizations, many vineyards were abandoned, new wine types and wine styles were developed, which made it more difficult for Bulgarian wines to find their legitimacy abroad (Larousse des Vins). Worldwide competition – Basis for industry legitimacy Historically, wine making is a tradition in many countries (Italy, Spain, Portugal, France, Hungary, Germany, Bulgaria, etc.). Traditions and institutions were created, shaped, transformed over centuries. In the recent years, producers from countries where wine making was not considered to be a tradition entered the worldwide market. On an industry level, these ‘Wines from the new world’ are from the U.S., Australia, Chile, New Zealand, South Africa, Argentina, etc.; establishing new standards and institutions, representing the basis for the legitimacy derived from the industry. They may, or may not, be aligned with local standards and institutions. Hence, from an industry perspective, organizations have to determine which standards to follow. New and evolving demand – Basis for normative legitimacy Organizations have to take into consideration local and international consumers who confer normative legitimacy – non-expert public opinion (Deephouse and Carter 2005). If the number and diversity of countries producing wine is increasing, one can expect the same on the consumers’ side. Moreover, consumers’ taste and preferences evolve over time and across countries; making it more difficult for organizations to satisfy all constituencies. For instance, in the year 2000, Great Britain, a traditional consumer market, represented 20% of the Bulgarian exports of bottled wine; and Russia represented 3.3%. In 2005, Great Britain represented only 3% whereas Russia represented 60%. Furthermore, a new demand, considered as potential key consumers, has emerged in the market place. For example, the export of Bulgarian bottled wine between 2004 and 2005 increased by 701 % in China, and 325 % in Vietnam (NVWC).
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2.4.3 Traditions – Basis for cognitive-cultural legitimacy Due to the rich history of the Bulgarian wine sector, traditions were developed, transmitted or transferred over time. They are related to practices and techniques, customs and values preserved and transmitted from generation to generation. With the development of local norms, practices, and traditions, some of these elements were institutionalized while others even reached the dimension of taken-for-grantedness. Hence, they constitute the basis for cognitive-cultural legitimacy3. To summarize, we have identified and characterized the four pillars and sources of organizational legitimacy in the Bulgarian wine sector (See Table 2). Furthermore, we linked them to the major changes that appeared in the institutional environment of organizations in the recent years. TABLE 2: Legitimacy types, Legitimacy sources and Variables Legitimacy Type
Definition
Regulatory Conformity to legitimacy regulatory standards, rules, and laws Normative legitimacy
Compliance to broadly accepted norms & values
Legitimacy sources
Variables
Government bodies (State & International) (Baum & Oliver (1991)
Government reports (State Gazette in Bulgaria)& legal framework (European Union)
General public (non experts) (Barron, 1998; in Deephouse & Carter, 2005)
Local & international customers
Cognitive - Conformity to widely-held cultural legitimacy cultural beliefs & Taken-for-granted practices
Bulgarian wine producers (Westphal, Gulati & Shortell, 1997)
-
Wine Varietals Vines growing & making
Conformity to Industry Legitimacy global practices derived from the industry
Worldwide wine producers (Westphal, Gulati & Shortell, 1997)
-
Wine Varietals Vines growing & making
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The cognitive-cultural dimensions of legitimacy can vary from country to country; and from region to region.
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3. METHODOLOGY 3.1 Research Design The purpose of the present study lies in describing the complex nature of the legitimacy concept under the circumstances of institutional change. Hence, the use of qualitative techniques in the context of exploration is the most appropriate design strategy to get a better grasp on the legitimacy strategies adopted by organizations. 3.2 Sampling Design A combination or mixed sample is very well suited to test ideas at early stages of exploratory research (Miles and Huberman 1994). The mixed sample was comprised of the following participants: three wine producers; one wine grower; an oenologue; a wine technical expert, specialized in R&D; a wine retailer; and; a wine consultant, specialized in the communication strategy of a winery. For consistency purpose, and in order to control for regional differences, all respondents belong to the same wine region in Bulgaria: Southwest Bulgaria (Struma River Valley in the historical region of Macedonia). This region does not cover a large area but it features specific climatic conditions (micro-climate). It is the sunniest and the hottest Bulgarian viticultural region with hilly terrain and soils of volcanic origin, which are most suitable for grape growing (www.melnikwine.bg). 3.3 Data Collection Secondary data – mainly industry and government reports – was first gathered to identify elements which characterize the Bulgarian wine industry. Once identified, these elements were validated by an expert whose knowledge encompasses managerial, technical, legal and historical perspectives in the wine sector. When considering the scope of qualitative research, several approaches are adaptable for exploratory investigations of management questions. Among them, semi-structured face-to-face interviews with subject matter experts have been chosen for several reasons. First, subject matter experts are well-informed of the evolution of the wine industry – both locally and globally. Second, the greatest value of face-to-face interviews lies in the depth of information and details provided within a two-way communication technique (Cooper and Schindler 2001). Furthermore, reaching local respondents helped getting a better understanding in exploring the impact of institutional change on legitimacy strategies. Following Eisenhardt (1989: 547), two investigators conducted each interview. Facts and impressions were cross-checked after each interview; and all three rules were followed: (1) interview notes were completed within one day
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of the interview; (2) all data was included, and; (3) each interview note was ended with impressions. The interviews, conducted in October 2007, consisted in asking each participant to comment on each of the following elements concerning the wine industry in Bulgaria: (1) Overall organizational strategy (when applicable); (2) wine making; (3) wine growing; (4) Innovations (R&D, development of new wines to fit consumers’ taste), and; (5) marketing activities. More precisely, we asked the participants to comment on the relative proportion of each of the elements (which element plays a major role, and/or is of strategic importance), and also to comment on their evolution over time (over the last 10 years). 3.4 Data Analysis We used content analysis as a research technique, and selected syntactical units to code the answers. The interviews have been coded twice to insure intercoder reliability. Furthermore, because words and category definitions are sometime ambiguous, we made sure that each key word has similar meanings or connotation to the participants in order to gain semantic validity (Weber 1990). Any time an ambiguous terminology was used; the interviewer reformulated it and asked the interviewee to confirm (Frisch 1999). We analyzed the data looking for patterns – common features between all participants – in their legitimacy strategies; we made comparisons in order to find links between variables and also to find contrasts in the responses. 3.5 Results We first tried to see common patterns in the responses. When looking for normative legitimacy, Bulgarian wine producers are trying to be well represented and secure their position in the Bulgarian market before conquering the international market place – one respondent was not looking to expand internationally. Hence, the normative legitimacy pillar – public opinion non-expert conferred by customers – could be characterized as an inside-out strategy: wine producers look to get local legitimacy first in order to gain normative legitimacy internationally. However, the means to achieve this objective of positive image vary: “produce high quality products to create organizational reputation”, “create brand recognition using differentiated packaging” (bottles and tags), “positive word-of-mouth”. Regarding the other three dimensions – cognitive-cultural, industry and regulatory – legitimacy strategies differ. As Suchman (1995) mentioned, cognitive legitimacy is the hardest to achieve and the most difficult to manipulate. Hence, in the context of institutional change characterizing economies in transition, where regulations, norms, and international rules of the games are changing, we found that some organizations use the cognitive-cultural pillar in their legitimacy strategy. For instance, they may adopt an isomorphic behavior by mimicking local practices (DiMaggio and Powell 1983, Scott 2001: 52). For example, when looking at which pesticides
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neighboring wine growers were using every year, analysis found that similar behaviors were adopted – all were systematically going to the same local pharmacist. Furthermore, the varietal – type of grape grown and used in wine making – can be used as an indicator of the legitimacy strategy followed. When making wine, all organizations are using the Shiroka Melnishka Loza – a typical varietal cultivated only in Southwest wine region of Bulgaria, dating back from the Thracian times 3000 years ago. Therefore, we better understand the taken-forgranted dimension of this particular varietal, emphasizing the cognitive aspect of the legitimacy strategy. However, some organizations may seek alternative sources of legitimacy by using other types of varietals. For instance, organizations are using international varietals such as Cabernet Sauvignon, Chardonnay, and Merlot. Thus, such organizations are following the standards established by the wine industry on a global level, hence defining their strategy using the industry legitimacy pillar (Zimmerman and Zeitz, 2002). Finally, wine growers and wine makers may create their own standards. For example, an organization created a new type of wine using varietals not grown in Bulgaria, not widely spread and used in the world; and coming from the country of Macedonia, hence neither looking for local (cultural) nor international (industry) basis of legitimacy. In the context of institutional change, some organizations might also decide to create their own standards on other dimensions and go beyond expectations due to the “perceives” lack of local institutional pressure. When the mission of one of the organizations is to make premium wines, one can expect all levels of the organization to be aligned with this mission. First, it means, quality control at all levels - wine making, primary vinification, aging process, bottling, etc. Second, it requires the necessary investments in order to implement the strategy – hiring highly skilled employees, collaboration with well-known wine consultants, financing new equipments and acquiring the latest technology. By creating their own standards, which are above the regulatory standards, organizations are looking for consistency4, hence not only reinforcing their position locally but also creating the basis for a long-term global presence. However, institutional change does not impact organizations in a similar way. More specifically, we found that organizational size plays a major role in the type of legitimacy organizations are looking for. As just mentioned from a regulatory perspective, large organizations can adopt an ‘above-required’ standards legitimacy strategies whereas small organizations may make the necessary steps to function legally but do not hold the necessary infrastructures to operate above expectations. Furthermore, we found that the owner, as the initiator of the management style within the organization, plays a key role in the legitimacy profile. For instance, in order to gain legitimacy in a changing 4
A major reason explaining the drop of Bulgarian wine exports in the UK in the recent years was due to the lack of consistency in the wine quality over time.
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environment, the owner of a family-operated business for 150 years is adopting strategies that are cognitive and cultural, looking for traditional-based legitimacy. On the other side, we found that the new owner of a winery, whose expertise was developed in other industries, is bringing new perspectives when considering legitimacy strategies. Consequently, the organization is exploring new levels of the environment and alternative sources of legitimacy. For example, such strategies consist in creating synergies with other industries, such as wine tourism– wine tours and wine tasting in the winery. 4. DISCUSSION AND CONCLUSION In the present study, we explored the legitimacy profiles adopted by organizations in the case of institutional change. The strategy of an organization will consist in maximizing the congruence with the different sources of legitimacy among a portfolio of stakeholders. Organizations are not looking for one type (or one source) of legitimacy, but use a “strategy-mix” aligned with the overall organizational strategy and mission. When looking for gaining legitimacy in the context of institutional change, the challenge for organizations consists in selecting among the multiple levels of the environment (Suchman 1995). Our contribution to the literature on organizational legitimacy consists in bringing theoretical justification to the fourth pillar of legitimacy. Conflicting sources of legitimacy based on the different layers of the environment might create a misalignment of the norms, values, and beliefs. This justifies the existence of legitimacy derived from the industry. Moreover, we linked the constituencies belonging to each layer empowered to confer legitimacy. Second, we characterized the changes that occurred on each level of the institutional environment: changes due to transition from centrally-planned to open market economy, entrance in the European Union and globalization of the wine sector. Finally, we looked at the “legitimacy-mix” implemented on an organizational level. Future research could further explore the legitimacy dynamics and complexity, and link them to social processes, such as deinstitutionalization. We tested Oliver’s typology (1991) from passive conformity to strategic manipulation in the context of institutional change. We found that organizations are using a full range of legitimation techniques. Regarding regulatory legitimacy, while most organizations simply conform to laws and regulations, others created their own standards by adopting what we called ‘above’ expectations legitimacy strategies. We found that organizations are looking for local normative legitimacy first before expanding abroad, hence using what we called an ‘inside-out’ legitimacy strategy. Cognitive-cultural legitimacy is the most difficult to obtain and to manipulate (Suchman 1995). Since it is the more profound, and more self-sustaining, once established
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(Suchman 1995), we found that, in the case of institutional change on all layers of the environment, organizations use it as a ‘solid’ anchor-point in the pursuit of their strategy. Finally, the industry pillar of legitimacy was mainly used by large organizations trying to set global standards locally, such as wine tourism and quality control, among others. From a theoretical perspective, alternative theories can be used to further identify the layers of the environment. Furthermore, impression management and signalling theories can help us to better understand the legitimacy processes in economies in transition. Empirical limitations are related to the specific empirical setting. Future research could further explore the impact of institutional change on legitimacy strategies either in stable economies and/or in more recent industries, such as the IT industry. Another limit lies in the scope of the research. A longitudinal analysis might bring richer information of the present study. A more robust model might help getting further clarifications on the results found. Finally, the present study, based on existing models of organizational legitimacy, aims at extending current research in the context of institutional change.
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