By Kshitij Awasthi, K V Gopakumar, & Abhoy K Ojha

If we observe around us, there are innumerable examples of how different institutions have either changed or remained the same over time. For example, we talk about how bureaucracy works in one particular way in a country and how little has changed in the way it functions over time (e.g., primary school education in India over the years), or how politics has been revolving around only a couple of political parties in certain countries (e.g., USA) for a long time. These are rigid institutions, which have remained more or less similar over time and have been somewhat resistant to change. On the other hand, we also see how emails have emerged as the dominant mode of formal communication from physical letters and memos, or how banking services have gradually moved on (to a large extent) to the online space from a physical setup, or how certain sports such as Lawn Tennis have drastically changed over time. These represent more flexible institutions which have undergone change over time.

In between these two scenarios, there are also cases in which the change happened, but only for a short duration, and the institutions reverted to their pre-change state over time. Such changes, which have been overlooked in research as well as in practitioner studies, is the focus of our latest publication in Business & Society. This publication examines the case of the Indian Petroleum Exploration and Production Sector, which underwent change for a while, driven by the reforms introduced by the Indian Government towards transforming the sector into a competitive industry (by bringing in private players), beyond the oligopoly of state-run companies. Yet, within a few years, the sector reverted to its initial state of a de-facto oligopoly. We refer to this property of institutions, to change in response to an external jolt but later revert to their pre-change state over time, as ‘Institutional Elasticity’.

When Do Institutional Fields Revert?

Our study notes three broad conditions when institutional fields, once changed, are more likely to revert to their pre-change state. First condition is the scope of the change. Institutions are usually represented by three pillars – cognitive, normative, and regulative. If the scope of change is narrow and not focused towards all three pillars, then the tendency to revert is more likely. For example, the reforms in the Indian petroleum sector were directed largely toward changing regulative pillar, with less emphasis towards normative and cognitive pillars. This, in turn, reflected in the institution reverting once the pressures for regulative change subsided.

Second, is the pace of change. Lack of sustained urgency towards change, if present, is more likely to lead the institution to revert to its pre-change state. For example, there was urgency towards change initially (driven by the pressures on the Indian government towards reforms due to an economic crisis), but the Indian petroleum sector field reverted to its pre-change state once the urgency subsided. Lastly, when the consensus among the actor constellations within an institutional field is low, the field is more likely to revert to its pre-change state. For example, it seemed the perspectives, about the reforms, of the state owned firms were different from the domestic private firms and the multinational entities.

What does it all imply?

Understanding elasticity of institutions and the factors which influence the same has implications for Business-Government relationships. Governments, who are trying to bring changes within industries/sectors, may want to create a consensus-based and transparent environment in order for the change to sustain and not revert. Our study also draws attention to how reforms driven by external actors (in this case, external multilateral agencies, such as World Bank and Asian Development Bank) need to take into account the historical and cultural factors of that specific context for the reforms to sustain, along with the regulatory and normative context. As noted earlier, change initiatives that are directed at only one of the pillars may have limited impact as compared to those which are directed towards all three pillars. For actors driving change within an institution, elasticity presents a useful indicator to understand whether change attempts will yield expected outcomes or lead to reverting of the field. For those resisting change, an understanding of elasticity and the ease with which it can happen (or cannot happen) helps align their actions towards either resisting the change or adjusting to change in a possibly renewed field.

Reference:

Awasthi, K, Gopakumar, K.V., Ojha, A.K. 2022. Why Do Institutions Revert? Institutional Elasticity and Petroleum Sector Reforms in India. Business & Society, 61(1):81-116