Weaving Straw into Gold: Managing Organizational Tensions Between Standardization and Flexibility in Microfinance

Rodrigo Canales ()
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Rodrigo Canales: Organizational Behavior Group, Yale School of Management, New Haven, Connecticut 06520

Organization Science, 2014, vol. 25, issue 1, 1-28

Abstract: This article explores how organizations balance the pressures to pursue efficiency through standardization with the need to remain responsive to local needs. The study combines rich ethnography with detailed loan data to show that both standardization and flexibility through relational ties provide substantial organizational benefits but also carry significant costs; thus, no strategy is inherently superior, and their coexistence generates the best results. Such coexistence, however, creates contradictions that must be managed. Here, I use microfinance as a strategic setting and gain analytic leverage from the random assignment across branches of loan officers who exhibit significant heterogeneity in rule enforcement styles: some enforce rules strictly, whereas others frequently bend them to respond to client needs. I find that loan officers with relational styles exercise discretion productively to enhance organizational performance. Yet their effectiveness is contingent on the presence of rule-enforcing peers, as evidenced by the significant underperformance of branches with a high concentration of officers of either type. In contrast, branches that contain discretionary diversity, or a balance between enforcement styles, perform best. This is not due to diversity per se, but because loan officers process decisions in local credit committees. Committees that contain discretionary diversity generate a productive tension that induces participants to justify decisions along broader organizational goals, thus maintaining a productive balance between standardization and flexibility. Implications for organizational theory and practice are discussed.

Keywords: microfinance; routines; bureaucracy; structure; agency; trade-offs; flexibility; street-level bureaucracy (search for similar items in EconPapers)
Date: 2014
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Citations: View citations in EconPapers (28)

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Persistent link: https://EconPapers.repec.org/RePEc:inm:ororsc:v:25:y:2014:i:1:p:1-28

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