SYMBOLISM, RATIONALITY AND MYTH IN ORGANIZATIONAL CONTROL SYSTEMS An Ethnographic Case Study of PBS Jakarta Indonesia A thesis submitted in fulfillment of the requirements for the award of the degree Doctor of Philosophy From UNIVERSITY OF WOLLONGONG By Imam Wahyudi, Drs (UGM); MCom (Hons) (UOW) School of Accounting and Finance 2004 Certification I, Imam Wahyudi, declare that this thesis, submitted in partial fulfilment of the requirements for the award of Doctor of Philosophy, in the School of Accounting and Finance, University of Wollongong, is wholly my own work unless otherwise referenced or acknowledged. The document has not been submitted for qualifications at any other academic institution. Imam Wahyudi 8 November 2004 i Abstract The study of accounting in its environmental contexts requires an understanding of accounting beyond its technical and numerical aspects. To obtain social, cultural and political legitimacy, organizations tend to adopt formal structures and practices – including accounting - that have been widely accepted by society as social norms and values without necessarily using them in actual practices. Seen from this perspective, accounting information, and particularly budgeting that plays an important role in organizational control systems, is not “value free”. It intermingles and is implicated in constructing social reality by shaping and being shaped by the political interplay among contested interested parties that takes place in organizations. This study examines the impact of the institutionalization of the authoritarian- bureaucratic regime of the New Order government of Indonesia in the PBS Jakarta – a private higher education institution – on the role of accounting and budgeting used within the organization. Incorporating the theory of closure of Weber and power mobilization developed by Hardy (1996) into institutional theory, a theoretical research framework is developed to reflect the researcher’s understanding regarding the research process as a result of his experience in interacting with the subject being studied for more than a decade – as an academic as well as an administrative staff member. Following an ethnographic case study method that allows the involvement of the researcher as a part of the case being studied, the subjective experience of the researcher enriches the analysis of this study – reflexive-ethnography. An historical ii analysis is performed by involving a confirmation by the researcher of other organizational participants’ understanding about the school’s control system through interviews – inter-subjective analysis. Documents and archival records are also used in order to provide official organizational and descriptive historical contexts of the case and to make available the powerful link between what people say – interviews – and what they actually do. Instead of formal organizational structures being adopted, this study found that informal relationships, paternalistic management and physical control dominated everyday managerial practices in which the school head held the absolute power in the school. Budgeting as part of formal control systems, in this environment, facilitated a political deal among the school’s stakeholders and functioned as a rationalized myth to the process – not an efficiency measurement. In addition, financial statements played a symbolic reason to display how the managerial conduct was “rational” and financially responsible. An effort to implement a technical-rational efficiency discourse of budgeting into the school by the new school head, after the demise of the New Order government, turned out to be a devastating blow to the school development as it contradicted the organizational culture that existed in the school. Therefore, these findings contribute to the understanding of accounting as providing socially constructed meanings and reality – accounting is value-laden. iii Acknowledgements I would like to thank Professor Michael Gaffikin, my principal supervisor for his guidance, assistance and support in completing my thesis and also in opening up my mind to understand accounting as a social science beyond its technical-rational context. I am also thankful to Associate Professor Christopher Poullaos, my associate supervisor, for his guidance and help especially in discussing the theoretical framework of this thesis. My gratitude is also expressed to the management of the Perbanas Business School Jakarta Indonesia for its financial support and allowing me to use the institution as the case study of my research. I also would like to thank to my father and mother in law who supported my study with their praying. Of course, I am grateful to my parents – my father, Drs. K.H. Sjuaib Mustafa, who had been teaching me to love knowledge and study since my early childhood, and my mother, Hj. Siti Amanah, who with her endless love and patience drives my effort to finish this thesis. To both of you, I owe an incalculable debt of love, kindness and wisdom. Finally, to my wife, Jurica Lucyanda, whose unquestionable support and considerable patient enabled me to complete this thesis – to her this thesis is dedicated, my thanks. iv Table of Contents Certification i Abstract ii Acknowledgements iv Table of Contents v Chapter One - Introduction 1. Indonesia as a Postcolonial State 1 2. Accounting’s Presence in the Five Eras – A Brief Overview 4 3. Indonesia under the New Order Government 5 3.1. Military 6 3.2. Pancasila Ideology 9 3.3. Javanese Culture 10 3.4. Economic Development 13 4. The Role of Accounting during the New Order 14 5. Perbanas Business School (PBS) Jakarta 18 6. The New Order’s Influence over PBS Jakarta 20 7. Objective of the Study 22 8. Research Questions Addressed by the Study 24 9. Organization of the Study 25 10. Contribution of the Study 26 Chapter Two - Interpretive Organizational Culture and Control System 1. Introduction 27 2. Perspectives of Organizational Culture 29 2.1. Concept of Culture 29 2.2. Levels of Culture 32 2.3. Organizational Culture 36 2.4. Managing Organizational Culture 40 3. Organizational Control Systems 43 4. Accounting and Institutional Change 49 v 5. Symbols, Ritual and Myth of Accounting 52 6. Concluding Remarks 54 Chapter Three - Theoretical Propositions 1. Introduction 57 2. The Genesis of Institutional Theory on Organization 58 3. Institutional Theory and Institutionalization 59 4. Institutional Isomorphism 63 4.1. Coercive Isomorphism 65 4.2. Mimetic Isomorphism 66 4.3. Normative Isomorphism 68 5. Interests and Institution 69 6. Organizational Imprinting 72 7. Effects of Institutionalism on Organization 73 8. Managerial Responses to Institutional Processes 76 8.1. Acquiescence 77 8.2. Compromise 78 8.3. Avoidance 80 8.4. Defiance 81 8.5. Manipulation 82 9. Problems of Institutional Theory 84 9.1. Power, Interests and Process of Institutionalization 84 9.2. The Problematic Concept of Decoupling 90 10. Incorporating Power and Theory of Closure 93 11. Research Framework 95 12. Concluding Remarks 99 Chapter Four - Methodological Issues 1. Introduction 100 2. Philosophical Foundation 100 3. Triangulation vs. Crystallization in Qualitative Research 105 4. Ethnographic Case Study Method 108 vi 5. Fieldwork Stages 116 5.1. Participant Observation 117 5.2. Interviews 119 5.3. Documents and Archival Records 122 6. Qualitative Data Analysis 124 7. Concluding Remarks 126 Chapter Five - Perbanas Business School Jakarta: A Tale of Its Progress and Individual’s Domination 1. Introduction 128 2. Initial Involvement 129 3. Accumulating Power 130 4. Dominating the School 134 5. The Governing Bodies 138 6. Adopting Javanese Culture 142 6.1. Concept of Rukun and Musyawarah – Mufakat 142 6.2. Superior and Leader: Priyayi 145 7. Other Contributing Factors 148 8. Concluding Remarks 149 Chapter Six – Perbanas Business School Jakarta: Building up Power 1. Introduction 152 2. Concept of Power 153 3. Organizational Structure and Managerial Hierarchy 156 3.1. Formal vs. Informal Organizational Structure 156 3.2. Staff Appointment and Evaluation 160 4. Mobilization of Power 166 5. Exercising Status Groups 169 6. Paternalistic Management 174 7. Concluding Remarks 179 vii Chapter Seven – Perbanas Business School Jakarta: Institutionalization of the New Order Cultural and Political Values and Practices 1. Introduction 182 2. Domination of the New Order Government over Indonesian Society 183 2.1. President Suharto as a Central Figure 185 2.2. Appropriation of the State by Its Officials 188 2.3. State Corporatism 191 3. The New Order and the Culture of Corruption 196 4. The PBS Jakarta: Cultural and Political Pressures 204 4.1. Paternalism and Concentration of Power 205 4.2. Rent-Seeking and Corrupt Practices 210 5. The PBS Jakarta: Government and Regulative Pressures 212 5.1. Academic Issues 213 5.2. Organization Structure 216 5.3. Student Activities 218 6. Isomorphic Analysis 221 7. Concluding Remarks 225 Chapter Eight – Perbanas Business School Jakarta: Organizational Control System 1. Introduction 227 2. Informal Authorities and Cultural Dimension of Control System 228 3. Management Budgeting 233 4. Budget Approval as a Political Deal and Rationalized Myth 242 5. Physical Control and Performance Evaluation 247 6. Financial Statement – a Symbolic Display 254 7. Concluding Remarks 259 Chapter Nine – Perbanas Business School Jakarta: The Role of Accounting after the Demise of the New Order 1. Introduction 261 2. Management Practices 262 viii 2.1. The Awkward Relationship between the PBS Jakarta – the YPP 263 2.2. Leadership