Organizational Restructuring, Government Control and Loss of Legitimacy following An Organizational Crisis: The Case of Israel's Nonprofit Human Services

Abstract

The study explores organizational restructuring following the occurrence of a crisis. Restructuring activities following an intervention are considered here to be indicators of an organization's loss of legitimacy because they have lost their independent status, a basic characteristic of nonprofit human settings. the study shows that according to the Resource Based View of organization restructuring – experienced as downsizing, neglecting and abandoning of projects – organizations are affected by (a) government intervention in decision making; (b) higher demands for accountability; and (c) higher evaluations of performance gaps. On the basis of the study of a sample of 138 Nonprofit Human Services in Israel, the results show that the higher the level of restructuring, the higher the level of legitimacy. However, organization location in metropolitan areas moderates the link between restructuring and legitimacy loss. We conclude that Israel's nonprofit human services being overly dependent on government funding are more prone to restructuring and losing legitimacy following organizational crisis.