Organizational change and response in a period of shrinking fiscal resources: the case of multi-purpose substate regional councils in the Appalachian Region

Public sector organizations at all levels of government, federal, state, and local, suffered fiscal stress during the first half of the 1980s. As used in this study, fiscal stress is defined as a period of uncertainty characterized by real or threatened decline in financial resources. What are the implications of this fiscal stress for public organizations? How do they change and respond in light of real or threatened budgetary contractions?

The primary purpose of this study is to gain understanding and knowledge of organizational change and behavior, as well as the management response of public sector agencies experiencing fiscal stress. This is undertaken through an analysis of the sixty-nine local development districts (LDDs) in the Appalachian Regional Commission area. Because of their dependency on federal, state, and local government funding, they provide an appropriate unit of analysis for such a study. The time frame of the study is the period FY1981 to, and including, FY1983. Data were collected through mailed questionnaires sent to the executive directors, assistant or planning directors, and the chairmen of the executive committee of each of the sixty-nine LDDs and through telephone and face-to-face interviews with relevant individuals.

Organizational change in six specific categories of change are considered: budgetary, task, human resources, technology, structural, and relationship. The LDDs experienced change, as a result of fiscal stress, in each of these areas. Perhaps the most noteworthy change was found in the task area.

The management of the LDDs, in general, favored certain tactical and strategic responses. Strategically, they generally opted to smooth, rather than resist, decline.

The basic conclusions of this study are: (1) positive benefits can accrue from fiscal stress; (2) organizations facing fiscal stress do undergo significant changes; (3) some organizations more successfully manage under such conditions and these successful organizations are distinquishable by identifiable characteristics; (4) the more severe the stress and the larger the budget reductions suffered, the greater and more radical the change; and (5) the effects of fiscal stress are not equally distributed among organizations of similar types.