In this this paper we examined organizational theories within a sociological institutionalism frame among several complementary and competing theorists. The paper begins by defining key terms and concepts within organizational and institutional studies as a means to establish relative context. The paper continues with a description of the evolution of institutionalism within a larger community of related theories. Next, the paper explores a number of prominent institutional theorist with a focus on relationships among competing theories, their commonalities and divergent concepts. Principal among theories explored is neo-institutionalism. Following this, the paper concludes with the author’s views on the future direction of institutionalism within a sociological frame, and areas of consideration for further inquiry.
Organizational Theories and Sociological Institutionalism
Organizational theories occupy a unique position within the larger sociological field. Therefore in order to facilitate understanding, clear definitions are needed to anchor key concepts and foster relative perspectives. Although far from comprehensive, the following definitions seek to link and bound a number of terms that relate to sociological perspectives of organizational theory. At a high level of abstraction, organizational theory is defined as “concerned with organizations, the relationship between organizations and their environment, the effects of those relationships upon intra-organizational functioning, and how organizations affect the distribution of privilege within society.” (Greenwood, 2007, para. 1). This definition, among other things, implies a systems-oriented approach to defining and bounding organizational theory. Organizational theory operates in a system that is influenced and simultaneously defined by its environment and other participants (i.e., society, culture, power, etc.) (Greenwood & Hinings, 1996). These descriptions echo the attributes of a diverse number of social systems that in this context are populated by groups (e.g., institutions) rather than more individualistic forms (i.e., organizations).
Institutions as collective groups may be defined as “any structure or mechanism of social order and cooperation governing the behavior of a set of individuals within a given human community” (Miller, 2008). Lawrence and Suddaby (2006) in reference to Scott (2001) extend this definition to include “cultured-cognitive, normative and regulative elements that …provide stability and meaning to social life.” (Lawrence & Suddaby, 2006, p. 216). Institutions as social systems operate as a collective whole reflecting the actions of its individual actors i.e., the “whole is the sum of its parts.” This perspective implies that both the collective (the institution) and those that function within it (organizations and/or actors) are at the same time independent and interdependent within a larger social system. Given the complexity of these relationships, it is important to thoroughly examine each component in order to gain an understanding of the larger social system i.e., the parts are known by the whole and the whole is known by the parts.
Further, institutions and in particular institutional theory is defined as a theory that “highlights cultural influences on decision-making and formal structures. It holds that organizations, and the individuals who populate them, are suspended in a web of values, norms, rules, beliefs, and taken-for-granted assumptions that are at least partially of their own making.” (Barley & Tolbert, 1997, p. 93). Barley and Tolbert (1997) refine this concept further by framing these taken-for-granted assumptions as an idealized construct establishing that “these cultural elements define the way the world is and “should be” (Barley & Tolbert, 1997, p. 93). These taken-for-granted assumptions operate as blueprints for organizing by specifying the forms and procedures an organization should adopt if it is to be seen as a member-in-good-standing of its type.
This definition follows two distinct paths. First, it recognizes the effects of environmental forces on decision-making and the product of these decisions. Second, and perhaps more importantly, it calls out the elements that facilitate the decision-making process. These elements operate within a larger meaning-making process that recognizes the influence of environmental forces. Lawrence and Suddaby (2006), in reference to Scott (2001) offer another description of what an institution is; a “cultured-cognitive, normative and regulative elements that ... provide stability and meaning to social life ... Institutions are transmitted by various types of carriers, including symbolic systems, relational systems, routines and artifacts and they operate at multiple levels of jurisdiction” (Lawrence & Suddaby, 2006, p. 216). Institutions in this context must be understood as operating along a continuum that on one end are bound by conceptual forms such as symbolic systems and on the other by more concrete forms such as institutions defined by laws, rules and regulations. Although extremely different in form, the forces that influence the creation, sustainability and evolution of institutional forms will fundamentally be the same. In sum, institutions operate within a diverse environmental context and are driven by actors within an extremely complex sociological frame.
Overview of Prominent Institutional Theory
Having defined organizational and institutional theory, albeit at a very high level, it will be instructive to examine the origins of current institutional theory. Institutional theory and in particular, neo-institutionalism can trace their origins back to classical management theorist of the mid-20th century and notable among them, Max Weber. Weber’s theoretical contributions related to organizations as rational systems supported and enabled by bureaucratic power structures forms the foundation of many early institutional theories (Weber, 2004). Weber’s work on the effects of broader institutional forces in shaping and supporting differing administrative systems provides a common fundamental thread between classical and neo-institutional theory (Jacoby, 1990).
Classical Institutional Theory
Classical institutional theory emphasizes organizational adaptation, variation and the role of environmental factors as catalytic forces influencing organizational behavior (Kraatz & Zajac, 1996). Core themes within classical institutionalism include; “issues of influence, coalitions, and competing values were central, along with power and informal structures” (Greenwood & Hinings, 1996, p. 1022). Classical theory seeks to explain organizational change as a function of employing rational (i.e., technical) processes over time in an effort to achieve higher levels of performance (Ashworth, Boyne & Delbridge 2007). Influenced by Weber, bureaucracy becomes a commonly cited theme reflecting classical theories focused toward maximizing the utility of administrative functionality in the pursuit of higher performance (Barley & Tolbert, 1997; Jacoby, 1990). This theoretical perspective looks externally to forces that influence and drive organizational behaviors. Within this theoretical perspective, competitive factors such as access to resources (i.e., cost of capital and labor) influence the creation, sustainability and evolution of institutions and the organizational structures that exist within them.
Neo-Institutionalism
Seeking a more holistic approach to understanding organizational behaviors, alternative theories have emerged over the past three-decades with most notable among them, neo-institutionalism (DiMaggio & Powell, 1983; Kraatz & Zajac, 1996). Barley and Tolbert (1997) describe the sentiment behind this theoretical shift; “The rising interest in institutions among students of organizations reflects a growing disenchantment with theories that portray efficiency as the driving force behind decision making or that treat variations in formal structure as rational adaptations to technical and environmental conditions.” (Barley & Tolbert, 1997, p. 93). Moving beyond environmental and technical forces, neo-institutionalism takes a more inclusive approach that seeks to understand the role of actors within institutional systems (Lawrence & Suddaby, 2006).
The neo-institutional movement is most fully expressed in the theories presented by DiMaggio and Powell (1983, 1991). These authors suggest that the forces that drive organization and institutional change are a function of environments dominated by internally motivated dynamics including conformity to perceived normative conditions (DiMaggio & Powell, 1983). Neo-institutional theorists argue that organizational change is not principally driven by the pursuit of absolute performance but instead that institutional environments demand conformity as a means to achieve legitimacy (Kraatz & Zajac, 1996). Central to this theoretical perspective is conformity that becomes a pivotal factor in the distinction between classical institutionalism and neo-institutionalism. To understand the importance of conformity to this theoretical frame, the relationship between legitimacy and conformity must be explored.
Conformity represents the isomorphic processes whereby organizations become increasingly homogenous over time. These processes fall into three distinct categories – coercive, mimetic and normative (DiMaggio & Powell, 1983). Coercive processes represent exogenous forces employed by governments, regulators or other institutional agencies that promote and maintain a particular system. Mimetic processes reflect activities pursued by actors designed to emulate or adopt another organizations processes, systems, strategies or structures. Normative processes manifest themselves in the activities of institutionalized communities e.g., professions, self-regulating groups, etc. (Ashworth, Boyne & Delbridge, 2007). Normative processes often take the form of taken-for-granted behaviors that align with the norms of the institutional community. All of these isomorphic processes lead to convergence of activity resulting in “heavily structurated” institutional norms within a relative domain. The catalyst for these conforming behaviors is the pursuit of legitimacy.
Legitimacy as defined by Suchman (1995) is “a generalized perception or assumption that the actions of an entity are desirable, proper, or appropriate within some socially constructed system of norms, values, beliefs, and definitions.” (Suchman, 1995, p. 574). This definition of legitimacy infers that the behaviors of the target organization or institution are acceptable, credible and desirable by one or more social groups. With this concept in mind, conformity then becomes the means to pursue what is perceived to be, a legitimate end. Legitimacy can be further broken down into three distinct categories – pragmatic legitimacy, moral legitimacy and cognitive legitimacy (Suchman, 1995).
Each supports the perception that the actions of an organization will be desirable, proper or appropriate. Pragmatic legitimacy reflects the pursuit of self-interested actions relative to a high-value target audience. Suchman (1995) refers to this as a type of exchange legitimacy where the actions of an organization are dependent on the perceived value to the target audience. Moral legitimacy represents the perceived positive normative evaluation of the organization and its actions. This form of legitimacy is not tied to performance and reward like pragmatic legitimacy rather it is a function of the perception of just benefit and social welfare (Suchman, 1995). Cognitive legitimacy looks to cultural models that afford plausible explanations for organizational action (Suchman, 1995). Cognitive legitimacy reflects the intuitive sensibility of organizational actions relative to established cultural norms and related models of organizational behavior.
Scott (2001) in a similar fashion describes institutional legitimacy in terms of “three pillars” – regulative, normative and cultural-cognitive. Characteristics of the three pillars are summarized below in Figure 1 (Scott, 2001). Each of these forms of legitimacy may operate independently or collectively depending upon the organizational context (Hirsch, 1997). The pursuit of legitimacy regardless of its distinct form will require some degree of conformity to achieve its end.
Figure 1 Scott’s Three Pillars Model
A byproduct of organizational conformity within an institutional frame is a persistent reversion to the mean behavior pattern as organizations seek to legitimize organizational behaviors relative to others in their respective field. The result of this persistent pursuit of legitimacy is the convergence of organizational values, beliefs and normative behaviors within a given field (DiMaggio & Powell, 1983). Convergence within this context refers to the degree that organizations within a particular field resemble each other over time (Ashworth, Boyne & Delbridge, 2007). Therefore, convergence within a given field results in greater homogeneity as organizations become increasingly isomorphic in their behavior. As a general rule, convergence operates within natural and open systems over compliant behaviors that are more naturally aligned with rational systems. Compliance represents another isomorphic force that is a product of organizations moving toward the direction of the greatest isomorphic pressure (Ashworth, Boyne & Delbridge, 2007). This form of isomorphic convergence reflects a momentum-driven behavior as actors within a given organization align with other participants in their respective field. Another important feature within neo-institutional theory influenced by isomorphic forces that warrants discussion is structuration (Kratz & Zajac, 1996; Barley & Tolbert, 1997).
Structuration in very simple terms represents the process required to define institutional fields. Relative to neo-institutional theory, DiMaggio and Powell (1983) define structuration as “the process of institutional definition, or `structuration', consists of four parts: an increase in the extent of interaction among organizations in the field; the emergence of sharply defined inter-organizational structures of domination and patterns of coalition; an increase in the information load with which organizations must contend, and the development of a mutual awareness among participants in a set of organizations that are involved in a common enterprise.” (DiMaggio & Powell, 1983, p. 148).
In the pursuit of legitimacy, structuration informs the meaning-making processes that influence decisions required to establish, maintain and evolve institutional constructs. In this regard, structuration spans the gap between institutional order and the social processes operating within any given system. Barley and Tolbert (1997) describe this spanning function in the model offered by Giddens in Figure 2 below
Figure 2 Giddens’ Structuration Model
Institutional Realm | |||
Modalities | |||
Realm of Action | Communication | Power | Sanction |
Within this model, the institutional realm reflects the world of rules and the social principals that support them. The realm of action represents the social activities of actors operating within the system. Modalities function as meaning schemes that inform action relative to actor’s perceptions of the institutional realm. Holistically, the process of structuration represents a duality as social action creates social structure and social structures are required to enable social action (Barley & Tolbert, 1997, Meyer & Rowan, 1977). This notion that structure emerges from social action and vice versa is important. With this perspective in mind, the relationship between Giddens’ model of structuration and the models of legitimacy described by Scott and Suchman become increasingly apparent (Suchman, 1995; Scott, 2001). These models directed at distinct purposes find commonality in the idealistic pursuit of legitimacy and the isomorphic processes and organizational homogeneity that result.
Carrying this notion further, structuration as reflected in Giddens’ model provides a schema that reflects the sociological framework within a particular field or institution. This sociological framework provides a meaning structure that is defined by a broad set of psycho-cultural assumptions (i.e., institutional realms). In turn, these meaning structures provide general frames of reference that inform decision-making and guide organizational behaviors (i.e., modalities).
Underlying and supporting these meaning structures are meaning perspectives that represent the values, norms and beliefs and provide context and frames of reference for actors that operate within organizational systems (i.e., legitimizing functions) (Suchman, 1995). Meaning structures represent taken-for-granted rules that influence and support agency within an organizational system (i.e., realm of action). It is these meaning structures that provide the frames of reference that inform isomorphic behaviors that organizations exhibit in their idealistic pursuit of legitimacy.
An unintended product of the pursuit of legitimacy is increasing homogeneity and organizational “inertia” as isomorphic forces constrain organizational change and innovation (DiMaggio & Powell, 1983). This isomorphic dynamic reflects a systemic process that results in a paradoxical relationship between change and inertia (Senge, 2006). Figure 3 following represents a causal loop diagram that seeks to describe the cause and effect relationship among factors within a system (Senge, 2006).
Figure 3 Causal Loop
In the causal loop described in Figure 3, an organization seeking a desired state looks to benchmarks within a given field to assess positioning relative to peers. As many desired states are idealized and dominant positions mythical in nature, gaps in position to performance are perceived. Seeking to close gaps to performance, organizations will search for what are perceived to be the most legitimate models within the relevant field i.e., “best practices” (Meyer & Rowan, 1977). The adoption of these practices represents conformity and/or compliance to what are perceived as legitimate models of organizational behavior. Conformity leads to greater homogeneity within a field as participants converge on similar practices. Convergence in-turn leads to a perceived legitimacy gaps as organizations aspire to achieve above median performance. The cycle begins anew and as an increasing number of institutions move toward what is perceived as a desired and legitimate state, salvation recedes before them like the horizon.
Having described the fundamental elements of neo-institutional theory and some of the associated processes in prior sections, it is apparent that there are certain core themes that run through the theoretical construct. Kraatz and Zajac (1996) discuss “fundamental neo-institutional propositions.” DiMaggio and Powell (1983) in their neo-institutional theory-defining article discuss twelve hypotheses that function as predictors of isomorphic change. Ashworth, Boyne and Delbridge (2007) speak of neo-institutional theory in the form of stated propositions. As neo-institutionalism has become a dominant theory among organizational scholars, these same themes although perhaps less overtly stated, are clearly present. In an effort to bring some order to these diverse themes, following are some fundamental tenets that ground neo-institutional theory derived from several authors in the neo-institutionalism field (DiMaggio & Powell, 1983, 1991; Ashworth, Boyne & Delbridge, 2007; Greenwood & Hinings, 1996; Kraatz & Zajac, 1996). These tenets do not represent a comprehensive list of the tenets associated with neo-institutional theory. They are presented in no particular order.
1. Organizations operating in mature and highly institutionalized fields are unlikely to behave in ways that differ from the perceived institutional environment.
2. Organizations operating in mature and highly institutionalized fields are influenced by changes in technology to a lesser degree than by environmental and sociological forces.
3. Organizations operating in mature and highly institutionalized fields realize increasing homogeneity among peers over time.
4. Organizations operating in mature and highly institutionalized fields realize greater inertia as fields become more homogeneous.
5. Organizations operating in mature and highly institutionalized fields gravitate to what is perceived as the most legitimate organizational constructs within a given field.
6. Organizations operating in mature and highly institutionalized fields are not dependent upon environmental diversity to enable change.
7. Organizations operating in mature and highly institutionalized fields that change in ways contrary to field norms are more likely to realize bad outcome.
8. Organizations operating in mature and highly institutionalized fields are influenced by technical change to a lesser degree that early lifecycle adopters.
9. The higher the degree of uncertainty between means and ends (e.g. causes and effects), the greater the convergence upon perceived legitimate constructs.
10. The higher the degree of resource dependence within a field, the greater the level of isomorphic pressure.
11. The greater the degree of structuration within a field, the higher the level of isomorphic pressure within that field.
12. The more observable the dominate resource model(s) with a field, the greater the isomorphic pressure to converge on that model.
A few common threads emerge from the descriptions of the tenets above. Most obvious among them relate to degree of change (greater, higher, more), convergence (reversion to a mean) and the idealized state of perceived legitimate models (salvation goals). All of these themes are behavioral or cognitive in nature with environmental and/or sociological forces catalyzing each. Additionally, it is important to recall that these tenets operate within a complex organizational frame and often in highly institutionalized contexts. Within these highly institutionalized contexts are deeply embedded perceptions and normative behaviors that underlie organizational notions of legitimacy. The level of complexity associated with the interaction and interdependence among these forces is meaningful.
Limitations of Institutional Theory
Although neo-institutionalism emerged almost three decades ago, the theory as articulated by DiMaggio and Powell (1983) is still relevant. That said, the theory has critics nonetheless. In sharp contrast to the empiricism of classical institutionalism, neo-institutionalism has been criticized as being too abstract for empirical research and practical application (Barley & Tolbert, 1997). The theories reliance on abstract conditions within the organizational environment makes measurement of cause and effect extremely challenging. Additionally, the interplay between abstract conditions, dynamic environments and diverse groups of actors results in a complex systems that yields results that are extremely difficult to interpret. Ashworth, Boyne and Delbridge (2007) reveal these challenges in their discussion of the results of their research into the organizational dynamics of UK local government services – “We found that the level of support for institutional theory varied across organizational characteristics and was stronger for culture and strategy content than for structures and processes. Thus, the evidence implies that the bars of the iron cage are widely spaced in places, and some of them are broken or missing.” (Ashworth, Boyne & Delbridge, 2007, p. 19). The level of diversity among factors that influence organizational behaviors coupled with the complexity of relationship dynamics imposes many challenges for researchers. Issues relating to reliability, validity, generalizability and transferability come to the fore. In order to overcome concerns over research credibility, dependability and transferability, researchers need to consider alternative methodologies and study designs.
Critics of classical institutional theorist focus attention upon the overreliance upon environmental forces to drive organizational change (Jacoby, 1990). In turn, perhaps neo-institutional theory is overly reliant on internally focused organizational dynamics to drive and define theory. The two theories share many theoretical similarities as a function of their common origin. Both schools of thought agree that environmental and technical forces influence institutions. Both hold that institutions change over time in response to environmental factors (Rutherford, 1995). Both recognize the duality of actors operating within institutional structures. This recognition sees the individual as being both constrained by institutional structures while at retaining the ability to influence the structures they operate in (Groenewegen, 1995).
Some authors have taken the position that neo-institutionalism is the next evolutionary step in organizational theory (Greenwood & Hinings, 1996). Perhaps it is more appropriate to view these two theoretical frames as operating on a continuum where the boundaries between are less fundamentally defined. The relatively recent emergence of neo-institutional theory provides ample opportunity for further research regarding its relationship to other organizational theories. As the theory matures through further research and ongoing dialogue within the organizational field, the boundaries between and among competing theories will become more evident.
Future Directions for Institutional Theory
The various theoretical forms of institutionalism all struggle with two fundamental questions: “how do diverse institutions operate interdependently?” and “what factors influence institutional change?” The first question is challenging due to the complexity of institutionalized processes and diversity in structuration. Additionally, the recent emergence of institutionalism as a distinct field of inquiry results in a relatively limited cannon of research from which to draw independency conclusions. As further research is conducted and as institutionalism matures as a field, this research gap will narrow.
Each theoretical model of institutionalism tends to narrow its focuses on a limited number of institutional factors; typically establishing theoretical legitimacy as a response to gaps that exist in other theoretical frames. Regardless of the research methodology employed, principal theorists are frequently compelled to take an integral approach to establishing and defending their particular model. Indeed, Scott (2001) recognizes the influence and interdependency of regulative, normative and cultural-cognitive forces within an institutional frame. The interdependencies that exist between regulative agencies and normative forces that ensure social compliance is one example of this. Interdependent activities in part, are a function of the interdependence between institutional forms, as actors are almost always operating within various institutions e.g., citizens are subject to the laws rules and regulations of the state, corporate policies of an employer, cultural norms, etc.
The second challenge for all forms of institutionalism is how to explain the origin and nature of institutional change. As institutions by definition stabilize social structure and establish order, much of the research examines issues of compliance and conformity over emergence and change (Ingram, 2007). For neo-institutional theorist, the key factor is diffusion of practice through adoption by actors within a field, gaining momentum and legitimacy through broad acceptance (DiMaggio & Powell, 1991). In practice, this theoretical approach does not sufficiently account for the diversity in institutional behavior and the factors that facilitate the emergence of new institutional forms. Kraatz and Zajac (1996) speak to this topic directly.
Recent research into institutional change and emergence reflect the bridging of differing cultures of inquiry with a focus on neo-institutionalist theories within broader social movement theories (Ingram, 2007). This more inclusive approach views institutional entrepreneurship as a driving force affecting institutional change. This is accomplished through various social forums that influence decision-making within preexisting institutions and that catalyze the emergence of new institutional forms.
Additionally, elements of the institutional framework from diverse fields may be reconstructed into new institutions in a form of bricolage. Handheld mobile computing is such a form combining telephony, hardware, software and emerging cloud technologies. This inclusive and integrative approach combines a number of institutional theories recognizing that institutions are a function of the collective actions of individual actors, and that although institutional change operates within preexisting institutional frames, unforeseen and often unpredictable events may influence dramatic shifts in the direction of existing institutions and spawn new institutional forms.
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