Baris Orak - Institutional Theory

Baris Orak
Organization Theory Articles’
Presentation - Assignment 6
Evolution of Management Thought and Organization Theories -
Prof. Dr. Fatma Gülruh Gürbüz

Introduction
• In Britain and the United States, the study of political institutions dominated political science until the 1950s.
This approach, sometimes called 'old' institutionalism, focused on analyzing the formal institutions of
government and the state in comparative perspective. It was followed by a behavioral revolution which
brought new perspectives to analyzing politics, such as positivism, rational choice theory, and
behavioralism, and the narrow focus on institutions was discarded as the focus moved to analyzing
individuals rather than the institutions which surrounded them. New Institutionalism was a reaction to the
behavioral revolution. Institutionalism experienced a significant revival in 1977 with two influential papers
by:
• John W. Meyer and Brian Rowan on one hand and
• Lynn Zucker on the other.
• The revised formulation of institutionalism proposed in this paper prompted a significant shift in the way
institutional analysis was conducted. Research that followed became known as "new" institutionalism, a
concept that is generally referred to as "neo-institutionalism" in academic literature. The Old Institutionalism
was unhelpful for comparative research and explanatory theory. This "Old Institutionalism" began to be
undermined when scholars increasingly highlighted how the formal rules and administrative structures of
institutions were not accurately describing the behavior of actors and policy outcomes.
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Institutionalized Organizations
Meyer & Rowan
• John W. Meyer is Professor of Sociology (and, by courtesy,
Education), emeritus, at Stanford. He has contributed to
organizational theory, comparative education, and the
sociology of education, developing sociological institutional
theory.
• He next applied his ideas to the field of organizations. He
helped pioneer the sociological new institutionalism, stressing
the role of loose coupling in organizational behavior and the
conditions under which the diffusion of practices takes place.
• Meyer and Rowan is frequently cited as the seminal, and one
of the core, of the neo-institutionalist perspective in sociology.
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• This paper argues that the formal structures of many organizations in postindustrial society (Bell 1973)
dramatically reflect the myths of their institutional environments instead of the demands of their work
activities. Throughout the paper, institutionalized rules are distinguished sharply from prevailing social
behaviors.
• Meyer and Rowan's core argument is that organization form is driven by what they call "institutional myths."
The authors suggest that organizations adopt forms because of myths in an environment, as opposed to
because those forms are necessary connected to more effective organizational outcomes. They address the
problem as “prevailing theories assume that the coordination and control of activity are the critical
dimensions on which formal organizations have succeeded in the modern world.”.
• First, the authors present the idea of the rational organization. However, the authors argue instead, in favor
of an idea of rationalized institutional elements.
• They argue that organizations are driven to adopt practices or routines in order to achieve increased
legitimacy and to increase their survival prospects and that their adoption of these practices are not
immediately connected to any immediate or direct increase in efficiency.
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• They argue that organizations are driven to adopt practices or routines in order to achieve increased legitimacy and to
increase their survival prospects and that their adoption of these practices are not immediately connected to any immediate
or direct increase in efficiency.
• Even though they didn’t conduct any fieldwork or research; Meyer and Rowan offer the following six formal propositions:
• Proposition 1: "As rationalized institutional rules arise in given domains of work activity, formal organizations form and
expand by incorporating these rules as structural elements."
• Proposition 2: "The more modernized the society, the more extended the rationalized institutional structure in given domains
and the greater the number of domains containing rationalized institutions."
• Proposition 3: "Organizations that incorporate societally legitimated rationalized elements in their formal structures maximize
their legitimacy and increase their resources and survival capabilities."
• Proposition 4: "Because attempts to control and coordinate activities in institutionalized organizations lead to conflicts and
loss of legitimacy, elements of structure are decoupled from activities and from each other." Integration is avoided, program
implementation is neglected, and inspection and evaluation is ceremonialized."
• Proposition 5: "The more an organization's structure is derived from institutionalized myths, the more it maintains elaborate
displays of confidence, satisfaction, and good faith, internally and externally."
• Proposition 6: "Institutionalized organizations seek to minimize inspection and evaluation by both internal managers and
external constituents."
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Radical Organizational Change
Greenwood & Hinings
• This is my third paper of C. R. (Bob) Hinings, and second paper of Royston
Greenwood. In this paper, they are arguing organizational change
according to Institutionalism theories. The last paper we are going to check
has 5044 citations and one of the most cited papers in the Institutional
Theory.
• Royston became interested in the organizational change towards more
corporate forms, which sparked his interest in organization theory. It was in
1972 when he met Bob Hinings at Aston, Royston calls himself a non-
monastic scholar, enjoying collaborations and working in teams, and over
the years, Bob Hinings has been joined by a long league of research
partners.
• They are still publishing articles about the subject like: Understanding
strategic change: The contribution of archetypes (2017).
• This article sets out a framework for understanding organizational changes
from the perspective of neo-institutional theory. The principal theoretical
issue addressed in the article is the interaction of organizational context
and organizational action. They use the term neo-institutional to capture the
developments that have taken place over the past decade (Powell
&DiMaggio, 1991). 7

Greenwood & Rowan
"We wish to make a distinction, then, between the
sociology of institutional forms and the sociology of
institutional change."
(Brint and Karabel, 1991:343)).
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• Institutional theory is used as a starting point because it represents one of the more robust sociological
perspectives within organizational theory (Perrow, 1979), and it makes sense, as Dougherty pointed out, to
"integrate some theoretical threads regarding the specific issue of transformation by building on already developed
theories" (1994: 110).
• Old vs New:
• In the old institutionalism, issues of influence, coalitions, and competing values were central, along with power and
informal structures (Clark, 1960, 1972; Selznick, 1949, 1957). Institutionalism with its emphasis on legitimacy, the
embeddedness of organizational fields, and the centrality of classification, routines, scripts, and schema (DiMaggio
& Powell, 1983; Meyer & Rowan, 1977). Institutional theory is not usually regarded as a theory of organizational
change, but as usually an explanation of the similarity ("isomorphism") and stability of organizational arrangements
in a given population or field of organizations.
• Ledford, Mohrman, and Lawler (1989: 8), for example, concluded that institutional theory offers not "much guidance
regarding change." Buckho (1994: 90) observed that institutional pressures are "a powerful force" against
transformational change.
• Here they present the opposite view, agreeing with Dougherty that the theory contains "an excellent basis" (1994:
108) for an account of change, first, by providing a convincing definition of radical (as opposed to convergent)
change, and, second, by signaling the contextual dynamics that precipitate the need for organizational adaptation
(Leblebici, Salancik, Copay, & King, 1993; Oliver, 1991).
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• As formulated, however, neo-institutional theory is weak in
analyzing the internal dynamics of organizational change. As
a consequence, the theory is silent on why some
organizations adopt radical change whereas others do not,
despite experiencing the same institutional pressures.
Nevertheless, neo-institutional theory contains insights and
suggestions that, when elaborated, provide a model of
change that links organizational context and intra-
organizational dynamics.
• Salient characteristics of what has become known as neo-
institutional theory.
• The Impact of the Institutional Context
• Templates of Organizing, Isomorphism, and Convergence
• Resistance to Change
• The Possibility for Change
• Intraorganizational Dynamics
• Precipitating Dynamics
• Enabling Dynamics 11
• In this article, the central purpose is to provide an
explanation of both the incidence of radical change and
of the extent to which such change is achieved through
evolutionary or revolutionary pacing. The explanation
has three themes.
• First, they establish that a major source of organizational
resistance to change derives from the normative
embeddedness of an organization within its institutional
context. This statement is a central message of
institutional theory.
• Second, they suggest that the incidence of radical
change, and the pace by which such change occurs, will
vary across institutional sectors because of differences in
the structures of institutional sectors, in particular in the
extents to which sectors are tightly coupled and insulated
from ideas practiced in other sectors.
• Third, they propose that both the incidence of radical
change and the pace by which such change occurs will
vary within sectors because organizations vary in their
internal organizational dynamics.

• It is important to establish two aspects of change of particular concern here:
• first, the difference between convergent and radical change and,
• second, the difference between revolutionary and evolutionary change.
• Revolutionary and evolutionary change are defined by the scale and pace of upheaval and adjustment.
Whereas evolutionary change occurs slowly and gradually, revolutionary change happens swiftly and
affects virtually all parts of the organization simultaneously.
• They suggest that the resource dependence thesis complements the institutionalist perspective,
because market pressures may well reconfigure power relationships within an organization.
• Hinings and Greenwood (1988b) pointed out that it may be quite unusual for the market and
institutional contexts to produce strong, consistent signals about the need to change to a new
archetype. There may well be conflictive institutional signals.
• Most studies of the future workplace stress increasing workforce diversity (e.g., Boyett & Conn, 1991;
Krahn & Lowe, 1993). Similarly, the trend of contemporary society has been toward increased
specialization of knowledge and thus of occupational differentiation.
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• Key Points:
• 1-The first is that institutional theory does, in fact, have a contribution to make to understanding
organizational change, which goes beyond the ideas of inertia and persistence. But this can only
happen when the old and the new institutionalism are combined in a neo-institutionalist
framework. As so often happens in the evolution of theoretical areas, there is a period of
movement away from starting points, a process of rediscovery of those starting points, and the
"reincorporation" of these points into existing theory. We have attempted to start this task.
• 2-A second key point is that it is when theorists research the interaction of organizational actors
with institutionalized contexts that they will find new directions. It is in the intersection of two
forces that explanations of change and stability can be found. On the one hand, institutions are
shapers of organizational arrangements (Jepperson, 1991; Jepperson & Meyer, 1991). On the
other hand, key actors in organizations articulate views of strategy and have the power to
implement that view (Fligstein, 1991).
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From plan to plant
Sine, David & Mitsuhashi
• Approximately it took at least 8 years to complete that research. Sine and David hypothesize and show that
formal certification from authorized actors increases the likelihood of making this transition.
• In this paper, they examine how these two types of legitimating processes affect a new venture’s ability to
reach operational start-up in a nascent sector.
• Past theoretical work on new sectors suggests that planned ventures face tremendous obstacles in
assembling the resources necessary to begin operations, i.e., in going “from plan to plant.” In this paper, we
study the transition from planned venture to operational start-up in the emergent independent power sector
and explore the role of legitimacy at the level of both the individual organization and the organizational form.
In his influential analysis of legitimacy, Suchman (1995, p. 572) distinguished between:
• strategic legitimating actions, in which organizations “instrumentally manipulate and deploy evocative
symbols in order to garner societal support”
• institutional processes that transcend the actions of any single organization and affect entire sectors, or
forms of organizations.
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From plan to plant
• At the organizational level, they focus on a specific type of strategic legitimating action: Obtaining external certification. They
define certification as “a process in which a central institutional actor with authority or status formally acknowledges that a
venture meets a particular standard.”. Past research on the relationship between certification and venture performance largely
ignores preoperational ventures in new sectors and pays little attention to the legitimating impact of certification. Instead,
research on certification generally focuses on the information it provides about individual or organizational quality.
• For instance, Spence (1974) linked the signaling ability of certification to its cost, such that those unlikely to meet the
certification criteria are also unlikely to bear its costs. Others argue that certification reveals “information about otherwise
hidden [emphasis added] organizational attributes and behaviors” (King et al. 2005, p. 1092). This line of reasoning suggests
that the value of a certification is fundamentally derived from its ability to provide information about organizational quality that
would otherwise be difficult to observe. An organization’s legitimacy, or the degree to which it is perceived to be desirable,
proper, or appropriate within a social setting (Suchman 1995, p. 574), affects its ability to obtain the resources necessary for
its ongoing survival (Parsons 1960). Organizations with low legitimacy may find it difficult to obtain relevant licenses, capital,
labor, and partners for their ventures.
• They investigate the role of both certification at the organizational level and sector-legitimating processes that transcend the
activities of individual organizations in establishing the legitimacy of new business ventures. While certification occurs at the
organizational level, they also consider how this strategic action interacts with sector legitimacy.
• Firm-Level Certification
• Sector-Legitimating Processes
• Interactions Between Sector Processes and Firm Certification
16

From plan to plant
• These results provide strong support for their contentions about the effects of both certification and
sector- legitimating processes on the ability of new ventures to reach operational start-up. Past work has
shown that endorsement from authorized actors can enhance organizational survival (e.g., Baum and
Oliver 1991, Rao 1994) and decrease time to IPO (Stuart et al. 1999). Researchers show that it also
improves the likelihood of going from plan to plant. They focus on a particular type of endorsement—
certification—and argue that the value of certification does not lie only in providing information that is
unavailable elsewhere, but that certifications also confer legitimacy benefits
• Moreover, they find that the effects of certifications at the organizational level are contingent on these
larger, sector-level processes: Certifications have a greater impact in the face of events that decrease
the overall legitimacy of a sector and a smaller effect when a sector is characterized by greater
legitimacy. This suggests a more complex pattern than that found in past studies, where the effects of
certification were implicitly or explicitly assumed to be constant.
• Finally, they show that strategic legitimating actions, such as certification, and institutional legitimating
processes interact in interesting ways: Strategic legitimating actions can mitigate the uncertainty that
surrounds new ventures in new sectors, but such actions become less important as sector legitimacy
increases. Both entrepreneurs and scholars concerned with the fate of new ventures in nascent sectors
would benefit from greater attention to these interrelationships.
17

Structure! Agency!
Heugens & Lander
• Heugens has been seen as a quite promising researcher when he was a Ph.D. student. In this paper with Lander,
they purposed this study to elucidate these areas of theoretical and empirical tension with the help of meta-analytic
techniques. Heugens and Lander are searching for:
• Structure versus Agency
• Effects of Isomorphism on Performance
• The Influence of Organizational Field–Level Factors.
• Their study has three intended contributions:
• First, meta-analysis allows us to address the aforementioned debates empirically with data that are closer to
definitive than those reported in any single primary study (cf. Miller & Cardinal, 1994).
• Second, rather than using meta-analysis only to aggregate primary research findings, we use the technique to test
several hypotheses that have previously gone untested (cf. Eden, 2002).
• Third, meta- analytic research can identify previously unknown methodological and substantive moderating effects
on commonly hypothesized relationships (cf. Miller & Cardinal, 1994).
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Structure! Agency!
• At stake is the question of whether organizational behavior is primarily the product of macro social forces or of
organizational agency. The “master hypothesis” (Hoffman & Ventresca, 2004) of the structuralist camp is that
populations of organizations tend to become increasingly isomorphic over time as they collectively incorporate templates
for organizing from their institutional environments in search of legitimacy (DiMaggio & Powell, 1983; Tolbert & Zucker,
1983). Agency scholars take issue with this position, which they deem overly deterministic.
• Although the structure versus agency debate has existed in organizational sociology ever since the inception of the field
in the 1940s (cf. Blau, 1955; Merton, 1940; Parsons, 1960), a major impetus for empirical work in this area came from
DiMaggio and Powell (1983).
• Their seminal article enhanced the testability of theories involving structure and agency variables in three important
ways.
• First, they identified the most appropriate empirical arena for the analysis of structural and agency factors: the
organizational field. By this concept, DiMaggio and Powell mean “those organizations that, in the aggregate, constitute a
recognized area of institutional life: key suppliers, resource and product consumers, regulatory agencies, and other
organizations that produce similar services or products” (1983: 148).
• Second, DiMaggio and Powell (1983) proposed interorganizational homogeneity, or isomorphism, as the default
dependent variable for institutional theory.
• Third, DiMaggio and Powell specified three generic isomorphic pressures and gave important suggestions for their
definition and measurement.
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Structure! Agency!
• They are using Artifact-Corrected Meta-Analyses (ACMA) for their hypothesis testing. According to their results:
• Meta-analysis of this corpus of work has shown that isomorphic pressures cause organizations to become more
homogenous. This finding holds for all three commonly identified forms of pressure (DiMaggio & Powell, 1983):
coercive, normative, and mimetic. For the structure versus agency debate, these findings highlight the influence of
social structure on organizational behavior.
• This study also supports a second core prediction of institutional theory, notably that conformity to institutional norms
increases the symbolic performance of organizations.
• This study also lends further credibility to a third central insight in institutional theory, that organizational field–level
factors moderate the diffusion of new templates for organizing (Fligstein, 1985; Palmer, Jennings, & Zhou, 1993).
• Institutional theorists have suggested some of the most influential and insight- ful research hypotheses in organization
theory: that isomorphic pressures give rise to increased isomorphism in organizational fields because of the diffusion of
templates for organizing, that the diffusion of these templates benefits the conforming organizations by increasing their
symbolic performance, and that organizational field–level factors actively moderate isomorphic processes.
• The meta-analytic evidence presented here has confirmed each of these predictions and has furthermore
demonstrated that the adoption of isomorphic templates for organizing has a positive effect on organizations’
substantive performance. The institutional theory field thus vividly illustrates that a healthy dose of intellectual
quarreling is more likely to spur rather than stifle progress in organization theory.
20

Institutional equivalence
Marquis & Tilcsik
• Marquis & Tilcsik developed hypotheses about how the presence or absence of institutional equivalents
affects organizations’ responses to behavioral cues from different peer groups, how these effects vary when
peers in different fields exhibit inconsistent behaviors, and how organizational characteristics, such as size
and performance, strengthen or weaken the influence of institutional equivalents.
• Institutional equivalence, captures the similarity of institutional influences that organizations experience from
being in the same fields, regardless of how similar their network ties and positions are.
• For example, two banks in Boston might have very different pat- terns of ties (e.g., one may be a central
node surrounded by a dense network; the other may reside in a peripheral position in a sparser network)
such that they are far from being structural equivalents; yet, because they both operate in the field of finance
and in the same geographically defined field, they are subject to some of the same institutional influences.
• The theory they develop focuses on how and why institutional equivalents—organizations that are
embedded in the same set of fields—are the primary reference group for a firm when making decisions
about philanthropic giving.
• While prior research has tended to focus on only one set of peers—for example, those in either the firm’s
industry or its community—we argue that looking at the overlap of multiple institutional fields may help better
differentiate which organizations are actually seen as the relevant reference group for a firm.
21

• Within institutional theory, while a significant focus has been how and why an organization
imitates other organizations that operate in the same field, more recent research has drawn
attention to multiple institutional influences, highlighting the fact that many organizations are
embedded in more than just one field. Their study reveals the implications of this situation by
introducing the concept of institutional equivalence and showing that when institutional
equivalents exist, they serve as an obvious reference category such that firms will pay relatively
little attention to other peers with which they share only a single field. Furthermore, when the
behaviors of peers in the different fields diverge and so firms experience more uncertainty, they
are even more likely to follow their institutional equivalents.
• In contrast, organizations in an institutionally unique position lack a single obvious reference
group of imitable peers and thus attend to behavioral cues from both their community peers
and their industry peers.
• Finally, we further unpack the effect of institutional equivalents by considering how their
influence varies depending on two basic characteristics of the focal organization and showing
that larger size amplifies, while stronger performance attenuates, the imitation of institutional
equivalents.
22

• While simultaneous embeddedness in an industry and a geographic community is a
ubiquitous organizational condition, the concept of institutional equivalence also has
implications for other situations and thus contributes to institutional theory more generally as
well. For example, as globalization proceeds, corporations with a wide global spread might
have several geographically based reference groups in addition to peers in their industry and
their headquarters community (Kostova and Roth 2002).
• Most organizations simultaneously exist in multiple fields and face several institutional
influences as a result. While recent research has identified the importance of different
institutional forces on organizations, limited attention has focused on how organizations
address their enduring embeddedness in multiple distinct fields, such as industry- based fields
and local communities. To understand this ubiquitous situation, we have introduced the
concept of institutional equivalence and developed a framework that considers the nature of
the position that the focal organization occupies at the intersection of different fields.
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Baris ORAK
Thank you for listening.
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Baris Orak - Institutional Theory

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