Summary of Institution Theory

Institution theory views organizations as organisms that survive in the organizational field. Organizational field is defined as collectives of organizations, who share common meaning systems and relate and influence each other closely compared to the outsiders of the field (Scott, 2001). Institution theory takes a holistic view of the organizations and examine the affiliation, competition, shared membership, social relationships that shape and being shaped by the overall institutions. Institutions are defined as configurations of interrelationships that actors claim to gain or sustain their positions in the field. Culture, structures and routines are the containers and transporters of institutions. Institution theory has developed through three phases. 1) Organizations are filled with value and organizations can change and survive if they change their value. 2) Organizations tend to become similar to each other because of isomorphism. 3) New organizational forms can come from institutional logic or sense-making processes.

 

First Stage of institution theory

Institution theory started from Selznick’s (1957) Leadership in Administration. The starting point is the functional school in sociology, which argues that organizations’ structure is determined by their functions. Institution theory argues that organization should be analyzed as a whole rather than as separate elements. Organizations are organisms with values that grow and make sense of their environment. When the environment changes, organizations have to change their value to grow again or die. One example is Tennessee Valley Authority (TVA). TVA was established in 1930s and is utilize waterways (building ports, producing power, etc). The program turned to be a failure because its goal was subverted by local political and business organizations by different groups tending to seek their own interests. (such as Department of agriculture, farm bureau Federation, granted college and universities, etc.) Another example is Burton Clark shows that because of low ability of the students, the college in question was designed in a way that student could repeat eleventh and twelfth grades of high school and some vocational training.  One limitation of the early institutional theory is that it is ex pose, which means it explain the phenomena as it is rather than provide reasons. The contribution of the early institution theory is two-folded. 1) it take care of the environment 2) Morality and community value. The study of Crown-Zellerbach Corporation, who care only about the benefit of the minority of white community and ignored the black and poor communities adapted quite slowly to federal governments’ legal action about work segregation. And also the study of TVA shows that there was no community value, but only group interest. Therefore, there is no social value but corporate interest. 

New Institution Theory

This stage was started by Meyer and Rowan (1977) and DiMaggio and Powell (1983). The key research question is: as organizations serve different functions, why they become so similar to each other. Legitimacy is the core concept and isomorphic processes are the core mechanisms under this theory. 

Legitimacy is defined as a signal showing that the organizations have easy access to resources and markets, which indicates high rate of survival (Scott, 1995). There are two kinds of legitimacy – cognitive legitimacy (defined as spread of knowledge of new entities, such as rationalized rules) and sociopolitical legitimacy (defined as profession’s shared knowledge about new entities) (Meyer and Rowan, 1977). The subject of legitimacy can be social entities, structures, actions and ideas, etc. The sources of legitimacy include internal and external audiences, such as legitimacy-granting authorities, media, social relations, etc. Media not only serves as ways to legitimize but also as signals of legitimate. 

The process for organizations to gain legitimacy is legitimation and the source for legitimation comes from three sources: coercive, mimetic and normative pressures (DiMaggio and Powell, 1983). A large stream of research about the diffusion process flows from the isomorphic argument.  

Neo Institution Theory

Besides isomorphism, scholars start to ask where the new organizational forms come from? The research has diverged into two streams – institutional logic and sense-making processes. 

Institution logic

Institution logic takes a holistic view of the society and organizations are just part of the whole society. It focus on the cultural side of society, which means symbols, values, beliefs will be brought back, besides current focus on concrete practices and routines (Friedland and Alford, 1991). It comes from Fligstein three conceptions of control: manufacturing, marketing and finance conceptions governs the intra-organizational power struggles, field-level struggle to control market, competition, contest state legislation.

Institutional logic is defined as “Socially constructed, historical patterns of material practices, assumptions, values, beliefs, and rules by which individuals produce and reproduce their material subsistence, organize time and space, and provide meaning to their social reality.” (Thornton and Ocasio, 2008).  I interpret it as the configurations of beliefs and associated routines that the participations in the field agree on. Institution logic is the brain of institutions. Logic govern how the material and symbolic practices are arranged to produce and reproduce actors’ lives and meanings.

Institutional logic is categorized in different ways. One way is to focus on different sectors in the society: capitalism, state bureaucracy, and political democracy as three contending institutional orders which have different practices and beliefs that shape how individuals engage political struggles. Another way comes from institutions of society- the capitalist market, the bureaucratic state, families, democracy, and religion – each has a central logic that constrains both the means and ends of individual behaviors, constitutes individual identities, organizations and society.

There are two basic assumptions for institutional logic theory. First, agencies are embedded. The interests, identities, values and assumptions of individuals and organizations are embedded within prevailing institutional logics. Decision outcomes are results of interplay between individual agency (embedded with institutional logic) and institutional structure. Second, logics can influence individuals, organizations and institutions - individuals competing and negotiating, organizations in conflict and coordination, and institutions in contradiction and interdependency with different logics.

Institutional logic can shape individuals, organizations and institutions through four mechanisms. First, individuals, organizations tend to identify themselves with collectives of same logics (Tajfel and Turner, 1979). This is termed as collective identity. Collective identity is defined as “the cognitive, normative, and emotional connection experienced by members of a social group because of their perceived common status with other members of the social group “ (Polleta and Jasper, 2001). It emerges from social interactions, communications between members of social group (White, 1992). When collective identity is institutionalized, they develop their own institutional logic, these logics prevail within the social group (Jackall, 1998). 

Second, the contests between different logic for power and status generate new institutions and change organizational forms. The social status is constituted by institutional logics. But it is different from resource and structural positions. (Weber). Therefore, institutional logics influences informal status and power structures, but not formal organizational forms (Thornton and Ocasio, 1999; Lounsbury, 2002; Zhou, 2005)

Third, institutional logic shapes individuals’ cognitions through social classification and categorization.  Cognitive psychologists emphasize the importance of categories in shaping individual cognition (Rosch, 1975; Medin, 1989). The classification of social and organization categories are defined by institutions (Douglas, 1986; Searle, 1995). Institutionalization of the categories render individuals to take the categories of organizing activities for granted. Categories, as basic unit of cognition, do not imply mindless cognition, as do schemas and scripts, but are a necessary component of all mindful agentive behaviors. Changes in intuitional logics lead to the creation of new categories (Rao et al, 2003) and to changes in meaning of existing categories (Ruef, 1999; Ocasio and Joseph, 2005). 

Forth, individuals and organizations’ attention will be changed by institutional logic. Institutional logics focus the attention of decision makers on issues and solutions that are consistent with prevailing logics.  Resource competition and dependencies are not universal effect, but are contingent on organizational attention to market forces that are salient under market logics.

Practically, institutional logic is operationalized through two ways. First, institutional entrepreneurs are those who create new institutions by combining different institutional logics. The research questions can be:  how does institutional change create entrepreneurial opportunities (Sine and David, 2003). How do entrepreneurs seize the opportunities (Sine et al, 2005)? How do entrepreneurs modify or create institutions to advance their interests (Lawrence, 1999)? Second, merge and acquisition can change the combine different logics together and create something new. 

Sense-making 

Sense-making aims to understand how individuals’ or organizations’ interpretations will influence how they act (Weick, 1995). There are three basic assumptions: 1) organizations are open systems 2) organizations have their own cognitive and memory system 3) strategic managers formulate the interpretation process.

The process of sense-making has three stages. First, people assign meaning to who they are (identity) and what is the environment (enactment). Second, people choose the mental model to accept and constrain their behaviors (Weick, Sutcliffe, and Obstfeld, 2005: 409).

The whole process is rational in that it considers both the self and other’s perception, as well as the scripted interactions in relation to others’ expectations (Goffman, 1974). For example, Weick (1993) describe the Mann Gulch fire disaster as a situation, where the firefighters fail to consider the others’ perceptions, role structure and the environment, which led to a crisis of the whole organization. Another example is Scott Snook's (2000) examination of the 1991 ‘friendly fire’ incident when US F-15 fighter pilots shot down their own Black Hawk helicopters in peacetime over the Persian Gulf

Different sense-making processes determine different organizational forms and actions. On the basis of their definition of the nature of the organizations, two dimensions – environmental analyzability and intrusiveness of the organization- determine the design of the organizations (Undirected viewing, enacting, conditioned viewing, discovering). Organization behaviors are explained on the basis of their sense-making processes (predictions on scanning, interpretation, decision-making process).

There are three biases in the sense-making processes: uncertainty, ambiguouity, equivolcal . Uncertain means the actors cannot anticipate the consequences of current actions. Ambiguity means the information is not described in a clear way. Equivocality means that categories, routines and practices are open to different interpretations. Therefore, sense-making process can be influenced by different factors. Whiteman and Cooper (2011) focus on network constrains and argue that ecological embeddedness will influence the sense-making process. First, they argue that some actors are more aware of and know more about the ecological environment than other actors. Those that are more embedded in the ecological system will interpret the environment in a knowledgeable way and change the organizations’ behaviors in a different way from those disembedded actors.  Besides the network constrains, representativeness and size of other organizations can also influence the process of interpretation, especially when trying to identify competitive rivalries (Porac, et al.,1995). Technology can also change the interpretation process by defining new institutional roles and interaction patterns (Barley, 1986).

Corporate social responsibility is an area where the sense-making process can be important, because of two reasons. First, the activities firms choose to show their social responsibility is uncertain and largely determined by how the firms give meanings to themselves. Therefore, the report of the corporate social responsibility report should evolve with the identity of the firms.  

Second, firms also have to make sense of their environment to determine the CSR behaviors. When there are firms’ scandals, certain part of the CSR report is expect to be emphasized to reflect the attention of the firms. The change of reporting configuration also signals the firms’ intention, which attracts stakeholders’ attentions.  

Current development of sense-making in OB
One domain of research is about self construction. The main idea is that in organizations, individuals have to construct their identity according to their role in the organization. They provide possible self to guide their selection and assessment of their own behaviors. 

The other domain is about organizational  cognition. The main idea is that organizations' cognition are constellations of individuals' cognition under constrains of the organization structure. As individuals' cognition is constrained by the environmental factors, organizations' cognition cannot be analyzed without considering social environment.
 

By Kate Jue Wang

References:
Greenwood, Royston, et al., eds. The Sage handbook of organizational institutionalism. Sage, 2008. 

Friedland, R., & Alford, R. (1991). Bringing society back in: Symbols, practices and institutional contradictions. In The new institutionalism in organizational analysis.

Thornton, P., & Ocasio, W. (2008). Institutional logics. The Sage Handbook of Organizational Institutionalism, 99–129.

Dimaggio, P. P. J., & Powell, W. W. W. (1983). The Iron Cage Revisited: Institutional Isomorphism and Collective Rationality in Organizational Fields. American Sociological Review, 48(2), 147–160.

Friedland, R., & Alford, R. (1991). Bringing society back in: Symbols, practices and institutional contradictions. In The new institutionalism in organizational analysis.

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