Institutional Theory Revisited

The work by Meyer & Rowan (1977) and DiMaggio & Powell (1983) has incontestably laid the foundation of neo-institutional theory, which also remains one of the most influential paradigms in organizational scholarship to date (Glynn & D’Aunno, 2023). While there is a big common ground between the two as they both claim and substantiate why organizations become increasingly similar over time, the underlying explanation about how such a process may unfold and the conceptual apparatus that accompanies such theorization – in terms of constructs, mechanisms, and propositions – differs quite a bit.

Meyer & Rowan characterize organizations as collectivities that arbitrate social and technical demands by creating formal structures that uphold and reinforce institutionalized rules – albeit ceremonially. This is to say, while organizations wilfully incorporate institutionalized myths into their formal routines to appear socially credible and legitimate, they do it in a manner that doesn’t undermine and interfere with technical demands of production and exchange. As a result, for the most part, formal systems and policies in organizations are enacted independently of the actual production process and are therefore deemed symbolic. Such decoupling is strategic for organizations in a sense that it allows them to strike a balancing act: secure legitimacy while insulating technical core from the instabilities of the social systems. Overall, Meyer & Rowan demonstrate why and how organizations, and more specifically their formal structures, become increasingly templatized with proliferation of institutionalized rules and underscore how organizational preoccupation with twin objectives of legitimacy and efficiency is often realized through decoupling.

I find their work insightful, but also misplaced on two important accounts – first, it is assumed that institutional prescriptions are internally consistent and that organizations do not exercise discretion (or agency) as they attend to these demands, especially the conflicting ones; and second, it is claimed that organizations almost always decouple their formal structures to insulate their technical core from the vagaries of the institutional environment. It makes me wonder how Meyer & Rowan would have explained organizations “institutionalizing” their technical systems when faced with Knightian uncertainty and conceivably modified their theorization to account for organizational responses to inconsistent rules and prescriptions.

Compared to Meyer & Rowan, DiMaggio & Powell seems to have offered a much more distilled theorization of why organizations become similar over time. To begin with, the concept of “fields” is central to their exposition and is also the fundamental unit of analysis. They claim that not all organizations are subject to the same institutional demands, rather organizations are exposed to varying pressures depending on the field and the space in that field they occupy. They further insist that the relentless pursuit for legitimacy, even though important, only explains partly why organizations become similar over time. To this end, they tease out three specific bases that propel organizational homogeneity – coercive, mimetic, and normative - and explain how each dimension may shape and impact organizations, including their technical sub-systems, which was earlier conceived of as insulated and impermeable. They also do not treat the process of institutionalization ceremonial, rather deeply seated as it is seldom contained through and limited by formal structures. It is also important to note that this process is replete with paradoxes as the degree of homogenization is often intensified by wilful actions of so-called rational agents who aspire to create and maintain distinctive organizations.

Selznick conceptualizes institutionalization as a process that ordains and ascribes organizations a “distinctive character”. His notion of institutionalism is seemingly grounded in the “interpretivist paradigm” as he underscores the importance of analyzing an organization over an extended time, be mindful of its historical context, and pay special attention to how it has become distinctive over the years that followed to untangle the process of institutionalization. He further posits how institutionalization makes organizations less expendable: organizations become more and more institutionalized because of deep and inextricable human involvement and their expendability diminishes. The simultaneous existence and involvement of the informal sub-structure has the potential to subvert the intended goals, let alone change organizational processes and routines to attend to internal and external demands (Selznick’s work on “TVA and the Grassroots…” being the most fitting example). This is to say that their structural features cannot be easily altered, transformed, and extinguished as they no longer just represent the technical demands but a value-infused way of organizing that has been institutionalized and is therefore likely to persist and reproduce over time.

There are strands that run common to both old and neo institutionalism: both perspectives illuminate how organizations partake in activities not entirely guided by administrative and efficiency logic and how such engagement may lead to the institutionalization of certain practices. That said, there are notable conceptual differences:

1. Neo-institutionalism is geared towards explaining why organizations become similar over time. On the other hand, old institutionalism focuses on describing how organizations acquire a distinctive identity as they become infused with values through their interaction with internal and external social worlds.

2. Neo-institutionalism offers a macroscopic view by explaining why organizations belonging to a certain field become similar over time. Because of its underlying deductive logic, it fails to account for the micro-level variations. On the contrary, old institutionalism advocates a more concrete and definitive approach to analyze organizations: it identifies specific actors or referents and how each of them feeds the process of institutionalization. But as it is more inductive, it fails to generate macro-level actionable insights.

For the reasons stated above, I find both versions of institutionalism equally fascinating and compelling despite their respective shortcomings. To that extent, both perspectives complement each other and can be invoked simultaneously to research a specific context.