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BUS 374 – Session 4 Organization theory Session 2: Do organizations always act similarly?
BUS 374 – Session 4Organization theory
Session 2: Do organizations always act
similarly?
AgendaO Memo presentation #1 (Hannan &
Freeman, 1977)O Memo discussion #1O Memo presentation #2 (Hsu &
Hannan, 2005)O Memo discussion #2O Do organizations always act similarly?
New Institutional TheoryDiMaggio & Powell, 1983
O “Do organizations always act similarly?”
Iron Cage RevisitedO Bureaucracy as an Iron Cage
O Set up for increasing efficiency of government machinery
O But once set, it takes a life of its own…
O Rules, procedures and hierarchy for the sake of rules and not for efficiency
Too many procedures and redundant hierarchy
Increasing adoption of bureaucracy in organizations
O “making organizations more similar without necessarily making them more efficient”
O But why?O Isomorphic pressures
O Competitive isomorphism as discussed by Hannan & Freeman (1977) is important
O But more importantly, institutional isomorphism – a form of legitimacy seeking
Institutional sources of isomorphism
OCoercive
OMimetic
ONormative
Coercive isomorphismO Pressures from organizations that the
organization in question in connected to or dependent on.O Government mandatesO SuppliersO Consumers
O Can be both explicit and subtle
Some predictions for coercive isomorphism
O Organization levelO A-1: Dependence on another
organizationO A-2: Centralization of resource supply
positively moderates A-1O Field level
O B-1: Dependence on single (or homogenous) source(s) in a field
O B-2: Greater state intervention
Mimetic isomorphismO Modelling after successful organizationsO Driven by uncertainty about what the best course of
action isO Also by causal ambiguityO Consulting firms play a roleO Sometimes even innovation can be a result of imitation
(of processes) – i.e., setting up an R&D division.
Some predictions for mimetic isomorphism
O Organization levelO A-3: Uncertainty leads to imitation of
successful organization’s practicesO A-4: Ambiguity of goals leads to imitation of
successful organization's actionsO Field level
O B-3: Fewer the models, quicker the isomorphism
O B-4: Greater uncertainty and more ambiguity of goals, stronger isomorphic tendencies
Normative isomorphism
O Pressures which are brought about by professions
O People hired with similar education backgrounds will tend to approach problems in similar way
O Inter-organizational mobility of personnel can lead to import of norms
Some predictions for normative isomorphism
O Organization levelO A-5: Reliance on academic credentials
for hiring leads to similarity of practices
O A-6: Executives participating in professional organizations can lead to similarity of practices
O Field levelO B-5: More professionalism in the field,
more isomorphism
Middle status conformity – Phillips & Zuckerman, 2001
O Isomorphic behavior is status dependent
O High and low status actors deviate
O Middle status actors conform
Action evaluation by audience
O Audience classify offerings as legitimateO i.e., legitimacy is a yes or no
O Screen out illegitimate offeringsO Select among legitimate offeringsO Over time, status implies legitimate
offeringsO Higher the status, higher the implied
legitimacy of offeringsO But middle status are scrutinizedO Low status are not even considered
Why middle status conform
O Middle status players risk status downgrades
O High status players enjoy a relatively stable position due to default legitimacy
O Low status players do not get evaluated and don’t pursue legitimate actions, as it is costly and useless for status mobility
High, Middle and LowO High: The legitimate playersO Middle: The wannabes legitimate
playersO Low: The Non players
Empirical test 1: Silicon valley law firms
O Corporate law most covetedO Family law is not soO Diversification of corporate law firms into
family law is seen as devianceO High status actors can show it as a value
addition to their corporate clientele (a disclaimer)
O Middle status actors cant say the sameO Low status actors don’t careO Found a U shaped relationship between
status and diversification into family law
Empirical test 2: Investment analysts
O To make informed buy/sell recommendations analysts need insider information
O Insiders will be reluctant to provide information if analysts is likely to issue a sell recommendation
O So analyst are discredited for issuing sell recommendation
O Large institutional investors seek honesty from analyst
O But institutional investors also know that an analyst without good standing with insiders will not be able to make good judgment, hence a compromise is a hold recomendation
Status difference in buy/sell recommendations
O High status analyst can issue sell recommendations as they will be seen as the bold ones who did report their recommendation honestly
O Low status analyst issue sell recommendations as they do not have insider network and neither can they get it by conforming to their expectations
O Middle status analyst issue buy recommendations alone to keep their network with insiders intact – i.e., to remain legitimate
O Found U shaped relationship between status and issuance of sell recommendation
That’s it for todayO For our next session we will have our
EXAM:O IN Class, Open Book (i.e., you are
allowed to bring the articles, lecture slides and memos)
O Short-answer type questions
