Institutional theory is a theoretical framework for analyzing social (particularly organizational) phenomena, which views the social world as significantly comprised of institutions – enduring rules, practices, and structures that set conditions on action. Institutions are fundamental in explaining the social world because they are built into the social order, and direct the flow of social life. They are the constants that determine the rules of variation. Institutions condition action because departures from them are automatically counteracted by social controls that make deviation from the social order costly. These controls associate nonconformity with increased costs, through an increase in risk, greater cognitive demands, or a reduction in legitimacy and the resources that accompany it.
Institutions are not everywhere and for everyone; rather, they are situated within specific social contexts and condition action within those contexts. Consequently, institutional research typically focuses on the institutional context – sets of institutions and their relationships and effects that are relevant in a situation. Institutional contexts provide cognitive frameworks for social actors, and these frameworks both constrain and enable action. Institutional contexts constrain action by enacting rules that are often invisible, having a taken-for-granted status among actors in that context. At the same time, these contexts enable action by making the world understandable and actions meaningful.
The resurgence of institutional theory in the 1970s began with investigations of the effects of institutional contexts on the structures of organizations (Meyer & Rowan 1977). Over time, researchers began to theorize the dynamics of the institutional context itself. For instance, they examined how a social fact can reach the status of an institution, i.e., become institutionalized. They also addressed many fresh questions, e.g., how institutions die, how they change, how they relate to each other, how social actors can affect their institutional context. These efforts have expanded institutional theory to constitute a wide range of social research.
Early History And Foundations
The effects of great institutions such as language, government, religion, laws, and family are so clear and widespread that one can hardly imagine social research that would not attend to them. Consequently, the history of institutional theory is as long as the history of social theory. The first systematic attempts to theorize what institutions are and how they influence action and structure, however, are found in the writings of two classical scholars: Max Weber and Emile Durkheim. Although Weber did not use the term institution, his notion of cultural rules or systems is close to our present understanding of the concept of institution. The interpretive approach of Weber highlighted the idea that action is social in the sense that the actor attaches a subjective meaning to it. So meanings always mediate social action. Therefore, the role of beliefs or cultural systems becomes clear: they provide a set of meanings required to interpret actions.
For Durkheim, institutions are symbolic systems: systems of knowledge, belief, and moral authority. He highlights the idea that these symbolic systems are subjective products of human interaction, but experienced by people as objective. So institutions exist and play a role in people’s lives in the same way as external facts. Moreover, institutions possess moral authority and are backed by religion-like sanctions. For instance, collective representation is vital to institutions in the same sense that rituals and ceremonies are vital to religious systems, because action enacts belief.
The study of institutions and their origins and effects continued gradually until the foundations for dramatic progress in institutional theory were laid down by two academic movements: phenomenology and ethnomethodology. The seminal work of Berger and Luckmann (1966) in phenomenology revealed the structures of meaning shaped in social interactions. They argue that it is through linguistic processes that common definitions of reality are constituted, accepted, and legitimated. Institutions, as constituted by reciprocal typifications of habitualized action, are essentially cognitive constructions that control social action independent of any form of sanction.
Ethnomethodology investigates the nature of practical knowledge, the tacit background knowledge people employ in daily interactions. Garfinkel (1967) showed that the cognition used in everyday interactions is not a rational quasi-scientific process but a routine that relies on conventional practical reason that functions beneath the level of consciousness. Garfinkel also argues that norms are cognitive guidance systems, and actors employ them flexibly with a great capacity for negotiation and innovation. Together, phenomenology and ethnomethodology paved the way for institutional researchers to theorize how action is influenced by institutional context.
Late History And Debates
The new wave of academic interest and attention to what became known as neoinstitutional theory started with two seminal works in the area of organization theory. First, Meyer and Rowan (1977) argued that, in modern societies, organizations are in a highly institutionalized context of various professions, policies, and programs, which serve as powerful myths. Many organizations ceremonially incorporate these products, services, techniques, policies, and programs, because they are understood to produce rationality. In this way, organizations do not necessarily make their structures more efficient in terms of task-performing functions. Rather, organizations align their structures with the institutional context, and in so doing gain legitimacy, resources, stability, and better survival chances. The key idea established in this work was that the formal organizational structure has a symbolic aspect in addition to its functional aspect, and this symbolic aspect is influential both in the decision to adopt a structure and in gaining legitimacy and better survival chances for organizations.
The second key work that established neo-institutional theory was DiMaggio and Powell’s (1983) analysis of the institutional processes by means of which the institutional context forces organizations to be isomorphic – similar to each other, in form and practice. The article introduces three isomorphic processes: coercive, mimetic, and normative. Coercive isomorphism results from formal or informal pressures exerted on the organization by the government, other organizations, or the cultural expectations of the environment. Mimetic isomorphism is associated with uncertainty in goals, technology, or market dynamics, which leads organizational decision-makers to adopt structures and practices that model other leading organizations in their fields. Normative isomorphism results from the standards and cognitive frameworks that are created and controlled by professions and other moral standards-making bodies. By means of these three processes, DiMaggio and Powell (1983) argue that rational actors of institutionalized fields make their organizations more similar.
Since these seminal works in the neo-institutional movement, extensive work has been published under the banner of institutional theory, particularly in the area of organization studies. Within this tradition, researchers have challenged the classic themes of study by introducing new concepts and units for analysis. Most critically, the concept of a field – as the set of all the organizations that form a recognized area of institutional life, including key suppliers, resource and product consumers, regulatory agencies, organizations with similar products or services, etc. – has become perhaps the central focus of analysis in neo-institutional theory (e.g., DiMaggio 1991; Fligstein 2001; Greenwood et al. 2002). Other key concepts include institutional logics (Friedland & Alford 1991; Thornton & Ocasio 1999), institutional change (Greenwood & Hinings 1996; Seo & Creed 2002), and institutional entrepreneurship (Eisenstadt 1980; Fligstein 1997; Greenwood & Suddaby 2006).
Although it springs from largely interpretivist roots, institutional theory has been employed in many areas with a variety of methodological and epistemological approaches. Researchers from both realist and social constructionist traditions now locate their work within the institutional theory umbrella, creating two quite distinct styles of institutional theory and two different lines of inquiry. The realist researchers tend to see the world as stable and try to find an explanation when they confront a change. In contrast, social constructionist research tends to expect change everywhere and tries to find an explanation when it confronts stability. Likewise, researchers with both quantitative and qualitative methods have employed institutional theory. As a result, institutional theory is understood as compatible with many different perspectives and research questions, and has no common set of constructs or methods.
Despite, or perhaps because of, its wide acceptance, institutional theory is associated with intense, unresolved debates around key constructs and issues. The meaning of the concept of an institution, for instance, is considered by many researchers, particularly from realist traditions, to be overly ambiguous and thus lacking in terms of being a reasonable construct for research. Those researchers argue that this ambiguity is the result of lack of both theoretical and methodological elaboration on the process of institutionalization. Other researchers doubt if phenomenology and ethnomethodology can provide a useful micro-sociological foundation for institutional theory. While some researchers are attempting to find a better micro-foundation drawing on the works of Pierre Bourdieu, others argue that institutional theory is basically a macro-perspective and there is no need to elaborate much on the micro-level. Finally, there is debate with respect to the intellectual boundaries of institutional theory, with some researchers arguing that institutional theory has expanded beyond its proper domain.
Two new directions have been proposed for the development of institutional theory, and provide promising avenues of development for both theory and empirical research. The first addresses the question of how social actors may purposively influence their institutional context. This line of research was initiated by the introduction of the concept of institutional entrepreneurship and has attracted a great deal of attention in recent years. Organizational researchers are particularly attracted to the concept because of their interest in power and agency – the ability of organizations to strategically alter the institutional context could undoubtedly be a source of power and superiority for organizations. This issue has recently been developed as the more general concept of institutional work – purposive action aimed at creating, maintaining, or disrupting institutions (Lawrence & Suddaby 2006).
The second direction for future research focuses on the development of endogenous explanations for institutional phenomena. In contrast to much of the earlier work, which emphasized exogenous shocks as underlying institutional change, researchers in this new tradition argue for the need to explain institutional dynamics in terms of closed causal loops. Some primary attempts in this direction have begun and are focusing on the development of endogenous understandings of rationalization (Meyer & Jepperson 2000).
It should also be noted that as a future direction for the literature of organizational communication, researchers have just started to employ institutional theory for their explanations of macro-phenomena. The underlying idea for this direction of research is that both institutional effects on organizations and the organizing processes of institutions are mediated by communication processes. Therefore, organizational communication researchers are increasingly recognizing the institutional context of organizations because that is where the communication processes are situated (Lammers & Barbour 2006).
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