In the remainder of this chapter we argue that approaches emphasizing content and pairwise relations should be supplemented by others that emphasize the dynamics of boundaries in organizational space. To motivate this alternative perspective, it is instructive to consider a seemingly quite different problem. Social life in many societies is channeled by boundaries that partition populations into ethnic groups. Such boundaries persist in physical and social space despite large-scale movement of individuals across the boundaries. How is the persistence of ethnic boundaries to be explained? One approach, which parallels those sketched in the previous section, looks to differences in sociocultural content of ethnic populations, suspecting that content shapes interaction and creates social boundaries. However, close inspection reveals that content often varies greatly within stable ethnic populations both at one point in time and over time. Moreover, distributions of sociocultural attributes of sharply distinguished ethnic groups often overlap considerably while the social boundaries often remain strong.
Fredrik Barth (1956, 1969) proposed a brilliant solution to the seeming paradox of variable cultural content within ethnic groups and shifting membership, on the one hand, and stable, strong ethnic boundaries, on the other. He turned the problem on its head, treating the boundaries as the primary social phenomena and the cultural content as the by-product of the boundaries. The problem then becomes the identification and explanation of the social processes that create and sustain ethnic boundaries. This shift in perspective from attribute-based reasoning to explicit consideration of ethnic boundaries has stimulated much productive research (see the review by Olzak 1983).
We suggest a parallel shift toward boundary-based reasoning in identifying and classifying organizational forms. The main idea is to locate the boundaries and the processes that sustain them as a first step in identifying the structure and dynamics of the niche (Hannan 1979). Instead of beginning with problems of classification, this approach begins with the question: Where do organizational forms come from?
The key issues in considering boundaries around forms pertain to segre- gating processes and blending processes. Continuity in the world of organi- zations depends on the relative strength of these opposing processes and, in some cases, on the initial conditions. If segregating processes dominate, discontinuities are sharp and distinctions among forms reflect real qualitative differences. If blending processes dominate, distinctions among forms are more arbitrary.
Some of the characteristics of organizations cited in conceptions of forms based on dependencies seemingly play a role in creating and maintaining boundaries between populations. We think that technologies and the transaction costs involved in implementing them in particular social environments play such a role. But most of the discussion in this section directs attention to factors that have not been given much weight in previous treatments: social networks, collective action by members of organizational populations, and institutional processes.
A broad class of technological factors apparently creates differences between forms, at least at the plant level. Much research has shown that certain forms of technical production are inconsistent with certain kinds of control structures and other features of structure. Classic statements of this view have been made by Burns and Stalker (1961), Woodward (1965), and Thompson (1967). Stinchcombe (1983) provides a detailed analysis of the technical constraints shaping manufacturing, construction, farming, and commercial industries.
The case of the semiconductor industry is instructive. It is widely taken for granted that the set of firms producing semiconductor devices constitutes an industry. Undoubtedly the fact that most such firms have located in the Santa Clara Valley, now dubbed Silicon Valley, has heightened the imagery of a bounded industry with a distinctive technology, distinctive organizational forms, and closed networks of mobility. But is this industry really so sharply differentiated from the broader electronics industry?
The distinction between semiconductor producers and other electronics manufacturers seems to be based on real differences in technology. As Brittain and Freeman (1980) noted, the dominant producers of vacuum tubes failed miserably in trying to produce semiconductor devices. This failure apparently stemmed from discontinuities between technologies for producing the two types of devices. Successful producers of vacuum tubes used standardized methods of production with tight managerial controls to drive production costs down in the face of a stable, well-known technology. Production of semiconductor devices, initially more an art form than a standardized technique, involved high levels of uncertainty and rapid technical change. The organizational structures and management styles appropriate for producing vacuum tubes could not accommodate the arrangement of work demanded by the new products. Engineers with specialized knowledge of semiconductor design and fabrication eventually left the giant electronic firms and joined or started specialized semiconductor producers using different organizational forms.
A more general formulation of this argument points to qualitative differ- ences in transaction costs. Williamson (1975, 1985) has argued that techno- logical differences per se are less important in determining organizational forms than are considerations of transaction costs. Technology surely affects the costs of production and of completing transactions; but so too do problems of control, scheduling, supervision, and enforcement of contracts. Efforts to minimize the costs of completing certain transactions typically result in bundling sets of transactions together within the same corporate actor. What Williamson calls the “efficient boundaries” of the organization are those that bundle transactions so as to minimize transaction costs. When transaction-cost considerations lead to distinctive and persistent bundling of sets of transactions, organizational forms will tend to diverge. Selection of forms of organizations employing efficient boundaries or rational adaptation by reshaping boundaries of existing organizations creates discontinuities among populations of organizations engaged in different kinds of transactions.
Closure of social networks also creates and maintains differences between populations giving rise to distinct forms. For example, when organizations hire each other’s employees, they develop a high degree of in- breeding with respect to the elements of structure coded in individual memory and routines. Inbred populations tend to diverge from general populations of organizations. Idiosyncratic language and culture develop and diffuse through the closed population, sharpening the differences between insiders and outsiders. Because idiosyncratic language and culture tend to become markers of competence, inbreeding feeds on itself. Populations separated in such networks tend to become different social worlds.
Successful collective action on behalf of a population also creates boundaries.17 When, for example, collections of firms create industry asso- ciations, they sometimes produce a sense of collective identity and of distinctiveness. Moreover, collective action often stimulates passage of laws and creation of other institutional rules that reinforce a proto-boundary around the population. The pharmaceutical industry, for example, has used this strategy successfully (Hirsch 1975). The existence of these monopolies creates discontinuities in the world of manufacturing organizations.
Perhaps the most important segregating mechanisms arise from two kinds of institutional processes. One kind is purely structural: a social actor (using a specific organizational form) is institutionalized to the extent that other powerful actors in the system endorse its claims in disputes (Stinchcombe 1968). In this sense, labor unions became institutionalized in the United States only after passage of the Wagner Act in 1935, which held that organizations using a specified labor union form had special standing in making certain claims. That is, the state became committed to intervening in certain ways to support workers’ claims if they used this organizational form but no other.
The case of labor unions illustrates an important point: The events that institutionalize a boundary around an organizational population at the same time often codify the features of the form. Both the consequence of becoming institutionalized and the accompanying process of codification strengthen boundaries around forms.
Institutionalization conveys powerful advantages. Because institutionalized actors can call upon other powerful actors for aid in resisting raids on their resources, institutionalization lowers mortality rates. Unless this tendency is offset by a founding process that blurs boundaries, such a process produces a world of organizations with clear discontinuities and defended boundaries. That is, selection in favor of institutionalized forms intensifies the boundaries around the forms that emerge from the selection process.
A second institutional process pertains to the taken-for-granted character of certain forms (Meyer and Scott 1983; Zucker 1983). A form is institu- tionalized in this sense when no question arises in the minds of actors that a certain form is the natural way to effect some kind of collective action. In this sense, the labor union form became institutionalized long before the Wagner Act, which was enacted several decades after workers had stopped debating whether labor unions were the natural vehicle for collective action for improving conditions of work. The capacity to mobilize members and other resources to begin unions, firms, and other kinds of organizations increases greatly when controllers of resources take the question of organizational form for granted. Not having to defend choice of form saves time and other organizing resources. As a consequence, attempts at creating copies of legitimated forms should be more common, and the success rate of such attempts should be relatively high.
Both kinds of institutional processes operate on any source of initial diversity, transforming arbitrary differences into differences with real social consequences. In this sense, nominal classifications become real clas- sifications. They become real in their consequences when they serve as bases for successful collective action, when powerful actors use them in defining rights and access to resources, and when members of the general population use them in organizing their social worlds. Thus the clarity of a set of boundaries is not a permanent property of a set of classifications. Rather, the realism of distinction among forms depends on the degree of institutionalization that has occurred.
It is important not to overstate the strength of segregating mechanisms. Blending processes work to erode boundaries among populations. Organi- zational foundings provide occasions at which forms and routines can be both consciously and unintentionally varied from orthodoxy. Much entrepreneurial activity involves conscious attempts to revise forms and routines to take advantage of changing opportunities and constraints or to avoid defects in orthodox designs. As Freeman (1986b) notes, ongoing organizations are the training grounds for entrepreneurs and often provide negative lessons about organizing. For example, according to the lore of Silicon Valley, some of the early entrepreneurs in the industry consciously set out to create the opposite of the authoritarian control systems used in Shockley Semiconductor Laboratories, the founding firm in the industry. When efforts to implement novel forms succeed, they can result in a blurring of the boundaries among a set of forms or in the rise j3f a distinctly different form. Even if the innovations result eventually in a new boundary, the transition period is characterized by blurring of prior boundaries.
Planned variations in design are not the only sources of new diversity. Attempts at replication in a particular context often involve subtle, unplanned changes in routines or procedures. Such unintended changes occur frequently in attempts at translating forms between sociocultural contexts because cultural differences in interpreting the template create unexpected and unplanned differences in structure.
Copying mistakes also occur routinely in ongoing organizations. Structure is rarely copied exactly from week to week or from year to year in the same organization. Processes of unintended change can blur boundaries between forms as organizations diverge from common standards. In such cases the blending mechanism, which might be called random drift, reflects the cumulation of a large number of unintended changes in procedures or routines within existing organizations. Even when each change is small, the cumulative impact of random drift on structure can be substantial over long periods. Becker (1982) provides a useful example of such drift as a source of change in the conventions sustaining institutions of an art world.
Whether drift blurs boundaries depends on its magnitude and trend. Its impact on structure also depends on organizational size: drift is unlikely to cause major changes in large organizations. However, the presence, accuracy, and speed of mechanisms for monitoring unintended changes in procedures also affect the impact of drift. Small organizations may be better able to monitor and correct unintended changes.
An important source of random drift is turnover in personnel, both movement of individuals across jobs and recruitment of new members. Granted, the functioning of organizations depends less on the exact identity of its members than is the case for other social units such as families and dynasties, as Weber (1968) pointed out in discussing bureaucracy. Nonetheless, turnover in personnel does affect the functioning of organiza- tions. Indeed, high turnover is often cited as an explanation for business failure (Carroll 1983). Much detailed operational information is stored in the memories of participants. Thus the magnitude of drift depends on the rate of movement among positions, the rate of recruitment, and the heterogeneity among members both within and between cohorts of recruits.
Another blending process involves recombination of existing routines and structures into new packages. Organizations seek to adapt to changing technical and institutional environments by copying routines and structures, what DiMaggio and Powell (1983) call mimetic isomorphism. Unconstrained copying can erode boundaries among forms if not opposed by strong segregating processes.
Because inertial forces are strong and the liabilities of initiating new routines and forms are high, organizations often change structures by merging with other organizations or by acquiring them. For example, the boundary between craft and industrial unions became increasingly blurred in the early decades of this century as unions organizing single crafts merged in response to technical changes that eroded craft distinctions. These merged unions often retained the craft principle of organizing by work role rather than industrial location but incorporated increasingly diverse kinds of workers.
Joint ventures provide another opportunity for recombining existing structures in ways that blur boundaries between forms. For example, the current joint ventures between Japanese and American automakers and French and American elite wineries may result in organizational forms that combine elements of the heretofore sharply different forms.
A final blending process is deinstitutionalization. Dramatic examples of this process occur when legal or other rules maintaining boundaries between populations with similar structures are relaxed. Consider, for example, the boundary between banks and other financial institutions such as so-called thrift institutions (savings and loan associations, mutual savings banks, and credit unions) and stock brokerages. The Bank Holding Act of 1956 restricted bank holding companies to activities “closely related” to banking and charged the Board of Governors of the Federal Reserve Bank with policing this restriction. Thrift institutions were permitted to pay higher interest rates on passbook savings accounts but were prohibited from offering checking accounts and credit cards. However, in 1981 thrift institutions were granted the right to offer “negotiated order of withdrawal” accounts, which the consumer cannot distinguish from checking accounts. This single event weakened the boundary considerably, and it has become increasingly blurred as other regulations have been relaxed.
At the same time, the boundary between banks and stock brokerages began to crumble. The Wall Street Journal (July 1, 1983, p. 7) noted that “the comptroller [of the currency] has used a loophole in the Bank Holding Act to let some manufacturing and securities companies acquire banks. Because banks acquired this way have charters that don’t quite meet the definition of a bank in the law—and thus escape Fed regulation—they have won the confusing appellation, ‘nonbank banks.’” Bank holding companies retaliated by entering joint ventures with discount stock brokerages to offer brokerage services in bank offices. It is unclear that the boundary between these two populations will persist without legislative or judicial intervention.
Deinstitutionalization also occurs when rules defining a boundary are widely broken. Such a case has occurred in the organization of athletics. At one time the boundary between professional and amateur sports organizations was unambiguous. It was policed by college sports federations, the International Olympic Committee, and other agencies. However, state funding of athletics in many countries and the provision of college scholarships, under- the-table payments, and product endorsements to “amateur” athletes in the United States have created confusion and a welter of conflicting rules about amateurism. It is now very difficult to distinguish amateur and professional sports organizations.
It is easy to think of situations where blending processes dominate and others where segregating processes dominate. But it is probably not helpful to think of the two kinds of processes as stages in an evolutionary process, in the style of Aldrich (1979). Evolutionary change in the world of organizations is a stochastic process that consists of subprocesses involving the creation of forms, foundings of organizations, dissolution of organizations, and various other events. There is no fixed sequence; each of the subprocesses can occur at any time and at the same time. We have sketched an editing process operating on a continuous supply of new diversity. At any moment, new organizational forms are being created. But much potential diversity is edited out. Organizations attempt to filter out mistakes in copying procedures. Key actors in the environment often resist attempts at building novel kinds of organizations. But when a new form does establish a foothold, the whole game sometimes changes quickly. If a new form conveys real advantages in mobilizing resources or producing collective products, institutional arrangements can change quickly to accommodate it. Thus, long-term evolution in organizational populations tends to be punctuational: long periods of relatively minor change are punctuated with brief periods of very rapid alteration in forms and boundaries. Understanding boundary dynamics means learning how social conditions affect the strength and precision of the editing process.
Most issues in ecological analysis depend on relative rates of change. If the boundaries between forms shift quickly relative to rates of environmental change, the distinctions between forms are little more than an analytical convenience. But if the boundaries change slowly, the forms reflect real discontinuities. So in addition to answering the question of where organizational forms come from, organizational theorists and researchers need to pay attention to the relative speeds of segregating and blending processes.
Source: Hannan Michael T., Freeman John (1993), Organizational Ecology, Harvard University Press; Reprint edition.