Interactive Institutional Processes

Although all organizations in a given institutional field or sector are subject to the effects of institutional processes within the context, not all experience them in the same way or respond in the same manner. Just as social psychologists call attention to “individual differences”— differences among individuals in their definition of and response to the same situation—students of organization have increasingly attended to differences among organizations in their response to the same environ- ment. I review here studies examining how adoption responses vary because of differences among organizations in the amount of pressure they experience, in their characteristics, or in their location within the field. In a later section of this chapter, I consider a broader array of responses by organizations to their institutional environments.

The general question addressed is: Why are some structures or practices adopted by some organizations, but not others in similar situ- ations? Granted, simple adoption of a practice is not a strong indicator of “deep institutionalization” (Owen-Smith and Powell 2008: 596); diffusion is a necessary if not sufficient indicator of institutional change. This question is of interest not only to institutionalists, but also to students of the diffusion of innovation (see Abrahamson 1991; Rogers 1995; Strang and Soule 1998) and organizational learning (see Haunschild and Chandler 2008; Haunschild and Miner 1997; Ingram 2002; Levitt and March 1988). The latter ask in this connection: How do organiza- tions learn both from their own experience and from the experience of others? Institutional arguments, emphasizing the effects of rules, norms, or constitutive beliefs, shade off into stratification and instru- mental arguments, for example, that organizations imitate others whom they perceive to be successful or prestigious (see, e.g., Burns and Wholey 1993; Deephouse and Suchman 2008; Haunschild and Miner 1997; Haveman 1993). Many motives conduce toward conformity: fads, fashion, status enhancement, and vicarious learning. Not all mimetic behavior involves institutional processes.

A study by Kellogg (2011) details the ways in which new regula- tions adopted by the American Council for Graduate Medical Educa- tion to restrict the work hours of hospital residents to an 80-hour week were variously implemented in three hospitals in urban centers of the same region. Kellogg shows how the same macro-level normative pres- sures for reform were dependent for their success on the mobilization of reformers within the organization willing to fight for change against internal defenders. Macro-level reforms require the vigorous support of micro-level leaders if change is to be realized.

1. Variable Institutional Pressures

All organizations in the same field are not equally subject to the institutional processes at work there. Organizations vary in the extent to which they are under the jurisdictional authority or on the radar screen of oversight agencies. Regulative requirements regarding employee protections such as health and safety rules often apply only to organizations of a given size. Equal opportunity laws apply more clearly to public sector organizations and to organizations receiving federal grants and contracts than to other employers (see Dobbin 2009; Dobbin, Edelman, Meyer, Scott, and Swidler 1988; Edelman 1992). As another example, Mezias (1990) examined the adopting of new proce- dures for reporting income tax credits by the 200 largest nonfinancial firms in the United States from 1962 to 1984. He discovered a number of organization-level factors that influenced adoption, including whether the firm was under the jurisdiction of the Interstate Commerce Commission. Casile and Davis-Blake (2002) found that business schools located in public universities were more responsive to changes in accreditation standards than those affiliated with private colleges.

Variation in institutional pressures also comes from differences over space and time in the strength of cognitive beliefs or normative controls. As described earlier in this chapter and in Chapter 5, both ecologists and institutional scholars view the increasing prevalence of a form or practice as an indicator of increasing legitimation. This pro- cess occurring over time has given rise to an interesting line of research that contrasts the characteristics of early versus late adopters. Two studies were particularly influential in shaping the arguments.

The first was the study of the diffusion of civil service reforms among municipalities at the turn of the 20th century conducted by Tol- bert and Zucker (1983), portions of which were discussed in Chapter 6. Turning their attention to those states in which civil service was not mandated, Tolbert and Zucker show that its adoption by cities during the initial period varied according to their characteristics: Larger cities, those with higher proportions of immigrants and a higher proportion of white-collar to blue-collar inhabitants, were more likely to adopt the reform. The authors argue that these cities were rationally pursuing their interests, some local governments confronting more severe gover- nance problems that encouraged them to adopt changes that would buffer them from “undesirable elements.” Although such city character- istics were strongly predictive of adoption during the earliest period (1885–1904), in each subsequent period, the associations became weaker, so that by 1935, these variables no longer had any predictive power. The authors interpret these weakening correlations as evidence of the development of widespread and powerful cultural beliefs and norms supporting civil service reform, such that all cities were under increasing pressure to adopt the reform regardless of their local needs or circumstances.

The second study, by Fligstein (1985), was briefly discussed ear- lier, but merits more detailed examination. Fligstein tested a number of alternative arguments for why large firms adopted the multidivi- sional (M-form) structure. His data were collected to reflect five peri- ods, each a decade between 1929 and 1979, and included information on the 100 largest U.S. industrial corporations for each period.1 During the earlier periods, firms that were older, pursuing product-related strategies in their growth patterns, and headed by managers from sales or finance departments were more likely to adopt the M-form than firms lacking these characteristics. During the 1939 to 1949 time period, these same factors continued to operate, but another variable also became relevant. If firms were in industries in which other, simi- lar firms had adopted the M-form, they were more likely to adopt this structure. All of the factors, with the exception of age, continue to be significantly correlated with M-form adoption during the last two decades included in the study.

Fligstein’s study provides empirical support for two different ver- sions of institutional arguments. The findings linking structural forms to strategies support Williamson’s (1975) arguments that organiza- tional managers attempt to devise governance structures that will economize on transactions costs—the alignment of structure with strat- egy. The findings relating M-form adoption to the number of other similar firms employing the structure are consistent with DiMaggio and Powell’s (1983) views of mimetic—and normative—processes operating in uncertain environments.

These findings have been replicated in a number of later studies, some of which are described below. They suggest the following general pattern. In the early stages of an institutionalization process, adoption of the practice by organizations represents a choice on their part that can reflect their varying specific needs or interests. As the institutional- ization process proceeds, normative and cultural pressures mount to the point where adoption becomes less of a choice and more of a requirement. Differences among individual organizations are of less consequence when confronted by stronger institutional imperatives. Although in one sense the logic of action has shifted from one of instru- mentality to appropriateness, in another sense, the situation confront- ing each organization has changed so that it is increasingly in the interest of all to adopt the practice. Not to do so would be regarded as deviant, inattentive, or behind the times, resulting in a loss of legiti- macy and, perhaps, attendant material resources. More generally, as Colyvas and Jonsson (2011: 33) conclude, “The analytic insight is that factors associated with adoption are likely to shift over time.”

The question of what types of benefits are associated with early and late adoption is further explored in a study of over 2,700 U.S. hos- pitals encouraged to adopt total quality management (TQM) proce- dures in response to increased normative pressures from the Joint Commission on Accreditation of Healthcare Organizations. Westphal, Gulati, and Shortell (1997) found that late adopters—hospitals slower to adopt these practices—conformed more highly to the pattern of practices implemented by other hospitals to which they were con- nected or to a particular, standardized approach, compared to early adopters. That is, hospitals adopting early were more likely to custom- ize their TQM practices to their specific situation; those adopting later exhibited a more ritualistic pattern, mechanically following standard TQM models or imitating the practices of other hospitals with whom they were connected in alliances or systems. The adoption of TQM improved hospital legitimacy (overall ratings by the Joint Commission) for both early and late adopters, but only early adopters of TQM also improved their productivity and efficiency, as measured by a number of objective and subjective indicators. We see again that, although early and late adoption showed different effects, all hospitals adopting TQM improved their legitimacy and some improved their performance.

2. Organizational Factors Associated With Adoption

A generation of studies has attempted to identify what organiza- tional features are associated with early adoption. Of course, these features vary greatly depending on the nature of the innovation. Most of the studies reviewed examine the adoption of some type of admin- istrative innovation (e.g., new managerial structures or employment systems). A number of general characteristics appear to be associated with adoptive behavior. Without attempting to be comprehensive, I identify three classes of variables that have received attention from recent scholars.


Organizations vary in many ways, but only a few of these differ- ences have been found to be regularly associated with early adoption. Numerous studies have found that organization size is important, larger organizations being more prone to early adoption. Size effects have varying interpretations, each of which is conducive to receptivity. Larger organizations tend to be more resource-rich; larger organiza- tions are more differentiated and, hence, more sensitive to environmental changes; and larger organizations are more visible to external publics, including governance bodies (see Dobbin et al. 1988; Edelman 1992; Greening and Gray 1994). Organizations that operate within or are more closely aligned with the public sector are more likely to be responsive to institutional pressures, particularly legal and regulatory requirements, but also normative pressures (see Dobbin et al. 1988; Edelman 1992; Casile and Davis-Blake 2002). Organizations possessing differentiated personnel offices are more likely to be receptive to inno- vations, particularly those pertaining to employment matters (Baron, Dobbin, and Jennings 1986; Baron, Jennings, and Dobbin 1988; Dobbin et al. 1988; Edelman 1992; Kalleberg, Knoke, Marsden, and Spaeth 1996). Unionization has been shown to affect selected types of adop- tion, in particular, grievance procedures and internal labor market practices (Pfeffer and Cohen 1984; Sutton, Dobbin, Meyer, and Scott 1994; Kalleberg et al. 1996). In private sector organizations, the charac- teristics of CEOs have been found to affect adoptive behavior. CEO background—for example, whether business experience comes from production, marketing, or finance (Fligstein 1985; 1990) and CEO power vis-à-vis the corporate board (Westphal and Zajac 1994)—is associated with the adoption of new structural forms and with CEO compensation protections and incentive systems. Firms experiencing turnover in their top management teams are more likely to adopt new accounting procedures (Mezias 1990). Finally, organizational perfor- mance has been found to influence the adoption of CEO income protec- tion and incentive plans (Westphal and Zajac 1994).

For diffusion to occur, individuals and organizations need to be able to recognize and absorb innovations from their environment. Research by Cohen and Levinthal (1990) suggests that organizations vary in their “absorptive capacity”—the ability to assimilate and exploit new knowledge. Their study of a sample of firms in the U.S. manufacturing sector found that those with higher R&D expenditures were better able to take advantage of new technical advances than those with a lower investment in basic research. They suggest that such investments are made not so much in the expectation of produc- ing new innovations themselves, but in order to broaden “the firm’s knowledge base to create critical overlap with new knowledge and providing it with the deeper understanding that is useful for exploiting new technical developments that build on rapidly advancing science and technology” (p. 148).


Relations among organizations exhibit structure. Linkages among organizations vary by frequency and nature of exchanges, multiplicity and absence of connections, and central and peripheral location. Orga- nizational participants are linked together with their counterparts in other organizations both at high levels (e.g., interlocking boards of directors, friendship, and school ties among executives) and low levels (e.g., occupational affiliations and communities of practice that cross organizational boundaries). These ties affect organizational decisions.

For example, Haunschild (1993) demonstrates that corporations sharing directors were more likely to make acquisitions during the 1980s, and Palmer, Jennings, and Zhou (1993) reported that interlock- ing directors predicted the adoption by corporations of an M-form structure during the 1960s. Rao and Sivakumar (1999) report that firms with similar ties were more likely to create an investor relations office when they learned about it from other board members.

The distinction between being connected and being similar to another social unit is an important one to network theorists. The for- mer, referred to as cohesion, pertains to the presence of exchange rela- tions or communication links between two or more parties. The latter, termed structural equivalence, refers to social units that “occupy the same position in the social structure”; they “are proximate to the extent that they have the same pattern of relations with occupants of other positions” (Burt 1987: 1291). In situations where information is widely available (e.g., via the mass media), social contagion—the diffusion of some practice or structure—may be more influenced by the behavior of those we regard as similar to ourselves than by those with whom we are in contact (recall the similar arguments made by Strang and Meyer, 1993, discussed in Chapter 6).

The relative importance of cohesion versus structural equivalence is evaluated in a study by Galaskiewicz and Burt (1991), who examined factors affecting diffusion of norms and standards among contribu- tions officers in corporate firms pertaining to the evaluation of non- profit organizations seeking donations. The study examines how common norms develop within an organization field, affecting how individual officials come to view their social environment, adopt standards, and arrive at similar evaluations. Results were based on evaluations made by 61 contributions officers of 326 local nonprofit organizations eligible to receive donations from corporations. Judgments by officers (as to whether they recognized the nonprofits and, if so, regarded them as worthy prospects) were correlated with the evaluations of other officers who were either (a) in contact or (b) in equivalent structural positions. “The results show weak evidence of contagion by cohesion and strong evidence of contagion by structural equivalence” (Galaskiewicz and Burt 1991: 94). Differences in judgment were also influenced by differ- ences in the personal characteristics of officers, such as gender and prominence, but these did not eliminate the structural effects.

Reference Groups

These and related studies raise this general question: If organiza- tions imitate the behavior of other organizations, how do they deter- mine which organizations to emulate? Clearly, organizations must choose among their many network connections, and they must decide what criteria to employ to assess similarity. A number of recent schol- ars explore these questions by utilizing network approaches. Notably, much of this research focuses on the adoption by market-based organi- zations of various competitive strategies, including acquisition behavior, entry into new markets, choice of an investment banker, or construction of a comparison set (e.g., for justifying CEO compensation). Illustrative findings are that organizations are prone to imitate the behavior of organizations that are geographically proximate (Davis and Greve 1997; Greve 1998); perceived to be similar to themselves (e.g., operating in the same industry) (Haunschild and Beckman 1998; Palmer et al. 1993; Porac, Wade, and Pollock 1999); closely connected by ties, including resource, information, and board interlocks (Galaskiewicz and Bielefeld 1998; Haunschild 1993; Kraatz 1998; Uzzi 1996); have high status or prestige (Burns and Wholey 1993); and are more (visibly) successful (Haunschild and Miner 1997; Haveman 1993; Kraatz 1998). In contrast, firms may select less successful others as a comparison set to justify or place their own actions in a favorable light (Porac et al. 1999).

The arguments associated with reference group variables include institutional pressures, status processes, vicarious learning, and politi- cal maneuvering. More important, however, these studies begin to show the ways in which institutional processes interact with interest- based motivations to guide organizational choices and behaviors (see also Baum and Dutton 1996; Dacin, Ventresca, and Beal 1999).

3. Institutional and Organizational Processes Shaping Responses to Environmental Demands

The public policy literature contains numerous studies providing examples of the ways in which organizations both engage in regulatory activities and respond to attempts to control their behavior. Some of these accounts take a top-down perspective, focusing on the structure and tactics of the enforcement agency (e.g., Wilson 1980), whereas oth- ers take a bottom-up view, examining how the policies are interpreted and carried out at local sites (e.g., Lipsky 1980). Organizations oper- ate at every level  in these accounts:  as policymakers,  units of the implementation machinery, and targets of policy reform. Although these studies have received scant attention from mainstream organiza- tional scholars, they contain important insights concerning how orga- nizations participate in and respond to regulatory efforts (see, e.g., Hoffman and Ventresca 2002; Landy, Roberts, and Thomas 1990; McLaughlin 1975; Peterson, Rabe, and Wong 1986). Pierson (2004: Ch. 1) provides a perceptive discussion of political organizations, public policy setting, and institutional processes.

A more general process-oriented perspective is provided by orga- nizational scholars who focus attention on organizations as informa- tion systems: as symbol-processing, sense-making, and interpretation systems. Pfeffer and Salancik (1978) stress the importance of the infor- mation system developed by the organization: the specialized units and processes that determine the variety and types of information routinely collected by the organization. Information is more likely to be salient and used simply because it is available. The availability of infor- mation thus influences the “attention structure” of decision makers. Because “time and capabilities for attention are limited,” as March (1994: 10) notes, “theories of decision making are often better described as theories of attention or search than as theories of choice.” Rather than assuming a straightforward, unified, demand-response model, a more ambiguous, complex, and nuanced portrait is painted of organi- zations staffed by multiple actors with conflicting agendas and inter- ests confronting diverse and imperfect information. Demands or requirements trigger not automatic conformity, but multiple questions: Does this apply to us? Who says so? Is this something to which we should respond? What might we do about it? Who else may be in the same situation? What are they doing? They become occasions for inter- pretation and initiate sense-making processes (Barley 1986; Daft and Weick 1984; Whetten and Godfrey 1999). Weick (1995) provides a pen- etrating and provocative analysis of these processes—reminiscent of Suchman’s (1995a) discussion of theorization—that occur within and across organizations.

Related efforts to foster the development of more interactive and subtle models of the ways in which organizations relate to institu- tional environments have been carried out by law and society schol- ars, who complain that institutionalists too often embrace a “legal formalism” stressing the external, objective, rational nature of law. Rather, as Suchman and Edelman (1997; see also Edelman and Such- man 1997) propose, laws and regulations are socially interpreted and find their force and meaning in interactions between regulators and regulatees. This approach is well illustrated in a series of studies examining the response of a diverse sample of U.S. organizations to equal employment opportunity/affirmative action laws passed in the early 1960s (see Dobbin 2009; Dobbin et al. 1988; Dobbin, Sutton, Meyer, and Scott 1993; Edelman 1992; Edelman, Uggen, and Erlanger 1999; Sutton et al. 1994). All laws are subject to variable interpreta- tion, but these statutes—in part reflecting underlying, unresolved political conflicts—were particularly ambiguous to the point where even cooperative organizational managers could not determine what it meant to be in compliance. The passage of the legislation set in motion an elaborate sense-making process in which personnel man- agers engaged in discourse with their counterparts—within their organizations, in their professional journals, at conventions—attempt- ing to discern what measures would be found acceptable. Proposals were floated, prototype programs were developed, and, over time, these responses were evaluated by the federal courts (yet another col- lection of state-based, professional actors), which served as the final arbiters of adequate compliance. Personnel managers were much more willing to initiate procedural rather than substantive solutions (that focused on the consequences of employer actions; Edelman 1992), although their proposals were often couched in language emphasizing their contributions to organizational efficiency (Dobbin and Sutton 1998).

When eventually selected kinds of programs were declared to meet the requirements of the law—governance processes having shifted to the judiciary—these models diffused rapidly through the field. The overall process that occurred was one in which legal changes could best be understood as an endogenous process engaging various actors and working through sense-making and problem-solving activities within the organization field. This process was guided more by norma- tive constructions among professional actors than by coercive mecha- nisms emanating from the state, and it was better understood as a structuration process changing rules and behaviors across the entire field, rather than as a simple process by which individual organiza- tions were confronted by and conformed to centralized directives. Colyvas and Jonsson (2011) point out:

A notable feature in the institutionalization of EEO [equal employment opportunity] is how much governance occurred at multiple levels: in the field, through the assimilation of the prin- ciples and practices into law; at the organizational level as a ratio- nalized response to legal mandates; and among individuals by its integration into everyday procedures and employee expectations.

Such complexity is often obscured in traditional models that map these macro- and micro-dynamics onto levels of analysis. (p. 41)

Much of the value in an institutional approach resides in its recog- nition of the interplay of structures and processes across levels.

Source: Scott Richard (2013), Institutions and Organizations: Ideas, Interests, and Identities, SAGE Publications, Inc; Fourth edition.

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