Three views are encountered in current writings about the relation between organizations and institutions. The first, most clearly devel- oped by Douglas North (1990: 4–5) and embraced by many institu- tional economists, is based on a game analogy: Institutions provide the rules of the game, whereas organizations act as the players. Organiza- tions may well assist in constructing the rules, attempting to devise rules favorable to themselves, and they often attempt to change the rules by political and other means. However, a consideration of rules and rule-setting and enforcement processes is to be clearly distin- guished from concern with the players’ response to an existing set of rules. In his own work, North has attended primarily to the processes involved in constructing institutional rule systems.
Occupying a somewhat intermediate position, theorists such as Oliver Williamson (1975; 1985) view organizations, and their structures and procedures, as institutions: systems designed to exercise gover- nance over production systems and minimize transaction costs. As noted, Williamson (1994) emphasizes the regulative aspects of institu- tions. However, rather than focusing attention on the “background conditions” involving property rights, contract law, and the like—the wider institutional environment—he attends to the impact of these rules on the organization of economic activities at the level of individ- ual economic enterprises. Designers of organizations construct institu- tional forms—governance structures—to more effectively manage economic transactions. In a parallel manner, but emphasizing normative forces as described in Chapter 6, Selznick (1957) examines the ways in which individual organizations devise distinctive character structures over time, developing commitments that channel and constrain future behavior in the service of their basic values. For scholars such as Williamson and Selznick, organizations are relatively distinct institu- tions that are either designed by or evolve out of the choices made by organizational agents.
Sociologists including Meyer, Zucker, and Dobbin act to elide the distinction between organizations and their institutional environments by stressing the strong connection between processes occurring at soci- etal (and even transnational) levels and the structure and operation of individual organizations. Focusing on the cultural-cognitive aspects of institutions, organizational sociologists emphasize the extent to which the modern organization is itself an institutionalized form—in Zucker’s (1983: 1) phrase, “the preeminent institutional form in modern society.” Unlike economists, who view organizational systems as reflecting “natural” economic laws, these sociologists insist that “rationalized organizational practices are essentially cultural, and are very much at the core of modern culture precisely because modern culture is orga- nized around instrumental rationality” (Dobbin, 1994a: 118). Not only is our overall conception of an instrumental organization based on a cultural model, but many of the components comprising any given organization are not locally designed to produce efficiency in a specific context, but taken “off the shelf” of available patterns. As Meyer and Rowan (1977) point out:
The growth of rationalized institutional structures in society makes formal organizations more common and more elaborate. Such institutions are myths which make formal organizations both easier to create and more necessary. After all, the building blocks for organizations come to be littered around the societal land- scape; it takes only a little entrepreneurial energy to assemble them into a structure. (p. 345)
Again we see the wide range of assumptions and arguments guiding contemporary institutional studies.
Source: Scott Richard (2013), Institutions and Organizations: Ideas, Interests, and Identities, SAGE Publications, Inc; Fourth edition.