Until fairly recently, the sociological literature lacked explicit treatments of the causes of organizational diversity. The absence of theory and research on this issue is doubtless a result of the strong concentration of interest at the level of the individual organization. But recent theory on the organizational level does contain an implicit proposition about the causes of diversity. Most theory and research at the organizational level assume that organizations adjust structure to ensure the continued flow of critical resources. From an adaptationist perspective, organizations take on different structures only when crucial resources come in diverse streams. If key resources are few or if there are many that can be exploited with a few strategies and are also controlled by a few agents, there is no “need” for diversity. As the diversity of the resource base increases, the diversity in a set of adapting organizations increases.
An assumption of this kind lies at the core of sociological human ecology. Amos Hawley (1968), the main architect of the neoclassical perspective in human ecology, proposed a principle of isomorphism: “Units subjected to the same environmental conditions or to environmental conditions as mediated through a given key unit, acquire a similar form of organization. They must submit to standard terms of communication and to standard procedures in consequence of which they develop similar internal arrangements within limits imposed by their respective sizes.” This principle implies that organizational diversity in a social system depends on the diversity of agents that control the flow of key resources into the system.
We noted earlier that Hawley’s principle, like other adaptationist theories, does not apply when organizational resource environments are heterogeneous (Hannan and Freeman 1977). But most organizations obtain resources from many other organizations. They may obtain trained personnel from educational organizations and apprenticeship programs of labor unions, financial capital from banks and venture capital firms, material inputs from firms in different industries and perhaps in different countries, and licenses from federal, state, and local agencies. Moreover, change in the activities of agents who control key resources is often uncertain. For example, the policies of governmental agencies often change quickly when regimes change or when high courts issue rulings. In either case, the resource environment of each organization is heterogeneous, either at a point in time or over time or both. Heterogeneous environments pose complicated problems of adaptation.
According to the recent literature, organizations facing inconsistent de- mands from different environments try to create specialized structures to deal with each one. This view reflects the long-standing tradition in organization theory of emphasizing the tendency for organizations to develop differentiated substructures for performing specialized functions.
Leading institutional theorists such as Meyer and Scott (1983) suggest that organizations in the institutional sector deal with inconsistent demands from the environment by a strategy called loose coupling. According to Meyer and Scott, these organizations adapt to each environmental demand symbolically, by creating a substructure that deals or pretends to deal with the problem. But the activities of these peripheral structures are kept “loosely coupled” with the activities of the core of the organization. In other words, the activities of the peripheral units are not allowed to interfere with the real work of the organization. Organizations that use the strategy of ritual conformity only appear to be isomorphic to several environments that pose inconsistent demands; that is, they are symbolically or institutionally isomorphic to the environment.
The strategy of institutional isomorphism solves the problem of adapting to heterogenous environments with the organizational equivalent of smoke and mirrors. Such solutions appear unlikely to work—that is, to satisfy the diverse actors in the environment—for long periods, especially when competition for resources intensifies. When resources shrink, as they have for public education in recent years, actors who control key resources may investigate the tightness of coupling and may demand measurement of the quality and quantity of outputs. In fact, the Meyer-Scott scenario reads like a description of one possible outcome of environmental heterogeneity for organizations like public schools. The larger environment fluctuates between two conditions. When resources are abundant, inconsistencies among the various demands placed on these organizations are “solved” by creating special pools of resources for each problem and encouraging the target organizations to create specialized programs for each demand. When resources are scarce, public organizations are required to justify programs and document the links between claims and practices. The strategy of institutional isomorphism may be a good one when resources are rising; but it may not be so good when resources decline.
Perhaps some organizations can adapt to heterogeneous environments by multiplying peripheral structures and by weakening the link between public claims and actual practice. But this strategy handles only cross- sectional heterogeneity, variability among segments of the environment at a point in time. Once temporal heterogeneity is considered, the meaning of isomorphism as applied to heterogeneous environments is once again unclear. When environments shift over time, does isomorphism mean switching structures every time the environment changes? Or does it mean retaining a large number of peripheral structures at all times?
A general approach, one that deals symmetrically with cross-sectional and temporal heterogeneity in environments, seems needed. Extending the principle of isomorphism to apply to heterogeneous environments requires specification of the underlying dynamic processes. The dynamic processes of greatest interest to us are competition and legitimation. We think that a conceptualization based on niche theory allows specification of these pro- cesses in a sociologically interesting way that also provides a fresh view of issues of isomorphism. This approach allows us to develop propositions about change in the structure of populations of organizations that (1) face cross- sectionally and temporally heterogeneous environments, and (2) compete with other organizations, both within the population and in other populations, for limited resources.
Source: Hannan Michael T., Freeman John (1993), Organizational Ecology, Harvard University Press; Reprint edition.