Three Conceptions of Institutionalization: Underlying Mechanisms

How and why does institutionalization occur? An important part of the answer to these questions is to examine the mechanisms involved in creating and sustaining institutions. Mechanisms focus attention on how effects are produced. Elster (1989: 3) regards mechanisms as the “nuts and bolts” of social processes, which Hernes (1998: 74) appropri- ately amends to “the cogs and wheels . . . the wheelwork or agency by which an effect is produced.” A less colorful, but more useful, defini- tion is provided by McAdam, Tarrow, and Tilly (2001: 24): “Mechanisms are a delimited class of events that alter relations among specified sets of elements in identical or closely similar ways over a variety of situa- tions.” Increasing attention to mechanisms is particularly salutary for institutional theorists who too often have neglected to address ques- tions of the “who” and “how” with regard to institutional effects. We consider three general alternative mechanisms underlying the process of institutionalization within social systems.

1. Institutionalization Based on Increasing Returns

A compelling version of institutionalization has been put forward by institutional economists to account for the development and persis- tence of institutional systems based on the process of positive feedback. The specific argument was first proposed by David (1985; 2000) and Arthur (1994) to explain unusual features detected in some types of technological trajectories.1 They observed that, under specified condi- tions, technologies develop in such a manner that it is difficult, if not impossible, to reverse course or to consider the use of alternative approaches even if these would provide “superior” solutions. Such a path-dependent process is argued to occur because of “positive feed- back”: Further developments in the same direction are rewarded, whereas the costs of switching to an alternative increase over time. The necessary conditions supporting positive feedback as described by Arthur (1994) are (a) the presence of high setup costs—once an approach is available, the development of alternatives involves addi- tional, often substantial, costs; (b) learning effects—individuals who invest time and effort in learning a particular approach are reluctant to consider alternatives; (c) coordination effects—the multiple advan- tages that accrue to a user because others have adopted the same option; and (d) adaptive expectations—as latecomers perceive that a particular approach is widely accepted, they are more inclined to adopt it themselves. Important consequences that follow from this process include indeterminacy (a number of solutions [multiple equilibria] are possible), inefficiencies (inferior technologies may be adopted), lock-in (the difficulty in withdrawing from the selected solution), and the pri- macy of early events (small differences and chance events can create unlikely trajectories that are difficult to alter).

North (1990) suggests that, with modification, this framework is applicable to the analysis of institutional change. He argues that all of the factors identified by Arthur apply to institutions—perhaps even more so than to technologies. The learning and coordination effects, coupled with the associated growth of formal and informal rules, all reinforce the buy-in of multiple players. As a result of this combination of processes, North asserts that “the interdependent web of an institu- tional matrix produces massive increasing returns” (p. 95).

In addition to the effect of increasing returns, institutional pro- cesses (more than technologies) are shaped by the existence of imper- fect markets. If markets are competitive, North asserts, then imperfect institutions are detected and eliminated. However, if markets are flawed—if feedback is fragmentary, if subjective evaluations dominate objective information, and if transaction costs are high—then imperfect institutions are likely to persist. The combination of path dependence and suboptimal markets is employed by North (1990: 92) to account for (a) the substantial differences we observe in the “evolution of societies, polities, or economies over time”; and (b) the persistence of systems that, at least by standards stressing the value of economic growth, exhibit persistently poor performance.

The central thrust of the increasing returns argument for institu- tionalization is to highlight the role of interests and incentives as a moti- vating force in social life. This argument is at the core of the approach of scholars, such as Greif (2006: 14), who view institutions as “equilib- rium phenomena” in the sense that they “constitute the structure that influences behavior, while the behavioral responses of agents to this structure reproduce the institution.”

2. Institutionalization Based on Increasing Commitments

Rather than emphasizing the role of incentives (costs and benefits), scholars embracing the normative pillar focus on the mechanism of commitments. Possible loci of commitment include norms and values, structures and procedures, and individuals and collective actors. The theorist who has most explicitly pursued this view of institutionaliza- tion is Philip Selznick (1948; 1949; 1957; 1992).

As described in Chapters 2 and 5, Selznick (1957: 16–17; italics in original) argues that, “in its most significant meaning, ‘to institutional- ize’ is to infuse with value beyond the technical requirements of the task at hand.” In a more general statement, Selznick (1992) asserts:

Institutionalization is the emergence of orderly, stable, social inte- grating patterns out of unstable, loosely organized, or narrowly technical activities. The underlying reality—the basic source of stability and integration—is the creation of social entanglements or commitments. Most of what we do in everyday life is mercifully free and reversible. But when actions touch important interests and salient values or when they are embedded in networks of interdependence, options are more limited. Institutionalization constrains conduct in two main ways: by bringing it within a nor- mative order, and by making it hostage to its own history. (p. 232)

Selznick argues that organizations are transformed into institu- tions through a two-step process. First, the creation of a formal struc- ture provides an “institutional” solution to problems of economy and coordination. Explicit goals and rules, coordination mechanisms, and communication channels—these provide the modes of governance referenced by institutional economists such as Williamson. But for Selznick (1992), this first step is only a beginning.

Beyond lies what we may call “thick” institutionalization… Thick institutionalization takes place in many different ways. Familiar examples are: by sanctifying or otherwise hardening rules and pro- cedures; by establishing strongly differentiated organizational units, which then develop vested interests and become centers of power; by creating administrative rituals, symbols, and ideologies; by inten- sifying “purposiveness,” that is, commitment to unifying objectives; and by embedding the organization in a social environment. (p. 235)

Thick institutionalization is a cumulative process taking place over time. Knudsen notes the strong resemblance of Selznick’s version of institutionalization to Nelson and Winter’s evolutionary views and Teece and Barney’s resource-based perspective, described in Chapter 2. In all of these conceptions, the firm is modeled as

a “hereditary mechanism” that accumulates more and more com- plex behavioral patterns over a period of time. The organization structure of a firm can therefore no longer be regarded as deter- mined by its transaction costs, but rather by its accumulated com- petences or capabilities. (Knudsen 1995a: 144–145)

The mechanism of commitment also plays a large role in discus- sions of relational contracts and network forms of organizing. Rela- tional contracts are agreements between two parties in which as much or more attention is paid to preserving the relationship as to honoring the contract. Womack, Jones, and Roos (1991) provide a useful descrip- tion of the types of relational contracts that developed between Toyota and its multiple suppliers in the 1970s and 1980s. In contrast to U.S. automobile companies, at least at that time, Toyota worked with a much smaller set of suppliers with whom it entered into long-term, flexible agreements, sharing proprietary information, providing equipment and training, and exchanging employees. The assembly plant–supplier relations were marked by reciprocity, trust, and mutual concern for the other’s welfare—in short, by long-term commitments.

Similarly, in contrast to conventional markets or hierarchies, net- work forms of organization rely more heavily on mutuality. In Powell’s (1990) description:

In network forms of resource allocation, individual units exist not by themselves, but in relation to other units. These relationships take considerable effort to establish and sustain, thus they con- strain both partners’ ability to adapt to changing circumstances. As networks evolve, it becomes more economically sensible to exercise voice rather than exit. Benefits and burdens come to be shared. . . . As Macneil (1985) has suggested, the “entangling strings” of reputation, friendship, interdependence, and altruism become integral parts of the relationship. (pp. 303–304)

If the increasing returns argument privileges the role of incentives, then the commitment argument highlights the role of identity: Who am I (or who are we), and what is the appropriate way for me (us) to behave in this situation?

3. Institutionalization as Increasing Objectification

Anchored in the work of Berger and Luckmann (1967), scholars embracing the cultural-cognitive pillar emphasize the role of increasing objectification of shared beliefs in institutionalization. As described in Chapter 2, Berger and Luckmann identify objectification—the processes by which the meanings produced in social interaction “come to con- front [the actor] as a facticity outside of himself”—as one of the three phases of institutionalization. Berger and Luckmann stress the impor- tance of transmission of shared beliefs to third parties—individuals who played no role in constructing them—as they are informed not “This is the way we do this,” but rather “This is how these things are done.” In the process of transmission to others—to a new generation—the objectivity of the institutional world “thickens and hardens” (p. 59). In the following section, we discuss how, as recipes or templates diffuse, in the form of best practice or advanced modes for organizing, their degree of institutionalization increases.

In an expanded view of the processes associated with objectifica- tion, Tolbert and Zucker (1996) propose a multistage model of institu- tional processes that occur within as well as between organizations (see Figure 6.1).2 In response to changes in political, technological, or market conditions, actors in organizations innovate, advancing new ideas, solutions, and practices. They also scan the environment to determine what similar organizations are doing. Many of the proposed solutions invented or adopted prove to be unsatisfactory and are dropped. How- ever, some innovations will prove more viable and come to the atten- tion of others. They become more broadly accepted or habituated and, in interactions within and between organizations, become the object of formal “theorization”—a formulation of why and how the innovation is effective and an identification of the class of problems or organiza- tions for whom it is suitable (Strang and Meyer 1993). These preinsti- tutionalization processes, if they proceed successfully, set the stage for objectification.

Objectification involves the development of some degree of social consensus among organizational decision-makers concerning the value of a structure, and the increasing adoption by organizations on the basis of that consensus… The impetus for diffusion shifts from simple imitation to a more normative base… [The innova-tion is viewed as possessing] both general cognitive and norma- tive legitimacy. (Tolbert and Zucker 1996: 182–183)

In this sense, we are no longer considering simple diffusion— widespread adoption—of the innovation as sufficient for institutional legitimation, but taking into account agents’ underlying motives and rationales. “In a final stage of institutionalization, termed ‘sedimentation,’ the innovation is perpetuated across several generations and spreads to virtually all of the relevant population of potential adopters” (Tolbert and Zucker 1996:184).3

Figure 6.1 Component Processes of Institutionalization

SOURCE: Tolbert, Pamela S., and Lynn Zucker. 2006. Component processes of institu- tionalization. In Handbook of Organization Studies, ed. Stewart Clegg, Cynthia Hardy, and Walter R. Nord (p. 182). Thousand Oaks, CA: Sage.

Objectified beliefs often become embedded in routines, forms and documents (e.g., the types of classifications employed), and artifacts— tools, hardware, and machinery. We organize our material world in accor- dance with our mental categories, and the two become self-reinforcing.

While the increasing returns argument focuses on the role of interests and incentives and the increasing commitment approach emphasizes identity, the increasing objectification view favors ideas. Cultural-cognitive theorists stress that ideas—beliefs, schema, and assumptions—play a powerful role in institutional processes. Campbell (2004) points out that ideas play this role in multiple ways. Among the most powerful are the taken-for-granted assumptions that reside in the background of debates. Such ideas “remain largely accepted and unquestioned, almost as principles of faith” (p. 93). As Abraham Lincoln observed: “Public sentiment is everything. With public sentiment, nothing can fail, without it nothing can succeed.” Such deep-seated beliefs go largely unnoticed unless and until others, holding contrast- ing assumptions, enter the scene pursuing unusual goals or employing unfamiliar or unacceptable means. Personnel or companies working in foreign cultures are likely to encounter surprising and inexplicable behavior stemming from differences in background beliefs (Hofstede 1991; Orr and Scott 2008). A collection of political scientists interested in foreign policy have departed from the conventional arguments of their colleagues who embrace a realpolitik perspective that believes that all foreign policies are guided by a nation’s material and political inter- ests. They suggest, rather, that these interests are grounded in and framed by ideas, including “world views” (e.g., individualistic and secular premises), “principled beliefs” or normative ideas (e.g., reli- gious and humanitarian concerns), and “causal beliefs” (ideas about how things happen) (Goldstein and Keohane 1993). The importance of ideas as an element of institutions is, of course, highlighted by the current attention to institutional logics, as discussed in Chapter 4 (see Freidland and Alford 1991; Thornton, Ocasio, and Lounsbury 2012).

The role of ideas in shaping behavior has a long intellectual pedi- gree, and during the 19th century was largely coded under the concept “ideology,” associated with the work of Karl Marx (see Chapter 1). Although most contemporary institutional theorists have steered clear of this highly loaded term, as more scholars attend to the role of power in the shaping of institutions, the connection between ideas, institu- tional logics, and ideology is again being addressed (Meyer, Sahlin, Ventresca, and Walgenbach 2009b). While some theorists have sug- gested that any and all broad belief systems and shared conceptual systems are ideologies (e.g., Simons and Ingram 1997), most scholars insist that many commonly shared conceptual frameworks cross group and class boundaries providing a kind of “common cultural ground” (van Dijk 2001). I prefer to follow the early lead of Berger and Luckmann (1967: 123), who argued that “when a particular definition of reality comes to be attached to a concrete power interest, it may be called an ideology.” Or, relatedly, the views of Thompson (1996: 7), who defines ideology as “meaning in the service of power” (see also Meyer, Sahlin, Ventresca, and Walgenbach 2009a). Not all institutional ideas (or logics) are ideological, but many are constructed to serve the interests of one or another contesting power.4 Analysts take note!

In sum, arrayed in line with the three pillars, we encounter three rather different accounts of the mechanisms leading to institutionaliza- tion. Although different aspects of institutions are privileged and different mechanisms are evoked, these arguments are not necessarily in conflict. Robust institutionalization is often the product of multiple mechanisms that interact with and reinforce each other. In addition to the broad classes of mechanisms identified as associated with institu- tionalization, other more specific mechanisms have been and will be identified. We discuss below some of the mechanisms and carriers associated with institutionalization, and Chapters 7 and 8 will describe other mechanisms, including those involving cross-level processes.

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

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