Institutional theory
Organizations and their environment
Ulla Eriksson-Zetterquist
Institutional theory
• Are organizations rational tools for achieving
clear cut purposes?
• Why are organizations so similar (at least
• Why is it so hard to change organizations?
Institutional theory - foundations
• Origin: end of 19th
century in economics,
sociology, political
• Central: institutions are
created when we
construct our social
• Three streams:
– Early institutional theory
– (New/neo) institutional
– Scandinavian
institutional theory
Institutional theory: basic
• Organizations and their members are NOT
rational actors but are effected by their
environment and how things have been
done before (’this is the way we have
always done things’)
• The myth about rationality is still very
prevalent, and it is important to appear as
• Institutions are a pattern for
collective action
• Creates order, stability and
• Newcomers are taught ’how
things have always been
done here’
• Opposite to ’habit’ (local,
often individual)
• Institutions are long lasting,
and have a normative
Examples of institutions
• Collective patterns of actions that have been
called ‘institutions” (examples):
– Marriage, sexism, the contract, wage labour, the
handshake, insurance, the formal organization,
the army, presidency, the vacation, the
corporation, voting.
• Jeppson, 1991: 144
» Some organizations, some cultural, some more structural
» Variously “production systems, enabling structures, social
programs, performance scripts
» Each connotes stable designs for chronically repeated
acticity sequences
Pursuing the metaphors
• Institution: represents a social order or pattern that has
attained a certain state or property
• Institutionalization: denotes the process of such
• order/pattern: standardized interaction sequences
– An institution is then a social pattern that reveals
a particular reproduction process
– Followed by rewards and sanctions
• Limits on how individuals and
organizations can act, at the same time as
they enable acting
• Create and monitor rules of the game
• Make organizations and individuals adapt
to its ’institutional surrounding’ (and thus
can make things that seem irrational)
Contemporary definition
• ..more-or-less taken-forgranted repetitive social
behaviour that is
underpinned by normative
systems and cognitive
understandings that give
meaning to social exchange
and thus enable selfreproducing social order.
(Greenwood et al., 2008: 45, italics in original)
We being bearer of institutions
• The beliefs, norms, rules, and understandings
are not just ”out” there but additionally ”in
here”. Participants, clients, constituents all
participate in and are carriers of the culture.
Thus, institutional environments are
notoriously invasive. To paraphrase Pogo, We
have met the environment and it is us! (Scott,
Three modern uses of institution
• Sociology:
– Organized and established ways of action. These
actions are what are seen as the rules for a
• Political science:
– Describes large or particularly important
collectives and associations, often public or state
• Anthropology:
– As cultural, often historical effects of social order.
Early institutional theory within
organizational studies
• Selznick, 1949, and others
• “Officials [in organizations] orient their actions
around rules even to the point where primary
concern with conformity to the rules interferes with
the achievement of the purposes of the
organization” (Merton 1936:199)
• Institutionalization: “organizations are infused with
value beyond the technical requirements at hand”
(Selznick, 1957:17)
Early institutional theory withing
organization studies
• People will defend the values and the
organization, (even though it may be
“dysfunctional” according to some set of
• Organizations with more precisely defined
goals and easily defined criteria for evaluation
are less subject to institutionalization than
those with diffuse goals and disputed
evaluation criteria
Berger and Luckmann, 1966
• How an institution is
– Product of human
action, not always
– Response to our need of
predictability and
structure in every day
• Saves energy
 Makes it possible for us
to spend time and
energy to do
extraordinary things
 Reflektion
 Creation of innovations
• We choose the easiest
(taken for granted, most
accesible) way to do
things and avoid chaos
and disorder
Institutions thus provide us
Ability to adjust
Why are organizations so similar?
• (New/neo) institutional theory
– Focus
• Organizational structure
• Processes within organizational fields
• New and early institutional theory
– Organization and environment effect each other: cultural
aspects must be studied to understand how organizations
– Organizing in practice is not the same as the formal image
of an organization
New institutional theory : Why are labour markets,
schools, national states and corporations so similar
when it comes to structure?
• Why don’t they seem to be individual (profit)
maximizing actors?
• What makes their practices so resilient?
• How do they (the practices) become takenfor-granted?
Formal structure as myth and
ceremony (Meyer & Rowan 1977)
• Formal structure (organizational chart, work
planes, policies) is not what really is done in
an organization
• I.e. That coordination happens, rules and
procedures are followed and activities are
aligned with formal structure does not have to
be the case!
• Talk ≠ decision ≠ action (Brunsson)
• Plans are loosely coupled/de-coupled to
• Rules are broken and neglected
• Decisions have unexpected consequences
• Techniques are not always efficient and
The reason?
• The norm of rationality is an institutionalized
myth. However:
– We believe that it exists and that it works
– We support this with arguments in order to
understand and explain it.
• Vocabularies of structure which are isomorphic with
institutional rules provide prudent, rational, and legitimate
accounts. Organizations described in legitimated
vocabularies are assumed to be oriented to collectively
defined, and often collectively mandated, ends. The myths
of personnel services, for example, not only account for the
rationality of employment practices but also indicate that
personnel services are valuable to an organization.
Employees, applicants, managers, trustees, and
governmental agencies are predisposed to trust the hiring
practices of organizations that follow legitimate procedures
– such as equal opportunity programs, or personality
testing – and they are more willing to participate in or to
fund such organizations. (Meyer and Rowan, 1977:349-350)
Myths (institutionalized)
• Myths about:
– Accounting, corporate social
resonsibility, personnel
recruitment, safety
• Are assumed to be
• Show the organization as
rational, modern, working
with appropriate methods,
• Myths are spread and there
is pressure on organizations
to adopt them
• Makes organizations:
rational, legitimate, stable,
gives access to resources ->
• Make organizations look alike
• A problem must be solved in legitimate ways:
– E.g. quality problems must be solved with ISO
9000, not new ways of organizing.
Organizational fields
• The environment is
created by and creates
in turn organizations
• Organizations have to
adapt to the structure
in their organizational
• Organizational field:
– Organizations that
exchange raw material,
goods, knowledge,
professional values etc
– Concept is kind of like
industry but wider,
including suppliers,
customer groups,
legitslators, pressure
groups etc.
The consequence of belonging to a field:
becoming similar through isomorphism
(DiMaggio & Powell, 1983)
• Coercive pressure
– Political pressure
– Legislation, adaption to
new technology
• Mimetic pressure
– Uncertainty (from
unclear objectives,
overload of information)
– Imitate a more
successful org in the
• Normative
– Comes from
– By hiring professionals
one get people with
similar education >homogenization
– Professional networks ->
Why then isomorphism?
• Make organizations
Develop a common language
Provides legitimate stories –
it is known what a
”technician” or ”accountant”
• Organizations do change,
not due to what the
organization need, but
through restraints,
regulations, organizing
among the members within
the field.
Loose coupling
• The formal structure is loosely coupled from
what really happes in the org:
-> two organizational structures:
– Formal: changes when laws, norms and fashions
– Informal: coordinates what people do in an
Loose coupling: function
• To follow institutionalised myths give
• Legitimacy assures resources (financial, media
support, customer support, employees)
• Makes it possible for the org to seemingly live
up to different (often incompatible) demands
from all sorts of interested parties (eg both
sustainability and profitability)
• Gives the org leeway to act
Why is it so difficult to change
• Scandinavian institutionalism: both change
and stability is the norm for organizing
• Focus on processes (rather than field)
– How are identities formed?
– How are rules established and broken?
• How does deinstitutionalization happen?
Change through reforms
• Reforms are (a better) solution to problems in
– Can be something that has been done earlier but
are ”repackaged” and seems new
– Reforms are often forgotten after a while
• Personnel turnover, change of management, change of
mgmt consultant, new reforms
• Change focuses the weak spots in the org ->
not good for morale, productivity or
Ideas, fashions, and management recipes
that travel
• How do ideas
• Why do ideas
• What ideas
How do management ideas travel?
Diffusion theory
• There must be an energy
source (managament,
• In the ideal world ideas
travel without resistance
(no friction)
• Ideas will not change
during their journey
How do management ideas travel?
Translation theory
• It is difficult or impossible to
find ’the original source’
• Friction and resistance give
life and energy to an idea
• Ideas change when they
travel, but that might mean
that they get better
• Translation is an active and
collective process that creates,
not just reproduce
Why do management ideas travel
• There are sellers of ideas (universities,
consultancy firms)
• They are seen as good and rational
(institutionalized myths)
• Uncertainty: professionals mimic each
other, professionals travel from org to org
Ideas come and go, like fashion
• Fashion= a collective
selection mechanism
• Fashion allows
conformity AND
• Fashion reproduces
AND changes an old
• Ideas and trends loose status
– E.g Swedish municipalities with ’målstyrning’
(management by objectives)
– Fashions become too popular
– Organizations want to be unique
• Start looking for new trends
What is the point of institutions?
• Institutions are made by us at the same time
as they make us (”we invent culture so that
culture can invent us”)
• Effect how people within and outside the
institution act and can act, sets rules of the
• Defines the criteria for success and failure
Summary institutional theory
• Institutional theory
– Many different approaches
– Focus: why organizations are not rational actors
and how stability is achieved
• Scandinavian institutionalism
– Focus on the process instead of the results
– Both stability and change is the usual state of
– Fashions and trends are effecting organizing