BUS 374 – Session 4
Organization theory
Session 2: Do organizations
always act similarly?
Agenda
O Memo presentation #1 (Hannan & Freeman,
O
O
O
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1977)
Memo discussion #1
Memo presentation #2 (Hsu & Hannan,
2005)
Memo discussion #2
Do organizations always act similarly?
New Institutional Theory
DiMaggio & Powell, 1983
O “Do organizations always act similarly?”
Iron Cage Revisited
O Bureaucracy as an Iron Cage
O Set up for increasing efficiency of
government machinery
O But once set, it takes a life of its
own…
O Rules, procedures and hierarchy for
the sake of rules and not for
efficiency
Too many procedures and
redundant hierarchy
Increasing adoption of
bureaucracy in organizations
O “making organizations more similar without
necessarily making them more efficient”
O But why?
O Isomorphic pressures
O Competitive isomorphism as discussed by
Hannan & Freeman (1977) is important
O But more importantly, institutional
isomorphism – a form of legitimacy seeking
Institutional sources of
isomorphism
O Coercive
O Mimetic
O Normative
Coercive isomorphism
O Pressures from organizations that the
organization in question in connected to or
dependent on.
O Government mandates
O Suppliers
O Consumers
O Can be both explicit and subtle
Some predictions for coercive
isomorphism
O Organization level
O A-1: Dependence on another organization
O A-2: Centralization of resource supply
positively moderates A-1
O Field level
O B-1: Dependence on single (or homogenous)
source(s) in a field
O B-2: Greater state intervention
Mimetic isomorphism
O Modelling after successful organizations
O Driven by uncertainty about what the best course of action is
O Also by causal ambiguity
O Consulting firms play a role
O Sometimes even innovation can be a result of imitation (of
processes) – i.e., setting up an R&D division.
Some predictions for mimetic
isomorphism
O Organization level
O A-3: Uncertainty leads to imitation of
successful organization’s practices
O A-4: Ambiguity of goals leads to imitation of
successful organization's actions
O Field level
O B-3: Fewer the models, quicker the
isomorphism
O B-4: Greater uncertainty and more ambiguity
of goals, stronger isomorphic tendencies
Normative isomorphism
O Pressures which are
brought about by
professions
O People hired with similar
education backgrounds will
tend to approach problems
in similar way
O Inter-organizational mobility
of personnel can lead to
import of norms
Some predictions for
normative isomorphism
O Organization level
O A-5: Reliance on academic credentials for
hiring leads to similarity of practices
O A-6: Executives participating in professional
organizations can lead to similarity of
practices
O Field level
O B-5: More professionalism in the field, more
isomorphism
Middle status conformity –
Phillips & Zuckerman, 2001
O Isomorphic behavior
is status dependent
O High and low
status actors
deviate
O Middle status
actors conform
Action evaluation by audience
O Audience classify offerings as legitimate
O i.e., legitimacy is a yes or no
O Screen out illegitimate offerings
O Select among legitimate offerings
O Over time, status implies legitimate offerings
O Higher the status, higher the implied
legitimacy of offerings
O But middle status are scrutinized
O Low status are not even considered
Why middle status conform
O Middle status players risk status
downgrades
O High status players enjoy a relatively stable
position due to default legitimacy
O Low status players do not get evaluated and
don’t pursue legitimate actions, as it is
costly and useless for status mobility
High, Middle and Low
O High: The legitimate players
O Middle: The wannabes legitimate players
O Low: The Non players
Empirical test 1: Silicon valley
law firms
O Corporate law most coveted
O Family law is not so
O Diversification of corporate law firms into family
O
O
O
O
law is seen as deviance
High status actors can show it as a value
addition to their corporate clientele (a
disclaimer)
Middle status actors cant say the same
Low status actors don’t care
Found a U shaped relationship between status
and diversification into family law
Empirical test 2: Investment
analysts
O To make informed buy/sell recommendations
O
O
O
O
analysts need insider information
Insiders will be reluctant to provide information if
analysts is likely to issue a sell recommendation
So analyst are discredited for issuing sell
recommendation
Large institutional investors seek honesty from
analyst
But institutional investors also know that an
analyst without good standing with insiders will
not be able to make good judgment, hence a
compromise is a hold recomendation
Status difference in buy/sell
recommendations
O High status analyst can issue sell recommendations
as they will be seen as the bold ones who did report
their recommendation honestly
O Low status analyst issue sell recommendations as
they do not have insider network and neither can they
get it by conforming to their expectations
O Middle status analyst issue buy recommendations
alone to keep their network with insiders intact – i.e.,
to remain legitimate
O Found U shaped relationship between status and
issuance of sell recommendation
That’s it for today
O For our next session we will have our EXAM:
O IN Class, Open Book (i.e., you are allowed to
bring the articles, lecture slides and memos)
O Short-answer type questions