MEMORANDUM
DATE:
June 21, 2013
TO:
Professor Rajiv Kozhikode
Teaching Assistant: Pooria Assadi
FROM:
Team 14 - BUS 374 D100
301083028
301158518
301127593
301157221
301157488
SUBJECT:
Ye,Kailun
Yao,Lingli
Yu,Mei Juan
Thakur,Karamveer Singh
Xia,Shuman
Exploring the Limits of the New Institutionalism: The Causes and
Consequences of Illegitimate Organizational Change
Summary and Key Assumptions
Matthew S. Kraatz and Edward J. Zajac examine both the neo-institutional theory and the
adaptation perspective from their article “Exploring the Limits of the New Institutionalism: The
Causes and Consequences of Illegitimate Organizational Change”. The paper starts by
describing the New Institutionalism theory as well as the institutional environment which rejects
the idea of the technical environment. The authors also distinguish institutional environment
which “views organizations as captives of the institutional environment in which they exist,”
from technical perspective which “views organizations as rational actors, albeit in a complex
environment,” (Kraatz & Zajac Pg 813).
Kraatz and Zajac use a survey study on liberal art colleges in the Unites State to test the
hypothesis in regards to the propositions of the neo-institutional theory. These colleges are
equally under the influence of the institutional pressures for conformity as well as the technical
environmental pressures. The results of the study indicate that under the traditional adaptation
perspective the technical environment pressure eventually forced the colleges to change and
those who did not change would be subject to performance problems. Moreover, changes made
by colleges resulted in increased heterogeneity and did not result in any increased risk of
organizational death or sickness. Lastly, the results also indicate that maintaining or establishing
legitimacy should be viewed as only one of several possible paths towards a better organizational
adaptation to the technical environment escape from the iron cage of strong institutional
environment (Kraatz & Zajac Pg 832). All of the results from the study are contrary to the
propositions of the new institutional theory and the results do not suggest conformity or the risk
of making illegitimate organizational changes. Finally Kraatz and Zajac conclude from the study
results that the neo-institutional theory does not accurately explain the changes made within the
organizational field.
Real world Phenomenon (eBay) Establish of our idea, eBay, field, and objects
Kraatz and Zajac’s study rejects the propositions of the new institutional theory and they
suggest there were possible flaws in the design of the study. The study was based on the data of
liberal art colleges, and the example of education may not be able to reflect and apply to other
disciplines such as technology and government. Therefore the study may lack ecological validity.
In this paper, we will use a real world phenomenon to challenge the authors’ conclusion about
the validity of the neo-institutional theory by applying the neo-institutional theory and its
propositions to a real world example. Such as conformity, legitimate changes within the field and
technical environmental influence on organizations.
E-commerce has become a pervasive business nowadays. As the technology grows
rapidly, Internet has become essential in our everyday lives. The emerging e-commerce has
widened the opportunity for brick & motor businesses to move into e-comers and conduct
transactions electronically. E-commerce has also lead to a new discipline of organizational field
and has absorbed more and more small and even private businesses to conduct transactions
through the Internet. One of the popular forms of e-commerce is shopping online or online
retailing, which allows people to buy and sell online and break limitations of traditional in person
shopping. However, the field of e-commerce is still an abstract concept, by combining the idea of
e-commerce and Internet Corporation such as eBay and Amazon; we can then turn the abstract
concept of e-commerce into a concrete representation of an organizational field.
We modeled the eBay network as a well-established and highly structured organizational
field which allows organizations such as small or private sellers to conduct business within the ecommerce field. Since DiMaggio and Powell gave a clear definition to “organizational field”, a
wide range of debates have taken place in an attempt to improve the definition of the concept. An
organizational field can be viewed as a structured network, which is integrated and intertwined,
emerging as structured and structuring environments for organizations as individuals revealed
from topological and structural cohesion studies (Rossoin. 2006). At this point, some might
question eBay’s credibility as an organizational field. But, if we view the individual sellers or
stores on eBay as single organization that connect to other organizations which conform to the
well-structured field, eBay can be considered as an organizational field. Moreover, eBay also
shares other characteristics of an organizational field as the organizations within eBay contain
different statues ranging from high to low. Its organizations are also subject to the rating levels
of the buyers and whether the seller is a member of the Power Seller program which requires
seller to be active on eBay for over 90 days. All of these characteristics of sellers on eBay match
the status of the organizations in the “field” theory.
Conformity and low-high status
The business plan of eBay has constantly included actions to attract the largest number of
heterogeneous sellers and buyers, who trade not just collectibles, but a wide variety of common
retail products (Anderson et al., 2007). After bringing and transferring the businesses to the
platform of eBay, the heterogeneous buyers and sellers must follow the general rules and
conditions of eBay which include registering on the website, listing items online, electronic
transaction, and shipping and returns of sold items. For example, one of eBay’s strict rules state
that sellers cannot sell restricted items on eBay, such as copy right materials and historical
tombstones. And sellers on eBay are not allowed to place listings related to these categories
online. All individual organizations within eBay are required to follow these norms and eBay
policies in order to survive in eBay’s competitive field, sellers will correlate their selling
strategies and characteristic to the organizational field. (Anderson et al., 2007). Therefore under
this organizational phenomenon, heterogeneous organizations will transform to homogeneous
organizations within the field which results in isomorphism, an assumption made under the
Neoinstitutional theory. Therefore the eBay network supports the idea of the new institutional
theory, that individual organizations are subject to the environment pressures and any changes
within the organizational field will result in conformity of the organizations to the organizational
field. As suggested by Kraatz & Zajac this results in the increasing homogeneity of organizations
(1996).
Along with the strict rules and policies in order to achieve the objective of widespread
use of its online marketplace, eBay has provided easily accessible tools for new and
inexperienced sellers to get started, and to establish and maintain seller ratings, based upon buyer
feedback (Anderson et al., 2007). Customers are suggested to rate and provide feedback to the
seller or buyer after each transaction with them. This rating system allows customers to
distinguish the high rating seller and low rating seller on eBay. The rating system will eventually
attach different statuses to sellers in the organizational field. Lower rating sellers and new
joining businesses will try to mimic and resemble high reputation sellers big modeling the layout
of the display of their online page, or by copying the display pictures from other high rating
online stores which sell the same product. The tendency for low rating sellers to mimic the high
reputation sellers also reflects and supports the idea of the new institutional theory that
organizational changes is explained by organizations’ increasing resemblance to the most
prestigious organizations in the field (Kraatz & Zajac, 1996).
Legitimate changes
EBay has established specific rules and policies which state what is allowed to be sold
and what is prohibited. For example, registered sellers are not allowed to sell drugs and drug
paraphernalia and eBay also has specific rules about categorizing items and only allow some
items to be placed under a specific category such as adult related items (see eBay rules and
policy). Policy violators will be warned by eBay first and in reoccurring cases eBay will suspend
those who violate the rules and policies (Collier, 2009). This policy regulation supports the idea
of the neo-institutional theory that organization that changes in institutionally illegitimate ways
will have harmful consequences (Kraatz & Zajac, 1996). It thus indirectly rejects the hypothesis
of Kraatz and Zajac that organization which makes illegitimate change will benefit the
organization itself.
What are the consequences of acting differently?
Although our example of eBay has supported the idea of neo-institutional theory, as the
technology evolves and the economy becomes more competitive, the examples may lead to
different results if applied to different phenomenon.
Relevant studies have showed that organizations within the fields were influenced by
multiple institutional factors such as audience within or outside the organization, and also the
technical environment. Those influences could lead organizations to deviate from the institution
of the field and behave differently. Study by Edelman (1992) showed that in response to laws
which regulate organizational employment. Organizations will respond to the law by elaborating
their formal structures to create visible symbols of compliance (Edelman, 1992). In other words,
under the regulation of organizational law, firms tend to mediate the influence of laws and
elaborate with their formal structures and create the most effective way of compliance. By doing
so, organization could find the equilibrium between compliance and organization’s managerial
interests. At this point, organizational changes have leaded to organizational heterogeneity
within the field, rather than homogeneity of organization.
Conclusion
Rather than thinking of organizations in the field as subject to a common set of pressures
and acting in a relatively homogeneous fashion, complexities and variety of institutional and
technical pressure ultimately define the changes made by the organizations and the degree to
which an organization resembles other organizations within the field is determined by their
reliance on the same or similar external factors. Therefore, we conclude that either of the
perspectives whether the traditional adaptation perspective or the neoinstitutional theory can
accurately account for changes in the organizational field as long as the example is relevant.
Reference
Anderson, S. T., Friedman, D., Milam, G., & Singh, N. (2007). Int. j. electronic
business. Seller strategies on eBay: Does size matter?, 5(6), 643-669. Retrieved
http://mpra.ub.uni-muenchen.de/id/eprint/4324
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eBay Rules & Policies. Retrieved from http://pages.ebay.ca/help/policies/overview.html
Collier, M. (2009). ebay business all-in-one for dummies, 2nd edition. (2nd ed.). For
Dummies. Retrieved from http://www.dummies.com/how-to/content/ebay-tradingviolations-to-avoid.html
Kraatz, M. S., & Zajac, E. J. (1996). American sociological review. Exploring the Limits of the
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