BUS 374 – Session 3Organization theory

Session 2: Why do organizations exist?

Agenda

O Memo presentation #1 (Marx, 1867)O Memo discussion #1O Memo presentation #2 (Coase,

1937)O Memo discussion #2O Why are there so many different

types of organizations?

Organizational Ecology Hannan and freeman, 1977

“Why are there so many different types of organizations?”

Adaptation SchoolOAdaptation

O Managerial agency is paramountO Capable of adapting to the

environmentO Differences in managerial capacity

to adapt to environmentO Diversity among organizations,

hence an outcome of adaptation

Limitations to adaptationOInternal Limitations

OSunk costsO Information asymmetry about

firm’s complete operations/contingencies

O Internal political struggleONormative agreements (this

is how we have been doing it)

Limitations to adaptation

OExternal LimitationsO Legal and fiscal barriers to entry

and exit (continuances is expected)O Information asymmetry about

environmental demandsO Loss of legitimacy when there is

changeO Individual rationality => Collective

irrationality

What is the alternative?O Take adaptation with a lot of scope

conditionsO Supplement adaptation with

selection modelsO Competition produces isomorphism

with environment O Niches develop to produce

isomorphism in dynamic environments

So how is selection different from adaptation?

O Level of analysis is the aggregate… O Individual organizationsO A population of individual organizationsO A community of populations

O Diversity is a property of aggregates of organizations

O Communities are not stableO New organizations bring about change and

replace old onesO New populations replace old populations

Organizational formO It is a blueprint for organizational action, for

transforming inputs into outputs.O It determines what niches an organization is

good at occupyingO Organizations with similar forms are a

populationO Can be inferred (theoretically) by examining

O Formal structureO Pattern of activitiesO Normative order

Fitness to the environment

O Diversity in environmental resources causes diversity in organizational formsO Multiple distinguishable

environmental configurationsO One organizational form suitable to

that environmentO i.e., there is a tendency for

isomorphism with the environment

Competition and isomorphism

O Carrying capacity: O How much resources is available O how many organizations can the environment carry

O Competition for limited resourcesO Survival of the fittest

O If two populations exist that utilizes same limited resource combinations, the fittest will survive among the two.

O Alternatively choose a different resource combination

O When there are greater constraints on resources then there will be greater variability

NichesO Area in a constrained resource space in

which one population outcompetes all other populations.

O Hence, all populations occupy distinct niches.

O But resource constraints can be either stable or dynamic… O So, while some organizations try to

operate in multiple niches – GeneralistsO Others try to specialize in one niche.

Specialists vs. Generalists

O Specialists thrive in stable environments

O Generalists try to make use of dynamism

O But not always, as reorganization is costly even for generalists

O Fine grained change need not be good for generalists but Coarse grained will be…

Organization form revisitedHsu and Hannan (2005)

O While population ecology has progressed by leaps and bounds, the idea of organizational form is still primitive and functionalO Uses conventional industry classifications to

identify organizational formsO Banks, Hotels, Automobile producers, Museums,

Semi conductor firms, newspapers, etc.O Or uses niches within industries

O Micro breweries, bio-tech firms, credit unions, ethnic newspapers

O Or even unconventional industriesO Social movements, worker cooperatives, political

parties

What is the problem?

An identity based approach

O What is identity?O Social codes, or sets of rules, specifying

the features that an organization is expected to possess

O How do get there?O Ask what audience think

O Are a set of firm covered by the same analysts?

O Do similar job candidates apply for jobs of a certain set of firms (i.e., Look at candidate pool for a firm)

What if there are multiple set of audience?

O They might all be in complete agreementO No confusion – codes persist

O Audiences might disagree?O Perhaps can play one against the otherO But there can be more harm than good

O It is important to link identity to issue of theoretical interest.

O Further, audience agreement can be an analytical consideration for the future

Identity to FormO Identities lead to categories

O i.e., organizations of similar identities can be seen as a category

O But being categorized might not mean much

O If deviation from category defaults is punished by the audience then it is consequential

O Presence of punishments for category deviation is the sign of existence of a form

When is deviance punished?O When a category attains some critical mass

(e.g., Musicals as a separate genre) O Identity characteristics become category

defaults – i.e., taken for grantedO Any organization that deviates defaults

attract suspicion O But

O High status organizations get some leeway. O Complex identities also get leewayO Generalist identities get leeway (supermarket

vs specialty stores)

Identities changeO Resistance to existing codes

O Micro breweriesO Threats to form’s survival

O US Food Coops - from coop identity to capitalist identity to coop identity

That’s it for todayO For our next session we will try to

answer:O DO ORGANIZATIONS ACT SIMILARLY?