BUS 374 – Session 4Organization theoryDo organizations always

act similarly?

Agenda

O Memo presentation #1 (Hannan & Freeman, 1977)

O Memo discussion #1O Memo presentation #2 (Hsu &

Hannan, 2005)O Memo discussion #2O Do organizations always act similarly?

New Institutional TheoryDiMaggio & Powell, 1983

O “Do organizations always act similarly?”

Iron Cage RevisitedO Bureaucracy as an Iron

Cage – Max Weber 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

OCoercive

OMimetic

ONormative

Coercive isomorphismO Pressures from organizations that the

organization in question in connected to or dependent on.O Government mandatesO SuppliersO Consumers

O Can be both explicit and subtle

Some predictions for coercive isomorphism

O Organization levelO A-1: Dependence on another

organizationO A-2: Centralization of resource supply

positively moderates A-1O Field level

O B-1: Dependence on single (or homogenous) source(s) in a field

O B-2: Greater state intervention

Mimetic isomorphismO Modelling after successful organizationsO Driven by uncertainty about what the best course of

action isO Also by causal ambiguityO Consulting firms play a roleO 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 levelO A-3: Uncertainty leads to imitation of

successful organization’s practicesO A-4: Ambiguity of goals leads to imitation

of successful organization's actionsO 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 levelO 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 levelO 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 legitimateO i.e., legitimacy is a yes or no

O Screen out illegitimate offeringsO Select among legitimate offeringsO Over time, status implies legitimate

offeringsO Higher the status, higher the implied

legitimacy of offeringsO But middle status are scrutinizedO 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 LowO High: The legitimate playersO Middle: The wannabes legitimate

playersO Low: The Non players

Empirical test 1: Silicon valley law firms

O Corporate law most covetedO Family law is not soO Diversification of corporate law firms into

family law is seen as devianceO High status actors can show it as a value

addition to their corporate clientele (a disclaimer)

O Middle status actors cant say the sameO Low status actors don’t careO Found a U shaped relationship between

status and diversification into family law

Empirical test 2: Investment analysts

O To make informed buy/sell recommendations analysts need insider information

O Insiders will be reluctant to provide information if analysts is likely to issue a sell recommendation

O So analyst are discredited for issuing sell recommendation

O Large institutional investors seek honesty from analyst

O 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 todayO 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