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BUS 374 – Session 4 Organization theory Do organizations always act similarly?

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1 BUS 374 – Session 4 Organization theory Do organizations always act similarly?

2 Agenda O Memo presentation #1 (Hannan & Freeman, 1977) O Memo discussion #1 O Memo presentation #2 (Hsu & Hannan, 2005) O Memo discussion #2 O Do organizations always act similarly?

3 New Institutional Theory DiMaggio & Powell, 1983 O Do organizations always act similarly?

4 Iron Cage Revisited O 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

5 Too many procedures and redundant hierarchy

6 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

7 Institutional sources of isomorphism O Coercive O Mimetic O Normative

8 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

9 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

10 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.

11 Some predictions for mimetic isomorphism O Organization level O A-3: Uncertainty leads to imitation of successful organizations 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

12 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

13 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

14 Middle status conformity – Phillips & Zuckerman, 2001 O Isomorphic behavior is status dependent O High and low status actors deviate O Middle status actors conform

15 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

16 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 dont pursue legitimate actions, as it is costly and useless for status mobility

17 High, Middle and Low O High: The legitimate players O Middle: The wannabes legitimate players O Low: The Non players


19 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 law is seen as deviance O High status actors can show it as a value addition to their corporate clientele (a disclaimer) O Middle status actors cant say the same O Low status actors dont care O Found a U shaped relationship between status and diversification into family law

20 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

21 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

22 Thats 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

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