Elena Raviola Foundations in Management Lecture 3 Institutional theory Elena Raviola Foundations in Management Lecture 3

In the ’60s and ’70s A growing interest and louder voice for the rational man: Bounded rationality and decision making Agency theory and strategy Transaction cost economics ORGANIZATIONS AS RATIONAL SYSTEMS WITH RATIONAL MEN TAKING RATIONAL DECISIONS

So in the ’80s came… New Institutional Theory 3 observations Reaction to organizations as rational 3 observations Many irrational decisions A lot of organizations look very similar Stability rather than change Link to old institutionalism (Selznick) Roots bourdieu, weber and old institutionalism

Seminal works in new institutionalism Meyer, J.W., and Rowan, B. (1977) Institutionalized Organizations: Formal Structure as Myth and Ceremony. American Journal of Sociology, 83(2), 340. DiMaggio, P. J. and Powell, W.W. (1983) The Iron Cage Revisited: Institutional Isomorphism and Collective Rationality in Organizational Fields. American Sociological Review 48:147-160. Ask students what they say.

…and the Book

Institutions in new institutionalism Institutions are patterns for collective action Creates order, stability and predictability Newcomers are taught ’how things have always been done here’ Opposite to ’habit’ (local, often individual) Institutions are long lasting Put limits on how individuals and organizations can act, at the same time as they enable acting Create and monitor rules of the game Make organizations and individuals adapt to its ’institutional surrounding’ (and thus can make things that seem irrational) Save energy: easier to do other things. Double headed.

Examples of institutions Collective patterns of actions that have been called ‘institutions” (examples): Marriage, sexism, the contract, wage labour, the handshake, insurance, the formal organization, the army, presidency, the vacation, the corporation, voting. Jeppson, 1991: 144 Ask key concepts in new institutional theory

Key concepts in new institutionalism Institutionalized myths Legitimacy vs technical rationality Decoupling Isomorphism Coercive, normative and mimetic Organizational field: Those organizations that, in the aggregate, constitute a recognized area of institutional life (DiMaggio and Powell, 1983: 148)

In groups 20 minutes think about a social phenomenon: - what can institutional theory explain about it? - what can it not explain about it? And what concept would you need instead?

Recent developments in institutional theory Institutional logics Institutional work Scandinavian institutionalism What is IT good for? What is missing and how would you support this? Break ALL ACCOUNTING FOR CHANGE, VARIATION AND PRACTICE

Institutional logics Lounsbury, M. (2007) A Tale of Two Cities: Competing Logics and Practice Variation in the Professionalizing of Mutual Funds. Academy of Management Journal, 50: 289-307 Definition of logics

Institutional logics (cont’ed) Institutional perspective on diffusion: Spread of unitary practice through a field Two-stage model 1 dominant logic shaping the field Institutional logics = institutionalized guidelines for actions and beliefs Institutional logics as a reaction to this: Fragmented and contested institutional environments Technical logic also institutionally embedded (rather than decoupling) Multiple logics provide different kinds of rationality Important to look at history to account for different logics Technical and then institutional reasoning Separate logics Professional firms. Mutual funds with performance or trustee logic. Adopting contracting to professional money management firms in different ways for different logics.

(New) institutional theory Institutional work (New) institutional theory Ethnomethodology Definition of inst work Practice theory Lawrence, T., Suddaby, R. and Leca, B. (2009) Introduction: theorizing and studying institutional work. In Lawrence, T., Suddaby, R. and Leca, B. (eds.) Instituional Work. Actors and Agency in Institutional Studies of Organizations. Cambridge: Cambridge University Press.

Institutional work (cont’ed) Institutional work = ”the purposive action of individuals and organizations aimed at creating, maintaining and disrupting institutions” (Lawrence and Suddaby, 2006:215) Focus on practices: what people do! Inspiration from institutional entrepreneurship – changing institutions Three types of institutional work: creating, maintaining, disrupting Work: Effort Intention Unintended consequences

Scandinavian institutionalism New institutional theory Science and Technology Studies (ANT) Czarniawska, B. and Sevón, G. (2005) Introduction. In Czarniawska and Sevón (eds.) Translating Organizational Change. Berlin: De Gruyter.

Scandinavian Institutionalism (cont’ed) New institutionalism focuses on stability Change as an exception Inspiration in Science and Technology Studies Constructionism: everything, humans and non-humans, is constructed Re-definition of two concepts: Diffusion Introducting the concept of translation Power Result of associations Consequences: Isomorphism does not mean IDENTICAL organizations Distinction between micro and macro actors revised

Reading workshop DiMaggio, P. J. and Powell, W.W. (1983) The Iron Cage Revisited: Institutional Isomorphism and Collective Rationality in Organizational Fields. American Sociological Review 48:147-160.

Assignments to hand in at reading workshop 1 To review for reading workshop 1 (Tuesday September 8, 14-17): Lounsbury (2007) Czarniawska and Sevón (2005) Lawrence, Suddaby and Leca (2008) Tsoukas and Chia (2002) by email to elena.raviola@handels.gu.se and jenny.helin@fek.uu.se