Rack BI — Institution Theory

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What is Institution Theory and Why is it Important?

The idea that there was no “one best way” to organize across all contexts, a direct challenge to the ideas of Taylorism and scientific management, goes way back to the works of Mary Parker Follett (Metcalf & Urwick, 1943; see Episodes 5 on the “Law of the Situation” and 91). But it would take formal shape through the emergence of the open systems perspective, including the works of Lawrence and Lorsch.

Paul Lawrence and Jay Lorsch were among the earliest scholars looking at the relationship between organizational characteristics and their environment, and stipulate that an organization’s economic performance is determined by its ability to meet integration and differentiation requirements according to their environment. (we covered one of their papers in Episode 16). Important figures in the field of management and organizational studies, their collaboration produced important works including the award winning book Organization and Environment: Managing Differentiation and Integration (1967) and a series of papers which advance an open systems perspective on organizations. Their work led to the so-called contingency school that viewed the optimum structuring of work depending (i.e., is “contingent”) on the external and local conditions in which an organization is inserted.Other later works on firm behavior, such as Pettigrew (1987, see Episode 27), would derive similar conclusions.

The benefits of contingency theory in practice are many, and we include just a few examples here. One is the ability to account for environmental, cultural, technological, and situational factors. It suggests that these variables directly impact how an organization should be structured and how it operates. For instance, what works for a startup may not work for a large multinational corporation, and this theory helps in recognizing such differences. Another is the need for organizations to be flexible and adaptable to changing conditions (also see Rack CA). This adaptability is crucial in a rapidly changing world where organizations navigate various dynamic and diverse challenges and opportunities. Finally, there are implications for leaders who should align their organizations with contextual factors, such as the nature of the task, the maturity of the team, or the organizational culture. For example, a more authoritarian leadership style may work in crisis situations, while a participative style may be better for creative, collaborative teams.

Some Leading Contingency Theories & Concepts

Institution theory has become very broad. Various literature streams have emerged that focus on how institutions form, change, and disappear, along with how organizations and industries respond to these dynamics. This has helped with guiding researchers toward feasible and defensible projects. Here is a sample of some of these streams — it is not intended as a comprehensive list, suggestions for additions are welcome.

Old Institutionalism. This stream focuses on the historical and sociological aspects of institutions. It emphasizes the role of institutions in shaping social behavior and the importance of understanding the historical context in which institutions develop. Scholars like Thorstein Veblen and John R. Commons contributed to this perspective by examining how institutions evolve over time and influence economic behavior (Bisultanova, 2023).

New Institutionalism. This is a broad literature stream that pioneered by the likes of Philip Selznick (see Episode 75) in the mid-20th century and then developed and formalized through the works of John Meyer, Brian Rowan (see Episode 107), Paul DiMaggio, and Walter Powell (see Episode 120), W. Richard Scott, and many others. This stream fundamentally transformed scholarly understanding of organizations by highlighting how they are shaped by cultural and social pressures rather than just technical demands. They introduced the crucial concept of institutional isomorphism (see Episode 120) – the tendency of organizations in a field to become more similar over time through three mechanisms: coercive pressures (from regulators and powerful organizations), mimetic pressures (copying successful peers when facing uncertainty), and normative pressures (from professional standards and education) (DiMaggio & Powell, 1983).

Institutional Work Perspective. This stream was developed by Thomas Lawrence, Roy Suddaby, and others. It shifted attention to how individuals and organizations actively shape institutions. This stream examines how actors create, maintain, and disrupt institutions through daily practices and strategic actions. For example, institutional work scholars study how professionals establish new practices as legitimate, how organizations maintain their status in fields, or how activists challenge existing institutional arrangements.

Institutional Logics Perspective. This stream is associated with Patricia Thornton, William Ocasio, Roger Friedland and others who explore how different belief systems and organizing principles shape behavior. This perspective also parallels institution theory as applied in political science (highlight some of the works) in which there are several logics discussed in the literature – the market logic of efficiency, the state logic of equality of access and treatment, the professional logic of competency and effectiveness, plus the corporation, the family, and religions (Friedland & Alford, 1991). Research in this stream pursues understanding of how organizations navigate multiple, often competing logics along with the organizational responses to institutional complexity and hybrid organizations that combine different logics.

The “Scandinavian Institutionalism stream”. This can be viewed as a substream of the Institutional Work Perpsective based on what Boxenbaum & Pedersen (2009) term a “particular Scandinavian approach to organization studies” that is a “distinctive and identifiable variant of institutionalism” due its emphasis on organizational variation and distinctiveness rather than isomorphism and standardization. This helps explain why seemingly similar practices can look quite different across organizations and countries. A short list of scholars associated with this stream include Barbara Czarniawska, Kerstin Sahlin-Andersson, Lars Engvall, and Kristian Kreiner.

The “World Society Theory” stream. This stream is associated with John Meyer (2010) and his colleagues at Stanford. It examines how global cultural models shape organizations and nation-states worldwide. They demonstrate how educational systems, environmental policies, and human rights practices become remarkably similar across countries through global institutional pressures, even when these practices might not fit local conditions well.

Contemporary Research Areas

Institution theory research is highly active and there are many practical applications and concerns, with some of these also referenced in the contemporary topics in Aisle C.

Institutional Change. Institutional theorists have become increasingly interested in institutional change. While early work focused on how institutions create stability and conformity, contemporary research examines how institutions change and how organizations can innovate while maintaining legitimacy — for example, institutional entrepreneurship theory (e.g., Hoogstraaten, Frenken, & Boon, 2020; Garud et al., 2013). This has led to rich studies of institutional entrepreneurship and institutional change processes.

Organizational Response to Institutional Pressures. Scholars have also developed more sophisticated understandings of how organizations respond to institutional pressures. Rather than seeing organizations as passive recipients of institutional pressures, research now examines strategic responses ranging from compliance to defiance, and how organizations might selectively couple with institutions – adopting their formal structures while maintaining different internal practices (e.g., Pache & Santos, 2010; Holm et al., 2017).

Related TAOP Episodes, Events, and Notes

104: Social Structure & Organizations — Stinchcombe

In a famous chapter in James G. March’s 1965 book, Handbook of Organizations, Arthur L. Stinchcombe laid out a case for expanding the study of organizations outward to include social structure bringing attention to innovation as well as imprinting and inertia. He posited that societies had significant effects on how organizations emerge and operate and that organizations, in turn, impact relations among groups in society. He presented his arguments in three parts. First, that social structures had an imprinting effect on the formation of new organizations, such that these initial forms often persisted despite efforts to change them. Thus, to the second point, each type of organization reflected the history of its creation both in terms of the organization and social structures that dominated at the time. Finally, organizations also reflect the social divisions in society, such as between higher and lower classes.

91: Constructive Conflict – Mary Parker Follett

We return to the works of Mary Parker Follett and expand upon “The Law of the Situation” that we covered in Chapter 5. In this episode, we revisit Dynamic Administration with a look at the first five chapters as a whole – focusing on Chapter 1 (“Constuctive Conflict”), Chapter 3 (“Business as an Integrative Unity”), Chapter 4 (“Power”), and Chapter 5 (“How Must Business Management Develop in order to Possess the Essentials of a Profession”) that introduced Follett’s conception of professionalizing business.

90: Organizations in Action – James Thompson

We will examine James D. Thompson’s “Organizations in Action: Social Science Bases of Administrative Theory” from 1967 that established a new direction in organization studies. Beginning with a recapitulation of the theoretical work of the time, Thompson expanded the dominant rational model of organizing with the emerging ideas about human behaviour, complexity, and the relation between organizations and their environments. The result was a proposed theory of administration that remains relevant to this day.

60: Contingency Theory — Joan Woodward

Joan Woodward was a pioneer in organization theory, and in this episode we explore her seminal work Industrial Organization: Theory and Practice, originally published in 1965. The book presents the results of an extensive longitudinal study of the technologies, processes, and systems used by over one hundred industrial firms concentrated in southeast England over a ten year period.

58: Contingency Approach – AOM 2019 Workshop LIVE

This professional development workshop focuses on the contingency approach as exemplary of classic scholarship in organization and management theory. We focus on the historical context of the contingency approach, the main ideas of authors and traditions associated with it, and their connections with contemporary research.

16: Contingency Theory – Lawrence and Lorsch

We discuss Paul Lawrence and Jay Lorsch’s book “Organization and Environment: Managing Differentiation and Integration” and a series of papers which advance an open systems perspective on organizations. The contingency school postulates that there is not one best way to structure work or an organization. An optimum course of action depends – is contingent – on the external and local conditions in which an organization is inserted.

14: Simply Managing, by Henry Mintzberg

The book we analyzed in this episode, Simply Managing (2013), is an updated study of managers conducted by Henry Mintzberg based on observing 29 managers at all levels of organizations across a range of industries and organizational structures: business, government, healthcare, and pluralistic organizations such as museums and non-governmental organizations.

A Letter About Mary Parker Follett

Our discussion of Mary Parker Follett’s “The Giving of Orders” inspired one of our listeners and co-author of a book on Follett’s work to contribute a post. Davis provides further background on her works and elaborates on some points made in our conversation.

5: The Law of the Situation – Mary Parker Follett

This episode is a review of one of Mary Parker Follett’s great lectures, “The Giving of Orders,” contained in a collection of Follett’s lectures and writings that was assembled by Lyndall Urwick at the end of her life in an effort to preserve her ideas for others. Follett believed that exploring “the science of the situation” involved both management and workers studying the situation together.

Aisle B – Major Theoretical Perspectives and Schools

Curated list of resources regarding major theories and schools of thought in organization studies. Groups a wide range of theoretical perspectives in line with common categorizations; other perspectives are welcome.

Emotions in Organizations

Curated reading list on matters of emotions, emotional labor, coping capacity and strategies, and research on the ontology of emotions in organization studies.

Gender and Feminism

Gender has been a significant topic in organization studies for a long time. We featured the groundbreaking work of Rosabeth Moss Kanter on “tokenism” from 1977 and covered the third wave of feminism in a review of Joan Acker’s theory of gendering in organizations. Meanwhile, Management Learning frequently covers gender issues and feminism in its pages. This is yet another curated reading list from TAOP and Management Learning.

Group Relations

Group relations research examines how behavior are influenced not only by a person’s own traits but also by their needs or desires to conform to social demands and expectations. It addresses questions about how groups are defined or define themselves, how the welcome or remove members, how they are structured, and how they collectively deal with internal conflict and external threats.

Rack BA — Classic Organization and Management Theory

Curated list of resources regarding the major “classical” theories that initiated the field of organization studies, beginning with Taylorism and scientific management and continuing with the theories Fayol, Weber, and others.

Rack BB1 – Organizational Behavior (Micro-Individual)

Curated list of resources regarding the major theories of organization behavior such as emotions, sensemaking, socialization and organizational climate, and many others.

Rack BB2 — Organizational Behavior (Meso-Groups and Teams)

Curated list of resources regarding theories on groups, teams, and other small collections of individuals within an organizational context, from the worker level to top management teams.

Rack BB3 — Organizational Behavior (Macro-Org/System)

Curated list of resources on open systems theory and its many descendents such as general systems theory, cybernetics, and organizational ecology

Rack BC — Contingency Theory

Curated list of resources regarding the major theories regarding the organizational context and how particular situations influence organizational structures, behaviors, and so on. Includes classic contingency theories and pragmatism.

Rack BD — Organizational Design

Curated list of resources on theories related to organizational structures and design, including control structures, power, and job design

Rack BG — Organizational Development and Change

Curated list of resources regarding various theories regarding the external environment in organizations, such as labor relations, resource dependence theory, and others.

Rack BH – Human Dimension – Culture, Climate, Identity

Curated list of resources regarding sustainability and corporate social responsibility such as sustainable business practices, responses to climate change, sociomateriality, and ethical considerations

Rack BI — Institution Theory

Curated list of resources on theories related to strategic management, including competitive forces models, resource-based perspectives, and organizational strategies and strategic change

Rack BL — Leadership Theories

Curated list of resources on theories related to leadership in organizations including classic trait theory, behavioral theories of leadership, and transactional / transformational leadership

Rack BM – Modern Management Theories

Curated list of resources regarding the major schools of thought and the theoretical perspectives they established. Includes the Carnegie-Mellon School, Aston School, and others.

Rack BQ — Postmodern and Critical Theories

Curated list of resources on postmodernist views of organizations and organizing and contrasting them with the modernist view. Includes critical management studies and complexity theory

Sociomateriality

References

Anthropic. (2024). What are the major theoretical streams in institution theory. Claude (March 2024 version) [Large Language Model].

Bisultanova, A. (2023). The history of the institutionalism inception. SHS Web of Conferences, 172, 06007. https://doi.org/10.1051/shsconf/202317206007

Boxenbaum, E., & Pedersen, J. S. (2009). Scandinavian institutionalism: A case of institutional work. In Institutional work: Actors and agency in institutional studies of organizations (pp. 178-204). Cambridge University Press.

Czarniawska, B. & Sevón, G. (eds.) (2003) The Northern Lights: Organization Theory in Scandinavia. Copenhagen: Copenhagen Business School Press.

DiMaggio, P. J., & Powell, W. W. (1983). The iron cage revisited: Institutional isomorphism and collective rationality in organizational fields. American sociological review, 48(2), 147-160.

Engwall, L. (1995) The Vikings vs. the world: an examination of Nordic business research. Proceedings of the 13th Nordic Conference on Business Studies, 1: 303–312.

Friedland, R., & Alford. R. R. (1991). Bringing society back in: Symbols, practices, and institutional contradictions. In Powell, W. W. & DiMaggio, P. J. (eds.), The new institutionalism in organizational analysis (pp. 232-266). Chicago: University of Chicago Press.

Garud, R., Hardy, C., Maguire, S. (2013). Institutional Entrepreneurship. In: Carayannis, E.G. (eds) Encyclopedia of Creativity, Invention, Innovation and Entrepreneurship. Springer, New York, NY. https://doi.org/10.1007/978-1-4614-3858-8_421

Holm, A. E., Decreton, B., Nell, P. C., & Klopf, P. (2017). The Dynamic Response Process to Conflicting Institutional Demands in MNC Subsidiaries: An Inductive Study in the Sub-Saharan African E-commerce Sector. Global Strategy Journal, 7(1), 104-124. https://doi.org/10.1002/gsj.1145

Hoogstraaten, M. J., Frenken, K., & Boon, W. P. (2020). The study of institutional entrepreneurship and its implications for transition studies. Environmental Innovation and Societal Transitions, 36, 114-136.

Kreiner, K. (2007) A Scandinavian way in organization theory: what is the evidence, and does evidence matter? Nordiske Organisasjionsstudier 9(1): 83–92.

Lawrence, P. R. & Lorsch, J. W. (1967). Organization and environment: Managing differentiation and integration. Boston: Division of Research, Graduate School of Business Administration, Harvard University.

Lawrence, P., & Lorsch, J. (1967). Differentiation and integration in complex systems, Administrative Science Quarterly, 12(1), 1-47.

Lawrence, T. B., & Suddaby, R. (2006). Institutions and institutional work (Vol. 2, pp. 215-254). In Clegg, S. R., Lawrence, T. B., & Hardy, C. (eds), The Sage handbook of organization studies. Sage.

Metcalf, H. C., & Urwick, L. (1943). Dynamic administration: The collected papers of Mary Parker Follett. Harper Brothers. Chapters 1, 3-5.

Pache, A. C., & Santos, F. (2010). When worlds collide: The internal dynamics of organizational responses to conflicting institutional demands. Academy of management review, 35(3), 455-476.

Sahlin-Andersson, K. & Söderholm, A. (2002) The Scandinavian school of studies. In Sahlin-Andersson, K. & Söderholm, A. (eds.), Beyond Project Management: New Perspectives on the Temporary–Permanent Dilemma. Malmö: Liber.

Scite. (2024). What are the major theoretical streams in institution theory; Where does deinstitutionalization fit in the streams of institution theory. Scite (April 2024 version) [Large Language Model].

Selznick, P. (1953). TVA and the grass roots: A study in the sociology of formal organization. Univ of California Press.

Thornton, P. H., & Ocasio, W. (2008). Institutional logics. The Sage handbook of organizational institutionalism, 840(2008), 99-128.

Thornton, P. H., Ocasio, W., & Lounsbury, M. (2012). The institutional logics perspective: A new approach to culture, structure and process. OUP Oxford.

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Resources: Main Page | Research Methods (A) | Major Theories (B) | Issues and Contemporary Topics (C) | Professional Education (D)

Rack BI — Institution Theory

TAOP Resources Library -- Aisle B (Theories)

Jump to: Importance | Theories | Research Areas | TAOP Episodes | References

What is Institution Theory and Why is it Important?

Some Leading Contingency Theories & Concepts

Contemporary Research Areas

Related TAOP Episodes, Events, and Notes

Available Resource Pages

References

Jump to: Importance | Theories | Research Areas | TAOP Episodes | References