BUS 374 – Session 3 Organization theory

1. BUS 374 – Session 3Organization theory Session 2: Why do organizations exist?

2. Agenda • Memo presentation #1 (Marx, 1867) • Memo discussion #1 • Memo presentation #2 (Coase, 1937) • Memo discussion #2 • Why are there so many different types of organizations?

3. Organizational Ecology Hannan and freeman, 1977 “Why are there so many different types of organizations?”

4. Adaptation School • Adaptation • Managerial agency is paramount • Capable of adapting to the environment • Differences in managerial capacity to adapt to environment • Diversity among organizations, hence an outcome of adaptation

5. Limitations to adaptation • Internal Limitations • Sunk costs • Information asymmetry about firm’s complete operations/contingencies • Internal political struggle • Normative agreements (this is how we have been doing it)

6. Limitations to adaptation • External Limitations • Legal and fiscal barriers to entry and exit (continuances is expected) • Information asymmetry about environmental demands • Loss of legitimacy when there is change • Individual rationality => Collective irrationality

7. What is the alternative? • Take adaptation with a lot of scope conditions • Supplement adaptation with selection models • Competition produces isomorphism with environment • Niches develop to produce isomorphism in dynamic environments

8. So how is selection different from adaptation? • Level of analysis is the aggregate… • Individual organizations • A population of individual organizations • A community of populations • Diversity is a property of aggregates of organizations • Communities are not stable • New organizations bring about change and replace old ones • New populations replace old populations

9. Organizational form • It is a blueprint for organizational action, for transforming inputs into outputs. • It determines what niches an organization is good at occupying • Organizations with similar forms are a population • Can be inferred (theoretically) by examining • Formal structure • Pattern of activities • Normative order

10. Fitness to the environment • Diversity in environmental resources causes diversity in organizational forms • Multiple distinguishable environmental configurations • One organizational form suitable to that environment • i.e., there is a tendency for isomorphism with the environment

11. Competition and isomorphism • Carrying capacity: • How much resources is available • how many organizations can the environment carry • Competition for limited resources • Survival of the fittest • If two populations exist that utilizes same limited resource combinations, the fittest will survive among the two. • Alternatively choose a different resource combination • When there are greater constraints on resources then there will be greater variability

12. Niches • Area in a constrained resource space in which one population outcompetes all other populations. • Hence, all populations occupy distinct niches. • But resource constraints can be either stable or dynamic… • So, while some organizations try to operate in multiple niches – Generalists • Others try to specialize in one niche.

13. Specialists vs. Generalists • Specialists thrive in stable environments • Generalists try to make use of dynamism • But not always, as reorganization is costly even for generalists • Fine grained change need not be good for generalists but Coarse grained will be…

14. Organization form revisitedHsu and Hannan(2005) • While population ecology has progressed by leaps and bounds, the idea of organizational form is still primitive and functional • Uses conventional industry classifications to identify organizational forms • Banks, Hotels, Automobile producers, Museums, Semi conductor firms, newspapers, etc. • Or uses niches within industries • Micro breweries, bio-tech firms, credit unions, ethnic newspapers • Or even unconventional industries • Social movements, worker cooperatives, political parties

15. What is the problem?

16. An identity based approach • What is identity? • Social codes, or sets of rules, specifying the features that an organization is expected to possess • How do get there? • Ask what audience think • Are a set of firm covered by the same analysts? • Do similar job candidates apply for jobs of a certain set of firms (i.e., Look at candidate pool for a firm)

17. What if there are multiple set of audience? • They might all be in complete agreement • No confusion – codes persist • Audiences might disagree? • Perhaps can play one against the other • But there can be more harm than good • It is important to link identity to issue of theoretical interest. • Further, audience agreement can be an analytical consideration for the future

18. Identity to Form • Identities lead to categories • i.e., organizations of similar identities can be seen as a category • But being categorized might not mean much • If deviation from category defaults is punished by the audience then it is consequential • Presence of punishments for category deviation is the sign of existence of a form

19. When is deviance punished? • When a category attains some critical mass (e.g., Musicals as a separate genre) • Identity characteristics become category defaults – i.e., taken for granted • Any organization that deviates defaults attract suspicion • But • High status organizations get some leeway. • Complex identities also get leeway • Generalist identities get leeway (supermarket vs specialty stores)

20. Identities change • Resistance to existing codes • Micro breweries • Threats to form’s survival • US Food Coops - from coop identity to capitalist identity to coop identity

21. That’s it for today • For our next session we will try to answer: • DO ORGANIZATIONS ACT SIMILARLY?