BUS 374 – Session 4 Organization theory

1. BUS 374 – Session 4Organization theory Session 2: Do organizations always act similarly?

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

3. New Institutional TheoryDiMaggio & Powell, 1983 • “Do organizations always act similarly?”

4. Iron Cage Revisited • Bureaucracy as an Iron Cage • Set up for increasing efficiency of government machinery • But once set, it takes a life of its own… • 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 • “making organizations more similar without necessarily making them more efficient” • But why? • Isomorphic pressures • Competitive isomorphism as discussed by Hannan & Freeman (1977) is important • But more importantly, institutional isomorphism – a form of legitimacy seeking

7. Institutional sources of isomorphism • Coercive • Mimetic • Normative

8. Coercive isomorphism • Pressures from organizations that the organization in question in connected to or dependent on. • Government mandates • Suppliers • Consumers • Can be both explicit and subtle

9. Some predictions for coercive isomorphism • Organization level • A-1: Dependence on another organization • A-2: Centralization of resource supply positively moderates A-1 • Field level • B-1: Dependence on single (or homogenous) source(s) in a field • B-2: Greater state intervention

10. Mimetic isomorphism • Modelling after successful organizations • Driven by uncertainty about what the best course of action is • Also by causal ambiguity • Consulting firms play a role • 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 • Organization level • A-3: Uncertainty leads to imitation of successful organization’s practices • A-4: Ambiguity of goals leads to imitation of successful organization's actions • Field level • B-3: Fewer the models, quicker the isomorphism • B-4: Greater uncertainty and more ambiguity of goals, stronger isomorphic tendencies

12. Normative isomorphism • Pressures which are brought about by professions • People hired with similar education backgrounds will tend to approach problems in similar way • Inter-organizational mobility of personnel can lead to import of norms

13. Some predictions for normative isomorphism • Organization level • A-5: Reliance on academic credentials for hiring leads to similarity of practices • A-6: Executives participating in professional organizations can lead to similarity of practices • Field level • B-5: More professionalism in the field, more isomorphism

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

15. Action evaluation by audience • Audience classify offerings as legitimate • i.e., legitimacy is a yes or no • Screen out illegitimate offerings • Select among legitimate offerings • Over time, status implies legitimate offerings • Higher the status, higher the implied legitimacy of offerings • But middle status are scrutinized • Low status are not even considered

16. Why middle status conform • Middle status players risk status downgrades • High status players enjoy a relatively stable position due to default legitimacy • Low status players do not get evaluated and don’t pursue legitimate actions, as it is costly and useless for status mobility

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

19. Empirical test 1: Silicon valley law firms • Corporate law most coveted • Family law is not so • Diversification of corporate law firms into family law is seen as deviance • High status actors can show it as a value addition to their corporate clientele (a disclaimer) • Middle status actors cant say the same • Low status actors don’t care • Found a U shaped relationship between status and diversification into family law

20. Empirical test 2: Investment analysts • To make informed buy/sell recommendations analysts need insider information • Insiders will be reluctant to provide information if analysts is likely to issue a sell recommendation • So analyst are discredited for issuing sell recommendation • Large institutional investors seek honesty from analyst • 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 • High status analyst can issue sell recommendations as they will be seen as the bold ones who did report their recommendation honestly • Low status analyst issue sell recommendations as they do not have insider network and neither can they get it by conforming to their expectations • Middle status analyst issue buy recommendations alone to keep their network with insiders intact – i.e., to remain legitimate • Found U shaped relationship between status and issuance of sell recommendation

22. That’s it for today • For our next session we will have our EXAM: • IN Class, Open Book (i.e., you are allowed to bring the articles, lecture slides and memos) • Short-answer type questions