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Notes for Institutional Theory

The aim of this essay is to explore the response of organisations when confronting with institutional pressures. The essay is organised as follow. Firstly, some concepts as well as explanation related to institutional theory will be introduced.

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Then, this essay will define and explain the conception of legitimacy and the connection between legitimacy and institutional process. Thirdly, the strategic responses of organisations to deal with the pressures from institutional process and an example of response in terms of institutional control will be examined.

Institutional theory is a concept that emphasizes the existence of some norms, values and beliefs of the society which organisations conform with. And the process of conformity called institutionalisation is reflected in the structures and practices of organisations (Powell & DiMaggio, 1991). According to Oliver (1991), institutional theory emphasizes more specifically on the pressures and constraints from the institutional environment which is one of its two issues addressed (the other one is technical pressures). Institutions here include the state, professions, interest group as well as public opinion (Scott, 1987b).

These institutions have interconnected and interdependent relationships with organisations, as the behaviours of organisation are restricted by outside pressures exerted by institutions. In order to survive, organisations have to force themselves to adapt to the environment. So, they have no other choice but to make their behaviours consistent with external norms and rules. After discussing the environment perspective of institutional theory, the next section will regard motives of conformity as the point of departure.

Institutional theory demonstrates that stability and legitimacy is what organisations to attain (Powell & DiMaggio, 1983; Oliver, 1991). In terms of obtaining stability, institutional theory can explain why organisations conform to external rules, norms and beliefs, not because of the direct link to a positive outcome but organisations would be unthinkable to do otherwise. In other words, this consistency may not be driven by the objective of interest maximisation, but by preconscious acceptance of institutionalisation.

Uniform rules, norms and beliefs produce less contradiction Oliver (1991). Due to attempt to obtain stability, organisations would like to draw experience from pre-existing audiences within the current external environment and imitate those organisational structures, decision-making mode and so on to response to the external pressures. Before regarding obtaining legitimacy as the other motive of conformity, it is necessary to define the concept of legitimacy. There are many different definitions of legitimacy with varying degrees of specificity (Suchman, 1995).

Legitimacy refers to an array of established cultural accounts made by organisations to provide explanations for its existence (Powell & DiMaggio, 1991). Another specific definition is that legitimacy is a generalized perception that the actions of an entity are desirable, proper, or appropriate within some socially constructed system of norms, values, and beliefs. In addition, there are three types of legitimacy, which are pragmatic legitimacy, moral legitimacy and cognitive legitimacy (Suchman, 1995). After explaining some conception of legitimacy, the next section will focus on the connection between legitimacy and institutional process.

As every parts of organisation is constructed and interpenetrated by external institutions as well as culture can determine how the organization is built, how it is run, and, simultaneously, how it is understood and evaluated, legitimacy empowers organizations by making them seem natural and meaningful. So legitimacy is critical to organisation survival. Then it can also imply the easiest approach to gain legitimacy, which suggests organisations to adapt to the existed institutional context and adjust their structures to fit with the existed norms, rules and beliefs.

This point is just consistent with the emphasis of the institutional theory. So gaining legitimacy is a more significant reason why organisations accept institutional process. When confronting with institutional pressures, acquiescence will be the most probable response taken by organisations. However, if anticipated legitimacy is low, organisations may have different responses to institutionalisation, like compromising on the requirements for conformity, avoiding the conditions that make conformity necessary, denying the requirements that are advised to conform, or even manipulate the criteria of conformity.

As can be seen, there are five kinds of strategic responses that organisations may conduct to institutional process, which are acquiescence, compromise, avoid, defy and manipulate(Oliver, 1991). Organisations may have different responses to variable cause, control, context, constituents and content and to even different degree of the same issue. For example, in the terms of institutional control, legal coercion or government mandates and voluntary diffusion are two processes pressures exerted to organisations (Powell & DiMaggio, 1983; Oliver, 1991).