New Institutionalism – Origin, Definition, and Concepts

Overview: Institutional theory adopts an open system perspective: organizations are strongly influenced by their
environments. But not only are competitive forces and efficiency-based forces at work, socially constructed belief and
rule systems also exercise enormous control over organizations – both how they are structured and how they carry out
their work (Scott, 2003). As belief systems and norms vary over time and place, institutional concepts provide a means
to study organizational emergence and change.
New institutionalism develops quite rapidly during the mid 70’s till present. It differs from the ‘old’ one in that it focuses
more on the cognitive aspects of institutions, and hence on culture as carriers of institutions (Scott, 1995), while the
‘old’ more on the role of habit. In addition, new institutionalism emphasizes legitimacy and embeddedness of
organizational fields (Meyer and Rowan, 1977; DiMaggio and Powell, 1991). New institutionalism has 3 major schools
of thought: economics, political science, and the sociological school. These 3 schools converge around an interest in
understanding the bases of stability of social forms and the meanings associated with them, while differing in
identifying the elements that provides these conditions (Scott, 2003).
One question institutionalism asks is why organizations within sectors adopt homogeneous structures, practices, and
procedures. Organizations do so to increase their legitimacy, regardless of the immediate efficacy of the acquired
structures, practices, and procedures.

Classical or Seminal Works:

· Built on work by:
“Old” Institutionalism:
o Philip Selznik (1949). Selznik, in developing his ‘natural system model’, mentions that formal structures
can ‘never succeed in conquering the nonrational dimensions of organizational behavior’ (1948), and one
of the nonrational dimensions is the ‘organizational structures that include the formal aspects but also the
complex informal systems that link participants with one another and with others external to the official
boundaries’ (Scott, 2003).
o Parson (1960): apply his cultural-institutional theory to organizations, by examining the relationship of an
organization and its environment, the ways in which the value system of an organization is legitimated by
its connections to ‘the main institutional patters” in different functional contexts”. Every organization is a
subsystem of ‘a wider social system which is the source of the ‘meaning’, legitimation, or higher-level
support (Scott, 2001).
New Institutionalism:
o Williamson (1975): transaction cost economics. This is the seminal work for neo-institutional theory in
economics. Williamson stretches conventional economics to take the effects of varying institutional
contexts/ “governance structures” – markets, hybrids, or hierarchies – on economic behavior, and firm-
level structure (Scott, 2001).
o Nelson and Winter (1982): evolutionary economics. A broader conception of factors shaping behavior and
structure than the above. Firms with routines best adapted to the environment flourish. Their view of
institution is one of ‘regularities of behavior understandable in terms of rules, norms, and routines’
(Langlois, 1986).
o Moe (1984): rational choice theory. This is the seminal work for neo-institutional theory in political
science. Rational choice theorists view institutions as governance or rule systems, arguing that they
represent rationally constructed edifices established by individuals who seek to promote their interests.
Within economics the new institutionalism consists of an effort at reconciling the rational choice
perspective with institutionalism (Powell & DiMaggio, 1991).
o Berger and Luckmann (1967), refers to the 3-phase process as institutionalization.

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o Garfinkel (1974): coined the term ‘ethnomethodology’ to refer to common-sense knowledge of how to
operation within social arenas. Stressed the cognitive rather than the evaluative-normative components of
behavior (Scott, 2001; DiMaggio and Powell 1991).
o Meyer and Rowan (1977). Introduces neoinstitutional theory to sociological studies of organizations
(Scott, 2001).
o Zucker (1977). (Meyer’s student) While Meyer and Rowan developed the macro side of the argument,
Zucker stressed the “micro-foundations” of institutions, i.e., the power of cognitive beliefs to anchor
behavior. “Social knowledge, once institutionalized, exists as a fact, as part of objective reality, and can
be transmitted directly on that basis (1977)”. (Scott, 2001).

Related Terms, Concepts & Definitions:

· Institution: Social structures that have attained a high degree of resilience, transmitted by various types of
carriers, including symbolic systems, relational systems, routines, and artifacts.
Rules, norms, and cultural beliefs are central ingredients of institutions. Besides those, institution should also
encompass associated behavior and material resources (Scott, 2001:49).
o Berger and Luckmann: Verbal designations and physical objects are bereft of subjective reality “unless
they are ongoingly ‘brought to life in actual human conduct” (p.75).
o Giddens (1979) and Sewell (1992): underline the importance of including material resources in social
structure so as to take into account asymmetries of power, without which rules and norms cannot be
effective (Scott, 2001).
· Isomorphism. By incorporating institutional rules within their own structures, organizations become more
homogeneous, more similar in structure, over time.
Competitive isomorphism (e.g., resource dependence, economics) is different from institutional isomorphism. 3
mechanisms of isomorphism:
o Coercive (regulative ingredient of institution): organizations adopt structures or procedures because they
are forced to do so, e.g., laws.
o Normative (Normative ingredient): organizations adopt structures or procedures because they are assumed
to be superior.
• Norms: how things should be done. If norms are applicable to selected types of actors, they give
rise to roles.
• Normative systems can be both constraining and enabling. Example, professions.
o Mimetic (Cultural-cognitive ingredient): organizations copy or mimic another ones, often because of
uncertainty.
• Cultural-cognitive element: the shared conceptions that constitute the nature of social reality and
the frames through which meaning is made. Culture is treated as symbolic systems.

Conscious Unconscious
Legal Taken for granted

Page 2 Cultural-
Regulative Normative
Cognitive
 New Institutionalism – Origin, Definition, and Concepts

· Legitimacy. Generalized perception or assumption that the actions of an entity are desirable, proper, or appropriate
within some socially constructed systems of norms, values, beliefs, and definitions (Suchman, 1995).
· Rationalized myths: Organizations have to adhere to prevailing norms, practices, and structures for legitimacy.
(According to Freeland’s class notes) It is “rational” because it is goal oriented; it is “mythical” because even if
people do not believe the prevailing forms/practices as individuals, they believe everyone else believes
them. Efficiency is presumably based on adoption.
· Decoupling. One response by organizations to environmental institutional pressures. Institutionalized
organizations protect technological core by disconnecting it with the formal structures. Decoupling enables
organizations to incorporate and display structural elements that conform to institutionalized norms and meantime
preserve some autonomy of action (Scott, 2003).
· Organizational field. Organizations that, in the aggregate, constitute a recognized area of institutional life: key
suppliers, resource and product consumers, regulatory agencies, and other organizations that produce similar
services or products (DiMaggio and Powell, 1983).

Summary of Theory:

· Old: These ‘old’ institutionalists also offered similar definitions of institutions. Schmoller defined an institution as
a “a partial order for community life which serves specific purposes and which has capacity to undergo further
evolution independently. It offers a firm basis for shaping social actions over long periods of time.” Veblen
defined institutions as “settled habits of thought common to the generality of men.” Hamilton narrowed the
definition to “a way of thought or action of some prevalence and permanence, which is embedded in the habits of
a group or customs of a people.” To him, institutions set the confines of and imposed form upon the activities of
people (DiMaggio and Powell, 1991).

· Contingency argument: organizations are structured by phenomena in their environments and tend to become
isomorphic with them (resource dependency, for example). However, resource dependency is competitive
isomorphism; institutional isomorphism comes in 3 forms, coercive, mimetic, and normative.

· In contrast to Population Ecology, institutionalism emphasizes adaptation, but is not suggesting that managers’
actions are necessarily strategic in a long-range sense. Indeed, two of the three forms of isomorphism described –
mimetic and normative – involve managerial behaviors at the level of taken-for-granted assumptions rather than
consciously strategic choices (DiMaggio and Powell, 1991).

· Both ecological and institutional approaches focus on the collective organization of the environment, insisting that
organizational behavior is shaped by structural and demographic processes. Where ecology focuses more on the
demographic processes (founding, deaths), institutional theory looks at internal structure of organizations.

· 2 explanations of environmental isomorphism: 1) environments create boundary-spanning demands for

organizations. Organizations that incorporate structural elements isomorphic with the environment are able to

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manage such interdependencies. 2) Organizational structurally reflect socially constructed reality (Berger and
Luckmann, 1967). Organizations are greatly conditioned by their general institutional environments.

· To account for the differences in the patterns of institutionalization: result from 1) differences in the adopted
institutions or in the institutional field (e.g. Orrù, Biggart, and Hamilton 1991; Davis and Greve 1997); 2) even
within the same institutional field and with a single institution, organizations differ in their adoptions because of
imperfect copying (DiMaggio and Powell 1983), varying interactions with local institutions and the public sphere
(Selznick 1966; Covaleski and Dirsmith 1988; Edelman 1990), or 3) inherent organizational attributes such as
size, embedded capabilities, and identity (Edelman 1992; Goodstein 1994; Westphal, Gulati, and Shortell 1997;
Fox-Wolfgramm, Boal, and Hunt 1998).

· Organizations compete not just for resources, but for social legitimacy – leads to Meyer and rowan’s rational
myths (1977). (Legitimacy as resource?)

Notes from Stanford Courses:

· (Carroll’s class) Comparing to resource dependency theory: money/resource-driven aspect. If you accept, you
have to conform to the government. Not so different from resource dependency argument: the need for resources
creates dependencies with external units.
o Rationality is socially constructed.
o Resource dependency: feature-based definition of organizational form; institutional theory: provides an
identity definition of organizational forms.
o Resource dependency argument: the best/optimal structure is the one that most reduces uncertainty;
institutional argument: the best structure is the one that is most compatible with normative order.

Relevant Research:
Theoretical:
• DiMaggio and Powell (1983): Asks the question: what are the distinctions between kinds of institutional
isomorphism. The paper deals with the matching of the institution to its environment, specifically, symbolic
responses to formal programs. 3 mechanisms of isomorphism identified.
• Meyer and Rowan (1977): Asks the research question, what are the sources for organizational blueprints, forms,
and structures. They find that social fitness often entail conforming to rational myths. There are multiple sources
of myths: public opinion, laws, courts, educational systems, etc.
• Oliver added the notion of agency to explain that firms strategically choose to decouple when conditions are
appropriate (1991)—specifically, when the legitimacy and economic efficiency of the external pressure are
relatively low, when there are multiple constituents on which the organization is moderately dependent, when the
demand is somewhat consistent with organizational goals but places restrictive constraints on the organization,
when legal pressures are strong or conformance is widespread, and when uncertainty in the environment is high
and when the institutional setting is moderately interconnected.
Empirical (In Emergence and Diffusion).

Criticisms/Limitations:
• It is hard to isolate causal mechanisms in institutional Theory because it relies on historical tracing of an event.

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 New Institutionalism – Origin, Definition, and Concepts

• Failed to address the issue: When do institutional logics compete against each other.
• Under what conditions are challengers and entrepreneurs able to form new rules?
• How do incumbents retain power during periods of instability?

Key References:

Alford, Robert R. 1975. Health Care Politics: Ideological and Interest Groups Behavior. Chicago: University of Chicago
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Barley, Stephen R. and Pamela Tolbert. 1997. “Institutionalization and Structuration: Studying the Links between Action
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Baum, Joel A. C. and Christine Oliver. 1996. "Toward an Institutional Ecology of Organizational Founding." Academy of
Management Journal, 39:1378-1427.

Bielby, William T. and Denise D. Bielby. 1994. "'All Hits are Flukes': Institutionalized Decision Making and the Rhetoric
of Network Prime-Time Program Development." American Journal of Sociology, 99:1287-1313.

Brinton, Mary and Victor Nee. 1998. New Institutionalism in Sociology. New York: Russell Sage Foundation.

Clemens, Elisabeth S. 1993. “Organizational Repertoires and Institutional Change: Women’s Groups and the
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Clemens, Elisabeth and James M. Cook. 1999. “Politics and Institutionalism: Explaining Durability and Change.” Annual
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D’Aunno, Thomas, Melissa Succi, and Jeffrey A. Alexander. 2000. “The Role of Institutional and Market Forces in
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DiMaggio, Paul and Walter W. Powell. 1983. "The Iron Cage Revisited: Institutional Isomorphism and Collective
Rationality in Organizational Fields." American Sociological Review, 48:147-160.

DiMaggio, Paul J. and Walter W. Powell. 1991. "Introduction." Pp. 1-38 in Walter W. Powell and Paul J. DiMaggio, The
New Institutionalism in Organizational Analysis. Chicago: University of Chicago Press.

Dobbin, Frank R. and John R. Sutton. 1998. “The Strength of a Weak State: The Rights Revolution and the Rise of
Human Resources Management Divisions.” American Journal of Sociology, 104:441-76.

Edelman, Lauren B. and Mark C. Suchman. 1997. "The Legal Environments of Organizations." Annual Review of
Sociology, 23:479-515.

Fombrun, Charles. 1996. Reputation: Realizing Value from the Corporate Image. Boston: Harvard Business School Press.

Galaskiewicz, Joseph and Stanley Wasserman. 1989. "Mimetic Processes Within an Interorganizational Field: An
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 New Institutionalism – Origin, Definition, and Concepts

Greenwood, Royston and C.R. Hinings. 1996. “Understanding Radical Organizational Change: Bringing Together the Old
and New Institutionalism.” Academy of Management Review, 21:1022-54.

Haunschild, Pamela R. and Anne S. Miner. 1997. "Modes of Interorganizational Imitation: The Effects of Outcome
Salience and Uncertainty." Administrative Science Quarterly, 42:472-500.

Hirsch, Paul M. 1997. “Sociology Without Social Structure: Neoinstitutional Theory Meets Brave New World.” American
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Kraatz, Matthew S. and Edward J. Zajac. 1996. “Exploring the Limits of the New Institutionalism: The Causes and
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Meyer, John and Brian Rowan. 1977. "Institutionalized Organizations: Formal Structure as Myth and Ceremony."
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Mezias, Stephen J. and Mario Scarselletta. 1994. "Resolving Financial Reporting Problems: An Institutional Analysis of
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Mizruchi, Mark S. and Lisa C. Fein. “The Social Construction of Organizational Knowledge: A Study of the Uses of
Coercive, Mimetic, and Normative Isomorphism.” Administrative Science Quarterly, 44:653-83.

Oliver, Christine. 1991. "Strategic Responses to Institutional Processes." Academy of Management Review, 16:145-179.

Ocasio, William. 1999. “Institutionalized Action and Corporate Governance: The Reliance on Rules of CEO Succession.”
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Powell, Walter W. and Paul J. DiMaggio (eds). 1991. The New Institutionalism in Organizational Analysis. Chicago:
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Scott, W. Richard. 2001. Institutions and Organizations, 2nd Edition. Thousand Oaks, CA: Sage. Pages 1-216.

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Staw, Barry M. and Lisa D. Epstein. 2000. “What Bandwagons Bring: Effects of Popular Management techniques on
Corporate Performance, Reputation, and CEO Pay.” Administrative Science Quarterly, 45:523-56.

Suchman, Mark C. 1995. "Managing Legitimacy: Strategic and Institutional Approaches." Academy of Management
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Sutton, John R., Frank Dobbin, John W. Meyer, and W. Richard Scott. 1994. "The Legalization of the Workplace."
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Tolbert, Pamela S. and Lynne G. Zucker. 1983. "Institutional Sources of Change in the Formal Structure of Organizations:
The Diffusion of Civil Service Reform, 1880-1935." Administrative science Quarterly, 28:22-39.

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Tolbert, Pamela S. and Lynne G. Zucker. 1996. “The Institutionalization of Institutional Theory.” In The Handbook of
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Cited in the notes (besides above):

Berger, P.L, and Luckmann, T. 1967. The Social Construction of Reality. NY: Doubleday Anchor.

Garfinkel, H. 1974, 'The origins of the term "ethnomethodology",' in R. Turner ed., Ethnomethodology: Selected
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Giddens, A. 1984. The Constitution of Society. Berkeley: University of California Press.

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Nelson, R. R., and Winter, S. G. 1982. An Evolutionary Theory of Economic Change. Cambridge, MA: Belknap Press of
Harvard University Press.

Parson, T. 1960. Structure and Process in Modern Societies. Glencoe, IL: Free Press.

Selznick, P. 1949. TVA and the Grass Roots. Berkeley: University of California Press.

Williamson, O.E. 1975. Markets and Hierarchies: Analysis and Antitrust Implications. New York: Free Press.

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