How institutional theories explain and fail to explain organizations

Abstract

PurposeThis essay raises a concern about the trajectory that new institutionalism has been following during the last decades, namely an emphasis on heterogeneity, change and agentic behavior instead of isomorphism and conformist behavior. This is a crucial issue from the perspective of the philosophy and methodology of science since a theory that admits both change and stability as a norm has less scientific weight then a theory that predicts a prevalence of passivity and isomorphism over change and strategic behavior. The former provides explanations and predictions while the latter does not.Design/methodology/approachThe paper offers an analysis of the nature, characteristics, functions and boundaries of institutional theories in the spirit of philosophy and methodology of science literature.FindingsThe power of the former institutional theory developed by Meyer, Rowan, DiMaggio and Powell lies in its generalization, explanation and prediction of observable and unobservable phenomena: as a typical organizational theory that puts forward directional predictions, it explains and predicts the tendency for organizations to become more similar to each other over time and express less strategic and interest-driven behavior, conforming to ever-increasing institutional pressures. A theory of isomorphism makes scientific predictions while its modern advancements do not. Drawing on Popper's idea of the limit of domains of explanation and limited domains of theories we present two propositions that may direct our attention towards the strength or weakness of institutional theories with regard to their explanations of organizational processes and behavior.Practical implicationsThe paper draws implications for further theory building in institutional analysis by suggesting the nature of institutional explanations and the place of institutional change in the theoretical apparatus. Once institutional theory explains the tendency of the system towards equilibrium, there is no need to explain the origins and causes of radical changeper se. Institutional isomorphism theory explains and predicts how even after radical changes organizational fields will move towards isomorphism, that is, institutional equilibrium. The task is, therefore, not to explain agency and change but to show that it is natural and inevitable processes that organizational field will return to isomorphic dynamics and move towards homogenization no matter how much radical change occurred in this field.Originality/valueThe paper discusses the practical problems with instrumental utility of institutional theories. In order to be useful any theory must clearly delineate its boundaries and offer explanations and predictions and it is only the former 1977/1983 institutional theory that satisfies these requirements while modern advancements merely offer ambiguous theoretical umbrellas that escape empirical tests. For researchers therefore it is important to recognize which theory can be applied in a given limited domain of research and which one has little or no value.