Business and Management INK

Challenges for Institutional Theory

January 28, 2011 991

Challenges for Institutional Theory”, by Roy Suddaby, University of Alberta, was the most frequently read article in the Journal of Management Inquiry in 2010. Roy has provided additional background:

The catalyst for this article was a conference on Institutional Theory sponsored by the Australian School of Business at the University of New South Wales in July of 2008 where I was asked to give the keynote address discussing the future of neo-institutionalism in management research. Neo-institutionalism (or institutional theory) is itself, a challenge to traditional economic explanations for firm behaviour in business research. However, it has grown to be incredibly popular and has largely eclipsed traditional economic explanations for firm behaviour, at least within the Organizations and Management Theory division of the Academy of Management.

 My essay, thus, offers a critique of what used to itself be a critique but has grown to become a dominant, if not somewhat hegemonic, perspective on firm behaviour. Because of its popularity, there has been a tendency for management researchers to try to recast their research in institutional terms. The danger of doing this, I argue, is twofold. First, there is a tendency to overlook more simplistic, economically rational explanations for firm behaviour. There is a principle in science – Occam’s razor – that suggests when we have two competing explanations for an event we ought to prefer the simpler and more direct explanation. My essay raises the possibility that management scholars have abandoned this principle, often choosing more tortuous and complicated explanations based in neo-institutionalism, when more obvious explanations exist. Second, as more and more firm behaviour becomes characterized by scholars as ‘institutional behaviour’ there is a danger of trivializing institutional theory. This occurs by treating any form of change, however marginal or inconsequential, as ‘institutional change’ or any act of entrepreneurship as ‘institutional entrepreneurship’. The focus of the theory, however, is to address issues of ‘profound’ change or acts of entrepreneurship that fundamentally redefine market and social transactions.

 The intent of the essay, thus, was to avoid the tendency of management scholarship to follow current fads and fashions and retain some degree of scepticism in our research. I suspect the essay resonated with management scholars and hopefully will accomplish my objective of trying to reign in the relatively flippant treatment of institutionalism while offering an attempted re-articulation of the core purpose of institutional theory and its research agenda. Institutional theory still has a very large and interesting domain of phenomena to explore – particularly now. There is a growing awareness amongst executives of publicly traded corporations that they now compete both in the material world for material resources (inputs, labour, capital) and in the social world for symbolic resources (reputation, legitimacy, status). This is perhaps most apparent in the growing debate over global sustainability and corporate social responsibility. Neo-institutionalism ought to be the theory of choice when trying to understand firm behaviour in this new and exciting context.

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