Institutional Theory

Institutional Theory looks at a broader range of factors influencing organizational behavior.

Legitimacy: Organizations seek legitimacy, a critical resource, by conforming to the norms, values, and expectations of the society within which they operate. This conformity can lead to homogenization among organizations in the same field.

Isomorphism: This concept explains how organizations in similar environments tend to converge in terms of structure and processes. There are three types of isomorphism: coercive (resulting from political influence and the problem of legitimacy), mimetic (stemming from standard responses to uncertainty), and normative (arising from professionalization and the collective struggle of members of an occupation to define the conditions and methods of their work).

Institutional Environments: These are the cultural, political, and social elements that organizations must navigate. Institutions shape the behavior of organizations not just through formal rules, but also via the spread of norms and beliefs.

Cultural-Cognitive Elements: This aspect emphasizes the role of shared conceptions and frames of meaning in shaping organizational structures and practices. Organizations adopt certain practices not only because they are efficient but because they are seen as legitimate and culturally supported.

Agency and Institutional Change: More recent developments in the theory highlight the role of agency—how individuals and organizations can influence their institutional environments. It acknowledges that while institutions are powerful, they are also subject to change through strategic action.

Institutional Theory thus provides a comprehensive lens through which to view organizational behavior, emphasizing the importance of cultural and social elements over purely economic or efficiency-driven considerations.