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Institutional-Level Learning:Learning as a Source of

Institutional Change

Pamela Haunschild and David Chandler

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INTRODUCTION

Institutional theory tells us that as a new ideaor business practice diffuses through a popu-lation, some firms adopt it early on for effi-ciency reasons (they have considered themerits of the idea and believe it to be benefi-cial to their business), while others resistuntil later in the diffusion curve (they areeither not aware of the idea or do not feel it isapplicable or advantageous to their situa-tion). When these later adopters do finallysuccumb, they do so out of social pressuresto conform and believe that the primary ben-efit for adopting is the legitimacy gained byacceding to societal norms (Galaskiewicz,1985; Parsons, 1956; Suchman, 1995). For these later adopting firms, institu-tional theory tells us that the prospective effi-ciency benefits of the idea in question are not a concern – they have either not beenconsidered, or are believed to be too slight to be of significant value to the firm(Westphal, Gulati, & Shortell, 1997; Zajac &Westphal, 2004).

It is not clear, however, that thisdichotomy of economic (early) versus insti-tutional (late) actors provides a sufficientlycomprehensive spectrum of adoption behav-iors by firms. Consider the example of Wal-Mart, which has started to adopt socialresponsibility practices, particularly in rela-tion to environmental sustainability1 (includ-ing the launch of its ‘Sustainability 360’ planin February, 2007),2 and is recognized asbeing relatively progressive in this respect bya broad section of the media.3 An institu-tional theorist might argue that this adoptionbehavior (which is occuring later, in the dif-fusion cycle) happened because the idea ofenvironmental sustainability (going green)had diffused throughout society to such anextent, and the firm was facing so much crit-icism for its failure to adopt previously, thatit adopted in search of social legitimacy(DiMaggio & Powell, 1983; Meyer &Rowan, 1977). This pattern of behavior, how-ever, would be out of character for a firm thatfocuses so strongly on minimizing operatingcosts and passing those cost savings on to

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customers in the form of ‘Always LowPrices,’4 and that has resisted conforming topressure on several previous occasions.5

An alternative explanation of Wal-Mart’sdecision to make a large-scale move into thegreen area is that it is learning from the expe-rience of other firms who have already gonegreen, and is adapting its own behavioraccordingly. Once the diffusion of an idea hasprogressed beyond its initial stages, a trackrecord of success and failure of firms that pre-viously adopted similar policies is established,and firms pressured to adopt at later stages aresometimes able to cherry-pick the most appro-priate (and potentially profitable) policies thatsuit their situation and needs, while still con-forming to institutional norms that dictatesome form of response. We suggest that this isa possible driver of the decision to adopt anidea or business practice by firms later in thediffusion curve that is not theoretically inte-grated within the institutional literature. Thus,institutional theory would currently say thatWal-Mart is simply responding to societalpressure and legitimacy threats. Yet Wal-Martcould instead (or also) be learning from theexperiences of prior adopter firms and adopt-ing these policies later in the diffusionprocess, at least partially, for anticipated effi-ciency benefits. For example, Wal-Mart’sdecision to start selling organic foods mighthave been stimulated by the success of WholeFoods and other organic retailers. At the sametime, however, Wal-Mart is showing consis-tency with the institutional environment(going green) with statements about how thefirm wants to ‘democratize organic food,making products affordable for those who arereluctant to pay premiums of 20 percent to 30 percent.’6 The dual institutional/efficiencyrationales inherent in Wal-Mart’s activities arealso reflected in statements by one senior levelexecutive who admitted that he was initiallyunenthused about going green, because hethought such a move was all about ‘saving thewhales and the trees.’7 He became moreenthusiastic when he realized that these prac-tices could increase Wal-Mart’s efficiencythrough lower costs.

This expanded perspective still recognizesthe institutional pressures to adopt that Wal-Mart faces (like all firms, Wal-Mart is suscep-tible to the increased prevalence of calls forgreater social responsibility and was likelydisturbed by the criticism it was facing in thisrespect), but it also provides an additionalexplanation of observed behavior that is moreconsistent with the firm and its corporatestrategy. The concept of inferential learning8

(Miner & Haunschild, 1995), placed in thiscontext, implies that firms facing strong institutional pressures are not stuck withadopting unprofitable practices – they havethe potential to learn from the successes andfailures of earlier adopters to maximize theefficiency benefits they receive from adopt-ing later in the diffusion curve. Wal-Mart isresponding to institutional pressures, but isdoing so in a way that provides anticipatedeconomic benefit.

This complicated, cause-effect process ofchange concerning firm adoption behaviorblends two large bodies of work in organiza-tion theory – institutional theory and the organizational/interorganizational learn-ing theories. On the one hand, institutionaltheorists recognize that firms are susceptibleto coercive, normative, and mimetic isomor-phic forces (DiMaggio & Powell, 1983;Scott, 2001) and that such social pressures toconform are powerful predictors of firmbehavior – usually seen as independent of, oreven in opposition to, economic benefit. Onthe other hand, however, a learning perspec-tive provides an explanation of firm behaviorthat allows for firms to respond to socialpressures in ways that are economically ben-eficial. We contend that it is only when thislearning perspective is added to the institu-tional perspective that a more complex,holistic change process that spans the com-plete range of potential firm behavior in theface of institutional forces can be appreci-ated. Our understanding of the various conflicting interests, motivations, and learn-ing processes that interact to instigate changeis enhanced by this blend of learning andinstitutional theories.

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To some extent, the thesis we present in this chapter builds on existing researchwithin institutional theory and conceptsalready embedded in learning theories, such as the concept of mimetic learning –consciously or unconsciously learning fromthe routines, actions, and outcomes of others(Miner & Mezias, 1996). Mimetic learning isquite similar to the concept of mimetic iso-morphism (DiMaggio & Powell, 1983) andboth concepts are usually measured as theprevalence of adoption by other firms in agiven field (e.g., Greve, 1998; Haunschild & Miner, 1997). In other ways, however, wedraw on unique work within the learning the-ories in areas that institutional theory has yetto explore fully, such as the process of infer-ential learning (Miner & Haunschild, 1995)and the emergence of unintended conse-quences from everyday routine actions(March, 1981).

Applied examples of the benefits of inte-grating these two theories exist all around us.As with the Wal-Mart example outlinedabove, it is relatively easy to think of caseswhere both theories collectively provide amore effective explanation of the antecedentconditions, processes, or outcomes of organi-zational action. It is to be expected that thesetwo theories interface across multiple aspectsof organizations’ day-to-day activities. Afterall, institutional theory is primarily anattempt to locate the organization within itssocial and cultural context and analyze theextent to which social institutions (rules, rit-uals, routines, beliefs, and so on) shapeorganizations as they pursue the legitimacynecessary to ensure success and survival overthe long term (DiMaggio & Powell, 1983;Meyer & Rowan, 1977; Suchman, 1995),while learning theories seek to explain theshaping of organizations through the interac-tion and influence of various social and cultural forces (Huber, 1991; Levitt &March, 1988).

It is our contention, therefore, that under-standing the processes and consequences of organizational and interorganizational

learning as firms adapt to their evolving sociocultural environment can contribute sig-nificantly to institutional theory in explaininginstitutional change (Dacin, Goodstein, &Scott, 2002). Yet, in spite of these potentialbenefits, the intersection of these two theo-ries has received scant attention from schol-ars to date. An attempt to identify wherethese two literatures overlap, so that knowl-edge is shared and replication is avoided(wherever possible), constitutes, we hope, aconstructive addition to the institutionaltheory literature.

We start with a definition of the processthat constitutes the focus of this chapter, aprocess we call Institutional-Level Learning.Institutional-level learning occurs wheninstitutions9 change due to some learningexperience. Such change might result fromthree possible sources: (1) an institutionmight evolve deliberately over time, adaptingto field-level changes in experience affectingvalues, beliefs, and attitudes; (2) an institu-tion might be affected by a specific agent of change (an institutional entrepreneur) thatlearned from its own experience or the experiences of others and initiated change; or(3) an institution might undergo unin-tended change as the result of boundedly rational action, imperfect imitation, or ordi-nary routines that led to unintended outcomes.

In terms of the structure of this chapter, webegin by discussing definitions of organiza-tional learning and identifying how theyrelate to institutional change. We then providea brief overview of how institutional theoryhas begun to incorporate the concepts of orga-nizational agency and address the notion ofactive change. Shedding further light on therelatively unexplored area of overlapbetween the two bodies of work, we thenconsider how organizational learning theo-ries can inform institutional theory by high-lighting a number of important mechanismsby which institutional evolution and changeoccur, but which the institutional literaturehas yet to incorporate. These mechanisms

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include the following: institutional changeresulting from the unintended outcomes ofeveryday action; interfirm and inter-popula-tion learning processes that flow along geo-graphic and network lines; change producedthrough imperfect mimesis; change producedby field-level underperformance and slowadaptation processes; institutional changeresulting from unlearning caused by factorslike field-level personnel turnover; efficiency-based change due to inferential learning fromearlier adopters; and institutional changedriven by heterogeneity in regulation, firmresponses to regulation, and competitionbased on novelty or extreme values.

We believe that these mechanisms providea research agenda for future work withininstitutional theory that begins to addresssome of the unanswered questions generatedat the boundary of these two importantorganization theories.

ORGANIZATIONAL LEARNING AND INSTITUTIONAL CHANGE

We begin by discussing definitions of organi-zational learning, its fundamental assump-tions, and identifying how learning relates toinstitutional change. These definitions andassumptions form the foundation upon whichwe analyze the intersection between institu-tional and learning theory.

The literature on organizational learning islarge and does not fit well into any singleclassification scheme. Several good reviewsof the literature exist (Argote, 1999;Easterby-Smith, 1997; Fiol & Lyles, 1985;Hedberg, 1981; Huber, 1991; Levitt &March, 1988; Shrivastava, 1983); thus, wewill not attempt to replicate such work here,except to indicate the definitions of key termsthat inform our discussion of organizationallearning in an institutional context. In termsof specific definitions, Huber (1991: 89)breaks his review of organizational learninginto four constructs: knowledge acquisition;

information distribution; information inter-pretation; and organizational memory, defin-ing learning in its broadest sense:

learning need not be conscious or intentional ....Further, learning does not always increase thelearner’s effectiveness, or even potential effective-ness. ... Entities can incorrectly learn, and they can correctly learn that which is incorrect. Finally,learning need not result in observable changes inbehavior. ... An entity learns if, through its process-ing of information, the range of its potentialbehaviors is changed. [Emphasis in original.]

Another classic definition of learning comes from Levitt and March (1988: 320),who note that organizations are ‘seen aslearning by encoding inferences from historyinto routines that guide behavior.’ The impor-tant characteristics of these definitions for usare the following: (1) routines are independ-ent of individual actors and are history-dependent; but (2) they change based oninterpretations of past experience (interpreta-tions that are not necessarily coherent); and(3) they change as new experiences accumu-late. Such experiences can be the individualactor’s own experience or the experiences ofothers that the actor has observed. Thus,learning and change, whether deliberate orunintended, are unavoidably intertwined.

Much of the empirical work on learning isfocused on examining the impact of thesevarious types of experiences on organiza-tional outcomes, generally in the form ofimprovements. Early work tended to bebased on a learning curve perspective(Lieberman, 1984), predicting and findingpositive returns to gaining experience(Dutton, Thomas, & Butler, 1984). Much ofthis early work was conducted in manufac-turing settings, but recent work has moved tomore complex empirical contexts like strate-gic decisions (Beckman & Haunschild, 2002;Hayward, 2002). Empirical research in thelearning literature has also moved away froma focus on the amount of experience to amore comprehensive view of different typesof experiences; for example, experiencesgained in heterogeneous as opposed to


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homogeneous settings (Miner, Haunschild,& Schwab, 2003). There is also a growingbody of empirical work on the conditionsthat stimulate learning and change. In thisvein, Cyert and March’s (1963) behavioraltheory of the firm provides the foundation forunderstanding aspiration levels (both indi-vidual and social) as a determinant of change(Greve, 1998).

A further contribution in understandingthe concept of learning on a more macrolevel was made by Miner and Haunschild(1995), who explicitly moved the definitionof learning to the population (or field) levelof analysis. They achieved this by defininglearning at that level as occurring fromchanges in population level routines that arebased either on the experiences of that popu-lation or of another population whose experi-ences can be observed. This higher-levelview of learning makes the concept muchmore accessible to institutional theorists interms of definition, level of analysis, andaccounting for how change occurs at thefield-level.

In two important respects in relation to ourthesis, however, organizational learningdeparts from the fundamental assumptionsthat have informed much of the more recentwork within institutional theory – level ofanalysis and change processes.

Levels of analysis

Aside from Miner and Haunschild’s (1995)expansion of the learning literature to con-sider population-level learning, much of thework within the learning literature has beenconducted at the individual (Simon, 1991),group (Hutchins, 1991), and organizational(Cyert & March, 1963) levels of analysis (cf.Miner & Mezias, 1996). Historically, this hasbeen problematic in terms of any attempt tointegrate the body of learning literature intocontemporary institutional theory, which isconceptualized almost exclusively at thelevel of the organizational field (DiMaggio &Powell, 1983: 148).10 Recent developments in

both literatures, however, reflect movementtoward a meeting of the minds in terms oflevel of analysis as institutional theory beginsto reassess its focus on the organizationalfield and allow for the prospect of individualactor agency (change driven from below),while learning theory begins to account forchange that occurs at the population level(change driven from above). This (re-)emer-gence of a more micro-perspective withininstitutional theory,11 combined with theemergence of a more macro-perspectivewithin the learning theories, has resulted ingreater overlap between the two areas and,thus, increased the potential for compari-son.12 For the purposes of this chapter, there-fore, we intend to focus on those areas oforganizational learning that have somethingto say to institutional theory, especially insti-tutional change, at the field (a.k.a. population,interorganizational, community, industry)level of analysis (Anderson, 1999; Haunschild& Miner, 1997; Miner & Anderson, 1999).Levitt and March (1988) theorize about learning at this macro-level in their discus-sions of vicarious learning among organi-zations and ecologies of learning. Miner and Haunschild (1995: 118) build on thiswork by defining population-level learning as a ‘systematic change in the nature and mix of organizational action routines in apopulation of organizations, arising fromexperience.’

We contend that reconciling this distinc-tion between levels of analyses in learningand institutional theories, while attending tothe growing overlap between the two, isimportant for advancing both theories, ingeneral, and for advancing our understandingof institutional change, in particular. In addi-tion to levels of analysis, another differencebetween the two theories lies in theirapproach towards change.

Processes of change

In addition to differences in the key assump-tions of institutional and learning theories


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concerning levels of analysis, both theorieshave also differed in their understanding ofhow change occurs.

A key part of the argument against theability of organizations to adapt to changevia learning (Cyert & March, 1963) can befound in arguments made in support of pop-ulation ecology – that firms are inherentlyinertial and find it difficult to adapt substan-tially to changes in their environment(Hannan & Freeman, 1984). As firms survivelonger, their competitive advantage/routinesbecome entrenched and outdated, and anyinnovation that occurs is more likely to beincremental and travel ‘along existing tech-nological trajectories’ (Sorensen & Stuart,2000: 83). This inertia results in a focus onthe refinement of existing processes and,thus, contributes to their institutionalizationby making firms less able to instigate radicalleaps in technology or other major changes infirm strategies, structures, or processes.These assumptions of inertia featured promi-nently in early statements of neoinstitutionaltheory where change, if it occurred at all,happened in punctuated leaps (DiMaggio &Powell, 1983; DiMaggio & Powell, 1991:9–11), rather than incremental adaptation(Kraatz & Zajac, 1996; Selznick, 1948,1957). The distinction in these positionsspeaks largely to the debate between old andnew institutional theorists (DiMaggio &Powell, 1991; Greenwood & Hinings, 1996;Hirsch & Lounsbury, 1997; Scott, 1987;Selznick, 1996; Stinchcombe, 1997) and isstill contested. In contrast, however, learningtheories have consistently assumed thatchange occurs in an incremental fashion asactors learn from their own experience or the experience of others and adapt accordingly(Huber, 1991; March, 1991; March & Olsen,1976; Miner & Haunschild, 1995).

We believe that it is important to appreciatethese differences in fundamental assumptionsregarding change (in addition to reconcilingdifferences in terms of levels of analysis) inany attempt to compare institutional andlearning theories. As such, we now turn to areview of recent developments in institutional

theory that have expanded its scope to incorpo-rate the idea of institutional change, in general,and individual actor agency as the source ofsuch change, in particular. In introducing thisbroader perspective, contemporary institu-tional theory has moved closer to the learningview of the world and, in the process, estab-lished itself on a firmer theoretical footing.

INSTITUTIONAL THEORY AND CHANGE

Institutional theory places socially con-structed beliefs, norms, and rules at thecenter of organizational routines and struc-tures (Berger & Luckmann, 1967; Meyer &Rowan, 1977; Scott, 2001; Zucker, 1977). Asoutlined by DiMaggio and Powell (1983),agents for the diffusion and dissemination ofthese cultural beliefs, models, and schemainclude the state and the professions. Suchagents act to influence organizations viacoercive pressures through government regu-lations, normative pressures through profes-sional associations, and mimetic actionsresulting from cultural-cognitive processes,such as taken-for-granted meanings andschema. Over time, these pressures result inpractices that diffuse through a populationand converge around an institutional norm(Baron, Dobbin, & Jennings, 1986;Greenwood & Hinings, 1996; Strang &Meyer, 1994). Institutional theorists believethat the reason for this convergence is thatactions by firms that conform to institutionalexpectations help these firms maintain suffi-cient legitimacy to prosper and survive in the long term (Baum & Oliver, 1992;Galaskiewicz, 1985; Parsons, 1956; Pfeffer& Salancik, 1978; Suchman, 1995).Institutional theorists have found that thelonger an organization waits during the diffu-sion process before adopting a business ideaor practice, the more likely the reason for eventual adoption is a desire for conform-ity and legitimacy by that firm (Tolbert & Zucker, 1983; Westphal et al., 1997),


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irrespective of the efficiency benefits (oreven harm) that adoption might cause (Davis,Diekmann, & Tinsley, 1994; Rao, Greve, &Davis, 2001; Zajac & Westphal, 2004).

Although early iterations of neoinstitu-tional theory stressed the constraining influ-ence of institutions on individual actors(DiMaggio & Powell, 1983; Meyer &Rowan, 1977; Zucker, 1977), however, morerecent developments in the field allow for a greater interplay between constraints andproactive, strategic actions by actors whoinstigate change. During this process, twoareas of thought have evolved within institu-tional theory around the notion of change:The first concerns the general concept thatinstitutions can change, while the secondconcerns the sources of that change and con-ditions under which it occurs. In the follow-ing sections, we briefly review this work.This review is central to our task becauselearning theory’s main contribution to insti-tutional theory is as an additional (and unex-plored) source of both endogenous andexogenous change. We, therefore, first dis-cuss how institutional theory views change ingeneral, and then discuss the various exoge-nous and endogenous sources of change. We finish by noting how learning theoriessignificantly expand our understanding inboth these respects.

Institutional change

The process of institutionalization is a cycle –institutions emerge, diffuse, change, die, andare replaced by new institutions (Hinings,Greenwood, Reay, & Suddaby, 2004; Scott,2001: Ch. 8). This idea was evident in thefoundations on which contemporary institu-tional theory was built, but it was seeminglyignored in early theoretical statements(DiMaggio & Powell, 1983; Meyer &Rowan, 1977). Berger and Luckmann (1967),for example, discuss the notion of the‘change of institutions’ (1967: 88) and ‘deinstitutionalization’ (1967: 81) as well asconsider at length the potential for conflict

between competing institutions (1967: 63,85). In particular, they talk of the conflict thatoccurs between an individual’s ‘primary’ and‘secondary’ internalization of competing,objective institutions – an integral aspect of socialization. Since Berger andLuckmann, many researchers have identifiedand empirically documented variousinstances of institutional change (Dacin et al., 2002). For example, researchers have investigated change in areas of work-place routines and practices (Baron et al.,1986; Mezias, 1990), forms and struc-tures (D’Aunno, Succi, & Alexander, 2000;Davis et al., 1994; Greenwood & Hinings,1993; Greenwood & Suddaby, 2006; Kraatz& Zajac, 1996), industry standards(Ahmadjian & Robinson, 2001; Leblebici,Salancik, Copay, & King, 1991), and institu-tional logics (Hirsch, 1986; Thornton &Ocasio, 1999).

Consistent with this idea of change,Friedland and Alford (1991: 232) contendthat it is the potential conflict among compet-ing institutions that produces the ‘multiplelogics’ from which individuals and organiza-tions select (see also Scott, 1991). And,closely combined with the notion that institu-tions change as a result of competition, is theimplicit idea that institutional environmentschange when one institution replaces another(Greenwood & Suddaby, 2006; Hirsch, 1986;Thornton & Ocasio, 1999). Once the conceptof institutional change is accepted, then theidea of deinstitutionalization – that in orderto be replaced, an existing institution has todiminish in influence – is not far behind(Abrahamson & Fairchild, 1999; Barley & Kunda, 1992; Burns & Wholey, 1993;Davis et al., 1994; Leblebici et al., 1991;Oliver, 1992).

The combined effects of this evolving areaof research is to overcome early interpreta-tions of neoinstitutional theory that spoke tothe permanence of institutions once formed(Scott, 2001: 109–110), as well as to high-light the necessity for institutions to be consistently reinforced if they are to be preserved – what Berger and Luckmann


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(1967: 54) term ‘reciprocal typification.’It is these preserved and reinforced ‘taken-for-granted routines’ that Berger andLuckmann (1967: 57) assert form such a cen-tral role in establishing and maintainingsocial order.

Although there is consensus within theinstitutional literature today that changeoccurs due to competition among institu-tions (Dacin et al., 2002), there is less agree-ment on whether such change is adaptivedue to the flexibility of organizations/institu-tions (Kraatz & Zajac, 1996; Selznick, 1948;Selznick, 1957) or, instead, punctuated dueto the inertia generated as a result of institu-tional isomorphism (DiMaggio & Powell,1983; DiMaggio & Powell, 1991: 9-11;Greenwood & Hinings, 1996). In addition,there is disagreement about whether thedriving force behind change emerges fromforces at the environmental (exogenous) or at the individual actor (endogenous) level(Mezias, 1990). As noted above, the distinc-tion in these positions concerning thesources of institutional change speakslargely to the debate between old and new institutional theorists (DiMaggio &Powell, 1991; Greenwood & Hinings, 1996;Hirsch & Lounsbury, 1997; Scott, 1987;Selznick, 1996; Stinchcombe, 1997) and remains a point of contention within the field.

Sources of institutional change

While it is universally accepted that environ-ments, to varying degrees, influence organi-zations (Meyer & Scott, 1983; Scott &Meyer, 1994; Thompson, 1967), it is lessclear to what extent individual actors (i.e.,organizations) are able to influence the institutional makeup of the environments inwhich they operate. This debate betweenexogenous and endogenous sources of insti-tutional change is one that has featuredstrongly within the neoinstitutional literaturesince its origin (Meyer & Rowan, 1977;Zucker, 1977).

Exogenous sources of changeThere are three exogenous conditions thathave been discussed broadly within the literature as necessary (in part or combina-tion) for change to occur: the influence ofinstitutional and technical forces in the envi-ronment; a state of incomplete institutional-ization (the absence of a dominant logic) andother contextual factors; and an exogenousshock that significantly alters the firm’s environment.(a) Institutional/technical forces In institu-tional theory, researchers have identifiedboth institutional and technical forces assources of change, but different forces havepredominated in various iterations at differ-ent times. Neoinstitutionalism presents aview of the organization that is active andconscious, but also represents a rejection ofthe rational- and efficiency-based theoriesthat grew in prominence within organizationtheory during the 1960s and early 1970s(Kraatz & Zajac, 1996). DiMaggio andPowell (1991: 3) state starkly that neoinstitu-tional theory represents an attempt ‘toreplace rational theories of technical contin-gency or strategic choice with alternativemodels that are more consistent with theorganizational reality that researchers haveobserved.’ As such, early iterations of neoin-stitutional theory perceived institutionalforces as acting at the level of the field, con-straining organizational behavior. Firms weredeemed to adopt specific business practices,especially those acting later in the diffusionof an innovation, in search of institutionaland societal legitimation, rather than anytechnical benefits the specific practice mightgenerate for the firm (DiMaggio & Powell,1983; Meyer & Rowan, 1977), which wereeither not considered or deemed to beinsignificant (Westphal et al., 1997; Zajac &Westphal, 2004).

Since the early iterations of neoinstitu-tional theory, however, many key researchershave emerged to correct this stark contrastbetween the influence of institutional andtechnical environments (Meyer, Scott, &Deal, 1983: 61–64; Powell, 1991: 183–186;


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Scott, 1983: 159–160; Scott, 1991:167–169). A shift in thinking that presentedthe two states as extremes on a spectrumalong which different environments containdifferent mixes of the two was the first stepon this journey (Scott, 1991). Kraatz andZajac (1996: 832) then went further, showingthat organizations are able to adapt theirstructures to technical pressures in the envi-ronment and benefit from change, even to theextent that such change challenges taken-for-granted institutions within the organizationalfield. More recently, researchers have begunto question more directly the artificialdichotomy of economic and institutionalactors (Fiss & Kennedy, 2006; Lounsbury,2007), suggesting that institutional theoryhas yet to develop a comprehensive under-standing of the complex motivations thatdrive firm adoption behavior.(b) Incomplete institutionalization and othercontextual factors Institutional theoristshave also framed the environmental hetero-geneity that results from incomplete institutionalization in terms of competing,complementary, and conflicting logics thatcreate a second condition under whichchange can occur. D’Aunno, Succi, andAlexander (2000: 680), for example, demon-strate that, in specific circumstances, diver-gent organizational change follows ‘varyingmarket and institutional changes’ withinfragmented organizational fields.

In spite of this work, however, a tension inthe literature remains regarding other generalconditions that can facilitate change. While itis accepted within institutional theory thatchange driven by institutional entrepreneursis likely to occur in emerging (Maguire,Hardy, & Lawrence, 2004) and fragmented(D’Aunno et al., 2000; Seo & Creed, 2002)fields, hierarchical fields, where dominantactors have vested interests in maintainingthe status quo, are cited as less likely to expe-rience such change. On this point, however,the literature offers contradictory evidence.One stream of empirical studies suggests thatmarginal actors are more likely to act asinstitutional entrepreneurs (Ingram & Rao,

2004; Leblebici et al., 1991) and bringchange to fields. The necessary conditionsunder which such change is expected tooccur include high levels of existing legiti-macy (Zimmerman & Zeitz, 2002), estab-lished authority (DiMaggio, 1988), andsocial capital (Maguire et al., 2004).Common sense tells us, however, that themore marginal the actor, the lower their levelof legitimacy, formal authority, and socialcapital is likely to be, which would imply arelative ineffectiveness as an agent ofchange. This apparent contradiction has beenidentified by another stream of research thatnotes the key conditions necessary for theemergence of institutional change and entre-preneurial action by actors firmly embeddedwithin mature organizational fields.Although a number of studies in the late1980s and early 1990s identified that centralactors can act as instigators of institutionalchange (Baron et al., 1986; Davis, 1991;Fligstein, 1985; Palmer, Jennings, & Zhou,1993), however, it is only recently that thisissue has been revisited and built upon(Greenwood & Suddaby, 2006; Rao, Monin,& Durand, 2005). This confusion regardingthe characteristics of those actors most likelyto instigate change requires further empiricalclarification if we are to have a better under-standing of whether it is more central ormore peripheral actors who are more likelyto act as ‘institutional entrepreneurs’(DiMaggio, 1988: 14). Perhaps one possiblesolution is to distinguish between an entre-preneur, who is more likely to be a periph-eral player, and entrepreneurial action,which can be performed by anyone (giventhe appropriate conditions), including moreestablished and central actors?13

(c) Environmental shocks Finally, a thirdsource of potential change in an organiza-tional field comes from dramatic shifts inenvironmental conditions. If environmentsare dynamic, the possibility of radical changeincreases (Meyer & Scott, 1983; Scott &Meyer, 1994). ‘Environmental jolts’(Greenwood, Suddaby, & Hinings, 2002;Meyer, 1982) come in many forms (such as


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shifts in technology, regulatory change, orsudden resource scarcity) and stimulate theopportunity for change by opening the doorfor new entrants (Thornton, 2002; Thornton& Ocasio, 1999), accepted norms (Hirsch,1986), organizational forms (Davis et al.,1994; Greenwood & Suddaby, 2006), andpopulation-wide shifts in operating practices(Baum & Oliver, 1992).

In the process of identifying the variousexogenous sources of potential change out-lined in this section, however, institutionaltheorists also broadened their search toinclude endogenous factors – first discussingstrategic (Oliver, 1991) and then adaptive(Kraatz & Zajac, 1996) elements of changethat emerge at the level of the individual actor.

Endogenous sources of changeBuilding on the exogenous sources of changeoutlined above, institutional theory has alsobegun to recognize the importance of indi-vidual actors (organizations) as sources ofinstitutional change. DiMaggio (1988: 12),Powell (1991: 194–200), DiMaggio andPowell (1991: 22–27), and Leblebici et al.(1991: 335–338) all noted that limitingexplanations of change within institutionaltheory to exogenous sources alone limits thetheory merely to explaining the diffusion andreproduction of institutional practices.Endogenous explanations of interest, agency,and institutional entrepreneurship, however,help constitute institutionalism as a morecomplete theory of organizations, releasingthe ‘full power of the institutional perspec-tive’ (Powell, 1991: 183). Such ideas havesince become central to the contemporaryinstitutional literature.(a) Interest, agency, and institutional entrepre-neurship DiMaggio (1988: 14) first intro-duced the term ‘institutional entrepreneur’ aspart of his call for institutional theory toinclude a more complete explanation of indi-vidual interests and agency. Institutionalentrepreneurs are agents who deploy theresources at their disposal to create, alter, andempower institutions. Such actors serve asagents of legitimacy who support the

creation of new institutions and reform exist-ing institutions in ways that they deem to beappropriate and aligned with their interests.These agents have the resources and, hence,the power to shape the character of institu-tions and enact institutional change (Dacin et al., 2002: 47).14 Scott (2001: 74–77) discusses the concept of agency in terms of afirm’s ability to influence the institutionallogics that constitute its environment.Following DiMaggio’s (1988) lead, thisproactive perspective diffused throughoutinstitutional theory as institutions were seenas providers of the framework within whichactors are able to define and pursue theirinterests (Leblebici et al., 1991; Oliver,1991). Powell (1991), in particular, sought to identify variation in firm responses toinstitutional forces, as well as the organiza-tional heterogeneity and institutional changethat such varied responses generate.

Oliver (1991: 151) made a crucial contri-bution to this debate, noting five specificstrategic responses that are employed byorganizations in response to institutionalpressures. Each response varies in the degreeof ‘active agency’ employed by the firm:acquiescing, compromising, avoiding, defy-ing, and manipulating. Several researchershave since utilized this framework to look atthe implementation of these various strate-gies within fields (Covaleski & Dirsmith,1988; Elsbach & Sutton, 1992; Westphal &Zajac, 1994), thus expanding our knowledgeof agency within different empirical contexts(Davis et al., 1994; Leblebici et al., 1991;Zucker, 1991).

Many of these researchers, however, werefocused on endogenous sources of institu-tional change that are internal to the firm. Asnoted earlier, our primary focus in this chap-ter is on change at the level of the field.While such change may occur as a result ofendogenous change by a subset of populationmembers, it may also occur as a result ofendogenous processes at the level of thefield. There is some (though not a lot) ofwork that examines the role of endogenousfield-level processes instigating field-level


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change (Hinings et al., 2004). Fligstein(1990), for example, notes the rise of thefinance conception of control with the spreadof financially trained professionals amongorganizations. These professionals brought aset of values and beliefs to their work that, asthey diffused within the population of largeindustrial firms in the U.S., transformed theview of control from the notion of the firm asa single entity, to one of the firm as a bundleof assets to be bought and sold. Others havealso noted the importance of professionals,marginal players, and reform agents assources of endogenous change in institu-tional fields (Greenwood & Suddaby, 2006;Strang & Sine, 2002). Empirically, Brint andKarabel (1991) and Miner, Haunschild andSchwab (2003) identify specific, endogenousfield-level processes that induce change,including the presence of an industry struc-ture that rewards winner take all models and imperfect inter-firm copying of routines(Miner et al., 2003).(b) The paradox of embedded agency Ananalysis of endogenous sources of change,however, brings into focus a central debatewithin institutional theory concerning theparadox of embedded agency (DiMaggio &Powell, 1991; Greenwood & Suddaby, 2006;Leblebici et al., 1991; Seo & Creed, 2002).Institutional theorists who advocate thenotion of agency as a source of institutionalchange face an inherent paradox – if institu-tions and institutional logics form the socialenvironment, which, in turn, shapes our per-ceived reality (Berger & Luckmann, 1967)that is structured at the level of the organiza-tional field (Giddens, 1984), then how doentrepreneurs perceive the need to instigatechange and put their plan into action?

This contradiction has come to be knownwithin institutional theory as the paradox ofembedded agency, or, what Berger andLuckmann (1967: 13) refer to as ‘somewhatlike trying to push a bus in which one isriding.’ Although perplexing if thoughtthrough to the extreme, this paradox is par-tially neutralized by adopting the perspectiveof multiple, coexisting institutional logics

(Friedland & Alford, 1991; Scott, 1991) fromwhich individual actors select (Greenwood &Suddaby, 2006; Hirsch, 1986; Suddaby &Greenwood, 2005; Thornton & Ocasio,1999).15 Contemporary institutional theoristsbelieve, therefore, that firms are not alwayspassive recipients of institutional forces, buthave the strategic potential both to selectfrom, and also to influence and change, theinstitutional logics that are prevalent in theirenvironment when it is in their best intereststo do so (Oliver, 1991).

This development, theoretically, brings usfull circle within institutional theory. By rec-ognizing that, under the right circumstances,actors have strategic alternatives that allowthem to break the bonds of their institutionalconstraints, the paradox of embedded agencydissolves (Seo & Creed, 2002); moreover, thesociological foundations of the theory againbecome apparent. Yet, institutional theory stillhas far to go in terms of a complete theoreti-cal understanding of the endogenous mecha-nisms of change. There are many moresources of change than agency or other delib-erate processes of institutional entrepreneur-ship. We contend that the learning theoriesare a fruitful place for institutional theorists todiscover such sources and processes.

INSTITUTIONAL LEVEL LEARNING: A NEW SOURCE OF CHANGE

Below we review six key areas of inquirywithin learning theory – areas that, webelieve, have received little attention withininstitutional theory, yet have strong implica-tions for helping to understand and explainthe nature of institutional change. Our keyargument is that agency and other deliberateprocesses of institutional entrepreneurshipare not the only sources of change in institu-tional fields and that there is a vast and rele-vant body of research in organizationallearning that can provide institutional theo-rists with a much broader perspective on


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change. For example, the role of unplannedchange resulting from the enactment of pro-saic routines, local and boundedly rationalaction, and ad hoc decision-makingprocesses (March, 1981) can all result inshifts in institutions and institutional fields.Very little attention has been given within theinstitutional literature, however, to processesof change resulting from these types of unin-tended consequences. In the following sec-tions, we will discuss how these componentsof learning theories can inform our under-standing of institutional change.

Organization theorists have long recog-nized the importance of environmental influ-ence on organizational structure and actions(Meyer & Scott, 1983; Scott & Meyer, 1994).It is also recognized that environments aredynamic and unpredictable (Pfeffer &Salancik, 1978; Thompson, 1967). The abilityof actors to respond to their environments –with action that both shape and are shaped bydominant institutions – is also gaining sup-port within institutional theorists.16 Given thedynamic and unpredictable nature of envi-ronments, however, it would be strange ifactors were always able to retain control overtheir actions as well as the subsequent conse-quences of those actions. On the contrary,firms that act in response to a complex envi-ronment are often unable to react with uni-fied goals, abilities, and intentions, let alonecontrol the outcomes of their actions (March,1981: 573). The consequences of these reac-tions, in other words, cannot always beplanned. In his path-breaking work in thisarea, March (1981) presents the notion thatthe stable and deliberate processes of firm action can lead to unintended change. This idea is well established in thelearning literature, but has received littleattention in the institutional literature;although the work on actors’ interests and agency (DiMaggio, 1988) and the more recent scholarship on change in general (Dacin et al., 2002) provide both asolid foundation for such a discussion andindicate a positive shift of thinking in thisdirection.

Within this overarching framework at theintersection of the learning and institutionalliteratures, therefore, we offer the followingsix areas in which advances made within thelearning literature can provide insight orvalue to the field of institutional theory.

The role of unintendedconsequences

As indicated above, a relatively under-explored area of organization theory that isrelevant to institutional change is the notionof the unintended consequences of deliberateaction. March (1981) notes how organiza-tional action – even prosaic, everydayactions, routines, and processes that relate anorganization to its environment – have thepotential to produce unintended conse-quences in organizations and organizationalpopulations. Within neoinstitutional theory,the institution has traditionally been the finalarbiter of organizational action. The idea thatinstitutional change might result from theunplanned and unpredictable outcomes ofdeliberate action is not addressed in anydepth in institutional theory. Nonetheless, wesee such action/consequence disjunctionsevery day.

March (1981), for example, notes howrational organizations with normal mobilityamong managers will be more concernedwith the measurement of performance thanactual performance. This is especially true oflong-term performance. He further observeshow this preference can lead to actionsdevoted to refining and managing perform-ance measurement systems, rather than afocus on the underlying actual performance.At the field-level, this might lead to somethinglike the emergence of an approach to execu-tive compensation that is measurement-ori-ented, yet divorced from actual performance.And, in fact, we see things like this in stockoption plans where the originally grantedstrike price (the price at which executives areable to buy the option) gets reset after theprice has declined. The frequency with which


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this was done in the late 1990s suggests thepractice was institutionalized and had becomea widely accepted business norm – albeit onethat is now facing deinstitutionalization.17

As a second example of the unintendedconsequences of everyday action, Denrell(2003) notes that ordinary inter-firm learningprocesses will lead to an under-sampling offailure (as failed organizations and failedindividuals are excluded from the sample),which then leads to the widespread accept-ance of practices that are not actually relatedto performance. For example, there seems to be a widespread acceptance of the idea that strong organizational cultures aresuperior to weaker ones. Yet, this idea (whichhas taken on a rule-like status in thought andpractice) is likely the result of an under-sam-pling of failure, since the performance offirms with strong cultures is likely to behigher than the performance of those withweaker cultures, even though strong culturefirms are also more likely to fail during peri-ods of market change as their culture falls outof step with changes in the environment.

The consequences of unintendedconsequences for institutional theoryWhat are the implications of these types ofunintended consequences for institutionaltheory? One implication is that institutionswill not automatically reproduce themselves.Institutional theory has fruitfully exploredthe idea of institutional reproduction(Hinings et al., 2004; Scott, 2001). Yet, if weallow for the prosaic role of unintended con-sequences occurring in institutional fields,change will develop as a matter of course andinstitutions will not automatically reproduce.Another implication of unintended conse-quences is that it is not just agency that pro-duces change in organizational fields. Thatis, the deliberate actions and interests of indi-viduals and organizations are not the onlydriver of change in institutional norms, rules,or other practices. The unintended outcomesof everyday routines also generate change.The examples outlined above show how the unintended consequences of action

(e.g., concern over performance measure-ment at the expense of actual performance)have the potential to produce change in insti-tutions (e.g., the acceptance of stock optionrepricing as a ‘normal’ business activity).

The role of learning processes and field-level change

A consideration of organizational learningtheory leads to additional potential mecha-nisms by which endogenous change mayoccur in organizational fields. Organizationsfrequently show evidence of having learnedvarious routines, practices, and structuresfrom each other (Argote, Beckman, & Epple,1990; Rogers, 1995). Some of this learningoccurs at the inter-firm level and some occursat the inter-population level, where industriesor other collective bodies learn from the experiences of similar others (Miner &Haunschild, 1995). When such learningoccurs, it reshapes the distribution of routinesin the population of firms and, thus, reshapesthe institutional context within which firmsoperate. The processes through which thisinter-firm and inter-population learning occursinclude social connections, geographic prox-imity, and other mechanisms of social com-parison, such as size similarity (Rogers, 1995;Strang & Soule, 1998). While reviewing allthese mechanisms is beyond the scope of thischapter, they are all conceptually related to theboundary between institutional and learningtheories, and all provide potential explana-tions for institutional-level learning.

There is much evidence, for example, thatfirms will learn from the experiences ofothers to whom they are connected throughvarious networks – including interlockingdirectorships, common social club member-ships, and Business Roundtable connections(Beckman & Haunschild, 2002; Davis &Greve, 1997; Haunschild, 1993; Henisz &Delios, 2002; Palmer et al., 1993; Westphal& Zajac, 1994). This implies that institutionalchange (especially endogenous change) canoccur along these interorganizational


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pathways with the extent of change depend-ent on the level of interconnectedness amongthe organizations in a particular field.

Learning also tends to flow along geo-graphic lines such that organizations in closeproximity tend to learn more from each otherthan organizations that are more geographi-cally distant (Burns & Wholey, 1993; Davis& Greve, 1997; Marquis, 2003). This meansthat institutional change is also more likely tooccur in geographic clusters by starting inco-located firms and then spreading to moredistant ones (Greve, 2002).

The consequences of learning processesfor institutional theoryThe implication of these learning processesfor institutional theory is that institutionalmechanisms and the spread of institutional-ized practices may be affected significantlyby specific contextual factors for which insti-tutional theory has failed to fully account –factors such as geographic co-location, net-work ties, and learning/information flowsbetween organizations and populations oforganizations.

In early versions of neoinstitutional theorywhere the idea of mimetic isomorphism wasa central tenet (e.g., DiMaggio & Powell,1983), the assumption was that such imita-tion processes are relatively straightforward,with one firm copying the practices ofanother. Yet, learning theories have discussedthe problematic aspects of imitating others insome detail (Levinthal, 2000; Miner &Raghavan, 1999). Imagine, for example, theproblems inherent in an attempt to imitate a Toyota production system (Levinthal, 2000). It is not clear which of the manyunderlying routines, practices, and structuresemployed by Toyota are good targets for imi-tation. Is the uniform dress of managementimportant? What about the just-in-timesupply of materials?

While institutional theory has advancedour knowledge of the isomorphic processesthat act as forces for field-wide convergenceover time, there is also the issue of imperfectimitation (which results in divergent change).

Suppose that an organization is able to deci-pher the core processes that deserve to beimitated in the Toyota production system; itsattempts to imitate these systems will still beaffected by its own local context, the otherpractices existing in its portfolio, theresponses of competitors to the imitation ofthese practices, as well as a number of otherdynamic variables. These complications areall a potential source of imperfect imitation –where the practice is changed (for better or worse, consciously or unconsciously) to fit the local context, competitor responses,and so on. Organizational learning studieshave noted such issues and the factors that make them more or less likely (e.g., Miner & Raghavan, 1999). Learningstudies also observe that such imperfectionsincrease the chances of divergent or hetero-geneous outcomes (in other words, they are asource of inconsistent change in the institu-tional environment) in the sense that there isnow a greater variety of routines in the population.18

The role of search: explorationversus exploitation

The role of search in learning theory is cen-tral to an understanding of population-levelshifts in routines, practices, and structures.One key distinction in learning theory thatdifferentiates search from other firm strate-gies is contained within the roles of explo-ration and exploitation (March, 1991; Miner,1994). Exploration involves search directedtoward new knowledge and competencies,while exploitation involves search directedtoward the better utilization of existing com-petencies. It has been noted that organiza-tions will generally tend toward theexploitation of existing competencies(March, 1991; Starbuck, 1983), in partbecause exploitation generates clear feed-back and tends to yield positive, short-termresults (Levinthal & March, 1993). At thefield-level, this means that exploration willtend to produce more dramatic and varied


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change, while exploitation will tend to pro-duce more incremental and localized change(March, 1991). Thus, any factors that lead afield toward a preponderance of explorationare also likely to be associated with field-level change in institutions. For example,emerging fields such as the treatment ofHIV/AIDS patients in Canada (Maguire et al., 2004) and government incentives fornew entrants in the green technology sector(Sine, Haveman, & Tolbert, 2005) can be con-sidered fields where exploration-drivensearch processes led to field-level fragmenta-tion that encouraged change (D’Aunno et al.,2000). Other work has identified conditionsin well-established, more coherent fields likethe accountancy profession, and representsexamples of invested actors exploringbeyond established institutions in an attemptto instigate change in an established organi-zational form (Greenwood & Suddaby,2006).

Yet, if we look at the learning literature,there are additional factors likely to affectinstitutional change, including problemisticsearch and slow adaptation. We know fromthe learning literature that performance thatdoes not meet aspirations triggers search andlearning (Cyert & March, 1963; Greve,1998). We also know, however, that thesesearch processes for new knowledge and rou-tines are more likely to result in riskierapproaches that, in turn, can pose greaterdanger to firms (March, 1991). This meansthat, at the field-level, a preponderance ofunderperforming organizations will likelylead to an increased acceptance of risk andchanges that produce greater variance in out-comes. For example, the institutional forcesthat lead to a preponderance of conglomeratefirms adopting the M-form structure are welldocumented in research by Fligstein (1985;1991) and Palmer, Jennings and Zhou(1993). Yet, the use of such strategy/structurecombinations comes with correspondingissues and, in general, firms that adopt insti-tutional structures can end up underperform-ing in comparison to those that did not(Davis et al., 1994). Some of these firms

died, some switched to a different structurethrough the process of divestiture of under-performing assets, but some firms continuedto underperform until a new wave of de-conglomeration activities occurred at a laterperiod. Thus, the institutionalization of anorganizational form resulted in underperfor-mance, which then triggered learningprocesses, which led to institutional change – ashift from conglomeration to de-conglomera-tion as an accepted form of doing business(Davis et al., 1994).

Another factor that seems to lead to a pre-ponderance of exploration (riskier changeresulting in greater leaps of innovation) isslow adaptation (Denrell & March, 2001).Slow adaptation benefits an organizationbecause it encourages the incorporation ofnew and divergent ideas (March, 1991). Fastlearning, on the other hand, tends to drive outalternatives, narrowing the body of knowl-edge within the organization, which limitsthe available options and encourages moreconservative exploitation in the system. Theimplication is that systems of fast adaptationwill tend to exhibit more exploitative behav-ior, even in situations where the long-runimplications of exploration are positive.Fads, for example, which tend to be adoptedquickly, are less likely to be altered in sub-stantial ways by the firms adopting them. A slowly adopted field-level change, however, such as the finance conception of control (Fligstein, 1990), is a practice that might engender more exploratoryprocesses and, consequently, result in greaterchange during the adaptation process. Thisargument presents an alternative explanationto institutional persistence, but one that isrelated to timing (overly fast versus beneficially slow adaptation), rather thantaken-for-granted assumptions and isomorphic processes. The important impli-cation for this argument is that institutionalchange is more likely to occur with slow,rather than fast, field-level adaptation. Futureresearch could explore profitably these differential processes as a function of adaptation rate.


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The consequences of exploration/ exploitation for institutional theoryIt is well-established within institutionaltheory that new ideas and business practicesdiffuse among firms within organizationalfields at different times, for different reasons(Baum & Rowley, 2002; Scott, 2001) and atdifferent rates (Argote, 1999; Tolbert &Zucker, 1983). Some practices diffusequickly, whereas others do so more slowly. Inaddition, some firms are early adopters,while some are later adopters. Institutionaltheory has explored this latter distinction(early versus late), but has yet to discuss theimplications of fast versus slow adoption/adaptation.

In addition, institutional theory has largelylimited its focus to adoption in response tocoercive, normative, or mimetic isomorphicforces (DiMaggio & Powell, 1983). Theadoption of a new practice due to the under-performance or failure (Strang & Sine, 2002:507) of the existing dominant institutionalpractice (i.e., adoption due to efficiency rea-soning) has generally only been consideredas a factor driving early adoption (c.f. Fiss &Kennedy, 2006; Lounsbury, 2007). Lateradopters are considered to adopt not as aresult of underperformance, but rather as aresponse to uncertainty and a desire for con-formity as well as the social legitimacy thatcomes with adopting highly institutionalizedpractices (DiMaggio & Powell, 1983). Firmsat this stage often adopt reluctantly and with-out customization because the practice hasbecome taken-for-granted (Rao et al., 2001;Westphal et al., 1997). In doing so, lateradopting firms typically pay little heed to thepotential advantages or disadvantages of thepractice in relation to its best interests (Daviset al., 1994; Zajac & Westphal, 2004). Thus,considering the predictions of learning theo-ries with respect to adoption behavior, theconcepts of exploration and exploitation canprovide a fuller picture of the various firmactions at various points in the adoption/adaptation process and, thus, afford a morecomplete picture of institutional change invarious societal sectors.

The role of forgetting (unlearning, disadoption anddeinstitutionalization)

As noted by DiMaggio (1988), we know rel-atively little about incomplete institutional-ization, and even less about whyinstitutionalized forms and practices fall intodisuse. Organizational learning theory, on theother hand, has addressed the issue of‘unlearning,’ as well as the disadoption or‘negative diffusion’ (Rao et al., 2001: 509) oforganizational forms and routines. This literature can contribute to institutionaltheory in its quest to provide insight intoinstitutional change, in general, and deinsti-tutionalization, in particular (Oliver, 1992).

In the learning curve tradition, there arestudies showing that organizations forget.Various factors have been proposed toexplain forgetting or the depreciation ofknowledge, including asset shortages andpersonnel turnover (Argote, 1999; Argote et al., 1990). In addition, there appear to bemore permanent and transitory types ofmemory in organizations, and the results ofempirical studies tend to find that transitorymemory is more subject to being forgotten(Argote, 1999). It may also be the case thatmore technologically sophisticated organiza-tions have less forgetting than less sophisti-cated organizations, in part because theknowledge embedded in technology is morestable than knowledge embedded in routines,interactions, or other forms of human inter-actions and, thus, more resistant to change.

This suggests that institutional fields intechnologically sophisticated areas (e.g., aero-space) may have less forgetting and, thus, will exhibit more institutional stability thanfields in less technologically sophisticatedareas (e.g., restaurants). Another implicationfrom the learning literature is that field-levelturnover of personnel is a source of forgettingand, therefore, change in institutions. Ingramand Simons (2002), for example, found noevidence of depreciation over time in the prof-itability of kibbutz agriculture, which Argote(1999) suggests may be due to the fairly stable


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membership that is typical of these organiza-tions. The kibbutz is also relatively stable andinstitutionalized as an organizational form. Incontrast, consider the substantial amount ofchange that has occurred in hospitals andhealthcare over the past half century, as wellas the field-level turnover of personnel thathas accompanied this change (Scott, Ruef,Mendel, & Caronna, 2000).

Another area of learning that might haverelevance for institutional theory is the workon cycles of adoption and abandonment ofpractices (Abrahamson & Fairchild, 1999;Barley & Kunda, 1992; Burns & Wholey,1993; Davis et al., 1994; Rao et al., 2001;Strang & Macy, 2001). Strang and Macy(2001) note that faddish cycles of adoptionand abandonment can occur in fields and thatthe dynamics of fads are sustained, in part,because modestly successful firms tend tocopy the practices of very successful firmsthat are more likely to have satisficed in theirsearch for success (Abrahamson & Fairchild,1999; Strang & Macy, 2001). This view ofthe role played by satisficing in promotingfads and by constraining the institutionaliza-tion of practices provides a deeper under-standing of the factors driving theinstitutionalization process than currentlysuggested by institutional theory.

The consequences of forgetting forinstitutional theoryWork on organizational forgetting can con-tribute to institutional theory in expandingthe mechanisms that drive deinstitutionaliz-ing forces. Currently, deinstitutionalization isseen as occurring due to the actions of out-siders or institutional entrepreneurs. Instead,the characteristics of the technologiesinvolved in the field (whether these technolo-gies are producing good or modest returns),the roles played by unlearning (disadoptionand/or forgetting) due to personnel turnoverand other factors, and the concept of satisfic-ing can all play a role in instigating thediminishment of established institutions, aswell as the rise of new institutions to replacethem and renew the dominant order.

The roles of selective andinferential learning

In opposition to established theory within theinstitutional literature (Rao et al., 2001;Westphal et al., 1997), the learning literaturetells us that sometimes later adoption maynot be due to conformity pressures, but mayinstead be caused by learning processes thatoccur at the field-level. These processes areselective and inferential, rather than mimetic.Sine, Haveman, and Tolbert (2005), forexample, discuss learning by firms thatobserved the earliest market entrants into the unproven green technology sector (them-selves prompted by government incentives),before deciding themselves to enter. Byentering this sector later in the diffusioncurve, these firms were able to infer potentialefficiency benefits for themselves, based onthe combined experiences of earlier entrants.Such performance-based imitation is notdone during a period of uncertainty (uncer-tainty is reduced by the experiences of priorfirms), is not the implementation of a prac-tice that is taken-for-granted within theindustry (the sector is not yet sufficientlyestablished for this to occur), but is a deci-sion made, at least partially, for economicand rational reasons. All of these criteriaresist easily categorizing the adopting firm asresponding to mimetic institutional forcesbut, instead, seem to fit into a learning modelthat is based on the experiences of others.19

There is also research that discusses howentire fields learn from the experiences ofother fields. For example, Cho, Kim andRhee (1998) discuss how Korean firmsachieved success in semiconductors, despitetheir late entry into this market, preciselybecause they learned from the experiences ofthe United States and Japanese semiconduc-tor industries. Similarly, the Microelectron-ics and Computer Consortium (MCC), thefirst major electronics research consortium inthe U.S., is recognized as successful, in part,because of its observation and imitation ofsimilar consortia in Japan (Aldrich & Sasaki,1995; Miner & Haunschild, 1995).


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As noted earlier, social ties and geographicproximity are two factors likely to affectendogenous institutional change. These fac-tors may also affect exogenous change whenfields learn from the experience of otherfields. Miner and Haunschild (1995), for example, examined how the existence ofstrong inter-firm ties between small biotechfirms and large pharmaceutical firms in theU.S. facilitated the learning and integrationby the pharmaceuticals of the successfulorganizational routines and technologies of the biotechs. Consequently, this is anotherexample of field-level change that was facilitated by learning processes amongsocially connected firms. The considerationof this type of change is of noteworthy valueto institutional theory in its quest to explainsuch instances of change.

The consequences of selective andinferential learning for institutional theoryThe potential benefits of selective and infer-ential learning for institutional theory werefirst highlighted by Miner and Haunschild(1995: 126). As illustrated above, these twoprocesses describe the means by which firms(or fields) either copy routines they believehave been successful elsewhere (selectivecopying) or use the experiences of otherorganizations or fields as a natural experi-ment, drawing conclusions and adapting theprocesses to suit their specific circumstances(inferential learning). If institutional theo-rists are able to build a body of research thatsuccessfully integrates and uses these con-cepts, they will be filling a significant gap inthe institutional literature, which to date hasno explanation for late adoption based on anefficiency rationale.

The role of heterogeneity versus homogeneity

According to an institutional perspective oforganizations, firms facing similar institu-tional environments experience isomorphicforces that tend toward convergence in their

structures and activities over time (Baron et al., 1986; Greenwood & Hinings, 1996;Strang & Meyer, 1994). In one of the key for-mulations of the theory, DiMaggio andPowell (1983) discuss the very strong institu-tional (as opposed to competitive) mecha-nisms by which this convergence occurs:coercive, mimetic, and normative isomor-phism. It is increasingly accepted withininstitutional theory, however, that differentstrategic responses by firms to the same insti-tutional stimuli can result in greater, ratherthan less, field-level heterogeneity (Oliver,1991; Powell, 1991).

Thus, it becomes important to distinguishunder what conditions firms converge in theface of institutional pressures and when theopposite result occurs. The organizationallearning literature has begun to specify some of these conditions, in part becauselearning theories are at least somewhat concerned with sources of variance in rou-tines, processes, and structures (Miner &Haunschild, 1995), whereas the preponder-ance of work within institutional theory hasfocused more on sources of institutionalretention and replication. Learning theorieshave specified three key field-level condi-tions/processes that will tend to divergence(and, thus, institutional change) rather thanconvergence: imperfect copying; regulatorypressures; and field-level competition.

Imperfect copyingThe first key field-level process is mimeticlearning, in which the learning involves notsimple copying but, instead, imperfect copy-ing or, at times, even doing somethingentirely different. We noted earlier howimperfect copying is a process by whichfield-level change can occur. In addition toimperfect copying, however, there is alsowork on other experience-based responsesthat might occur, including what has beencalled non-mimetic learning. For example,research shows that some conditions produce action that, while informed by theexperiences of others, results in outcomesthat are unique to the focal firm (Greve &


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Taylor, 2000). When imitation results inaction that differs in this way, the result is likely to be field-level heterogeneity(Greve, 2005; Miner et al., 2003) and, there-fore, a possible source of new institutionsand institutional change.

Regulatory pressuresThe second key field-level change processspecified in the learning literature is theresult of regulatory pressures, which wereinitially theorized by DiMaggio and Powell(1983) to lead to convergence. More recently,however, such pressures have been shownalso to produce divergence when firmsrespond differentially (D’Aunno et al.,2000). Examples in the learning literaturenote the changes that can result from differ-ential learning in response to regulation –either learning from the experiences of otherfirms (Sine et al., 2005), or learning from theexperience of one’s own firm (Haunschild &Rhee, 2004). In addition, whole industriescan learn from the regulatory responses ofother industries. An example of this occurredwhen the medical industry learned from theairline industry in relation to regulatory pro-cedures surrounding accidents, subsequentlyinstalling similar regulation within hospitals(Miner et al., 2003). Thus, learning fromanother population in response to regulationcan also lead to change in the institutionalenvironment.

CompetitionThe third key field-level condition occurs inindustries that are highly competitive. In con-trast to DiMaggio and Powell’s (1983:149–150) argument that competitive forcesare one of two types of isomorphic tenden-cies among firms and industries, learningtheorists have argued that, under specificconditions, competition can generate hetero-geneous outcomes (Miner et al., 2003).Miner, Haunschild and Schwab (2003) identify two conditions under which suchcompetitive heterogeneity might occur –competition based on novelty and competi-tion based on extreme values. The first of

these occurs in instances where there is ben-efit to an actor in promoting novelty – inother words, where it pays to be different.Many arts-based organizations operatewithin such industries. Such an extremeincentive-based industry will encourageestablished firms to innovate and alsoencourage new entrants to the field, whichgenerates both field-level heterogeneity andchange. The second condition is likely tooccur when maximum performance is dis-proportionately rewarded – in other words, ina winner-takes-all environment. Such envi-ronments encourage high-risk strategies thattend to result in greater variance rather thanhigher average performance (March, 1991),which has a diversifying impact on the indus-try as a whole.

The consequences of heterogeneity/homogeneity for institutional theoryThe implications of this body of work withinthe learning theories for institutional theoryare significant, especially for thoseresearchers who have begun to consider howvariations in actor responses to the sameinstitutional environments can producegreater heterogeneous, rather than homoge-neous, outcomes (Oliver, 1991). Integratingthese three key field-level learning processes(imperfect copying, regulatory pressures, andcompetition) will add significant depth todiscussions in this area of work that are onlyjust beginning within institutional theory.

CONCLUSION

We have argued that both institutional andlearning theorists have considered the impor-tant issue of change in organizational fields,although largely in isolation from each other.The purpose of this chapter has been to tryand open up a beneficial avenue of commu-nication between the two theories, believingthat understanding the processes and conse-quences of organizational and interorganiza-tional learning can contribute significantly to


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institutional theory in its quest to explaininstitutional change. Our goal has been toidentify where these two literatures overlap,so that knowledge is shared and replication isavoided (wherever possible), in a way thatconstitutes, we hope, a constructive additionto the institutional literature.

To this end, we have identified areas wherewe feel learning processes and mechanismscan work in conjunction with our existingknowledge of institutions to inform ourunderstanding of field-level change. Theseprocesses and mechanisms include the ideathat ordinary organizational processes canlead to unintended outcomes, which can thenlead to the disruption of existing institutions.The processes also include the effect of network ties, geographic location, and infor-mation flows as sources of institutionalreproduction (and non-reproduction).Furthermore, these mechanisms investigatethe idea that processes of exploration engen-der dramatic institutional change and thatsuch processes are more likely to occur underslow adaptation and underperformance inrelation to specific institutional norms, rules,and models. They also include the idea thatforgetting may erode institutions, a situationthat is more likely in conditions such as highpersonnel turnover. Finally, these processesand mechanisms explore the idea that selec-tive and inferential learning processes, bothwithin and across fields, produce institu-tional change, as well as the view that hetero-geneity produced by imperfect copying,regulatory pressures, and competition basedon novelty or extreme values can lead toinstitutional change.

This is an exciting time for institutionaltheory. The relatively recent focus on changeopens up huge possibilities for understandinghow institutions adapt and what the conse-quences of such adaptation might be. Webelieve that the learning theories can supplyat least some of the answers that institutionaltheorist seek. Yet, in spite of the potential ben-efits, the intersection of these two theories hasreceived scant attention from scholars to date.We hope that the consideration of learning

theory contained within this chapter has deep-ened our understanding of what is possibleand begun to hint at a research agenda forfuture work within institutional theory thataddresses some of the unanswered questionsgenerated at the boundary of these two impor-tant organization theories.

ACKNOWLEDGEMENTS

Much of this chapter was drafted during thefirst author’s residency at the RockefellerFoundation’s Bellagio Center during May2006. We thank Roy Suddaby, Matt Kraatz,and an anonymous reviewer for their veryhelpful comments and suggestions forimprovements in our arguments.

NOTES

1 Is Wal-Mart going green? CEO vows to be‘good steward for the environment’ in announcinggoals,’ MSNBC.com, October 25, 2005, <www.msnbc.msn.com/id/9815727/>.

2 Kris Hudson, ‘Wal-Mart Wants Suppliers,Workers to Join Green Effort,’ Wall Street Journal,February 2, 2007, pA14.

3 Jonathan Birchall, ‘Sun rises over Wal-Mart’spower policy,’ Financial Times, January 22, 2007, p.8;Melanie Warner, ‘Wal-Mart Eyes Organic Foods,’New York Times, May 12, 2006, <www.commondreams.org/headlines06/0512-07.htm>.

4 <www.walmart.com/>.5 For examples, see: ‘Wal-Mart: The High Cost of

Low Price,’ <www.walmartmovie.com/>; and ‘Wal-Mart Watch,’ <walmartwatch.com/>.

6 Melanie Warner, ‘Wal-Mart Eyes Organic Foods,’New York Times, May 12, 2006, www.commondreams.org/headlines06/0512-07.htm>.

7 Ann Zimmerman, ‘Wal-Mart Sees Profit inGreen—Some Recycling Initiatives Are HelpingRetailer’s Bottom Line,’ Wall Street Journal, August21, 2006, p. B3.

8 We outline this concept in greater detail lateron in this chapter.

9 We do not take a stand here concerning thedebate within institutional theory between compet-ing conceptualizations of institutions at the organiza-tional (Selznick, 1957) or field (DiMaggio & Powell,1983) levels. Instead, we perceive of an institution in


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its broadest and most inclusive sense, utilizingJepperson’s (1991: 145) definition where ‘Institutionrepresents a social order or pattern that has attaineda certain state or property; institutionalizationdenotes the process of such attainment.’

10 For a discussion of the multiple definitions ofan organization’s environment that have emergedfrom the assumption of a field level of conceptualiza-tion within the institutional literature over time, see Scott (1983: 161–162) and Scott (1991:172–174).

11 See the section titled ‘Institutional Theory andChange’ later in this chapter.

12 There are also learning theories at lower levelsof analyses, however, that can be used to illuminateinstitutional processes and we will incorporate thesetheories as appropriate.

13 See the discussion below for an indication ofthe role played by institutional entrepreneurs withininstitutional theory as instigators of change.

14 For a comprehensive review see Leca,Battilana, & Boxenbaum (2006).

15 Institutional logics are described as societal-level ‘beliefs, norms, routine practices’ (Scott, 2001:134).

16 See the section titled ‘Institutional Theory andChange’ earlier in this chapter.

17 James Surowiecki, ‘The Dating Game,’ TheNew Yorker, November 6, 2006, <www.newyorker.com/archive/2006/11/06/061106ta_talk_surowiecki>.

18 The role of divergent versus convergent forcesfor change is discussed in greater detail later in thissection.

19 Our initial example of Wal-Mart learning from examples provided by earlier adopters of environmentally-friendly policies is also of this nature.

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