Organizational InstitutionalismChapter 26Institutional-level Learning: Learning as a Source of Institutional Change

Pamela Haunschild◦ Ph.D. from Carnegie Mellon, 1992◦ Prior postings: Stanford, UW-Madison◦ Currently Chair of Management at UT-Austin◦ Interested in: Org behavior, org design, org change

David Chandler◦ Ph.D. candidate at UT-Austin◦ Under research interests, he has a quote: “Economics

is all about how people make choices; sociology is all about how they don’t have any choices to make.” – Dusenberry 1960

◦ He is interested in ethics, CSR, and stakeholder theory

Authors

Past theories tend to assume companies adopt new practices for one of two reasons:

◦ Economic benefit: early adoption of new cost-saving or sales-promoting techniques lead companies to change the way they do things

◦ Institutional pressure: the threat of losing legitimacy compels companies to “follow the crowd” regardless of the efficiency or cost concerns related

Organizational Learning theorists suggest these are too exclusive

Economic Benefit vs. Institutional Pressures

This chapter tries to bridge past theories to show how organizations can adopt practices later but still do so for economic benefit◦ Wal-Mart Example

Organizational Learning

Huber 1991:◦ “An entity learns if, through its processing of

information, the range of its potential behaviors is changed.”

Levitt and March 1988:◦ Organizations are “seen as learning by encoding

inferences from history into routines that guide behavior.”

Definitions of Organizational Learning

Huber’s Four constructs◦ Knowledge acquisition◦ Information distribution◦ Information interpretation◦ Organizational memory

Keys from both definitions:◦ Routines are independent of individual actors◦ They change based on interpretations of past◦ They change as new experiences accumulate◦ Learning and change are intertwined

Organizational Learning

Past research has examined individual, group, and organizational levels, but little has examined field-level learning

Institutional theory has started to incorporate other levels – change driven from below – while learning literature has considered more field-level learning – change driven from above

The chapter focuses on learning that speaks to the field/institutional level

Levels of Analysis

Inertia has limited change to path-dependent processes

Neo-institutionalists suggest change occurs in punctuated leaps, rather than over time

Learning theorists suggest it occurs slowly over time through experience and adaptation

The institutional and learning literatures have begun to overlap by acknowledging institutional learning and individual actor agency

Processes of Change

Neoinstitutionalists have begun to consider that 1) institutions can change and 2) consider the conditions under which it occurs

Institutionalization is a process that includes emergence, diffusion, change, deinstitutionalization, and the emergence of new institutions

Institutional Theory and Change

The evolving area of institutional change has created doubt about the permanence of institutions, and therefore created the possibility of deinstitutionalizaation

This concept gave rise to the notion that institutions require reinforcement to survive

Institutional Change

Exogenous sources of change◦ Influence of institutional and technical forces in

the environment◦ Incomplete institutionalization◦ Shocks that alter the firm’s environment

Endogenous sources of change◦ Individual actors◦ Forces of interest, agency, and institutional

entrepreneurship

Sources of Institutional Change

Six key areas within learning theory:◦ The role of unintended consequences◦ The role of learning processes and field-level

change◦ The role of search: exploration vs. exploitation◦ The role of forgetting (unlearning, disadoption,

and deinstitutionalization)◦ The roles of selective and inferential learning◦ The role of heterogeneity vs. homogeneity

Institutional Level Learning

Unplanned institutional change caused by deliberate action◦ Example: the importance of performance

measures to manager pay leads to a focus on measurement improvement over actual improvement

What does this concept suggest about institutional theory?◦ Institutions might not automatically reproduce

themselves◦ Intended action is not the only source of change

The Role of Unintended Consequences

Organizations exhibit evidence of having learned routines and practices, both from other firms and within the general population◦ Example: firms may learn from firms with which

they share a connection such industry associations

What are the implications for Institutional Theory from this concept?◦ Previously unaccounted for contextual factors

may play an important role in the spread of institutional practices

◦ Example: imperfectly imitating Toyota

The Role of Learning Processes and Field-level Change

Exploration: search directed toward new knowledge and competencies◦ Tends to produce more dramatic and varied

change◦ Examples: HIV/AIDS treatment, green movement◦ Often related to higher risk without guarantees of

higher reward Exploitation: search directed toward better

utilization of existing competencies◦ More common◦ Faster feedback, better short-term results

The Role of Search:Exploration vs. Exploitation

Unlearning Disadoption Deinstitutionalization

The Role of Forgetting

Firms may adopt practices later and cherry-pick the best practices rather than go through the difficulties of first movers◦ Contradicts present theory that suggests firms

adopt practices regardless of economic performance to maintain legitimacy

◦ Example: adopting green technologies only after benefits were exhibited by earlier entrants

Fields can learn from other fields◦ Example: Korean firms adopting Japanese and

U.S. practices in the semiconductor industry

The Roles of Selective and Inferential Learning

Different strategic responses can lead to greater heterogeneity within a field

Three field level conditions that can lead to heterogeneous responses:◦ Imperfect copying◦ Regulatory pressures◦ Competition

The Roles of Heterogeneity vs. Homogeneity

Why do organizations exist? Why do some organizations survive and

others don’t? How and why do organizations differ? How and why do organizations change? What are the emerging issues?

Big Questions