Neoinstitutional Theory

Conceptual Overview

Institutional theory was first introduced into the field of organization studies by Philip Selznick's 1949 work on the Tennessee River Valley Authority (TVA). Selznick noted that routines within the TVA had [Page 958]become valued for their own sake, rather than their contribution to the outcomes of the TVA. He referred to these intrinsically valued organizing routines as institutions, thus connecting his work to a long established tradition of sociological studies of the institutions of society such as law, education, and others. Sociology asks, “Why do institutions endure?” and Selznick took this question into organization studies. His work, and those that followed it, concentrated on organizing routines inside the firm.

New institutionalism was introduced in 1983 by Paul DiMaggio and Woody Powell with their argument that firms are organized by their managers in accordance with the prevailing template in their field. They mimic other firms to retain legitimacy. As well as incidentally condemning the institutional studies of Selznick and his followers to the sobriquet old institutionalism, they shifted the emphasis to outside the firm, specifically to the field in which the firm was placed.

With old and new taken, and by then running out of adjectives, Greenwood and Hinings in 1996 gave us the inelegant phrase neoinstitutional theory. It combined the views of old and new institutionalism. Ways of organizing became a template or an archetype within a field and ways of organizing within a firm were constrained by this template. They argued that ways of organizing within a firm could bring about change in templates and archetypes, though they anticipated the reverse to be more frequent. This firmly placed neoinstitutional theory as a theory of radical change (from one template to a new one). Many see institutionalism as a theory of stability. For example, we see the institution of law as unchanging. Greenwood and Hinings show us that the so-called unchanging institutions we are familiar with were not always thus; they replaced previous institutions.

The elements of this theory are worth recounting for it places several matters centrally that have been inadequately treated in the academy. They suggest that the environment in which firms find themselves may be conveniently considered under three rubrics. The first of these is the rubric of the field, and here the traditional institutional reliance on the firms, suppliers, regulators, customers, and competitors is applied.

These are aggregated to consider whether a field is tightly coupled, or structurated. Second are the institutional contexts. What are the laws and norms of the field? What behaviors are mimicked? Third is the market context of the firm. They then argue that these exogenous forces interact and have effects on the firm. Endogenously, they describe interests, value commitments, technical capacity, power dependencies, and change.

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