Institutional-Level Learning: Learning as a Source of Institutional Change

Introduction

Institutional theory tells us that as a new idea or business practice diffuses through a population, some firms adopt it early on for efficiency reasons (they have considered the merits of the idea and believe it to be beneficial to their business), while others resist until later in the diffusion curve (they are either not aware of the idea or do not feel it is applicable or advantageous to their situation). When these later adopters do finally succumb, they do so out of social pressures to conform and believe that the primary benefit for adopting is the legitimacy gained by acceding to societal norms (Galaskiewicz, 1985; Parsons, 1956; Suchman, 1995). For these later adopting firms, institutional theory tells us that the prospective efficiency benefits of the idea in question are not a concern - they have either not been considered, 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 this dichotomy of economic (early) versus institutional (late) actors provides a sufficiently comprehensive spectrum of adoption behaviors by firms. Consider the example of Wal-Mart, which has started to adopt social responsibility practices, particularly in relation to environmental sustainability1 (including the launch of its ‘Sustainability 360’ plan in February, 2007),2 and is recognized as being relatively progressive in this respect by a broad section of the media.3 An institutional theorist might argue that this adoption behavior (which is occuring later, in the diffusion cycle) happened because the idea of environmental sustainability (going green) had diffused throughout society to such an extent, and the firm was facing so much criticism for its failure to adopt previously, that it adopted in search of social legitimacy (DiMaggio & Powell, 1983; Meyer & Rowan, 1977). This pattern of behavior, however, would be out of character for a firm that focuses so strongly on minimizing operating costs and passing those cost savings on to [Page 625]customers in the form of ‘Always Low Prices,’4 and that has resisted conforming to pressure on several previous occasions.5

An alternative explanation of Wal-Mart's decision to make a large-scale move into the green area is that it is learning from the experience of other firms who have already gone green, and is adapting its own behavior accordingly. Once the diffusion of an idea has progressed beyond its initial stages, a track record of success and failure of firms that previously adopted similar policies is established, and firms pressured to adopt at later stages are sometimes able to cherry-pick the most appropriate (and potentially profitable) policies that suit their situation and needs, while still conforming to institutional norms that dictate some form of response. We suggest that this is a possible driver of the decision to adopt an idea or business practice by firms later in the diffusion curve that is not theoretically integrated within the institutional literature. Thus, institutional theory would currently say that Wal-Mart is simply responding to societal pressure and legitimacy threats. Yet Wal-Mart could instead (or also) be learning from the experiences of prior adopter firms and adopting these policies later in the diffusion process, at least partially, for anticipated efficiency benefits. For example, Wal-Mart's decision to start selling organic foods might have been stimulated by the success of Whole Foods and other organic retailers. At the same time, however, Wal-Mart is showing consistency with the institutional environment (going green) with statements about how the firm wants to ‘democratize organic food, making products affordable for those who are reluctant to pay premiums of 20 percent to 30 percent.’6 The dual institutional/efficiency rationales inherent in Wal-Mart's activities are also reflected in statements by one senior level executive who admitted that he was initially unenthused about going green, because he thought such a move was all about ‘saving the whales and the trees.’7 He became more enthusiastic when he realized that these practices could increase Wal-Mart's efficiency through lower costs.

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