Institutional and Rational Determinants of Organizational Practices: Human Resource Management in European Firms

Article excerpt

Despite their very different assumptions, both rational and institutional explanations of organizational structure and management practices predict similarity among firms that operate in the same industry within the context of a single country. From a rational perspective, firms pursue economic advantage through decision making and actions guided by unambiguous preferences and bounded rationality. Although one may expect differences between industries, within industries firms will implement organizational practices that promote the maximization of economic goals. Thus, discounting sluggishness in the diffusion of best practices, it would be reasonable to expect that intraindustry management systems are to a large degree uniform.

Although new institutionalism in organizational theory implies a rejection of rational actor models, emphasizing instead the pressures for acquiring and maintaining legitimacy in relation to the environment (see, e.g., DiMaggio, 1983; DiMaggio and Powell, 1983; Powell and DiMaggio, 1991), it shares the broad expectation that uniform pressures will lead to uniform intraindustry structure and organizational practices. Through various mechanisms of coercion, normative regulations, and imitation, organizations sharing the same environment are believed to become structurally similar as they respond to like pressure; that is, they will demonstrate isomorphism. Since these early formulations, a number of theoretical and empirical studies examining isomorphism and diffusion processes have been conducted, most of which have been carried out within discrete organizational fields or sectors.

The two models' predictions diverge radically, however, when the setting is broadened to comprise different countries. While the rational model assumes that organizational practices are universal across national borders, institutionalism is sensitive to the possibility of cross-national institutional differences, which in turn generate significant cross-national differences in managerial systems. Thus, in a recent review of institutional theory, Scott (1995: 135) characterized current work in institutionalism as attentive to variation: "Rather than assuming that all organizations are alike, or when differences are found between organizations situated in varying social and cultural contexts, attempting to understate them or explain them away, current work is more likely to celebrate diversity and seek to account for the reasons why different forms arise." He noted that the resurgence of interest in institutions has created renewed interest in comparative studies that allow researchers to vary institutional contexts: "It is difficult if not impossible to discern the effects of institutions on social structures and behavior if all our cases are embedded in the same or very similar contexts" (Scott, 1995: 146).

The purpose of this paper is to study the impact of institutional determinants on firms' use of human resource management practices, using cross-national analysis. Whereas the broad rational model implies that there will be no cross-national differences beyond those that are ascribable to factors such as varying firm size and differing industries, the institutional model assumes dissimilarities not only in relation to industry differences but also dissimilarities rooted in the idiosyncratic national institutional regimes surrounding firms.

Cross-national dissimilarities in institutional structures are likely to create management practices that vary from country to country, regardless of the fact that management theories are often rapidly disseminated across national borders. Particularly in the human resource management field, the inertia of institutional structures is likely to inhibit the application of new management prescriptions whenever these are seriously at odds with existing legal rules and political conditions. This is due to the fact that human resource management practices are subject to idiosyncratic sets of national regulations as well as sensitive to the scrutiny of labor unions whose strength and attitudes toward management vary. …