Academic journal article Administrative Science Quarterly

The Role of Institutional and Market Forces in Divergent Organizational Change

Academic journal article Administrative Science Quarterly

The Role of Institutional and Market Forces in Divergent Organizational Change

Article excerpt

This paper focuses on a radical change, in which organizations abandon an institutionalized template for arranging their core activities, that is likely to occur in organizational fields that have strong, local market forces and strong but heterogeneous institutional forces. We examine the role of market forces and heterogeneous institutional elements in promoting divergent change in core activities among all U.S. rural hospitals from 1984 to 1991. Results support the view that divergent change depends on both market forces (proximity to competitors, disadvantages in service mix) and institutional forces (state regulation, ownership and governance norms, and mimicry of models of divergent change). [*]

Organizations often arrange their core activities according to accepted models, or templates, in their field. These templates are patterns for arranging organizational behavior that specify organizational structure and goals and reflect a distinct set of beliefs and values. Accounting and law firms, for example, have traditionally used templates that emphasized individual autonomy and equality among peers, what Greenwood and Hinings (1993, 1996) termed a professional partnership model. Some templates are so repetitive and enduring across an entire organizational field that actors take it for granted that this pattern is the right way to organize (Oliver, 1992). Yet organizations do abandon such templates, diverging from accepted models in their field. What causes them to abandon an institutionalized template for arranging their core activities and replace this template with a substantially different one?

Understanding the causes of such divergent organizational change is important both for understanding the change itself and for advancing neo-institutional theory. Until relatively recently, theory and research have focused on examining the successful reproduction and diffusion of organizational forms and practices (DiMaggio and Powell, 1991; Oliver, 1992; Scott, 1995). It is not yet clear how the theory can be extended to account for divergent organizational change (Greenwood and Hinings, 1996; Kraatz and Zajac, 1996; Kraatz and Moore, 1998). Further, examining such change would help to link the "old" and "new" institutional theories (Greenwood and Hinings, 1996; Selznick, 1996; Hirsch and Lounsbury, 1997). This is so because divergent change involves both a transformation in organizational goals, a focus of the original institutional school, and a transformation in widely held beliefs and norms, a focus of neo-institutional research (e.g., Zald and Denton, 1963; DiMaggio and Powell, 1991).

Though theorists have proposed several explanations for divergent organizational change (e.g., DiMaggio, 1988; Oliver, 1992; Thornton, 1995), recent conceptual papers (Greenwood and Hinings, 1996), case studies (Leblebici et al., 1991), and a few large-scale empirical studies (Davis, Diekmann, and Tinsley, 1994; Kraatz and Zajac, 1996) have emphasized the importance of both market competition and institutional factors in causing such change. Kraatz and Zajac (1996) found that local market forces (e.g., consumer demand) prompted divergent changes in curricula among U.S. liberal arts colleges (e.g., offering business degrees). In contrast, results from Davis, Diekmann, and Tinsley (1994) suggested that institutional factors caused decreased use of the conglomerate form of organization in the 1980s--the very idea of this form was no longer legitimate. One explanation for these inconsistent results is that there are varying market and institutional conditions under which divergent organizational change occurs. Ea rlier conceptual and later empirical work in neo-institutional theory (e.g., Scott and Meyer, 1983; Dacin, 1997) has emphasized that organizational fields vary in both the relative strength and heterogeneity of institutional and market pressures they hold for organizations. Thus, prior studies may yield different explanations for divergent organizational change because they examined organizational fields that differ in the kinds of market and institutional forces that affect them. …

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