Availableonlineatwww.sciencedirect.com
Revista
de
Administração
http://rausp.usp.br/ RevistadeAdministração52(2017)212–214
ThinkBox
Understanding
institutions:
different
paradigms,
different
conclusions
Daniel
Friel
∗UniversidaddeSanAndrés,BuenosAires,Argentina
Abstract
Thereiswidespreadagreementacrossthesocialsciencesthatinstitutionsmatter.Althoughthereiswidespreadagreementthatinstitutionsshape thebehaviorofactors,therearedisagreementsovertheextenttowhichtheyactuallyinfluenceindividualsandthedegreetowhichpeoplecan shapethem.Thisarticlearguesthatthesedisagreementsderivefromthefactthatscholarsarestudyingdifferentinstitutionsatdifferentlevels. Manymisunderstandingswithinthesocialsciencesresultfromthefailuretounderstandthatscholarsareoftenstudyingdifferentphenomena.This problemwouldappeartobeparticularlystarkinthedisciplineofBusinessAdministrationbecauseitdrawsonavarietyofareasofstudyinthe socialsciences.
©2016DepartamentodeAdministrac¸˜ao,FaculdadedeEconomia,Administrac¸˜aoeContabilidadedaUniversidadedeS˜aoPaulo–FEA/USP. PublishedbyElsevierEditoraLtda.ThisisanopenaccessarticleundertheCCBYlicense(http://creativecommons.org/licenses/by/4.0/).
Keywords: Institutionaltheory;Institutionalchange;Institutionalization
Differentwaysofunderstandinginstitutions
North(1990)iswidelyconsideredtohaveprovidedthemost succinct definition of institutions. He contends that thereare
∗Correspondenceto:VitoDumas284(B1644BID),BuenosAires,Argentina.
E-mail:[email protected]
PeerReviewundertheresponsibilityofDepartamentodeAdministrac¸ão, FaculdadedeEconomia,Administrac¸ãoeContabilidadedaUniversidadede SãoPaulo–FEA/USP.
formalandinformalinstitutions,wherebytheformeraredevised rulesandthelatterareconventionsandcodesofbehavior.They constrain actors through sets of incentives and disincentives that channelhumanbehaviorinaparticulardirection,thereby creatingstablestructuresthatpromoteefficiencyinhuman inter-actions by reducing uncertainty and transaction costs. They providestructureandorderbyaligningtheactionsand expecta-tionsofindividualsinasociety.Interactionsaremoreefficient becauseperceptionsandunderstandingsareimplicitanddonot havetobeexplainedor negotiated.AccordingtoPaul(1994)
institutions helpcoordinate actions betweendiverseactorsin society withoutthe need for centralization, albeitby limiting whatactorscando.Coordinationispossiblebecauseactorsshare histories that provide them consistent expectations. Pierson (2000) arguesthatthe increasing returns thatderivefrom the existence of an institutionovertimemakes itdifficult to dis-lodge evenifanotherinstitutionmaybemoreefficientinthe abstract.
Some scholarsarguethatinstitutions practicallydetermine the actions of individuals. They claim that institutions define preferencesandpowerinsociety(Powell&DiMaggio,1991; Thelen&Steinmo,1992),whilealsoprovidingtheshared mean-ingsandcognitiveframesthatshapehowhumaninterpretthe behaviorofothers(Fligstein,2001;Hall&Taylor,1996).They shapepreferencesandevendeterminewhatpeoplecanimagine themselvesdoing(Hall&Taylor,1996).Institutionsare diffi-culttochangebecausetheyshapetheverychoicesindividuals makewhenattemptingtochangethem(Hall&Taylor,1996).
http://dx.doi.org/10.1016/j.rausp.2016.12.001
D.Friel/RevistadeAdministração52(2017)212–214 213
AlthoughNorth(1990)assertsthathumansconsciouslydesign institutionstohelpthemefficientlymeettheirgoals,Powelland DiMaggio(1991)arguethatinstitutionsarenothumandesigns butratherevolveoutoftheparticularitiesofagivenhistorical andculturalcontext.
Scott(2007)hasaless deterministicinterpretationof insti-tutions, focusing more on intersubjectivity and individual interpretations rather than larger social processes. Cognitive institutions, he argues, reflect the manner in which actors understandtheirenvironment,wherebymeaningarisesthrough interactionsandinvolvesubjectiveinterpretationsandthesocial constructionof individual andcollectiveactors. However, he alsodraws attention towhatheterms areregulative and nor-mativeinstitutions.Regulativeinstitutionsarethe rulesofthe gameandconsistofwrittenandunwrittencodeswith enforce-mentmechanisms.Normativeinstitutionsarenormsandvalues thatstructurechoices,emphasizinghowthingsshouldbedone anddefininglegitimatemeanstoaccomplishthem.Eventhough theyprovideastabilizingforceinsociety,actorsinternalizethem todifferentdegrees.
Schmidt(2010)contendsthattherefourtypesofinstitutional approaches,namelyrationalchoice,historical,sociologicaland discursive institutionalisms. Rational choice institutionalism presumesthatactorshavefixedpreferencesandactrationally tomaximizetheirpreferences.Institutionsonlyinfluenceactors byincentivisingactionsandreducinguncertainties.Workusing thisapproach assumes that actors can understand the effects of the institutions theycreate andoften relies on functional-istexplanations for the existence of institutions. Sociological institutionalismexamineshow actorsfollowrulesandnorms, assuming that identitiesand culture are the sources of inter-estsforindividuals.Humanactionisexaminedintermsofits symbolic and ceremonial purposes not utilitarian ones. This approachemphasizeshowinstitutionsshapeactorsandnothow actorsshapeinstitutions.Historicalinstitutionalismconceivesof institutionsasbeingsetsofregularizedpractices.Itfocuseson howtheydevelopovertime,oftencomparinginstitutionsacross countries.
Discursiveinstitutionalismexamineshowactorsgenerateand legitimizeideas through alogic of communication, focusing ontheinteractive processthrough whichideasaregenerated. Institutions provide the framework for discourse by defining therange of ideasthat are moreor less acceptablein discur-siveinteractions. Schmidt(2010)arguesthat thesefourtypes of institutionalismsshould beconsidered complementarity to eachotherratherthandifferentwaysofunderstandingthesame phenomena.
Williamson(2000)contendsthatinstitutionsexistatfour lev-elsinanysociety.Thefirst,andmostgeneral,areinformaland consistof customs, traditions, norms, religion, etc. Although theyareslowtochange,they“havealastinggriponthe way asocietyconductsitself”(Williamson,2000:597).Thesecond level,theinstitutionalenvironment,consistsofformalrulessuch asconstitutionsandlaws.Theyemergepartiallyoutofan evo-lutionaryprocessandpartiallyoutofdesign.Governance,the thirdlevel,isthecreationofcontractsandagreementsbetweena limitednumberofgroupsinsociety.Theyaredesignedtoreduce
conflictsandsetthebasisformutualbenefits.Thefourthlevelis resourceallocation.Forcompanies,itisthelevelofthe produc-tionfunctionandconsistsofinstitutionsthatguidetheoperation ofanorganization.Bycontrast,governancedescribesthe regu-lationofoperationsbetweenindependentorganizations.Lower levels canhave onlylimited influenceon thoselevels imme-diatelyabove them,whereasupper levels imposeclear limits onlowerones.Williamson(2000)pointsoutthattheworkof economistsfocusesonlevelstwoandthreeinhisframework.
Althoughmanyscholarsacrossthesocialsciencesclaimto useaneoinstitutionalapproach,theyoftenfailtospecifyexactly whichtypeof neoinstitutionalistapproachtheyarefollowing. Consequently,scholarsfrequentlymisinterprettheworkof oth-ersevenwithintheirowndiscipline.Moreover,somescholars evenseemtoconfusethedifferentapproacheswithintheirwork leadingthemtomakemisguidedconclusions.Thisarticlenow turnstoananalyzebothofthesepointsbyexaminingthetype ofinstitutionalistapproachsusedbyKhannaandPalepu(1997)
andKostova,Roth,andDacin(2008).Thesetwoworksrepresent seminalpiecesintheareasofstrategyandinternationalbusiness respectively.Thisarticlesuggestswaysthatbothoftheseworks couldbeimprovedbyincorporatinginsightsfromsomeofthe neoinstitutionalistapproachesdescribedabove.
Examplesoftheapplicationofneoinstitutionaltheory
KhannaandPalepu(1997)arguethatemergingmarketshave anumberof“institutionalvoids”inproduct,capitalandlabor markets.Thelackofareliablebusinesspressandmissing reg-ulations causefirmstohavetoreliableontheir ownfinancial resources.Thedearthofreliablesourcesofinformationin gen-eralcausefirmswithstrongbrandnamestogainmoreclients thantheirrivals.Theabsenceofadequateschoolsandtraining institutesrequiresfirmstotraintheirownworkers.Inshort,the lackof institutionssupportingthe marketcause firmstohave toverticalintegrateactivitiesthatnormallycanbeacquiredon themarket.Inemergingmarketsbusinessgroupsaresuccessful becausetheyhavethecapabilitiestofillthesevoids.
ThisarticlebyKhanna andPalepu focusesonlyonformal institutions, overlookingthe possible role that informal insti-tutionscould play infacilitatingthe operation of the market.
MairandMartib(2009)contendthattheterminstitutionalvoid should be used to describe onlythe lack of institutions sup-porting markets,notthe lackof institutionsper se.Emerging markets have a number of institutions, many of which actu-allyimpedetheoperationofmarkets.IntermsofWilliamson’s framework level2 institutions maybe absentor deficient but leveloneinstitutionsarealwayspresent.Furthermore,firmsmay actuallybeabletoaddressdeficienciesininstitutionsby work-ingwithalimitednumberofotherfirmsand/ororganizations atlevel three inWilliamson’sframework. In termsof Scott’s approach,thisarticle by Khannaand Palepufocuses onlyon regulativeinstitutions,notonnormativeorcognitiveones.
214 D.Friel/RevistadeAdministração52(2017)212–214
Table1
Theauthorsandthetheoriesofinstitutions.
North Scott Schmidt Williamson
Kostova Informal Cognitive Sociologicalinstitutionalism Customsandnormsaswellasformalrules KhannaandPalepu Formal Regulative Rationalchoiceinstitutionalism Formalrules
distant organizational fields, namely the ones of their home country, their hostcountry, andthe international community. Bybeinginthreefieldsatthesametime,thestrategiesofthese firmsaresaidnottobelimitedanyoneofthem,enablingthem tolargelyignoretheisomorphicpressuresoftheirhost environ-ments.
Bydeployingtermssuchasisomorphismandorganizational fields,thisarticlebyKostova,RothandDacinseemstodraw onsociologicalinstitutionalismbecausethesetermsare devel-oped inthisarea of research. Asmentioned above,this type of institutionalism emphasizes symbolicand ceremonial pur-posesfocusingonnorms,identityandcultureandthewaythese institutionsshapeactors.Accordingtothisformof institutional-ismfirmscannotsimplyavoidorignoreinstitutions,particularly informalones.Theseauthorsseemtoconfusethesociological approachwiththerationalchoiceone.Moreover,theycontend thatgovernmentsinhostcountriesdonotexpectthese compa-niestoadapttheirpracticestotheircountries’contexts.
Given that isomorphic pressuresresult from general insti-tutionalsettingsandnot fromthe decisionsof policy makers to consciously enforce them, it would be difficult to imag-ine how MNCs could actually be excluded from isomorphic pressures.Consequently,thechoicesavailabletosubsidiariesof multinationalcorporationswouldseemmorelimitedthanthose availabletolocalfirms.Thebehavioroftheformerislimitedby isomorphicpressuresfromtheirheadquartersandfromthelocal settinginwhichtheyoperate,whilethedecisionsofthelatterare onlyshapedbytheisomorphicpressureoftheirlocalcontext. Althoughtheseauthorsdrawonthesociologicalapproachthey reachconclusionsfromarationalchoiceinstitutionalist perspec-tivethatfocusesonformalinstitutionsandregulations.Interms ofWilliamsonthesescholarsclaimtobestudyinglevelone insti-tutionsbuttheyareusing assumptionsderivedfromleveltwo institutions.Althoughtheseauthorsappeartostudyinstitutions atleveloneandtwoinWilliamson’sframework,theyseemto attributealevelofflexibilityinchoicethatisreallyonlyavailable tofirmsalevelsthreeandfourinit.
Table1providesasummaryoftheconceptsonwhicheach ofthesearticlesdrawswithinthefourmajorapproachesto insti-tutionsdiscussedabove.
Conclusion
Theneoinstitutionalistapproachacrossthedisciplinesinthe social sciences has played an important role in drawing the attention of scholars to the important role played by institu-tionsincoordinatingactivitiesbetweenindividualsaswellas
those between groups. Although there are significant differ-encesintheapproachesoutlinedaboveinregardstothedegree to whichinstitutions determinethe behavior of actors, all of themagreethattheyarecriticaltothefunctioningofany soci-ety. However, in order for progress to be made in thisfield scholars have to be careful not only to properly understand theapproachtheyareusingbutalsothepotentialinsightsthat couldbederivedfromothertheoriesaddressinglevelsandtypes of institutions. Workof thiskindwould helpstimulatebetter discussionsthat couldeventuallyleadtomorefruitfuldialogs across approaches, therebypotentiallyadvancing theoryeven further.
ConflictsofInterests
Thisauthordeclaresnoconflictofinterest.
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