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Innovation - An Institutional Approach - Díaz Villavicencio
Innovation - An Institutional Approach - Díaz Villavicencio
Contenido
1. Introduction
2. Institutional Isomorphism
3. Institutionalism and transaction costs
4. Institutionalism and social relations
5. Institutionalism and Economics
6. Institutionalism and Innovation
7. Conclusions
References
ABSTRACT: RESUMO:
This article discuss the innovation and its relationship Este artigo discute a inovação e sua relação com o
with organizational institutionalism from a prism of the institucionalismo nas organizações na perspectiva da
notions of organizational strategy. Nowadays, we see estrategia organizacional considerando que as
that organizations have a greater trend towards organizações tendem a uma sobrevivência "inteligente",
"intelligent" survival. This is understood as a sum of entendida esta como a soma de estrategias de inovação a
long-term innovation strategies, combining different longo prazo. Neste contexto, são combinados diferentes
theoretical and practical elements that generate strong aspectos teóricos e práticos que geram uma
and robust institutions that can achieve the economic institucionalidade forte e robusta, a qual está orientada
and/ or social objectives proposed by the organization para obter objetivos econômicos e/ou sociais em
with high profitability. organizações com alta lucratividade.
Key Words: Innovation, Institutionalism, Competitive Palavra chave: Inovação, Institucionalismo, Vantagem
Advantage. competitiva.
1. Introduction
The aim of this work is to create a vision of organizational institutionalism and to identify complementarities
and convergences of innovation theories. Our work is based on a comparison of relevant authors in the field of
institutionalism and innovation.
Institutionalism has been discussed in organizational theory from the moment in which business organizations
(both non-profit and for-profit) were considered as efficiency-seeking in the long run (searching for survival
through profit) and through a series of market-oriented actions (Didonet, et al, 2012), which are constrained
within a competitive environment, and which become causal factors for impacts and changes in society.
Organizational structures are affected by institutionalized rules in their environment (Meyer and Rowan,
1991). These environments are directed not only at profit but also at factors that affect the business arena such
as the environment and the production of unwanted outputs in society (Diaz, et al, 2008). These rules may be
either formal or informal (North, 1991) and have an impact on organizational institutionalism. In the same
way, we can see that the internal organization of the company, (with individuals fostering the organization
through specialization), will always be looking to promote new institutional designs, i.e., looking for
structural design efficiency (Brickley, et al. (1995).
Rialp (2003) states that institutionalism: "... constitutes a body of modern analysis that uses concepts such as
limited information, transaction costs and opportunism in order to explain the observed economic
phenomenon." From this perspective, we can see that Williamson (1981) strengthens transaction cost theory,
noting that alternative governance structures are present in economic transactions within and among
companies and the market. This is justified by the fact that, in the beginning of the 70's, it can be clearly seen
that studies of organizations were themselves, about institutional entrepreneurship, which leads us to analyze
organizational theory. In this sense Meyer and Rowan (1991) and DiMaggio and Powell (1991) brought
institutionalism to the forefront of organizational theories with a view to filling the void created by the refusal
to answer ideological and structural questions, as is the case of responding to: how can companies operate
efficiently? (Simon, 1948). Therefore, analysis is aimed at the core of the organization, linking organizational
theory to markets (Reed, 1999). Likewise, with a more focused approach and by establishing a macro and
micro relationship, Hall and Soskice (2001) placed an advanced view of the institutions in the study of
organizational development from the institutional differences of countries. With this begins an approach to the
issue of competitiveness among nations, which leads us to see that maintaining organizational growth goes
hand in hand to having a strategy with strong support to innovation (Didonet and Diaz, 2012).
North (1991) speaks of institutionalism as a way of keeping organizations in tempo; institutionalism is
reinforced through a strong structure of patterns/ actions that are linked to the formal and informal
communications and actions within an organization. All this within what may be called "the rules of the
game" that an organization should undertake. Previously, but from a perspective of "product focus" Schutter
(1981) defines an institution as a regularity in social behavior that is agreed by all members of society,
specifying behavior in specific recurrent situations as self-made or formulated policies by some external
authority. In this sense we could argue that profit/ non-profit institutions, operate under the idea of order and
economic progress and interact around the normative relations of public administration (governance), whether
international, national or local.
Now, on the one hand DiMaggio and Powell (1991) suggest that the issue of institutionalism rests with
institutional homogeneity, but on the other hand, we also understand that it rests on the competitive
advantages derived from institutional differences (Hall and Soskice, 2001). These differences (competitive
advantages) are reflected in repeated cases, which are generated to keep the organization up to date - through
the administration of five forces: threats of new entrants; bargaining power of suppliers; the threat of entry of
new products/ services to the market; bargaining power of customers; and market rivalry and competition
(Porter, 2008). All of which is present within a framework of strategic sustainability, where the organization
can be more innovative and drive wealth depending on its approach, cost or differentiation, aimed at the most
recurrent themes such as price, image, product design, quality, support and market dominance Mintzberg
(1991). Therefore, for this paper, the organization uses the power of "innovation management" as a factor that
strengthens "organizational institutionalism", we speak thus of the creative innovation as a "destructive
power" Schumpeter (1950) that creates an institutionalized position in the market (which changes everything),
since it generates higher profit margins and an "always be growing" intellectual and economic mentality.
In this regard the paper proposes a relationship between innovation and institutional isomorphism in all its
forms. In section two we have the analysis of institutional isomorphism. In section three we create an analysis
of institutionalism and transaction costs as a way of understanding that innovation creates costs that are often
not clearly seen. In section four we observe institutionalism and social relations, generating a holistic view on
the potential of communication for innovation. In section five we analyze institutionalism and economic
aspects in order to understand that organizations in different settings play a decisive role in different economic
models. In section six we analyze institutionalism and innovation as a way of linking their actions and
projections in maximizing the efficiency of their actions, and finally, come our conclusions.
2. Institutional Isomorphism
Institutionalism has a macro perspective of analysis that looks like "... a conception of the organization as an
institutionalized structure of power and authority, which is above small practices, located in the members of
the organization" and has as a central concern regarding "...cultural and political processes through which
actors and their interests/ values are institutionally constructed and mobilized in support of certain
organizational logics over others" (Reed, 1999, p.79).
For DiMaggio and Powell (1991), bureaucratization and other organizational changes are the result of such
interests (power and authority) together with the value of becoming similar organizations, but this doesn´t
mean greater efficiency (high economic or social profitability). To reinforce this position, Meyer and Rowan
(1991) added as an alternative to formal structures the Weberian source of "the legitimacy of rationalized
formal structures". Making it clear that regardless of efficiency or not, the elements of these structures serve
the interests of society, i.e. the policies, positions, programs and procedures of the organizations are reinforced
by public opinion, by influential people, by the educational system, by the laws, by the state, etc..
For the aforementioned authors, these elements of formal structure are manifestations of powerful institutional
rules which function as highly rationalized myths and reflect the socially constructed reality that gives rise to
isomorphism in parallel with the social environment.
From a deterministic and analytical perspective, DiMaggio and Powell (1991) argue that institutional
isomorphism is a useful tool for understanding the policies and formalities that are broadcast in modern
organizational life, taking into account the fact that organizations not only are competing for resources and
customers, but for political power and institutional legitimacy, in a social and economic setting. In pursuit of
this setting, the authors argue that, unlike existing studies investigating the differences between organizations,
the focus of analysis is on the similarities and homogeneities between them.
In the analysis of heterogeneity amongst organizations DiMaggio and Powell (1991, p.64) take the definition
of the fields of institutional organization, that, being very structured, provide a context in which individual
efforts to deal rationally with uncertainty and limitations often lead to homogeneity in structure, culture and
performance. Therefore, it is understood in the organizational environment, that all organizations that
constitute an area recognized by the productive life, such as suppliers, consumers and producers of raw
materials, regulatory bodies and other organizations that produce goods or services. Within these fields,
organizations tend to assimilate due to isomorphism, which can be defined as a restrictive process that forces
one unit in a given population, to match the other units that are under the same set of environmental
conditions (DiMaggio and Powell, 1991, p.66).
Isomorphism is mentioned by the authors as the concept that best captures the process of homogenization of
organizations, which have three different types of processes in their organizational settings: (1) coercive
isomorphism, (2) mimetic isomorphism, and (3) normative isomorphism.
In the first case, coercive isomorphism is the result of formal and informal pressures exerted on organizations
(one another) dependent on the expectations and culture in which they operate (DiMaggio and Powell, 1991,
p.67). North (1990) reinforces this isomorphism by examining the nature of institutions and the consequences
of institutional change on economic and social performance. From a more economic perspective, institutional
theory helps explain how rules, norms and shared strategies form an organizational behavior that remains
constant over time, giving us strong, permanent institutions that generate the expected benefits. But, we can
see that obtaining social benefits (from an economic perspective) by some organizations, in search of concrete
objectives, is not always possible. This is due to the fact that conditions are constantly changing in the very
short term and they can vary the expected outcome and however, never have a perfect knowledge of reality. In
any case, for this goal to be possible, paradoxically, these relations will be guided by a set of standards or
rules that limit or restrict the current environment of the individuals, some formally named standards and
others which are informal affect the expected result (Urbano et al. 2007).
These pressures are configured by force, by persuasion or by invitation to "join the coalition", and in some
cases, organizational change can be a direct response to the mandates of the state in the form of laws,
regulations, etc. For the authors, states dominate many areas of social life, whose organizations are
homogeneous within given domains and organized around rituals of conformity to the institutions.
In relation to mimetic isomorphism, it follows from the imitation of typical practice in situations of
uncertainty, such as misunderstood technologies, misunderstood goals/ objectives or symbolic uncertainty
created by the environment (DiMaggio and Powell, 1991, p .69). Benchmarking practices are also prevalent
here, such as quality control circles in Japan and process innovation in products and services that were widely
replicated. Taking into account the uncertain environment, the authors argue that organizations tend to model
themselves by copying similar organizations in their field that are perceived by them as more legitimate or
successful. They see that certain types of structural arrangements are attributed more to the universality of
mimetic processes than to any concrete evidence where the models adopted can guarantee efficiency.
The third type of isomorphism, the normative, is determined by the various members of professional
organizations. DiMaggio and Powell (1991, p.70) point out that members of a profession, in defining the
terms and conditions of their employment, and establishing a knowledge base, strengthen the legitimacy of
their professional autonomy. As normative isomorphism sources, the authors point to the cognitive base
produced by the universe of experts and professional networks that span organizations, by creating new
models and rapid dissemination of these.
In short, one could say that the three isomorphic processes (each of them) being able to occur even in the
absence of evidence, therefore, increasing organizational efficiency through innovation-oriented policies with
competitive programs or strategies can make transactions between organizations easier.
For Meyer and Rowan (1991, p.50), in designing a structure that adheres to the prescriptions of institutional
myths of the environment, they state that an organization acts collectively with valued aims in an adequate
way, and the incorporation of institutionalized elements provides a set of activities that protects the
organization from having its conduct questioned. This means that organizational practices are legitimized and
the organization uses - legitimacy - to ensure their survival, which depends on, among other things, the ability
to succeed in its isomorphism with highly elaborated institutional environments and thereafter, continue
legitimizing itself in understanding that innovation processes are themselves a way to legitimize the company
in their production processes.
More recently, Heikkila and Roussin (2004) have shown how institutional theory can explain how rules,
norms, and shared strategies are formed by human behavior. Similarly, they note that this theory has been used
to examine why public and private organizations have different structures, and why the agents agree to
coordinate the provision of goods and services in favor of maximizing profits in search of efficiency. It is
therefore clear that we can combine institutional theory with other theories and/ or practical concepts as being
broad and robust in its initial proposition, one would expect a natural link with the applied social sciences
where you can explain and see innovation as a driver of long-term financial support.
We can, therefore, demonstrate that organizations have the capacity to evolve over time, adapting to change,
be it technological, legal or behavioral. Understanding initially "organization" as any company or social
group, attempts to obtain certain goals or purposes. Overall, we can consider the company as the basic
production unit, maximizing profit, by exerting a plaintiff of production factors and, in turn, as a supplier of
goods or services (Salas, 1984). Therefore, "the company is responsible for transforming factors (inputs) into
products (outputs), according to a given production function. Which defines the maximum output achievable
with a certain number of factors - one that minimizes the cost of production at current prices of these factors -
and that is determined by the state of technical knowledge" (Rialp, 2003, p. 54). Devereaux and Zandebergen
(1995) claim that institutions provide a useful framework to study sustainability in business and that helps
explain how sustainable practices are developed and disseminated among organizations from an innovative
perspective.
Reviewing what has already been mentioned, we can see that the natural evolution of an organization is
oriented towards generating powerful innovation practices, with a view to organizational sustainability by
institutionalizing their processes through a macro perspective consolidating power and authority within the
market in which it operates. Thus, power is inherent in the relations that characterize the institutional
isomorphic, which requires a macro perspective of analysis, along with the other narratives in the field of
organizational theory that focus on justice and democracy, in the search of validity and to "... reconnectthe
studyof discoursesand practiceslocallycontextualizedordersof power, authorityandinstitutionalcontrol, which
have socialrationalityandspecifichistorical dynamics" (Reed, p.81). For this last statement it is important to
note two key points; "control and institutionalized power". These two aspects can be discussed from the
perspective of cost, since, in any organizational process cost factors have a significant relevance when
analyzing different organizational transactions
7. Conclusions
By mapping some theoretical perspectives on innovation and institutionalism, it was possible to see different
perspectives and approaches of analysis on this matter and accept that innovation has become institutionalized
in different organizations. The authors we have reviewed are in agreement that the institutions impact the lives
of organizations, therefore, it is essential that is considered of a greater importance when considering the
matter. Although, not all authors cited in this paper have institutionalism as the focus of their topics, as is the
case of Williamson (1981) and Granovetter (1992), this topic of innovation/ institutionalism is still present in
the approaches of these authors. It should therefore be seen as impossible to emit when talking about
innovation, in other words we cannot talk about innovation without mentioning that institutionalism affects
organizations and that they must generate steadily, embracing practices (production, human resources,
financial, etc..) that are institutionalized within the organization.
Following on, when discussing the different views, opinions and differentiations that we have seen between
DiMaggio and Powell (1991), North (1991), Hall and Soskice (2001), Williamson (1981), Schumpeter (1942)
and Granovetter (1992), we can see some key aspects distinguished in the text, like, for example, that based
on institutional theory Hall and Soskice (2001), orientate their study on the institutional differences, which are
determinants of institutional competitive advantages. Thereby entering the field of organizational competitive
advantage that reinforces the discussion of authors such as Portes (1990) and Mintzberg (1991). It is here,
where we can see that an organization that appreciates being sustainable, must implement a number of
primarily innovative strategies, which permits the survival of the firm (Tidd et al. 2008) DiMaggio and Powell
(1991) and North (1990). This leads us to see the established organizational similarities by institutional
isomorphism. In order to examine institutional differences, one should take a macro view by presenting a
study of the types of economies (open and centralized) and see the institutional characteristics of each, which
will be reflected in the nations, and therefore in organizations. At this macro level, there is room for
convergence around institutional isomorphism, since Hall and Soskice (2001) found similar behavior in
organizations in both liberal market and coordinated market economies, indicating that innovation can be
present in different economic models, since it complements within each economic model.
Williamson (1981) (who doesn´t focus on the similarities or the differences), leaves space open for debate on
institutions when it comes to alternative governance structures based on the theoretical reasons of the
economy, the organizations and the law, showing the importance of the study of these structures from the
perspective of institutional competitiveness. Therefore, the focus of Williamson (1981) converges on the idea
that the institutions influence the decisions of organizations, which is supported by the fact that organizational
practices, such as innovation management become extremely important in organizational development (Tidd,
2008).
With a sociological approach, Granovetter (1992) comes to occupy the empty spaces left by the authors
mentioned above and thus contributes to complement institutional theory by arguing that economic activity is
intertwined with social relations, whose detailed analysis is the key to understanding how institutions came to
their current state. In building his argument to the criticism of the new institutional economists, the author
offers a new perspective on the context of transactions that fill the void left by Williamson (1981) and makes a
major contribution to the study of institutions where "social relations "are a way of understanding
institutionalism.
Furthermore, in terms of complementarity, the social approach seizes the void left by Hall and Soskice (2001),
in which we can see that they are not concerned with the relationships of trust in the processes of coordination
among agents. Although we can recognize the importance of their focus of considering institutions as the key
to economic development, regulatory systems and learning, whilst also being socializing agents, that, as
members of the capitalist system, provide the means of coordinating relations between actors, be them
organizations, suppliers, customers, governments, etc.
Hall and Soskice (2001) disregard the existing trust in the processes of coordination among agents, omitting
the fact that these relationships are those that effectively create changes when institutions don´t work in the
adoption of defense mechanisms, for example, to combat opportunism in market relations. This alerts one to
the processes of institutional change within the organizations, and that should be considered, in any innovative
management process, the fact that there are rules and standards that must be met beyond the pursuit of
"monopolistic profit" outlined by Schumpeter (1942).
The theoretical institutionalism approaches mentioned in this document have different types of analysis that
can be used for the study of organizations, which are complementary and enter the consensus that basically
studies the impact of institutions on organizations. Seen this way, innovation occurs within a set of thoughts,
visions and management practices that are inherent in organizational institutionalism.
With Reed´s (1999) perspective for organizational studies itself, we can say that there is a point of intersection
between institutional theory and the "praxis" economy, as it is developed in the studies by publishing new
analytical outlooks, not in order to refute or ignore past history, but in order to fill the gaps left by the theories,
looking at everything from the perspective of economic and social growth. This leads us to reflect on a
strategy based on innovation that is within the parameters of normative isomorphism, by pointing to the
improvement and development of human resources, legitimizing the professional autonomy of experts in the
field of innovation management (perfecting the market), further reinforces the fact that innovation in practice
copies and improves, or adapts to new technologies under uncertainty (mimetic isomorphism) through
incremental innovation. Similarly, innovation can be seen from the point of view of coercive isomorphism,
since it responds to institutional changes, or be generated in them, other radical changes that generate
"creative destruction" revealing Schumpeter approaches (1942) with view to safeguarding a profitable
monopoly will the economic benefits expected by the organization in its various stages of growth and
institutional strength.
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1. PhD. Business Economics, Universidad de Barcelona, Spain. University Lecturer Latin American Institute of Economics, Society and
Politics ILAESP. Federal Latin American Integration University UNILA. Guillermo.diaz@unila.edu.br
2. PhD. Business Administration, Universidade Federal de Minas Gerais, Brasil. University Lecturer, Department of Business
Administration, Faculty of Applied and Social Sciences. Universidade Federal do Parana, simonedidonet@ufpr.br
3. MRes Universitat Pompeu Fabra, Barcelona, Spain. University Lecturer, Universidad Técnica Particular de Loja. Faculty of Business
Administration, ardodd@utpl.edu.ec
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