What is institutional theory?

Organizational theory proves useful for explaining much of what happens in higher education. In particular, I find institutional theory can help provide an explanation for institutional decisions and activities. Unfortunately, students often struggle with grasping some of the basics of institutional theory. In today’s post, I want to share an excerpt from my monograph on institutional diversity that helps explain the role of institutional theory in hopes of providing a foundation for understanding the useful of the theory for higher education.

what is institutional theory

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Institutional Theory

Population ecology and resource dependency theory propose ways in which organizations can respond distinctively to environmental cues. Institutional theorists contend that an organization’s legitimacy explains survival. “A school succeeds if everyone agrees it is a school; it fails if no one believes that it is a school regardless of its success in instruction or socialization” (Meyer, Scott, & Deal, 1981, p. 59). Institutional theory aids our understanding of the pressures for institutions to become more similar, which decreases institutional diversity. Organizations attempt to conform to easily recognizable and acceptable standards within the organizational field, which helps foster the organization’s legitimacy. Institutional theory describes how both deliberate and accidental choices lead institutions to mirror the norms, values, and ideologies of the organizational field. As a result, organizations that meet the environment’s expected characteristics receive legitimacy and prove worthy of resources by society and the broader environment (Toma, Dubrow, & Hartley, 2005). When an institution moves past these expectations, the environment views the characteristics as deviant and less likely to receive resources. The environment within an institutional theory framework limits the discretion of institutions to engage in certain strategic activities and pressures institutions toward conformity. Institutional theory emphasizes the normative impact of the environment on organizational activity. Colleges and universities exist within an institutional environment in which external stakeholders determine in part the expectations for organizational behavior and practices. As a result, institutional theory argues that the environment determines organizational options and limits discretion in the choices available for campus leaders. External pressure for conformity drive the range of decisions available for institutions.

The substantial body of work on institutional theory derives from the research literature on institutional sociology (DiMaggio & Powell, 1983; Meyer & Rowan, 1977; Scott, 1987). Institutional theorists describe two types of organizations: technical and institutional. Technical institutions follow well-defined technologies (such as manufacturing) with easily identifiable and measured outputs. Technical institutions achieve success from efficiently producing high-quality outcomes. In contrast, institutional organizations use ambiguous technologies (such as teaching or research) to produce outputs (new knowledge) where quality and efficiency proves difficult to determine (Morphew & Huisman, 2002). In this case, instead of efficiency, the institution strives to develop activities and structures identifiable both internally and externally as legitimate (Meyer & Rowan, 1977; Scott, 1987). Colleges and universities operate within an organizational field where a variety of external constituencies suggest how institutions should operate, defining them as institutional organizations. For example, government agencies, accreditation bodies, and disciplinary associations all attempt to manage the activities of colleges and universities. When institutions operate within the guidelines and accepted notions, external constituents view the college as a legitimate actor within the higher education field. The environment then rewards legitimacy with additional support in terms of funding, quality faculty, and interested students. As a result, the broader environment with normative expectations provides both positive and negative reinforcement that shapes institutional behavior. DiMaggio and Powell (1983) describe these expectations and pressures on the organization as the “iron cage,” which pushes colleges toward isomorphism or the implementation of actions and strategies that resemble others within higher education. Colleges engage in isomorphic tendencies when following the characteristics of other institutions considered successful within their particular niche or higher education more generally.

In explaining the processes related to isomorphism, DiMaggio and Powell (1983) suggest three types of isomorphic processes: coercive, mimetic, and normative. Each of these types leads to an increased homogenization within a given organizational field. Coercive isomorphism occurs when other organizations on which the institution depends apply pressure such as government regulations or new accreditation standards. Accreditation agencies require standards of academic and financial quality and force institutions to adapt to maintain their accreditation. In contrast, mimetic isomorphism arises from unclear technologies for goals that lead less prestigious or less resourced institutions to model and emulate those considered as leaders within the organizational field. A nearby college may upgrade its campus recreation facilities, leading other surrounding institutions to update their own campus recreation offerings in order to remain competitive. Finally, normative isomorphism occurs as a result of increased professionalization as networks grow and increased communication takes place, with “best practices” encouraging a homogenization of institutional activity. External expectations and higher education norms influence university activity such as the expectation that doctoral degrees require dissertations or courses are offered on a semester basis.

Postsecondary innovation often occurs from institutions that can afford to take risks due to their environmental position or by those institutions with limited market position to risk (Bess & Dee, 2008). Institutional theory helps explains the issue of deviance by suggesting that those institutions with sufficient resources can afford to risk some of those resources in the pursuit of change and innovation. Thus, stronger institutions may move outside of environmental expectations in an attempt to successfully ignore normative pressures. Leaders within the organizational field may take these chances and thus in the end become even more well known and well resourced. For institutions in the middle, however, moving beyond the normal expectations would take them outside the accepted bounds and lead to external constituencies’ considering them too outside the mainstream. While Stanford, Caltech, or MIT might be able to create new and innovative approaches to teaching in the STEM fields and have these innovations adapted throughout higher education, a small regional public institution would less likely succeed in innovating in this way or have its innovations accepted by others due to its reputational endowment within the environment.

Neo-institutional theory examines how institutions and their environments can have multidirectional effects on one another (Ruef & Scott, 1998). Not only does the environment determine the normative expectations for higher education, as noted earlier, but colleges and universities also help shape the perceptions and expectations of the environment. As in the preceding example, Stanford’s instituting new curricular or pedagogical approaches can change what the environment expects when teaching in the STEM fields. State college leaders may work with members of the legislature to alter rules and regulations. University presidents, particularly within the public sector, can serve as leaders shaping society’s views on the role and purpose of higher education. Institutions escape the “iron cage” restrictions on their organizational behavior when successfully modifying or changing the environmental expectations. The result of these activities is that the environment holds a less deterministic role and organizational leaders’ choices increase options available to colleges.

While researchers in recent years turned to institutional theory to explain changes in institutional diversity (Morphew, 2009; Morphew & Huisman, 2002), the theory fails to fully explain the range of empirical findings in the literature and presents several limitations. For example, institutional theory suggests a “presumed unidirectional coercive effect of laws and regulations” (Morphew & Huisman, 2002, p. 498) that may increase or decrease institutional diversity. Furthermore, Oliver (1988) suggests some of the problematic implications of isomorphism by comparing institutional theory with strategic choice and population ecology theories. She concludes that neither population ecology nor institutional theory sufficiently explained isomorphism within organizational fields. Her work suggests that institutions may have a great deal of latitude in determining their internal structures and activities while other aspects of institutions may prove more or less resistant to these pressures.