This week we will continue our discussion of organizations as open systems whose survival depends on their relationship with the environment. In particular, we will discuss one of the prevailing organizational theories stemming from sociology, called neoinstitutional theory. In oversimplified terms one can think of neoinstitutional theory as arguing that an organization's survival depends on its fit with the cultural environment. That is a firm's success depends on whether it adopts structures that are deemed rational and legitimate in external environment. That the firm mirrors environmental beliefs about what a legitimate organization of that type should look like. Neoinstitutional theory has always been one of the harder theories for students to fully grasp, so I've organized the lecture to be a little repetitive this week. I'll discuss many of the core concepts twice and relate them in different ways, so that you get a better sense for what this theory conveys. Neoinstitutional theory tries to explain institutional isomorphism, or how the same organizational forms develop, spread, and become legitimated in one sphere of activity after another. The theory tries to explain how and why spheres of activity, like organizational fields of biotechnology or education, are composed of organizations that look more alike than they differ. Lets take the example of the organizational field of education. Why do most schools and classrooms look alike? I recalled talking with one of the founders of neoinstitutional theory, John Meyer. And he was recounting his travels all over the world visiting schools and classrooms. And as he talk he described how he'd visited typical American schools, poor sub-Saharan African villages with classes taught outside in this ground indentations without chairs and tables. How he'd seen religious fundamentalist schools in Saudi Arabia where boys and girls were taught separately, and even wealthy Western schools. All of them had enough similarities that one kind of knew right away what kind of organization it was and what scripts were being referenced. All were schools doing real school. In many regards, all these settings conform to widely-held institution beliefs about what schooling entails. These beliefs and conceptions are cultural cognitive controls, or deep social structures in the environment. As Richard Scott relates, sets of beliefs developed in social interaction provide models, schema, and guidelines for governing and guiding behavior in social situations. So there are these institutional controls, or these beliefs in the environment, which affect us and conform our behavior. Institutional controls are practiced in several forms. An explicit form of institutional control is practiced through regulations or regulatory institutions. These constrained behavior through rules, or laws, and behavior inducements like incentives and punishments. A second deeply ingrained institutional control is normative. Normative controls guide what we should and should not do, or how you should and should not appear. And in great part, these are informal rules and guidelines, but they're just as influential on organizational behavior as laws and regulations. Last, there are institutions that run very deep, and these are cognitive beliefs. As Richard Scott describes, compliance with cognitive institutions occurs in many circumstances because other types of behavior are inconceivable. Cognitive beliefs are naturalized, taken for granted, ways of doing things, such as taken for granted routines and activities. In many instances, these institutions are layered on top of each other in reinforcing ways, like an onion. But in some instances they conflict, or segments in the environment adhere to one set over another, so the cultural environment can be varied. Organizations typically respond by building that external complexity into their internal, formal structure though. I always kind of find it easiest to distinguish the three layers of institutions, or forms of institutions, through the example of a sport. I'm going to take the game of soccer, something that most of you should be familiar with, right, and describe how these three institutional controls can be layered so as to make the performance of soccer games relatively the same and recognizable. So what are the regulatory controls of soccer? Those are the rule books and the rules soccer, as well as the referees that act as agents enforcing those regulations. Penalties are incurred for violating the rules in this case. What about the normative controls of soccer? So here the norms of soccer characterize our notions of better or worse players, better or worse sportsmanship, and so on. Norms lead players to act in certain styles within the tacit activities and the routines that they enact. So what is a cognitive or deeper form of institutional control when it comes to soccer? For soccer these entail the activity of playing itself, whether it's a goal kick, passing, dribbling, etc. It's inconceivable that someone would approach the game of soccer using a different activity framework or schema, or even different rules of say, basketball. Can you imagine people showing up at the soccer game ready to play basketball? We take the enactment of the game or activity of soccer for granted and people engaged in that activity unquestionably. When they don't everybody gets very upset. It's like a breaching experiment when individuals act like a stranger with their family. It's just crazy, right? And we find this cognitive layer is present when we go look at different contexts of soccer play. For example, to my side here is a game in 1937, one on a beach, one in a playground. They all share a family resemblance to the routine that we regard as soccer, how we recognize it. So multiple institutions can control behavior and render them into scripted forms that are deemed legitimate and ideal. For any organization their actions might be driven by taken for granted routines and activities, norms and expectations of best practices and players, and explicit surface regulations that catch violations. John Meyer, Brian Rowen, Paul DiMaggio, and Woody Powell were all some of the first neoinstitutional theorists and you get a chance to read them in this course. What they wrote about was how organizations come to look alike because there are these processes leading firms, these processes and peer pressure that leads firms to adopt many of the same institutional controls. They try to mirror the institutional environment and fit it. In particular, they stress the importance of rationalizing agents who generate institutional controls and these ritual classifications. This agents were governmental units, professional groups and associations, universities, and even public opinion. These classifications were considered rational because they came from these legitimate exemplars. The classifications they proposed were the aforementioned cultural cognitive categories, normative beliefs, and regulatory policies and laws. And the basic idea is that scientists and professionals increasingly work at this world system level. Holding international conferences, issuing statements, providing recipes and policies for reforming and rationalizing one sphere of activity after another. Whether it be something about health standards, to human rights spreading across the world, to educational forms of organizing.