Back to my conversation with John Meyer. I remember him saying that in spite of the immense cultural differences of nations from some being social liberal western societies to others being Orthodox Muslim ones to remote cultures in poor regions of developing countries. They all seemed intent on adopting topics taught in western schools and the progressive forms of pedagogy espoused by their educational professionals. All the schools had similar subjects math, science, reading. They used many of the same instructional formats and they all seemed intent on improving themselves by emulating pedagogy deemed legitimate by various professional associations, non-profits, and other rationalizing agents. John argued that this was happening because rationalizing agents proposed the classifications and typifications and that they were regarded as rational and legitimate, even if their returns to the efficiency and efficacy within those contexts wasn't fully established in each case, or even at all. So in sum, from the neo-institutional vantage point, organizational survival and success is contingent on integrating institutional beliefs or ritual classifications from the environment that are believed to be signals of legitimacy and rationality. In most cases, institutions are legitimated when they are widely held and believe to be rational, rather than actually demonstrating that they are. So therefore, they are kind of rationalized myths in the environment that organizations try to mirror. So now that you have an initial sense for neo-institutional theory, let's contrast it with theories discussed previously in this course. In particular, I think it helps to compare neo-institutional theory to prior open system views and to prior cultural arguments since those are the most relevant. As you recall, resource dependence theory offers strategies thought to be effective in exchange environments. In contrast, neoinstitutionalism offers strategies thought to be effective in environments replete with institutionalized beliefs about organizations and their appearances. There's a shift here in how firms view and respond to their environment. We go from a logic of consequence with resource dependence theory to a logic of appropriateness with neo-institutional theory. Neo-institutional theory argues that organizations survive and succeed in their surrounding environment by not only accomplishing economic fitness and efficiently, but from accomplishing a social and cultural fit with the environment. You heard me remark earlier in a past lecture about Disney, the company and its various theme parks. And Disney's efforts actually reflect neo-institutional arguments about cultural fit to some extent. Disneyland in the United States has a particular feel, a particular food menu full of junk food, probably. And other features that aren't easily plopped down in another cultural context. In the case of Euro-Disney, the company needed to take into account the beliefs of the local environment and adjust its for-profit model and its American theme park script to the local views there. The end result is a different version and feel of the Disney theme park. So it had less junk food, less shopping mall, Main Street kind of appearances that we have in the United States, and more of this old world charm. So let's compare and contrast facets of resource dependence theory with neo-institutional theory. And that way you have a better sense of how they differ. A lot of these concepts that I'm going to relate will come by pretty quick, but don't worry I'm going to come back to them again in the lecture so you get a richer understanding and a little more is retained each time. So let's consider each theory, one dimension at a time. The first dimension we can consider is their unit of analysis. And resource dependence theory is primarily focused on resource dependence relations that an organization has with other firms in the environment. Neo-institutional theory is concerned with entire organizational fields or domains of activity wherein the firms are aware of one another and they regard each other as relevant to that activity. So in a way it's like a network of firms is more of the focus for neo-institutional theory. So next, both theories focus on the environment, but they target slightly different things in it. So we have on one hand resource relations as a target, on the other cultural matching and cultural institutional environments. Right? Change is viewed differently as well, so resource dependence theory argues there is a movement toward greater coordination of resources or greater interdependence and stability over time and by that they get certainty in exchanges and the environment. On the other hand, you have neo-institutional theory, which sees this progression toward greater homogenization as legitimate classification schemes spread and are adopted. Next, the changes are promulgated by different processes. So, organizational change is different. In resource dependence theory, the managers try to minimize their own firm's dependence on others while they increase the dependence other's have on them. In contrast, neo-institutional theory generates change via institutionalism morphism. And here it's where each organization tries to survive and secure resources by falling in line with external cultural pressures and rationalized myths on what a legitimate firm should look like, or what an ideal product should be. Now, each theory also offers a distinct view of an organization structure. So, on the one hand, you have one that's characterized by dependence relations and one whose formal structures and classifications are radically decoupled from the technical core. So, what this means is you have one structure that's all these relations in the environment, and the other structure is one where you have organizations that split themselves up in terms of their internal activity, as well as kind of their external relations and what they adopt culturally for appearance's sake. Now the final thing is that these theories espouse distinct organizational needs. So resource dependence theory says firms need resources and autonomy for survival. Whereas neo-institutional theory says that firms need environmental legitimacy and cultural fit so as to secure resources and survive. So there's slightly different theories on a variety of dimensions. Theories from other weeks can also be contrasted with neo-institutional theory. Research on networks falls somewhere in between resource dependence theory and neo-institutional theory. Some scholars even are trying to align neo-institutional theory with network research. And the reason for this is because the diffusion of particular structures, appearances, reforms, and practices often happen through networks and this is kind of a way the two literatures interrelate. That said there are a lot of challenges in demonstrating this diffusion because it's hard to follow what a cultural script and norm where some kind of cognitive belief is as it flows through those networks. In some ways, neo-institutional theory aligns also with notions of standard operating procedures, of the organizational process model, as well as with organizational culture. But neo-institutional theory places much more emphasis on taken for granted norms or ways of doing business instead of formalized rules and codebooks for behavior. In addition, neo-institutional theory abstracts away from a focal organization's culture to the field level. So it takes culture from inside the organization to outside it. So, there's a shift in terms of unit of analysis and perspective that focuses on the environment's culture.
