Institutional theory

Institutional theory

Institutional theory is "A widely accepted theoretical posture that emphasizes rational myths, isomorphism, and legitimacy."

There are two dominant trends in institutional theory:
* Old Institutionalism sometimes associated with Historical institutionalism
* New institutionalism

Institutional theory

Scott (1995) indicates that, in order to survive, organisations must conform to the rules and belief systems prevailing in the environment (DiMaggio and Powell, 1983; Meyer and Rowan, 1977), because institutional isomorphism, both structural and procedural, will earn the organisation legitimacy (Dacin, 1997; Deephouse, 1996; Suchman, 1995). MNCs operating in different countries within multiple institutional environments are typically under diverse pressures. Some of those pressures in host and home institutional environments are testified to exert fundamental influences on HRM practices (Rosenzweig and Singh, 1991; Zaheer, 1995).

There is substantial evidence that firms in different types of economies react differently to similar challenges (Knetter, 1989). Social, economic, and political factors constitute an institutional structure of a particular environment which provides firms with advantages for engaging in specific types of activities there. Businesses tend to perform more efficiently if they receive the institutional support.

Martinsons (1998) has developed a theory of institutional deficiencies (TIDE) suggesting that relationship-based commerce will prevail where rule-based markets can not flourish due to institutional deficiences. Martinsons (2008) has extended TIDE to show how the development of relationship-based e-commerce in China has resulted from that country's lack of trustworthy and enforceable set of rules for doing business. His theory suggests thatthe importance of personal connections (guanxi), informal information and blurred business-government relations will constrain the transition from the physical marketplace to online marketspaces.

ee also

Institutional analysis

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