Institutional Context Supplement 5 Flashcards
institutional capabilities
refers to the ability of organizations to understand, recognize, and shape institutions
Institutional Capabilities from least resistant to most resistant
Compliance Compromise Avoidance Defiance Influence Entrepreneurship
imprinting effects
institutional capabilities of organizations are in part influenced by their past institutional context.
How does the imprinting effect develop?
When an organization develops organizational characteristics that reflect prominent features of the environment. These organizational characteristics subsequently persist, even when significant environmental changes occur in later periods.
When are organization prone to be imprinted?
During brief sensitive periods of susceptibility to external influences.
Examples for periods in which firms are susceptible to external influence
Birth, extraordinary event (financial crisis)
Four institutional capabilities the influence how organizations del with the institutional context by Christine Oliver
- compliance
- compromise
- avoidance
- defiance
Compliance
conscious or unconscious adherence to the rules of the game.
What might compliance help with?
To be viewed as legitimate
When do organizations most likely choose compliance?
When all stakeholders in an organizational fields are aligned and conformity is in the best interest of the organization
When is compliance a purposeful decision?
- conscious willingness of firm to comply with rules
- firm understands the institutional context
- disobeying creates too much legitimacy risk.
Compromise
situation with contradictory institutional demands
a) stakeholders conflicting expectations
b) expectations in the institutional context diverge from the internal organizational objectives
Institutional diversity
refers to the extent to which organizational fields are characterized by a multitude of stakeholders with varying interests and expectations for the organization
What does successfully attaining a compromise depend on?
ability to balance expectations of stakeholders and negotiate with stakeholders
Balancing
Appeasing stakeholders with conflicting interest as much as possible
Pacifying
partial compliance by removing sensitive parts
Bargaining
active dialogue
What to do to accomplish a compromise that best fits the organization?
Conduct stakeholder analysis
stakeholder analysis
to understand the network of relations among stakeholders, and to determine stakeholder value
stakeholder value
benefits and costs of each stakeholder group for a firm
internal organizational fields
understanding the diverse objectives and interest of different functional departments, business units, domestic and foreign subsidiaries.
What does stakeholder analysis entail?
a) how central stakeholders are in this web
b) how their relations are with other stakeholders
c) whether they could form alliances with these other stakeholders
Avoidance
form of rejecting elements of the institutional context.
Forms of avoidance
leaving the context altogether or often:
a) disguise nonconformity
b) buffer activities
buffering activities
partially detaching or decoupling activities that would reveal noncompliance from external view:
placing sensitive, illegitimate, non-conforming activities behind neutral/positive front.
One example of decoupling activities
decoupling poor work conditions
Defiance = Trotz
most active form of rejecting institutions, which refers to an explicit dismissal, or attack on, the institutions
When is defiance most likely?
a) When enforcement of the rules is likely to be low. When Breach of the rules has low consequences.
b) When the rules conflict dramatically with the objectives of the organization and may even threaten its survival (pub with smokers)
c) When organizations believe they can show to the external stakeholders that their own alternativ views, norms, rules have merit (Wert)
d) When organizations believe they have little to lose by publicly revealing their defiance
Two forms of institutional capabilities to affect institutional drivers
Influence
Entrepreneurship
Influence
- engaging powerful constituencies (donations to parties)
- participating in public debate
- lobbying
influence is the purposeful and opportunistic attempt to engage powerful constituencies, and conduct in opinion-making with the purpose to control the institutional processes of creating new rules.
Institutional Entrepreneurship
refers to activities from organizations or other interest groups, and politicians who leverage resources to create new institutions or transform existing ones.
What question do we ask with Entrepreneurship?
How do we think out of the Box?
How do we think out of the box?
- Awareness of alternatives
- Being open to alternatives
- Motivation to accept alternatives
When do institutional capabilities come to the forefront?
In times of change
Institutional Change
- brings institutional context to the forefront
- requires institutional capabilities
Awareness of alternatives
exposure to various options
Being open to alternatives
new firms, firms on the edge of institutional context, firms in institutional context that is no longer efficient.
Motivation to accept alternatives
- economic reasons
- differences in wishes of firms and institutional logics
Definition of institutional change
shifts in the social constraints that structure political, economic and social interactions
gradual change
within the broader boundaries of an established institutional frame
radical institutional change
brings the institutions to the forefront
What is the ultimate goal of a company?
To become an institution, so to become institutionalized
Course of the financial crisis
Housing crisis –> Financial crisis –> Economic crisis –> Sovereign Debt Crisis –> Social Crisis
Institutional Causes of the Financial Crisis
- culture of credit (easy credit generated demand, which raised the house prices, which raised the credit again)
- lax regulation (americanization with less supervision) by the state since the 1980s.
- shift from banking with social relations to increasingly distant relationships and complex products
- culture of indecent bonuses
What did Ronald Reagan and Margaret Thatcher say to regulating the market?
They said that market mechanism could best regulate the market themselves. –> However, lax regulations allowed for flawed competition end excessive market conditions
What is an example of a complex financial product
subprime mortgage product. Generated by quants. These products became so complex that government regulators could not determine their risk.
What does the G20 push for after the financial crisis?
Less protectionism. Protectionist moves should be avoided in response to the crisis.
subprime mortgage
A subprime mortgage is a type of loan granted to individuals with poor credit scores (640 or less, and often below 600), who, as a result of their deficient credit histories, would not be able to qualify for conventional mortgages.
regulatory arbitrage
movement of company activities to the weakest regulated jurisdicition
Who became more powerful in effect of the financial crisis?
the global slowdown changed the institutional landscape where different players became more powerful. Like emerging markets since US hegemony was not longer taken for granted.
Who did the emerging markets discover as trading partners when becoming more vocal in demanding a more important position in the post-crisis institutional landscape
They discovered each other as trading partners.
What was a positive effect of the financial crisis?
Encouraged the development of new and smarter regulations.
Shift toward firms becoming more driven by sustainable sustainability
Carbon Market in the European Union
allows firms to buy and sell greenhouse gas emission credits.
Four steps to improve a firm’s climate competitiveness
- Quantify the carbon footprint
- firm to assess the carbon-related risks and opportunities
- adapt the firm in responses to the risks and opportunities
- To be better than competitors (gaining a reputation in climate control to increase market share)
What is the carbon footprint
total set of greenhouse gas (GHG) emissions
What are the carbon-related risks and opportunities
Risks could be regulatory. When regulatory policy increases energy costs.
Opportunities could be that the clean energy market is big and growing.
How can firms adapt to risks and opportunities
By investing in R&D
Social movements
form of group action - informal groups of individuals or organizations focused on particular political or social issues
What is the intention of a social groups in social movements?
To carry out, resist or undo social change
Which institution do social movements aim at?
Cognitive institutions, but also normative and regulative
normal accident theory
seemingly extremely rare, but are in fact normal. Accident that cause multiple failures with unforeseen interactions that accelerate into devastating consequences, while making them harder to diagnose.
Complexity
is the degree of predictability in a system’s processes
Coupling
refers to the degree of connectedness in technological systems. i.e. the extent to which failures escalate rapidly and spread to other parts of the system
Loose coupling
allows for slack or buffering between the components.
Tight coupling
results in the direct and immediate connection and interaction between the components.
Under which circumstances are accidents bound to happen?
when systems are complex and tightly coupled.
What happens when an environmental jolt occurs and there is tight coupling.
Employees follow strict rules that actually are harmful following a severe environmental jolt. People are faced with complexity and tight coupling and can’t find the right decision to do so they just act randomly.
