The Recursive Institutionalization Process

Dillard et al. (2004) develop a multilevel framework of MA dynamics associated with the institutionalization process. They suppose that this process of institutionalization moves in a recursively cascading manner, as implied by DiMaggio and Powell (1983) and Clegg (1987; 1988), through three levels of socio-historical relationships, including the economic and political level or societal level (PE), the organizational field level (OF), and the organizational level (see Figure 3-9), and involves actors, power and interests. The upper level of the framework represents the overarching societal level of political, economic, and social systems, within which norms and values have been established and disseminated to members of that society. The second level consists of organizational fields, including socio-economic configurations such as industry groups, government, professional bodies and consultants. The lower level is inhabited by individual organizations (Dillard et al. 2004). Dillard et al. (2004:513) describe this process as follows:

“The recursive nature of the institutionalization process indicates that institutions and actions are reciprocally related and that institutional features are motivated by the socio-historical context reflected in rules predicated on norms and values and in the prevailing symbolic and sense-making structures.

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Resources are allocated based on these accepted rules, which in turn reinforce the extant structures. These structures then reinforce the present version of the rules and the current resource allocations and so on. As a result of this iterative process, generally, there is a significant degree of structural stability enabling and constraining action. This process is viewed as both value-driven, in that the institutionalized, taken-for- granted shared values and beliefs infuse all actions and practices, and history dependent on the current actions is grounded in extant values, beliefs and practices”.

(Source: Dillard et al., 2004: 512)

The recursive institutionalization process (as exhibited in Figure 3-9) can generally be conceptualized as a process contextualized by hierarchically linking the political and economic level (PE) with the organizational field (OF) into the organizational level. The societal level establishes the most generally accepted and taken-for-granted norms and practices, where political and economic systems (PE) employ symbolic sense-making criteria (CPE) in order to articulate and introduce legitimate norms and practices, such as accounting standards, laws and regulations (Dillard et al. 2004). At the same time, these norms and practices tend to be largely influenced by powerful coalitions (power distribution) and embody the macro context for resource allocation 32(ibid., and see also, Clegg 1989). It should be observed that the components (e.g. laws and regulations) of the political and economic systems are enacted by actors (such as legislators and regulators), and represent the characteristics of the prevailing systems of social integration (ibid.).

32 _{For instance, in PE dynamics the current security laws and accounting standards support the centrality of}

private property and investor dominance with the published financial statements providing tangible

representations (Dillard et al. 2004).

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The second level consists of the (OF) level where the social, economic and political parameters are translated into field-specific expectations (Dillard et al. 2004). The social, economic and political factors embedded in the societal level (PE) enter the organizational field through the organizational field criteria (COF), which are a function of the societal level criteria (CPE). The (COF) provide the legitimacy for the actions at the organizational field (OF) level on the one hand, while CPE support the legitimacy for the existence of (COF) on the other hand. Legitimated practices within the organizational field (POF) are becoming a function of the organizational field criteria (COF) and provide the legitimating and regulative base for action at the organizational level33, as seen at the bottom of Figure (3-9) above (ibid.).

In this regard, organizations seek to appear legitimate to their broader environment and stakeholders to ensure the resources necessary for their survival. To secure this legitimacy, organizations must conform to what is expected of them (DiMaggio and Powell 1983). At the same time, institutions determine rules, procedures and structures for organizations as stipulations for granting legitimacy and support (resources) (Meyer and Rowan 1977). These institutions have usually consisted of governments, professional bodies and other organizations in the same field (Tolbert and Zucker 1983), in addition to interest groups, universities and public opinion (DiMaggio and Powell 1983). Organizations within the environment adopt similar structures and systems even though there is no technical reason to do so. When this occurs, organizational homogeneity becomes clear in the field. This homogeneity process is also called isomorphism. NIS approach explains why isomorphism is present among organizations in structures and systems within the environment (Scapens 2006). NIS is concerned with many aspects of extra-organizational factors (e.g. political, environmental uncertainty, professionalization, and institutional legitimacy). Isomorphism thus is produced from powerful forces (pressures or external powers) as discussed at political and economic level that lead organizations to change their structures, goals, systems or practices (Dillard et al. 2004).

33 _{With the organizational field (OF), legislators, regulators and standard-setting groups develop regulations or}

accounting standards for an industry (e.g. the banking industry) within the parameters set by the political and economic context. Industry analysts and trade associations identify expected practices based on empirical data

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At the organizational level, individual organizations can be innovators (I), who develop new organizational practices (PI) within the (POF) and (COF) and within the boundaries of the OF practices, or late adopters (LA) who mimic (adopt) innovators‟ practices. (PLA) can gain legitimacy from the success of both (PI) and (OF) practices and criteria (Dillard et al. 2004; Hopper and Major 2007). Thus, late adopter organizations can integrate (PI) into their actual practices or working processes, or they can use (PI) but decouple them or loosely couple them from actual (PLA) used in managing the organization (Dillard et al. 2004). On the one hand, if decoupling does take place, the institutional practice is identical, but the realization of the activity is different from non-decoupling (ibid.). By implementing the practice, it is reinforced, but the reinforcement is not as strong as it might be in another way and is likely to be dispersed (loosely coupling) more rapidly (ibid.). On the other hand, in the case of loose coupling, the innovator practices can be used in a ceremonial way to give legitimacy to late adopter organizations (Wanderley et al. 2011). Accordingly, Dillard et al. (2004:514) declare that:

“The dualistic nature and the recursive aspect of the institutionalization process essentially involves inverting the cascade and elaborating the process as the actions taken by knowledgeable, reflexive agents within the organizations rise up through the three levels and changes occur in the established order at the various levels to a greater or lesser extent. As they move laterally and upwards, the new innovative practices may modify the set of legitimate practices (POF) and criteria (COF) in the organization field by reinforcing, revising or eliminating extant practices. Changes at the organizational field level in the set of legitimate and accepted practices (P‟OF) and criteria (C‟OF) could contribute to a new contextual environment. These changes may largely support the earlier accepted practices and criteria [later adopters] with some small evolutionary change, or they may involve larger or even on occasion revolutionary change”.

Dillard et al‟s (2004) framework thus confirms that the implementation of new practices by

late adopters will enhance the process of change at the organizational field level by encouraging more late adapters. The new organizational field practices (P‟OF) and criteria (C‟OF) will also affect the political and economic criteria (C‟PE), either reinforcing the norms and practices exercised by the powerful groups, modifying them, or removing them and thus influencing the resource allocation process within a society and the recognized social order (Dillard et al. 2004). The institutionalization process permits continuity (stability) whereas the conflicting criteria induce forces for change. Finally, the process of institutionalization is thus inverted again and flows downwards through the three levels as described above, becoming acceptable and legitimate practices for organizations and unfolding over time and space. As a result, “recursivity is the key to understand change in the institutionalization process since taken-for-granted norms, values, beliefs and assumptions

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may be continually revised at all three levels of the model”. The following sections explain these three levels of institutionalization process.