The New Institutionalism in Strategic Management: Volume 19

We draw on the Positive Political Theory literature to develop insights into how firms decide whether to lobby legislatures or agencies in order to gain favorable policy outcomes. We present a simple structural model of the interaction among a firm, a legislature, an executive, a court and an agency to illustrate how, even if the agency has responsibility for implementing public policy, the firm will, under the right conditions, lobby the legislature instead to bring about a change in policy. Accordingly, we contribute to the existing non-market strategy literature by incorporating institutional players other than the legislature into the analysis, and by addressing the question of how firms allocate lobbying resources across the different branches of government.

In this paper we consider a number of experiments to determine whether aspiring managers can solve non-market strategy problems. Utilizing a survey of nearly 300 MBA students, we show that with simple, single-stage problems, managers are very competent in reaching the optimal choice given their non-market environment. As problems become more complex, however, they have much greater difficulty in arriving at the optimal result. In this regard, analysts must use some caution when applying theories and evaluating empirical results concerning non-market behavior.

In a recent paper (Nelson & Sampat, 2001) we proposed that it is fruitful to conceptualize institutions as “social technologies” that are standard among economic actors in particular contexts. This paper extends the social technology concept to study institutionalization and institutional change, based on a case study of the history of social technologies used by universities to manage their patenting and licensing activities. While at the beginning of the twentieth century, universities avoided patenting and licensing activities, today all research universities have “technology transfer offices” to patent and market faculty inventions. That is, this social technology has become an institution. Based on historical narrative, we argue that the social technologies orientation highlights several important aspects of institutional change that are not prominent in the mainstream institutionalist literatures. Moreover, the evolution of social technologies has interesting parallels to the evolution of physical technologies.

This paper is in three parts about the market factor in contingency theory: (1) We focus on the dual structure of markets; the internal structure of relations among producers vs. the external structure of buying and selling with other markets. We use a network model to describe the association between performance and the dual structure of American markets from 1963 to 1992. (2) We reverse-engineer the network model to infer the “effective” level of competition among producers in each market. Effective competition, a measure of competitve intensity, is inferred from observed market profits predicted by the market network of dependence on other sectors of the economy. Producers with profit margins higher than expected from observed market structure must face an “effective” level of competition lower than the level implied by the observed structure. Instead of predicting peformance from internal and external market structure, we use data on performance and external structre (the more reliable and detailed data) to infer internal structure. (3) We demonstrate the research value of the effective competition variable for its relaiability (illustrated by automatic adjustment for the exogenous shock of imports in 1982), its accuracy (illustrated by revealing the contingent value of a strong corporate culture inKotter & Heskett's, 1992, study), and as a market factor integrating case with comparative research. We close discussing the market conditions measured by effective competition, which, as an unobserved variable, is more subject than observed variables to misinterpretation.

We propose studying institutional change and the role of organizations behind it in real-time as the process unfolds and midstream without knowing the success or failure of the project.Our approach is in contrast to most analyses of institutional change that rely on retrospective accounts of successful institutionalization projects. This past methodology runs the risk of `sampling on the dependent variable,' limiting knowledge of the institutional change process to a narrow slice of successful cases. The context for this new approach to institutional change is the development of ‘American-style’ employee stock options (ESOPs) in German venture capital contracts from 1997 to 2000. We examine the attempts of ‘institutional entrepreneurs’ (German law firms) to alter the existing institutional environment to implement American-style ESOPs for their clients (venture capital firms and entrepreneurs). In contrast to past research on institutional change, our analysis reveals a more complex picture of the process of competition and collective action in leading to change. Our approach highlights the conflicting motives of organizational actors as they battle for and against institutional change.

Although electronic commerce is currently a relatively small fraction of overall sales, the dollar amounts are significant and growing rapidly. Future growth, however, is likely to be limited by two factors - technical barriers and issues of trust and risk. Technical barriers such as delivery, bandwidth, and standardization are already beginning to erode. Problems of trust and risk require as yet undeveloped institutional solutions. The paper explores the possible form of these institutions by drawing lessons from institutions that emerged historically to address opportunism in remote commerce. Once such institutions emerge, remote commerce will begin to have real tax implications for states. The paper describes the institutional changes that will have to occur to address the tax shortfall once it becomes fiscally and therefore politically noticeable.

Exchanges are governed by a set of formal institutions (contracts, incentives, authority) and informal institutions (norms, routines, political processes) that we argue are deeply intertwined.However, for the most part, informal institutions are treated as exogenous forces changing the benefits to using in an alternative formal structures, and formal institutions are treated as mere functional substitutes for informal elements governing exchanges. As a result, scholars have not sufficiently explored the interactions between formal and informal institutions. We contend that the failure to integrate these concepts into a common theory has led to faulty reasoning and incomplete theories of economic organizations. In this paper, we highlight three potential areas of research exploring the interplay between formal and informal institutions: first, whether formal institutions support (complement) or undermine (substitute for) the contributions of informal institutions; second, how vacillation in formal organizational modes allows managers to efficiently alter the trajectory of informal institutions; and third, how certain informal institutions can lead to hierarchical failure, thereby requiring managers to constrain the boundaries of the firm.

Constitutive legitimacy can be created through evangelical appeals, the efforts of social movement organizations, the enactment of laws that authorize new products, and advertising by firms.This paper investigates these parallel routes to the legitimacy of the car in the early American automobile industry. The results show that evangelical appeals in the form of reliability contests organized in a focal state and social movement organizations in the shape of automobile clubs significantly increased automobile sales in the focal state. The positive effects of reliability contests on automobile sales increased with the number of automobile clubs. However, the effects of auto clubs and reliability contests declined as advertising by firms grew, and fell with the passage of time since legislation authorizing the car in the focal state. Taken together, these results suggest complex interdependencies among the parallel routes to constitutive legitimacy in the case of new industries.

Cross-national variation in institutional environments adds uncertainty to foreign operations, which in turn affects international strategy decisions such as when to enter a market, the entry mode used if entering, as well as the performance of foreign entries. Although all firms are exposed to the influence of a host country's institutional environment, firms exhibit differential responses to this influence based on resident knowledge and capabilities. Managers in a multinational firm must therefore work to align their strategies with both the hazards and opportunities they face in a given institutional environment, as well as with the firm-specific knowledge and capabilities at their disposal. Rather than taking institutions as an immutable constraint when making decisions, a firm can cultivate and exploit its ability to successfully manage diverse institutional hazards in its host country environments.

Can private firms produce the trust needed to develop and sustain new markets in the absence of government intervention? In our analysis of the Russian household deposit market during the 1990s, we show how the initial conditions of market emergence contributed to a vicious circle in which private commercial banks progressively lost the trust of potential depositors. The Russian case highlights the importance of institutions as collective goods whose successful construction are critical to market success.