Institutions and Entrepreneurship: Volume 21

How do institutions affect entrepreneurship? Conversely, how do entrepreneurs impact institutions? Institutional theory has long struggled to explain the action and agency inherent in entrepreneurship (DiMaggio, 1988; Barley & Tolbert, 1997). Contemporary institutionalist research in organization studies began with the question of how the institutional environment shapes the structures and behaviors of existing organizations. This research largely focused on how normative, regulative, and cognitive dimensions of the environment (Scott, 2008) constrain large, mature organizations and the circumstances that increase the adoption of new structures by such organizations (Meyer & Rowan, 1977; DiMaggio & Powell, 1983; Tolbert & Zucker, 1983). A subsequent wave of research in the institutional tradition focused on institutional change within mature organizational fields (see Dacin, Goodstein, & Scott, 2002). Some recent research has studied the actors – “institutional entrepreneurs” – that create new or transform existing institutions (e.g., Greenwood, Suddaby, & Hinings, 2002; Maguire, Hardy, & Lawrence, 2004). Much less attention, however, has been paid within the institutional-theory literature to entrepreneurship: the processes of founding and managing new organizations.

Social science attention to the distinctive role played by the professions in modern society dates, at least, from the 1930s, beginning with the pioneering research of Carr-Saunders and Wilson (1933) and the theorizing of Parsons (1939). A considerable body of work was produced well into the 1960s, most of which embraced what was subsequently termed a functionalist approach. It was argued that in return for employing their specialized knowledge in the client's interest, professionals were ceded the right to set standards of training and practice and to exercise autonomy of decision making in their spheres of competence (e.g., Goode, 1957; Goss, 1961; Greenwood, 1957; Hughes, 1958b). Considerable effort was expended in differentiating between more- and less-fully developed types of professions (e.g., Etzioni, 1969; Scott, 1965), as well as identifying the stages and strategies by which professions acquired their distinctive features and status (e.g., Abbott, 1988; Freidson, 1986; Wilensky, 1964).

At different points in time, energy harnessed from nuclear technology for commercial purposes has been qualified as atoms for peace, too cheap to meter, unsafe, sustainable, and emission free. We explore how these associations – between nuclear technology (a category used in a descriptive way) and qualities such as emission free (a category used in an evaluative way) – are materially anchored, institutionally performed, socially relevant, and entrepreneurially negotiated. By considering all these factors, our analysis shows that it is possible to understand how and why categories and their meanings continue to change over time. We flesh out the implications of these observations and suggest avenues for future research.

Networks connecting two important supporting institutions – law firms and venture capital partnerships – explain regions’ disparate abilities to sustain diverse high-technology ventures. In order to explain the diversity of entrepreneurial activity in a region, we distinguish between institutional capacity (the number of law firms and venture capitalists in a locale), strong interinstitutional connections that span legal and financial domains, and cohesive structural communities of directly and indirectly connected supporting organizations. We argue that strong connections and cohesive communities are essential, but little examined contributors to the development of diverse research-based economies. We find support for the argument in an empirical analysis of initial public offerings (IPOs) by U.S. high-technology companies in five industries between 1993 and 2005. Linking regional outcomes to strong ties that span local legal and financial institutions and to cohesive structures that weld them into communities offers new insights for research on the institutional and network underpinnings of entrepreneurship and regional economic development.

It is now widely accepted that the institutional interventions of states are a foundational influence on the dynamics of organizational forms. But why do states act? In this chapter, we apply the behavioral theory of the firm to develop an explanation of state actions based on the fact that they are boundedly rational rivals. The instrument of state competition we examine is the founding of business incubators, a primary tool in the entrepreneurial strategy of economic development. We predict that business incubators are more likely to be founded in a state when (1) the state falls behind comparable states in the indicators of economic development; (2) the state falls behind its own historical trajectories of economic development; (3) the state has slack resources in the form of budget surpluses; (4) comparable and rival states adopt incubators as a development strategy. Our analysis of incubator foundings in New York, New Jersey, and Pennsylvania throughout 1980–2004 supports all of these propositions.

Foundational work on institutional theory as a framework for studying organizations underscored its relevance to analyses of entrepreneurship, but entrepreneurship research has often ignored the insights provided by this theoretic approach. In this chapter, we illustrate the utility of institutional theory as a central framework for explaining entrepreneurial phenomena by discussing three primary questions for entrepreneurship researchers: Under what conditions are individuals likely to found new organizations? What are key influences on the kinds of organizations they found? And what factors determine the likelihood of the survival of new organizations? We describe the kinds of answers that an institutional perspective provides to these questions, illustrate some of our arguments by drawing on a recent field of entrepreneurial endeavor, hedge funds, and discuss the implications of our analysis for further work by entrepreneurship researchers.

Entrepreneurial firms such as professional service firms (PSFs) face constant challenges to acquire resources, one of the greatest of which is the challenge to win client engagements. Although rhetoric is at the center of the challenge to win client engagements, scholars have not identified what rhetorical strategies are the most persuasive to potential clients. By exploring one type of PSF, architecture firms, we argue that PSFs can compete for and legitimate themselves with clients by deploying institutional logics that provide symbolic frameworks and meaning. Since multiple institutional logics exist in society, a critical question for a PSF is which logic is most persuasive to clients. We analyze architecture firms’ written pitches to predict which rhetoric strategies win the valuable resource of a client engagement for a multiclient state project. Our results identify that rhetoric deploying a “profession” logic was most effective whereas a “business” logic was counter-productive in obtaining client engagements and securing resources for the firm.

Despite the importance of the processes by which legitimacy barriers to the emergence of new industries are overcome, direct study of them has been largely absent from the literature. We develop and test a model of how capacities for social action are created and deployed to overcome cultural barriers to new industries. Specifically, we argue that the experience that firms gain in field-relevant activity as well as the development and concentration of ties among those firms generate capacities to overcome the barriers of cognitive and sociopolitical legitimacy. We support this argument empirically by linking measures of these factors with attention to and favorability assessments of the new industry.

Selznick (1957) differentiated between institutional leadership, concerned with organizational identity and character, and administrative management, concerned with organizational operations or efficiencies. We investigated the timing and extent of each of these by leaders of new ventures during market emergence. Examining the case of satellite radio, we analyzed 235 executive statements in 244 press releases, 1998–2005, for the start-ups, XM and Sirius. We found that leaders, across the organizational hierarchy and over time, interpreted entrepreneurial action in terms of the venture's identity, but institutional leadership was primarily associated with CEOs and administrative management with lower echelon executives. Institutional leadership was higher during market emergence and commercialization, while administrative management increased with the growth and establishment of satellite radio as a market category.

We define diffusion as the spread of something within a social system. Diffusion is the most general and abstract term, and it embraces such processes as contagion, mimicry, social learning, organized dissemination, etc. (Strang & Soule, 1998). While the home territory of diffusion is innovation (see Rogers, 2003 for an authoritative review), more recent macro-diffusion research has developed, based on social movement and institutionalization arguments (Ansari, Fiss, & Zajac, 2010; Wejnert, 2002).

Institutional theories of organizations in sociology have focused on exteriority and constraint over the past three decades, in keeping with their roots in macrosocial theory (Parsons, 1956). These theories have mostly examined the macrocontext for organization- and field-level activities, rather than the microprocesses through which humans accomplish particular actions. However, with the widespread diffusion and adoption of neo-institutional theory (hereafter NIT) as the default framework within organizational sociology, some authors have been unable to resist extending it to encompass microlevel change processes. In particular, people studying entrepreneurship, broadly defined, have created a new category of actors, called institutional entrepreneurs (hereafter IEs), along with associated new concepts, such as embedded autonomy. Organization studies journals now routinely publish papers on the topic of institutional entrepreneurship (Leca & Naccache, 2006), and special sections of mainstream management journals also regularly feature such papers.