Determinist Theories of Organisational Decisions

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Table of Contents

Introduction
Population ecology
Institutional Theory
Resource Dependency Theory
Conclusion
References

Introduction

Adherents of the deterministic school of thought believe that managerial strategic choice has little to do with organisational actions. They affirm that managers attribute strategic decisions to themselves if they succeed but are quick to distance themselves from them if they fail. Therefore, all determinists claim that organisational fit occurs due to external factors and not choice.

Three key theories exist in the determinist school of thought, and they include population ecology, institutional theory, as well as resource dependency theory. It is essential to unravel how each of these theories contributes to an understanding of the notion of organisational fit outside of free choice.

Population ecology

The population ecology organisation theory came from Charles Darwin’s theory on natural selection. He affirmed that resources on earth were exhaustible, yet organisms had the potential to grow exponentially. Therefore, a force known as natural selection intervened in order to maintain the balance between resources and the species.

In natural selection, organisms with desirable variations would survive while those with undesirable traits would die. Organisations also exhibit such characteristics. Hannan and Freeman (1977) explain that an organisational life cycle exists for all firms such that they can grow, change or die depending on certain external factors.

Inertia and change is one of the sub theories of the population ecology theory. It hypothesises that change is the external factor that can either lead to an organisation’s survival or demise.

During natural selection, highly reliable firms differentiate themselves from their competitors and increase their chances of survival. However, when change occurs, these leading organisations often exhibit high levels of inertia. As a result, a number of them will undergo mortality.

The niche theory is also another subset of population ecology. Here, Hannan and Freeman (1977) explain that organisations can either specialise or generalise. The specialists exploit a market and expect fewer risks. Conversely, the generalists do not exploit their environment considerably but tend to embrace greater risks.

In this sub-theory, the industrial environment determines how effective an organisation will be. If a specialist organisation operates in an uncertain environment, then it is likely to undergo mortality while its generalist competitors will possess favourable characteristics that will allow them to survive.

Resource partitioning is a model of population ecology that defines the relationship between specialists and generalists in a concentrated market. It explains that specialist organisations do well at the margin of a concentrated market because of the profusion of resources. On the other hand, generalists flourish at the heart of the market. Those that do not consider these market forces will have to exit (Carroll 1987).

The density dependence theory dwells on the rate of survival of organisations based on the density of a certain market. Companies must strike a balance between legitimacy and competition. Most firms have a low level of legitimacy during industry formation, (public recognition), but they also enjoy minimal competition.

However, as the number of organisations reaches peak levels, then legitimacy increases while competition reduces. Therefore, Hannan and Freeman (1977) believe that market density has an adverse effect on organisational mortality.

Carroll (1987) talks adversely about the age dependence sub theory. In this model, firms will risk mortality depending on their age. New organisations have a high failure risk while this reduces as they continue to mature. In the adolescent stage, a company initially experiences low mortality risk then this reduces. As it ages, the organisation may also experience high mortality rate due to obsolescence.

The theory of population ecology is thus useful in understanding some of the natural market or industrial forces that cause organisations to die or survive. It sheds light on the concept of fit by illustrating that external factors, like change, market density, industry concentration and partition, can determine the fit of an organisation.

Institutional Theory

As a deterministic theory, the institutional school holds that an organisation’s institutional environment has an adverse effect on its formal structures. Innovations that take place within an organisation’s environment have a profound influence on the legitimacy of the innovation. It then becomes irrational for an organisation to ignore these influences.

Thus, firms must adopt certain trends even when those trends do not increase efficiency. Organisations often embrace certain organisational structures in order to win the trust of institutional stakeholders. However, at a point in time, these structures may actually impede efficiency. Firms will publicise the external aspects of a program and neglect the most crucial parts so as to preserve efficiency (Meyer and Rowan 1977).

Organisations often embrace institutional isomorphism in order to survive. Every environment has certain beliefs and rules that have gained acceptance amongst stakeholders. Therefore, this school of thought does not focus on individual motives; it dwells on aggregate leanings by all organisations.

It should be noted that three types of pressure may prompt an organisation to adopt an institutional structure: coercive, normative and mimetic. Coercive pressures emanate from legal forces, where authorities require all companies to implement a certain policy or face legal punishment. Normative pressures reflect homogenous attitudes among members of similar associations.

Mimetic ones arise when organisations imitate successful firms (DiMaggio and Powell 1983). These factors will play a large role in organisational actions when firms depend on their institutional environment tremendously. If uncertainty or ambiguity of goals is common, then these factors also come into play. Furthermore, the existence of a high number of professionals may also make a company vulnerable to these pressures.

The institutional theory is essential in illustrating how organisations fit with their institutions. Meyer and Rowan (1977) found that public schools in California often adopted innovative structures steadily when there was a high degree of cooperation. However, when contentions existed, then these innovative structures took a long time.

The study is proof of the deterministic nature of an institutional environment. These schools did not focus on the usefulness of the innovation; it was the level of consensus that mattered. Several other industries also exhibit the same patterns and decisions.

Tolbert and Zucker (1983) have shown that coercive pressures play a role in organisational fit. They analysed civil service organisations and found that most of them were quick to adopt new structures if state mandate (coercive pressure) existed. They reported low levels of adoption among organisations that operated in a non – coercive environment.

These findings prove that isomorphism is a crucial factor in determining performance. Sometimes it may cause firms to pursue outdated strategies even when they need to be moving forward. It also minimises the rate of innovation.

Resource Dependency Theory

Pfeffer (1981) explains that firms, which lack resources, will seek to make up for it through the establishment of various relationships amongst each other. They may also act in a manner that increases others’ dependence on them and reduces their dependence on others. The central assumptions of the theory are that organisations engage in social exchanges, which represent organisational coalitions.

This theory also rests on the premise that the organisational environment has scarce resources, which determine a company’s survival or death. It stems from uncertainties in the process of acquiring these resources. Additionally, another assumption is that organisational power increases when a firm acquires resources. This reduces its dependence over others and increases others’ dependence on the firm.

Therefore, autonomy is a desirable trait while uncertainty is not (Ulrich & Barney 1984). A case in point is the existence of large American corporations such as Wal-Mart. The firm has consolidated resources in a manner that has given it power and autonomy. It controls its suppliers and can dictate prices to them. Additionally, Wal-Mart distributes commodities for small firms, so they lack autonomy.

Companies may reduce resource dependence through a myriad of approaches such as mergers and acquisitions, board of directors, executive successions, corporate political action and joint ventures or different forms of inter-organisational relations. Companies often form alliances or participate in joint ventures with firms that create constraints in order to facilitate the coordination of resources or knowledge.

This may occur through franchising, licensing or equity investments. Such an approach is common in intermediately saturated industries. Alternatively, companies may pursue resource dependency through the board of directors. This approach creates a vested interest of the constraining firm within the dependent one. It also adds legitimacy, increases funding, and may even boost a firm’s contacts (Scott 2004).

An organisation also has the option of using mergers and acquisitions. However, this is a constraining method because of the legal and structural implications involved. In this approach, companies can either merge vertically with their suppliers and buyers, horizontally with their competitors or diversify with divergent partners.

The strategy allows firms to save on costs, reduce competitive uncertainty and operational uncertainty (Medcof 2001). This explains why several organisations are merging with seemingly unusual partners. Some of them work together in order to strengthen their resource positions.

An executive succession occurs when a company replaces its President or CEO with a person who can handle the challenges inherent in the environment through alteration of organisational behaviour. The environment plays a role by affecting the rate of turnover in an organisation.

If a firm has a high dependence level on the environment, then it is more likely to exhibit a high level of turnover. The market responds positively to CEO replacement when a company performs poorly (Pfeffer & Salancik 1978).

Political action manifests through participation of organisations in law and government. Companies cannot eliminate their dependence on the system of government; consequently, they opt to reduce uncertainty by creating their own environment. These firms use political action to bring change.

Resource dependency is useful as a determinist theory because, just like the institutional and ecological theories, it illustrates that organisations must amend their structures because of turbulent environments. It emphasises the need to consolidate power as well as control resources among firms.

Conclusion

All determinist theories illustrate that the environment highly influences organisational decisions; these may affect a company’s survival or not. The sources of environmental pressure depend on the determinist theory under consideration, so one may think of market forces, institutional structures or resource dependence as determinants of organisation fit.

References

Carroll, G 1987, Publish or perish: The organizational ecology of newspaper industries, JAI Press, Greenwich.

DiMaggio, P and Powell, W 1983, ‘The iron cage revisited: Institutional isomorphism and collective rationality in organizational fields,’ American Sociological Review’, vol. 48 pp.147-160.

Hannan, M & Freeman, J 1977, ‘The population ecology of organisations’, American Journal of Sociology’, vol. 82 no. 5, pp. 929-964.

Medcof, J 2001, ‘Resource-based strategy and managerial powers’, Strategic Management Journal, vol. 22 no.11, pp. 15-38.

Meyer, J and Rowan, B 1977, ‘Institutional organizations: Formal structure as myth and ceremony,’ American Journal of Psychology, 83: 340-363.

Pfeffer, J 1981, Power in organizations, Pitman, NY.

Pfeffer, J., & Salancik, G. 1978. The external control of organizations: A resource dependence perspective, Harper & Row, New York.

Scott, R 2004, “Institutional theory” in K Smith and M Hitt (eds), Great Minds in Management, Oxford Press, Oxford, pp. 1-15.

Tolbert, P & Zucker, L 1983, ‘Institutional sources of change in the formal strucrure of organisations: the diffusion of civil service reform, 1880-1935’, ASQ, vol. 28, pp. 22-39.

Ulrich, D & Barney, J 1984, ‘Resource dependence, efficiency, and population’, The Academy of Management Review, vol. 9 no. 3, pp.471.

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