Institutional Theory in Governmental Organizations - Literature review Example

Institutional Theory in Governmental Organizations Introduction Institutional theory is a one of the theories that are currently widely applicable in both profit and nonprofit organisations, to enable them achieve their institutional goals. According to Modell (2009, p. 277-278), the theory mostly deals with the societal norms, values and requirements pertaining any organisation or business. As Modell explains, Institutional theory has been widely used in organisations whose main objective is realising profit. On the other hand, it is claimed that the application of this theory in governmental organisations has been minimal. However, as Modell (2009, p. 280) points out, it is claimed that the governmental organisations and other nonprofit making organisations are currently facing a lot of pressure from the various stakeholders that they serve. This pressure has forced many of them to adopt new strategies such as Institutional Theory and Performance Measurement Systems, in order to overcome this pressure. Factors making Institutional Theory applicable in the Public Sector There has been an increasing pressure, for governmental and other nonprofit organisations to adopt strategies such as Institutional Theory. It is claimed that these new strategies, will make them act more of profit-making organisations than just nonprofit organisations. According to Oliver (1997, p. 697-698), governmental organisations are more vulnerable to all the three types of institutional forces than other profit-making organisations. As he explains, researches have shown that the susceptibility of public sector organisations to institutional pressures is extremely high due to the many stakeholders and customers that it serves. All this pressure has doomed it highly necessary for the governmental organisations to adopt strategies such as Institutional Theory and Performance measurement. According to Peter and Joseph (2004, p. 283-285), the pressure that the public sector is experiencing, mainly comes from the non-profit organisations that rely on the government for funding. It is argued that non-profit organisations have grown in numbers and have evolved from small-locally owned to large, national owned organisations. Therefore, these organisations are pressuring the governmental sector more. This is because they require more funds to accomplish their elevated goals and sustain their large workforce. The state is another stakeholder that is pressuring the public sector in many countries. According to Brunnson and Olsen (1993, p. 44-46), many governmental and nonprofit organisations are owned by the state or the government in many countries. Therefore, it is argued that many governments place a lot of pressure on their organisations, in order to gather popularity from the citizens. As Grafstein (1992, p. 223-225), the governmental organisations are also currently facing another pressure from the many customers that they serve. As he points out, many profit-making organisations have been applying the concepts of intuitional theory in their firms, so as to maintain and attract more customers. According to Katz and Khan (1978, p. 147), the services and goods being provided by the private and many other profit-making organisations are far much better compared to the ones provided by the same organisations owned by the government. As Grafstein explains, this has resulted in the governmental organisations’ customers demanding the same quality goods and services as the ones provided in the profit-making organisations. Therefore, it is claimed that many governmental and nonprofit organisations are adopting the Institutional Theory in their institutions to enable them overcome this pressure. Advantages of application of the Institutional Theory in Governmental Organisations According to Dolnicar, et al (2008, p. 107-108), there are many benefits that are associated with the application of Institutional theory in any organisation. These are the benefits that have enabled many profit-making organisations to offer better services and goods to their customers than their counter governmental organisations. As Dimaggio and Powell (1991, p. 147-149) argue, this the main reason why many governmental and other governmental organisations have started adopting this theory in their institutions. The Institutional Theory underpins the usefulness of Performance Measurement Systems (PMS), in the public sector. According to Calvert (1995, p. 91-93), PMS is one of the tools that are applied in an organisation, to measure the performance of the workforce in order to determine the success of the organisation as a whole. This means that, through performance measurement, any governmental organisation becomes more effective and efficient in delivering quality services and goods to its customers. According to Zucker (1987, p. 443-446), institutional theory mainly concentrates on the environmental factors that are experienced by an organisation or government. The elements of any society that might influence an organisation or business include the rules, norms and values of that society’s culture. It has been shown that the Institutional theory helps an organisation to adopt the legitimated elements of its operational society. This leads to Isomorphism with the Institution environment, hence increasing the probability of the organisation’s survival in that society. As Zucker explains, Institutional Theory helps also an organisation to conform to these societal norms and rules, hence, maintains and attracts even more customers from the surrounding society. According to Zucker, Institutional Theory is shown to assist an organisation or business attains its goals and objectives while exemplifying their mission. According to Peter (2000, p. 83-85), through the Institutional theory, an organisation understand all its stakeholders and hence know how to satisfy them fully. The conformity that is brought by the application of Institutional Theory in many governmental organisations has brought resemblance in these firms. According to Meyer and Rowan (1977, p. 340-345), this is what is referred to as Isomorphism, a scenario whereby organisations serving the same population or market carry out their operations in the same manner. As Meyer and Rowan argue, Isomorphism has proven to a beneficial component of the Institutional Theory. This is because it is claimed that it is providing an opportunity for alliance building between organisations with the same focus. Disadvantages of the Institutional Theory in Governmental Organisations Despite the various benefits that are associated with the Institutional theory, its application to any organisation also have some few disadvantages. According to Hall (1990, p.153-156), the Institutional theory places a tremendous amount of constraints on the management, to conform to the norms, rules or requirements of the society. As Hall explains, this conformity is argued to limit the versatility, creativity and diversity of an organisation. According to Alston and North (1996, p. 511-513), Institutional Theory places so much emphasis on the conformity to environmental factors such that it forgets the fact that technology changes with time. This makes many organisations put more effort on acquiring legitimacy than on making any Institutional changes to become more productive. As Alston and North point out, legitimacy may become a disadvantageous characteristic of Institutional Theory. This is because it is claimed to make organisations resistant to change in fear of breaking away from the norm of their operational societies. According to Guy Peters (2000, p. 1-3), with the application of Institution Theory in many governments, there have arisen a lot of competition between governmental organisations serving the same populations and market. As Guy Peters argue, this is another negative component of Institutional Theory. This is because, the organisations focus so much on competing with their rivals to a point they divert from their institutional mission and goals. Conclusion It has been clearly shown that the application of the Institutional Theory in the private sector has been extensive. This is because, despite its few disadvantages, it has various benefits. The main benefit is that it that helps the organisation to meet the demands of its various stakeholders. However, it has been shown that, not many governmental organisations, have incorporated the Institutional Theory in their organisations. Therefore, governments should encourage governmental organisations to incorporate the Institutional Theory so as to compete equally with the private and other profit-making organisations. References Alston, L.T & North D.C 1996, Empirical Studies of Organizational Change, Cambridge, Cambridge University press Brunsson, N & Olsen, J. P 1993, The Reforming Organization, London, Routledge Press. Calvert, L 1995, The Rational Choice Theory of Institutions: Implications for Design, in D Welmer, ed. Institutional Design, Dordrecht, Kluwer Press. Dimaggio, P & Powell, W 1991, The Iron Cage Revisited: Institutional Isomorphism and Collective Rationality in Organizational Fields, American Sociological Review, 48, 147-160. Dolnicar, S, Irvine, H. J & Lazarevski, K 2008, Mission Money? Competitive Challenges Facing Public Sector Nonprofit Organizations in an Institutionalized Environment, International Journal of Nonprofit and Voluntary SectorMarketing, 13, 107-117. Grafstein, R 1992, International Realism, New Haven, CT, Yale University Press Guy Peters, B 2000, Institutional Theory Problems and Prospects Political Sciences, 69, 1-29. Hall, P. D 1990, Conflicting Managerial Cultures in Nonprofit Organization, Nonprofit Management and Leadership, 1, 153-165. Katz, D & Kahn, R. L 1978, The Social Psychology of Organizations, 2nd, Ed. New York, John Wiley Publishers. Meyer, J. W & Rowan, B 1977, Institutionalized Organizations: Formal Structure as Myth and Ceremony, American Journal of Sociology, 82, 340-363. Model, S 2009, Institutional Research on Performance Measurement and Management in the Public Sector Accounting Literature: A Review and Assessment, Financial Accountability and Management, 25(3), 277-303. Oliver, C 1997, Sustainable Competitive Advantage: Combining Institutional and Resource Based Views, Strategic management Journal, 18, 697-713. Peter, B 2000, Public Policy and Local Governance in Postmodern Society, Massachusetts, Edward Elgar Publishing Limited. Peter, F & Joseph, G 2004, Institutional Isomorphism and Sector Organizations, Journal of Public Administrations, Research and Theory, 14 (3), 283- 307 Zucker, L.G 1987, Institutional Theories of Organization, Annual Review of Sociology,13, 443-464. Read More