Institutional-level Learning: Learning as a Source of Institutional Change

 Pamela Haunschild ◦ Ph.D. from Carnegie Mellon, 1992 ◦ Prior postings: Stanford, UW-Madison ◦ Currently Chair of Management at UT-Austin ◦ Interested in: Org behavior, org design, org change  David Chandler ◦ Ph.D. candidate at UT-Austin ◦ Under research interests, he has a quote: “Economics is all about how people make choices; sociology is all about how they don’t have any choices to make.” – Dusenberry 1960 ◦ He is interested in ethics, CSR, and stakeholder theory

 Past theories tend to assume companies adopt new practices for one of two reasons: ◦ Economic benefit: early adoption of new cost-saving or sales-promoting techniques lead companies to change the way they do things ◦ Institutional pressure: the threat of losing legitimacy compels companies to “follow the crowd” regardless of the efficiency or cost concerns related  Organizational Learning theorists suggest these are too exclusive

 This chapter tries to bridge past theories to show how organizations can adopt practices later but still do so for economic benefit ◦ Wal-Mart Example

 Huber 1991: ◦ “An entity learns if, through its processing of information, the range of its potential behaviors is changed.”  Levitt and March 1988: ◦ Organizations are “seen as learning by encoding inferences from history into routines that guide behavior.”

 Huber’s Four constructs ◦ Knowledge acquisition ◦ Information distribution ◦ Information interpretation ◦ Organizational memory  Keys from both definitions: ◦ Routines are independent of individual actors ◦ They change based on interpretations of past ◦ They change as new experiences accumulate ◦ Learning and change are intertwined

 Past research has examined individual, group, and organizational levels, but little has examined field-level learning  Institutional theory has started to incorporate other levels – change driven from below – while learning literature has considered more field-level learning – change driven from above  The chapter focuses on learning that speaks to the field/institutional level

 Inertia has limited change to path-dependent processes  Neo-institutionalists suggest change occurs in punctuated leaps, rather than over time  Learning theorists suggest it occurs slowly over time through experience and adaptation  The institutional and learning literatures have begun to overlap by acknowledging institutional learning and individual actor agency

 Neoinstitutionalists have begun to consider that 1) institutions can change and 2) consider the conditions under which it occurs  Institutionalization is a process that includes emergence, diffusion, change, deinstitutionalization, and the emergence of new institutions

 The evolving area of institutional change has created doubt about the permanence of institutions, and therefore created the possibility of deinstitutionalizaation  This concept gave rise to the notion that institutions require reinforcement to survive

 Exogenous sources of change ◦ Influence of institutional and technical forces in the environment ◦ Incomplete institutionalization ◦ Shocks that alter the firm’s environment  Endogenous sources of change ◦ Individual actors ◦ Forces of interest, agency, and institutional entrepreneurship

 Six key areas within learning theory: ◦ The role of unintended consequences ◦ The role of learning processes and field-level change ◦ The role of search: exploration vs. exploitation ◦ The role of forgetting (unlearning, disadoption, and deinstitutionalization) ◦ The roles of selective and inferential learning ◦ The role of heterogeneity vs. homogeneity

 Unplanned institutional change caused by deliberate action ◦ Example: the importance of performance measures to manager pay leads to a focus on measurement improvement over actual improvement  What does this concept suggest about institutional theory? ◦ Institutions might not automatically reproduce themselves ◦ Intended action is not the only source of change

 Organizations exhibit evidence of having learned routines and practices, both from other firms and within the general population ◦ Example: firms may learn from firms with which they share a connection such industry associations  What are the implications for Institutional Theory from this concept? ◦ Previously unaccounted for contextual factors may play an important role in the spread of institutional practices ◦ Example: imperfectly imitating Toyota

 Exploration: search directed toward new knowledge and competencies ◦ Tends to produce more dramatic and varied change ◦ Examples: HIV/AIDS treatment, green movement ◦ Often related to higher risk without guarantees of higher reward  Exploitation: search directed toward better utilization of existing competencies ◦ More common ◦ Faster feedback, better short-term results

 Unlearning  Disadoption  Deinstitutionalization

 Firms may adopt practices later and cherry- pick the best practices rather than go through the difficulties of first movers ◦ Contradicts present theory that suggests firms adopt practices regardless of economic performance to maintain legitimacy ◦ Example: adopting green technologies only after benefits were exhibited by earlier entrants  Fields can learn from other fields ◦ Example: Korean firms adopting Japanese and U.S. practices in the semiconductor industry

 Different strategic responses can lead to greater heterogeneity within a field  Three field level conditions that can lead to heterogeneous responses: ◦ Imperfect copying ◦ Regulatory pressures ◦ Competition

 Why do organizations exist?  Why do some organizations survive and others don’t?  How and why do organizations differ?  How and why do organizations change?  What are the emerging issues?