TO: Prof. Rajiv Krishnan Kozhikode

MEMORANDUM

DATE: June 14, 2013

TO: Prof. Rajiv Krishnan Kozhikode

FROM: Team 8 - BUS 374 D100

Wilson Ng

Fang, Shen

Justin, Yoon

Wanyue, Cao

Lei, Liu

SUBJECT: Do Organizations Always Act Similarly?

Introduction

DiMaggio & Powell’s, The Iron Cage Revisited, explains why organizations, despite their seemingly different nature, have very apparent similarities. DiMaggio & Powell begin their article by introducing the notion of bureaucratization and its impact on the development of organizations. The authors contend that bureaucratization occurs “as a result of processes that make organizations more similar without necessarily making them more efficient” (DiMaggio & Powell 147). With the development of technology and the global market, the vast diversity of products along with operations within different cultural settings have placed an emphasis on studying these differences. DiMaggio & Powell, however, are interested in “why there is such startling homogeneity of organizational forms and practices; and seek to explain homogeneity, not variation” (DiMaggio & Powell 148). They believe that once organizations are competing, they eventually will become more similar to one another without purposely trying to do so. To help explain these phenomena, DiMaggio & Powell focus on isomorphism which is a “constraining process that forces one unit in a population to resemble other units that face the same set of environmental conditions” (DiMaggio & Powell 149).

The Three Mechanisms of Institutional Isomorphic Change

DiMaggio and Powell argue there are three mechanisms behind institutional isomorphic change: coercive, mimetic, and normative (DiMaggio & Powell 150).

Coercive isomorphism is the result of pressure exerted on organizations by other organizations and social expectations of the organization’s function. The problem of legitimacy and political influence are the origins of coercion. Firstly, an organization’s structure and behaviour are affected by the legal environment. This perspective of rationalization from Max Weber also indicates that the legal commitments of contract law shape the organization in similar ways, as well as other legal and technical requirements. Secondly, some changes of organizations are a response to government regulations and standards. From Meyer and Rowan, organizations increasingly act legitimately within institutionalized rules as rationalized states expand their dominance of social life.

The direct authority relationship such as the expansion of the central state, centralization of capital and the coordination of philanthropy has imposed a standard operating procedure and structure which results in homogenization. We find that coercive isomorphism can result from formal financial relations and other informal relationship, such as a World Bank loan or the funding received from governments and the pressure to participate in competitions such as PISA (Theories of Financial Governance).

Mimetic isomorphism shows the degree to which organizations model themselves on other organizations. Mimetic processes result from the uncertainty avoidance of the organizational capability and environment (DiMaggio & Powell 151). Intentional imitation occurs through employee transfer, consulting firms or industry trade associations. According to Alchian, even innovation can be considered as modeling. According to Kimberly, new organizations tend to model old ones and the managers actively seek models upon which to build. The reason is that the mimetic process from adopted patterns increases the certainty of efficiency and legitimation.

Normative pressure stems from professionalization. There are two aspects of professionalization which DiMaggio and Powell think are important sources of isomorphism. The first is the education system at a university where “the formal education and legitimation in a cognitive base produced by the university specialists” (DiMaggio & Powell 153). The second is the growth and expansion of professional networks that create new models (DiMaggio & Powell 152), whereby managers and key staff with similar educational background will tend to solve problems and approach decisions in a similar way. Some managers may experience anticipatory socialization into the norms and mores of the organizations. Inter-organizational mobility of personnel is encouraged by structural homogenization (DiMaggio & Powell 153).

Real World Phenomena

Companies modeling each other in the mobile game industry

The mobile game industry is growing rapidly as smartphones are becoming increasingly popular. The DFC Intelligence research group reported “Revenue from games on mobile and portable devices is expected to grow about 38% to $8 billion in 2013 and touch $20 billion in 2018” (Nayak, 2013). To gain a piece of the pie in this fast-growing industry, big game companies and entrepreneurs are entering the mobile gaming industry as if it is a gold rush. Interestingly, these companies tend to model after successful game modes rather than come up with innovative gameplay, which makes the mobile game industry mimetic isomorphic.

Uncertainty of the emerging environment

Organizations tend to model themselves after similar organizations in their field that they perceive to be more successful. (DiMaggio & Powell 152) Giants in the gaming industry such as EA, Gameloft and Zynga have adjusted their company’s strategies and placed greater emphasis on mobile games. Success stories spread and encourages entrepreneurs to enter into the mobile game industry. For those new participants, they “seek to overcome the liability of newness by imitating established practices within the field” by modeling after proven gameplay. (DiMaggio & Powell 156)

Uncertainty of new mobile technologies

Currently, mobile games rely on good gameplay rather than graphics due to the limited processing power of clients’ devices. As mobile operating systems are frequently updated and mobile device producers launch new devices, new mobile technologies will emerge and make the industry more uncertain. As “the greater the extent to which technologies are uncertain, the greater the rate of isomorphic change”, companies model themselves on other companies. (DiMaggio & Powell 156).

Challenges

The Internet’s impact

Since the article was published in 1983, the Internet had barely come to life. The internet started rapidly expanding during the late 1980s and changed our life enormously over the next few decades. Any changes in either organization level or field level would be noticed by both industry participants and watchers immediately, once information started to spread through the internet. Compared to organizations 30 years ago, modern organizations had the external conditions to become more isomorphic.

In contrast, the internet encourages entrepreneurs to bring into practice their innovative ideas into real business situations which could influence the traditional industry and make it less isomorphic. Kickstarter allows entrepreneurs to crowdfund through the internet with “volumes reaching $2.66 billion in 2012” (MacLellan, 2012).

Globalization and International Trade

Even though DiMaggio and Powell’s article is valuable in explaining the homogeneity among organizations, there are still some organizations which took corresponding strategies and tried to make a difference. One example is the fast food industry. There are differences in the operations and strategies among a few organizations. With the development of globalization, the fast food industry had a chance to expand worldwide. Faced with the uncertainty of expansion, some organizations, such as McDonald’s and KFC, took the opportunity to enter the Asian market quickly and broadly. However, some organizations did not follow suit such as A&W, which also sells western style fast food and is popular in North America. Each organization took a different operating strategy to get ahead in the market. For instance, KFC has customized their menu in China to meet the needs of Chinese people by selling both typical fast food and Chinese style lunch. Compared with KFC or McDonald’s which they insist on their idea of Western style fast food.

Conclusion

DiMaggio and Powell’s argument does explain why many organizations do act similarly even to this day. But it is important to consider the fact that it was written before the internet had a substantial impact on society. This makes it quite difficult to determine if organizations today are acting similarly as it is creating a divergence from how organizations acted previously. As a result it has created a different set of rules and processes. Globalization has definitely brought in a major change to how organizations act. Even within an organization there is not only one model of doing things. If an organization operates in many places around the world, there will be different cultures and processes to follow. Not all organizations will want to try and operate in this different model. It also leads to question of how similar does a single organization act?

References

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