Organization leader ship and social innovation

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Organizations: Rational, Natural and Open Systems

Article  in  Canadian Journal of Sociology / Cahiers canadiens de sociologie · January 1998

DOI: 10.2307/2393090 · Source: OAI

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Session 4 (Lectures 7 and 8)

INTRODUCTION TO INSTITUTIONS AND SOCIAL MECHANISMS

Antti Ainamo IASM Master’s Degree Programme, Faculty of Social Sciences, University of Turku

Autumn 2009

W. Richard Scott

21.9.2009 A Ainamo

Three kinds of systems, according to Scott ”Natural systems” ”Rational systems” ”Open [vs. closed] systems”

Below, a schematic to illustrate Scott’s ideas:

Open

Closeed Natural Rational

W. Richard Scott

Organizations: Rational, Natural and Open Systems

Finland until the 1990s (e.g. Hämäläinen, 2003)

U.S. in the 19th century, according to Douglas C. North Finland from the 1990s (e.g. Hämäläinen, 2003)

Pre-Modern Finland, Until about 1000 A.C.

The Third World, according to Douglas C. North

The totalitarian regimes of e.g. Stalin, Hitler, Pinochet, Kim Jong-Il

21.9.2009 A Ainamo

Rational systems: Historical background of organization theory 1

Max Weber (1968, trans.), one of the founders of modern sociology, noted in the early 2oth century that rationalized, legal and administrative systems were replacing traditional and charismatic modes of administration, and the rise of public- and private-sector bureaucracies were an important indicator and carrier of these new beliefs and values.

To a surprising extent. Frederick W. Taylor (1911) was observing and writing about the same great transformation. Taylor was deeply engaged in engaging with approaches to production within factories, rather than being content with describing and understanding such approaches, as was Weber.

21.9.2009 A Ainamo

Human Relations: Historical background of organization theory 2

A little bit later than Weber of Taylor, Chester Barnard (1936) and Philip Selznick (1948, 1957) advanced the view of organizations as adaptive systems attempting to survive in their environment.

Their functionalist approach emphasized that organizations are not simply technical systems, but political and social systems embodying norms and values of importance to their participants to a wider circle of constituents.

21.9.2009 A Ainamo

”Hawthorne effect”

Between 1924 and 1932, at a factory called the Hawthorne Works, (a Western Electric manufacturing facility outside Chicago IL, U.S.A.), a series of experiments on factory workers were carried out. Hawthorne Works had commissioned a study to see if its workers would become more productive in higher or lower levels of light. I t was found that the workers' productivity seemed to improve when changes were made and slumped when the study was concluded. It was suggested that the productivity gain was due to the motivational effect of the interest being shown in them. However, it was then found that subjects improved their performance in response NOT to changes in experimental manipulation in illumination of their task area BUT simply in response to the fact that they are being studied. In 1955, the term was coined by Henry A. Landsberger[3] when analyzing the experiments from 1924-1932. In a 2009 reassessment of the original data, University of Chicago economists John List and Steven Levitt found that productivity varied due to other factors such as the weekly cycle of work or the seasonal temperature and so the initial conclusions were overstated and the effect was weak or illusory.[4] Although illumination research of workplace lighting formed the basis of the Hawthorne effect, other changes such as maintaining clean work stations, clearing floors of obstacles, and even relocating workstations resulted in increased productivity for short periods of time. In appropriate sense, the Hawthorne effect is a term used to identify any type of short- lived increase in productivity.

21.9.2009 A Ainamo

Organization theory: Emergence

It is only by hindsight that the above (and others) came to be known as organization theorists.

Weber’s theories were long known as ”grand theory” or theory of an economic sociologist. Taylor was known as a zealous engineer obsessed with time and and motion studies of efficiency. It was Barnard and Selzcnick who helped to point the way toward viewing organizations not simply as indicators settings for work, but as distinctive social systems – as collective actors – deserving scholarly attention.

21.9.2009 A Ainamo

”Rational” vs. ”Natural” systems

In a seminal essay from 1949, Alvin Gouldner surveyed the fledgling field of organization studies and took an important step toward identifying major underlying fault-lines. Looking back at Weber, Taylor, and the human relations scholars, he discerned two underlying models – a ”rational” model and a ”natural” system perspective – that went far to account for much of the confusion and conflict among students of organizations.

Rational systems analysts considered organizations as instruments that could be consciously shaped and molded to accomplish given ends. Emphasis was placed on rational design and planning under the assumption that participants can control developments.

Natural system analysts, by contrast, viewed organizations as organic sysems , as collectivities that evolve via spontaneous, indeterminate proceesses. System survival was seen as the overriding goal, and adaptation as the master process.

Making explicit these underlying assumptions and constrasting models, somewhat paradoxically, allowed scholars to see more coherence in the field thna had previously been visible. The recognition of a central debate with clearly defined protagonists spurred unity.

21.9.2009 A Ainamo

Modern organization theory

Rational and Natural

Mechanistic and Organic

Integration and Differentiation

Compare economists, who until recently believed in tradeoffs:: ”Cost leadership vs. Differentation”

21.9.2009 A Ainamo

Open systems

During the 1950s, ”general systems theories”

Kenneth Boulding (1956) was among the first to emphasize that organizations are open systems.

The most complete early application of open system’s theory is Katz and Kahn’s (1966) The Social Psychology of Organizations

The distinction between a closed system conception in comparison to an open systems is that the former assumes elements are internal while the latter assumes they are affected by environmental influences.

21.9.2009 A Ainamo

A.A. Social mechanisms carry, buffer, amplify or in other ways intermediate how institutions are produced and maintained… B. Institutional rules and norms are produced and maintained

through social mechanisms.

Intermediation between everyday practices and institutions

Compliance and Opposition Norms

Collective Action

Institutional framework Formal norms

Organizations

Small Group Informal Norms

Individuals

Shift Parameters: Selection and Adaptation

Rules

Incentives and endogenous preferences

Source: Nee and Ingram, p. 31

Individual beliefs &action

21.9.2009 A Ainamo

Continuing the agenda

Sociological view (Nee and Ingram)

Evolutionary models and economics (in North)

Rational, Natural and Open systems

Power, grand strategy, and decision-making (in Scott)

Technical core and peripheral components (in Scott)

21.9.2009 A Ainamo

The technical core and ”Peripheral components” Two dimensions

”Technical” or material-resource environments ”Institutional” or regulative, normative, and cultural-cognitive environments/foundations

Technical and institutional controls 1. Strong technical controls, only:

Generic manufacturing 2. Strong technical and institutional controls:

Banks Utilities General hospitals

3.Weak technical and institutional controls In the U.S.: Restaurants Health clubs In the U.S.: Child care

4. Strong institutional controls, weak technical:

Schools Legal agencies Churches

Strong TECHNICAL CONTROL Weak

Weak

INSTI TUTIO- ONAL CON- TROL

Strong

1. 3.

2. 4.2.

21.9.2009 A Ainamo

How to apply Scott’s theory? -- a ”corporate” or business-organization illustration

Routines

Social structures

Cultures

Scott:

Three carriers:

21.9.2009 A Ainamo

The technical core and ”Peripheral components” Two dimensions

”Technical” or material-resource environments ”Institutional” or regulative, normative, and cultural-cognitive environments/foundations

Technical and institutional controls 1. Strong technical controls, only:

Generic manufacturing 2. Strong technical and institutional controls:

Banks Utilities General hospitals

3.Weak technical and institutional controls in the U.S. Restaurants Health clubs In the U.S.: Child care

4. Strong institutional controls, weak technical:

Schools Legal agencies Churches

Strong TECHNICAL CONTROL Weak

Weak

INSTI TUTIO- ONAL CON- TROL

Strong

1. 3.

2. 4.2.

21.9.2009 A Ainamo

Scott

Creating organizations in ”unsettled times” vs. ”settled” times

”Recent developments in... temporary, part-time and ’flexible’ workers and arrangements... emerging forms such as networks and alliances” (Scott, Fifth edition:x).

”Few organizations create their own technologies; rather, they import them” (Scott, 4th:22)

”Charismatic forms arise in periods of instability and crisis” (Scott, 4th:44)

”... lawyers who represent collective actors rather than natural persons are the more powerful, prosperous, and prestiguous segment” (Scott, 4th:7)

21.9.2009 A Ainamo

Creating organizations

”Agency”

Creating any of kind of an organization ”A stock of alternative forms has value for a society whenever the future is uncertain... The rights of individuals (Coleman)

[A policy making perspective: ] A society that relies on a few organizational forms may thrive for a while… ” (Hannan and Freeman 1989)… [Scott]

”agency theory” (Jensen and Meckling)… [”agents” / ”principals”]

21.9.2009 A Ainamo

Technical core, ”peripheral components”, and power Power in informal groups vs. power in formal organizations

Authority: no organization ”voluntarily limits itself to the appeal to material or affectual motives as a basis for guaranteeing its continuance. In addition, every such system attenpts to establish and to cultivate the belief in its ”legitimacy” (Weber, 1947, trans.: 325 [Scott 2003: 313]

Two types of authority: Endorsed [”to approve openly <endorse an idea> ; especially : to express support or approval”, www.m-w.com] and Authorized [by ”persons in command”, www.m-w.com]

Structural control [i.e. Social structure] and Culture Strong TECHNICAL CONTROL Weak

Weak

INSTI TUTIO- ONAL CON- TROL

Strong

1. 3.

2. 4.

21.9.2009 A Ainamo

Culture and Dominant coalition...

Though certainly not the last word on the subject of who sets organizational goals, power avoids many problems that have plagued earlier explanations…

[ p. 301-302]

Factors affecting the size and composition of the dominant coalition

Owners and managers Boundary roles External actors Modes of capital… human… social… cultural [Scott, 2003, p. 301-302] Uses of power

[p. 297-302]

21.9.2009 A Ainamo

Goal-setting in organizations

Rational system analysts emphasize the cognitive functions of goals… Simon, 1964, 1997)…

Natural system analysis, such as Barnard (1938).. and Whetten and Godfrey (1998), emphasize the cathedtic (motivational) properties of goals. Goals serve as a source of identification and motivation for participants… Selznick (1949)

Institutional analysts stress the symbolic functions of goals… significance for organizational audiences… legitimacy, allies, resources, and personnel... Some analysts… Weick… justification… Festinger… a postdecision…

... goals serve as a basis for evaluating… [p. 292]

21.9.2009 A Ainamo

Decisions and structures

PREFERENCES ABOUT OUTCOMES Agreement Disagreement

Agreement Computation Compromise BELIEFS [bureaucracy] [the legislative process] ABOUT OUTCOMES Judgement Inspiration

Disagreement [collegium] [charisma]

[Scott, p. 304]

Strong technical / Weak institutional Weak technical / Strong institutional

Weak technical / Weak institutionalStrong technical / Strong institutional

21.9.2009 A Ainamo

The grand strategy: internalization

Thinking strategically

Internalization may be usefully subdivided into

(1) absorption processes Absorption… workers were brought into the factory… organizations developed their own distribution and marketing facilities… as Chandler describes in wonderful detail (1977, chap. 7)… to internalize capital requirements… ”cash cows” to fund new ventures in rapidly growing markets (Henderson, 1980) [p. 279]

(2) mapping processes Mapping… ”mirrors”… ”investment relations”… (Useem, 1996)… environmental engineers… (Hoffman, 1997)

Divesting and downsizing… [p. 279]

21.9.2009 A Ainamo

[Scott: 1998: 200]

Organizational identity as basis for boundary spanning

Organizational identity focuses attention on the shared beliefs and self- conceptions held by organizational participants. Defined by Albert and Whetten (1985:265) as the ”central, enduring, and distinctive” elements set of beliefs and values ”that distinguish the organization from the others with which it might be compared….

Influence behavior… relation to ”outsiders” (Dutton and Dukerich, 1991; Whetten and Godfrey, 1998)… field boundaries…

groups, and particularly organizations, carefully differentiate members from nonmembers… the inmate and the… world

”collective cognition”…

21.9.2009 A Ainamo

Douglass C. North

Adam Smith vs. transaction costs

For 200 years the gains from trade made possible by increasing specialization and division of labor have been the cornerstone of economic theory.

Specialization could be realized by increasing the size of markets… economies expanded…

As the size and scope of exchange have increased, the parties have attempted to clientize or personalize exchange. But the greater variety [has] made [it] more difficult… to do [so].

[A]n exchange process involving transaction costs suggests significant modifications in economic theory and very different implications for economic practice.

impersonal exchange impersonal exchange with third-party enforcement

21.9.2009 A Ainamo

Organizational action as myth & ceremony

To achieve legitimacy with their constituents, organizations are prone to construct stories about their actions that correspond to socially prescribed dictates about what an organization should do. These stories need not have any connection to what the organization actually does, but rather, used as forms of symbolic reassurance (Meyer and Rowan 1977)

Resource dependency (Pfeffer and Salancik 1978)

21.9.2009 A Ainamo

Organizational isomorphism (D&P 1983)

Organizations appear to become increasingly similar Coercive: pressures from other organizations, pressure within organization Mimetic: a response to uncertaintly Normative: professions, associations

Two or more mechanisms can cooperate simultaneously

DiMaggio and Powel discuss norms 2 x more than they do the other institutional mechanisms of coercion and mimesis

21.9.2009 A Ainamo

Critical theory

critical theorists view organizations as systems of domination in which one class of actors exploits others

differences in interests, far from being negotiated and reconciled, are resolved by the more powerful suppressing the weaker

Marx emphasized the ways in managerial ideologies developed to justify and ”naturalize” arrangements that were arbitrary and inequitable

[Scott, p. 320]

no longer… choices but… natural and self-evident… (Alvesson and Deetz, 1996: 199) [Scott, p. 321]

21.9.2009 A Ainamo

Postmodernism

Foucault (1977) and Lyotard (1984); Nietzsche was the early guiding spirit. [p. 321]

Postmodernists stress the importance of the symbolic, cultural elements of the social world. Our social world is socially constructed and what we ”see” or believe depends of the social situation and our location in it… [p. 321-322]

The more open one’s conception of organization, the more vague and permeated its boundaries… Rationales become multiple… interests and purposes are differentiated and contextualized… If uniformity exists, it is because diversity has been suppresssed… analysis… to ”deconstruct” [p. 322]

21.9.2009 A Ainamo

21.9.2009 A Ainamo

21.9.2009 A Ainamo

”Interests”

Each correct language and classificatory scheme must be correct or consistent relative to some set of interests

• Advanced course on institutions and social mechanisms: ”interests” (Richard Swedberg, Introduction to Economic Sociology

21.9.2009 A Ainamo

Kitscher’s view of science, truth, and democracy (Longino, Sep 19, 2007)

[Science, truth and democracy advance] via media between constructivist debunkers of social science, on the one hand, and the uncritical scientific faithful, on the other, [involves] no priviledge system of natural kinds Multiple correct ways of presenting reality Multiple language and classificatory schemes Each correct language and classificatory scheme must be correct or consistent relative to some set of interests

Question: How ”social”? – the Answer: ”contingently social” Question: Can collective research be organized in a way to promote our collective values in the most encompassing sense?” Yes, with ”well-ordered science”

Enlightened democratic decision-making would ideally determine choice of research projects to be pursued in a society The research agenda, not the research agenda, is subject to demogratic oversight

21.9.2009 A Ainamo

Reconfigure justification (Longino 1990)

Not just a matter of relations between sentences, statements, or the beliefs and perceptions of an individual… … but also a matter of relationships wihtin and between communities of inquirers Not just the testing of hypotheses against data… … but also the subject of hypotheses against particular social conventions

Cognitive and epistemic practices have social dimensions 1. normative rules or conditions for scientific inquiry must include conditions that apply to social and discursive interactions

Venues Upate of criticism Public standards: aims, goals, ethical guidelines, etc. Tempered equality of intellectual authority so that they themselves are subject to the same standards

2. assumptions that are shared by all members of a community will be shielded from criticism, and because they persist in the face of effective structures, may even reinforced

Diversity Interaction

21.9.2009 A Ainamo

Funding of research Since the Cold War, funding has shifted from the Government to private companies Researchers maintain their sense of independence by forming their own corporations If the research process is blackoboxed, it is not accessible to the user of knowledge

Recipient of knowledge Bearer of knowledge’s benefits and burdens

The way privatization works… if it meant only that there were some additional players, and this would mean that there is more diversity

In Congress, individual Congressmen can channel funding in particular directions… There is a kind of peer review… and a lot of irrationalities… which bears little resemblance to Kitchener’s idealized (or minimal) view… the 17th century of independently wealthy science hobbyists… a system not unlike that of the Cold War On the other hand, pharmaceutical companies will… control the publication of the research. Research that shows negative results will be kept inside the confines of the corporate while positive results will be published… So that is the kind of research I have in mind when I speak of the negative side of privatization.. In this era when the market mechanism is so strong

21.9.2009 A Ainamo

Case by case

In many cases, a plurality of meanings but plurality is not a necessary characteristic of a system We need to look at a number of cases, not just we philosophers but all who have an interest… Not just the logical structure but also the epistemic and the practical features, the metaphysical aspects that various representations may have…

21.9.2009 A Ainamo

Douglas C. North Entrepreneurs and U.S. economic history

”Incremental change comes from the perceptions of the entrepreneurs in political and economic organizations that they could do better by altering the existing institutional framework at the some margin.”

The entrepreneurs ”frequently must act on incomplete information… persistently inefficient paths… Transaction costs in political and economic markets make for inefficient property rights, but the imperfect subjective models of the players as they attempt to understand the complexities of the problems they confront can lead to the persistence of such property rights.”

”U.S. economic history… in the nineteenth century… increased productivity… demand for educational invesments… As economic organizations evolved to take advantage of… opportunities, they not only became more efficient (see Chandler, 1977), but also gradually altered the institutional framework.”

”choices… certainly not always optimal or unidirectional… indeed, frequently, policies had unintended consequences… a mixed bag of those [policies] that induce productivity and those that reduce productivity… But on balance the ninetheenth-century U.S. economic history is a story of economic growth.”

21.9.2009 A Ainamo

Douglass C. North Institutional change (introduction)

”Institutions, together with the standard contraints of economic theory, determine the opportunities in a society. Organizations are created to take advantage of those opportunites, and, as the organizations evolve, they alter the institutions.”

”The resultant path of institutional change is shaped by (1) the lock-in that comes from the symbiotic relationship between institutions and the organizations that have evolved as a consequence of the incentive structure provided by those institutions and (2) the feedback process by which human being perceive and reach to changes in the opportunity set.”

”The increasing returns characteristics of an institutional matrix that produces lock-in comes from the dependence of the resultant organizations on that institutional framework and the consequent network exterternalities that arise.”

”Both the formal and the informal institutional constraints result in particular exchange organizations that have come into existence because of the incentives embodied in the framework and [these organization] therefore depend on it [that is, the institutional framework] for the profitability of the activities that they undertake.”

21.9.2009 A Ainamo

Douglas C. North Entrepreneurs in the Third World

Also ”in many Third World countires… opportunities for political and economic entrepreneurs are still a mixed bag, but [in contrast to the 19th century U.S.A.] they overwhelmingly favor redistributive rather than productive activity, that create monopolies rather than competitive conditions, and that restrict opportunities rather than expand them.”

”They seldom induce investment in education that increases productivity”

”The organizations… become more efficient… at making the society even more unproductive… because costs… together with the subjective models… do not lead them to move incrementally toward more efficient outcomes.”

”Three dimensions of institutions: [1] formal rules and [2] informal constraints, and [3] the effectiveness of their enforcement.”

21.9.2009 A Ainamo

Finland’s modernization after the Second World War New industries Urbanization Immigration Internationalization

People Firms The country’s system of governance

Informal institutions remain important

Top floor of Sitra has a sauna Global businessmen taste wines

21.9.2009 A Ainamo

Working paper (30 p. / 100 p.)

Topic, goal, and title: Pick freely from the four themes ”B” thru ”E” in the course (one theme, a combination of several, etc. ). Scott can be brought into each and every theme. If you so choose, you can also bring in ”A.” and/or ”F.”. The reader will assume that the choice of your topic is crystallized in the title of your working paper. The process of writing the paper: Your building blocks are the goal, the structure and the literature that you want to include, the way you combine these literatures, as well as how you position your paper. Be conscientious in writing: include exact references, including page numbers, have references in end of paper.

21.9.2009 A Ainamo

Other

While you are expected to have precise citations, the paper is not intended to be an abbreviation of a set of articles. What is key is: (a) why and how you structure your paper and (b) why and how you are able to present clearly ideas that are interesting. The review and the way you structure the course literature must in terms of number of pages be dominant in your paper. However, you can include your insight(s), for example, in an introduction or conclusion that is unique to you and(or your research topic. Short mentions, etc., related to your own experiences and/or research are acceptable but do not affect grading. In your review, remember ideas expressed in ASQ research forum.

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