Institutional Theory
The focus of this essay is on the possible negative influence of developed institutions on strategic management and process of strategic decision-making in particular. New institutional theory can offer significant help in solving problems of strategic management. Taking its origins in “The nature of the firm”(1937) work by Ronald Coasy and being constantly researched during the last third of XX century, institutional theory analyses transaction costs, property rights, asymmetric information and a number of other concepts. Yet, the focus of institutional theory is on relationships between the firm and surrounding institutional environment. The theory tries to describe the process of how the firm acts under pressure of social meanings, specific …show more content…
Basically, the institutions create in-country environment of expectations, which are varying from one field to another. Those expectations, even though they are not solid laws, affect the decisions, carried by firms, and strength of those expectations is various in different kinds of business. Institutional theory sees environment as a very specific web, consisting of different transactions. Every participating side of this network share similar understanding of how this transaction should …show more content…
Performance of a company, which choses sticking to taken-for-granted norms instead of answering market challenges will fall – slowly or not, but it will, bringing a need for transformations with it. At some point management of a company will be forced to stop avoiding pressure for changes and looking for familiar strategies company, which is at the same under normative pressure and try to benefit from market opportunities, faces contradiction, and eventually will outgrow regulatory processes of its filed or lose a market share to more adaptive competitors[8].
Institutional theory also pays attention to so called hybrid structures. Researches [6] point out that some organizations are able to adopt a wide variety of hybrid response to questions of strategic management, successfully balancing between norms and market pressure. Even further, companies are able to separate conflicting norms and adopt the rules of one institution keeping elements of another one at the same time. With demands from confliction institutions the satisfied firm can benefit from synergic effect of bringing together elements of different
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