The field of organization theory is characterized as a fragmented body of knowledge, with many competing theories to explain organizational action.
Your task is to critically analyze the contribution that strategic choice and determinist theories (Resource Dependency Theory; Institutional Theory; Population Ecology) make to our understanding of organizational action. Which perspective do you find most compelling - strategic choice or determinism? Explain your reasoning.
Dimensions of Organizational Action and Design
The area of organization theory is considered as a fragmented body of knowledge by including various competing theories to understand and explain the organization design and its actions. There are many researchers, which claim that, the arguments among different organizational theories are the level of competition of their ideas and thoughts (D’Adderio, and Pollock, 2014). Some management experts assume that these theories are resulted from pragmatic research findings and implemented to resolve the problems in real life organizations. This essay includes the discussion about how the strategic choice and determinist theories like; institutional theory, resource dependence theory and population ecology theory contribute to the organizational design and action.
It describes how these theories can be reconciled in a single theory by critically analyzing the effective ideas and opinions about role of managers and leaders in developing positive outcomes for organization. After evaluating the involvement of determinist and agency theories, it can be stated that it is not easy to reconcile these theories into a single organizational theory. In the first section, the essay states the major dimensions of organizational action and design. Moreover, it comprises of paradigmatic arguments about three organizational theories. Then, it critically analyzes threes theories, i.e. institutional theory, resource dependence theory and population ecology theory.
An organization can be defined as an association of people, who work together to attain mutual goals and objectives via division of human resources and their responsibilities. As per open system theory, organization is a system that converts the inputs from business environment by business processes with production technology and management to specific results. According to Galetic (2017), organization is a formal structure of tasks and relationships, which controls how its people are to cooperate and utilize the resources to attain the goals and objectives of organization (Galetic, 2017). It can be managed and transformed by the use of organizational design process. In this context, Tran and Tian (2012) stated that organization is created by groups of individuals with the objective of attaining effects, which one person can’t attain individually. They defined organizational structure as system and framework of relations and communications between different departments of a company. Today’s organizations use different types of organization structures like; centralization, line, matrix etc. To design organizational action, the management considers three fundamental dimensions, i.e. centralization, formalization and complexity (Tran, and Tian, 2012).
One foremost dimension of organizational design is formalization that can be defined as a process of developing a formal structure and incorporates the management of that structure. In this relation, Simon and March (2009) stated that formalization can be evaluated by the rules and regulations, which are created by the management and level of these bylaws and regulations is measured, applied and monitored. It is the type of organizational structure, which is developed to justify the decision making process in organization (Simon, and March, 2009).
Formalization, Centralization, and Complexity
Another dimension of organizational design is centralization, under which decisions are made by focusing on a single point of organization. Under this organizational structure, the decisions of business are made by the top management only. Apart from these dimensions, there is another structure, i.e. complexity that refers to denotative degree of organization that means isolation of important components to develop organization (Shafritz, Ott, and Jang, 2015). In an organization, complexity indicates the differentiation on different levels like; horizontal, vertical and spatial. These are three dimensions, which are considered while developing organizational structure.
There are some deterministic theories, which assume that strategies of organization are determined by its external environment. In the next paragraphs, there is the discussion about some theories, which can be practiced for organizational studies and design. In this essay, three of these theories are considered that contribute to understand the organizational action. These theories are Resource Dependence Theory, Institutional Theory and Population Ecology Theory.
One of the most important deterministic theories is resource dependence theory that answers the question that how companies interact with their business environment and how the organizational resources are gathered and dispersed in organizations. Companies must communicate with their external environment for obtaining the resources required for survival of organization. In the beginning, resource dependency theory is introduced by Gerald and Jefferey that emphasizes on power-seeking behavior and characteristics of organization (Zimmermann, 2011). This organizational theory focuses on the relationship between company and resources holders (Drees and Heugens, 2013). It suggests, the managers in an organization should hold a clear understanding about vital resources of supply chain system and scarcity of resources. In addition to this, they should have the measurement about the requirement of resources by the organization. After analyzing this, the managers can formulate the strategies and tactics on needs of resources to decrease the dependencies. In this context, Leuders and Matitz (2016) describe that organizational resources may be in different like; employees, raw materials, financial resources etc. If one organization maintains its most of its resources, then other company will become dependent on it. If there will be too much dependency, then it will create uncertainty. In this situation, the managers need to strategize the business operations and processes to reduce the risks. For example, ACME System is a technology security company for a media company, i.e. XYZ multimedia co. In this instance, the security firm is totally dependent on media organization as its only source of profits and revenues (Leuders and Matitz, 2016). Thus, there may be some risks related to this business model. For mitigating these risks, ACME system firm needs to explore some more clients to decrease the level of dependence on only one company. To access the dependent resources, managers can use some other methods such as; joint ventures, mergers, acquisitions etc. Generally, most of the organizations use merger, joint ventures and acquisitions to access the resources of other company. Thus, it can be concluded that resource dependence theory offers stepping stone to recognize the impact of power organizational behavior (Hillman, Withers, and Collins, 2008).
Resource Dependence Theory
Moreover, another organizational theory is institutional theory, which provides useful guidelines for evaluating the environment and organization relationships with a focus on norms, social rules, expectations and values as major sources of pressure on firms. In her article, Shehada (2010) stated that these intangible values and norms assist the organization in building organizational behavior. To gain the survival ability, the companies should follow the rules, regulations and other requirements from established environment of organization. This theory is the process of firms shifting to similarities like company’s isomorphism (Shehada, 2010).
There are three processes, which are used to explain this term, i.e. mimetic, coercive and normative. In an organization, legal and political forces are the result of coercive pressures and socio-cultural expectations lead to the normative pressures. Moreover, surviving as successful firms causes mimetic forces. This theory of organizational design also recommends the success of companies may have implied and cohesive models. Companies may fail, when it does not comply with the rules and regulations, otherwise organizations get values and norms that need implementation throughout the market. For example, shipping companies adopt this theory to managing the safety of ship and enhancing the compliance of International Safety Management Code (Abbott, Green, and Keohane, 2016).
In addition to above two theories, organizations also pursue the Population Ecology theory that was introduced by Pfeffer and Aldrich in the year 1976. Population ecology theory is a theory of open system, which also includes organizational environment in the analysis. Primarily, this theory answers the question that why some companies survive and others fail. Moreover, Lebbadi (2015) defines that institutional theory of organization studies the active changes in the group of firms. In contrast to contingency theory, population ecology theory focuses on the changes of population than alteration of individual adapting the complex and changing contingencies. For example, a population can be oil and gas manufacturing firms or breweries. It analyzes the impact of population behavior on the results in organization (Lebbadi, 2015). By targeting the population, population ecology theory reduces the significance of groups, organizations and individuals as social players.
In long run, structural inactivity may proliferate with the growth of organizations that can be a major barrier, which may resist the changes in organizations. There may be various reasons behind this structural inertia like; limited data and information, limited investment, funds and internal constraints. This theory of organizational design includes three scenarios for a company, i.e. selection, variation and retention. General Motors is the best example of this theory as the company has changed its organizational structure dramatically and used political forces to affect the public policy in a manner that ensures its growth and existence (Rockwood, 2015). Thus, sometimes this theory is problematic because it fails to respond to this type of pragmatic events. In this way, an organization can use these theories in developing the organizational action and structure. It has been clearly analyzed that resource dependence theory, institutional theory and population ecology theory explain the relationship between organizational structure and its working environment.
After analyzing the above theories, it can be stated that there are both differences and similarities among these theories. Resource dependence theory primarily emphasize in individual organizations. They focus on the impact of agents showing the principals to respond to environmental changes. In order to best fit to the organizations, how the agents work, may have a large effect on changes of contingencies. So, the managers should formulate the most appropriate strategies for companies by evaluating its environment (Miner, 2015). Apart from this, institutional and population ecology theory emphasize on higher extent of position that includes the population of organization by focusing on forces from organization’s environment. Both of these theories recommend that the companies are determined by environment selection. In addition to this, institutional theory states that the primary forces of developing organizational structure are the macro-environmental factors. Same as institutional theory, population ecology theory is accountable for the significance of legitimacy for companies to survive (Nienhüser, 2008).
In this context, some authors claimed that there is no contradiction between population ecology and institutional theories. Both of these theoretical perspectives are different. However, institutional theory is accountable for group impact on what is determined authentic, whereas population ecology theory assumes that legitimacy is the clear outcome of population size (Keohane, and Martin, 2014). Apart from these two theories, resource dependence theory studies the internal relationships of companies with different focuses. It emphasizes on kind of using power by agents to ensure the resource increment from its environment. Moreover, population ecology describes the best organizational structure that can be selected by organizational environment to safeguard its resources (Suddaby, 2015).
In this way, the essay results that resource competency perspective is the most compelling for strategic choice or determinism. The reason behind this is that this theory best works for defining the organizations. It includes all the aspects of organization, like; human resources, financial resources, tangible and intangible resources, while other theories consider population and environment only (Miner, 2015). It leads the management to control the organization by following various processes like; joint venture, merger, vertical integration etc.
From the above essay, it can be concluded that all the theories can be used to define the relationship between organization and its internal and external environment. It discusses three major theories of organization to explain how an organization can design its fundamental dimensions. After the critical analysis of resource dependence theory, institutional theory and population ecology theory, the similarities and differences are stated. Resource dependency theory attempts to define the relationship of organization and its environment. Moreover, institutional theory asserts that organizations can differ from actual objective because of its institutional atmosphere. Population ecology considers that the organization environment plays an important role in determining organizational outcomes.
From the above analysis, it can be stated that it is very difficult to reconcile all the theories in a single theory. The organizations need to implement different theories in different situations, so that it can establish an effective relationship between organization and its environment. Today’s business world is highly advanced and changing very fast, so these organizational theories can offer the guidance under different circumstances. In an organization, managers and leaders should consider its situations to select the most appropriate strategy, which can lead the organization and its environment. Thus, it can be concluded that different theories make different suppositions that comes with their advantages and disadvantages.
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