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INSTITUTIONAL ENVIRONMENTS, INSTITUTIONAL CHANGE, AND INTERNATIONAL ALLIANCES Third Annual IB Research Forum, “Institutions and International Business” Fox School of Business & Management March 23, 2002 Outline of Remarks Why Institutional Theory in the Study of International Alliances?

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slide1

INSTITUTIONAL ENVIRONMENTS, INSTITUTIONAL CHANGE, AND INTERNATIONAL ALLIANCES

  • Third Annual IB Research Forum, “Institutions and International Business”
  • Fox School of Business & Management
  • March 23, 2002
  • Outline of Remarks
  • Why Institutional Theory in the Study of International Alliances?
  • Core Issue
  • New Model, “Unbundling the Stages of Alliance Integration”
  • Research Propositions and Implications
  • Looking Ahead
  • ARVIND PARKHE
  • Indiana University
slide2

INSTITUTIONAL THEORY: AN UNDERUTILIZED PERSPECTIVE IN INTERNATIONAL ALLIANCE RESEARCH

  • Institutional Impact on Alliances: Illustrative Examples
  • Gaps in the Literature
  • Unique Role of Institutional Perspective
slide3

CORE ISSUE

  • This much is known:
    • Multilevel differences in partner characteristics can reduce the effectiveness and longevity of international alliances (Parkhe, 1991)
  • Pushing this thought further, reconciliation of Type II differences, or alliance integration, requires institutional change
  • How can we conceptualize and specify – in other words, better understand – this “black box” of change process?
slide4

KEY TERMINOLOGY

  • Institutional Environment – External: Includes a company’s societal culture and national context.
  • Institutional Environment – Internal: Includes a company’s corporate culture and management practices
  • Integration (of alliance partners): Mutual adaptation, or lack thereof, with respect to managerial values, practices, and systems (VPSs) within the boundaries of an international alliance (Danis & Parkhe, 2002)
  • Managerial Values: commonly accepted ideals and norms that managers use, perhaps implicitly, in guiding their organizations and their own behaviors and decisions in a professional context.
slide5

KEY TERMINOLOGY (cont.)

    • Managerial Practices: commonly accepted general management behaviors and routines that are considered appropriate in managing organizations and/or conducting business
    • Managerial Systems: operational procedures or structures that are commonly used to resolve specific types or sets of organizational problems
    • Institutional Change: “the abandonment of institutionalized practices, structures, and goals, and/or the adoption of institutionally contradictory practices, structures, and goals, by an individual organization or field of organizations” (Kraatz & Moore, 2002)
    • Deinstitutionalization: “the process by which institutions weaken and disappear” (Oliver, 1992; Scott, 2001: 182)
slide6

FIGURE 1

Unbundling the Stages of Alliance Integration

I. Precipitating

Events

II. Deinstitutionalization

III. Preinsitutionalization

IVa. Theorization

IVb. Mimicry

VII. Proto-Institutions

VI. Reinstitutionalization

V. Relational

Efforts

slide7

FIGURE 2

Unbundling the Stages of Alliance Integration:

Underlying Processes

I. Precipitating

Events

Jolt to current institutions

II. Deinstitutionalization

Weakening of current institutions

III. Preinsitutionalization

Search for new solutions

IVa. Theorization

IVb. Mimicry

Choice of new solution and search for legitimacy

VII. Proto-Institutions

Spread of new institutions to wider organizational fields

VI. Reinstitutionalization

Adoption, objectification, achievement of legitimacy

V. Relational

Efforts

Promotion by alliance champion

slide8

FIGURE 3a

Unbundling the Stages of Alliance Integration:

Representative Steps

  • I. Precipitating
  • Events
  • Jolt to current institutions
  • Partner scanning and selection
  • Pre-contractual negotiations
  • Cognition of differences in VPSs

II. Deinstitutionalization

Weakening of current institutions

III. Preinsitutionalization

Search for new solutions

IVa. Theorization

IVb. Mimicry

Choice of new solution and search for legitimacy

VII. Proto-Institutions

Spread of new institutions to wider organizational fields

VI. Reinstitutionalization

Adoption, objectification, achievement of legitimacy

V. Relational

Efforts

Promotion by alliance champion

slide9

FIGURE 3b

Unbundling the Stages of Alliance Integration:

Representative Steps

I. Precipitating

Events

Jolt to current institutions

  • II. Deinstitutionalization
  • Weakening of current institutions
  • Injection of new ideas disturbs socially – constructed consensus
  • Established VPSs destabilized
  • Possibility of institutional change arises

III. Preinsitutionalization

Search for new solutions

IVa. Theorization

IVb. Mimicry

Choice of new solution and search for legitimacy

VII. Proto-Institutions

Spread of new institutions to wider organizational fields

VI. Reinstitutionalization

Adoption, objectification, achievement of legitimacy

V. Relational

Efforts

Promotion by alliance champion

slide10

FIGURE 3c

Unbundling the Stages of Alliance Integration:

Underlying Processes

I. Precipitating

Events

Jolt to current institutions

II. Deinstitutionalization

Weakening of current institutions

  • III. Preinsitutionalization
  • Search for new solutions
  • Partners independently seek viable solutions to their own problems
  • Recognize each other’s successful practices
  • Link differences in outcomes to differences in VPSs, in turn to differences in institutional environments

IVa. Theorization

IVb. Mimicry

Choice of new solution and search for legitimacy

VII. Proto-Institutions

Spread of new institutions to wider organizational fields

VI. Reinstitutionalization

Adoption, objectification, achievement of legitimacy

V. Relational

Efforts

Promotion by alliance champion

slide11

FIGURE 3d

Unbundling the Stages of Alliance Integration:

Underlying Processes

I. Precipitating

Events

Jolt to current institutions

II. Deinstitutionalization

Weakening of current institutions

III. Preinsitutionalization

Search for new solutions

  • IVa. Theorization
  • Choice of new solution and search for legitimacy
  • Specification of a general organizational failing
  • Development, specification of abstract categories of integration and elaboration of chains of cause and effect
  • Choose integration mode
  • Simplify, distill properties of new VPSs and explain the (superior) business outcomes they produce
  • IVb. Mimicry
  • Search for legitimacy
  • Justification of innovation through pragmatic legitimacy

VII. Proto-Institutions

Spread of new institutions to wider organizational fields

VI. Reinstitutionalization

Adoption, objectification, achievement of legitimacy

V. Relational

Efforts

Promotion by alliance champion

slide12

FIGURE 3e

Unbundling the Stages of Alliance Integration:

Underlying Processes

I. Precipitating

Events

Jolt to current institutions

II. Deinstitutionalization

Weakening of current institutions

III. Preinsitutionalization

Search for new solutions

IVa. Theorization

IVb. Mimicry

Choice of new solution and search for legitimacy

VII. Proto-Institutions

Spread of new institutions to wider organizational fields

VI. Reinstitutionalization

Adoption, objectification, achievement of legitimacy

  • V. Relational Efforts
  • Promotion by alliance champion
  • Communication and behavior transparency
  • Mutual adaptation
  • Mutual learning through
  • - use of expatriates
  • - training programs
  • - company visits
  • - technology transfer agreements
  • - personal transfers
slide13

FIGURE 3f

Unbundling the Stages of Alliance Integration:

Underlying Processes

I. Precipitating

Events

Jolt to current institutions

II. Deinstitutionalization

Weakening of current institutions

III. Preinsitutionalization

Search for new solutions

IVa. Theorization

IVb. Mimicry

Choice of new solution and search for legitimacy

VII. Proto-Institutions

Spread of new institutions to wider organizational fields

  • VI. Reinstitutionalization
  • Adoption, objectification, achievement of legitimacy
  • Upward diffusion of ideas (alliance boundary spanner  senior management)
  • Downward diffusion of ideas
  • Innovations “objectified”, gain social consensus concerning their pragmatic value, diffuse even further
  • Density of adoption promotes cognitive legitimacy, new ideas become taken-for-granted as the natural, appropriate arrangement

V. Relational

Efforts

Promotion by alliance champion

slide14

FIGURE 3g

Unbundling the Stages of Alliance Integration:

Underlying Processes

I. Precipitating

Events

Jolt to current institutions

II. Deinstitutionalization

Weakening of current institutions

III. Preinsitutionalization

Search for new solutions

IVa. Theorization

IVb. Mimicry

Choice of new solution and search for legitimacy

  • VII. Proto-Institutions
  • Spread of new institutions to wider organizational fields
  • Outward diffusion of ideas (across other alliances, companies, industries, countries)

VI. Reinstitutionalization

Adoption, objectification, achievement of legitimacy

V. Relational

Efforts

Promotion by alliance champion

slide15

FIGURE 3h

Unbundling the Stages of Alliance Integration:

Underlying Processes

  • I. Precipitating
  • Events
  • Jolt to current institutions
  • Partner scanning and selection
  • Pre-contractual negotiations
  • Cognition of differences in VPSs
  • II. Deinstitutionalization
  • Weakening of current institutions
  • Injection of new ideas disturbs socially – constructed consensus
  • Established VPSs destabilized
  • Possibility of institutional change arises
  • III. Preinsitutionalization
  • Search for new solutions
  • Partners independently seek viable solutions to their own problems
  • Recognize each other’s successful practices
  • Link differences in outcomes to differences in VPSs, in turn to differences in institutional environments
  • VI. Reinstitutionalization
  • Adoption, objectification, achievement of legitimacy
  • Upward diffusion of ideas (alliance boundary spanner  senior management)
  • Downward diffusion of ideas
  • Innovations “objectified”, gain social consensus concerning their pragmatic value, diffuse even further
  • Density of adoption promotes cognitive legitimacy, new ideas become taken-for-granted as the natural, appropriate arrangement
  • VII. Proto-Institutions
  • Spread of new institutions to wider organizational fields
  • Outward diffusion of ideas (across other alliances, companies, industries, countries)
  • IVa. Theorization
  • Choice of new solution and search for legitimacy
  • Specification of a general organizational failing
  • Development, specification of abstract categories of integration and elaboration of chains of cause and effect
  • Choose integration mode
  • Simplify, distill properties of new VPSs and explain the (superior) business outcomes they produce
  • IVb. Mimicry
  • Search for legitimacy
  • Justification of innovation through pragmatic legitimacy
  • V. Relational Efforts
  • Promotion by alliance champion
  • Communication and behavior transparency
  • Mutual adaptation
  • Mutual learning through
  • - use of expatriates
  • - training programs
  • - company visits
  • - technology transfer agreements
  • - personal transfers
slide16

RESEARCH PROPOSITIONS & IMPLICATIONS

  • Growing sophistication of alliance literature is evident from recent focus on processes, as opposed to merely outcomes
  • Unbundling model of critical integration processes should be vigorously tested in multiple settings using a variety of research designs
  • Such empirical research will (a) deepen our understanding of international alliances in new, fruitful directions, and (b) push institutional theory’s reach into timely new applications
slide17

LOOKING AHEAD

  • Ongoing Story
  • Recap of Recent Developments
  • Hot Issues/Remaining Issues
  • Expanded Model
  • Concluding Thoughts
  • THANK YOU!