Institutionalization and organizational long-term success

Abstract

Institutionalization processes have an ambivalent effect on organizational long-term success. Even though they foster organizational stability and permanence, they also bring about rigidity and resistance to change. As a result, successful organizations are likely to lose their competitive advantage over time. The paper addresses this issue through the investigation of the institutionalization processes of two long-lived companies: General Electric, a firm that has been a long-term success and its rival, Westinghouse, which was broken up after eleven decades of existence. The longitudinal, multilevel analysis of firms and industry has identified two different modes of organizational institutionalization. The reactive mode gives rise to rigidity and change resistance, much like institutional theory predicts; the proactive mode, on the other hand, neutralizes those negative effects of institutionalization processes. In the reactive mode, structure predominates. In the proactive mode, agency plays a major role in organizational institutionalization, and in managing the organization’s relations with the environment, clearly contributing to environmental institutionalization.