Espacios. Vol. 36 (Nº 21) Año 2015. Pág. 13

Innovation: An Institutional Approach

Inovação: Uma Abordagem Institucional.

Guillermo Javier DÍAZ VILLAVICENCIO 1; Simone Regina DIDONET 2; Alexander DODD 3

Recibido: 07/07/15 • Aprobado: 30/07/2015


1. Introduction

2. Institutional Isomorphism

3. Institutionalism and transaction costs

4. Institutionalism and social relations

5. Institutionalism and Economics

6. Institutionalism and Innovation

7. Conclusions



This article discuss the innovation and its relationship with organizational institutionalism from a prism of the notions of organizational strategy. Nowadays, we see that organizations have a greater trend towards "intelligent" survival. This is understood as a sum of long-term innovation strategies, combining different theoretical and practical elements that generate strong and robust institutions that can achieve the economic and/ or social objectives proposed by the organization with high profitability.
Key Words: Innovation, Institutionalism, Competitive Advantage.


Este artigo discute a inovação e sua relação com o institucionalismo nas organizações na perspectiva da estrategia organizacional considerando que as organizações tendem a uma sobrevivência "inteligente", entendida esta como a soma de estrategias de inovação a longo prazo. Neste contexto, são combinados diferentes aspectos teóricos e práticos que geram uma institucionalidade forte e robusta, a qual está orientada para obter objetivos econômicos e/ou sociais em organizações com alta lucratividade.
Palavra chave: Inovação, Institucionalismo, Vantagem competitiva.

1. Introduction

The aim of this work is to create a vision of organizational institutionalism and to identify complementarities and convergences of innovation theories. Our work is based on a comparison of relevant authors in the field of institutionalism and innovation.

Institutionalism has been discussed in organizational theory from the moment in which business organizations (both non-profit and for-profit) were considered as efficiency-seeking in the long run (searching for survival through profit) and through a series of market-oriented actions (Didonet, et al, 2012), which are constrained within a competitive environment, and which become causal factors for impacts and changes in society. Organizational structures are affected by institutionalized rules in their environment (Meyer and Rowan, 1991). These environments are directed not only at profit but also at factors that affect the business arena such as the environment and the production of unwanted outputs in society (Diaz, et al, 2008). These rules may be either formal or informal (North, 1991) and have an impact on organizational institutionalism. In the same way, we can see that the internal organization of the company, (with individuals fostering the organization through specialization), will always be looking to promote new institutional designs, i.e., looking for structural design efficiency (Brickley, et al. (1995).

Rialp (2003) states that institutionalism: "... constitutes a body of modern analysis that uses concepts such as limited information, transaction costs and opportunism in order to explain the observed economic phenomenon." From this perspective, we can see that Williamson (1981) strengthens transaction cost theory, noting that alternative governance structures are present in economic transactions within and among companies and the market. This is justified by the fact that, in the beginning of the 70's, it can be clearly seen that studies of organizations were themselves, about institutional entrepreneurship, which leads us to analyze organizational theory. In this sense Meyer and Rowan (1991) and DiMaggio and Powell (1991) brought institutionalism to the forefront of organizational theories with a view to filling the void created by the refusal to answer ideological and structural questions, as is the case of responding to: how can companies operate efficiently? (Simon, 1948). Therefore, analysis is aimed at the core of the organization, linking organizational theory to markets (Reed, 1999). Likewise, with a more focused approach and by establishing a macro and micro relationship, Hall and Soskice (2001) placed an advanced view of the institutions in the study of organizational development from the institutional differences of countries. With this begins an approach to the issue of competitiveness among nations, which leads us to see that maintaining organizational growth goes hand in hand to having a strategy with strong support to innovation (Didonet and Diaz, 2012).

North (1991) speaks of institutionalism as a way of keeping organizations in tempo; institutionalism is reinforced through a strong structure of patterns/ actions that are linked to the formal and informal communications and actions within an organization. All this within what may be called "the rules of the game" that an organization should undertake. Previously, but from a perspective of "product focus" Schutter (1981) defines an institution as a regularity in social behavior that is agreed by all members of society, specifying behavior in specific recurrent situations as self-made ​​or formulated policies by some external authority. In this sense we could argue that profit/ non-profit institutions, operate under the idea of ​​order and economic progress and interact around the normative relations of public administration (governance), whether international, national or local.

Now, on the one hand DiMaggio and Powell (1991) suggest that the issue of institutionalism rests with institutional homogeneity, but on the other hand, we also understand that it rests on the competitive advantages derived from institutional differences (Hall and Soskice, 2001). These differences (competitive advantages) are reflected in repeated cases, which are generated to keep the organization up to date - through the administration of five forces: threats of new entrants; bargaining power of suppliers; the threat of entry of new products/ services to the market; bargaining power of customers; and market rivalry and competition (Porter, 2008). All of which is present within a framework of strategic sustainability, where the organization can be more innovative and drive wealth depending on its approach, cost or differentiation, aimed at the most recurrent themes such as price, image, product design, quality, support and market dominance Mintzberg (1991). Therefore, for this paper, the organization uses the power of "innovation management" as a factor that strengthens "organizational institutionalism", we speak thus of the creative innovation as a "destructive power" Schumpeter (1950) that creates an institutionalized position in the market (which changes everything), since it generates higher profit margins and an "always be growing" intellectual and economic mentality.

In this regard the paper proposes a relationship between innovation and institutional isomorphism in all its forms. In section two we have the analysis of institutional isomorphism. In section three we create an analysis of institutionalism and transaction costs as a way of understanding that innovation creates costs that are often not clearly seen. In section four we observe institutionalism and social relations, generating a holistic view on the potential of communication for innovation. In section five we analyze institutionalism and economic aspects in order to understand that organizations in different settings play a decisive role in different economic models. In section six we analyze institutionalism and innovation as a way of linking their actions and projections in maximizing the efficiency of their actions, and finally, come our conclusions.

2. Institutional Isomorphism

Institutionalism has a macro perspective of analysis that looks like "... a conception of the organization as an institutionalized structure of power and authority, which is above small practices, located in the members of the organization" and has as a central concern regarding "...cultural and political processes through which actors and their interests/ values ​​are institutionally constructed and mobilized in support of certain organizational logics over others" (Reed, 1999, p.79).

For DiMaggio and Powell (1991), bureaucratization and other organizational changes are the result of such interests (power and authority) together with the value of becoming similar organizations, but this doesn´t mean greater efficiency (high economic or social profitability). To reinforce this position, Meyer and Rowan (1991) added as an alternative to formal structures the Weberian source of "the legitimacy of rationalized formal structures". Making it clear that regardless of efficiency or not, the elements of these structures serve the interests of society, i.e. the policies, positions, programs and procedures of the organizations are reinforced by public opinion, by influential people, by the educational system, by the laws, by the state, etc..

For the aforementioned authors, these elements of formal structure are manifestations of powerful institutional rules which function as highly rationalized myths and reflect the socially constructed reality that gives rise to isomorphism in parallel with the social environment.

From a deterministic and analytical perspective, DiMaggio and Powell (1991) argue that institutional isomorphism is a useful tool for understanding the policies and formalities that are broadcast in modern organizational life, taking into account the fact that organizations not only are competing for resources and customers, but for political power and institutional legitimacy, in a social and economic setting. In pursuit of this setting, the authors argue that, unlike existing studies investigating the differences between organizations, the focus of analysis is on the similarities and homogeneities between them.

In the analysis of heterogeneity amongst organizations DiMaggio and Powell (1991, p.64) take the definition of the fields of institutional organization, that, being very structured, provide a context in which individual efforts to deal rationally with uncertainty and limitations often lead to homogeneity in structure, culture and performance. Therefore, it is understood in the organizational environment, that all organizations that constitute an area recognized by the productive life, such as suppliers, consumers and producers of raw materials, regulatory bodies and other organizations that produce goods or services. Within these fields, organizations tend to assimilate due to isomorphism, which can be defined as a restrictive process that forces one unit in a given population, to match the other units that are under the same set of environmental conditions (DiMaggio and Powell, 1991, p.66).

Isomorphism is mentioned by the authors as the concept that best captures the process of homogenization of organizations, which have three different types of processes in their organizational settings: (1) coercive isomorphism, (2) mimetic isomorphism, and (3) normative isomorphism.

In the first case, coercive isomorphism is the result of formal and informal pressures exerted on organizations (one another) dependent on the expectations and culture in which they operate (DiMaggio and Powell, 1991, p.67). North (1990) reinforces this isomorphism by examining the nature of institutions and the consequences of institutional change on economic and social performance. From a more economic perspective, institutional theory helps explain how rules, norms and shared strategies form an organizational behavior that remains constant over time, giving us strong, permanent institutions that generate the expected benefits. But, we can see that obtaining social benefits (from an economic perspective) by some organizations, in search of concrete objectives, is not always possible. This is due to the fact that conditions are constantly changing in the very short term and they can vary the expected outcome and however, never have a perfect knowledge of reality. In any case, for this goal to be possible, paradoxically, these relations will be guided by a set of standards or rules that limit or restrict the current environment of the individuals, some formally named standards and others which are informal affect the expected result (Urbano et al. 2007).

These pressures are configured by force, by persuasion or by invitation to "join the coalition", and in some cases, organizational change can be a direct response to the mandates of the state in the form of laws, regulations, etc. For the authors, states dominate many areas of social life, whose organizations are homogeneous within given domains and organized around rituals of conformity to the institutions.

In relation to mimetic isomorphism, it follows from the imitation of typical practice in situations of uncertainty, such as misunderstood technologies, misunderstood goals/ objectives or symbolic uncertainty created by the environment (DiMaggio and Powell, 1991, p .69). Benchmarking practices are also prevalent here, such as quality control circles in Japan and process innovation in products and services that were widely replicated. Taking into account the uncertain environment, the authors argue that organizations tend to model themselves by copying similar organizations in their field that are perceived by them as more legitimate or successful. They see that certain types of structural arrangements are attributed more to the universality of mimetic processes than to any concrete evidence where the models adopted can guarantee efficiency.

The third type of isomorphism, the normative, is determined by the various members of professional organizations. DiMaggio and Powell (1991, p.70) point out that members of a profession, in defining the terms and conditions of their employment, and establishing a knowledge base, strengthen the legitimacy of their professional autonomy. As normative isomorphism sources, the authors point to the cognitive base produced by the universe of experts and professional networks that span organizations, by creating new models and rapid dissemination of these.

In short, one could say that the three isomorphic processes (each of them) being able to occur even in the absence of evidence, therefore, increasing organizational efficiency through innovation-oriented policies with competitive programs or strategies can make transactions between organizations easier.

For Meyer and Rowan (1991, p.50), in designing a structure that adheres to the prescriptions of institutional myths of the environment, they state that an organization acts collectively with valued aims in an adequate way, and the incorporation of institutionalized elements provides a set of activities that protects the organization from having its conduct questioned. This means that organizational practices are legitimized and the organization uses - legitimacy - to ensure their survival, which depends on, among other things, the ability to succeed in its isomorphism with highly elaborated institutional environments and thereafter, continue legitimizing itself in understanding that innovation processes are themselves a way to legitimize the company in their production processes.

More recently, Heikkila and Roussin (2004) have shown how institutional theory can explain how rules, norms, and shared strategies are formed by human behavior. Similarly, they note that this theory has been used to examine why public and private organizations have different structures, and why the agents agree to coordinate the provision of goods and services in favor of maximizing profits in search of efficiency. It is therefore clear that we can combine institutional theory with other theories and/ or practical concepts as being broad and robust in its initial proposition, one would expect a natural link with the applied social sciences where you can explain and see innovation as a driver of long-term financial support.

We can, therefore, demonstrate that organizations have the capacity to evolve over time, adapting to change, be it technological, legal or behavioral. Understanding initially "organization" as any company or social group, attempts to obtain certain goals or purposes. Overall, we can consider the company as the basic production unit, maximizing profit, by exerting a plaintiff of production factors and, in turn, as a supplier of goods or services (Salas, 1984). Therefore, "the company is responsible for transforming factors (inputs) into products (outputs), according to a given production function. Which defines the maximum output achievable with a certain number of factors - one that minimizes the cost of production at current prices of these factors - and that is determined by the state of technical knowledge" (Rialp, 2003, p. 54). Devereaux and Zandebergen (1995) claim that institutions provide a useful framework to study sustainability in business and that helps explain how sustainable practices are developed and disseminated among organizations from an innovative perspective.

Reviewing what has already been mentioned, we can see that the natural evolution of an organization is oriented towards generating powerful innovation practices, with a view to organizational sustainability by institutionalizing their processes through a macro perspective consolidating power and authority within the market in which it operates. Thus, power is inherent in the relations that characterize the institutional isomorphic, which requires a macro perspective of analysis, along with the other narratives in the field of organizational theory that focus on justice and democracy, in the search of validity and to "... reconnectthe studyof discoursesand practiceslocallycontextualizedordersof power, authorityandinstitutionalcontrol, which have socialrationalityandspecifichistorical dynamics" (Reed, p.81). For this last statement it is important to note two key points; "control and institutionalized power". These two aspects can be discussed from the perspective of cost, since, in any organizational process cost factors have a significant relevance when analyzing different organizational transactions

3. Institutionalism and transaction costs

In the view of transaction costs, Williamson (1981), one of the leading theorists in his field, believes that understanding the economics of transaction costs is fundamental to the study of organizations and, in order to apply this approach, it is important that the economic transactions are measured (calculated) and that the alternative structures (rules and norms) of the government and/ or states where the organization operates are described clearly (the rules of the game) that we believe will give us an institutionalism of the subject of transactions and their relationship with the structures that a state is capable of making. The author relates this approach (transactions and structure) to determine the efficiency frontiers between firms and markets - which are characterized by the decision to "make or buy" - and likewise, with the organization of domestic transactions, i.e. there are governance structures that mediate between market transactions and corporate hierarchies.

To justify his argument, the author highlights the background perspectives in the economic literature (focusing on efficiency costs) in organization theory (focused on human behavior) and in legal literature (as opposed to laws governing contracts) and notes that the progress of these literatures, mainly in the 70's, made it clear that the study of organizations is a comparative institutional entrepreneurship, in which alternative structures of government - within and between businesses and markets - require explicit attention (Williamson, 1981, p.552). Thus, although the focus of his theory of transaction costs comes from the hand of classical approaches Coase (1937) and Arrow (1969), Williamson (1981) recognizes the presence and influence of the structures in the transactions, where in the praxis we see (post 70s') that it doesn't give a "perfect" competitive economy in all markets, therefore theoretically it would not achieve the matter raised by Coase (1937) in that perfect competition does not generate transaction costs. Therefore, if transaction costs are generated within the markets in which organizations operate, since every transaction generates a cost, that today we see reflected in even the smallest transactions such as "free" WIFI outside a department store, the basic costs would be; the time to travel to the store, the time to look at the website, the time to decide whether to buy a product, buy the product, the time of the transaction of money between the bank and the store, etc.., this plus the impacts on transaction costs (taxes, benefits to others, etc..) leads us to emphasize that the economy of transaction costs cannot be considered as a ramification of production costs, and whether they should be located within a broader economic structure, where you have to recognize that the relevant compensations are aimed at both the employer and the state (profit - taxes) beyond the customer benefit reflected in product/ service.

Williamson (1981, p.552) states that the transaction occurs when a good or service is transferred across a technologically separable interface in an activity where one stage ends and another begins. The author notes that, with an interface that works well, like a "well-oiled" machine, transfers occur smoothly, and transaction costs compared with the friction of the machine, i.e. if the parts are lubricated and the machine works well, it will not be a waste of energy. From the perspective of transaction costs, this means that, if the parts to the transaction run smoothly, there will be no room for misunderstanding, conflicts that produce delays, interruptions or other conditions that generate an increase in transaction costs. This position is debatable, since the environment where transaction costs operate are always changing, precisely because we live in societies that are always maximizing their profits as a way to keep up to date (North, 1991), therefore the achievement of this "harmony" means in the long run a cost in itself.

According to Williamson (1981), such harmony depends on the structure of the elected government, and is related to the control of opportunism – claimed by Williamson to be typical human behavior in the market environment - and also related to bounded rationality exposed by Simon (1948). For Williamson (1981) these behaviors, (opportunism and bounded rationality) which can lead to high transaction costs, can be solved or at least ameliorated by authority relations in the hierarchy, i.e. transactions within firms. Therefore, the choice between one government structure or another which offers lower transaction costs, will finish these "choices" by focusing on the efficiency costs (in view of the economic literature). This is linked to the human behavior that determines opportunism and bounded rationality (from the perspective of organizational theory) and adapting itself to the laws governing contracts (from the perspective of legal doctrine). Thus in our view, maintaining efficiency costs depends on an innovative business strategy that seeks to maintain low transaction costs within the economic political scene´s best option.

In this complex web of relationships typical in any market, within the broad economic structure, transaction costs must be focused upon with it being possible to identify the presence of institutions, what is perhaps most obvious or explicit in market relations are the contracts, and in a relational form may involve arbitrary collective bargaining and other types of exchanges required in the market (Williamson, 1981, p.552). Following on from this, we can see that among economic agents, the rules of transaction are dictated and are about advancing (ex-ante) or after (ex-post) the variations that may occur within the analyzed market. Accordingly, different institutional agreements (sponsored by the market), plus the impact on organizational life, by imposing rules that must be followed (formal and informal), along with the time that the economic agents decide to conduct their transactions (in environments characterized by open markets) despite perfect competition (promoted by classical economists) results in the organizations affected by opportunism being seen as dishonest and not being trustworthy.

One way to address these attitudes can be through social relations which can affect economic action - generating trust and discouraging dishonesty and whose analysis allows us to understand how institutions reached their current state (Granovetter, 1992). In this perspective, Granovetter's vision complements the approaches mentioned here and discussed below.

4. Institutionalism and social relations

The central argument of social relations and institutionalism comes from the work of Granovetter (1992) who claims that economic behavior is permeated with social relations, i.e. all types of transactions are abundant in social connections. The author notes that it is an error to analyze institutions in a way independent of both human and organizational behavior.

Based on the issue of trust and dishonesty in economic life and in Williamson´s (1975) argument of markets and hierarchies, Granovetter (1992, p.74) in illustrating the use and value of his ideas, criticizes the absence of social relations in the approaches of classical economics, neoclassical and new institutional economics, as it has the urge to separate the analysis of sociological reasoning institutions. Similarly Williamson (1981) and other economists linked to the aforementioned approaches, treat institutions as solely regulators of economic activity and ignore the presence of social relationships as participants in this process. Returning to the argument of Williamson (1981) in which he considers the option that certain hierarchies can inhibit certain behaviors that damage market transactions in favor of lowering transaction costs (resolving complex situations). Granovetter (1992, p.71) replies by stressing that social relations between firms are more important than the authority within them in bringing order to the economic life and that complex relationships cannot always be resolved within the company when there is, for example, a power relationship in the financial institutions over the firms. For the author, many of these complexities are solved by the implicit or explicit relations of power between companies; as a result these relationships cannot be neglected. Powell (1991, p.268) confirms this position when he says that certain forms of exchanges are more social - and this depends more on the relationships of mutual interest and reputation - and less guided by the formal structure of authority.

To justify his argument, Granovetter (1992) notes that the evidence of social relations in business, like for example, conflicts between senior managers and business elites, are resolved without the presence of lawyers or accountants, which is down to friendly relations between those involved. In the same way, the movement of people between companies establishes networks that allow the movement of information through interpersonal ties (Granovetter, 1973) and this is of great importance in economic activity as a business or as of the whole society, which leads us to validate the fact that organizations with more knowledge can best innovate in their processes and actions in favor of productive efficiency at the macro and micro business levels considering enhanced social relationships .

But despite Granovetter (1992) emphasizing that macro-structural and historical (economic and political) issues are not the center of their approach - which is directed towards the immediate causes, that is, to the impact of economic and political changes, the social relationships within economic life is more real. Granovetter (1992) emphasizes that it may be an inappropriate relationship between micro and macro theories in not seeing social relations as a pillar of organizational understanding. Thus, the theory of social relations come to fill the void left by Hall and Soskice (2001), DiMaggio and Powell (1991) and Williamson (1981), thereby complementing the approach.

In relation to Hall and Soskice (2001), micro and macro relationships presented by them, lack an analysis of social structures and, as a result, trust relationships can act as a substitute for a possible failure of institutions or by weakening them. The institutional issue by DiMaggio and Powell (1991) also does not emphasize the importance of social relationships in isomorphism practices, but on the other hand, the authors point to the implications of institutional analysis for social theory. Amongst them, it is worthy of noting that a theory more developed in institutional isomorphism may have implications for social policies in the areas of the organizations where the state is more interventionist. Therefore, to the extent that pluralism is a value that guides the deliberations of public policy, it is important to discover new forms of inter-sectorial coordination in order to foster the diversification before the increase of organizational homogeneity (DiMaggio and Powell, 1991, p 80). In terms of the new institutional economics of Williamson (1981), Granovetter (1992) attempts to present a different way of understanding transactions, with the analysis of social relations in economic life, by understanding that this is an aspect neglected by Williamson (1981) and other classical and neoclassical economists.

Generally speaking, Granovetter (1992) provides a normal vision of institutions at a macro-level of analysis (public or regulatory bodies) and business organizations (micro level) from this, there is evidence of power relations by social contact between them (institutions and organizations) this makes businesses and institutions stronger, and then the organizations take charge or attempting to solve the complexities of economic actions, in which different actors interact with one another. Therefore, considering the political context in which organizations operate, which are inherent in social relations means that not all actions are taken from the point of view of economic cost, but also from all social and human influences. This leads to the direct proposition that all social aspects of economics directly influence the institutionalization of organizations. In this way we can observe the relationship between institutionalism and economics.

5. Institutionalism and Economics

Unlike DiMaggio and Powell (1991) – who look for the similarities between organizations - Hall and Soskice (2001) focus on the differences between "developed economies" in the study of institutions and argue that organizations develop and possess different institutions that drive competitive advantages within a framework of institutionalized innovation. These advantages are provided by the institutions that structure the political economy of the nations that belong to these organizations, (as can be seen in the work of Tarun, 2011) This argument is built taking into account the analysis of the varieties of capitalism through some basic elements; the relational view of the firm; type of economy, the role of institutions, the role of culture, informal rules and history, institutional infrastructure, corporate strategy and institutional complementarities. We can see that the proposals are within the economic cycle line of analysis where the most successful businessmen are able to carry out the revaluation of capital, reorganizing and innovating to achieve a competitive advantage over other businessmen (survival of the fittest ) eliminating the weakest, as can be viewed in Veblen´s (1899) classic "Theory of the Leisure Class".

In regards to this, Hall and Soskice (2001) argue in a more structured way (less neoclassical) that business activity is relational because it involves contacts between the various stakeholders, such as; suppliers, customers, employees, shareholders, unions, business associations and governments. As a result, the problem facing companies is to coordinate these relationships in five levels: (1) labor relations, (2) training and education, (3) corporate governance, (4) the relationship between companies, and (5) employee relations. In labor relations, the problem they face is how to coordinate wage negotiation and working conditions with their employees. In relation to training and education, companies face the problem of securing a workforce with the appropriate skills. With regards to corporate governance, the issue of coordination is around access to finance and a guarantee of ROI for investors. Among companies, the problem lies in the participation of the owners of the information and the business risks associated with joint venture companies. The central issue in relations with employees is to ensure they have the necessary knowledge as well as cooperation in achieving the company´s goals.

For Hall and Soskice (2001), firms coordinate the aforementioned problems, interacting differently depending on a nation's economy, which can be a liberal market economy or coordinated market economy (more centralized). In the first case, firms coordinate their activities through hierarchies and agreements in competitive markets, whose relations are characterized by longitude exchanges "changed hands" in a context of competition and formal contracts (Hall and Soskice, 2001, p.8).

Moreover, in coordinated market economies (more centralized) companies rely more heavily on the "market relations" to coordinate their efforts with other stakeholders and develop their basic skills. These relationships involve more relational or incomplete contracting, network monitoring based on the exchange of information within the private network, and more trust in partnerships - unlike the competition - to build the capacity of the firm (Hall and Soskice, 2001, p.8).

In general, coordination problems can be distinguished by the fact that firms in liberal market economies rely more on the open market mechanisms to coordinate their actions. On the other hand, in coordinated market economies (more centralized) strategic interaction is supported (social networks, organizational collaboration, information sharing, etc...) in order to survive.

As for the normative role of institutions, Hall and Soskice (2001) are under the impression that it comes from the support of the relationships that companies develop with the aim of solving the problems of coordination. Therefore, institutions are seen as a set of formal rules and informal actors that follow for normative reasons the role of institutions (North, 1991). At this point, we can say that the authors' argument meets DiMaggio and Powell´s (1991) institutional isomorphism, taking into account that, when they follow the rules, the actors are conditioned to similar practices that respond to the same set of rules.

As for the role of informal norms, culture and history, the first is an important condition for maintaining balance in the context of inter-organizational coordination, therefore the sharing of these norms results in the formation of a common culture (Hall and Soskice, 2001). It is important to emphasize this in the history of the countries because its institutions are created by legal action or otherwise, formally establishing operating procedures and also because of its "repeated" historical experience, builds a set of common expectations that allow actors to coordinate effectively (Hall and Soskice, 2001, p.13). Therefore, institutions are strengthened to ensure efficiency in coordination problems.

In considering the importance of the institutional infrastructure and corporate strategy in ensuring a competitive advantage in the face of innovative processes, Hall and Soskice (2001) argue that organizational strategies are conditioned by institutional structures (state and corporate structures), which differ by type of economy. Therefore, differences in institutional economic policy frameworks generate systematic differences in corporate strategy of both economies (market liberal and coordinated market) this reinforces the fact that the organization tends to see the issues as effectively creating value through institutional development in order to maintain high levels of productive impact that result in innovative strategic policy maintenance that can cope with different economic systems in where the company operates. Therefore, we will review the concepts of innovation and institutionalism and to see a relationship between increased innovation processes in organizations and maintaining a constant efficiency in the markets by the organizations.

6. Institutionalism and Innovation

Innovation can be seen from different points of view, but one of the most discussed is the complementarity of organizations (emulation or copy) that is often associated with the improvement of product and service processes that an organization offers, the so-called "technological change" that generates an improvement in the overall productivity of nations. This logic of emulating processes or creation of something "new for the world" can be seen as complementary, organizationally speaking, thus, if maintained, results in efficiency in the presence of increased feedback between the two organizations. This tends to suggest that countries with a particular type of coordination in the economy can develop complementary, innovative and growing practices. Gonzalez (2011) goes along with Edquist and Johnson´s (1997) definition of institutions as "sets of common habits, routines, established practices, rules, or laws that regulate the relationships and interactions between individuals and groups". However, innovation implies breaking or altering these routines and behaviors, in effect, it means that in certain situations and conditions, the existing institutions can encourage innovation, or on the contrary, hinder its development (Gonzalez, 2011).We are therefore presented with a contradictory relationship and juxtaposition of sorts in the relationship in which institutions and innovations exist.

As a result of this we are left with what Gonzalez (2011) calls the "institution-innovation dilemma" in that the institutions stimulate innovation because they reduce uncertainties, coordinate the use of knowledge, mediate conflicts, and provide incentives (Carlsson & Jacobson, 1997), whilst at the same time, the institutions can be broken, altered, adapted and removed. Therefore, for institutional change to occur, more often than not, an institutional change is needed, and this, according to Gonzalez (2011) is not always all that easy to do. Indeed, Hargadon & Douglas (2001) go slightly further than Gonzalez (2011) in claiming that it is a case of two social forces colliding when innovation meets institutions in that one is accounting for the stability of social systems and the other is pushing for change.

Taking into account these issues, Hall and Soskice (2001, p.18) focus on how to build a competitive advantage in international economies and, as such, make the use of the concept of institutional competitive advantage commonplace. The basic idea is, therefore, that the structure of a particular political economy, given by the company comes with the benefits of participation in certain types of activities. In this sense, organizations are developed by institutional differences, and this could be a basis for the concept of competitive advantage (institutional differences), where differences in some organizations are reflected in their particular distinction in the markets. But also, these differences can be emulated by other companies and so break the monopoly of a particular profit organization attacking radical innovation, the "creative destruction" of Schumpeter (1942) has been reformulated and theoretically supported by Christensen (1997) and Penrose (1957).

In regards to a competitive advantage, we can see institutionalism in practice, with the difference between radical and incremental innovation highlighted by Hall and Soskice (2001), Tidd, et al. (2000) and Ahmed, et al. (2012), where radical innovation is applying substantial changes in product lines, generating or developing completely new products or by generating major changes in production processes. Incremental innovation, on the other hand, is one that is marked by continuous improvement in product lines and processes in the production chain. In this regard, the competitive advantages happen to have a key role in the development of organizational size or heritage as argued by Tidd, et al. (2000) and Ahmed, et al. (2012).

The scene is changing in favor of those organizations that can mobilize knowledge and technological advances, and manage to update their products / services on offer, and also in how they get these new offers to the market. Therefore, innovation contributes in various ways to shape the strategy of the organization in strengthening competitive advantages. Furthermore, we can see that current research in innovation suggests that there is a strong correlation between marketing performance and the insertion of new products (Sourder and Sherman, 1994), (Tidd, et al. 2000). New products should fulfill market needs while increasing profits in such markets. In the case of more established products, competitive growth in sales is the result of not just the ability to offer lower prices (competitive), but also a host of non-economic factors such as models of customization, where the client actively participates in the outcome of what will be consumed and also, therefore, participates in the quality. The ability to replace the product for newer versions (technologically advanced) are increasingly common and important (Stalk and Hout, 1990), (Walsh, 1992). This leads us to fight against time, which is a huge pressure for organizations, not only to introduce new products/ services to market, but to do it faster than your competitors Stalk and Hout (1990), Rosenau (1996). Only then, will it be possible to prevent emulation by your competitors in the short term in products/ services. This signals that institutions must adapt to these new scenarios and propose policy strategies (rationalist or incrementalist) and by implementing different strategies. As an example we have strategies of differentiation, cost or approach that has been widely discussed by Portes (1990) and Mintzberg (1991).

In this sense we what has been reviewed in section four "Institutionalism and Economics", it can be argued that liberal market economies can encourage companies to implement as best they can, radical innovation, while coordinated markets are more conducive to promoting incremental innovation, all from a perspective of maintaining an organizational strategy that keeps an organization organized in the long term (institutionalism).

The argument of Hall and Soskice (2001) surrounding institutions (macro level analysis) and its impact on organizations (micro) where different perspectives generate innovation, reinforces and complements the perspective of DiMaggio and Powell (1991). That is, that the state dominates and influences many areas of economic life, which in practice, can be seen as the great sign, for an organization to be more innovative and can institutionalize its long-term objectives to the extent that the market in which it operates allows. Therefore, when considering the similarities of organizations, we cannot deny that Hall and Soskice (2001) when fronting institutionalism, point to the institutional differences between two economies and fail to see the similarities of organizational behavior within them. This can be considered an institutional isomorphism, where organizations still operating in different economic systems tend to generate organizational similarities, which for the purpose of this paper, is positive given that the relationship between innovation processes within organizations tend to be similar and create and organizational institution independent of the economic system in which the organization operates. In the same vein, Hall and Soskice (2001), Porter (1990) and Mintzberg (1991) provide advanced visions of the institutions where these are present, not only with regulatory actions, but also decisive action in promoting the development of nations from the perspective of institutional competitive advantage.

Finally, it is worthy of mentioning that it has become apparent that we can pick up a vast experience of the practices of innovation in different works. This has been shown in the bibliometric study based on the work innovation of Schumpeter by Lazzarotti, et al. (2011). Indeed, in their study, over 17 topics were found in relation to innovation and they found in particular that research in the business administration area on innovation moves toward more innovative activities and, in some ways, is able to surpass the five cases of innovation presented by Schumpeter (1934) and the four cases of innovation by Tidd et al. (2008).

A further interesting finding by Lazzarotti et al. (2011) is that in regards to the product innovation, it is inferred that this predominance may be linked to market dynamics. That is to say, a new product can crystallize in an organization, often (according to Lazzarotti et al.) as a marketing strategy perspective, as a power game, in which he who innovates is better compensated.

7. Conclusions

By mapping some theoretical perspectives on innovation and institutionalism, it was possible to see different perspectives and approaches of analysis on this matter and accept that innovation has become institutionalized in different organizations. The authors we have reviewed are in agreement that the institutions impact the lives of organizations, therefore, it is essential that is considered of a greater importance when considering the matter. Although, not all authors cited in this paper have institutionalism as the focus of their topics, as is the case of Williamson (1981) and Granovetter (1992), this topic of innovation/ institutionalism is still present in the approaches of these authors. It should therefore be seen as impossible to emit when talking about innovation, in other words we cannot talk about innovation without mentioning that institutionalism affects organizations and that they must generate steadily, embracing practices (production, human resources, financial, etc..) that are institutionalized within the organization.

Following on, when discussing the different views, opinions and differentiations that we have seen between DiMaggio and Powell (1991), North (1991), Hall and Soskice (2001), Williamson (1981), Schumpeter (1942) and Granovetter (1992), we can see some key aspects distinguished in the text, like, for example, that based on institutional theory Hall and Soskice (2001), orientate their study on the institutional differences, which are determinants of institutional competitive advantages. Thereby entering the field of organizational competitive advantage that reinforces the discussion of authors such as Portes (1990) and Mintzberg (1991). It is here, where we can see that an organization that appreciates being sustainable, must implement a number of primarily innovative strategies, which permits the survival of the firm (Tidd et al. 2008) DiMaggio and Powell (1991) and North (1990). This leads us to see the established organizational similarities by institutional isomorphism. In order to examine institutional differences, one should take a macro view by presenting a study of the types of economies (open and centralized) and see the institutional characteristics of each, which will be reflected in the nations, and therefore in organizations. At this macro level, there is room for convergence around institutional isomorphism, since Hall and Soskice (2001) found similar behavior in organizations in both liberal market and coordinated market economies, indicating that innovation can be present in different economic models, since it complements within each economic model.

Williamson (1981) (who doesn´t focus on the similarities or the differences), leaves space open for debate on institutions when it comes to alternative governance structures based on the theoretical reasons of the economy, the organizations and the law, showing the importance of the study of these structures from the perspective of institutional competitiveness. Therefore, the focus of Williamson (1981) converges on the idea that the institutions influence the decisions of organizations, which is supported by the fact that organizational practices, such as innovation management become extremely important in organizational development (Tidd, 2008).

With a sociological approach, Granovetter (1992) comes to occupy the empty spaces left by the authors mentioned above and thus contributes to complement institutional theory by arguing that economic activity is intertwined with social relations, whose detailed analysis is the key to understanding how institutions came to their current state. In building his argument to the criticism of the new institutional economists, the author offers a new perspective on the context of transactions that fill the void left by Williamson (1981) and makes a major contribution to the study of institutions where "social relations "are a way of understanding institutionalism.

Furthermore, in terms of complementarity, the social approach seizes the void left by Hall and Soskice (2001), in which we can see that they are not concerned with the relationships of trust in the processes of coordination among agents. Although we can recognize the importance of their focus of considering institutions as the key to economic development, regulatory systems and learning, whilst also being socializing agents, that, as members of the capitalist system, provide the means of coordinating relations between actors, be them organizations, suppliers, customers, governments, etc.

Hall and Soskice (2001) disregard the existing trust in the processes of coordination among agents, omitting the fact that these relationships are those that effectively create changes when institutions don´t work in the adoption of defense mechanisms, for example, to combat opportunism in market relations. This alerts one to the processes of institutional change within the organizations, and that should be considered, in any innovative management process, the fact that there are rules and standards that must be met beyond the pursuit of "monopolistic profit" outlined by Schumpeter (1942).

The theoretical institutionalism approaches mentioned in this document have different types of analysis that can be used for the study of organizations, which are complementary and enter the consensus that basically studies the impact of institutions on organizations. Seen this way, innovation occurs within a set of thoughts, visions and management practices that are inherent in organizational institutionalism.

With Reed´s (1999) perspective for organizational studies itself, we can say that there is a point of intersection between institutional theory and the "praxis" economy, as it is developed in the studies by publishing new analytical outlooks, not in order to refute or ignore past history, but in order to fill the gaps left by the theories, looking at everything from the perspective of economic and social growth. This leads us to reflect on a strategy based on innovation that is within the parameters of normative isomorphism, by pointing to the improvement and development of human resources, legitimizing the professional autonomy of experts in the field of innovation management (perfecting the market), further reinforces the fact that innovation in practice copies and improves, or adapts to new technologies under uncertainty (mimetic isomorphism) through incremental innovation. Similarly, innovation can be seen from the point of view of coercive isomorphism, since it responds to institutional changes, or be generated in them, other radical changes that generate "creative destruction" revealing Schumpeter approaches (1942) with view to safeguarding a profitable monopoly will the economic benefits expected by the organization in its various stages of growth and institutional strength.


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1. PhD. Business Economics, Universidad de Barcelona, Spain. University Lecturer Latin American Institute of Economics, Society and Politics ILAESP. Federal Latin American Integration University UNILA.
2. PhD. Business Administration, Universidade Federal de Minas Gerais, Brasil.  University Lecturer, Department of Business Administration, Faculty of Applied and Social Sciences. Universidade Federal do Parana,
3. MRes Universitat Pompeu Fabra, Barcelona, Spain. University Lecturer, Universidad Técnica Particular de Loja. Faculty of Business Administration,

Vol. 36 (Nº 21) Año 2015


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