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‘ LIBRARY
Michigan State
University

-——

 

——

 

J

This is to certify that the

dissertation entitled
Institutional Isomorphism and
Homogeneity of Business Strategy
in Organization Fields

presented by

Aaron Anthony Buchko

has been accepted towards fulfillment

of the requirements for

Ph . D . degree in Management

/ \~_._.
*—/ “"' ‘\
{ W42. ’37! “772 M

/ MajonEfessor /

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I

Date May 16, 1990

MSUis an Affirmative Action/Equal Opportunity Institution 0-12771

__.—‘—.__.____ _ _

 

 

 

PLACE IN RETURN BOX to remove this checkout from your record.
TO AVOID FINES return on or before date due.

DATE DUE DATE DUE DATE DUE

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MSU Is An Affirmative Action/Equal Opportunity Institution
cszmWnpms—pn

 

 

 

 

INSTITUTIONAL ISOMORPHISM AND
HOMOGENEITY OF BUSINESS STRATEGY

IN ORGANIZATION FIELDS

By

Aaron Anthony Buchko

A DISSERTATION
Submitted to
Michigan State University
in partial fulfillment of the requirements
for the degree of

DOCTOR OF PHILOSOPHY

Department of Management

1990

 

ABSTRACT
INSTITUTIONAL ISOMORPHISM AND
HOMOGENEITY OF BUSINESS STRATEGY

IN ORGANIZATION FIELDS

By

Aaron Anthony Buchko

Why do executives in organizations pursue strategies which are
similar to those of other firms? This question differs from the
dominant View in strategy research, which emphasizes heterogeneity in
strategies and strategic behavior among firms. This research suggests
that institutional structures which are found in interorganizational
relationships termed organization fields" give rise to three kinds of
forces which lead firms to adopt similar or homogeneous strategies.

The first of these forces is termed coercive isomorphism and is
derived from dependence relations among firms. The second is referred
to as mimetic isomorphism and is based upon uncertainty and mimicry.
The third and final force arises from the rise in professional ties or
linkages among firms and the increased professionalism of members of
organizations and is termed normative isomorphism.

Three hypotheses were developed based on the three isomorphic
forces which suggested that greater levels of isomorphic force among
firms in an organization field will lead, ceteris paribus, to greater
homogeneity in strategy among those firms. The hypotheses were tested
via a survey of 137 firms selected at random from those in the auto
supplier organization field. Data was obtained on the business

strategies, degree of dependence, perceived uncertainty, and number of

 

Aaron Anthony Buchko

professional linkages for each firm within the field. Firms were
clustered into comparison groups based on the amount of institutional
isomorphic force present among the organizations.

The results indicated that firms with greater dependence on
similar customer firms and those with greater professional
interrelationships had moderately greater homogeneity in their business
strategies. No significant differences were found among firms with
higher levels of perceived environmental uncertainty as compared with
those firms with low levels of uncertainty.

These results suggest that institutional forces may be operative
among firms within an organization field and may lead to isomorphism
and homogeneity in business strategy among these firms. The results
also suggest a need for additional research in several areas pertaining
to institutional theory and strategy which may have utility for
researchers seeking to understand the strategic behavior of firms in

interorganizational systems.

 

 

Copyright by
AARON ANTHONY BUCHKO

1990

 

 

For Kathy,
who made it all possible,
and my parents,
Walter and Blanche Buchko

with thanks for their love, prayers, and support.

 

 

ACKNOWLEDGEMENTS

A project such is not the results of one individual as much as it

is a team of people who contribute unselfishly of their time and
talents. This dissertation could not have been completed without their

work. In many ways, this is a collective project. I am merely the

scribe.

I owe a great debt of gratitude to the members of my dissertation

committee. Dr. Jim Skivington was the chairman of the committee, and

his insightful probing questions and patience made the work bearable.

He is responsible, to a great extent, for the original idea, spawned in

one of our many trips in the spring and summer of 1988 to visit auto

supplier firms in Michigan. I will always remember fondly our time in

the car on the highways of that great state and his friendship and

support throughout the process.

Dr. Harry Perlstadt of the Department of Sociology was one of many

great teachers I encountered during my time at Michigan State. Early

in my doctoral work, he instilled in me an interest in a sociological

perspective and a curiosity to know more about organization phenomena

which has greatly influenced my thinking. He agreed to join the
dissertation committee and his comments and insights were enlightening

and, as always, right on the mark.

Vi

 

 

 

Dr. Glen Omura of the Department of Marketing agreed to serve on

the dissertation committee at a critical time, and I owe him a debt of

thanks not only for agreeing to serve but for his contributions to the

final product. He made me think about the topic, challenged me with

the right questions, and like all good teachers, brought forth a better

effort from me. He was an ideal committee member, and I feel very

fortunate indeed to count him as a member of the dissertation

committee.

During my five years at Michigan State, a number of people were

instrumental in my personal and professional development, and the

dissertation reflects their collective efforts. The faculty of the

department of Management provided me with a sound training in theory

and research. The staff of the department, particularly Sue Polhamus,

always had time to take care of the many details associated with being

a graduate assistant. I have been privileged to have had many good

fellow graduate students during my education who made life bearable and

even, at times, fun. Lately, I have had the good fortune to return to

Bradley University - where I earned my MBA degree - as a faculty
member, and I would like to thank Dr. Fred Fry, Dr. Dick Hartman, and
Dr Chuck Stoner for convincing me that there might be a career in
academics and then, to prove it, for allowing me to return to Bradley

as a colleague. Mrs. Mary Lu Reither of the Department of Business

Management and Administration at Bradley suffered through the editing

of the final manuscript and produced the final draft. Her patience and

good nature, to say nothing of her amazing talents on the word

 

viii
processor and as a friend, made the laborious process a little more

fun, and I would like to thank her for all her work.
My parents, Walter and Blanche Buchko, supported us throughout the

five years in East Lansing. They gave frequently of their time,

talents, home, and love. In addition, they were very patient with a

certain son of theirs during his young years, and taught me the value

of an education. This dissertation is dedicated to them as a small way

of saying "thanks for everything."

Every student would be remiss without acknowledging the efforts of

those who devote their energies to the educational enterprise, the

teachers and professors. I have been fortunate in my life to have had

many fine teachers who were patient with me and taught me more than the

lessons in the textbooks. In particular, I have been most fortunate to

have had the privilege to learn from Dr. Eugene Jennings of the

Department of Management at Michigan State. I have learned more from

this man in five years than in the previous twenty five combined, not

only about management but about education, business, and life. I

consider it a great to honor to have this man refer to me as a

colleague, and I will always be grateful to Gene and his wife, Marilyn,

for their love, friendship, and support.
Finally, the most important member of the team. My wife, Kathy,

put up with a great deal. I had to uproot her from a secure life in

Peoria to follow my "wild idea" about a doctoral degree, and she has

sacrificed much in the process. She put up with the long nights, the

low pay of the grad assistant, the compartment in Spartan Village,

Michigan winters, and many more hardships. Through it all, she has

 

—i—

ix
been my strongest supporter, companion, and my best friend. In the
process, she has managed to find time to keep the home, cook the meals,

work as a graduate assistant herself, earn a Master's degree (with

another on the way), and complete most of the work for her Doctorate.

I think she's had it rougher than I. She is my greatest inspiration,

and without her love and encouragement I doubt any of this would have

been possible. Thanks, Kath — I think I’ll stop working on the

dissertation now.

 

Aaron A. Buchko
Peoria, Illinois
May 1990

 

 

 

TABLE OF CONTENTS
Page
List of Figures xiii
xv

List of Tables

CHAPTER ONE - INTRODUCTION

H

Overview - The Problem
Strategy, Heterogeneity, and Institutionalization:
Definitions

Strategy
Heterogeneity and Homogeneity of Strategy

Institutionalization
The Research Question and Objectives
Conceptual Model
Research Method Synopsis
The Significance of the Study
Order of Presentation

Ooooowmulbmm

H

CHAPTER TWO - HETEROGENEITY AND HOMOGENEITY OF STRATEGY IN TRATEGY

RESEARCH: A LITERATURE REVIEW

Introduction 11
Heterogeneity of Strategy: Research Perspectives 13
Management Characteristics and Strategic
Heterogeneity l3
Competitive Market Forces and Strategic
Heterogeneity 22
Industry Structure and Strategic Heterogeneity 29
Environmental Forces and Heterogeneity of
Strategy: A Contingency Approach 33
Strategic Heterogeneity: Summary 37
Strategy Research and Homogeneity of Strategy 38
Homogeneity in the Content of Strategy:
Strategic Groups 38
Homogeneity in the Strategic Process:
Choice of Organization Structure 45
Homogeneity in the Strategic Process:
Strategic Behavior 47
Strategic Homogeneity: Summary 49
50

Isomorphism: Competitive and Institutional

 

 

 

xi

CHAPTER THREE - INSTITUTIONAL ISOMORPHISM, MECHANISMS, AND HOMOGENEITY
OF BUSINESS STRATEGY: THEORY AND RESEARCH HYPOTHESES

Introduction 54
Central Concepts of an Institutional
Perspective 55
Three Forces for Institutional Isomorphism:

Effects on Firm Strategy 69
Coercive Isomorphism 69
Mimetic Isomorphism 8l
Normative Isomorphism 86
Mechanisms of Isomorphism: Summary 93

Institutional Isomorphism and Firm Strategy:

Research Hypotheses 96
Coercive Isomorphism: Research Hypothesis 98
Mimetic Isomorphism: Research Hypothesis lOO
Normative Isomorphism: Research Hypothesis 102
Research Hypotheses: Summary 108

CHAPTER FOUR: INSTITUTIONAL ISOMORPHISM AND ORGANIZATIONAL STRATEGY:
AN EMPIRICAL STUDY

Introduction 110
The Organization Field 110
The Organization Field: Conceptual Definition 111
The Organization Field: Empirical Definition 113
Structural Analysis of the Organizational Field:
Subgroup Partitioning 115
Structural Analysis of the Organization Field:
Partitioning Methods 118
The Dependent Variable: Measures of Business
Strategy and Strategic Homogeneity 122
Measuring Business Strategy 123
Measuring Homogeneity of Business Strategy 127
The Independent Variables: Measures of
Isomorphic Forces 128
Coercive Isomorphic Force: Customer Dependence 128
Mimetic Isomorphic Force: Perceived Environmental
Uncertainty 132
Normative Isomorphic Force: Professional
Interrelationships 134
Data Analysis 141
Homogeneity of Variance: Use of the Fmax
Statistic 141
Homogeneity of Variance: Controlling for
Critical Exogeneous Variables 144
Homogeneity of Variance: Testing the
Research Hypotheses 148
Power Analysis 151
Methodology: Data Collection 153
Sample 153
155

Data Collection: Survey

CHAPTER FOUR (continued)

Results

Summary Statistics for the Firms in the Study

Hypothesis 1: Dependence and Homogeneity

of Strategy

Hypothesis 2: Uncertainty and Homogeneity
of Strategy

Hypothesis 3: Professionalism and Homogeneity
of Strategy

Conclusio

CHAPTER FIVE: DISCUSSION OF RESULTS, IMPLICATIONS, AND

Introduction
Institutional Forces for Isomorphism and
Homogeneity of Business Strategy
Coercive Isomorphism and Supplier Dependence
Mimetic Isomorphism and Supplier Uncertainty

Normative Isomorphism and Supplier Professionalism

Institutional Forces for Isomorphism and

Homogeneity of Strategy: Integration of Results

Discussion of Results: Summary

The Structure of Organization Fields, Institutional

Isomorphism, and Homogeneity of Strategy
Homogeneity of Business Strategy in Organization
Fields
Strategy and Interorganizational Relationships
Homogeneity of Business Strategy: Implications
Homogeneity of Strategy and Strategic Groups
Homogeneity of Strategy: Intended, Realized,
and Corporate
Limitations and Implications

APPENDICES

Operationalization of the Independent Variables
in the Study

Measurement of the Dependent Variables in the Study:
Actual Business Strategy

Auto Supplier Industry Research Project: Auto
Supplier Survey

REFERENCES

158
158

164
179
186
198
CONCLUSION
200
201
201
209
215

221
227

231
237
238
241
252

254

256

261

262

263

271

 

Was--

r

Table
Number

4-8

LIST OF TABLES

Title

Significant Strategic Environmental and
Organizational Variables

Strategic Groups: Previous Studies
Business—Level Strategic Variables

Means, Standard Deviations, and
Correlations of the Research Variables

Distribution and Frequencies for the
Manufacturing Processes Utilized by the
Auto Supplier Firms in the Study

Distribution and Frequencies for the
Primary Products Manufactured by the Auto
Supplier Firms in the Study

Means, Standard Deviations, and t-tests of
the Differences in the Analytic Clusters of
Auto Supplier Firms in the Study Dependence

Distribution and Frequencies for the
Manufacturing Processes Utilized by the Auto
Supplier Firms in the Sample (Including
Chi-square test): Hypothesis 1 — Dependence

Distribution and Frequencies for the
Primary Products Manufactured by the Auto
Supplier Firms in the Sample (Including
Chi-square test): Hypothesis 1 - Dependence

Homogeneity of Business Strategy:
Variance in Business Strategy Variables
as a Function of Firms' Dependence

Distribution and Frequencies for the
Manufacturing Processes Utilized by the

Auto Supplier Firms in the Sample (Including
Chi-square test): Hypothesis 2 - Uncertainty

Distribution and Frequencies for the

Primary Products Manufactured by the Auto
Supplier Firms in the Sample (Including
Chi-square test): Hypothesis 2 - Uncertainty

xiii

Page

35
43

125

159

162

163

167

170

171

173

182

183

& 126

xiv
LIST OF TABLES
(continued)
4-11 Homogeneity of Business Strategy:

Variance in Business Strategy Variables as
a Function of Perceived Environmental
Uncertainty 184

4-12 Means, Standard Deviations, and t-tests of
the Differences in the Analytic Clusters of
Auto Supplier Firms in the Study Hypothesis 3 -
Professionalism 189

4-13 Distribution and Frequencies for the
Manufacturing Processes Utilized by the Auto
Supplier Firms in the Sample (Including
Chi-square test): Hypothesis 3 -
Professionalism 191

 

4-14 Distribution and Frequencies for the Primary
Products Manufactured by the Auto Supplier
Firms in the Sample (Including Chi-square
test): Hypothesis 3 ~ Professionalism 192

4-15 Homogeneity of Business Strategy: Variance
in Business Strategy Variables as a Function
of Professionalism 194

5'1 Comparison of the Results of the Analysis:
Homogeneity of Business Strategy for Two
Mechanisms of Institutional Isomorphism 222

 

 

 

Figure
meber

5-1

LIST OF FIGURES

Title Page
A Conceptual Model of the Research 7
Forces for Strategic Heterogeneity 14

An Upper Echelons Perspective of

Organizations 17
A Perceptually Based Strategy Model 19
The Product Life Cycle 24
Forces Driving Industry Competition 30

Forms of Evidence for Homogeneity of Strategy 39

Institutionalized Relationships in
Organizational Fields: Sociomatrix Analysis 62

Organizational Relationships in

Institutional Environments: The Nature of
Relationships among Organizations and

Structural Equivalence - Example 64

Institutional Forces and Mechanisms for
Strategic Homogeneity 68

Model of the Research Hypotheses 109

Measuring Homogeneity: The Variance of the
Distribution 129

Measurement Model of the Research Hypotheses 150

Plot of the Number of Clusters versus the
Fusion Coefficient, Ward's Method Solution of
the Firm Dependence Data Set 165

Plot of the Number of Clusters versus the
Fusion Coefficient, Ward‘s Method Solution of
the Firm Professionalism Data Set 188

Forces for the Homogeneity of Strategy:
An Integrative Model 244

 

 

 

 

 

Chapter One

Introduction

1.1 Overview - The Problem

Why do firms pursue strategies which are similar to those of other
firms? This question differs from the majority of existing research on
strategy, which seeks to answer the question, "Why are strategies
different?" activity. Among the reasons given for the heterogeneity
in the strategies pursued by corporations are: (1) strategies arise
from characteristics of the organization's top executives (Miles and
Snow, 1978; Bettis, 1981; Child, 1972; Hambrick and Mason, 1984); (2)
strategy is a response to competitive market forces, such as market
share and market growth, which are found in the structure of firms’
product-markets (Buzzell, 1966; Hofer, 1975; Buzzell and Gale, 1987);
and (3) strategic behavior is shaped by the structure of an industry,
which includes suppliers, customers, competitors, substitute products,
and potential new entrants (Porter, 1979a; 1980; 1985); or (4) strategy
is contingent upon a set of environmental factors which might include
elements of the preceding three views (Hofer, 1975; Lindsay and Rue,
1980; Hambrick, 1983a). In all cases, the strategic response of any
single company is based upon the set of idiosyncratic factors with
which the firm must contend.

This research argues that factors other than those found in the

characteristics of management, in product-market structures, in the

 

 

 

2

structure of an industry, or in the competitive environment affect the
strategic behavior of organizations. These forces are found in the
patterns of institutional relations and interactions inherent in the
structuration (Giddens, 1979) of organizational fields. The presence
of such institutional forces can lead to isomorphism - the constraining
process which forces an organization to become similar to others facing
the same set of circumstances. Institutional isomorphism affects the
strategic decisions of organization managers, such that the strategies
come to appear homogeneous - they are similar to one another. In the
presence of institutional forces for isomorphism, a firm is confronted
with a setting in which the efforts of any single company to deal with
the uncertainty, dynamism, and complexity of strategic activity often
lead, over time, to increasing homogeneity in strategy among groups of

firms.

1.2 Strategy, Heterogeneity, Homogeneity, and Institutionalization:
Definitions

1.2a Strategy

There are many definitions of the term "strategy" found in the
strategic management literature. Chandler (1962) offered one of the
more significant definitions of strategy, and his definition will be
used in this study. In his book, Strategy and Structure: Chapters in
the History of the Industrial Enterprise, Chandler summarized preceding
efforts and established a foundation for much of the research which has

followed. Chandler defined strategy as "the determination of the basic

 

3
long-term goals and objectives of an enterprise and the adoption of
courses of action and the collection of resources necessary for
carrying out these goals" (1962:13).

Because strategy concerns the long-term the survival, growth, and
performance of organizations, and due to the level of resource
commitment involved, strategic decisions and strategic activities are
of central importance for many firms. Attaining the long-term
objectives of an enterprise typically requires great amounts of top
management time, involvement, and effort (Hambrick and Mason, 1984).
Further, the amount of resource commitments are quite substantial,
involving large sums of money, capital, and time. The nature of
organizational strategy makes this a significant research issue in the

organizational sciences.

 

Business Strategy

Organizational strategies can be divided into two broad
categories: corporate-level strategies and business-level strategies.
Corporate strategies concern the choice of business or industries in
which a firm will compete (Hofer and Schendel, 1978). Corporate—level
strategic decisions involve diversification, merger, acquisition, and
divestiture of strategic business units (SBUs). Such strategies answer
the question, "What are the businesses or industries in which our firm
will compete?" and frequently involve decisions concerning the
business portfolio of a firm (Hayden, 1986).

Business-level strategies concern the choices about the

competitive and strategic behaviors necessary to compete with other

 

 

4
firms in a single business or industry segment (Hofer and Schendel,
1978). Business strategy decisions may be quite broad in scope,
involving resource allocations and decisions about marketing, finance,
personnel, manufacturing/operations, and other business activities.
Business strategies answer the question, "How should our firm compete
within this industry or business?" This research will be concerned

with business strategies as the level of strategy analysis.

1.2b Heterogeneity and Homogeneity of Strategy

Heterogeneity is the dissimilarity of elements, the difference or
diversity among constituents. For example, the population of the
United States is heterogeneous, consisting of diverse individuals with
differences in their composition and character. Homogeneity is defined
as being of the same kind or similar nature, possessing a uniform
structure throughout the entity. Using these definitions,
heterogeneity is reflected in the variation among elements or entities;
homogeneity would be the lack of variation.

Heterogeneity in strategy among firms would indicate the presence
of diversity in the long—term goals, variation in the courses of
strategic action which firms pursue, and/or dissimilarity in the
resource allocation decisions of business organizations. Conversely,
homogeneity of strategy would be represented by similarity in long-term

goals, a lack of variation in the actions which firms pursue, and

correspondence in resource allocation decisions of corporations.

 

 

5

Dominant views in the literature on strategy emphasize the
heterogeneity among firms in strategic behavior (Hofer, 1975; Miles and
Snow, 1978; Porter, 1980; Hitt and Ireland, 1985). In fact, firms are
encouraged to seek strategies which differ from those of competitors to
increase firm performance (Snow and Hrebiniak, 1980; Porter, 1985).
There is some indication in the research, however, that firms often
pursue similar strategic arrangements (McGee and Thomas, 1986). Though
much of the data is anecdotal in nature (for example, see Horvat, 1987;
Powers, 1988), there are studies which are more empirical in nature and
which support the homogeneity perspective (as in Willard and Cooper,

1985; Cool and Schendel, 1987).

1.2c Institutionalization

One framework which might be useful in explaining the presence of
homogeneity of strategy is offered by institutional theory.
Institutional theories of organizations suggest that organizations are
influenced by pressures for conformance to group or societal norms,
some of which are external and others which are internal to the firm
(Zucker, 1987). Such pressures may direct firms to adapt similar
behaviors in response to the institutional forces, leading to
isomorphism -similarity of form and structure - with the institutional
environment (Zucker, 1987). To date, research on institutionalization
- the process by which firms firms adapt to the institutional
environment - has focused on largely on organizational structure (for

example: Rowan, 1982; DiMaggio and Powell, 1983; Meyer, Scott, Strang,

 

 

6
and Creighton, 1988). However, no research has been found which

addresses the effects of institutional forces on business strategy.

1.3 The Research Question and Objectives

The primary problem addressed by this research concerns the
homogeneity of business strategy among firms. Current perspectives
emphasize the heterogeneity of business strategy, and presume that firm
strategies will vary due to various forces in the firm's environment.
This research seeks to explain homogeneity — the similarity of
strategies among firms. The question, "Why do firms pursue strategies
which are similar to those of other firms?" is the central issue for
this study. One possible answer to this question of homogeneity of
strategy which is suggested in this research lies in the presence of
institutional forces and mechanisms found in the intergroup structures
and relations among a group of organizations. Such institutional
factors can lead to isomorphism and homogeneity of strategy.

The specific objectives of this research are: 1) to develop a
theoretical perspective which might explain the homogeneity of strategy
among firms using institutional theories of organizations, specifying
institutional forces and mechanisms which might affect the homogeneity
of strategy, and 2) to develop and empirically test a series of
Specific hypotheses concerning homogeneity of strategy which are based

upon an institutional framework.

 

 

 

 

1.4 Conceptual Model

The central contention of this research is that the greater the
institutional forces for isomorphic change present among a group of
business firms, the greater the homogeneity of business strategy among

those organizations. This basic model is depicted in Figure 1-1.

 

 

 
     
    

 

 

 

 

Institutional Forces
(which are a function Mechanisms of Homogeneity
of interfirm Relations) Institutional of Business
in the Organization Isomorphism Strategy
Environment

 

 

 

Institutional forces operate via specific mechanisms to increase
homogeneity.

Figure 1-1

A Conceptual Model of the Research

This model is quite broad and general in scope. This study will
have a more narrow focus, addressing specific issues within the basic
conceptual and theoretical model in the development of the research
hypotheses and the research methodology. For some organizations,
certain of the various institutional forces may not be operative due to
the level of analysis or the sample of firms utilized. Such elements
will be not be included in the research hypotheses under investigation

in this study.

 

 

 

1.5 Research Method SynOpsis

For this study, the proposed research method will involve a survey
of a firms within a specific industry group, automobile industry
supplier firms. Surveys will be mailed to approximately 400 auto
supplier firms which will seek information on the firm’s business
strategies and the institutional forces and mechanisms present in the
firm's environment. Responding firms will be separated into two groups
for analysis: "High Institutional" firms, which have substantial levels
of institutional forces acting upon them, and "Low Instiutional"
firms, which have few institutional forces affecting their behavior.
For the basic research model to be supported, firms which have high
institutional forces will exhibit greaater homogeneity of business
strategy than firms with low institutional forces. Homgeneity of
business strategy is the absence of variation in business strategies
among firms, and the analysis will examine the variance in business

strategies between the groups of firms.

1.6 The Signficance of the Study

The significance of this study is found primarily in its
contribution to existing literature and research on organizational
strategy. As will be discussed, previous research on business strategy
assumes heterogeneity among firms. That is, there is an underlying
assumption that the business strategies which firms will pursue will

differ. The majority of existing research seeks to understand the

 

 

 

—i—

9
causes of this heterogeneity or the effects of this heterogeneity on
such outcomes as firm performance. This study questions this
assumption by investigating the presence of homogeneity in business
strategies among firms. Research which tests the underlying
assumptions of a research paradigm is essential in order to provide for
growth of scientific knowledge (Kuhn, 1963).

By examining the issue of homogeneity of strategy, and through the
use of the institutional perspective, this study will contribute new
knowledge concerning the nature of strategy and the institutional
environment of organizations. The impacts of institutional
arrangements on strategy will be presented and examined empirically.

The results will provide insights into the specific effects of
institutional forces on strategies among firms within a particular

industry group. Also, this study will develop a theoretical base and

 

initial methodology to guide future research on the subject in other
industries or among other groups of firms.

From a managerial perspective, the research will provide an
information on certain aspects of the strategy process and will offer
insights into the nature of the relations among organizations.
Executives can evaluate the effects of institutional forces on their
organizations and determine the extent to which such forces affect
their firm's strategy, as well as the strategies of competitors. The

research may suggest additional considerations for managers in the

 

formulation and implementation of the organization's strategy.

   

 

 

10

1.7 Order of Presentation

The balance of this dissertation will proceed as follows. Chapter
Two examines the literature on strategy to illustrate the dominant
research perspectives which emphasize the heterogeneity of business
strategy. Forces for heterogeneity in business strategy found in
organizations, markets, industries, and environments will be reviewed.
Evidence for homogeneity of business strategy will be presented.
Chapter Three suggests that institutional forces present in
organizational fields have a significant impact on the homogeneity of
strategic actions among firms. A general theory on the effects of
institutional forces on firm strategy will be developed, and broad
research themes will be discussed. The general theory will provide the
basis for the development of a series of research hypotheses which will
focus on a selected group of specific issues from the broad
institutional perspective. Chapter Four describes an initial
investigation into the effects of institutional forces on strategic
homogeneity. Results of this inquiry will be reported in this chapter.
The fifth and final chapter contains a discussion of the results and

some tentative conclusions.

 

 

 

Chapter Two

Heterogeneity and Homogeneity of Strategy in Strategy Research:
A Literature Review

2.1 Introduction

There is an underlying assumption in many contemporary theories
and research on organization strategy that the strategic activities of
an organization will vary from those of other organizations due to the
idiosyncratic set of environmental forces with which the firm must
contend (e.g., Rumelt, 1974; Hofer and Schendel, 1978; Porter, 1980;
Beard and Dess, 1981). The dominant issue for many studies is to
explain the heterogeneity in strategy based upon some combination of
factors within the organization and its environment, and to examine the
effects of such heterogeneity on the firm's activities.

Heterogeneity - the dissimilarity among strategies - is a central
theme in many of the fundamental concepts and variables in strategic
research. For example, several authors discuss the concept of
distinctive competence as crucial to a firm's success (Rumelt, 1974;
Porter, 1980; Snow and Hrebiniak, 1980; Hitt and Ireland, 1985). Firms
possessing a distinctive competence are characterized by the presence
of skills, expertise, or technology which is superior to any of their
competitors (Selznick, 1957). A distinctive competence thus
differentiates a firm from all others within its competitive
environment. Possessing a distinctive competence makes a company
dissimilar to other organizations.

Another concept is that of competitive advantage. Ansoff (1965)
defined competitive advantage as the characteristic unique

opportunities of a firm resulting from its product-market position and

11

 

 

12

the direction of the firm with respect to its current product-market
posture. Firms possessing a competitive advantage have a superior
position relative to competitors and have the opportunity to achieve
superior performance relative to competitors if they pursue the proper
strategic actions (Porter, 1980; 1985). Possessing a competitive
advantage makes a company dissimilar from its competitors. A firm's
competitive advantage may arise from the presence of a distinctive
competence which enables the firm to perform more effectively than its
competitors (Hayden, 1986). Such competencies might include a more
efficient plant, patents, unique advertising, strength of the top
management team, easy access to credit, or favorable govenrment
relationships, among others. A competitive advantage allows a firm to
be more profitable by lowering its costs or enabling it to
differentiate itself from competitors (Hayden, 1986).

Competitive advantage is a unique position within a product-

market; distinctive competencies are unique properties of
organizations. Both emphasize heterogeneity among firms' strategic
behaviors. Since competitive advantage and distinctive competence are

often-used concepts in empirical and theoretical work on strategy
(e.g., Rumelt, 1974; Snow and Hrebiniak, 1980; Porter, 1980, 1985; Hitt
and Ireland, 1985), the issue of heterogeneity among firms in

strategies and strategic behavior is fundamental to strategy research.

 

 

 

—’—

 

13

2.2 Heterogeneity of Strategy: Research Perspectives

Within the literature on organization strategy, three distinct
perspectives can be identified. Research studies which seek to
explain the heterogeneity among firms' strategies can be classified
according to the perspective utilized. These can be termed the
Management Characteristics view, the Competitive Markets view, and the
Industry Structures view. Within each of these three perspectives,
several forces can be identified which affect strategy heterogeneity.
These perspectives and forces are illustrated in Figure 2-1. A fourth
approach is not so much a distinctive perspective but rather a
combination of factors taken from these three views, and might be
termed an environmental or a contingency approach. The following

sections examine each of these frameworks in some detail.

2.2a Management Characteristics and Strategic Heterogeneity

Strategic Choice

Several studies have examined heterogeneity in strategic behavior
which results from differences in the characteristics of senior-level
corporate executives. From a theoretical perspective, Child (1972)
argued that political choice and decision-making behaviors influence
the strategy and structure of organizations. Decisions by the dominant
coalition of the firm - those managers with power and influence to

direct organizational activities regarding strategic factors in the

 

14

 

Competitive
Markets

 

1. State of the
Product life cycle

2. Market Share/
Market Growth

3. Concentration

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Industry
Structure
Management
Characteristics 1. Industry
Competitors
1. Strategic Strategic 2. Potential
Choice Heterogeneity Entrants
2. Characteristics 3. Buyers
of Top-Level 4. Suppliers
Executives 5. Substitute
Products

 

 

 

 

 

Figure 2-1

Forces for Strategic Heterogeneity

 

15

firm's environment, such as competitors, customers, suppliers, etc. -
determine the economic exigencies and forces which act on an
organization and impact structure. Differences among firms in the
composition of the dominant coalition and their choices of
environmental elements lead to variation in strategy and structure.

Bourgeois (1984) examined theoretical views of strategy and
suggested that contingency models or mechanistic theories - for
example, the Product Life Cycle theory suggested by Buzzell (1966) and
Hofer's (1975) contingency model - lead to mechanistic views of
strategy and of strategists as analysts. He critiqued such views as
being too deterministic, and suggested such views ignored the fact that
strategy assumes a human agent. For Bourgeois, the alternative was
strategic choice - the effects of managerial decisions in shaping the

environment and strategy of the organization. Executives, he argued,

have a measure of "free will" in making strategic decisions. The

nature of the strategist — the executive decision-maker - would

influence the firm's strategy.

"Upper Echelon" Characteristics

The importance of top managers in the determination of firm
strategy was further noted by Hambrick and Mason (1984). They
attempted to synthesize existing literature on strategic choice and
performance levels with research in other fields on the characteristics
0f top managers and developed a perspective on "upper echelons" of

firms. They suggested that firms reflect the composition of the top

 

 

16

management of the company, and that personal characteristics of top
managers will affect strategic choice and performance. They developed
a model which is depicted in Figure 2-2, and a series of research
propositions based upon this perspective. The essential point was that
variation in strategy and performance is a result of the
characteristics of the firm's top level managers and their resulting
strategic choices.

Norburn and Birley (1988) studied a series of managerial
characteristics within the context of corporate performance as a test
of Hambrick and Mason's model. Data were obtained from 953 managers of
150 firms in 5 major industries. Among the characteristics studied
were the date the manager had started with the firm, the number of
firms for which the executive had worked, the number of directorships
held, and the executive’s age, education, job title, and career path.
Results indicated systematic differences in managerial profiles between
high-and poorly-performing firms within industries. While not
specifically examining strategic choice behavior, their study lends
some support to the model of Hambrick and Mason.

The effects of individual differences among firm managers on
strategy were also discussed by Anderson and Paine (1975). Their model
was based upon the perceptual processes employed by executives to
understand the organization - environment relationship. These authors
suggested that two sets of forces affect the strategy formulation
process: perceptions of environmental uncertainty, and perceptions of
the need for change in strategic properties of the organization. They

developed a perceptual model as a way of analyzing the strategy

 

 

17

 

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18
formulation process, and utilized the model to prescribe corrective
strategic actions. The model is reproduced in Figure 2-3. Note the
crucial importance of managerial perceptions in the strategy process.

Miller, Kets de Vries, and Toulouse (1982) studied top executives'
locus of control and its relationship to strategy making. They
suggested that an internal locus of control would be associated with
entrepreneurial behavior, and posited more proactive, risk-taking
behavior and more organic structures in firms run by executives with
high internal locus of control. A survey questionnaire of managers at
33 firms found a strong relationship between strategy-making behavior
and locus of control, though the effects on relations with the
environment and with structure were less direct.

Noting that a crucial element in the strategy process is the
capability of planners and decision makers to use and process
information, Barnes (1984) suggested that the cognitive biases of top
managers would affect strategy. Flaws in the judgemental processes of
top executives would lead to misdirected strategies. Using several
selected cognitive biases, he argued that the executives may not be
able to integrate data properly. Information for planning purposes
would thus be distorted. A particular problem Barnes noted was that
strategists can be very confident about biased judgements, since
planning creates an illusion of control which corresponds to planners'
desires for certainty. The presence of such individual cognitive
biases would have differential impacts on a firm’s strategy.

A similar argument concerning the effects of cognitive

simplification processes on strategic decision-making was presented by

 

 

19

Perceived Need for

Internal Change

 

 

Low High
Perceived
Environmental Cell 1 Cell 2
Uncertainty 1. Fixed and well defined 1. Need for identification
2 Optimization; mainten— and readjustment
ance; efficiency 2 Optimization; improve
3 Process planning; main- economies of operation;
tain competence planned change
Certain 4. Closed/stable/mechanis- 3. Process planning, inte-
tic gration; improve dis-
5. Commitment to existing tinctive competence
power structure; less 4 Closed/stable/mechanis-
active search for en- tic
vironmental information 5 Commitment to existing
power structure; sys-
tematic; conservative;
less active search for
environmental informa-
tio; "integrative,"
entrepreneur
Cell 3 Cell 4
1 Continually adjusted to l. Varied and flexible
feedback 2 Satisficing; survival;
2. Satisficing; maintain develop effective pro-
capacity to cope with blem solving
uncertainty 3. Adaptive or contingency
Uncertainty 3. Adaptive or contingency planning; divestiture;
planning; search of merger; diversification
advance information; 4 Open/adaptive/organic
penetration 5 Search for external in-
4 Open/adaptive/organic formation; adaptive;
5. Adaptive planner; infor- "sharp departure“
mation gathering enpreneur

 

 

 

 

Key:

1. Mission or domain
2. Objectives

3. Strategies and policies

 

Source:

Figure 2-3

U1

Anderson and Paine,

Organization form
. Role performance of policy
maker

1975

A Perceptually Based Strategy Model

 

 

 

 

20

Schwenk (1984). He reasoned that strategic decisions are
"unstructured," due to the complexity of strategic problems. This lack
of structure and complexity leads to uncertainty, which is problematic
for decision-makers. Decision—makers will attempt to alter the level
of uncertainty to avoid the difficulty. Schwenk proposed that the
method by which strategists alter uncertainty levels is a cognitive
activity of individuals - it is the simplification of the "reality" in
which the firm must operate. Several techniques for simplification
were discussed. The conclusion was that individual cognitive styles or
processes affect strategic choice and action.

The studies which have been reviewed thus far focused primarily on
the process of strategy formulation. Other theoretical writings and
research have examined the effects of managerial characteristics on
strategy implementation. Szilagyi and Schweiger (1984) argued that
effectiveness at implementing strategy might necessitate matching the
skills of executives to the types of strategy. Personalities and
thinking styles of particular executives might be better suited for
certain strategic activities. Their basic idea was tested empirically
by Gupta and Govindarajan (1984), in a study of 58 division managers in
8 diversified firms. The results of this study indicated that there
were significant relations between certain managerial characteristics
and the strategies of their divisions. For example, divisions pursuing
a "building" strategy were associated with executives with a background
in sales and marketing, a greater willingness to take risks, and a

tolerance for ambiguity. The sample limits the generalizability of the

 

21
results, but the conclusions illustrate the possible relationships
among managerial characteristics and strategy.

Sturdivant, Ginter, and Sawyer (1985) suggested that managers'
personal values are related to corporate strategy. They examined
managers' conservatism and its effects on the social responsiveness
dimension of corporate strategy. The authors developed a measurement
to assess the degree of managerial conservatism and examined 1,438
managers in a variety of organizations. Their results indicated a
negative relation between conservatism and social responsiveness.
Chaganti and Sambharya (1987) studied manager's career paths, focusing
on functional background and the proportion of executives recruited
from outside organizations. They correlated executive's
characteristics with the strategic orientation of the 3 tobacco
companies. Company strategic orientation was classified using the
Miles and Snow (1978) typology of Defenders, Prospectors, Analyzers,
and Reactors. Results indicated that there were significant
relationships between company strategic type and characteristics of
managers.

To the extent that strategies are formulated and implemented by
individuals in organizations, the presence of differences among top
executives should normally lead to differences in the strategies which
firms will pursue. The studies which have been discussed have
attempted to explain some of the various forces and characteristics
which explain the variation in strategic activity which result from

such individual differences. The assumption is that strategy is a

 

 

 

 

22
choice activity -individuals, acting within organizational boundaries,

make decisions about strategy which influence organizational actions.

Management Characteristics and Strategic Heterogeneity: Summary

The preceding review of the literature on the effects of
management characteristics on firm strategy would seem to support the
argument that much existing research is oriented toward providing an
explanation of heterogeneity in strategy. The management
characteristics view focuses on heterogeneity in strategy due to forces
within the organization. Differences in firms’ management teams
results in differences in strategic choice and decision—making, with
the result being differences in strategy. Heterogeneity among top
executives - the key strategic decision-makers - of organizations leads
to heterogeneity in strategy. While management characteristics are
internal to the firm, the remaining two views - competitive markets and

industry structure - are concerned with forces external to the firm.

2.2b Competitive Market Forces and Strategic Heterogeneity

A second perspective which has developed views strategy as a
function of competitive market forces. Heterogeneity in firm’s
business strategies are hypothesized to be a function of particular
combinations of factors in the market for a firm's products which shape

the strategic response of the organization. Three dominant views can

 

 

23
be identified: Product Life Cycles, Market Share/Market Growth, and

Market Concentration.

The Product Life Cycle

The Product Life Cycle (PLC) represents the unit sales curve for
some product, extending from the time it is first placed on the market
until it is removed (Buzzell, 1966). Visually, the PLC resembles a
bell—shaped curve, with unit sales on the y-axis and time expressed on
the x-axis. While research on the PLC suggests that the number of
stages in the life cycle varies, a four-stage cycle of introduction,
growth, maturity, and decline is predominant (Rink and Swan, 1979).
The typical Product Life Cycle curve is illustrated in Figure 2-4.

The PLC is an empirical phenomena which describes the effects of
various factors on the unit sales of a product over time. At
introduction, unit sales are low because few consumers are aware of the
product. With recognition and acceptance, sales increase at an
increasing rate, and the product enters a growth stage. With growth,
however, additional competitors enter the industry and the market
becomes smaller. Eventually, sales reach a plateau, and the product is
in the maturity stage. Most consumers have purchased the product. As
new products enter the market, consumers switch their buying behaviors
to more innovative goods and Services and sales of the original product
decrease - the product is in the decline stage.

The Product Life Cycle concept has been utilized by several

authors to explain variation in strategy. Levitt (1965) argued that

 

 

24

Early Late
Introduction Growth Growth Maturity Decline

SALES ”-_~“‘\\H\\\\\\

VOLUME

//

 

 

 

 

 

 

 

TIME

 

Source: Hayden, 1986
Figure 2-4

The Product Life Cycle

r“-

 

IIIIIIIIIIIIIIIIIIIIIIIIIIIIIIII--::———————————————*

25

the stage of the product life cycle must be considered in strategic
decision-making. For example, he suggested that in the growth stage of
the PLC, rather than seeking ways of getting consumers to try the
product, the originator should try to get them to prefer his brand by
differentiating it from other products in the market. Michael (1971)
suggested two different forms of product decline, and proposed
different strategies for each type. Wasson (1974) extended the
recommendations of the PLC to include all forms of market strategy, and
Fox (1973) used the PLC to prescribe strategies for several functional
areas of an organization beyond marketing, including production,
personnel, finance, and accounting.

Hofer (1975), in arguing for a contingency theory of strategy,
suggested that the Product Life Cycle was the most fundamental variable
in determining an appropriate business strategy. His perspective is
important, for it describes the differential effects which the PLC has
on firm strategy. Hofer argued that the stage of the PLC combines with
forces in the firm and the environment to determine the firm's
strategic position. The stage of the PLC is the central factor, and
through the various contingency conditions which Hofer described the
PLC leads to variation in the strategic configurations and behaviors of
organizations. The Product Life Cycle concept suggests that one source
of heterogeneity in strategy is the stage of the firm's product in the

life cycle.

 

 

 

26

Market Share/Market Growth

A second view on market forces and strategy variation is based on
the concepts of market share and market growth. The central premise of
these models is that strategy is contingent upon a firm's position with
respect to its market share and the growth of the product-market
(Buzzell, Bradley, and Sultan, 1975; Gale, 1972). Specific
prescriptions for strategy formulation have been presented for both
single-business (Henderson, 1970; 1979; Schoeffler, Buzzell, and Heany
1974) and multi-business or corporate levels of analysis (Hofer and
Schendel, 1978; Abell and Hammond, 1979).

At the business level, the growth-share matrix of the Boston
Consulting Group (Henderson, 1970) and the PIMS (Profit Impact of
Market Strategy) data base (Buzzell and Gale, 1987) have been utilized
to develop strategy recommendations for firms, based upon the market
share of the firm's product and the growth of the market for the
product (Hambrick, MacMillan, and Day, 1982; Woo and Cooper, 1981; Day,
1977). Heterogeneity in strategic behavior occurs because the position
of any firm within a market - its market share - and the growth
characteristics of the product-market of the firm are unique to each
organization. If strategy is the firm’s response to the market forces,
the idiosyncratic nature of the market as experienced by any individual
firm will lead to idiosyncratic strategies and heterogeneity will
result.

Reviews of the PIMS and ECG approaches have found that the

strategic prescriptions of the growth-share matrix and portfolio theory

 

 

 

27
have been widely utilized in strategy research and literature
(Ramanaujam and Venkatraman, 1984; Wensley, 1982). However, some have
criticized the market share models. Prescott, Kohli, and Venkatraman
(1986) examined the underlying theoretical relationship between market
share and profitability. Their findings led them to conclude that the
relation between market share and profitability is context specific,
and is influenced by managerial choice. Similarly, Anderson and Paine
(1978) reviewed the research using the PIMS data base and concluded
that, while the PIMS approach is one of the best approaches to the
systematic gathering and evaluation of strategic actions of businesses,
improvements are needed to increase the value and usefulness of the
data for strategy processes. The Boston Consulting Group's
growth/share matrix was evaluated by Seeger (1984). He suggested that
the model is useful, but that the prescriptions of the model tend to be

overly simplistic and can lead to bias in managerial judgement.

Market Concentration

A third view based on market factors examines the effects of
concentration (the number of firms in a product-market) on market
structure (Ornstein, Weston, Intriligator, and Shrieves, 1973).
Concentration is hypothesized to affect strategy formulation by
erecting barriers to entry and influencing potential economies of
scale. One method which may influence market concentration is the use
of advertising (Mueller and Rodgers, 1980). Advertising can be used to

create product differentiation. Such differentiation is one method

 

 

 

 

 

28
which can create and/or maintain a competitive advantage (Porter,
1985). The ability of companies to erect entry barriers to markets
through the use of advertising and other methods is an additional
source of heterogeneity among firm strategies.

To the extent that markets differ in the degree of concentration,
and firms differ in their position and power within a market, there
will be differences in the strategies pursued by firms. The amount of
market power which a firm can exert may be due in part to its position.
If the firm is one of a few dominant firms - that is, if the market is
highly concentrated and the firm is among those which dominate the
market through high market share - its range of strategic options will
differ from those of smaller firms in the same market (Gale, 1972).
Or, if the market itself is fragmented, with little concentration and
many competitors, the market will be highly competitive and the
strategic options will differ based upon the characteristics of the
market and the position of the firm (Woo and Cooper, 1981). Since
firms will differ in their market share and power, there will be
differences in the strategies pursued as organizations adjust their

behavior to the market conditions.

Competitive Markets and Strategic Heterogeneity: Summary

The effects of competitive market forces on the heterogeneity of
strategy are based upon an analysis of the market for the firm's
product. The major factors include the nature of the firm's product,

its stage in the product life cycle, the firm's market share, and the

 

 

 

29
growth of the market. This might be termed the marketing approach to
heter0geneity of strategy, as it is based on concepts developed by
marketing researchers. The effects of management characteristics on
heterogeneity of strategy is based on concepts developed primarily by

sociologists and organizational psychologists.

2.2c Industry Structure and Strategic Heterogeneity

A third approach to explaining the heterogeneity in strategy has
its roots in economics and the analysis of industries and industry
structures. The chief proponent of this view is Michael Porter (1979a;
1980; 1985; 1986). Porter has suggested that a significant factor in
the determination of the strategy for an individual firm is the
structure of the firm's industry. Industry structure consists of five
major elements: (1) the number and power of buyers of the industry's
product; (2) the number and power of suppliers of materials used in the
production of the industry's goods or services; (3) the availability of
substitute products for the industry's goods or services; (4) the
potential for new firms to enter the industry; and (5) the intensity of
rivalry among existing industry competitors. Various characteristics
of these five factors combine to determine the structure and
competitive nature of the industry, as illustrated in Figure 2-5.

The major goal of a firm in a competitive industry, according to
Porter, is to position itself within the industry in such a manner so

as to obtain a competitive advantage (Porter, 1980). By developing a

 

 

 

3O

 

POTENTIAL
ENTRANTS

 

 

 

Threat of
new entrants

 

 

INDUSTRY
Bargaining power COMPETITORS Bargaining power

 

 

of suppliers of buyers

 

 

 

 

 

 

 

 

SUPPLIERS €> <;_:§, sf BUYERS

Rivalry Among
Existing Firms

 

 

 

Threat of
substitute products
or services

 

 

SUBSTITUTES

 

 

 

Source: Porter, 1980
Figure 2-5

Forces Driving Industry Competition

 

 

 

 

31

sustainable competitive advantage, firms will be able to achieve above-
average performance in the long run. For Porter, there are two primary
mechanisms for obtaining a competitive advantage: low cost and
differentiation. By combining these two types of competitive advantage
with the firm's activities, three types of generic strategies can be
identified: (1) cost leadership, in which the firm seeks to be a low-
cost producer of goods and services within the industry; (2)
differentiation, a strategy whereby firms attempt to establish their
product or service as unique or distinct from those of competitors; and
(3) focus strategies, which involve the targeting of specific market
segments or groups in which the firm can establish a competitive
advantage. Focus strategies have two variants: a cost focus and a
differentiation focus.

Heterogeneity in strategy is more than variation among these three
generic alternatives, though. For individual firms, there is a high
degree of dissimilarity in strategic activity. For example, a firm
which seeks to stake out a low cost position will find that "the
sources of cost advantage are varied and depend on the structure of the
industry" (Porter, 1985212). In the case of a differentiation
strategy, a firm seeks to "uniquely position itself to meet [buyer]
needs....The means for differentiation are peculiar to each industry"
(1985214). With a focus strategy, "the focuser selects a segment or
group of segments in the industry and tailors its strategy to serving
them to the exclusion of others" (1985115).

The use of the terms "varied," “unique," "differentiation,"

"peculiar," and "tailors" all Suggest that, among firms within an

 

 

 

 

 

32

industry, heterogeneity in strategy will occur. While certain
categories of strategic activities are suggested, there is a
recognition that heterogeneity in strategy is necessary if the firm is
to secure a position of competitive advantage. For individual
organizations, the use of industry analysis indicates that
heterogeneity in strategy is due to industry structures and the scope
of a company's operations.

Dess and Davis (1984) performed an empirical test of Porter's
generic strategies. They attempted to operationalize characteristics
of firms which would identify the type of strategy (low cost,
differentiation, or focus) being pursued. Their results indicated that
two types of "generic" strategy - low cost and differentiation - could
be relatively easily identified. White (1986) used the methodology of
Dess and Davis and examined Porter's strategies within organizations
possessing multiple strategic business units. He hypothesized that
characteristics of the organization and the business unit's choice of
strategy would combine to affect firm performance. Results gave
partial support for the hypothesis. The strategies of the business
units interacted with the organizational context to produce differences
in performance. White's study illustrated the heterogeneity in
strategy which arise from the effects of organizational factors and

industry competitive forces.

 

 

33

Industry Structure and Strategic Heterogeneity: Summary

The use of industry structures as a means of explaining firm
strategy leads to the concept of generic strategies at the industry
level of analysis. For individual firms, strategy will vary based upon
(1) the structure of the industry, (2) the firm's position within the
industry, and (3) the unique characteristics of the firm. Industry
structures seek to explain variation in strategy which occurs as a
result of industry forces and provides a framework for such analysis.
The central concern is with the diversity among firms in terms of their

strategic activities and performance.

2.2d Environmental Forces and Heterogeneity of Strategy: A

Contingency Approach

There is an additional approach to the heterogeneity of strategy.
Unlike the management characteristics, market forces, or industry
structure perspectives, however, this approach does not utilize a
distinct set of factors but instead draws upon elements of the three
previous perspectives. These elements are combined into a global
designation of "the environment" of an organization. Instead of being
a perspective — a way of viewing — heterogeneity of strategy, it is
designated as an approach - a method of analyzing and integrating the
factors and elements suggested by the three perspectives.

Several researchers have suggested that strategy is an

organization's response to its environment (Chakravarthy, 1984;

 

34
Venkatraman and Camillus, 1984; Hrebiniak and Joyce, 1985). The
purpose of strategy is to meet the demands of the firm’s environment
and by so doing to maximize performance. Strategy should enable an
organization to adapt to or "fit" the environment. The strategy of a
firm is therefore contingent upon the features and processes of the
external environment.

The use of specific environmental characteristics and combinations
of characteristics to explain heterogeneity in strategic planning and
behavior is termed a contingency approach. Hofer (1975) presented
perhaps the first attempt to derive a contingency theory of business
strategy. He reviewed previous research on strategy and found that
there were contradictory conclusions and a lack of theoretical
precision, due to the number of variables being utilized. He
suggested, however, that there was sufficient information upon which to
base a contingency approach. Hofer developed a list of variables from
previous studies, then refined the list using various criteria: degree
of overlap with other variables, amount of impact of the variable, and
level of application (corporate- versus business-level). Hofer's list
of environmental factors which can influence strategy is shown in Table
2-1. He proposed that the effects of any variable or groups of
variables on strategy were primarily contingent upon the stage of the
firm's product in the life cycle. However, additional relationships
among variables were postulated. Other similar efforts at developing
contingency models of strategy have been presented by Hambrick (1983a),

Lindsay and Rue (1980) and Hofer and Schendel (1978).

 

 

 

Significant Strategic Environmental and
Organizational Variables

35

Table 2-1

 

Broader environmental
Variables

Economic Conditions
GNP trend

interest rates
money supply

energy availability

Demographic Trends
growth rate of

population
age distribution of
population
regional shifts in
population

Sociocultural Trends
life style changes
consumer activisn
career expectations

Political/Legal Factors

antitrust regulations

environmental protection
laws

Supplier Variables

degree of supplier
concentration
major changes in
availability of raw
materials
major changes in condi-
tions of trade

Industry Structure
Variables

type of product
degree of product
differentiation
# equal products

price/cost structure

economies of scale

degree of automation buyer needs

degree of integra-
tion
experience curves

marginal plant size

optimal plant size
rate of product
technological
change
rate of process
technological
change
transportation and
distribution costs
barriers to entry
critical mass for
entry

Competitor Variables

degree of seller
concentratnion

aggressiveness of
competition

degree of speciali-

zation in the
industry

degree of capacity
utilization

Market and Consumer
Behavior Variables

state of the life cycle
market size
seasonality
cyclicality
market segmentation
buyer concentration

buyer loyalty
elasticity of demand
purchase frequency

Organizational Charac-
teristics & Resources

 

market share
degree of customer
concentration
quality of products
value added
length of the produc—
tion cycle
newness of plant and
equipment
labor intensity
relative wage rate
marketing intensity
discretionary cashflow/
gross capital invest—
ment

 

 

Source:

Hofer, 1975

 

36

The number of environmental factors which have been hypothesized
to have an effect on strategy is significant. Boulton, Lindsay,
Franklin, and Rue (1982) attempted to perform an empirical
investigation of several environmental characteristics on strategic
planning. Using factor analytic techniques, they found that
environmental factors could be classified into four groups: customers,
suppliers, sociopolitical, and technological. These groups represented
the dominant environmental elements which were considered in the
strategic planning process.

Bourgeois (1980) performed a conceptual integration of the
literature on business strategy with that of organization theory, with
a focus on the relationship of strategy and environment. Variation in
environments, he suggested, leads to differences in the content of
strategy. Bourgeois suggested that research on strategy content is
limited to case study examples, due to firm variation; research on
strategy processes are more cross-sectional in nature, since
techniques are more well-defined. As a result of his review, Bourgeois
classified three views of environments: External/Objective (general
and specific task characteristics), External/Attributes (environmental
volatility, shifts, etc.), and Internal (perceived). Strategy will
vary as a result of differences in the characteristics and attributes
of the environment and the perceptual processes of strategists.

The previous discussions of organizational characteristics, market
forces, and industry structures can be viewed as limited forms of an

environmental contingency approach to strategy. The factors used in

 

 

 

37

formulating theories of strategy and in the empirical research are sub-
sets of the larger "environmental" universe. It is the combinations of
the elements which differentiate between the perspectives of strategy
which are employed. Irrespective of the environmental factors used or
the classification system utilized in research on strategy, one central
principle is common: strategy is a function of the characteristics of
the environment and firm characteristics. Heterogeneity in strategy
can be explained by considering the environmental factors,
organizational factors, and the processes which influence the

formulation and implementation of strategy.

2.26 Strategic Heterogeneity: Summary

The review of existing perspectives on business strategy indicates
that a majority of the research and theorizing tends to view firm
strategy as heterogeneous. Organizations will tend to pursue different
strategies, due to differences in organizations, executives, markets,
and industries. The unique configurations of the various factors in
the environment of an organization combine to create a distinctive set
of elements and forces which confront the firm. Variation in the
elements leads to heterogeneity in the strategies which firms pursue.
These models draw on efforts from the literature on organizational
theory concerning organizations and environments (Aldrich, 1979;
Aldrich and Pfeffer, 1976). In this view, firms are seen as responding
or adapting to the demands of the environment (Charkravarthy, 1984),

particularly those critical resource contingencies (Pfeffer and

 

—7—'

38
Salancik, 1978) which affect firm performance. Both environmental
influence

determinism and the strategic choices of executives

organizational adaptation and strategy (Hrebiniak and Joyce, 1985).
2.3 Strategy Research and Homogeneity of Strategy

While heterogeneity of strategy is the dominant perspective in
strategic research, there is evidence which suggests there is often
homogeneity among strategies. In the initial stages of an industry
life cycle, organizations display considerable heterogeneity in
strategic activities. Once an industry becomes well established,

however, there may be a push toward homogenization (Kimberly, 1980;

Tushman and Romanelli, 1985). This section presents information which
indicates that homogeneity of strategy may be a legitimate issue for
strategy research. The evidence for homogeneity in strategy can be
classified as focusing on either the content of strategy or the
strategic process. Content issues concern homogeneity in the
configurations of strategic factors in the firm and its environment.

Process issues concern homogeneity in the implementation and execution

of strategy. The primary elements are depicted in Figure 2~6.
2.3a Homogeneity in the Content of Strategy: Strategic Groups
Homogeneity in the content of strategy refers to similarity in the

configuration of strategic factors among firms. As has been

demonstrated, the dominant view of strategy suggests that heterogeneity

 

 

39

 

Strategic Homogeneity occurs in:

 

STRATEGY CONTENT

STRATEGIC PROCESSES

 

Def: Homogeneity which
occurs in the configuration
of key strategic variables

Def: Homogeneity which
occurs in strategic decisions,
activities, and practices

 

 

Evidence:

1. Presence of Strategic
Groups

 

Evidence:

1. Homogeneity in organiza-
tional structure

2. Homogeneity in strategic
behavior.

 

Figure 2-6

Forms of Evidence for Homogeneity of Strategy

 

 

 

40

will occur due to differences in the various factors present in the
firm and its environment (Hofer, 1975). The number of factors and the
possible configurations included in Hofer's (1975) review indicates to
a great extent the heterogeneity which is possible in firm strategy.
Due to this heterogeneity, Hofer (1975) and others (Lindsay and Rue,
1980; Hambrick, 1983a) have argued for the contingency approach to
strategy. Yet while heterogeneity may be the dominant view, there
is research which indicates that there is often homogeneity in the
configurations of key strategic factors. The presence of such
homogeneity would suggest that there may be conditions or circumstances
in which firms would choose to adopt similar strategies. One such view
of homogeneity which has been relatively well presented is found in the
research literature on strategic groups.

Hatten, Schendel, and Cooper (1978) focused on strategic groups
which are formed from similarity in business—level strategy. Their
basic model suggested that firm performance is a function of controlled
(or strategic) variables and noncontrolled (or environmental)
variables. They argued for the use of quantitative models of business
strategy in order to find patterns among controlled variables for
comparison and analysis. The development of such models was
hypothesized to depend on the identification of strategic groups.
Strategic groups were defined as "groups of firms within an industry
which follow similar (but not identical) strategies" (Hatten, Schendel,
and Cooper, 1978:592).

In this context of strategic groups, Hatten, Schendel, and Cooper

(1978) examined the brewing industry in the U.S. over a 20 year period

 

 

41

to identify factors which related to performance in the industry. The
data revealed 6 strategic groups: large national brewers, seminational
and financially weak firms, strong regional brewers, weak regional
brewers, small regional brewers, and a miscellaneous group. Their
analysis of strategic business factors - for example, number of plants,
debt structure, number of brands, market share, and industry
advertising intensity, among others - indicated that the factors varied
systematically by group, but that within groups there was similarity of
the elements. The study suggests that firms with similar
characteristics may pursue similar strategies, and that firms can be
grouped within an industry on the basis of strategic behavior. Further
discussion of homogeneity of conduct among firms in the brewing
industry can also be found in Hatten and Schendel (1977).

The concept of strategic groups was further refined by Hatten and
Hatten (1987). Strategic groups were defined as "a grouping of
organizations which pursue similar strategies with similar resources.“

(Hatten and Hatten, 19872329) They further discussed the concept of

the strategic group: "...a strategic group is not an
anthropormophized unified competitive force of many firms. It is
merely an analytical convenience.... Groups are a device to segment

industries into sets of companies whose competitors, actions, and
results are relevant to each other. Occupying the imagined space
beween firm and industry, groups offer a flexible meeting ground for
strategic management and industrial organization." (1987 329)

Their review of the literature on strategic groups concluded that

strategic groups were a legitimate analytical mechanism, and that

 

42
research should attempt to use multivariate techniques to define groups
instead of bivariate classification systems. They extended the concept
of the strategic group by arguing that properties of groups - in the
form of mobility barriers between groups and contestability between and
within groups - were useful for understanding the strategic activities
of firms and as an explanation of industry structures.

McGee and Thomas (1986) conducted a review of the theory and
research on strategic groups. They identified 21 studies on strategic
groups in the period from 1972 - 1985. The studies they utilized are
shown in Table 2-2. Note the diversity of industries which have
identifiable strategic groups. This indicates that clusters of
organizations with similar strategies may be fairly widespread among
industries; strategic groups may be a rather ubiquitous phenomenon
among organizations. They suggested that greater effort was needed to
define concepts which might be useful for identifying strategic groups
within industries, and called for greater efforts at understanding the
formulation of strategic groups within industries.

Newman (1978) argued that the presence of strategic groups may
mitigate against market forces within industries. He conducted a study
which showed that the effects of market structure on firm performance
broke down in the presence of multiple strategic groups. While the
groups were homogeneous in their strategic configurations, he also
demonstrated that it was possible for a market to have multiple
strategic groups and that, while there might be heterogeneity between
groups, there was homogeneity of strategy within the groups. He

suggested that markets might differ in the degree of heterogeneous

43

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44
groups; in markets with few groups and little heterogeneity, there
would be greater consensus and strategic similarity.

Cool and Schendel (1988) studied firms in the U.S. pharmaceutical
industry. Their intent was to examine the relationship among strategic
group membership, risk, and firm performance. They further explicated
the dimensions which define strategic groups as "similarities in
strategic actions intended to alter competitive advantage," (1988:212).
Specific strategic actions of interest were those involving business
scope and resource commitments. Data revealed six groups within the
industry, and further analysis indicated differences in risk behavior
and firm performance among groups.

Dess and Davis (1984) suggested that a firm’s strategy determined
its membership in a "strategic group". Strategic groups were presented
as being determined by general patterns of environmental analysis and
resource allocations. Arguing that strategic choice is a choice
concerning strategic group membership, they conducted a three-phase
study to identify groups and examine the effects of variation in group
membership for firm performance. They were able to identify two
groups, based upon Porter's (1980) generic strategies. Their results
found differences in performance among groups and between firms within
groups. Their study is an attempt to incorporate strategic groups as
an outcome variable within the strategy framework; that is, firms may
make strategic choices concerning their membership in various strategic
groups. Rather than an analytic frame, Dess and Davis suggested that

groups were a significant strategy variable.

 

 

 

 

 

45

Strategic Homogeneity and Strategic Groups: Summary

The use of strategic groups as an analytic tool for research on
strategy now seems to be generally accepted in the literature. Recent
work by Harrigan (1985) has attempted to refine the methodology for
determining strategic groups and group membership using cluster-
analytic techniques. The amount of research which has used the
strategic group concept is fairly extensive, as the review by McGee and
Thomas (1986) illustrates. The prevalence of the research findings on
the presence of strategic is evidence for homogeneity in firm
strategy.

Content-based approaches to strategic homogeneity examine the
configuration of strategic factors. Strategic groups are based upon
similarity in the strategies of firms within an industry (Hatten,
Schendel, and Cooper, 1978). Clearly, strategic groups consist of
firms whose strategies are relatively homogeneous. The presence of
strategic groups in multiple industry settings indicates that there is

often homogeneity of strategy among firms within industries.

2.3b Homogeneity in the Strategic Process: Choice of Organization

Structure

While content - based perspectives on strategic homogeneity study
the configurations of strategic factors in the firm and its
environment, process - based approaches investigate the mechanisms

through which organizations carry out the strategy. The major concern

 

 

 

 

 

46
is the methods which the firm employs to implement and execute the
strategy. One central concern is the structure the organization adopts
to implement the strategy. Another issue is the behaviors of firms -
the operational strategies and decisions - which are intended to
achieve the organization's goals.

The use of the multidivisional form (the MDF or M—form) of
organization - in which the organization’s structure consists of
semiautonomous divisions, generally with decentralized operational
authority and a central office for overall coordination - as a
mechanism for strategy implementation has been discussed by several
authors (e g., Chandler, 1962; Rumelt, 1974; Williamson, 1975). Teece
(1981) argued that the use of the MDF is related to better performance
in large, multiproduct firms. Hoskisson (1987) presented evidence that
the relationship between the use of the M-form and performance is
moderated by the diversification strategy employed by the firm, but
found general support for the contention that the multidivisional form
may be used as a tool for implementing firm strategy.

The growth of the multidivisional form has been documented by
Armour and Teece (1978) and Palmer, Friedland, Jennings, and Powers
(1987). The study by Armour and Teece examined the growth of the M-
form among firms in the petroleum industry; Palmer et. a1. examined
firms in the chemicals, petroleum, and metals industries. They found
increases in the use of the M-form based upon factors in the
environment and within the firm itself. Armour and Teece found that

the use of the M-form was related to superior firm performance, leading

 

 

 

47
to the conclusion that the use of the M-form may be a beneficial
strategic decision for firms in certain industries.

The use of organizational structure as a mechanism for strategy
implementation is recognized by several authors (e.g., Chandler, 1962;
Miller, 1987; Daniels, Pitts, and Tretter, 1984; Hill and Hoskisson,
1987). The growth and prevalence of the M-form suggests that firms may
choose similar structural configurations as a means of executing
strategy. Such homogeneity of choice in structure would represent
homogeneity of strategic choice, since firms can choose any structural
arrangement they deem appropriate. Consistent with the basic thesis on
strategic homogeneity, the use of M-form structures may indicate a
tendency for firms to pursue similar strategic actions in the form of

structural arrangements.

2.3c Homogeneity in the Strategic Process: Strategic Behavior

There is also some evidence to suggest that firms consciously
choose to adopt strategies which are similar to those of other
organizations within their competitive sphere. While such evidence is
largely anecdotal, it suggests that homogeneity in strategic activity
does occur. MCI Corporation and U.S. Sprint are two firms which

compete with AT&T in the area of long-distance telecommunications.

 

Recently, it was observed that the services offered by the two firms
have grown more similar, and that as a result competition now occurs in
the areas of public image and the packaging of services (Powers, 1988).

The product strategies of these firms have become more homogenous.

 

 

48

Meade (1987) conducted a survey of the auto industry in the United
Kingdom and found that most firms pursued pricing strategies which were
similar to the industry leader, Ford of Europe. In a study of U.S.
banks and saving and loan institutions, Hampton, Guy, and Sinkula
(1987) found that a saving and loan institution in a midwestern city
had adopted a strategy of emulating the community's commercial banks,
in order to position itself as no different from the banks in the minds
of consumers. In a follow-up to the discussion of strategic groups,
Cool and Schendel (1987) noted that firms in the U.S. pharmeceutical
industry tended to imitate the strategic commitments of rivals. Horvat
(1987) found that second-tier securities houses in Japan - those below
the "Big Four" of Nomura, Daiwa, Nikko, and Yamaichi - seem to have
opted to emulate the "Big Four" as a response to the challenge of
internationalization of financial markets. Strategies in services
offered and in operations have tended to duplicate those of the larger
firms.

A study of the shake-out among firms in the U.S. color television
set industry presents evidence for the presence of homogeneity of
strategy and the possible effects of homogeneity on firm performance
(Willard and Cooper, 1985). Differences were found among firms at both
the corporate and business levels of strategy between firms which

survived in the industry and those which failed. Results indicated

 

similarity in strategic behavior among surviving firms, while those
which failed were also similar to one another but differed from the

surviving firms.

 

 

 

49

The evidence from these studies, though primarily anecdotal,
nevertheless does suggest that firms may consciously choose to imitate
the strategies of rivals. That such strategic choices would lead to
homogeneity runs counter to the dominant perspectives on strategy,
which suggest that firms should seek to differentiate themselves from
competitors through developing a distinctive competence or a
competitive advantage. These studies show, however, that firms often
choose emulation rather than differentiation, similarity over
distinction. Over time, such choices would lead firms to resemble one
another in the courses of action which they adopt and in the decisions
concerning resource allocations which support their actions — there

would be homogeneity of strategy.

2.3d Strategic Homogeneity: Summary

Research in the strategy field indicates that there may be reason
to believe that the strategic actions of firms may tend to be similar
to those of others companies wihtin the industry or business segment.
The presence of identifiable strategic groups seems to offer support
for the contention that an organization’s strategy may be similar to
others within its industry. The growth of the multidivisional form of
organization may suggest that firms adopt similar structural
configurations as part of the process of strategy implementation.
Finally, the observations concerning the similarities of strategic
behavior among firms indicates that strategies may often be

homogeneous. The evidence from these studies and other related

 

 

 

50
efforts examining homogeneity in organizational structures (Barnouw,
1966-1968; Fennell, 1980) suggests that firms may have greater
similarity in strategies and strategic action than would be expected,
given the prevailing view of strategy as contingent on environmental-
organizational relationships and executive choice. The quantity of
environmental and firm variables and the interrelationships between
these makes for a complex and dynamic system. The resulting outcomes
(strategies and structures) would be expected to demonstrate a great
deal of diversity. Yet the data from the studies reviewed in this
paper suggest that there is greater similarity than would be
anticipated, given the assumptions about the nature of strategic

activity. Why do firms demonstrate such homogenization of strategies?

2.4 Isomorphism: Competitive and Institutional

The concept which may best account for the observed homogenization
of strategy is the process of isomorphism. Hawley (1968) describes
isomorphism as a constraining process that forces one unit in a
population to resemble other units that face the same set of
environmental conditions. That is, units subject to or operating
within similar environmental arrangements will develop similar forms of
structure and action. Aldrich (1979) suggested that isomorphism occurs
as organizations modify their characteristics in a direction of
increasing compatibility with the environment. In accord with the work

of Fennell (1980) and DiMaggio and Powell (1983), this paper suggests

 

 

 

 

51
that there are two types of isomorphism: competitive and
institutional.

Hannan and Freeman (1977) have suggested that the primary
mechanism of organizational change is by selection through competitive
processes. They argued that isomorphism among populations of
organizations develops because non-optimal forms are selected out of
the population, or because organizational decision-makers learn
appropriate responses and adjust their behavior.

Dominant perspectives on strategy assert that isomorphism in
organizations is due to the effects of forces in the organization’s
competitive environment. Competitive markets, industry structures, and
organizational characteristics all presume that variation occurs among
firms, due to differences in structure and strategic behavior (Carroll,
1984). The environment changes independently of the organization and
forces in the competitive environment determine the structural forms
which will survive. In capitalistic economies, the market is the
primary selection mechanism (DiMaggio and Powell, 1983). The struggle
for the limited resources available within an environment leads to
competition among firms. By selecting certain types of organizations
in the environment, competitive forces lead to isomorphism. These
competitive forces are due to behaviors of firms in the marketplace.
Such behaviors might include competitor’s actions with respect to
product pricing, distribution, and scope of product line; the use of
pre-emptive contracts for sources of supply of raw materials;
promotional activities of competitors; and so on. Firms which possess

the requisite characteristics survive; those which lack such features

 

 

 

 

 

52
are selected out of the environment (McKelvey and Aldrich, 1983). Over
time, there is a tendency for similar types of firms to survive, with
the result that the structures and strategic actions of firms in the
industry appear homogenous.

Competitive isomorphism assumes a rational system which emphasizes
market competition, niche change, and fitness measures (DiMaggio and
Powell, 1983). This approach is adequate for those environments in
which there is free and open competition among firms. However, it is
not wholly appropriate for those environments in which competition is
limited (such as oligopolistic market structures) or regulated by law
(e.g., utility industries). In addition, as Williamson (1975) has
argued, modern markets are subject to various forms of imperfections in
competitive relations. The presence of such imperfections gives firms
a basis for engaging in strategic behavior, since one goal of strategy
is the alteration of the competitive structures of the environment and
the industry (Porter, 1985).

The assumptions which underlie the competitive isomorphic model
are frequently violated by the environments of organizations. Forces
beyond those of the competitive environment are present and may
influence the strategies of firms. Firms compete for political power
and institutional legitimacy (Carroll and Delacroix, 1982), and also
for social as well as economic fitness (Aldrich, 1979). Suppliers
(Porter, 1980), governments and other regulatory agencies (Freeman,
1984), and various other societal groups such as consumer interest
organizations (Preston, 1981) are legitimate concerns for

organizational strategists in formulating corporate strategies. The

 

 

 

53
presence of such arrangements within the environment of organizations
may give rise to institutional structures and forces, including
isomorphic forces for homogeneity in strategy (DiMaggio and Powell,
1983). The concept of institutional isomorphism may be a useful tool
for understanding the process of formulating strategy in corporations
in contemporary environments. The following chapter develops a
perspective on strategic homogeneity based upon institutional

isomorphic forces.

 

 

 

Chapter Three

Institutional Isomorphism, Mechanisms, and Homogeneity of Buisness
Strategy: Theory and Research Hypotheses

3.1 Introduction

From the previous discussion in Chapter Two, it can be concluded
that dominant perspectives in research and writing on organizational
strategy focus on the issue of heterogeneity - the variation in
strategies of organizations. There seems to be evidence, however,
which suggests that firms often pursue similar - that is, homogeneous -
strategic arrangements and behaviors. Current views emphasize the role
of competitive market forces in leading to isomorphism and homogeneity.
Yet such markets may be subject to imperfections which limit the
isomorphic tendencies; and, there is a suggestion by some authors that
competitive markets may lead to heterogeneity. In the absence of clear
competitive market effects, what other forces might lead firms to
pursue similar strategies?

The central thesis of this research is that institutional forces —
inherent in the structuration of organizational fields - may lead to an
increase in the homogenization of strategy. Such forces exist "in
addition to" those for heterogeneity presented in the preceding
chapter, and in certain conditions may dominate the strategy process
with the result that homogeneity of strategy occurs.

The purpose of this chapter is to develop a broad or general
perspective on the homogeneity of strategy, using an institutional
framework. In order to properly develOp such a perspective, it will

first be necessary to define certain key concepts and terms. Following

54

 

 

 

 

 

55
this, three primary institutional forces for homogeneity of strategy -
coercive, mimetic, and normative - will be discussed. Specific
isomorphic mechanisms will be presented. The chapter will conclude
with a series of research hypotheses based upon the institutional
theory which will be investigated using the methodology described in

Chapter Four.

3.1a Central Concepts of an Institutional Perspective

Institutionalization

Zucker (1987) presents two elements which define institutional
perspectives on organizations. Institutionalization refers to "[1] a
rule-like, social fact quality of an organized pattern of action, and
[2] an embedding in formal structures, such as formal aspects of
organizations that are not tied to particular actors or situations"
(1987:444). Institutional theories suggest that organizations are
influenced by normative pressures which may arise from the central
government, or the "state"; from other organizations; or from within
the organization itself. Under certain conditions, these pressures
lead organizations to be directed by certain elements which are seen as
in some way "legitimate," such as standardized operating procedures or
policies, professional certification, federal and state legislative
requirements, and so on. The adoption of such legitimated elements
leads to isomorphism with the institutional environment and may

increase the organization’s chances of survival (Zucker, 1987).

 

 

 

56

Two views of institutionalization have been identified (Zucker,
1987). The first suggests that environments of organizations are due
largely to expansion of state jurisdiction (Thomas and Meyer, 1984).
In this view, organizational arrangements are conceived as linked to a
broad conceptualization of the state. Organizations conform to state
requirements in order to increase the flow of resources and enhance
long-run survival prospects (Meyer and Rowan, 1977). The institutional
forces are largely external to the firm. The second view asserts that
the implementation of institutional arrangements comes from within the
organization, or from imitation of similar organizations (Zucker,
1977). Over time, routines or roles are formally embedded in the

structures of organizations and become powerful sources of legitimation

of action (Zucker, 1983). Institutional forces are internal to the
firm. In either case, organizational actions take on institutional
characteristics: they become social facts, found within formal

structures and independent of the organization's members.

Use of an institutional perspective for research in organizations
has been shown to have utility for empirical study of several
organizational phenomena. Rowan (1982) examined the diffusion of
administrative services in public school districts in California, and
indicated that those services supported by institutional environments
were diffused more quickly than those with imbalanced institutional
environments. Tolbert and Zucker (1983) related introduction of civil
service reforms to institutional forces. They suggested that such
reforms were adopted because they became symbolic of "good government"

rather than due to the efficiency of the reforms. Kaplan (1984)

 

 

 

57
examined the institutionalization of accounting practices, arguing that

such methods were due to techniques developed in the 19303 for external

reporting purposes. Despite the fact that such methods may not be
adequate in the modern organization, due to changes in cost
allocations, production methods, etc., the practices have become

institutionalized as a legitimate way of reporting financial
information. Eisenhardt (1988) found that an institutional model
provided a good explanation for the sales compensation policies of a
group of retail speciality stores. Institutional perspectives may be
useful in understanding many of the activities of organizations. To
date, however, no research has been found which addresses the effects

of institutional forces on an organization’s strategy.

Institutionalization and the Structuration of Organizational Fields

Institutional forces arise through a process of structuration
(Giddens, 1979). Structuration consists of four parts: 1) an increase
in the extent of interaction among organizations within the field; 2)
the emergence of well-defined interorganizational structures of
domination, and patterns of interorganizational coalition; 3) an
increase in the amount of information with which firms must contend;
and 4) development among particpating firms of an awareness that they
are involved in a common enterprise (DiMaggio and Powell, 1983). As
organizations interact over time, the structuration process can lead to
formalized patterns of interaction which are independent of the

individual firms and structures of interrelationships which become

 

 

 

 

58
embedded within and among the firms. In short, firms become
participants in institutional arrangements (Zucker, 1987).
Institutional arrangements are found in the structural relationships
which exist among a complex system of organizations and which develop
through interfirm interactions.

One mechanism for partitioning or describing these structural
relationships is the organizational field (Zucker, 1987). An
organizational field refers to "those organizations that, in the
aggregate, constitute a recognized area of institutional life: key
suppliers, resource and product consumers, regulatory agencies, and
other organizations that produce similar services or products"
(DiMaggio and Powell, 1983:148). An organizational field may be
defined as a group of organizations which are related through some
commmon set of attributes or linkages thought to be of theoretical
significance and specified a priori by the researcher. Organizational
networks (Laumann, Galaskiewicz, and Marsden, 1978; also Thorelli,
1986), organizational populations (Hannan and Freeman, 1977; Carroll
and Delacroix, 1982; McKelvey and Aldrich, 1983), and organization
collectives (Astley, 1984) are ways of defining organizational
fields.

An organizational field is an analytic tool, constructed from
measurement of attributes or relations of a specific set of
organizations (DiMaggio, 1986). Fields may be represented as an
institutionalized domain (e.g., health services, higher education, the
automobile industry) or by a sector of analytic interest, such as

employee—owned firms (Rosen, Klein, and Young, 1986) or auto industry

 

 

 

 

59
suppliers in the state of Michigan (Skivington and Buchko, 1988). An
organizational field is generated by the partitioning of the universe
of organizations into subsets which are related through some specified
elements or processes. Organizational fields are often defined by
their members through the structuration process (DiMaggio and Powell,
1983).

The structure of an organizational field is determined through
empirical investigation. The description and analysis of the structure
of an organizational field requires an understanding of two primary
concepts: connectedness and structural equivalence. Connectedness
refers to “the existence of transactions tying organizations to one
another; such transactions might include formal contractual
relationships, participation of personnel in common enterprises such as
professional associations, labor unions, or boards of directors, or
informal organizational ties like personnel flows" (DiMaggio and
Powell, 1983). The greater the number of transactions which bind

organizations to one another in a field, the more connected the field.

Firms within an organizational field may be linked directly to one
another or they may be indirectly linked through the presence of
similar transactional arrangements. For instance, two firms may deal
directly with one another as supplier and customer through a formal
sales contract. Indirect linkages occur when firms share some common
element. An example would be the presence of a bank CEO as a member of
the board of directors of two firms, a manufacturing firm and an

insurance company. Even though the manufacturer and the insurance

 

 

 

 

 

60

company may not transact directly with one another, they are indirectly
linked through the presence of the common board member. Other example
of indirect linkages include personnel exchanges, e.g., a vice-
president of one company moves to another firm as its president;
presence of common customers or suppliers; or the membership of two
firms in a common association, such as a local chamber of commerce.

Often, the rules concerning the relationships which result from
organizational connectedness are governed by a set of explicit, formal
regulations. Contracts and legislation are two forms of formal
organizational which occur connectedness through legal processes. The

more codified, orderly, and regulated the mechanisms of organizational

connection, the more formalized the connectedness of the organizational

field. Since formalization is one aspect of institutionalization
(Zucker, 1987), formalization is an indicator of the degree of
institutionalization of an organizational field. An organizational

field may be said to be highly structured if there is a great deal of
connectedness among firms in the field, and if the connectedness among
firms is highly formalized.

Structural equivalence refers to "similarity of position in a
network structure" (DiMaggio and Powell, 1983). That is, two firms are
structurally equivalent if they have similar ties to the same set of
other organizations, even though the two firms themselves are not
connected. The similarity of the ties or linkages among organizations
is more than simply the existence of a linkage between firms; it also

considers that nature of the linkage and the field level of analysis.

 

 

61

For example, both automobile dealerships and producers of
automobile parts are related to the auto manufacturer. However, the
nature of the linkage among firms - the dealer a purchaser of outputs,
the supplier a provider of inputs - is substantially different.
Depending on the field level under investigation, the two firms may not
be structurally equivalent. Or, two firms may share a common supplier
- for example, a fast food hamburger stand and a grocery store may
obtain ground beef from a local butcher. If the hamburger stand runs
out of beef, however, it will have to virtually cease operations, since
it lacks a critical resource. The grocery, conversely, may be
relatively unaffected; ground beef is not as critical a resource.

While both firms share the same common linkage, the nature of the
linkage - the dependence on the supplier - differs greatly. At a level
of analysis which would examine dependence on suppliers, these two
firms are not structurally equivalent.

It is possible for two firms within an organizational field to be
the same in a structural sense without the presence of any formal or
informal linkages between them. Firms which are equivalent in a
structural sense would experience similar forces and may act similar to
one another without explicit coordination between the organizations.

An illustration of the concepts of connectedness and structural
equivalence may help clarify the structural analysis of organizational
fields. Figure 3-1 illustrates a four-firm organizational field.
Relationships among the firms are as shown in the figure. Assume that

the linkages between the firms are due to some common mechanism, e.g.,

a series of contracts. The connectedness of firms in the field refers

 

 

 

 

 

 

 

 

 

 

 

 

 

62
Firm
A
Firm
C
Sociomatrix:
A B C D
A - l l 1
B l - l 1
C l 1 - 0
D l 1 0 -
Connectedness:

Firms A and B are structurally equivalent.
Firms C and D are structurally equivalent.

10 - 12 — 83.33%

Instituionalized Relationships in
Organizational Fields:
Sociomatrix Analysis

Figure 3-1

 

 

Firm

Firm

 

63

to the number of linkages between firms. This is displayed using the
blockmodel approach of DiMaggio (1986) in the matrix at the bottom of
Figure 3-1. Linkages are designated with a "1" in the cell if the
organization in the row has a tie with the organization in the column.
The connectedness of the field is the percentage of all cells that are
’1s' in the matrix - referred to as "density" by DiMaggio (19861338).
The connectedness of firms in the field in this illustration is 83.33%
(10 divided by 12). Note also that firms A and B are structurally
equivalent, as are firms C and D, even though firms C and D have no
formal ties to one another. Structural equivalence indicates that both
firms have two ties, to firms A and B. Within the field, they are
structurally equivalent.

Figure 3-2 also illustrates a four-firm organizational field. In
this particular case, firms B, C, and D are linked to firm A through
some form of dependency - assume that A is a customer for the outputs
of B, C, and D. There is indirect connectedness between firms B, C,
and D via the common customer. However, firms B and C sell 90% of
their output to A, and the remaining 10% to other customers. Firm D
only sells twenty percent of its output to A, and the remaining 80% to
other customers. In this case, the three firms B, C, and D are not
structurally equivalent. B and C are equivalent with respect to this
organizational field, since the nature of their relationship to A is
similar - both are dependent on A for 90% of their revenues. D is not
equivalent to B and C, since its relationship to A differs from those

0f B and C. Structural equivalence may ~ depending on the field of

 

 

64

 

 

 

 

 

 

 

 

 

 

 

Firm
A
90% of 90% of
Firm sales to Firm Sales to
B Firm A C Firm A
10% of Sales 10% of Sales
to other firms to other firms

 

 

90% of
Firm Sales to

 

 

80% of Sales
to other firms

Firms B, C, and D are indirectly connected through Firm A.

Firms B and C are structurally equivalent.

Figure 3-2

Organizational Relationships in

Institutional Environments:
The Nature of Relationships Among Organizations

and Structural Equivalence - Example

 

 

analysis In
firms. St‘
consider th

of theoreti

Structurati

As di
structured
cause the:
their goal:
behaviors,
IUD, comp
themselves
later yea
organizati
in the er
Strategies
autonomy E

Stra1
be ratio]
Suggests
their ri
prOCeSS
resPOHSe

acquire

 

 

 

 

65

analysis under investigation - be more than simply linkages among
firms. Structural equivalence must also

consider the nature of the relations, particularly if the relations are

of theoretical importance in the research.

Structuration and Strategy

As disparate organizations in the same line of business become
structured into an organizational field, certain forces emerge which
cause them to become more similar to one another. Firms may change
their goals or objectives, alter their strategies and their strategic
behaviors, and firms may enter or exit the field. However, in the long
run, company executives making rational decisions construct around
themselves "buffers" which constrain their ability to change further in
later years. Dill (1958) has observed that the environment of
organizations influences managerial autonomy. Institutional elements
in the environment of organizations may direct executives to choose
strategies similar to those of other firms, limiting managerial
autonomy and placing constraints on strategic choice.

Strategies which are rational for individual organizations may not
be rational if adopted by large numbers. As an example, Porter (1980)
suggests that firms should seek to acquire a competitive advantage over
their rivals. One means of doing so is through the adoption of new
process technologies (Hayes and Wheelwright, 1983). One strategic

response which may be employed by firms is to use new technology to

acquire a distinctive competence in manufacturing (Wheelwright, 1984).

 

 

 

Research on
Meyer and Ro
innovations
the innovat
motivation
than to
normative :
"latest" ti
legitimatio
demonstrate
“state of t
competitive
similar a
teChHOlOgi(
Organ
Strategies
organized
firm strat
a field (
highly st
other or;
°rgan12at
In such
emit,mne
increaSe

limiting

 

 

 

66

Research on the diffusion of technological innovations (Selznick, 1957;
Meyer and Rowan, 1977) suggests that early organizational adoption of
innovations is motivated by a desire to improve firm performance. As
the innovation spreads, however, there is a point at which the
motivation for adopting the innovation is to provide legitimacy rather
than to improve peformance. At this point, adoption is driven by
normative sanctions - firms wish to be perceived as posessing the
"latest" technologies, or to be viewed as competitive with rivals. The
legitimation of an organization may depend on its ability to
demonstrate that it offers process technologies which reflect the
"state of the art " The result is that, over time, the technologies of
competitive firms within an organizational field may become more
similar as a result of a strategy of differentiation through
technological innovation.

Organizations may try constantly to change or alter their
strategies. At a certain point in the structuration of an
organizational field, the aggregate effect of individual changes in
firm strategy may be to lessen the extent of strategic diversity within
a field (DiMaggio and Powell, 1983). In effect, organizations in
highly structured fields respond to an environment that consists of
other organizations responding to their environment, which consists of
organizations responding to an environment of organization's responses.
In such circumstances, strategists construct around themselves an
environment in which choice behavior is constrained. These constraints

increase the likelihood that firms will pursue similar strategies by

limiting the strategy alternatives available to decision makers. This

 

 

 

 

is akin to
bureaucracy ;
The pre
been documen
Schendel (1
pharmeceutic
firms imite
suggested t
had higher
Schendel (1
clear simi'
segments of
another's s
in strateg
the evolut
diversity
Structural
"small Speq
In h
may be d
Relationsh
diffused,
firms, at
may emerg‘
affected

which Di:

 

 

67
is akin to Weber’s (1958) "iron cage" of machine production and
bureaucracy; it is strategy in an "iron cage."

The presence of similar strategic arrangements and behaviors has
been documented by several researchers in the strategy field. Cool and
Schendel (1987), in their study of strategic groups in the U.S.
pharmeceutical industry over a twenty year period, found that some
firms imitated the strategic resource commitments of rivals. They
suggested that this was prompted by the observation that competitors
had higher performance in terms of market dominance. Hatten and
Schendel (1977), in their study of the U.S. brewing industry, found
clear similarities between strategies of firms within competitive
segments of the brewing market. National brewers tended to emulate one
another's strategic decisions, and regional brewers showed similarities
in strategic behaviors. Coser, Kadushin, and Powell (1982) describe
the evolution in the U.S. college textbook industry from initial
diversity to the current status, with only two organizational
structural and strategic models (the "bureaucratic generalist" and the
"small specialist").

In highly structured organizational fields, strategic activities
may be driven less by competition or the need for efficiency.
Relationships among firms are understood, innovations are quickly
diffused, production methods are standardized or generally known by all
firms, and strategies are discernable. Homogenization of strategies
may emerge out of the structuration process. Such homogenization is
affected by the structure of the field, the state, and professions,

which DiMaggio and Powell (1983) contend have become "the great

 

 

 

 

COERCI‘

1. Goverru
Regula

2. Custom
Depend

3. Suppli
Depend

4. Labor

5-0mmn
Struc

6. Colle
Strat

7. Cultt

 

 

 

 

 

 

 

 

 

68

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

MIMETIC
1. Environmental

Uncertainty

Industry

Concentration
COERCIVE NORMATIVE
Government Executive's
Regulation Education
Customer Executive’s
Dependence Vb Career Paths
Supplier Homogeneity Trade and
Dependence of Organization Professional

Strategy Associations
Labor Unions

Personnel Flows
Ownership
Structures Director
Linkages

Collective
Strategy Consultants
Cultural Shared Sources
Values of Information

Figure 3-3

 

Institutional Forces and Mechanisms
for Strategic Homogeneity

 

 

 

 

 

 

 

 

 

 

 

 

rationaliz
institutio

isomorphic

3.2 Thre:

Strategy

Follox
institutiox
isomorphism
influence,
stems fro“
isomorphism
forces has
one ' the e
in Studie:
different
industries
and Speci

Figure 3.;

3.2a Coe‘

COer

they ar‘

 

69
rationalizers of the second half of the twentieth century." These
institutional factors and arrangements provide the basis for the

isomorphic processes which lead to the homogenization of strategy.

3.2 Three Forces for Institutional Isomorphism: Effects on Firm

Strategy
Following DiMaggio and Powell (1983), three forces for
institutional isomorphic change can be identified: 1) coercive

isomorphism, which occurs through dependence relations, political

 

influence, and problems of legitmacy; 2) mimetic isomorphism, which
stems from standardized responses to uncertainty; and 3) normative
isomorphism, which results from professionalization. Each of these
forces has distinct antecedent conditions. The typology is an analytic
one - the empirical distinctions between them may not always be clear ‘
in studies of organization strategy. Since they are derived from i
different conditions, the effects of these forces may vary across i
industries or organizational fields. These three institutional forces

and specific mechanisms for strategic homogeneity are depicted in

Figure 3-3, which represents the basic research model of this paper.

3.2a Coercive Isomorphism

Coercive isomorphism results from both direct and indirect
pressures exerted on organizations by other organizations upon which

they are dependent, and by expectations of the society in which the

 

 

 

firm operate
by firms as 1
One powe
organization:
conditions f:
pollution co
Protection A
must constru
by the Nucl
must confor
Commission;
Equal Right:
Commercial 1
of these (1'
Strategic
Pollution C

Profitabflj

The e:
firm's st'
and legis
accepted 1
the eXter
and equa]

complianu

 

 

70
firm operates (DiMaggio and Powell, 1983). These pressures are viewed
by firms as forces for action or persuasion.

One powerful force is the level of government regulation. In some
organizational fields, government legislation specifies the terms and
conditions for a variety of firm behaviors. Manufacturers must install
pollution control devices in accord with the rules of the Environmental
Protection Agency; utility companies which wish to employ nuclear power
must construct and operate such plants within the guidelines dictated
by the Nuclear Regulatory Commission; financial dealings and reporting
must conform to the requirements of the Securities and Exchange
Commission; hiring practices must meet the regulations specified by the
Equal Rights Act; contractual relations must conform to the Universal
Commercial Code and the tenets of contract law; and so on. The effects
of these changes are not inconsequential, for they place bounds on the
strategic practices of firms. For example, the use of required
pollution control devices is an expense to the firm which affects its

profitability and returns, and thus influences financial performance.

The existence of a common body of laws affects many aspects of a
firm's strategy and its strategic behavior. The impact of the legal
and legislative sectors of the environment on strategy is generally
accepted in the strategy literature (Quinn, 1978; Porter, 1979a). To
the extent that these laws require all firms to obey without exception
and equally, and provide for strict sanctions or penalties for non-
compliance, they will create one force for isomorphism in strategy.

Weber (1968) has suggested that the presence of a complex and

 

 

 

 

rationali
structure
structure
behavior
strategy.
In a
forms of
strategy.
is throng
defense j
Corporatic
output tc
military 8
and so
8°Vernmem
such pur<
behaViorS
business
affirmati
sPeCify
more red
binding
which Wi:
Ano
thI‘Ough

of 1and

 

71
rationalized system of contract law requires firms to adopt similar
structures in order to honor their legal commitments. Similarity in
structural arrangements may be one indicator of similarity in strategic
behavior since, as Chandler (1962) has argued, structure follows
strategy.

In addition to legislative impacts, governments may exert other
forms of coercive force on organizations which leads to homogeneity of
strategy. One way in which the government can influence firm behavior
is through government purchases of goods and services. Firms in the
defense industry, such as General Dynamics Corporation, Lockheed
Corporation, Martin-Marietta, and others sell a majority of their
output to the federal government in the form of weapons systems,
military aircraft and vehicles, data processing systems and services,
and so forth. Literally thousands of items are purchased by
governmental units at the federal, state, and local level. Typically,
such purchases involve contractual arrangements with the suppliers'
behaviors often specified in great detail. For example, firms which do
business with the federal government often must submit evidence of
affirmative action in hiring practices. Government contracts often
specify prices, delivery schedules, non—compliance sanctions, and many
more requirements which must be met by the firm. The presence of such
binding agreements will lead to similarity in the behavior of firms
which wish to do business with government agencies.

Another way in which governments influence firm strategies is
through the control of resources. The government owns large quantities

0f land in the United States which contain timber, minerals, oil and

 

 

 

gas reserves
or utilize
timber acqu
practices.
the price 01
supplies 01
firms to be]
materials.
Govern
isomorphism
services,
setting ti
the econor
activities
Organizati
advantages
the govern
Pursue cc
Plants i1
"enterpri:
Such as t'
which re
examples
Covertuner

 

 

72

gas reserves, and other natural resources. Firms wishing to purchase
or utilize government land for mineral eXploration, oil drilling, or
timber acquisition must comply with many regulations which guide their
practices. These may specify environmental controls, reforestation,
the price of the goods to be extracted, and more. By controlling large
supplies of natural resources, the government can exert pressure on
firms to behave in certain ways or risk losing a valued source of raw
materials.

Government fiscal policy is yet another means of coercive
isomorphism. By setting tax rates, budgeting governmental goods and
services, and through monetary policy such as the Federal Reserve's

setting the discount rate (and thereby the interest rate structure for

the economy), firms are encouraged to engage in various sorts of
activities. Tax rates may affect the investment decisions of
organizations, as firms seek to acquire other companies for tax
advantages. By offering tax relief to firms in certain industries,

the government exerts a subtle pressure on firms to make decisions to
pursue courses of action, participate in certain industries, or locate
plants in specific areas (such as right-to-work states or in the
"enterprise zones" of major metropolitan cities). Accounting rules,
such as the valuation of inventory, and securities and exchange laws,
which regulate financial reporting and capital markets, are other
examples of the effects of government on firm strategy formulation.
Governments also grant formal legitimacy through the legal chartering

of corporations.

 

 

 

 

The ro
but one exa
be impacted
the work of
organizatior
contingent 1
essential
of depende'
degree to
extent tha
inputs or
government
have noted
features;
their act
°rganizati
government
isomorphic

The
oreimizatj
another f.
Customer
the SuPpl
pressures
auto indt

Chrysler,

 

 

73

The role of the government as an agent of coercive isomorphism is
but one example of how the structure of many organizational fields can
be impacted by institutional forces. The basic argument follows from
the work of Pfeffer and Salancik (1978) on the resource dependence of
organizations. They have suggested that firm structures are often
contingent upon the key interdependencies of firms on other firms for
essential resources. As Emerson (1962) has noted, power is a function
of dependence. The power of Firm A over Firm B is a function of the
degree to which B is dependent on A for necessary resources. To the
extent that an organization must rely on the government for resource
inputs or as a purchaser of outputs, the greater the power of the
government to coerce behaviors from firms. Pfeffer and Salancik (1978)
have noted that the decisions of governments have two characteristic
features: politicians do not directly experience the consequences of
their actions, and their decisions are applied to entire classes of
organizations. Such decisions are less flexible and adaptive. Hence,
government and political processes are one element of the coercive
isomorphic forces within an organizational field.

The same logic of power-dependence relations applies to other
organizational relationships. The greater the dependence of firms on
another firm or group of firms as a source of resource inputs or as a
customer for the firm's products or services, the greater the power of
the supplier or the customer over the target firm and the greater the
pressures for conformity in strategic practices. For example, the U.S.
auto industry is dominated by three firms: Ford, General Motors, and

Chrysler. However, there are literally hundreds of other firms which

 

 

 

supply the
automobiles.
requirements
included i1
codified (e
as the supp
must have
evaluate th
five perce
statistical
which insr
(if not m<
Big Three
participat
reliant on
cases, the
firm must
business.
Similar 1
Conformanq
supplier
Simi
third of
HammOHdS,
marketph

range 0*

 

7a

supply the so-called "Big Three" with parts for the production of
automobiles. The auto assemblers have specified in great detail the
requirements with which supplier firms must comply in order to be
included in the supply base for the assembler company. These are
codified (e g., Targets for Excellence, 1987) and specify such things
as the supplier's methods of strategy formulation (for example, firms
must have a written business plan), strategic practices (firms will
evaluate their suppliers; firms will do their best to reduce costs by
five percent per year over the next five years; firms will employ
statistical quality control methods), and the evaluation procedure
which insures compliance and penalties for non-compliance. Since many
(if not most) of the auto industry suppliers lack the resources of the
Big Three, they have little choice but to comply if they wish to
participate in the industry. Furthermore, many firms are extremely
reliant on the auto industry as a customer for its products. In such
cases, the power of the final assembly firms is magnified; the supplier
firm must either do as required or face the prospect of going out of
business. To the extent that the Big Three can require and enforce
similar standards across companies, there will be a high degree of
conformance and uniformity in the business practices and strategies of
supplier firms.

Similarly, the retail toy company Toys 'R’ Us controls nearly one
third of the thirteen billion dollar retail toy market (Dunkin,
Hammonds, and Maremont, 1988). By virtue of their dominance in the
marketplace, Toys 'R' Us is able to influence toy manufacturers on a

range of issues from pricing to product selection and development to

 

 

advertisi
posesses
able toi
such as p;
Of (
reliant u}
One case r
(1985).
found the
the boards
the top e
often mem
concentrat
resources,
the banki
many firm
largest fj
Often pr
utilities,
common pr:
reliant 0'
Similar p
Trad
coerClVe
negotiate

b°dy th

 

 

75
advertising policy. While there are other large competitors, none
posesses the size and scale of Toys 'R' Us. As a result, the firm is
able to coerce its suppliers to pursue similar types of strategies,
such as paying to advertise in a Toys 'R’ Us ad circular.

Of course, the dependence model works both ways. Firms may be
reliant upon a limited base of suppliers for necessary resource inputs.
One case of such supplier dependence is presented by Mintz and Schwartz
(1985). They examined directorates of large U.S. corporations and
found that financial resource relationships were well represented on
the boards of directors of many firms. Specifically, they found that
the top executives of large U.S. banks and financial institutions were
often members of several boards. Their analysis suggested that the
concentration of power through the control of vital financial
resources, such as loans, equity markets, and capital funding, allows
the banking sector to determine to a large extent the activities of
many firms in the industrial sector of the economy, including the
largest firms. Similarly, a large variety of service infrastructures -

often provided by monopolistic firms, such as telecommunications or
utilities, or oligopolistic structures such as transportation — exert
common pressures on the firms which must utilize them. Firms which are
reliant on a common group of powerful suppliers will thus tend to adopt
similar practices and strategies for dealing with the supplier group.

Trade and labor unions are an additional source of supplier
coercive isomorphism in strategy. While many union contracts are
negotiated at the local level, the existence of a national governing

body which requires conformance to certain rules and procedures exerts

 

 

 

 

an often pc
a major inpi
bargaining :
Also, coll:
across fin
"designated
becomes the
two assem
agreements
organizatic
strategic l
agreements
offer Sim
unionized
The
Procedures
business
the use
large cor
SUbSidiar
PIOject
return 0
Presented
Company
lIISngmci

BM“ (1!

 

76

an often powerful force on firm strategies. Since labor is frequently
a major input into the productive process, firms must take collective
bargaining agreements into consideration in developing strategic plans.
Also, collective bargaining agreements are occaisionally standardized
across firms. For example, the United Auto Workers bargains with a
"designated" target U.S. auto assembler, and the contract which results
becomes the "pattern" for collective bargaining agreements at the other
two assembler firms. To the extent that collective bargaining
agreements are standard across firms witin an industry or
organizational field, there will be pressure for conformity in
strategic behavior. In addition, the presence of collective bargaining
agreements and labor unions can exert a force on non-union firms to
offer similar wage and benefit systems or risk losing labor to
unionized firms.

The imposition of strategic practices, structures, and operating
procedures may also occur due to the ownership structures in the U.S.
business system. Coser, Kadushin, and Powell (1982) have documented
the use of standardized reporting procedures among subsidiaries of
large conglomerate firms. Firms such as 3M Corporation require
subsidiaries to specify strategic plans to the parent company, and new
project proposals must meet the corporate "hurdle rate" criteria for
return on investment (Peters and Waterman, 1982). Leibold (1987)
presented evidence that the Allstate subsidiary of Sears, Roebuck and
Company emulated the principles of its parent by "merchandising"
insurance, adopting strategies and practices to reflect this strategy.

Brown (1987) traced the purchase of InteCom, Inc., by Wang Laboratories

 

 

 

 

from 1986 at
Exchange (1
later. If
for the 51
areas due t:
A rem
of large
"institutio
D) expendi
organizatio
control 31
Graves soug
SUggested 1
investment
form of l
Partially
SPending '
iIIStitutio
financial
Strategic
There
dimeIlSiOn
wh°se st.
of relat
hold by

 

 

77
from 1986 and found that the strategy for InteCom's Integrated Business
Exchange (IBX) mirrored that of the Wang Business Exchange one year
later. If several firms share a common owner, there may be a tendency
for the strategies of the subsidiaries to show homogeneity in many
areas due to the common requirements of the parent firm.

A recent study by Graves (1988) examined the effects of ownership
of large amounts of stock in public firms by the firms termed
"institutional investors" and corporate research and development (R &
D) expenditures in the computer industry. Noting that many large
organizations (pension funds, insurance companies, mutual funds, etc.)
control significant amounts of the stock of many large corporations,
Graves sought to examine the effects on corporate R & D spending. He
suggested that institutional investors may not look favorably on such
investment, preferring to have funds returned in the short term in the
form of dividends, rather than the long-term growth which may be
partially due to R & D efforts. His results indicated that R & D
spending was lower in firms which had relatively higher levels of
institutional investment. This suggests that ownership by large
financial or investment organizations may in fact affect firm's
strategic behavior.

There may also be differences due to the public versus private
dimension of firm ownership. Firms which are publicly owned, i.e.,
whose stock is traded through recognized markets, face a different set
of relationships than those organizations in which the ownership is
held by a sole proprietor or a small private group of investors.

Publicly traded firms must respond to requirements for information

 

 

 

 

 

 

disclosure
Exchange Con
the market
Publicly tr:
the threat
do not haw
make publi-
vagaries o
takeovers.
leveraged
company prj
privatizes
shareholdei
the long-1
Shareholde'
PUblic Ver
firms purs
Public ow
Strategies
are relat
facing co:
0the:
for homo
aCtiVists
manufactu

 

78

disclosure and financial reporting as mandated by the Securities and
Exchange Commission. The performance of public firms is reflected in
the market activity and can be compared to other similar firms.
Publicly traded firms must manage to optimize shareholder value or risk
the threat of a takeover or buyout. Private firms, on the other hand,
do not have to publish annual reports for shareholders, do not need to
make public their financial performance, are not subject to the
vagaries of the financial markets, and are not threatened with hostile
takeovers. Slater (1987) suggested that one reason many firms pursue
leveraged buyouts - in which the management of the firm "takes the
company private," that is, acquires the stock of the firm and in effect
privatizes the organization - is to reduce or eliminate the effects of
shareholder demands. Management can then take action which is more in
the long-term interest of the firm rather than feel pressured by
shareholders to maximize short-run returns. The nature of ownership -
public versus private - may thus have an impact on the strategies which
firms pursue. Firms which are tied to external constitutencies through
public ownership mechanisms are more likely to pursue similar
strategies than those firms which are privately owned. Private owners
are relatively free to pursue those strategies they wish, without
facing coercion from shareholders.

Other social groups within the society may exert coercive forces
for homogeneity in firm strategy. Consumer groups and consumer
activists may pressure firms to meet various criteria in the
manufacturing of goods or set standards for services. Periodically,

concerns are expressed in the business press over the lack of ethical

 

 

 

 

behavior an
concern and
standards tc
Culture
influence .
merger and
value (Slat
argue that
strategies
shareholder
as Busines
Significani
argument t]
be a great
their bus
Whether or
subject C
Montgomer)
and in SUI
the firm'
tonoerned
Similar

called "p
A c
Strategy

 

 

79
behavior among firms, and editorial writers and others will express
concern and attempt to influence companies to adopt more ethical
standards to govern their practices.

Cultural values and beliefs of a society may have a coercive
influence on firm strategies. One recent example is the debate over
merger and acquisition activity as a means of enhancing shareholder
value (Slater, 1987). Corporate "raiders," such as T. Boone Pickens,
argue that the threat of a corporate takeover forces managers to set
strategies and operate their companies so as to maximize returns to the
shareholders. A review of recent articles in business periodicals such
as Business Week seems to indicate that the threat of takeover is a
significant concern of many top executives. If society accepts the
argument that merger and acquisitions benefit the economy, there will
be a great deal of pressure on managers to set strategies and operate
their businesses in order to optimize the shareholder’s position.
Whether or not this is in the long-term interest of shareholders is the
subject of continuing discussion (Lubatkin, 1987, 1983; Singh and
Montgomery, 1987). However, this illustrates how forces in the society
and in suppliers (shareholders are the suppliers of equity capital to
the firm) act as coercive forces for isomorphism. If firms are
concerned about the threat of a takeover, they may tend to adopt
similar strategies to avoid the acquisition such as the use of so-
called "poison pills" and "greenmail."

A contemporary development in the literature on organization
strategy suggests yet another means for coercive pressures toward

isomorphism and homogeneity of strategy. Astley and Fombrun (1983) and

 

 

 

 

 

Astley (1981
firms withf
of organize
dynamics of
The concep
considerati
establishin
discussions
forces the
tend to a<
performanm
standardiz-
the case
Computers,
group, so
Standards
0“ an org:
PIESents
Strategy
This
and Orga
OrganiZat
Strategie
legitima,
forces w

Similar

 

 

80

Astley (1984) have argued for the presence of collective strategy among
firms within an industry. Collective strategies are “attempts by sets
of organizations to manage their mutual interdependence and the system
dynamics of their interorganizational environments (Bresser, 1988 375).
The concept of collective strategy indicates that firms take into
consideration mutual interdependencies and relationships in
establishing their individual strategy. It seems likely from previous
discussions of ownership relations and supplier/customer coercive
forces that firms which engage in collective strategic efforts will
tend to adopt similar strategic behaviors in order to facilitate the
performance of the collective. For example, product features may be
standardized in order to allow for easy transfer of technology, as is
the case with the use of the MS-DOS operating system for personal
computers. Or, product quality levels may be mandated by an industry
group, such as Underwriters Laboratories, which dicatate product
standards and perhaps production technology as well. Through the focus
on an organizational group as the unit of analysis, collective strategy
presents yet another plausible method of encouraging homogeneity in
strategy across organizations.

This discussion suggests that the effects of rational governments
and organizations and the structures of interdependencies between
organizations serve to coerce or force organizations to adopt
strategies and strategic practices which reflect rules which are
legitimated by these institutions. Over time, these institutional
forces will tend to pressure firms into adopting strategies which are

similar in content and in practice in order to meet the demands of

 

 

 

 

institution.

(Carroll an

3.2b Mimet

Coerci
Another pov
stems from
when tech]
creates sy
model thei
some clear
with ambi
can lead
the firm
action , ,4
formulati

Envi
(Duncan,
envirOHme
informatj
1980).
Suggests
COmplexi.
Under c

firms m

 

 

81
institutional legitimacy, which is a major resource for many firms

(Carroll and Delacroix, 1982).

3.2b Mimetic Isomorphism

Coercive authority is one institutional force for isomorphism.
Another powerful force which may influence an organization's strategy
stems from uncertainty. When the organization's goals are ambiguous,
when technologies are poorly understood, or when the environment
creates symbolic uncertainty (March and Olsen, 1976), organizations may
model their actions after other organizations. Mimetic behavior offers
some clear advantages to firms in highly uncertain situations. Faced
with ambiguous causes, unclear solutions, and dynamic change, modeling
can lead to the adoption of a viable solution with little expense to
the firm (Cyert and March, 1963). Modeling provides a rationale for
action, and can establish premises for decision making and strategy
formulation.

Environments of organizations are highly complex and dynamic
(Duncan, 1972). The magnitude of the number of factors within the
environment and the rate of change among factors can exceed the limited
information processing capabilities of human beings (Nisbett and Ross,
1980). Research by Mintzberg, Raisinghani, and Theoret (1976)
suggested that strategic decisions are characterized by novelty,
complexity, and open-endedness. Strategic decisions involve choice
under conditions of uncertainty and ambiguity. In such circumstances,

firms may seek to model the strategies of other firms. The

 

 

 

 

 

 

difficultie:
executives
means of ov
Mimeti
response t
models for
capacity 4
source of
Models ma:
transfer
consultant
Mimicry h
strategy (
There
Strategy,
SChendel
resource
dominant
Particula
uncertair
Strategi,
“WP-tit.
$011lehow
Dun
firms 1

 

82
difficulties inherent in strategic decison processes can lead
executives to adopt a "me, too" or "follow-the-leader" posture as a
means of overcoming the problems of strategic analysis and choice.
Mimetic behavior, such as imitation or modeling, may be a
response to uncertainty. Firms may be unaware that they serve as
models for organizations or may have no desire to act in such a
capacity (DiMaggio and Powell, 1983); nonetheless, they still become a
source of strategies and practices which borrowing firms may use.
Models may be diffused indirectly and unintentionally through employee
transfer or turnover, or explicitly through organizations such as
consultants and trade associations (DiMaggio and Powell, 1983).
Mimicry has even been suggested as a legitimate form of business
strategy (Hanan, 1985).

There are several examples of mimetic behavior in organization
strategy. The study of the U.S. phameceutical industry by Cool and
Schendel (1987) found that firms in the industry imitated the strategic
resource allocations of rivals. The success of a rival or of a
dominant firm in an industry may be a powerful force for mimicry,
particularly in environments characterized by high levels of
uncertainty. If managers are unable to ascertain the "proper"
strategies for success, they may decide to emulate successful
competitors on the assumption that the competitor's activities are
somehow "effective" ones for the industry environment.

Dunkin, Rossant, and DeGeorge (1987) documented evidence that
firms in the resort industry were mimicking the strategies of the

successful Club Med resort chain, leading to reduced performance of

 

 

 

 

Club Med.
(1985) fou'
strategies
reason for
for investc
institutior
Of c<
practices 1
IBM corpo
that IBM‘
Corporatio
that the
well - but
0f the c(
difficult
behavior
Performed
°f a Stra
against
those c<
transiti,
there Wa;
firm.
The
a“ addit

c("menu

 

 

 

83

Club Med. A study of hospitals and healthcare institutions by Coyne
(1985) found that not-for-profit firms tended to emulate the growth
strategies of investor-owned organizations, and indicated that one
reason for this behavior may have been the fact that the growth rate
for investor-owned firms was at least double that of the not-for—profit
institutions.

Of course, successful firms may choose to copy the strategic
practices of rivals as well. McWilliams (1988), in a case study of the
IBM corporation - the leader in the data processing industry - found
that IBM was willing to imitate competitors, such as Digital Equipment
Corporation. This willingness may have been prompted by a perception
that the industry was changing, and the company needed to change as
well - but the high level of technological uncertainty and the dynamism
of the computer industry made IBM's analysis for strategic purposes
difficult. In such cases, even the dominant firm may choose mimetic
behavior as a strategic response. Similarly, Skapinker (1986)
performed a case study of the Xerox corporation. He presented evidence
of a strategy on the part of the company to measure Xerox's performance
against other companies and to then emulate the attributes that make
those companies superior. He also noted that Xerox was undergoing a
transition phase in its products, markets, and strategies, and that
there was a high level of uncertainty as to the future direction of the
firm.

The presence of powerful, dominant firms within an industry may be
an additional force for mimicry. In industries characterized by high

concentration ratios - that is, the sales of a few firms account for a

 

 

 

large perct
some of th:
rivals. T
the domina
themselves
industry by
behavior.
dominant fi
securities
profitabil
and they f
banks. In
securities
Practices
the large
are as (
organizat:
Therm
another
example h
Ford, ar
invent“)
on Pufchz
$500 to
began of

perceiVe

 

 

84

large percentage of total industry sales - there may be a tendency for
some of the non-dominant firms to copy the behavior of the dominant
rivals. This may be particularly acute for firms which are close to
the dominant firms in terms of sales and performance, but are not
themselves a dominant firm. The case study of the Japanese securities
industry by Horvat (1987), discussed previously, gives evidence of this
behavior. The so-called "second tier" securities houses mimic the
dominant firms as a strategic response to the internationalization of
securities markets. The twenty one firms in the second tier lack the
profitability, manpower, and capitalization of the four largest firms,
and they face increasing competition from foreign brokerage firms and
banks. In order to present themselves as legitimate members of the
securities industry, these firms choose to imitate the strategic
practices of the dominant firms. By operating in a manner similar to
the large investment houses, the subordinate firms suggest that they
are as capable of functioning in the industry as the dominant
organizations.

There may also be a tendency for dominant firms to mimic one
another in order to deny rivals a competitive advantage. A recent
example has been the behavior of the U.S. auto makers - General Motors,
Ford, and Chrysler. In order to increase sales and remove cars from
inventory, Chrysler in the early 1980's offered customers cash rebates
on purchases of new cars from dealer lots. These rebates ranged from
$500 to $1,000. Within a short time span, General Motors and Ford
began offering similar rebates. In the late 1980's, as a response to

perceived high interest rates, Chrysler began offering buyers a reduced

 

 

 

 

financing
conventiona
lending ins
followed 5
mimicking c
Modeli
presence 01
with them
are willin
The auto
Opportunit
found that
prior to
of the Big
obtaining
Periodica‘
t0 obtai
from acti
knowledge
0{Banizat
Others.
Fin;
there i
managed
Strategy

 

85
financing rate of 2.9 average percentage rate, as compared to the
conventional finance rate which was much higher at banks and other
lending institutions. Within literally days, General Motors and Ford
followed suit. Recently, Teece (1988) noted that automakers were
mimicking one another in the adoption of new car warranties.

Modeling also derives from employee transfers and through the
presence of external agents, such as consultants. Employees may take
with them knowledge of a firm's strategies and practices, which they
are willing to export to rival firms or to firms in other industries.
The auto supplier industry is one example. The author recently had
opportunity to interview executives at several auto supplier firms, and
found that many of these executives had worked for other supplier firms
prior to their current employment. Also, many had experience with one
of the Big Three firms - General Motors, Ford, or Chrysler - prior to
obtaining a position with a supplier. Recent articles in news
periodicals indicate that there is a propensity for military officers
to obtain employment with defense contracting firms after retirement
from active duty. To the extent that such employee transfers diffuse
knowledge about the behaviors of potential models to other
organizations, there may be greater tendencies for firms to mimic
others.

Finally, much of the similarity in strategy may occur because
there is a lack of variation in the strategies which are available for
managerial choice and selection. Porter (1980) identified three basic
strategy types, with variation within the three types. Miles and Snow

(1978) found four types of strategy-structure relations; and Miller and

 

 

 

Friesen (15
This sugge:
range of 3
strategies
and type
models idii
births, ar
throughout
models upor
in the str
Organ
organizati
successfu1
more to
within t1
Processes
efficienc
and emula

h°m0genei

3'2C No]

A t
normativ
DiMaggio

defined

 

 

86

Friesen (1978) delineated ten "archetypes" of strategy formulations.
This suggests that, at a general or generic level of analysis, the
range of strategic alternatives may be limited. Also, the "pool" of
strategies from which manager can choose is restricted by the number
and type of firms in existence. Modeling requires the presence of
models which can be emulated. Kimberly (1980) studied organization
births, and found that new organizations are modeled on old ones
throughout the economy. He also determined that managers actively seek
models upon which to build. If there are few models, firms are limited
in the strategies which can be imitated.

Organizations may tend to model their strategies after similar
organizations in the field which they perceive to be more legitimate or
successful. The prevalence of this mimetic behavior can be credited
more to the presence of institutional and structural arrangements
within the organization field, and to the universality of mimetic
processes than to any evidence that the adopted models enhance
efficiency and performance (DiMaggio and Powell, 1983). The imitation
and emulation of strategies is a significant factor in increasing the

homogeneity of strategy among firms within an organizational field.

3.2c Normative Isomorphism

A third source of isomorphism in organization strategy is termed
normative and is typically derived from professionalization. Following
DiMaggio and Powell (1983) and Larson (1977), professionalization is

defined as “the collective struggle of members of an occupation to

 

k

 

define the
‘production
legitimatio
1983:152).
organizatio
staffs of
increased
fortunes
traditiona'
profession
coercive
while the
differ in:
COUnterpa:
sources (
requiremer
The sec
°rganizat
quickly,
Unix
imPOrtam
Professi,
°f the}
this Cla
goverrune

educatic

 

 

 

87

define the conditions and methods of their work, to control the
‘production of producers,’ and to establish a cognitive base and
legitimation for their occupational autonomy" (DiMaggio and Powell,
1983:152). The primary concern for this analysis is the growth in
organization professionals, and in particular executives and managerial
staffs of large corporations. Hall (1968) has asserted that the
increased professionalization of workers whose futures are tied to the
fortunes of the organizations which employ them has made the
traditional dichotomy between organizational commitment and
professional allegiance obsolete. Professions are also subject to
coercive and mimetic processes, as are organizations. Furthermore,
while the various kinds of professionals within organizations may
differ from one another, there is often great similarity to profesional
counterparts in other firms. Two aspects of professionalization are
sources of isomorphism. The first is the use of formal education
requirements and the legitimation provided by university specialists.
The second is the growth of professional networks which span
organizations, and which allow information and models to be diffused
quickly.

Universities and similar educational and training institutions are
important centers for the development of organizational norms among
professional managers and their staff. Shames (1986) studied the class
of the Harvard Business School of 1949. He noted that many members of
this class went on to secure positions as top executives in industry of
government in the United States, and discussed the influence of their

educational experience and the network of relationships among these

 

 

Ll"-

 

executives .
that the 5
while in
performance
Many ”t
requiremeni
Business
order to.
isomorphis
body of
graduate
great simi
the textb(
there is ,
Students_
SPecific
Performan
1earming
Administ:
the home;
Since Mj
d‘egree
educatio
iSOmOrph

 

 

88
executives as an influence on their career progression. He suggested
that the similarity of their education and the relationships developed
while in graduate school had an effect on the eventual success and
performance of these executives.

Many business schools in the United States are influenced by the
requirements of the American Association of Collegiate Schools of
Business (AACSB), and must conform to the standards of the AACSB in
order to achieve accreditation - a coercive institutional force for
isomorphism in itself. The standards of the AACSB specify a common
body of knowledge which must be taught to all undergraduate and
graduate students in the business school, and as a result there is
great similarity in course requirements across schools. In addition,
the textbooks which are used must also meet with AACSB standards, and
there is a remarkable homogeneity in the material which is presented to
students. The fact that many organizations recruit students from
specific college campuses and inquire about students' classrom
performance is another force which pressures students to do well in
learning material. The prevalence of the Master of Business
Administration (MBA) degree among executives gives further evidence of
the homogenization which occurs as a result of the educational process,
since MBA programs typically offer a smaller variety of classes in the
degree program. Also, executive training seminars and continuing
education programs are further means whereby the normative forces for
isomorphism in strategy may be exerted. As executives learn similar

information and models about strategy and the strategy process, there

 

 

may be a
organizatio
An ad
personnel
hiring pr;
exchange a
knowledge
through an
of sociali
The prese
achieve 5
developmer
firms, tl
behaviors
an indus
Shared ac
tend to S
same in
eXecutive
differy
c0111111011
Vocahula
Standard
1980)_
S("lites

and on

 

 

89
may be a tendency for these models to become diffused among many
organizations with the result being greater homogeneity in strategy.
An additional vehicle which encourages normative isomorphism is
personnel flows among organizations. Through transfers, turnover,
hiring practices, and promotion policies, firms create a system of
exchange among executives which tends to filter and diffuse the
knowledge about firm strategies and behaviors. As executives move
through and between organizations, they are subjected to a wide range
of socialization experiences and information acquisition opportunities.
The presence of organizational career tracks insures that those who
achieve senior management levels undergo similar experiences and
development. To the extent that career tracks are similar across
firms, there will be similarity in the perceptions and the choice
behaviors of executives. The movement of executives among firms within
an industry or organizational field is another means whereby norms are
shared across organizations. If the organizations within an industry
tend to select their applicants from the same pool, such as using the
same universities, there will be homogeneity across firms in
executives. While individual on-the-job socialization experiences may
differ, many managers undergo anticipatory socialization which creates
common expectations about personal behavior, organizational
vocabularies, style of dress (Cicourel, 1970; Williamson, 1975), and
standard methods of addressing and communicating with others (Ouchi,
1980). Therefore, as key strategic managers are selected from the same
sources, filtered through a common set of attributes and experiences,

and progress through different firms within an industry, the more they

 

 

will come t
and proce<
Powell, 19E
Profe:
creation,
about org
their exe
convention
firm perfc
members (
academici;
opportuni
In addit
professio
dissemina
who will
related
Publicatj
Pr0fessi
the exc
diffusio
PractiCe
A
interlo,
Paper

°f dir

 

 

90

will come to view problems in a similar fashion, adopt similar policies
and procedures, approach decisions in similar ways (DiMaggio and
Powell, 1983), and formulate and implement similar strategies.

Professional and trade associations are another mechanism for the
creation, definition, promulgation, and maintenance of norms and rules
about organizational and professional behavior. Organizations and
their executives who belong to such associations attend meetings and
conventions at which the topics of discussion typically center around
firm performance and managerial effectiveness. Speakers may be other
members of the profession or they may be external agents: consultants,
academicians, etc. Whatever the case, these sessions offer an
opportunity for information to be exchanged and shared among managers.
In addition, the opportunities for informal social contact between
professionals at these seminars provides an additional means for the
dissemination of knowledge and the building of a network of contacts
who will be able to provide further data in the future. Another
related source of normative isomorphism is the presence of trade
publications or journals, which are circulated among members of the
profession at various organizations. By providing a common forum for
the exchange of ideas and information, such materials add to the
diffusion of norms about organizational strategies and strategic
practices.

A fourth mechanism of normative isomorphism is found in the
interlocks among boards of directors of large corporations. One recent
paper (Richardson, 1987) stated that there were over 100 major studies

of directorship interlocks in the literature. The majority of the

 

 

 

 

 

 

research
with fi
Gogel a
nature
control
(Palmer,
interloc
isomorph
the acti'
and con:
Because
many b0;
across 11
Will oft
methods
Concerni-
(Zajac,
homo gene
among £1
for Dori
La:
consult
(DiMagg
diffuse
fiI'Ins ,

re801v:

 

91

research efforts have been attempts to link directorship interlocks
with firm performance (for example: Dooley, 1969; Pennings, 1980;
Gogel and Koenig, 1981). However, many studies have pointed out the
nature of interlocking directorships as mechanisms of organizational
control (Allen, 1974; Mariolis, 1975), interorganizational cooperation
(Palmer, 1983), and rationality (Useem, 1982). The presence of
interlocking directorates can be a very powerful mechanism for
isomorphism. Boards of directors are generally charged with overseeing
the activities of the senior managers, and in often serve in an "advise
and consent" capacity with respect to major strategic decisions.
Because of their position in the corporate hierarchy and the fact that
many board members serve on multiple boards within an industry or
across industries, strategic practices which meet with board approval
will often be similar across firms. Despite criticisms of research
methods and the assumptions of research on interlocking directorates
concerning the use of interlocks as an interorganizational strategy
(Zajac, 1988), the "sharing" of board members can be a source for
homogeneity of strategy. The presence of interlocking directorates
among firms within an organizational field may be a significant force
for normative isomorphism and strategic homogeneity.

Large organizations also find a relatively small set of major
consulting firms which they can retain to perform various services
(DiMaggio and Powell, 1983). The consulting organizations tend to
diffuse a few, limited sets of strategic models within their client
firms. Often, these consultants are retained to provide expertise in

resolving specific problems which are similar across companies. Or, the

 

 

 

 

 

consultant
manner, cer
due to ti
consultant
significan'
consultant
informatio
The p
with the s
1983). f
paths an.
contribut
behavior,
further 1
occur ti
bargainiI
Other an
aWarding
rival f1
Similar
in a
associai
Of
°rganiz
with t

their

 

 

92

consultant may use similar methods with various client firms. In this
manner, certain practices can be spread throughout a group of companies
due to the nature of the consulting relation, which allows one
consultant to work for many organizations. The presence of a few
significant consulting firms and the interrelationships among
consultants and clients are an additional source of diffusion of
information and subsequent homogeneity of strategic behavior.

The professionalization of management tends to proceed in tandem
with the structuration of organizational fields (DiMaggio and Powell,
1983). The exchange of information, the flows of personnel, career
paths and socialization processes, and the networks of relationships
contribute to the creation of a commonly recognized set of rules for
behavior, status, and norms and values which then become sources for
further information flows across organizations. Ordering of status can
occur through various means. The use of one or a few firms as key
bargaining units in labor contracts may make these firms central in
other areas as well. Government recognition of certain firms through
awarding of contracts may give these organizations legitimacy and lead
rival firms to copy their strategies and behaviors in order to obtain
similar rewards. Certain firms may be recognized for their leadership
in a field by designating executives as key members of trade
associations and industry groups.

Often, diffusion of strategy occurs as managers move from
organization to organization. Upwardly mobile executives often take
with them patterns of behavior and strategic processes learned from

their experiences in preceding jobs. Frequently, executives will move

 

 

 

from centre
the case w
the Big ll
Such move]
responsibi
magnified.
Throw
spread thi
an organ?
strategic
activity
the strat
be a we

corporati

DiM
Pretedir
Proceed
organiz
f°r is
per se
extent
Perfor,

 

 

 

 

93
from central organizations to peripheral ones within an industry, as is
the case with many auto supplier firm executives, who have left one of
the Big Three manufacturers for a position at a supplier organization.
Such movements also are often to positions of greater authority and
responsibilty, and the ability to influence the strategy process is
magnified.

Through these several mechanisms, norms for firm strategies are
spread through an organizational field. The structuration process of
an organizational field makes it highly likely that the diffusion of
strategies will, over time, lead to homogenization of strategic
activity as forces for normative isomorphism exert their influence on
the strategy process. The modern environment of organizations seems to
be a very fertile ground for the spread of strategies among

corporations.

3.2d Mechanisms of Isomorphism: Summary

DiMaggio and Powell (1983) have suggested that each of the
preceding institutional isomorphic processes "can be expected to
proceed in the absence of evidence that they increase internal
organizational efficiency" (1983 153). That is, institutional forces
for isomorphism in strategy are based not upon improving performance
per se but rather on the institutional arrangements themselves. To the
extent that the homogenization of strategy does lead to improved
performance, the reason may be that organizations are rewarded for

being similar to others within their field. Similarity in strategy can

 

 

 

make it «
opportunit
acknowledg
that firm
customers,
However,
organizatf
“deviant“
Also
efficient
there ar
barriers
Lipsey,
industry
deviant
Organiza
encourag
(Harriga
°rganizz
a fiel<
lead t,
and hom
Wh
separat
and dc

‘ these

 

94

make it easier for firms to transact with one another, offers
opportunities to attract career-oriented executives, and to be
acknowledged as legitimate and respectable. It may often be the case
that firms which pursue "deviant" strategies are seen by investors,
customers, employees, and suppliers as "in trouble" or as "too risky."
However, similarity in strategy does not indicate that conforming
organizations are in any way superior in performance as compared to
"deviant" firms.

Also, in many organizational fields pressures for competitive
efficiency may be mitigated because the number of firms is limited and
there are strong barriers to entry and exit. The presence of high
barriers to entry of new firms into an industry (Porter, 1979b; Eaton &
Lipsey, 1980; Harrigan, 1981a, 1980a) may allow firms within the
industry to mimic each other's strategies, since the threat of entry of
deviant firms is small. In the absence of pressures from deviant
organizations, the institutional rewards for strategic homogeneity may
encourage firms to imitate one another. There are also exit barriers
(Harrigan, 1980b, 1981b) which can prevent firms from leaving an
organizational field. If organizations are committed to an industry or
a field for an extended period of time, the structuration process will
lead to increased institutional forces and mechanisms for conformity
and homogeneity of strategy.

While each of the three forces for isomorphic change derive from
separate sources — coercive from dependence; mimetic from uncertainty
and dominance; and normative from professionalization — in practice

these are often intertwined and difficult to separate. Each is a

 

 

conceptual:
forces fr!
purChasers
same time,
suppliers
of any 5
strategy I
The
indicator
While th
focus of
structure
multidime
may be .
differen
any sin
the fie
exhibit
exaInple
tenure
While 1
educati
Ti
variabi
cohduc-

 

 

 

9S

conceptually distinct process, yet in organizational fields these
forces frequently may interact. For example, governments may act as
purchasers of goods and exert coercive forces on supplier firms; at the
same time, governmental agencies can serve as a source of employees for
suppliers which leads to normative forces for isomorphism. The effects
of any single mechanism on isomorphic change and homogeneity of
strategy may not be readily apparent from observation.

The presence of institutionalized forces and mechanisms is an
indicator of the isomorphic pressure within an organizational field.
While there may be other mechanisms which can lead to isomorphism, the
focus of this research is on those which are institutionalized in the
structure of the organizational field. Isomorphic pressure is a
multidimensional construct; there are many forces and mechanisms which
may be at work within an organizational field and which may exert
differential effects on the homogeneity of the field. The effects of
any single mechanism may be influenced or mitigated by others within
the field, with the result that different organizational fields may
exhibit different institutionalized patterns of isomorphism. For
example, the educational experiences of executives may be offset by
tenure within an industry. At some point, learning which has occurred
while in a career may exceed the early training afforded by a college
education and the effects of education may not be apparent.

The multidimensionality of the institutional isomorphic forces
variable in the model necessitates the use of multiple hypotheses in
conducting empirical research on institutional mechanisms and strategic

homogeneity. The following section develops a set of research

 

 

 

 

 

hypotheses

strategic

3.3 Insti

From
isomorphii
should be
of firms
business
strategy
observed
relation:
characte
governed
central
forces
organize
those f:

Th
the i
hYpothe
all 01
repres,
analys

QXampl

 

 

96
hypotheses which are based on the institutional perspective on

strategic homogeneity developed in this chapter.

3.3 Institutional Isomorphism and Firm Strategy: Research Hypotheses

From the preceding discussions of the mechanisms by which
isomorphic change occurs and the likely effects on firm strategies it
should be possible to predict empirically the degree to which a group
of firms within organizational fields will exhibit homogeneity in their
business strategies. The value of an institutional perspective on
strategy lies in its predictive utility, the ability to account for
observed phenomena. The following hypotheses suggest three
relationships which may be empirically examined using data on the
characteristics of organizations in a field. These hypotheses are
governed by ceteris paribus assumptions, and are predicated upon the
central contention of this research: the greater the institutional
forces for isomorphic change among a group of firms within an
organizational field, the greater the homogeneity of strategy among
those firms.

The prior discussion presented a broad theoretical treatment of
the institutional perspective on homogeneity of strategy. The
hypotheses which follow have been derived from the theory; however, not
all of the mechanisms and variables suggested by the theory are
represented in the selected research hypotheses. The field level of
analysis chosen can affect the choice of experimental hypotheses. For

example, studies which focus on firms within industries would not

 

 

 

utilize C-
effects of
to be ver
face the
regulatior
force - 1
difficult
homogenei
operate w
the homog
The
0f insti
strategy
Specific
measure
governme
Variable
not be
Which
isomorp]
institu
In
be expe
studieE
Hatten

C001

 

 

97
utilize certain of the theoretical variables in the research. The
effects of government regulation on firms within an industry would tend

to be very similar, since firms within an industry group frequently

face the same set of government regulations. If "government
regulation" were used as an independent variable - as a isomorphic
force - there would be little variance across firms. It would be

difficult to test empirically the effects of such regulation on
homogeneity of business strategy. Or, if all the firms within a field
operate within the same culture, the effects of variation in culture on
the homogeneity of business strategy would not be discernable.

The intent of this initial investigation is to examine the effects
of institutional isomorphic mechanisms on homogeneity of business
strategy among firms within an industry. By limiting the study to a
specific industry group, a measure of control - albeit perhaps a slight
measure — is established over certain exogenous variables, such as
governmental regulation, and cultural values. Therefore, some of the
variables presented in the theoretical discussion of this paper will
not be included in the hypotheses or in the methodology and analysis
which follows. Within-industry studies would not use certain
isomorphic mechanisms, since no variation is anticipated for these
institutional forces.

Instead, attention will be focused on those variables which might
be expected to have an effect on firms within an industry group. Since
studies of strategy frequently examine firms within an industry (e.g.,
Hatten and Schendel, 1977; Hambrick, 1983b; Johnson and Thomas, 1987;

Cool and Schendel, 1987, 1988), a within-industry study would be an

 

 

important
the issue
competitio
crucial to
level of a

For 1
the indus-
should un-
the indu
industry,
0f the t
mechanism
hypothese

isomorph

3-38 Co

The

isomorpl

Hlil30the
IEIatiV

hOmo gen
relativ

StruCti

Valued

 

 

98
important level of analysis. When examining firms within an industry,
the issue of business strategy - the strategic decisions which affect
competition within a specific product-market or industry group — is
crucial to the performance of the firm. The use of the within-industry
level of analysis focuses attention on the business level of strategy.
For this research, the organizational field level of analysis is
the industry. These terms may be used interchangeably, and the reader
should understand that the organizational field level of analysis and
the industry are one and the same. By studying firms within an
industry, it should be possible to develop a fairly good initial test
of the utility of the institutional perspective as an explanatory
mechanism for homogeneity of business strategy. The following
hypotheses will be presented according to the three dominant forces for

isomorphic change: coercive, mimetic, and normative.

3.3a Coercive Isomorphism: Research Hypothesis

The first hypothesis is derived from the discussion of coercive

isomorphic forces and dependency.

Hypothesis 1: Within an organizational field, organizations which are
relatively more dependent on the same customers will exhibit greater
homogeneity of business-level strategy than organizations which are
relatively less dependent on the same customers.

Pfeffer and Salancik (1978) suggest that organizations will adopt

structures and practices as a response to dependence on other firms for

valued resources. Customers are an important source of sales revenue

 

 

 

 

for firms,
serve the
market.
as to m
limited
have few
limiting
required
other si
similar :
The
relative
Particul
many {1
example!
assembl:
PUIChasc
firms
their
Substar
being
teChno'.
manufa.
Often,
manufa

Suppii

 

 

99

for firms, and firms must make efforts to meet customer's demands and
serve the customer's needs if they are to compete sucessfully in a
market. Firms will adjust their strategies and strategic behaviors so
as to meet the requirements of the customers. The presence of a
limited set of customers upon whom firms are dependent means firms may
have few options from which to choose in selecting their strategies. By
limiting a firm's range of strategic options through the stipulation of
required behaviors - via contracts, product design specifications, and
other similar mechanisms - it is more likely that firms will choose
similar strategies.

The fewer the customers for a firm's output, the greater the
relative power of the customers (Porter, 1980). This situation is
particularly acute in those industries in which there are relatively
many firms trying to service few customers (Porter, 1980). For
example, in the U.S. auto industry, the "Big Three" auto
assembly/manufacturing firms of General Motors, Ford, and Chrysler
purchase goods from hundreds of suppliers. The power of the assembler
firms is substantial, since suppliers have few alternative outlets for
their goods and many are dependent on the auto assemblers for a
substantial portion of their revenues. Even though the parts which are
being purchased may differ from supplier to supplier, many use similar
technolgies or manufacturing processes and as a result, part
manufacture can be transferred with little cost to the assembler.
Often, assemblers own the tooling - the primary component of
manufacture — and use only the labor or machinery of suppliers.

Suppliers are therefore highly dependent on the assemblers for sales

 

 

 

revenue.
demands c
for survi
organizat:
organizat'
force for
Note
on the s
on the
preceding
equivalei
organiza*
of analy
customer
While a
revenue
firms_
0“ fir:
between
accordi

differ

3.3b p

diSCuS

 

 

lOO
revenue. Firms will adjust strategies and behaviors to meet the
demands of the assemblers, since they are dependent on these customers
for survival. Such dependence leads to isomorphic change, and in
organizational fields which have few customers on whom the member
organizations are dependent, the power of the customer is a significant
force for isomorphism and homogeneity of strategy.

Note that this relationship among firms is indirect - it is based
on the structural similarity of the firms within the field rather than
on the presence of direct linkages among firms. Recall from the
preceding discussion and Figure 3-2 that firms may be structurally
equivalent due to the presence of similar linkages to other
organizations, including firms which are outside the designated field
of analysis. Thus, two firms A and B which are dependent upon the same
customer for 80% of the sales revenue are structurally equivalent,
while a firm C which is dependent on the customer for 10% of its sales
revenue is not equivalent in the structural sense to the other two
firms. The coercive force for isomorphism due to customer dependence
on firms A and B are hypothesized to lead to homogeneity of strategy
between these two firms, while the force on firm C would differ and,
accordingly, it would be hypothesized that the strategy of firm C would

differ from that of A and B.

3.3b Mimetic Isomorphism: Research Hypothesis

The hypothesis concerning mimetic isomorphism is based upon the

discussion of uncertainty and the forces for mimicry.

 

 

 

lhmothesis
there is r
exhibit .g
organizatic
In 01
which the «
executives
selecting
condition
shareholde
for the cc
(Mitroff,
executive:
and Cohet
understoo
importati
€Xecutive
Perceive
Strate g1.
Whom t1:
stakehol
Wei
Create
baSis 1
Problem,
°Pt fo

These

 

101

Hypothesis 2: Within an organizational field, organizations in which
there is relatively greater perceived environmental uncertainty will
exhibit greater homogeneity of business—level strategy than
organizations in which uncertainty is relatively less.

In organizational fields characterized by high uncertainty, in
which the environment is perceived as ambiguous, complex, and dynamic,
executives may have difficulty in performing strategic analyses and in
selecting strategies due to bounded rationality (Simon, 1947). This
condition is problematic, since firms are often under pressure from
shareholders and other constituent groups to delineate a clear strategy
for the company in order to reassure investors and provide legitimacy
(Mitroff, 1984; Meyer and Rowan, 1977). To overcome this condition,
executives may use choice behaviors similar to those described by March
and Cohen (1974) for organizations in which technology is poorly
understood. Such decision-making processes often involve the
importation of institutionalized rules and practices. In effect,
executives who find themselves in organizational fields in which they
perceive a high level of uncertainty may respond by copying the
strategies of other firms in the field, particularly those of firms
whom they perceive to be succesful, as a means of satisfying
stakeholders and providing a sense of direction for the firm.

Weick (1979) suggested that individuals in organizations must
create meaning systems which interpret the environment and provide a
basis for organizational action. If this interpretive process is
problematic due to the nature of the environment, decision-makers may
opt for one of several methods to provide a rationale for decisions.

These may range from rational decision making, in which the process is

 

 

 

based on a
decision nu
sequential
1983). Pre‘
feasible 11
1973; Fred
may therefo
legitimacy
references
serve as 1
face of an
strategic

so as a
formulatic
Organizatf
the grea‘
firms in
mimic the

resUlting

3'3C No:

The
Strategy
orgaanE

 

102
based on a systematic evaluation of the problem, to incremental
decision models in which the final choice results from a series of
sequential decisions made within limits of rationality (Fredrickson,
1983). Previous research has indicated that rational models may not be
feasible nor optimal in many organization environments (Mintzberg,
1973; Fredrickson and Mitchell, 1984; Fredrickson, 1984). Strategists

may therefore utilize alternative decision-making techniques to provide

 

legitimacy for their actions, among which is the use of available
references (Fitz and Sachs, 1984). The presence of firms which can
serve as reference models for strategic decision-makers can, in the

face of an uncertain and ambiguous environment, provide the basis for

 

strategic choice. Firms which mimic the behavior of other firms may do
so as a means of avoiding the uncertainty inherent in the strategy
formulation process. The institutionalized structure of an
organizational can provide executives with available models. Hence,
the greater the perceived environmental uncertainty among a group of
firms in an organizational field, the more likely are those firms to
mimic the business strategies of other firms and the more similar the

resulting business strategies of those firms.
3.3c Normative Isomorphism: Research Hypothesis

The hypothesis concerning normative isomorphism and homogeneity of
strategy is based on the discussion of the professionalization of
organizational fields, the diffusion of norms among professionals, and

the concept of connectedness in organizational fields.

 

Hypothesis
there are 1
will exhib:
organizatio1
The
organizatio
among orga
The greater
presence (
will come
similar ant
greater p
behavioral
Such prof
among firn
Inter
can take
meChanism
Executive
Undergme
POWe11,
based “I
eduQatioI
will be
and Str
orgilniza

0r if th

 

103

Hypothesis 3: Within an organizational field, organizations in which
there are relatively many professional interrelationships among firms
will exhibit greater homogeneity of business-level strategy than
organizations in which there are relatively few interrelationships.

The effects of professionalization on firms within an
organizational field occur primarily through the interrelationships

among organizations, and specifically among organization executives.

The greater the diffusion of knowledge and norms among firms due to the

presence of such linkages, the greater the likelihood that the field

will come to be dominated by professionals whose perceptions are

Similar and who will make similar choices concerning strategies. Also,

greater professionalization can lead to a set of standards and

behavioral norms which guide actions of individuals within the field.

Such professional norms can be a powerful mechanism for isomorphism

among firms.

Interrelationships which lead to normative isomorphism among firms

can take several forms, as has been discussed previously. One

mechanism occurs through similarity of educational experience.
Executives with academic training and credentials have already

undergone a socialization process in university programs (DiMaggio and

Powell, 1983), and will have internalized a set of norms and values
based upon their educational experience. To the extent that the

educational process is similar among executives, the more likely it

will be that similar attitudes and perceptions toward business firms
and strategic activities will be developed. If firms within an

organizational field select applicants from a few university programs,

or if the applicants have similar formal educational experiences, there

 

 

 

 

are forces
bring these
are domina
limited set
these exec
whose top
and percept
strategy 1
Paine, 19'
profession
there will
and strate
Gates
Of increa
within a 1
lead to S,
aVailable
shaped O
executivE
anthorit)
the fo<
Characte;
Strategi
organiZa
experier

Strategj

 

 

 

104
are forces for normative isomorphism already in existence. Managers
bring these norms with them to their jobs. If organizations in a field
are dominated by executives who have obtained MBA degrees from a
limited set of academic institutions, it is likely that the norms among
these executives will be shared to a greater degree than among firms
whose top executives have differing educational backgrounds. Norms
and perceptions of top executives are one element that influences the
strategy process (Hambrick and Mason, 1984; Barnes, 1984; Anderson and
Paine, 1975). If norms are shared among executives due to the
professionalization of the managerial occupation through education,
there will be forces for isomorphism within the organizational field,
and strategies will tend to be homogenous.

Career paths and career development experiences are another means
of increasing the connectedness and professionalization among firms
within a field. There may be many routes available to managers which
lead to senior positions within the firm, but there are few positions
available at the top of most corporations. The traditional pyramid-
shaped organizational structure leads to the condition where one
executive (or very few executives) comes to dominate the formal
authority relations and decision-making processes. Top managers are
the focal group in the strategy formulation process, and the
characteristics of senior managers may be critical in determining the
strategies of the firm (Hambrick and Mason, 1984). If firms within an

organizational field tend to select managers with similar career
experiences and functional backgrounds, there will be a tendency for

strategies to be homogenous across organizations within the field.

 

 

 

 

Executives
filters wdr
experience
experiences
strategies
(Norburn
organizatic
function 1
company, 1
organizati:
strategies
"engineeri
Solutions,
In a
socializat
one firm
Which is
Company
change jo
fields w
for exec
reSult 01
reProdum
work er
organiza

field to

 

 

 

105

Executives come to View strategic problems through the cognitive
filters which may be partially formed as a result of previous
experience (Barnes, 1984; Schwenk, 1984). To the extent that
experiences are similar, the filters will be similar as well and the
strategies which flow from decision processes will resemble one another
(Norburn and Birley, 1988). For example, if firms within an
organizational field tend to select managers from the engineering
function for promotion to the senior management positions in the
company, there will be a likelihood that such executives will view
organizational problems from an engineering perspective. The
strategies which such firms develop will be a response to these
"engineering problems," and often the solutions will be "engineering
solutions."

In addition to experiences in education and within organizations,
socialization can occur across organizations as executives move from
one firm to another over the course of their careers. The knowledge
which is acquired as a result of a manager's career within a single
company is transferred with the manager when there is a choice to
change jobs and seek employment with another firm. In organizational
fields with a high degree of such transfers, there may be a tendency
for executives in different organizations to resemble one another as a
result of career moves; what Kanter (1977) refers to as "the homosexual
reproduction of management." As managers acquire knowledge from their
work experience and transfer information to new firms within an
organizational field, there is a tendency for the knowledge base of the

field to become diffused. "The way we did it at the XYZ company" can

 

 

 

be a model
corporation
strategies
field and h
Meyer
relational
the colle(
associati01
Management
Direct Ma
from dive
knowedge
executives
informati<
°rganizatz
View prob'
tend to-
across f
according
Anot
1“format:‘
and pro:
informat
As eXe
organize

Compile

 

106
be a model for an executive to use in a new position with the ABC
corporation. As executives move between firms, the knowledge and
strategies of firms becomes dispersed among organizations within the
field and homogenization of strategies occurs.

Meyer and Rowan (1977) suggested that the more elaborate the
relational networks among organizations and their members, the greater
the collective organization of the environment. Industry trade
associations and professional associations, such as the American
Management Association, the National Association of Manufacturers, the
Direct Marketing Association, etc., are one way in which executives
from diverse organizations can meet together and share information and
knowedge which is of mutual interest. The greater the relations among
executives through such associations, the more likely it will be that
information exchange will occur and knowledge become diffused within an
organizational field. The diffusion of knowledge leads managers to
view problems in similar ways, and the response to such problems will
tend to mirror this simlarity. Hence, strategies become homogenous
across firms; managers formulate strategies in similar ways and
according to similar perceptions.

Another mechanism of normative isomorphism comes from the
information which executives acquire about trade and industry practices
and professional activities. One source of dissemination of such
information is through industry, trade, and professional publications.
As executives read such journals, they acquire data about
organizational concerns and practices. Also, industry groups often

compile statistics and data on the firm's environment which may be

 

 

utilized b
that the i
greater the
The p1
directors (
and profes
to approve
board str
via interl
ways. For
an indust
various c(
three f1;
implement.
0f the
Organizat
among fi
Strategie
Ind:
POWerful
and str.
firms Wi
to a CO
ideas f
PracticE

Within

 

 

107
utilized by executives in making strategic decisions. To the extent
that the information base is common and shared among executives, the
greater the normative forces for homogeneity of strategy.

The previous discussion of the effects of interlocking boards of
directors on isomorphism highlights still another form of connectedness
and professionalization among firms. Since boards generally have power
to approve or disapprove major strategic decisions, the similarity in
board structures which can be created through the sharing of directors
via interlocks means that boards may come to view strategies in similar
ways. For example, a banker may sit on the boards of three firms within
an industry, due to the bank's importance as a source of funds for the
various companies. The strategies pursued by the management at these
three firms must meet with the banker's approval in order to be
implemented, and it is likely that the banker will have similar views
of the firm’s strategies. The greater the homogenization of
organizational boards, the greater the homogenization of strategies
among firms withn an organizational field as companies formulate
strategies which will meet with board approval.

Independent consulting organizations or agents can be another
powerful force for the diffusion of information about firm activities
and strategic planning. Since consultants can be employed by many
firms within an industry, and since consultants typically have access
to a common data base within their firm or utilize a limited set of
ideas for consulting purposes, they tend to spread very similar
practices and behaviors among their client firms. If organizations

within a field employ the same group of consultants, strategies and

 

 

 

strategic pi

behaviors t

3.3d Resea

The be
strategic
not eXhau:
however,
industry f
specify th
factors ma
interactic
which hax
initial (
firm str;
mechanism
These hy
and compa

Propositi

 

 

108
strategic practices will tend to become similar as firms adjust their

behaviors to that suggested by the consultant.

3.3d Research Hypotheses: Summary

The basic hypotheses relating the forces for isomorphic change and
strategic homogeneity are depicted in Figure 3-4. These hypotheses do
not exhaust the possible range of issues for empirical examination;
however, they address many of the issues pertaining to 3 within—
industry field level of analysis. These hypotheses are not intended to
specify the nature of the relationships among the variables. Certain
factors may be non-linear or subject to ceiling effects; there may be
interactions among the various factors; and so on. The hypotheses
which have been developed here are presented to provide a basis for an
initial empirical exploration of the effects of isomorphic forces on
firm strategy and to develop a rationale for the measurement of the
mechanisms which may influence the homogenization of firm strategy.
These hypotheses suggest that the issue of institutional isomorphism
and company strategy is subject to empirical test, and sets forth the

propositions that guide the following research and analysis.

 

 

 

 

 

 

 

COER

 

H1: Cust
Depe

g

 

109

 

MIMETIC

 

H2: Environmental
Uncertainty

 

 

 

 

V

 

COERCIVE

 

Homogeneity

 

 

H1: Customer
Dependence

 

 

--————i> of Business
Strategy

 

NORMATIVE

 

 

 

 

 

 

 

Figure 3—4

Model of the Research Hypotheses

 

H3:

Professional
Interrela-
tionships

 

 

 

 

 

 

4.1 Introdt

The h;
determine
homogeneit
the empir
field is
0r analyt
Variable
instituti.
Procedure
Statistic
data is

results c

4-2 The

The
Previous
bridging
PurpoSe

under

°rganiz,

 

 

Chapter Four

Institutional Isomorphism and Business Strategy:
An Empirical Study

4.1 Introduction

The hypotheses developed in the preceding chapter were tested to
determine the utility of an institutional framework in explaining
homogeneity of strategy among organizations. This chapter describes
the empirical investigation of these hypotheses. The organizational

field is defined, and a method of partitioning groups within the field

or analytic purposes is explained. The measures of the dependent
variable - business strategy - and the independent variables -
institutional isomorphic mechanisms - are described in detail. The

procedure for analyzing the data as described, and an assessment of
statistical power is included. The method used to gather the necessary
data is given. The chapter concludes with the resentation of the

results of the study and the analysis of the research hypotheses.

4.2 The Organization Field

The theoretical discussion of institutional isomorphism in the
previous chapter presented the organization field as the critical unit
bridging the organizational and institutional levels of analysis. The
purpose of this section is to define empirically the organization field
under investigation and to explain the methods of partitioning

organizations used in this analysis.

110

 

 

 

4.2a The C

An org
that are
thought to
researcher
organizati
or proces
in terms
firms, at
such as An
(Zucker,
researche‘
field 16
Variables
hOSpital
firms ov
h°1110genei
this r68<

DiMi
0rganiza
"inStitu
aircraft
insutut

is defj

 

111

4.2a The Organization Field: Conceptual Definition

An organization field has been defined as a group of organizations
that are related through some common set of attributes or linkages
thought to be of theoretical significance and specified a priori by the
researcher. An organization field is a partitioning of universe of
organizations into subsets that are related through specified elements
or processes (DiMaggio, 1986). Organization fields are often defined
in terms of the interactions among firms, information flows between
firms, and firms’ identification as members of a recognized domain,
such as American universities, public utilities, or fashion retailers
(Zucker, 1987). The use of the field level of analysis permits
researchers to examine the effects of interorganizational structure on
field level variables (DiMaggio, 1986). Examples of field level
variables includes duplication and range of services in metropolitan
hospital systems (Fennell, 1980); the power and control of financial
firms over industrial organizations (Mintz and Schwartz, 1985);
homogeneity of organizational structure (Meyer et al., 1988); or, in
this research, homogeneity of strategy.

DiMaggio (1986) suggested that one approach to partitioning
organization fields for empirical research is to use an
"institutionalized domain, [such as] health, higher education, [or] the

aircraft industry" (1986:337). One common designation of an
institutionalized domain is the industry classification. An industry

is defined as a "group of competitors [firms], producing substitutes

 

 

 

 

that are c1
others air
within an
important c
of market 1
existence
214). Tl
institutio
Classifica
classify
digits in
two digits
digits
classific.
are desi
code num
code numb
so on.
that are
designatv
acceSSOr
firms at
PTOduct
The
“Seam

J°hns 0n

 

112
that are close enough that the behavior of any firm affects each of the
others either directly or indirectly" Porter, 1979b: 214). Firms
within an industry are "assumed to be alike in all economically
important dimensions except for their size," and "a considerable body
of market research posits that many industries are characterized by the
existence of market power shared among their firms" (Porter, 1979b:
214). The designation of an industry has been operationally
institutionalized through the use of the Standard Industrial
Classification code (SIC) of the U.S. Census Bureau. The SIC codes
classify industries on four levels of aggregation. There are four
digits in a SIC code, which correspond to the four levels. The first
two digits designate broad industry categories and the third and fourth
digits identify subcategories within the broad industrial
classification (Hayden, 1986). For example, the first two digits "37"
are designated as "Transportation Equipment." Within this industry,
code number 371 identifies firms that are motor vehicle manufacturers;
code number 372 identifies firms that are aircraft manufacturers; and
so on. At the four-digit level, SIC code number 3711 identifies firms
that are primarily motor vehicle manufacturers, code number 3714
designates firms that are manufacturers of motor vehicle parts and
accessories, etc. Office of Management and Budget, 1987). Individual
firms are assigned to an industry category based upon the primary
product or services they provide.
The use of an industry as an analytic device is often found in
research on strategy (cf., Rumelt, 1974; Hatten and Schendel, 1977;

Johnson and Thomas, 1987; Cool and Schendel, 1987). By focusing on a

 

 

 

articular
environment
Since firms
basic econc
would alloy
confound
the organ
effects 0
government
firm behav
Compe
pursue di
competit11
study Sn.
present
rather t
level of
of fie]
PrOfessi(

institut:

4.2b Th

For

number 3

elected

 

113

articular industry, it may be possible to have some control over the

environmental forces that would affect firms' strategic activities.

Since firms within an industry are presumed to be alike in terms of the
basic economic dimensions, examining firms within a particular industry
would allow for partial control of certain exogenous factors that might
confound the results of the study. The use of the industry level as
the organization field under investigation could control for the
effects of variables such as cultural differences, effects of
government regulation, and economic conditions, which might influence
firm behavior in different ways.

Competitive forces within industries are thought to lead firms to
pursue differing strategies in order to develop or maintain a
competitive advantage (Porter, 1985). The research hypotheses of this
study suggest that institutional as well as competitive forces are
present in organization fields and may lead firms to pursue similar
rather than different trategies. Use of the industry as the field
level of analysis allows the research to focus attention on the effects
of field level variables - such as interfirm dependence,
professionalism, and uncertainty - which are characteristic of

institutional arrangements.
4.2b The Organization Field: Empirical Definition
For this study, the U.S. automobile supplier industry (SIC code

number 3714) was selected for investigation. Automobile suppliers were

elected for several reasons. The auto industry represents a

 

 

 

 

significant
Motor Veh
transportat
of the aver
vehicle ma
workers.
dollars in
of total
motor ve
onstructic
total us
total ayrr
The :
Producing
Portion
Within t
anufactur
sample (
°°mP0nen1
PIOduce
divel’sit:
assists
StUdY to
“0t 1imi
In

for till

 

114

significant economic force in the United States. Data provided by the
Motor Vehicle manufacturers Association (1988) indicated that
transportation expenditures comprised 21 percent of the annual outlays
of the average American household. There were, as of 1987, 348 motor
vehicle manufacturing facilities in the U.S. that employed 705,692
workers. Auto manufacturers and parts suppliers spent over 11 billion
dollars in 1988 on new plants and equipment, representing 7.2 percent
of total U.S. manufacturing outlays for the same. In addition, the
motor vehicle industry and allied industries - such as road
onstruction, petroleum refining, etc. - accounted for 14.4 percent of
total U.S. employment, or slightly more than one in seven jobs, with
total ayrolls of nearly 129 billion dollars.

The role of suppliers in the industry is important, with any firms
producing a wide array of components and parts, which constitute large
portion of the finished product. There are a large number of irms
within the industry - well over 2800, according to the Motor Vehicle
anufacturers Association (1988) - allowing for a relatively large
sample of rganizations in the study. While all firms provide
components for the anufacture of automobiles, these organizations
produce different parts and use different production methods. This
diversity in the components produced and in the productive process
assists in generalizing the results from the ample of firms in the
study to the population of automobile suppliers, since the findings are
not limited to a particular product group or production method.

In contrast to the large number of supplier firms, the customers

for the production outputs of U.S. auto suppliers are generally

 

 

 

 

limited tc
Corporatior
with a few
Bavarian l
outputs an
has been i
firms t
institutio
highly st
ties with

within the

4'26 81

Partition:

Whil
study, i
The inter
Variables
0“ indix
ftmction
will t]
orgaDTZa
mechanis-
dependen

auto SU

 

 

 

115

limited to the three major domestic manufacturers - General Motors
Corporation, Ford Motor Corporation, and Chrysler Corporation - along
with a few foreign firms, such as Nissan Motors, Honda Motor Cars, and
Bavarian Motor Works. This limits the customer base for suppliers’
outputs and can lead to high levels of dependence. The auto industry
has been in existence since the late 18005, which allows ample time for
firms to establish interorganizational relationships and
institutionalized arrangements. While many firms may be subject to
highly structured and institutionalized forces, other firms have fewer
ties with the industry, leading to differences in the isomorphic forces

within the field.

4.2c Structural Analysis of the Organization Field: Subgroup

Partitioning

While auto supplier firms are the organization field for this
Istudy, it is possible to identify groups of firms within the field.
The interest of this research is the effects of certain institutional
variables on homogeneity of strategy. The effects of these variables
on individual firms within the field are hypothesized to differ as a
function of the position of the firm within the field. This research
will therefore compare groups of firms in the auto supplier
organization field based upon the presence or absence of institutional

mechanisms of isomorphism among organizations. for example, the
dependence on common customers is one such mechanism; hence, the use of

auto supplier firms, which sell their output to a small number of

 

 

customer 1
coercive me
Within th4
similarly
isomorphis
field.
DiMag
suggested
into subs
which pa]
descripto:
(19861341
field mig'
manufactu
COlrlponent
basis of
based u}
Classify;-
number .
Structur
in Figur
upon the
based c
approacp
popular;

S true tu.

 

 

 

116
customer firms, will enable this study to explore the effects of the
coercive mechanism of customer dependence on homogeneity of strategy.
Within the auto supplier industry, other groups of firms can be
similarly identified by the type and level of mechanisms for
isomorphism present in the institutional structure of firms within the
field.

DiMaggio (1986) reviewed field-level studies of organizations and
suggested that there are four methods for partitioning organizations
into subsets for analytic purposes: 1. Naturalistic approaches, in
which partitioning occurs on the basis of "a priori, common sense
descriptors, categorical definitions of organizational form"
(1986:341). An example of such partitioning among the auto supplier
field might include categorizing firms according to the components they
manufacture such as engine components, electrical components, chassis
components, or body and trim components. 2. Classification on the
basis of attributes, in which organizations are classified in groups
based upon measures of some attributes of the firms. For example,
classifying organizations as "large" or "small" in size based on the
number of employees in each firm. 3. Partitioning may be based on
structural cohesion. Such methods use sociomatrices like the one shown
in Figure 3-1 to divide the population of organizations into sets based
upon the interactions among the member organizations. 4. Partitions
based on structural equivalence. As with the structural cohesion
approach, this method also examines the relations among members of a
population of organizations. Unlike the cohesion method, though,

structural equivalence divides organizations into groups based upon

 

 

 

 

 

similarity
requirement
The
mechanisms
(mmodmsi
their str
these orga
of firms t
firms' dep
similar <
business :
HypO‘
isomorphi
organizat
a Self-pa
that fir
exhibit
institut;
Hyp.
Cohesion
institut
Such as
or, fix
members}
Charactc

eduCati

 

 

 

117
similarity to organizations in other blocks or fields without the
requirement that these firms be connected to one another.

The three hypotheses of this study are based on differing
mechanisms for institutional isomorphism. Coercive isomorphism
(Hypothesis 1) could occur among a group of organizations based upon
their structural equivalence, that is, the similarity of position of
these organizations in the field without regard for the connectedness
of firms to one another. For hypothesis 1, similarity is based upon
firms' dependence upon the same customers, with greater dependence on
similar customers hypothesized to lead to greater homogeneity of
business strategy through coercive forces for isomorphism.

Hypothesis 2 discussed the effects of uncertainty and mimetic
isomorphism on the homogeneity of business strategy among a group of
organizations. The perceived environmental uncertainty of any firm is
a self-perceived attribute of the organization. The hypothesis asserts
that firms with similarly high levels of perceived uncertainty will
exhibit greater homogeneity of business strategy due to mimicry of
institutionalized patterns of business behavior.

Hypothesis 3 was based on structural cohesion among organizations.
Cohesion results from the presence of formal or informal
institutionalized relationships among firms. Such ties may be direct,
such as could occur when there is an exchange of personnel among firms.
0r, firms also may have indirect ties to one another through common
membership in trade ssociations or shared use of external consultants.
Characteristics of an organization's strategic managers such as

educational experience also may serve to create professional ties, even

 

 

in the ab:
multi-firm
increased
as the f
(Dittrich,
profession
ties and
According
with the]
have gre;
business
interacti
both (111'

business

4.2d St

Methods

Aut
Variable
The Par
iIlfluenc
Not all
firms .

factors

 

 

118
in the absence of direct linkages. Similarity in career experience, a
multi-firm career path, and executive tenure is thought to lead to
increased professionalism among executives. Since ey executives such
as the firm CEO often have a major effect on the firm's strategy
(Dittrich, 1988; Hambrick, 1981; Chandler, 1962), similarity in the
professional backgrounds of strategic managers also would create direct
ties and increase the professionalism of firms within the field.
According to an institutional framework, firms that interact maximally
with there firms and minimally with other members of the population
have greater institutional pressure for isomorphism and homogeneity of
business strategy. Hypothesis 3 suggested that firms with high
interaction ~that is, which have any professional ties to other firms,
both direct and indirect - would exhibit greater homogeneity in

business strategy than firms with few professional interactions.

4.2d Structural Analysis of the Organization Field: Partitioning

Methods

Auto industry supplier firms are partitioned using the independent
variables of this study: measures of institutional isomorphic force.
The partitioning is limited to those variables which are expected to
influence the level of institutionalization of firms within the field.
Not all institutional variables are included in the partitioning of
firms. Certain variables - such as government legislation, cultural

factors, and economic conditions - would not be expected to vary at

 

the level
partitionir

Sever;
examples
also Brie
method fo
deviation
created t
attribute
The part:
uncertain
this meth

This
differenc
measure
than gap
Since t1
Similar
direct
metricS_
Comllal‘ah
utilize:

Clx
identif,
or Set

 

 

119
the level of analysis used in this study and are thus not useful for
partitioning supplier firms.

Several techniques are available to accomplish such partitioning;
examples of some of these algorithms can be found in DiMaggio 1986);
also Brieger, Boorman, and Arabic, (1975), among others. One such
method for partitioning is to group firms based on their standard
deviation of some attribute scores. Subgroups of firms might also be
created using the standard deviation from the mean score on an
attribute and comparisons would be made of individual sub-groupings.
The partitioning of firms based on their perceived environmental
uncertainty, which is measured by a single scale core, was done using
this method.

This method is sufficient for those situations in which
differences can be measured by a single attribute score such as the
measure of perceived environmental uncertainty. However, it is less
than satisfactory for those in which two or more measures are used,
since the means and standard deviations might not be measured with
similar scales. Differences in the measurement scales would prevent
direct partitioning, since the scales can be based on different
metrics. Or, the characteristics being measured may not be directly
comparable. To accomplish this partitioning a second technique as
utilized in this research: cluster analysis.

Cluster analysis is a statistical technique that attempts to
identify similar groups of objects or subjects based on some attribute
or set of attributes (Aldenderfer and Blashfield, 1984). The

researcher can specify the variables to be used in creating the

 

 

 

 

 

clusters 2
subjects 1
identify
distinct f
been used
Thomas, 1
research
(Oliver,9l
The
(SPSS In.
the insti
0f clust
analysis
have SUpe
average
Variance
Euclideaj

Values f

fil‘ms
clustera
cluSter:
members
joined

 

120

clusters and the clustering algorithm computes distances between
subjects based upon the variables of interest. The purpose is to
identify groups of subjects with similar features met which are
distinct from other groups within the population. Cluster analysis has
been used in strategy research to identify strategic groups (McGee and
Thomas, 1986; Hatten and Schendel, 1977), and has also been used in
research on institutional forces in organization environments
(Oliver,988).

The CLUSTER algorithm used in the SPSS/PC statistical package
(SPSS Inc., 1984) was used to generate clusters of firms for two of
the institutional forces: dependence and professionalism. The method
of clustering is based on Ward's minimum variance method of cluster
analysis Blashfield and Aldenderfer, 1978), which has been reported to
have superior accuracy as compared to other methods, such as weighted
average or centroid methods (Blashfield, 1976). In Ward's minimum
variance method, the distance between two firms is based on squared
Euclidean distance, which is the sum of the squared differences in
values for each variable:

Distance(x,y)=SUMi(xi - yi)2 (4-1)

The distance between two firms is a measure of how far part the
firms are on the variables of interest. The actual formation of
clusters is based on an agglomerative hierarchical procedure, in which
clusters are formed by grouping cases together until all cases are
members of a single cluster. In hierarchical clustering, firms are
joined with firms that are closest" in terms of the distance measures.

Cases are added to existing groups, or groups are combined with other

 

 

 

groups, un‘
a coefficiu
The coeff
created f
scores bet
being cont
In 1
clusters
present 0‘
(SPSS, 19
to specif
on the hi
the diste
independg
-can be
acting 01
The
firms th
will exp
analysis
that a]
isomorp]
Variabl
fiI‘ms
ana1ySi

Vere c

 

 

121
groups, until all cases are combined into one cluster. At each stage,
a coefficient is displayed, corresponding to the distance measure used.
The coefficient can be used to determine how many clusters should be
created from the data. The larger the differences in coefficient
scores between cluster levels, the greater the distance of the clusters
being combined, and the less similar the firms in the clusters.

In performing the cluster analysis, firms were assigned to
clusters or groups based on the institutional forces and mechanisms
present or acting on the individual firms. The program CLUSTER in SPSS
(SPSS, 1984) as used for the analysis. CLUSTER allows the researcher
to specify the number of clusters to be formed and presents information
on the hierarchical agglomeration method of clustering, which indicates
the distance coefficient. For each of the clusters, firm scores on the
independent variables - the measures of institutional isomorphic force
~can be averaged to determine the magnitude of the institutional force
acting on the group.

The research hypotheses presented in the previous chapter suggest
firms that have strong isomorphic forces present in their environment
will exhibit greater homogeneity in their business strategy. Cluster
analysis will identify supplier firms within the organization field
that are similar to one another in the level of institutional
isomorphic force when force" is measured with two or more different
variables. These clusters of firms can be combined to partition the
firms in the organization field into the subgroups necessary for the
analysis. In order to obtain the best possible contrasts, the clusters

were combined to form three subgroups of supplier firms: suppliers

 

 

 

that are
forces.
The d
the hypot
"high" v
isomorphis
the "high
the exten
of strat
extent to
among fir
Firn
homogenei
with 10‘
Variance
most 11
hypothes
doubtful

yield sj

4-3 in

St

Strateg

the hon

 

”—

122
that are relatively "high," "moderate," and low" on institutional
forces.

The decision to partition firms into three groups was based upon
the hypotheses of the research, that is, to compare firms relatively
"high" with those relatively "low" on institutional forces for
isomorphism. For this research, the comparative analysis focused on
the "high" and low" groups only. Since this study sought to determine
the extent to which institutional mechanisms may affect the homogeneity
of strategy, firms were partitioned and compared according to the
extent to which such institutional isomorphic mechanisms were present
among firms within the organization field.

Firms with "high" institutional forces should exhibit greater
homogeneity, that is less variance, in business strategy than the firms
with low" institutional forces. The analysis of differences in the
variance in business strategy between the two extreme groups would be
most likely to yield theoretically significant results. If the
hypotheses fail to receive support at this level of analysis, it is
doubtful that comparisons among groups with less differentiation would'

yield significant findings.

4.3 The Dependent Variable: Measures of Business Strategy and

Strategic Homogeneity

The dependent variable in this study is the business-level
strategy of firms within the auto supplier industry, and in particular

the homogeneity of strategy among firms within this industry. Issues

 

 

in the
discus:
Venkat:
(Snow

multid

4.3a

fmmt
busin
resou
strat
Whicl

comp;

majo
offe
Firn
of <

Sch.

req
lev

re;

 

123
in the measurement and Operationalization of strategy have been
discussed by several authors (Snow and Hambrick, 1980; Ginsberg, 1984;
Venkatraman and Grant, 986). Strategy is a multidimensional construct
(Snow and Hambrick, 1980), and measures of strategy should reflect the

multidimensionality of the construct.

4.3a Measuring Business Strategy

Business strategies are concerned with the operational and
functional strategies that enable a firm to compete within a specific
business or industry. Hofer and Schendel (1978) noted that patterns of
resource deployments are a crucial component of an organization's
strategy. The resource deployments of a firm are a strategic choice,
which helps the firm achieve its goals and objectives and can give the
company a competitive advantage over rivals.

Another component of a firm's business strategy is the positioning
of the firm's products or services with respect to its customers. The
major issues concern the price and quality of the products and services
offered by the company as compared with those offered by competitors.
Firms will seek to position their products as unique within the minds
of customers to obtain a competitive advantage over rivals (Hofer and
Schendel, 1978; Porter, 1980).

Hambrick (1980) argued that measuring business-level strategies
requires multivariate measurement. These two features of business-
level strategies - resource deployment and product positioning -

represent two of several elements of the business strategy of a firm.

 

 

Inves

and

are E

of tl

must

vari

seri

res:

1an

gen

has

str

Zef

st

In

 

 

124
Investment in plant and equipment, expenditures on marketing, research
and development, product pricing, promotion, and quality decisions -
are all related elements that comprise the strategic business decisions
of the firm. Business-level strategy, as a multidimensional construct,
must be measured using multiple business strategy variables.

One such multivariate method of measuring business-level strategy
variables is used in the PIMS data base (Buzzell and Gale, 987). A
series of questions are asked of participating firms pertaining to
resource allocations, product positioning, and other strategic issues.
Information gathered from the PIMS questionnaire is believed to
generate valid data Anderson and Paine, (1975). Use of the PIMS data
base and the questionnaire data occurs often in the literature on
strategy (Ramanujam and Venkatraman, 1984; Anderson and Zeithaml, 1984;
Zeithaml and Fry, 1984; Prescott, Kohli, and Venkatraman, 1986).

For this research, information was obtained for seventeen business
strategy variables. These variables were divided into six categories:
Industry variables, Product Competition variables, R & Dariables,
Production/Investment variables, Efficiency variables, and marketing
variables. These categories and their associated measures (and the
abbreviations used in the tables in this study) are shown in Table 4—1.
These measures were based upon questions and data from the PIMS data
base. The basic scheme for grouping the data was developed by Hofer
(1975). The categories have been used often in strategy research and
seem to represent generally accepted framework for analyzing strategic
business behavior Anderson and Zeithaml, 1984; Zeithaml and Fry, 1984;

Hambrick, 1983a; Hambrick and Schechter, 1983; Hambrick, MacMillan, and

 

 

(Note
resea

Indus

Prod

 

125
Table 4-1

Business-Level Strategic Variables

(Note: Abbreviations for these variables which are used in the
research are in parentheses following each variable description.)

Industry Variables

l.

Technological change: There have been major technological changes
in the product offered by the business or its major competitors,
or in the method of production, in the last 8 years. (TECCHG)

Relative compensation average: Wage and salary levels relative to
competitors. (RELWAG)

Product Competition Variables

3.

Product quality average: Percent of products superior to
customers products form the customers' perspective minus percent
of products inferior to customers products from the perspective of
the customer. (PQLAVG)

Relative price: The average level of selling prices of the
business' products and services relative to the average price of
the three largest competitors. (RELPRC)

Market share: Sales of the business as a percentage of sales in
the served market. (MKTSHR)

R&D Variables

6.

New products, Z of sales average: New products as a percent of
total sales. (NEWSLS)

Product R&D/revenue average: Product and service R&D expenses
divided by net sales. (PRDREV)

Process R&D/revenue average: Process R&D expenses divided by net
sales. (PRCREV)

Production/Investment Variables

9.

10.

11.

Total inventory/revenue average: Total inventory divided by net
sales. (INVREV)

P & E newness average: Net book value of plant and equipment
divided by gross book value of plant and equipment. (PENEW)

Investment/revenue average: Average investment (book value)
divided by net sales. (VSTREV)

 

 

 

 

Efi

12

13

14

Ma

 

 

126

Table 4-1 (cont.)

Efficiency Variables

12.

13.

14.

Capacity utilization average: Percent capacity utilization.
(CAPUTL)

Sales/employee average: Total sales divided by number of
employees. (SLSEMP)

Revenue/employee average: Net revenue divided by number of
employees. (PRFEMP)

Marketing Variables

15.

l6.

17.

Sales force/revenue average: Sales force expense divided by net

sales. (SFEREV)

Media advertising and sales promotion/revenue average:
Expenditures for media advertising, catalogs, exhibits and
displays, premiums, coupons, samples, and temporary price
reductions for promotional purposes divided by net sales.
(ADVREV)

Relative sales/promotion expenses: media advertising and sales
force expenses relative to three largest competitors. (RELSLS)

Source: Anderson and Zeithaml, 1984

 

 

 

127
Day, 1982; Buzzell and Wiersma, 1981; MacMillan, Hambrick, and Day,

1982).

4.3b Measuring Homogeneity of Business Strategy

The central issue for this research is the homogeneity of business
strategy among firms and its relationship to various institutional
forces for isomorphism in corporate behavior. Any cluster or group of
firms within an organization field will generate a mean value and a
distribution of values for each of the measures of the elements of
business strategy, based upon the values of the measures for the
individual firms within the group. The measure of the variation in
strategy is the variance of the distribution of values for the measures
of strategy, or its square root, the standard aviation. The
institutional perspective on isomorphic forces for strategic
homogeneity would suggest that the variance in business strategies
among those firms that face significant institutional forces for
isomorphism would be less than the variance for those firms in which
the institutional isomorphic forces are relatively lower.

Organization fields subject to high institutional forces or
isomorphism and homogeneity of strategy will have less variance in the
strategy measures than those in fields with few institutional forces.
The smaller the variance, the greater the homogeneity of stratng; the
greater the variance, the greater the heterogeneity of strategy. Note
that homogeneity of strategy is measured by variance and not by the

mean. Homogeneity is the similarity of strategy among a group of firms

 

 

 

 

128
- firms exhibit less variation in their strategic activities.
However, it is possible for two groups of firms to have the same mean
score on some variable. Homogeneity refers to the dispersion of scores
around a mean score. Firms which are homogeneous will tend to cluster
around one another very closely; there will be little variation in the
cores. Firms which are heterogeneous will have high variance and be

relatively widely dispersed. This is illustrated in Figure 4-1.

4.4 The Independent Variables: Measures of Isomorphic Forces

4.4a Coercive Isomorphic Force: Customer Dependence

Coercive isomorphic forces are concerned with the issue of
dependency. The degree of dependence of firms within an organization
field on a limited set of customers is hypothesized to influence
strategic homogeneity. The greater the dependence of firms on the same
limited group of customers, the greater the homogeneity of strategy.
Measures are needed to determine the amount of firm dependence on
customers. To derive such a measure of dependence, this study borrowed
on concepts from micro-economic theory and from the analysis of
channels of distribution in the marketing literature.

The measure of customer dependence uses the concept of market
power. If the firms' sales are highly concentrated - that is, if the
same, limited number of customers account for most of the firms’
revenues -then supplier companies are relatively more dependent on

customers than those industries in which sales are widely dispersed

 

129

Homogeneity means similarity of a group of items
or less variance in a group of items.

For any 2 distributions of scores on some factor,
homogeneity occurs when one distribution has less
variance than the other distribution.

 

Graphically:

 

 

 

it x
Distribution A Distribution B
The scores for Distribution B show less variance than those
for Distribution A. The Scores of Distribution B are more
homogeneous than thos of Distribution A.
Figure 4-1

Measuring Homogeneity: The Variance
of the Distribution

 

 

 

130

among many heterogeneous customers. This follows from the preceding
discussions of dependence, power, and coercive isomorphic forces.
Porter (1980) noted or customer firms are powerful if buyers are
relatively concentrated or if they purchase large volumes relative to
seller sales, if the products that buyers purchased are standard or
undifferentiated, if there are low switching costs, or if the buyer can
pose a credible threat for backward integration. All these conditions
are present in the relationship between the auto manufacturers and the
suppliers; hence, the buyers exert a powerful and coercive force over
suppliers. The suppliers are relatively more dependent on the

buyers/manufacturers for resources in the form of sales revenues.
Research on distribution channels among organizations has
frequently defined dependence as a function of firm sales (El-Ansary
and Stern, 1972; Frazier, 1983). For any single firm, dependence is
the degree to which a firm must maintain a relationship with another
firm in order to achieve desired goals (Frazier, Gill, and Kale, 1989).
Using the sales dimension, dependence is measured as the percentage of
a firm's total sales generated from sales to a customer firm or group
of customer firms. Within the domestic auto supplier industry, the
dominant group of customers are the three largest U.S. auto
manufacturers: General Motors, Ford Motor Company, and Chrysler
orporation. For the U. S. auto supplier firms in the study, the degree
of current customer dependence was measured as the percentage of total
firm sales that results from sales to the domestic U.S. auto

manufacturers. This measure is represented as a ratio:

 

 

 

 

131

Firm Sales to a Domestic Auto Manufacturer

 

Customer Dependence - (4-2)

Total Firm Sales

If sales of a firm are highly concentrated in a few customers, the firm
is relatively dependent on the customers for needed resources in the
form of revenues. If many firms have similarly high levels of sales
concentrations and are highly dependent on a common customer base, this
will lead to coercive isomorphism and homogeneity in strategy among
these firms. The greater the dependence of any single auto supplier
firm, the greater the coercive force exerted on the firm by the
buyers/manufacturers. To the extent that such buyer coercion leads to
greater pressure for isomorphism, the greater the homogeneity of
strategy with other firms with similar dependencies. For those firms
that do not face such revenue concentration and dependence, there is
less coercive pressure for isomorphism and there will be less
homogeneity of strategy among these firms.

Researchers have argued that dependence is not only a function of
the current level of sales but also of projected future sales levels as
well (Frazier, 1983; Frazier, Gill, and Kale, 1989). That is, if a
firm anticipates increasing sales to a customer in the future, the firm
is relatively more dependent on that customer than if sales were
anticipated to decline. From the perspective of business strategy,
future sales levels would have a significant impact on the formulation
and implementation of strategies, since strategies focus on the future

activities of the organization. Such projections of future sales would

 

132
impact the strategy process and would determine the degree of potential
dependence. Therefore, following Frazier, Gill, and Kale (1989), the
second measure of dependence in this study is the firm's projected
sales to the U.S. auto manufacturers in the next five years. This is
measured on a scale from -4 (sales will DECREASE significantly) to +4

(sales will INCREASE significantly).

4.4b Mimetic Isomorphic Force: Perceived Environmental Uncertainty

The discussion of mimetic isomorphism and strategic homogeneity
and the research hypothesis derived from that discussion suggest that
firms will be more likely to imitate the strategies of other firms
within an industry when firms perceive the environment to be uncertain.
Environmental uncertainty and strategy formulation was discussed by
Duncan (1972). Duncan described uncertainty on two dimensions:
complexity and dynamism. Dynamic environments are those in which the
factors relevant for strategic decision making are constantly changing.
Complexity refers to the number of relationships among factors and
their interaction; in highly complex environments, the relations among
factors are such that they require a high level of abstraction by the
strategist. Duncan described three aspects of complex and uncertain
environments that appear useful for indicating uncertainty: (1) the
adequacy of information about the environmental factor, (2) the
importance of the factor - that is, the influence of the factor on the
firm’s uccess or failure, and (3) the predictability of the factor’s

reaction to the firm's decision.

 

 

T——

133

From this basic conceptualization of uncertainty, several authors
have attempted to define and develop measurements of an organization's
environmental uncertainty (e.g., Anderson and Paine, 1975; Boulton,
Lindsay, Franklin, and Rue, 1982; Dess and Beard, 1984; Koberg, 1987;
Daft, Sormunen, and Parks 1988). Boulton et al. (1982) suggested that
dynamism and complexity interact with the information available to
managers to affect uncertainty, and that uncertainty is reflected in
managers' abilities to predict the future status of the various
environmental factors. Using this concept of predictability, Miles and
Snow (1978) developed a measure of perceived environmental uncertainty

(PEU). Their measurement instrument will be used for this research.

 

The instrument contains six scales composed of 25 items, which

measure perceived environmental uncertainty for six major dimensions of

firm's external environment: (1) suppliers of raw materials and parts;
2) competitors' behavior; (3) clients or customers; (4)
financial/capital markets; (5) government regulatory agency actions;

and (6) behavior of labor unions. Managers were asked to evaluate the
predictability of each item on a seven-point Likert scale. Means from
each of the six scales were summed for the total PEU score. The scale
was used to measure perceived environmental uncertainty recently by
Ireland, Hitt, Bettis, and DePorras 1987). They reported coefficient
alphas for this scale ranging from .60 for the clients scale to .89 for
the government regulatory agency scale. The overall alpha for the
instrument was .73. As with the measures of coercive force, it was
hypothesized that the greater the perceived environmental uncertainty,

the more likely firms will be to mimic the strategies of other firms

 

 

 

134
within an organization field and the greater the homogeneity in

strategic activity.

4.4c Normative Isomorphic Forces: Professional Interrelationships

The measures of normative isomorphic forces are based upon the
institutionalized interorganizational relationships that give rise to
professionalization within an organization field. The presence of
normative forces is often due to the connectedness of firms within an
organization field. The greater the relationships among firms within
the auto supplier industry, the greater the diffusion of information
and the more likely it will be that firms will pursue similar
strategies. Normative force is based upon the number of linkages among
firms within the industry or field. In order to measure these
linkages, a sociomatrix approach for measuring connectedness was used
to evaluate the field structure of the auto supplier industry and the
normative forces for isomorphism and homogeneity of strategy.

The institutional framework also suggests that professional ties
can occur indirectly through similarity of organization members.
Managers may move from one organization to another within an
organization field. This movement is one way in which models and
strategies may become diffused among the firms within the field.
Another is the amount of experience an executive has with firms in the

industry. Over time, individuals will come to learn established

 

patterns of behavior and build up professional relationships with

others in the field. The presence of such institutional arrangements

 

 

135
and the opportunity to acquire institutionalized forms of behavior may
be a significant means of increasing professionalism within an
organizational field. Thus, in addition to the presence of formalized
professional linkages, characteristics of strategic managers would be
expected to influence the level of professionalism within the field and
lead to greater homogeneity of strategy.

Measuring, connectedness. The procedure for measuring the
connectedness of firms through the educational and career experiences
of key executives, membership in trade associations, shared sources of
information, and use of common consultants is based upon fundamental
concepts of sociomatrix analysis as presented by DiMaggio (1986).
Structural analysis uses sociomatrices that represent relations among
organizations in a field. A representative sociomatrix was displayed
in Figure 3-1. To conduct the analysis, data was obtained on the ties
or linkages that exist between organizations within the industry. For
the purposes of this research, it is the basic structure - the number
of linkages, the interrelationships among firms — that is crucial in
the assessment of normative isomorphic forces for homogeneity of
strategy.

The number of professional relationships or linkages among
organizations is one measure of the normative force of
professionalization. There are several elements in the environment of
the auto supplier industry that can lead to the formation of
professional ties among firms. These elements and their associated
measures are described in the following paragraphs. For any single

firm, the normative isomorphic force via connectedness was measured as

 

 

136

the total number of linkages or professional ties the organization was
found to have to other organizations in the field. In effect, a series
of sociomatrices were created for each of the professional linkage
mechanisms and these matrices were "collapsed," or added together, to
form one matrix representing total linkages among firms within the auto
supplier industry.

Measures of Professionalism: Interfirm Linkages

Executives’ Educational Experiences. Similarity in educational

experience is one normative force for isomorphism. In this study, data
was obtained on the educational background of the Chief Executive
Officers (CEOs) of firms within the industry. The role of the CEO is
often crucial in the strategy process (Dittrich, 1988), and data from
CEOs has been used often in research on strategy (Daft, Sormunen, and
Parks, 1988; Lamb, 987; Miller, Kets de Vries, and Toulouse, 1982).
The normative force for isomorphism that results from professional ties
due to educational experience was measured as the number of linkages
with other firms due to similar educational background of the firms'
CEOs. A similar education background among two or more CEO’s was
defined as occurring (1) when the CEOs hold the same terminal
degree(s), (2) in the same major field of study, and (3) obtained the
degree within 2 years of one another. For any single firm, the number
of linkages was the number of CEOs within the industry whose
educational background as similar to that of the firm's CEO.
Executives' Career Experience. The institutional perspective
suggests that firms can be connected through the career experiences of

key executives. That is, if two executives have similar career paths

 

 

 

 

137
in their respective organizations, they will share similar perceptions

of the industry environment and will behave in a similar fashion in

their decision-making activities. Similarity of career experience
would lead to greater firm connectedness and increased
professionalism.

Data on executives' careers was obtained from executives' self-
report of career paths. Similarity of executives' career experiences
was measured as the number of executives within a field holding similar
positions in their organizations before promotion to the CEO position.
Similarity of position is defined as similar functional area of
specialization or career experience, for example marketing or
engineering. For any single firm, the measure of career experience
linkages was the number of executives within the industry who report
having career experience similar to that of the firm’s CEO.

Firmg_participation in trade associations. This was measured as
the number of linkages among firms due to membership in similar
industry, trade, or national associations. If two firms were members
of the same trade association, there was one link between the firms.
For any individual firm, it was the number of firms reporting
membership in the same trade association. That is, if 43 firms are
members of a particular trade association, the individual firm has
links to 42 other organizations. The greater the number of linkages
among firms within the industry through trade associations, the greater

the firm score. Using sociomatrices, the number of linkages with other
firms due to the presence of common membership in a trade association

was computed for each association. There were several trade

 

 

138
associations for firms within the industry, and matrices were computed
for each. These matrices were collapsed in order to provide a matrix
for total linkages through trade association membership.

Common information sources. This was measured as the number of
linkages among firms due to the use of common trade, industry, or
professional publications as information sources by the CEOs of firms
within the industry. For each title or publication, a matrix was
computed indicating the number of firms whose CEO regularly reads the
particular publication. As an example, if 14 executives regularly read
the Wall Street Journal, any individual firm is "linked" to 13 other
firms. Matrices for each title or publication were collapsed to
determine the total number of linkages among firms from use of similar
information sources.

Common consultants. The number of common consulting relations
among firms within an industry was measured as the number of linkages
among firms due to the utilization of the same consulting firms or
agents. Data on the professional consultants that firms employ was
compared with other firms within the industry to determine the number
of linkages among firms due to the use of the same consultants. This
resulted in a series of matrices for each consulting agent or firm. As
with the measures of trade association memberships and information
sources, the matrices were collapsed to yield a total score for this
measure.

Measuring Total Firm Connectednesss. The preceding scores on the

various measures of professional linkage were used to determine the

total number of linkages among firms within the organization field and

 

 

 

 

 

139

thus the "connectedness" of firms. The number of linkages among firms
for each of the five areas - education, career experience, trade
association memberships, information sources, and common consultants -
were summed to determine a "Total Linkages" score, which represents the
degree of connectedness among firms within the field. For any
individual firm, the "Total linkages" score was the measure of firm
connectedness.

Measures of Professionalism: Professional Characteristics of Firm

 

The role of the Chief Executive Officer (CEO) in the strategy
process is a central one (Hambrick, 1981; Chandler, 1962). Because of
the importance of the CEO in the formulation of strategy and in the
strategic activities of the organization, they have often been used to
obtain information on firm strategy (Robinson and Pearce, 1988; Hitt
and Ireland, 1985). As the key figure in the strategy process,
professional linkages of the CEO would be important in determining the
total level of professionalism impacting on firm strategy. Two
aspects of such professionalism - CEO ties with other firms in the
industry through mobility and CEO tenure - were included in the measure
of firm professionalism.

Employment with other firms within the auto industry. One way
organizations can develop ties to other firms is through the
characteristics of senior-level strategic managers. If executives are
employed with several firms within an industry, they may come to
acquire knowledge and information about firm operations and activities

that can be transferred to ther firms. In this way, patterns of

 

140

behavior can be diffused throughout organizations and may become
institutionalized within the field. The greater the number of firms
with which an executive is employed, the greater the acquisition and
diffusion of knowledge and the greater the professional ties or
linkages among organizations. Employment with other firms within the
auto industry was measured as the number of organizations, whose
primary business is automotive in nature, with which the CEO of any
single firm has been employed, based on executives' self-reports of
their career mobility.

Executive Tenure. If executives have spent a great deal of time
within an industry or organization, they will tend to have more
opportunities to develop ties to other firms within the field, be they
customers, suppliers, or competitors. The more experienced the
executive, the more likely it is that the individual strategist will
acquire institutionalized knowledge and behavior patterns or will
create such institutional mechanisms. Tenure can be a powerful
mechanism for increasing professionalism among top—level managers. An
executive’s tenure was measured as the number of years the executive
has been employed with firms within the industry. Executives were
asked to indicate their total years experience within firms in the auto

industry.

 

 

 

141

4.5 Data Analysis

4.5a Homogeneity of Variance: Use of the Fmax Statistic

Each of the three research hypotheses concerns the effects of
institutional isomorphic mechanisms on homogeneity of business
strategy. Homogeneity of strategy has been operationalized as the
variance among firm's strategic activities. The primary issue for this
study is the variance in firms' strategic business behaviors as a
function of the institutional isomorphic forces. The hypotheses can be
summarized as suggesting that the greater the institutional forces
acting on a firm, the more homogeneous that firm's business strategy
will be to those firms having similar institutional forces.

For any isomorphic mechanism there will be a mean score - an
average level - and a standard deviation for that mechanism among firms
in the field. If the research hypotheses are to be supported, it would
be expected that those firms with high levels of institutionalized
isomorphic forces would have less variance in their strategic behaviors
than those firms with relatively lower levels of isomorphic forces.

For each subgroup of firms within the field, a mean score for each
of the strategy variables and a variance for those scores was
calculated. The homogeneity of strategy is the variance of the
strategic variables. The smaller the variance, the greater the
homogeneity; the greater the variance, the greater the heterogeneity.
Firms were partitioned into three groups, as discussed previously:

those which are relatively "High,“ those which are relatively "Low,"

 

 

 

 

142
and those which are relatively "Intermediate" in the magnitude of
institutional isomorphic force. For the research hypotheses to be
supported, the variance for the "High" institutional isomorphic group
would be lower than the variance for the "Low" group.

The "Intermediate" groups are somewhat problematic. Partitioning
techniques can be used to separate and create the comparison groups,
but the differences in isomorphic force between a firm in an
"Intermediate" group and those in the "Hig “ or "Low" groups may be
small compared with the entire sample of firms in the organization
field. While firms may be partitioned into different groups in the
analysis, the differences between the groups may not be of sufficient
magnitude to detect variation in homogeneity of business strategy
across clusters. Accordingly, since the differences between the
"High," "Low," and "Intermediate“ groups are somewhat uncertain, the
three groups were not be used for this analysis. Attention was focused
on the "High" and "Low" groups only, in order to maximize the
differences and provide a robust test of the hypotheses. Given the
exploratory nature of the study and the research hypotheses, this
procedure provided an adequate test of the hypotheses.

For the hypotheses to be supported, the variance of the strategy
variables for the "High" institutional group must be lower than and
significantly different from the variance of the strategy variables for
the "Low" institutional group. Whether the variance is lower or higher
can be determined by inspection of the data. The issue of the
significance of the difference can be determined using one of the

available tests or homogeneity of variance. Generally, such tests have

 

 

 

143

been employed to determine if the variance among experimental groups is
homogeneous, as is required for several statistical procedures, such as
the analysis of variance. For his research, however, the issue is one
of differences in variance between groups, and thus the use of such
tests is the primary analytic method. The use of the variance as a
descriptive statistic, though infrequent, has been documented by
several researchers (Martin and Games, 1977; Johnson and Baker, 1973;
Birch and Lefford, 1967).

There are several different available tests for homogeneity of
variance available in the literature. The most prevalent are Hartley’s
Fmax, (Pearson and Hartley, 1958) Cochran's (1941) C test for the
homogeneity of variance and the Box-Scheffe test (Martin and Games,
1977). Hartley's Fmax and Cochran's C can be used when the sample size
of the groups is approximately equal; the Box-Scheffe test should be
used when sample sizes are unequal. A description of these statistics
is found in Kirk (1982) and Winer (1971). Hartley’s Fmax statistic is
seen as sufficiently sensitive for analytic purposes (Winer, 1971).
Games, Winkler, and Probert (1972), in a comparison of tests for
homogeneity of variance, found the Fmax to be quite robust to
assumptions of non-normality and to have high statistical power. The

Fmax tatistic involves dividing the largest treatment group variance by

the smallest:

 

 

 

 

144
largest of the group variances
Fmax - (4-3)

smallest of the group variances

Given the hypothesis that the treatment variances are all equal,
the sampling distribution of the Fmax statistic has been tabulated by
Hartley (Pearson and Hartley, 1958). The distribution of the statistic
is found in a table in Winer (1971). The parameters for the
distribution are the number of treatments, k; and n - 1, the degrees of
freedom for each of the sample group variances. If the observed value
of Fmax is greater than the tabled value for the corresponding
confidence level test, the hypothesis of homogeneity of variance is
rejected. When the sample sizes are somewhat unequal, the largest of
the sample sizes may be used to obtain the degrees of freedom necessary
for use of the Fmax table. This leads to a slight positive bias in the

test.

4.5b Homogeneity of Variance: Controlling for Critical Exogenous

Variables

Testing the hypotheses involves application of the Fmax statistic
to the individual strategy variable variances, along with inspection of
the value of the variance to determine if the variance for "High"
institutional firms is smaller than that of the "Low" institutional
firms. To provide the best possible test of the hypotheses, it is

beneficial to control for the effects of certain exogeneous variables

 

 

 

 

 

145
that might influence the strategies of firms and lead firms to appear
homogeneous apart from the influences of institutional forces.

One such external factor would include the organization itself.
Organization characteristics have been thought to have an effect on
firm strategy (Child, 1972; Rumelt, 1974; Miles and Snow, 1978;
handler, 1962). One dimension often used to characterize organizations
is firm ize (Scott, 1987; Blau and Schoenherr, 1971). Firms with
greater size might have more resources available to use in strategic
activities, leading to a differentiation among the groups in the
measures of strategy. Thus, comparisons were made of the groups in
terms of firm size, measured as the number of employees, to be certain
the groups did not differ on this dimension. A t-test was made of the
mean size of the analytic groups after partitioning to be certain that
there were no significant differences in firm size.

A second factor that might affect homogeneity of business strategy
would be the product or products the firm manufactures. The parts and
components which suppliers produce for auto manufacturers can differ
significantly. Firms which produce so-called "commodity" parts, such
as fasteners (screws, nuts, and bolts), springs, or similar
"standardized" components might adopt different strategies than firms
which produce more specialized products. For example, firms producing
commodity items would be more inclined to use a low-cost strategy
(Porter, 1979a). Since products are indifferentiated, a profitable
strategy requires firms to lower production costs to attain sufficient
profit margins. Conversely, firms that produce highly specialized

parts would be more inclined to pursue a differentiation or perhaps a

 

 

146
niche strategy (Porter, 1979). Profits would be derived from

differentiating the product from others in the customer's perception.

Likewise, firms that supply similar parts would be expected to
exhibit homogeneity in business strategies due to the activities
associated with firms’ competitive behavior, not the institutional
forces in the environment (Anderson and Zeithaml, 1984; Hofer, 1975).
The analyticub-groups should indicate the same relative proportions of
products manufactured among the firms within the groups in order to
control for differences in this dimension between the sub—groups.

A third factor is the manufacturing process used by the firm.
There is a suggestion in the literature that the technology of the firm
has significant effect on the firm's strategic activity (Kantrow,
1980). If firms employ similar production methods, similarity in
strategy may be due to the demands placed on the firm’s strategic
activities by the production process. If the analytic sub-groups of
the study differ in the production processes utilized, differences in
strategic behavior may be due to the difference in manufacturing
activities. This would confound the test for homogeneity of variance
between the two groups. As with the products produced, firms in the
analytic sub-groups should indicate the same relative proportions of
various production processes employed among firms within the sub-groups
in order to control for differences in production technology between
the two groups.

A comparison was made of the groups under analysis to ascertain if

there were significant differences between the groups in the products

 

 

 

147

manufactured and the production processes employed by the firms within
each group. There were two issues that were considered in this
analysis. First, subgroups should exhibit differences in products and
in the production processes among firms within the group. This would
control for any similarity that might be due to homogeneity of products
or manufacturing methods. Second, the two sub-groups should be similar
to one another in the distribution of products and production processes
of firms within the sub-groups to control or variance due to such
differences.

Both the products manufactured and the production methods of
supplier firms in the sample were assessed by comparing the relative
proportions of products and production methods of firms within the
analytic groups. The manufacturing techniques of firms within the
study were classified into 5 categories, based on a scheme provided in
the ELM Guide to Automotive Sourcing (1988): Metal Stampings
(including forging, stamping, and welding); Metal Fabrication
(including fabricating, forming, and heading); Castings (including
diecasting and machining); Plastics (including molding and extrusion);
and Miscellaneous Manufacturing (including assembly, die manufacture,
and unspecified production processes). The products produced by
supplier firms were also classified into 5 categories, again based upon
a scheme provided in the ELM Guide: Power Train components (including
engine components, fuel systems, exhaust systems, transaxles, and drive
trains), Chassis components (including steering systems, wheels and
tires, suspension systems, and braking systems), Auto Body components

(including seating, passenger restraint systems, and trim), Electrical

 

 

148

components, (including electronics, climate control, and engine
electrical), and Generic or Miscellaneous components. Firms in the
study were classified according to the dominant manufacturing process
employed and the primary product as indicated in the firm's self-
reports in the ELM Guide.

These classification systems yielded a distribution for firms in
the sample, which indicated the proportion of firms which utilize a
specified manufacturing process and which manufacture a given product.
In order to make inferences about these proportions, a Chi-Square test
of goodness of fit was used (Mason, 1974). To determine if firms in
the sub-groups are similar to one another, the proportion of firms
within each sub-group employing a specific production method or
manufacturing a specific product type should not differ significantly
from one another. If the differences in the proportions between the
sub-groups are not significant, it can be argued that neither the
production process nor the product manufactured would have a systematic
effect on the homogeneity of business strategy between the two groups

of firms in the analysis.

4.5c Homogeneity of Variance: Testing the Research Hypotheses

It was necessary to evaluate the research hypotheses for each of
the measures of the dependent variables separately in addition to
conducting the overall assessment. The measures of business strategy
were assessed using the six categorical classifications presented in

Table 4-1: industry, Product Competition, R&D, Production/Investment,

 

 

 

 

 

149

Efficiency, and marketing. The evaluation of the data had to consider
the pattern of results or the dependent variables in determining the
results of the study. The nature of the study and the variables meant
that there was a qualitative aspect to the analysis.

To impose some rigor on the qualitative dimension of the analysis,
a decision rule was created to evaluate the individual research
hypotheses. The decision rule was based upon the statistical analysis
employed and the variables used in the research. The central tenet of
all three research hypotheses was that the stronger the institutional
mechanisms or isomorphism among a group of firms, the greater the
homogeneity of variance among the business strategies of the firms.
The decision rule used in this assessment was as follows: for the
research hypothesis to be supported, a majority of the variances in the
measures of business strategy had to be significantly lower for the
group of firms with high institutional isomorphic mechanisms than for
the group of firms with low levels of such institutional mechanisms.
The total number of such significant differences had to exceed that
expected by chance.

The measurement model developed for this study is shown in Figure
4-2. This model reflects the measurement to be used for the
independent variables, and the analysis of the difference in the
variance of the strategy variables across groups. This model was

derived from the theoretical model that forms the basis for the

hypotheses of this research.

 

 

 

 

150

 

MIMETIC (H2)

 

 

Perceived
Environmental
Uncertainty
Score

 

 

 

COERCIVE (H1)

 

 

Current Customer
Dependence:

Sales to U.S. OEM's

 

&._

 

NORMATIVE (H3)

 

 

Variance
in
Business

V I

 

Total Firm Sales

Projected
Dependence:

Projected Sales to
U.S. OEM's, next
5 years

 

 

 

Strategy
Variables

 

 

 

 

Figure 4-2

 

1.

0..

Number of auto
supplier firms
with which the
CEO has been
employed.
Number of CEO's
with similar
career paths
Number of links
among firms due
to:

CEO education
Trade Associa-
tion member-
ships

Trade publica—
tion readership

. Use of common

consultants

 

Measurement Model of the Research Hypotheses

 

 

 

 

4.5d Power Analysis

The power of a statistical test is the probability that it will
yield statistically significant results (Cohen, 1977). It is the
ability of an experiment to detect differences between alternative
conditions then they are present (Keppel, 1982), or in more precise
language, the probability of a type II error in the research - failing
to reject the null hypothesis when it is false (Kirk, 1982). The
primary method for controlling the ower of an experiment is through the
determination of the appropriate sample size (Keppel, 1982).

To determine the power and the adequate sample size for the
proposed research, an analysis of experimental power was done. Cohen
(1977) provides an extended treatment of statistical power analysis for
various ests of significance. It is important to note that a primary
consideration in performing such tests is the estimate of the
anticipated effect size to be obtained, the type I error rate — the
level of significance or alpha - and the specification of the desired
power - the type II error rate or the beta - for the research.
Generally, a minimum power level of .80 is desired.

The determination of the effect size requires either an estimate
based on some predictions by the researcher or the availability of data
on which to base some informed estimate of the effect size to be
obtained in the experiment (Keppel, 1982). For the proposed research,
data was available from an earlier study by Skivington and Buchko

(1988). The study examined 70 auto suppliers on a variety of

dimensions, including nine measures of business strategy and the level

 

 

 

 

152

of customer dependence, representative of the dependent and independent
variables in the proposed study reSpectively. The firms were separated
into three groups based on the scores on the dependence measure, using
the mean and the standard deviation for the entire sample. Within-
group variances were calculated and a series of F tests were performed
on each of the nine measures of business strategy to assist in the
calculation of the effect size.

Using the procedures described in Cohen (1977) and Keppel 1982),
the effect size for each of the nine measures of strategy were
calculated and the lowest effect size was used for the power analysis.
The lowest computed effect size was .30, corresponding to a medium
effect size when using the F test for significance (Cohen, 1977). When
testing for differences between variances of two samples, there is an F
test statistic available (Bruning and Kintz, 1977) that can be used for
the determination of power. The Fmax statistic is normally used when
testing differences in variance among several samples, but it may be
used on two samples and is generally preferred because of its superior
power and ease of calculation (Keppel, 1982). The Fmax is the
statistic to be used in the actual data analysis of this research.
Because of the absence of power tables for the Fmax statistic, however,
the F test for homogeneity of variance was to be used. This provided a
somewhat conservative estimate of the power of the study.

For this research, the desired type I error rate (alpha) is .05,
the type II (beta) error rate desired is .80, the estimated effect size
18 .30, and the comparisons were based on two groups. Data from a

series of tables in Cohen (1977) indicates that for the preceding

 

 

 

153

parameters, 45 firms would be needed in each group to have sufficient
power. The target size for cluster composition was 45 firms per
cluster or group.

An additional concern was the alpha level, or the probability of a
Type I error. Since business strategy is a multi—dimensional
construct, multiple measures were used - in fact, 17 measures were used
in total for the study corresponding to the 17 dependent variables.
With alpha equal to .05, there was a high probability that at least one
of the seventeen measures would be significant by chance alone. For
the hypotheses to be supported, a sufficient number of the measures had
to be significant to exceed the chance level and give confidence in the

conclusions of the study.

4.6 Methodology: Data Collection

4.6a Sample

For this study, firms designated as auto industry suppliers were
selected from the ELM Guide to Automotive Sourcing annual for 1988.
The guide lists over 770 firms who have responded to a survey
concerning the nature of their organization and the firm's activities
within the auto industry. Among the data represented in the Qgigg is
the firm name and address, the name of the CEO, senior Sales/Marketing
officer, and the senior Purchasing executive, the annual sales of the
firm, the product(s) which the firm produces, number and size of plants

(in square feet), auto manufacturer quality ratings, number of

 

 

 

154
employees, the year the firm was founded, major non-automotive
customers, and export activity. A representative listing for a firm is
shown in Appendix A-4.

Five hundred and twenty firms were selected at random from the
Guide. An attempt was made to contact the CEO of each firm via
telephone to solicit their participation in a study of auto supplier
firms. Three hundred and thirty-one CEOs indicated a willingness to
participate or at least "look at a survey"; 7 responded negatively and
the remainder did not respond to the phone call.

Each of the 331 firms who agreed to participate in the study was
mailed a survey form which is described in the following section.
Completed surveys were received from 137 firms, a response rate of
41.4%. Given the length of the survey and sensitive nature of much of
the information requested, this response rate was considered
acceptable. Fourteen firms returned surveys and indicated they were
unwilling to participate in the research. A comparison of the
responding firms from those who did not respond did not find any
signficant differences between respondents and non—respondents on
dimensions provided in the Epidg. In particular, no differences were
found in firms' average size, measured as the number of employees (t =
1.671, p .05), age (t = 1.282, p > .10), components manufactured (Chi
square - 2.212, > .10), or manufacturing processes used (Chi square =
2.718, p > .10).

The 137 firms who responded to the survey were compared with the

entire population of firms in the ELM Guide to determine if there were

significant differences in firm size, products manufactured, or

 

 

155
manufacturing processes between the sample of firms and the population.
No differences were found for firm size (t - 1.122, p > .10). Nor were
there significant differences in the distributions of products
manufactured (Chi square — 2.31, p > 10) or the manufacturing processes

used by firms (Chi square - 2.77, p > 10).

4.6b Data Collection: Survey

In order to obtain the data necessary for developing the measures
and testing the hypotheses of this research, a survey was mailed to the
Chief Executive Officer of each firm in the sample. A copy of the
survey is attached in Appendix A-3. The survey contained a series of

questions requesting the following information:

1. Basic Company Data: number of employees, extent of unionization,

age.

2. Sales Data: total annual sales revenue, sales revenue by major

customer group, revenue from new products.

3. Operating Data: information on the size of the market served and
market share, plant capacity utilization, R & D expenditures,
advertising and sales expenses, receivables, finished goods inventory,
value of plant and equipment, profit, and extent of technological

change.

 

 

156
4. Competitive Assessment: status of the firm’s products and expenses
relative to competitors. Measured on a 5-point scale, from more than
10% lower than competitors" to "more than 10% higher than

competitors.”

5. Projected Activity: assessments of the CEO about projected firm
activity in the future concerning sales and operating activities of the
company. These items were assesed using a scale ranging from -4 (a
significant decrease in activity) to +4 (a significant increase in

activity).

6. Strategic Planning: the extent of formal strategic planning
activity of the firm. Six dimensions of strategic planning were
described, and executives were asked to indicate if their firm's

strategic planning process included each particular dimension.

7. Miscellaneous firm data: information concerning the linkages among
firms in various interorganizational networks. Executives were asked
to indicate the industry associations to which the firm belongs, the
professional or industry publications which the CEO reads regularly,

and the consulting firms which the firm employs.

8. Environmental Perceptions: this is the Miles and Snow perceived

Environmental Uncertainty (PEU) scale discussed previously.

 

 

 

157
9. Individual Information: data on the firm's CEO - educational

experience, career experience, and tenure.

10. Board of Directors: names and affiliations of the members of the
firm’s Board of Directors.

Strategic-level managers, primarily firm CEOs, have been used
often as a source of data on company strategy (Robinson and Pearce,
1988; Pearce, Robbins, and Robinson, 1987; Hitt and Ireland, 1985;
Lyles and Mittroff, 1980; Mintzberg, Raisinghani, and Theoret, 1976).
CEOs, by virtue of their position in the organization and their role in
the strategy process, are viewed as the most accurate source for
gauging the firm's strategic planning and defining the firm's strategy
(Hambrick, 1981; Chandler, 1962). Reports from CEOs can often provide
information not available from other sources of data (Huber and Power,
1985). Given the nature of this study, the CEO was viewed as the key
informant, the individual most capable of providing the required
information (Huber and Power, 1985). As a data check, respondents were
asked to indicate their current job title on the questionnaire. The
results indicated that the CEO did fill out the questionnaire as
requested in the initial telephone contact. This high response from
CEOs may have been due to the preliminary phone conversation, which
secured the agreement of the CEO to participate in the survey. The
information obtained from this survey provided the necessary data for
measurement of the variables of this research. Table A-1 in the
Appendix presents the operational measures of the independent variables

in the study and the survey items which correspond to the independent

 

 

 

158
variable measure. Appendix Table A-2 presents the operational measures
of the dependent variables in the study and the survey items which

correspond to the dependent variable measures.

4.7 Results

4.7a Summary Statistics for the Firms in the Study

Table 4—2 presents summary data and statistics for the variables
used in this study. The variable name is shown in Column One. Column
Two indicates the number of cases with valid data for each variable.
Some of the firms did not respond to certain items, either out of an
unwillingness to share what they perceived as sensitive or confidential
information or a lack of data. Column Three indicates the mean for the
variable, and Column Four presents the standard deviation. The
remaining columns present the zero-order correlation matrix for the
study variables.

The pattern of significant correlations indicated no systematic
relationships among the variables of the study. Of primary concern was
the relationships among the independent variables, the measures of
institutional isomorphism. High correlations between these variables
would indicate that similarities in results across hypotheses could be
due to the similarities in the variables. Though this is not
necessarily unexpected - given the nature of institutionalization, it
might even be anticipated - such relations might confound the results

of the study.

 

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160

A review of the table indicates that systematic relations exist
between the measure of current dependence (1) and the three measures of
professionalism (4,5, and 6), and between the number of firms for which
the CEO has been employed (4) and the remaining two measures of
professionalism (5 and 6), with the significance of these correlations
exceeding the .01 level. The latter is anticipated; firms which are
high on one dimension of professionalism would be expected to be high
on all dimensions, given the discussions in the previous chapter of
institutionalized professionalism.

The relation between dependence and professionalism might be due
to the nature of institutionalization. Firms which are highly
dependent would develop many similar ties, because of their structural
equivalence in the field and the connectedness and cohesion of firms
within the field structure. However, current levels of dependence and
professionalism are not related to the measure of future or anticipated
dependence. Since dependence was measured by both current and future
dependence, the lack of a significant relationship for this association
indicated that there may be sufficient independence in the measures to
allow for separate tests of the two hypotheses.

A second issue concerns the relations among the dependent
variables, the measures of business-level strategy. High correlations
among variables might lead to a conclusion that a significant finding
for one variable would be found for its correlated variable as well,
due to the intercorrelation. The data analysis in this study indicated
that the correlations among the dependent variables did not affect the

results in a systematic manner.

 

 

 

 

161
Table 4-3 indicates the distribution of all firms in the sample
for the production process classification system. The first column
indicates the firm’s major production method. In the second column the
frequency for all firms in the ELM Guide within each production process
category is shown, and column three calculates the relative percentage
for each production process for all firms. Column four presents the
distribution for the sample of firms in the study, and the final column
contains the percentage of firms in the sample within the production
process categories. As seen in the table, the sample distribution is
reasonably similar to the population (Chi quare - 2.77, p > .05, not
significant).

Table 4-4 indicates the distribution of all firms in the sample
for the product classification system presented previously. The first
column indicates the firm's major product. The second column depicts
the frequency - the number of firms - within each category for the
firms in the LM Guide. The third column gives the percentage of firms
in within the product category. Column four indicates the product
category frequency for the firms in the sample, and the final column
the percentage for the sample firms. As with the distribution for
production processes, there was no significant difference between the

sample firms in the study and the entire population of firms
represented in the ELM Qgigg (Chi square = 2 31, p > .05, not

significant).

 

 

 

 

162
Table 4-3
Distribution and Frequencies for the Manufacturing

Processes Utilized by the Auto Supplier
Firms in the Study

 

Manufacturing A11 Firms: All Firms: Sample: Sample:
Process: Frequency Percentage Frequency Percentage
Metal Stampings 203 22.7% 28 21.1%
Metal Fabrication 61 6.8% 11 8.3%
Castings 115 12.8% 19 14.3%
Plastics 169 18.9% 30 22.62
Miscellaneous/ 348 38.8% 45 33.8%
Unknown

Chi-square: 2.77, p > .05 (n.s.)

 

 

 

 

 

163
Table 4-4
Distribution and Frequencies for the Primary

Products Manufactured by the Auto
Supplier Firms in the Study

All Firms: All Firms: Sample: Sample:
Primary Products: Frequency Percentage Frequency Percentage
Power Train Components 189 20.4% 20 15.92
Chassis Components 91 9.8% 13 10.3%
Auto Body Components 241 26.02 31 24.6%
Electrical Components 171 18.4% 25 19.81
Miscellaneous/ 235 25.4% 126 29.4%

Unknown

Chi-square - 2.31, p > .05 (n.s.)

 

 

 

164

 

4.7b Hypothesis 1: Dependence and Homogeneity of Strategy

Dependence was measured as the percentage of firm sales to the
U.S. Original Equipment Manufacturers, or OEMs, and as the amount of
forecasted sales growth to OEMs in the next five years. Following
Aldenderfer and Blashfield (1984), the cluster analysis of the firms
based upon these variables indicated the presence of three distinct
groups. The difference in the distance coefficient between the three
group and two group solution was equal to 91.73, while the difference
between the three group and the four group solution was equal to 22.51.
The magnitude of the differences in the distance measures suggests that
the three group solution would be most appropriate for the data. This
is shown graphically in Figure 4-3, which is Aldenderfer and
Blashfield’s (1984) decision heuristic for luster determination. They
suggest that the point at which there is a noticeable flattening in the
curve implies that a reasonable cluster solution has been achieved. To
verify this, Mojena’s Rule One (Aldenderfer and Blashfield, 1984; Lorr,
1983) was applied to the fusion coefficients from the cluster analysis.
This "stopping rule" for determination of the number of clusters

develops a test statistic Alpha which is equal to:

Alpha =- X + k8 (4.1,)

where X is the mean of the fusion coefficients, S is the standard

deviation of the fusion coefficients, and k is the standard deviate (z

score or significance level) (Mojena, 1977). Mojena used a Monte Carlo

 

 

 

165

12

l I

ll

10 -

Number of 6 -
Clusters

 

l 1 l l l
0 100 200 300 400
Fusion Coefficient

Figure 4-3

Plot of the Number of Clusters Versus the Fusion
Coefficient, Ward’s Method Solution of the
Firm Dependence Data Set

 

 

 

 

166

simulation to generate clusters and found that the appropriate rule is
to stop clustering when the difference between two fusion coefficients
exceeds Alpha. For the cluster analysis using the dependence measures,
Alpha was equal to 77.231 at the .05 significance level. Recall that
the difference between the three and the two group solution was 91.73,
while the difference between the three and the four group solution was
22.51. Mojena's Rule One suggests that the three cluster solution is
the appropriate stopping point for determining the number of clusters.

The data for the three-group cluster solution is presented in
Table 4-5, which indicates the scores of firms in the groups for the
measures of the dependent variables. A t-test of the differences in
the mean scores for the independent variables was done to determine if
the differences between the high and the low clusters were significant.
The results of the t-test are reported on the lower portion of Table 4-
5. Following Aldenderfer and Blashfield (1984), comparison of
differences in the cluster scores on the key variables is one method of
validating a cluster solution. T-tests were also conducted for the
differences in the independent variable measures between the high and
intermediate groups and the intermediate and low groups. Projected
dependence differed between all three groups, and current dependence
differed between the intermediate and low dependence clusters as well.
The significance of the t-tests between the clusters tends to support
the three cluster solution.

The first cluster (N=49) was characterized by high current sales
levels (Current Dependence = .58, or 58% of current sales) and the

anticipation of significant increases in future sales (Future Sales =

 

 

 

167

Table 4-5

Means, Standard Deviations, and t-tests of the

Differences in the Analytic Clusters of Auto
Supplier Firms in the Study — Dependence

Cluster Size
Current Sales
(Dependence) - Mean:
Standard Deviation:
Projected Sales
(Dependence) - Mean:
Standard Deviation:

t-teStSZ

Cluster 1 v. Cluster

Cluster 1 v Cluster
Cluster 1 v Cluster
Cluster 1 v Cluster

Cluster 2 v. Cluster
Cluster 2 v. Cluster

3
3

2
2

3

1...)

High
Dependence
Cluster 1

49

Dependence:
Projected Sales:

Dependence:
Projected Sales:

Dependence:
Projected Sales:

Intermediate
Dependence
Cluster 2

N

35

.50

.34.

.00
.00

"OT!

'U'U

Low

Dependence
Cluster 3

AA

AA

AA

48

.01
.001

.10 (n.s.)
.001

.05
.001

 

 

 

168

3.31). Cluster 2 (N-35) indicated moderate current sales (.50), and a
moderate level of future sales growth anticipated by these firms
(2.00). Cluster 3 firms N-48) had relatively low current sales (.36),
and anticipated little to no growth in future sales to OEMs (0.43).
Five firms were not included in the cluster procedure because of
missing data. The t-tests of the difference in the means of the
current sales dependence and the projected future sales dependence
measures for Clusters l and 3 were significant (t - 3.49 and 2.52
respectively), suggesting that these clusters differed in terms of the
measures of dependence.

To test Hypothesis One, a test of the homogeneity of the variance
in strategy variables between Cluster 1 (the "High" dependence firms)
with the variance for the strategy variables in Cluster 3 (the "Low"
dependence firms) was conducted. Before conducting the actual
analysis, the control variables of firm size, manufacturing process,
and products manufactured were compared for the two groups. It was
found that Cluster 3, the "Low" dependence firms, included two firms
whose unusually large size led to a difference between the groups in
mean firm size. Accordingly, these two firms were omitted from the
analysis and the two groups were found to be similar in terms of the
average size of firms (t - .407, not significant). Note that this
provided a more rigorous test of the hypothesis. Since these two firms
were members of the "Low" institutional group, the omission of their
data tends to diminish the variance in strategy for firms in this
group. It was therefore less likely that significant differences in

the variance among the strategy variables would be detected between the

 

 

 

 

 

 

 

 

169
two groups. Also, omitting these firms controls for differences in the
two groups which might have been due to firm size. A series of Fmax
tests were performed both before and after liminating these two firms.
The results were not significantly different.
An evaluation was made between the two groups of the manufacturing

processes used and the products manufactured by the firms in each

group. The results of this analysis are reported in Tables 4-6 and 4-
7. Table 4-6 presents the distribution of manufacturing processes for
firms in the High Dependence and the Low Dependence clusters. The

results of the Chi square test are shown. Chi square was equal to
8.35, which was not significant. There were no differences between the
clusters in the manufacturing processes used by the firms.

The distribution for products manufactured by the firms in the
High Dependence and the Low Dependence clusters are presented in Table
4-7. The results of the chi square goodness-of-fit test indicated a
significant difference in the distributions of the two clusters of
firms chi square equal to 13.40, p < .05). Inspection of the data in
the table revealed that the Low Dependence cluster had fewer firms
manufacturing power train components and more firms which manufactured
auto body parts and electrical components than would be expected. This
was a concern, since it suggested that the Low Dependence firms might
exhibit greater homogeneity of variance because of the increased
similarity in the components manufactured among the upplier firms in
the cluster.

To determine if this difference might adversely affect the results

of the analysis, a sub-group analysis was conducted on the firms in the

 

170

Table 4—6
Distribution and Frequencies for the Manufacturing
Processes Utilized by the Auto Supplier Firm in
the Sample (Including Chi-square test)

Hypothesis 1 - Dependence:

High Low

Dependence: Dependence:
Manufacturing Process: Frequency Frequency
Metal Stampings 8 13
Metal Fabrication 5 3
Castings 7 9
Plastics l3 7
Miscellaneous/Unknown 16 14

Chi-square: 8.35, p > .05 (n.s.)

 

 

 

171

 

Table 4-7
Distribution and Frequencies for the Primary Products
Manufactured by Auto Supplier firms in the Sample
(Including Chi-square test)

Hypothesis 1 - Dependence:

High Low

Dependence: Dependence:

Primary Products: Frequency Frequency
Power Train Components 5 ll
Chassis Components 4 4
Auto Body Components 16 8
Electrical Components 11 7
Miscellaneous/Unknown l3 l6

Chi-square: 13.80, p < .05

 

 

 

172

Power Train Components group and on firms in a combined Auto
Body/Electrical components group. The analysis mirrored the Fmax test
conducted on the entire sample of firms in the study. For firms in the
Power Train components group, the results of the analysis indicated
that firms in the high dependence condition had greater variance in the
measures of strategy than firms in the low dependence group. However,
the total size of the sample of firms in the two groups (High
Dependence N - 5, Low Dependence N - 11) lacks sufficient statistical
power to detect true results. Thus, the conclusions of this sub-group
analysis are unclear. Given that the results would tend to refute the
study hypothesis, however, including these firms in the final analysis
does not affect the test of the hypothesis.

Firms in the Auto Body/Electrical Components subgroups were also
analyzed using the Fmax test for homogeneity in variance. The results
of this subgroup analysis did not differ significantly from the overall
results of the study. The Fmax statistics were similar to the analysis
in all but two measures: Relative Price and Market Share. For these
two variables, the results indicated no differences between the two
groups in the variance. The conclusion was that this subgroup did not
differ significantly from the sample of firms in the study.

Table 4-8 presents the results of the homogeneity of variance
analysis for these two groups of firms. For each cluster of firms, the
mean score and the variance for both the independent variables (current
dependence and Projected Sales) and the seventeen measures of business
strategy the dependent variables - along with the number of firms

reporting valid data for each variable, are presented. The value of

 

 

173

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the Fmax test statistic from the Hartley Fmax test for the
homogeneit82 is shown in Column Eight, along with the significance
level. The final column indicates whether the difference in the
variance between the two groups was significant and in the predicted
direction, i.e., the variance for the "High" dependence firms had to be
lower than that of the “Low" dependence firms.

The results shown in Table 4-8 indicate that 9 of the 17 measures
of business strategy differed significantly between the two groups.
Recalling that the level of signifcance specified for the analysis was
.05, does the overall pattern of significant findings indicate support
for the hypothesis? That is, with an alpha equal to .05 and 17
measures of strategy, one of the findings would be significant by
chance alone. To determine if the results were significant, the
binomial probability distribution was used. At a known or specified
error rate of .05 with 17 measures, the probability of finding 9
significant results is less than .0001. It was concluded that the two
groups were significantly different.

The data from the table also can be assessed according to the
general classification scheme provided for evaluating business
strategy. The Industry variables assess the firm's strategy concerning
general industry trends in two areas - the amount of technological
change and the firm's compensation structure compared with other firms
in the industry. No significant differences were found in the

variances of the two groups for either the technological change or the
relative compensation variables Fmax = 1.079 and 1.280 respectively, p

> .05). The degree of dependence of firms on major customers did not

 

 

175
seem to affect the extent of change in the products or processes of the
firm, nor was there an observed difference in the wage rates relative
to others in the industry. The absence of significant variation
suggests that there may be homogeneity of strategy among all supplier
firms on these industry-wide dimensions.

The second category of strategy measures were the Product
competition variables, which are often critical to the firm’s business
strategy. Competitive activities in the market often influence the
firm's performance. For this category of business strategy variables,
the findings were significant. Firms with greater levels of dependence
exhibited less variance and therefore greater homogeneity in their
strategic behavior than those with lower levels of dependence for two
of the three measures of product competition: the relative prices of
the firm’s goods (Variance High - .44, Variance - Low - .92, Fmax -
2.091, p < .05) and the firm's relative market share (Variance — High -
119.67, Variance - Low - 242.71, Fmax = .028, p < .05). The variance
in product quality average relative to competitors was lower for the
high dependence firms suggesting less homogeneity than for the low
dependence firms (67.67 versus 106.63), but this was not statistically
significant (Fmax - 1.578, p > .05). For two of the three product
competition variables, results indicated that firms with high levels of
dependence have greater homogeneity in their product competition
strategies than those with low levels of dependence.

This pattern of results was reversed for those variables
associated with a firm’s Research and Development (R&D) business

strategies, particularly for those variables associated with product

 

 

 

176

research and development. Firms with a high level of dependence on the
auto industry indicated much greater variation in the percentage of
their total sales represented by products developed or introduced
within the last five years than firms with low dependence (Variance —
High - 538.89, Variance - Low - 202.60, max - 2.660, p < .01).
Similarly, supplier firms with high dependence indicated more variance
in the amount of funds spent on product R & D efforts than firms with
low dependence (Variance — High - 25.08, Variance - Low - 2.17, max =
2.341, p < .01). The difference in expenditures on attempts to improve
the production processes through process R & D was not significant
Variance - high - 3.11, Variance - Low = 3.07, Fmax = 1.013, p > .05).
For this category of business strategy variables, the results tend to
refute the research hypothesis.

The third category of business strategy variables concerned the
firm's production and investment activities, specifically in working
capital in the form of inventory and in fixed capital represented by
plant and equipment expenditures. Here the hypothesized pattern of
results was found once again for two of the three variables in the
category. High dependence supplier firms indicated much less variance
and thus greater homogeneity in their investments in inventory than
firms with low dependenceVariance - High = 23.61, Variance - Low =
58.80, Fmax - 2.49, p < .01). Also, firm’s investment activities in
plant and equipment as a percentage of their total revenues showed more
homogeneity among firms with high dependence than or firms with low

dependence levels (Variance - High = 101.76, Variance - Low 310.78,

Fmax - 3.054, p < .01). The measure of the “newness" of a firm's plant

 

 

 

 

 

 

177
and equipment -that is, the extent to which capital investments are
recent - revealed no significant difference between the two groups
Variance - High — .03, Variance - Low = .03, Fmax = 1.000, p > .05).
The overall pattern of the results for this category and the relative
strength of the findings lends moderately strong support to the
research hypothesis linking dependence and homogeneity of strategy.

The Efficiency category of business strategy variables was
designed to reflect the productivity of the firm's operations. Perhaps
the crucial measure in this category was the firm’s profit per
employee, which measures the firms net profit as a function of the
number of employees. For this variable, the data indicated strong
support for the research hypothesis (Variance - High = 15.39, Variance
- Low - 52.10, Fmax = 3.385, < .01). This measure reflected several
strategic investment and operating decisions, and thus it is
significant that the firms which have high dependence exhibited less
variation and more homogeneity in their strategic activity than firms
with low dependence. Two other variables were also examined in this
category. No significant differences were found between the groups in
terms of the plant capacity utilization percentage (Variance - high =
322.68, Variance - Low = 298.40, Fmax = 1.081, p > .05), or the sales
revenues generated per employee (Variance - high = 2262.78, Variance -
Low - 1628,80, Fmax = .389, p > .05). In general, the data from this
category offered very limited support for the research hypothesis.

The final category examined strategic resource allocations

associated with firms’ sales and marketing activities. For this

category, the findings were equivocal. Supplier firms with high levels

 

178

of dependence exhibited less variation and more homogeneity in their
expenditures in support of the sales force than the group of firms with
low dependence (Variance - High - 3.50, Variance - Low - 9.96, Fmax -
2.846, significance < .01). However, with respect to firm’s
expenditures on advertising and sales promotion activities, firms with
high dependence indicated greater variation and therefore less
homogeneity than low dependence firms (Variance - High - 1.77, Variance
- Low - .19, Fmax — 9.316, significance < .01). No difference was
found between the two groups in terms of their perceived sales and
promotion expenditures relative to their competitors (Variance - high =
1.21, Variance - Low = 1.31, Fmax = 1.083, significance > .05). The
pattern of results from this analysis did not support the research
hypothesis.

The overall findings from this analysis indicated that the ariance
for firms with high levels of dependence was lower for six of the
seventeen variables in the study, while the opposite occurred for three
of the variables measured in the research. Nine out of the seventeen
variances between the two groups were significant, which exceeds the
number which would be expected by chance (at the .05 level of
significance, one of the seventeen differences would be expected to be
significant). This suggests that automobile supplier firms with
relatively high levels of dependence will exhibit greater homogeneity
in their business strategies than firms with lower levels of

dependence.
At the level of categorical classification, a similar conclusion

was reached. Three out of the six categories of business strategy

 

 

 

179
activity -Product Competition, Production/Investment, and Efficiency -

indicated greater homogeneity for firms with high dependence than for

firms with low dependence. One category - R & D - suggested the
opposite results, one category - Marketing - was equivocal, and the
remaining category ~Industry Variables — found no differences in the

variance between the groups. The conclusion drawn from this analysis
of the results of the study is that auto supplier firms with high
levels of dependence on auto manufacturers did, in general, exhibit
greater homogeneity in their business strategies than supplier firms
which have low levels of dependence on manufacturers. Hypothesis One

is supported.

4.7a Hypothesis 2: Uncertainty and Homogeneity of Strategy

The measure of a firm's uncertainty regarding its environment is
the total score on the Miles and Snow (1978) Perceived Environmental
uncertainty (PEU) scale. Of the 137 firms responding to the survey,
valid scores were received from 110. For the auto supplier firms in
the sample, the mean score on the PEU was 76.14, and the standard
deviation was 14.35. The mean score is marginally lower, than the
results reported by Miles and Snow 1978). In their initial use of the
scale, they examined 27 firms in the food processing industry and 22
firms in the electronics industry. Food processors had a mean PEU
score of 82.5 and a standard deviation of 8.95. Electronics firms had

a mean score of 80.0 and a standard deviation of 7.40.

 

 

 

180

Since the sub-group partitioning is based on a single firm
attribute - in this case, perceived environmental uncertainty - the
firms were divided into sub-groups based on the scores for the variable
in question. To accomplish this partitioning, the mean and standard
deviation were used to create three groups of approximately equal size.
After testing to be certain that the distribution of scores
approximated normality, data from a table on the normal distribution
indicated that partitioning the firms into three groups of
approximately equal size could be accomplished by adding and
subtracting .43 standard deviations to the mean score. Applying this
partitioning method to the data, Group 1 (the "High" uncertainty group)
consisted of firms with a PEU score greater than 82.83 (N-47), Group 2
(the "Intermediate" uncertainty group) included firms with a PEU score
greater than 70.73 but less than 82.83, and Group 3 (the "Low"

uncertainty group) consisted of firms with a PEU score less than 70.73.

The results of the partitioning process yielded two comparison
groups. Forty-seven firms were classified as being "high" in perceived
environmental uncertainty (PEU). The mean PEU score for firms in this
group was 87.89, and the standard deviation was 7.39. Forty-eight
firms were designated as low" in perceived environmental uncertainty.
The average PEU score for firms in this group was 53.50, and the
standard deviation was 13.65. A t-test of the differences between
these two means indicated that the two sub-groups were significantly
different from one another with respect to their perceived

environmental uncertainty (t - 15.08, significance < .001).

 

 

 

181

The two groups were analyzed for differences in the mean size of
the firms in the groups, the production methods employed, and the
products which the firms produce. Results found no differences in the
two groups in mean firm size, measured as the number of employees (t =
1.82, p > 05). Differences in the two groups in production processes
and in products manufactured were evaluated using the chi square
goodness of fit test. The distribution for production processes and
the resulting chi square is presented in Table 4—9. The distribution
for products and the chi square test is presented in Table 4-10. The
results of the chi square tests indicated no significant differences
between the groups for either the production methods (chi square equals
8.235, p > .05) or for the products manufactured (chi square equals
9.44, p > .05).

Table 4-11 presents the results of the homogeneity of variance
test between Group 1, firms with relatively high levels ofncertainty,
and Group 3, firms with relatively low levels of perceived
environmental uncertainty. The presentation of the data is identical
to that in Table 4-8 or firm dependence.

The Hartley Fmax test for homogeneity of variance indicated
significant differences for only three of the strategy variables: The
product quality average (Variance - High - 103.07, Variance - Low =
33.05, Fmax 3.119, p < .01), product R & D expenditures as a percent
of sales revenue (Variance - High - 2.56, Variance - Low - 5.39, Fmax -
2.105, p < .05), and Media/Advertising expenses as a percent of revenue
(Variance - High — 1.74, Variance - Low = .17, Fmax = 10.235, p < .01).

Two of these three differences were in the opposite direction as that

 

182
Table 4-9
Distribution and Frequencies for the Manufacturing
Processes Utilized by the Auto Supplier Firms

in the Sample (Including Chi-square Test)

Hypothesis 2 - Uncertainty:

High Low
Uncertainty: Uncertainty:
Manufacturing Process: Frequency Frequency
Metal Stampings 10 7
Metal Fabrication 5 4
Castings 9 6
Plastics ll 10
Miscellaneous/Unknown 12 21

Chi-square: 8.24, p > .05 (n.s.)

 

183
Table 4-10
Distribution and Frequencies for the Primary Products
Manufactured by the Auto Supplier Firms in the

Sample (Including Chi—square test)

Hypotheses 2 - Uncertainty:

High Low

Dependence: Dependence:
Primary Products: Frequency Frequency
Power Train Components 7 8
Chassis Components 8 3
Auto Body Components 11 7
Electrical Components 9 10
Miscellaneous/Unknown 12 20

Chi-square: 9.44, p > .05 (n s.)

 

 

 

 

184

 

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185
suggested by the hypothesis: Product Quality Average and Media
Advertising and Sales Promotion expense as a percent of revenue. Firms
with high uncertainty indicated greater variance and less homogeneity
in business strategy. Within the various categorical classifications
of business strategy variables, no pattern was found in the results.
The lack of significant results prompted an additional test of the
hypothesis. An attempt was made to partition firms into subgroups
using the six sub-scales of the Miles and Snow (1978) Perceived
Environmental Uncertainty scale. The results of the cluster analysis
yielded 4 clusters of firms. The high uncertainty group (N - 23) had a
mean PEU score of 87.53; the low uncertainty group (N = 34) had a mean
PEU of 48.44. The max test of the homogeneity of variance between the
two groups did not differ significantly from that obtained from the
partitioning based on the total PEU score. Only two strategy variables
—Product Quality Average and Product R&D Expenditures as a percentage
of firm revenues - indicated moderate differences in the variance.
With a .05 significance level, two significant findings among seventeen
measures might be anticipated by chance (p = .1575). Furthermore, the
two significant results were equivocal; the data supported the
hypothesis for Product Quality, but refuted the hypothesis for Product
R&D expenditure. The results of the sub—scale cluster analysis did not
differ from the results obtained using the more parsimonious
partitioning method. The hypothesis did not receive support.
The general lack of findings led to the conclusion that there was
no difference in the two groups of firms with respect to the

homogeneity in business strategy as a function of differences in

 

 

 

 

186

perceived environmental uncertainty. The inability to find any
conclusive pattern of results and the general lack of significant
findings indicated that auto supplier firms with greater levels of
perceived environmental uncertainty do not have greater homogeneity in
their business strategies than firms with low levels of perceived
environmental uncertainty. It was concluded that, for this study, the

data did not lend support to Hypothesis Two.

4.7d Hypothesis 3: Professionalism and Homogeneity of Strategy

Of the three measures of professionalism in this study, the first
two were based upon characteristics of the firm’s CEO career
experiences: the number of firms within the industry with which the
CEO has been employed, and the number of years the CEO has been
employed with firms in the industry. The third measured examines the
connectedness and interrelationships of firms within the field via
interfirm linkages through the use of common consultants, information
sources, education of the CEO, membership in trade and professional
associations, and CEO career path. These linkages were summed to get a
total interfirm linkages score.

The firms were grouped using a cluster analysis based on the three
variables of professionalism. A total of 117 cases were available for
clustering; 20 cases were omitted because of missing or incomplete
data. The results of the cluster analysis indicated the presence of
four groups. The difference in the distance coefficient from the four

cluster to the three cluster solution was 25.076; for the three cluster

 

 

 

 

187

to the two cluster solution the difference in the distance coefficient
was 180.505. The magnitude of these measures suggested that three was
the most reasonable number of clusters to be obtained from the
analysis. This was further supported using the decision heuristic
presented in Aldenderfer and Blashfield (1984). The results of this
analysis are shown in Figure 4-4, which resembles that presented in
Figure 4-3. The curve flattens out at the three cluster solution,
indicating that three clusters would be the optimum solution.

Mojena's Rule One was also applied to the fusion coefficients from
this clustering procedure. The Alpha for determining the stopping
level was 159.52. Based on the differences in the fusion coefficients
reported, Rule One suggests that the three cluster solution is
optimal.

Cluster 1 (N-46) was composed of firms with a high level of E0
experience, both in the number of firms with which the CEO has been
employed (2.33) and industry tenure (18.57), and a high average number
of linkages among firms (243.85). Cluster 2 (N=21) included firms with
a moderate level of CEO experience (number of firms = 1.19, number of
years - 6.05) and a moderate number of interfirm linkages (172.95).
Cluster 3 (N=50) contained firms with a moderate level of CEO
experience (firms — 1.60, years = 16.20) and a low number of linkages
among firms (98.62).

Based on the levels of professionalism identified within the
groups, the "High Professionalism" group, Cluster 1, was compared with
cluster 3, representing groups with “Low Professionalism " The results

of the cluster partitioning are given in Table 4-12. A t-test of the

 

 

 

Number of 6 '-

 

 

 

Clusters
5 .——
4 .—
3 -
2 _
l ._..
0 : : : : 1
0 100 200 400 800

Fusion Coefficient
Figure 4-4
Plot of the Number of Clusters versus the Fusion

Coefficient, Ward’s Method Solution of the
Firm Professionalism Data Set

 

 

189
Table 4-12
Means, Standard Deviations, and t-tests of the Difference
in the Analytic Clusters of Auto Supplier Firms

in the Study

Hypothesis 3 - Professionalism:

High Intermediate Low
Professionalism Professionalism Professionalism
Cluster 1 Cluster 2 Cluster 3

Cluster Size 46 21 SO
CEO Experience -
Number of Firms 2.30 1.19 1.60
Employed — Means: 2.35 1.17 1.52
CEO Tenure -
Years — Mean: 18.57 16.05 16.20
Standard Dev.: 11.07 7.35 12.36
Professional Linkages
Among Firms - Mean 243.85 172.95 98.62
Standard Dev.: 47.71 11.14 41.91
t-tests:
Cluster 1 v. Cluster 3 - CEO Experience: t a 1.75, p < .05
Cluster 1 v. Cluster 3 - CEO Tenure: t = 0.98, p < .05 (n.s.)
Cluster 1 v. Cluster 3 - Linkages: t — 15.70, p < .01
Cluster 1 v. Cluster 2 - CEO Experience: t - 2.02, p < .05
Cluster 1 v. Cluster 2 - CEO Tenure: t = 0.94, p < .05 (n.s.)
Cluster 1 v. Cluster 2 - Linkages: t = 6.63, p < .001
Cluster 2 v. Cluster 3 - CEO Experience: t = 1.09, p < .05 (n.s.)
Cluster 2 v. Cluster 3 - CEO Tenure: t = 0.05, p < .05 (n.s )
Cluster 2 v. Cluster 3 - Linkages: t = 7.67, p < .001

 

 

 

190

differences in the measures of professionalism was performed. Results
indicated that the comparison groups differed significantly in both the
number of firms with which the CEOs were employed (t = 1.75, p < .05)
and the number of firm linkages (t = 15 70, p < .01). The difference
in tenure was not significant (t = .98, p > .05). Additional
differences were noted between the high and the intermediate and the
intermediate and the low professionalism groups in the number of
interfirm linkages, and the difference in the number of firms employed
was also significant between the high and the intermediate group. As
discussed by Balshfield and Aldenderfer (1984), the significant
differences in the cluster variables for the comparison groups tend to
validate the obtained solution.

The two groups were compared to determine if differences existed
in the size of the firms in the groups, the manufacturing processes
used, and the products produced by the firms. Average firm size was
not significantly different (C = .585, p > .10). Table 4-13 presents
the distribution of manufacturing processes and the results of the chi
square goodness-of-fit test to determine if the distributions differed.
The results indicated that the two groups did not differ on this
dimension (chi square equals .21, p > .05). Table 4-14 presents the
distribution of the products manufactured by the firms and the chi
square test to determine if significant differences existed between the
two comparison groups. The data indicated that here was no difference
between the groups on this dimension (chi square quals 6.456, p >

.05).

 

 

 

191

Table 4-13

Distribution and Frequencies for the Manufacturing Processes
Utilized by the Auto Supplier Firms in the Sample
(Including Chi-square test)

Hypothesis 3 - Professionalism:

High
Professionalism:

Manufacturing Process: Frequency
Metal Stampings 8
Metal Fabrication 6
Castings 8
Plastics 8
Miscellaneous/Unknown l6

Chi-square: 3.21, p > .05 (n.s.)

Low

Professionalism:
Frequency

8

4

8

l3

l7

 

 

 

 

192

Table 4-14

Distribution and Frequencies for the Primary Products
Manufactured by the Auto Supplier Firms in the Study

(Including Chi-square test)

Hypothesis 3 - Professionalism:

Primary Products:
Power Train Components
Chassis Components
Auto Body Components
Electrical Components

Miscellaneous/Unknown

Chi-square:

6.46, p >

High

Professionalism:

Frequency
8

8

14

.05 (n.s.)

Low
Professionalism:
Frequency
6
4
11
ll

18

 

 

 

 

193

Table 4-15 gives the results of the test of homogeneity of
variance for the two clusters of firms. The format is identical to
that used previously. The data indicated that firms in the cluster
identified as having relatively "High Professionalism“ had less
variance and therefore greater homogeneity in seven of the seventeen
business strategy variables. In three instances, the differences in
the variance were in the opposite direction from that predicted by the
hypothesis, with high professionalism firms having less homogeneity in
strategy. To determine if the results were significant, the binomial
probability distribution was used. At a known or specified error rate
of .05 with 17 measures, the probability of finding 10 significant
results is remote (p < .0001). It was concluded that there were
significant differences in the variances between the two groups.

Analysis of the data indicated several interesting results.
Similar to the dependence analysis, Industry Variables of Technological
Change (Variance - High - 1.06, Variance - Low - 1.25, Fmax = 1.179, p
> .05) and relative Compensation - that is, wages relative to
competitors (Variance High = .84, Variance - Low = 1.10, p > .05) -
yielded no significant results. Firms with high levels of professional
linkages did not have less variation in these business strategy
variables than firms with low levels of professional linkages,
suggesting homogeneity across all firms in the industry for this
dimension.

The findings for Product Competition variables differed greatly
from the pattern found in the previous dependence analysis. The

variables of Relative Price and Market Share were not found to differ

 

 

 

 

194

 

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195

significantly from one another in variance (Relative Price: Variance -
High - .62, Variance - Low - .70, Fmax - 1.129, p > .05. Market Share:
Variance -High - 181.94, Variance - Low - 152.71, Fmax - 1.191, p >
.05). A significant difference in variance was found for Product
Quality Average between the two groups, but in the opposite direction
than predicted by the hypothesis. Firms with high level of
professionalism had greater variance in product quality than firms with
low levels of professionalism (Variance - High - 136.27, Variance - Low
- 26.30, Fmax - 5.181, p < .01). This suggests that firms with high
levels of professionalism had less homogeneity in their strategies than
firms with low levels of professionalism.

The third category of business strategy variables concerned those
associated with a firm's research and development expenditures and new
product development. High professional firms demonstrated greater
variance - that is, less homogeneity of strategy - in the percentage of
sales from new products as compared with those firms designated as low
professional (Variance - High - 496.23, Variance - Low n 124.81, Fmax =
3.976, p < .01). This as contrary to the prediction of the hypothesis.
The variance in actual R & D investment activities, however, was very
consistent with the research hypothesis. Firms in the high
professional group had less variance and more homogeneity in their R &
D expenditures than firms in the low professional group, both in
product R & D (Variance - High - 1.88, Variance - Low = 4.27, Fmax =
.271, p < .05) and in process R & D (Variance - High = 1.68, Variance -

Low - 4.11, max - 2.446, p < .01). These findings suggest that for

investment decisions, that is, the resource deployments of the firm,

 

 

 

196
professionalism does reduce the variation in strategy for firms with
high professional ties to other firms within the field. Though a
similar finding does not hold for firm sales activity, the pattern of
the results tended to offer moderate support for the research
hypothesis.

Production and Investment variables included those variables which
relate to the business strategies involving firm expenditures for
capital, specifically fixed capital in the form of plant and equipment
and working capital in the form of inventories. For this category, the
data indicated results consistent with the research hypothesis.
Expenditures or fixed capital, measured as a percentage of the firm's
total revenues, show less variation and greaater homogeneity of
strategy among firms with high levels of professionalism than for firms
with low levels of professionalism (Variance - High - 149.39, Variance
- Low - 308.40, Fmax - 2.064, p < .05). Similarly, investment in
inventory as a percentage of total firm revenues exhibited less
variation - more homogeneity - in the high professional group as
compared with the low professional group (Variance - High - 17.64,
Variance — Low — 55.11, Fmax - 3.156, p < .01). No significant
difference in variance as found for the Plant and Equipment Newness
variable between the two groups Variance - High - .04, Variance - Low =
.03, Fmax - 1.333, p > .05).

Efficiency variables, those measures of business strategy
associated with efficiency, productivity, and firm outcomes, also gave
moderately strong support to the hypothesis. Productivity, as measured

by the sales revenue per employee, had less variation and more

 

 

 

197

homogeneity in the high professional group of firms than in the low
professional group (Variance - High - 1870.13, Variance - Low -
4622.47, Fmax - 2.472, p < .01). The efficiency measure of profits
generated per employee also showed the same results Variance - High =
13.04, Variance - Low = 38.09, Fmax - 2.921, p < .01). No significant
difference in variance was found in capacity utilization for the two
groups (Variance - High - 203.08, Variance - Low - 274.20, Fmax - .350,
p > .05).

The final category of business strategy variables is the marketing
Variables. The variables in this group were concerned with marketing
expenditures as a percentage of total sales revenues and to firm's
perceptions of their marketing and sales expenses compared with
competitors. No significant difference was found for the Relative
Sales and Promotion Expense variable between the comparison groups
(Variance -High — 1.29, Variance - Low = 1.14, Fmax = 1.132, p > .05).
The variance in Sales Force Expenses as a percentage of firm revenues
was greater for firms with high professionalism than for those with low
professionalism (Variance - High = 0.38, Variance - Low = 3.59, Fmax =
2.891, p < .01). This was in the opposite direction as that predicted
by the hypothesis: high professionalism firms had less homogeneity of
strategy. However, Media Advertising and Sales promotion expenses as a
percentge of firm revenues was in the expected direction: firms with
high levels of professional linkages had less variance and greater
homogeneity of strategy for this measure of business strategy han firms
with low levels of professional linkages (Variance - High = .10,

Variance - Low — .24, Fmax = 2.400, p < .01). The conclusion drawn

 

 

198
from the data in this category was equivocal - it offered neither
support for nor refuted the research hypothesis.

The pattern of results indicated that the significant findings
occured in three categories of strategy variables: R & D variables,
Production/Investment variables, and Efficiency variables. This
indicated that there were systematic differences in the variances of
the two groups. Thus, the overall pattern of results for the
categorical classifications of business strategy variables gave
moderately strong support for hypothesis 3: firms with greater
professionalism exhibited greater homogeneity in their business

strategies than those with less professionalism.

4.8 Conclusion

The results of this study provided moderate to strong support for
two of the three research hypotheses. Firms with higher levels of
dependence and firms with greater levels of professionalization were
found to have greater homogeneity in the business strategies which they
pursue. The variance for those groups which had relatively higher
levels of institutional isomorphic force was significantly less than
for those firms with relatively lower levels of isomorphic forces
present. Hypothesis two concerning uncertainty was not supported. No
significant systematic differences were found in the variances of firms
with high versus low levels of perceived environmental uncertainty.

Also, it is noteworthy that for many of the variables, no

significant differences were found in the variances between the high

 

 

 

 

199
and low levels of institutional forces. In effect, there was
homogeneity of strategy across all firms in the sample, not only among
those with high levels of institutional isomorphic force. This feature
suggests additional questions or discussion and consideration. These
questions and other issues suggested by the results of this study will
be examined in the following chapter.

The results of this study indicated moderate support for the
general model of this research: institutional forces in the
environment of organizations will tend to lead to homogeneity in
strategy. The strategic behavior of firms with high levels of
institutional force exhibited less variation that those firms with
lower levels of institutional forces. Specifically, dependence and
professionalism were found to be predictive of greater homogeneity in
strategic activity. These results suggest that the institutional

perspective may be useful as a perspective on the strategic behavior of

organizations.

 

 

 

Chapter Five

Discussion of Results, Implications, and Conclusion

5.1 Introduction

The results obtained in this initial research on the relationship
among institutional forces and homogeneity of business strategy were
not conclusive. However, the data from this study did lend modest
support to the basic theory of this research. Auto supplier firms
subject to greater levels of institutional isomorphic force in their
environment did tend to exhibit greater homogeneity in their business
strategies. This is particularly true for those firms that are highly
dependent on limited customers or their outputs and for those that have
many professional linkages to other firms within the auto supplier
industry. Uncertainty in managerial perceptions did not seem to have
an effect on homogeneity.

The purpose of this chapter is to discuss the results of the study
reported in Chapter Four in the context of the institutional theory
presented in Chapter Three. The findings from the survey and the data
analysis will be reviewed within the institutional framework. The
implications and limitations of the research for institutional theories
of organizations and for research on business strategy will be
examined. The chapter concludes with a discussion of the potential

effects of institutional forces on the practice of business strategy.

200

 

201

5.2 Institutional Forces for Isomorphism and Homogeneity of Business

5.

Strategy

2a Coercive Isomorphism and Supplier Dependence

Dependence and Coercive Isomorphism

Hypothesis One suggested that the greater the dependence of a
group of organizations on the same group of customers, the greater the
homogeneity of business strategy. This would occur because powerful
customers are able to coerce similar forms of strategic behavior from
relatively powerless suppliers. As patterns of strategic behavior
become standardized within the organization field, they take on
institutional characteristics. Consistent with Zucker's (1987)
definition of institutionalization, strategies may become rule-like or
social facts. For example, an original equipment manufacturer (OEM)
auto firm, in its role as a customer, may require a supplier to
maintain a minimum level of inventory to insure that the customer will
not run out of materials or parts. The minimum inventory level is a
requirement that affects firm's business strategies, such as the
decision regarding the appropriate amount of inventory or "working
capital." A business strategy decision is restricted or established by
the customer who is able to influence or coerce the supplier into
following the prescribed course of action.

The second element of institutionalization, according to Zucker

(1987), is the embedding of patterns of behavior in formal structures

 

rIIIIIIIIIIIIIIIIIIlllII'-""‘:______________—_

202

of organizations. The strategic behaviors of organizations acquire
legitimacy through the formalized behavior of the enterprise. As an
example, the contracts between the OEM auto manufacturers and supplier
firms often specify payment terms, shipping procedures, quality
standards, and many more aspects of supplier behavior. Suppliers may
develop specific policies or programs as a response to contractual
demands. As these become formalized or "standard operating
procedures," they become embedded within the supplier organization and
take on institutional qualities.

In this research, powerful customers in the form of the OEM auto

manufacturers were hypothesized to exert coercive force over their

 

suppliers. Such coercion is a function of the relationships between
customers and suppliers. The nature of the relationship affects the
degree of dependence of the supplier on the OEM customer. The greater
the dependence the greater the coercive force and the more homogeneous
the business strategies of the supplier firm.

This research suggested that dependence-power relations operating
through the structure of the organization field exert a coercive force
or isomorphism on firms within the field. Such coercive pressures for
isomorphism lead to greater homogeneity in business strategy among
supplier organizations that are more dependent on the same dominant
OEM customer firms than among supplier organizations with lower levels
of dependence. Coercive forces for isomorphism will tend to be greater
When firms are more dependent on customers and when firms are in

similar relationships to customers.

 

 

 

 

203

Summary of the Research Findings

 

The data from Table 4«8 indicate the results of the test of
hypothesis One concerning the effects of dependence and coercive
isomorphism on homogeneity of business strategy. The overall results
suggest moderate support for the research hypothesis. Supplier firms
with higher levels of dependence on the OEM customers exhibited greater
homogeneity of business strategy in six of the seventeen measures. For
three of the business strategy measures, results were in the Opposite
direction as predicted by the hypothesis - the homogeneity in strategy
was less among firms with high levels of dependence. For the remaining
eight measures, no difference was observed in the homogeneity of
strategy between high and low dependence firms, suggesting potential
homogeneity among all firms within the industry.

When the measures were classified into categories of business
strategy variables as developed by Anderson and Zeithaml (1984),
certain patterns in the results were observed. Two of the measures
were concerned with broad industry-wide strategic factors: the amount
of change in a firm's products or production methods, measured as the
degree of Technological change; and a firm's compensation level
relative to others in the industry. Though neither of these variables
indicated significantly less variance in high dependence firms, the
total variance was moderately lower for the high dependence firms.
Though not statistically significant, the general direction tends to

support the hypothesis of homogeneity of strategy.

 

7’—

204

Two of the categories of business strategy variables gave somewhat
strong support to the hypothesis. The first category consisted of
variables that measured supplier's product competition activities.
Firms which were more dependent on the OEMs exhibited greater
homogeneity in their pricing strategy relative to competitors and in
their market share. The second category of business strategy variables
to support the hypothesis was the category of Production/Investment
variables. This group of variables was concerned with the investment
strategies of firms in fixed capital, such as plant and equipment, and
investment in working capital, specifically inventory.

A third category of business strategy variables, those associated

 

with operations or Efficiency Variables, offered mild support for the
hypothesis. Only one of the three measures in this category yielded a
statistically significant difference in the variance between the high
and low dependence groups of firms.

The category of business strategy measures that examined firms’
Marketing Variables yielded equivocal findings. One of the variables,
supported the hypothesis, with high dependence having greater
homogeneity. A second variable, refuted the hypothesis, with greater
homogeneity observed among firms with lower levels of dependence. The
third variable in the category was not significant.

Only the R & D category of strategy variables gave strong evidence
opposing the hypothesis. The two variables associated with product
research and development, both exhibited greater homogeneity among low
dependence suppliers than among high dependence supplier firms. The

third variable in the category was not significant.

 

’t—

205

Examining the results by category, it can be observed that three
of the categories offer support for the basic hypothesis of the
research, with greater homogeneity of variance found among suppliers
with high levels of dependence on the GEMS. These are the Product
Competition, Production/Investment, and Efficiency categories of
business strategy variables. Only one category of business strategy
variables, R& D variables, refuted the hypothesis. One category -
Marketing variables -was equivocal, and the final category of Industry
variables had no significant results. If business strategy is assessed

categorically, the support for the hypothesis is fairly strong.

Discussion: Coercive Isomorphism

 

 

The pattern of results is instructive, for it offers insights on
certain aspects of institutional theory and coercive isomorphism in
particular. DiMaggio and Powell (1983) suggested that coercive
isomorphism results from formal and informal pressures which may be
felt as "force, as persuasion, or as invitations to join in collusion"
(1983:150), or can be "more subtle and less explicit" (1983:151). In
effect, they use the term coercion to describe several forms of
influencing behaviors. The common theme is influence exerted by a
powerful social actor on a less powerful social actor. The amount of
power felt by the supplier firm is measures by dependence, consistent
with Emerson (1962).

While there are several elements in an auto supplier firm's

business strategy, not all may be subject to similar forms coercive

 

206

pressure for isomorphism. The coercive force that is brought to bear
on firms may be affected by the structure of the field, the
relationships among firms, and the characteristics of the actors. For
auto suppliers, coercion does not impact all aspects of firms’ business
strategy. This is evident from the data. However, the data also
suggest that coercion may lead to greater homogeneity in behavior among
firms with high levels of dependence on the OEM customers.

The resource dependence perspective developed by Pfeffer and
Salancik (1978) and Aldrich and Pfeffer (1976) suggests that firms will
seek to gain control of critical resources through structural
arrangements or through strategic behavior. To understand fully the
effects of coercive isomorphism on auto suppliers, it is necessary to
examine patterns of homogeneity and the amount of coercive force or
pressure brought to bear on suppliers by the OEM customers.

Two issues dominate discussions of the relationships between OEMs
and automotive suppliers: the OEMs demand for high quality parts at a
low cost. One survey reported in Smith (1989) found that OEM auto
manufacturers perceived product price first and product quality second
in importance in the criteria used in product sourcing decisions, with
91 percent and 89 percent of the firms selecting these two factors.
Product design and development capabilities were fourth, with 16
percent of respondents, and the supplier's product/process technologies

were sixth in importance, with only 13 percent.

If this is the case, then it might be expected that the GEMS would

choose to exert pressure for conformity in these areas that they

perceive to be critical to managing the OEM-supplier dependency

 

”—

207

relationship. Thus it might be anticipated that homogeneity in
business strategy from coercive pressure for isomorphism would be
manifested most in those measures associated with high quality and low
costs. This reasoning is supported by the results of this study.
Homogeneity occurs in product pricing (Relative rice), and the profits
earned by high dependent supplier firms (Profit/Employee average).
Also, though it is not significant at the .05 level, the variance in
product quality is much lower for high dependent firms than for firms
with low dependence.

The low prices that customers are able to extract from suppliers
lead to indirect coercion in other aspects of suppliers’ business
strategies. In order to provide parts at the lowest possible cost to
the customer and yet retain some measure of profitability, suppliers
must in turn lower their operating costs as much as possible,
particularly in those areas over which they have some discretionary
control. Therefore greater homogeneity is found for the
Inventory/Revenue Average variable and the Investment/Revenue Average
variable among firms with high dependence. The same pattern can be
observed for the Sales Force Expense/Revenue Average variable. As

DiMaggio and Powell (1983) suggested, coercion may be both direct and

 

indirect.

The resource dependence perspective also suggests that suppliers
will seek to gain control over their environment and key resources.
However, the institutional model asserts that such control is limited
to those areas in which coercive pressure is absent. Thus it would be

expected that supplier firms would seek to differentiate themselves in

 

 

”—

208
strategies that are not subject to coercion by OEM customers. The
survey results reported previously in the study by Smith (1989),
product development and new product technologies might be expected to
be two areas in which suppliers would enjoy some discretion because of
the low importance as perceived by the customer.

Again, the results of this study support this reasoning. While
auto suppliers may be restricted in several areas by the demands of the
OEM customers, in those areas where there is latitude there is greater
heterogeneity among high dependence firms. This is particularly in
evidence in the area of new product development. Firms with high
levels of dependence had significantly less homogeneity of strategy in
the introduction of new products - as measured by the New Products,
Percent of Sales average variable - and in the investment in continuing
product research and development, as measured by the Product
R&D/Revenue Average variable. Also the high dependence suppliers had
significantly less homogeneity in the Media Advertising and Sales
Promotion Expense/Revenue Average strategy measure, perhaps reflecting
an attempt to exert counter-influence in the relationship.

Those measures of strategy lacking significant differences in

homogeneity between the high and low dependence groups of supplier

 

firms may be indicative of field-wide homogeneity. That is, all
supplier firms within the field pursue similar business strategies in
such areas as relative compensation, product quality, and capacity
utilization, among others. Such field-wide homogeneity may be due to
the ability of the OEMs to coerce strategy from all suppliers without

consideration for the degree of dependence. Or, powerful customers may

 

 

 

209

be able to coerce firms into adopting certain standards that become
institutionalized as field- or industry-wide policies. For example,
the high importance of product quality perceived by the OEMs may
establish a minimum quality standard for all firms in the supplier
field. Firms must meet these standards in order to obtain legitimacy
in their status as an auto supplier, and thus product quality levels
are homogeneous across all firms in the field.

The results of the analysis of dependence and homogeneity of
strategy lend support to Hypothesis One of this research. Supplier
firms with greater levels of dependence on the OEM auto manufacturers
exhibited greater homogeneity in their business strategy than firms
with lower levels of dependence. Dominant firms demand homogeneity in
strategy from suppliers in areas perceived as crucial by the dominant
firm. Occasionally, the dominant firms are able to coerce all
organizations within a particular field into pursuing similar
strategies, and the entire field appears homogeneous. The effects of
dependence, institutionalization, and coercive isomorphism on

homogeneity of firm strategy are supported by this study.

5.2b Mimetic Isomorphism and Supplier Uncertainty

The second research hypothesis examined the effects of uncertainty
on homogeneity of business strategy. It was hypothesized that firms
that experienced high levels of uncertainty in their environment would
be more likely to mimic the behaviors of other organizations in the

environment. Mimicry can provide a legitimation for organizational

 

 

 

—_——'

210

actions, including the strategies which companies pursue. The logic of
mimicry asserts that it is acceptable or "correct" in a normative sense
to copy the strategies of rivals. Mimicry may be done to reduce a
rival's competitive advantage, such as copying a competitor's pricing
structure. Or it may be done to legitimate managerial decisions by
asserting that a particular course of action is "proper" because it is
similar to others within the firm’s environment.

The purpose of business strategy is the determination of future
courses of action and in the allocation of organization resources to
pursue those courses of action. Strategic decisions therefore tend to
be made in conditions of uncertainty and ambiguity (Mintzberg et al.,
1976) and are often ill-defined (Lyles, 1981). For such problems in
strategy, decision-makers may resort to the use of decision heuristics
(Tversky and Kahneman, 1974; Barnes, 1984) or to alternative decision-
making styles (Fredrickson, 1984). One simplification heuristic or
decision-making style can be mimicry of the behavior of other
organizations.

Firms seeking a response to environmental uncertainty can
formulate a strategy that is modeled after other organizations in the
environment. In this research, it was hypothesized that suppliers
reporting greater levels of perceived environmental uncertainty would

exhibit greater homogeneity of strategy than firms with less perceived

 

uncertainty. Suppliers which perceive their environment to be highly
uncertain will seek to overcome the uncertainty by copying the

strategies and behaviors of other firms within the organization field.

 

 

 

 

211

Summary of the Research Findings

The results of the study did not support the hypothesis. The data
in Table 4—11 indicated no significant differences in the variance in
the business strategy measures among supplier firms in this study.
Only three differences were significant, and of these two were in the
opposite direction as predicted by the research hypothesis. In the
category of Product Competition variables, the Product Quality Average
of firms with high uncertainty showed greater heterogeneity than firms
with low uncertainty, contrary to the hypothesis. In the category of
Marketing variables, the Media Advertising and Sales Promotion
Expense/Revenue Average gave similar results. Only the Product R&D
spending/Revenue Average in the R & D variables category was
significant and in the predicted direction. Given the significance
level of the study of .05, this was not beyond the range of significant
findings that would be expected by chance.

Therefore the conclusion was that for this particular study, no
difference existed between firms in the homogeneity of business
strategy as a function of perceived environmental uncertainty. It was
frequently observed that, though the differences were not statistically
significant, the variance in the business strategy measures was greater
for firms with high perceived environmental uncertainty than for firms
with low perceived uncertainty. This would seem to support an
alternative hypothesis that firms confronted with high levels of
uncertainty resort to many different strategies in an effort to find

some combination that will lead to success. Firms with high perceived

 

 

 

 

212
environmental uncertainty experiment, try alternative strategies, and
choose different actions. Since they are not certain as to what they

should be doing, they will try almost anything.

Discussion: Mimetic Isomorphism

 

In the theoretical discussion of mimetic isomorphism, DiMaggio and
Powell (1983) note that while uncertainty is the force that encourages
isomorphism, other structural elements in the organization field may be
necessary for mimicry to occur. For instance, mimicry may require the
presence of models. These models must not only be present, but
information on their strategies and behaviors must be available if
firms are to mimic them. Absent any clear models, firms may be left to
muddle through as best they can, trying alternative behaviors and
proceeding in an incremental fashion (Lindblom, 1959, 1979). Even if
models are available, organizations may lack sufficient information
about the model's actions to allow them to copy the strategies.

Mimicry may not only require the presence of models in the
organization field, but these models may need to be seen as
"successful" if their strategies are to be considered for emulation.
Firms may not wish to copy the strategies of organizations they believe
to be unprofitable or unsuccessful. Also, firms may only seek models
which are in some sense similar to themselves. For example, a small
auto supplier producing metal stampings with sales revenues of $10
million per year may find it difficult to mimic the behavior of an

automotive electronics supplier with sales of 200 million per year.

 

 

213
The technologies differ, the size of the firm and the available
resources differ, and there may be a host of other differences as well.
These differences could lead to a perception that the strategies of the
potential model are inappropriate for the copying firm.

Therefore, four factors might be necessary if mimicry is to occur
in an organizational field. First, there must be models available.
second, the models must be seen as "successful," that is, the
strategies and behaviors of the model are appropriate for the field
environment. Third, the model must be perceived as in some way similar
to the potential mimic in order for the strategies to be considered
relevant. Fourth, there must be sufficient information available about
the model to allow the strategies to be copied by the mimicking firm.
Firms cannot copy what they do not know.

Uncertainty may be in and of itself insufficient as a cause of
mimetic isomorphism. Other features of the organization and the field,
such as the presence of models and availability of information may be
essential for mimicry to occur. This argument has recently been
presented in a paper by Galaskiewicz and Wasserman (1989). They
suggested that uncertainty may be inherent in certain types of
organizational decision, particularly those pertaining to
interorganizational relationships. In such interorganizational fields,
the presence and structure of social networks may be the mechanism
whereby firms engage in mimetic behaviors. They conducted research the
charitable contributions of 75 business corporations in the

Minneapolis-St. Paul metropolitan area and found that firms having

 

 

 

 

 

 

214
strong network ties and information-gathering relationships were likely
to engage in similar forms of charitable giving.

If their results and the preceding discussion of mimicry and
modeling are applied to the present research, it seems that uncertainty
may affect homogeneity of business strategy only when there are
interorganizational ties present and an available network of
information that enables firms to copy others in their field. In
effect, there may be an interaction between uncertainty and network
relations such that firms with high uncertainty and a high number of
linkages with other firms in the organization field would be more
likely to engage in mimicry and exhibit homogeneity of strategic
behavior than those firms with low network relations.

The results of this study cast some doubt on the uncertainty -
mimetic isomorphism relationship. Uncertainty may not be an antecedent
condition of mimicry, since firms may be uncertain as to which
organizations they should attempt to mimic. If there is a lack of
information available about the activities and characteristics of
potential models, or if firms are uncertain about the applicability of
the potential model to the firm's experience, then mimicry may not
occur. Reviewing the data in Table 4-11 it also can be observed that,
while the differences were not statistically significant, the variance
among firms with high perceived environmental uncertainty was often
greater than the variance among firms with low uncertainty. This would
tend to support a view that firms confronting highly uncertain
environments engage in a wide variety of strategic behaviors in an

attempt to find some combination of factors that will prove effective,

 

 

 

215
with strategic change proceeding in an incremental fashion (Fredrickson
and Mitchell, 1984; Fredrickson, 1984). The uncertainty inherent in
the strategic decision-making process can cause firms to "[grope]
through a recursive, discontinuous process involving many different
steps and a host of dynamic factors over a considerable period of time
[before making] a final choice" Mintzberg et al., 1976).

To understand fully the effects of uncertainty and mimetic
isomorphism, it may be necessary to determine if there are models
available for emulation in the field and the process by which firms
identify and select models. Uncertainty may lead firms to search for
models as well as alternative strategies in the environment. If firms
are uncertain about which organizations they should model or if

potential models are appropriate for emulation, mimicry may not occur.

5.2c Normative Isomorphism and Supplier Professionalism

Professionalism and Normative Isomorphism

Normative pressures for isomorphism are due primarily to
professionalism. Professional managers, and particularly the senior-
level managers of organizations, are able to exert great influence and
control over organizational activities and strategy. The increased
professionalism among these persons that spans organizational
boundaries tends to diffuse knowledge, information, and behaviors.
Professional managers in various organizations may exhibit great

similarity to counterparts in other firms because of professional

 

 

 

216
structures. As these individuals rise to positions of power and
influence in their respective firms, they take with them professional
norms of behavior and practices, which influence the strategies they
choose to pursue.

The result of the diffusion of information is the rise of
professional norms that become established as industry standards or
standard operating procedures. When norms become standardized, they
take on the quality of a legitimated social fact and are an integral
component of the institutional framework. Professional networks
themselves can become institutionalized and become a part of the
institutional structure of the organization field itself.

The growth in professionalism and the increase in the diffusion of
professional norms in an organization field such as auto industry
suppliers will tend to increase the normative pressure for
isomorphism. The third hypothesis of this research suggested that
increased professional ties or linkages among the key strategy
executive - the CEO - in a group of organizations would tend to lead to

increased homogeneity in strategy for that group of firms.

Summary of the Research Findings

The results of the data analysis for the third research hypothesis
were reported in Table 4-15. In general the data gave fairly strong
support to the research hypothesis. Ten of the seventeen measures of
business reported differences in the variance between firms in the

high professional and low professional groups. Seven of these measures

 

217
were consistent with the hypothesis; only three of the measures were
contrary to the prediction.

When the variables are analyzed according to the six categories of
business strategy variables, the pattern of results is more consistent.
Three of the categories give strong support to the research hypothesis.
In the category of Production and Investment Variables, two of the
three variables exhibited greater homogeneity among the high
professional group of firms. In the category of Efficiency Variables,
which measure operating performance and associated behaviors, both the
Sales/Employee Average and the Profit/Employee Average had greater
homogeneity among the high professional firms.

The category of R & D Variables gave more moderate support to the
hypothesis. Two of the three variables were more homogeneous among
high professional firms, while the third variable in this category was
contrary to the research hypothesis, with greater homogeneity found
among firms with low professionalism. The Marketing Variables
category was equivocal.

Only one of the Product Competition Variables was significant, and
it was contrary to the research hypothesis with greater homogeneity in
the Product Quality Average strategy measure among firms with low
levels of professionalism. Firms with greater number of professional
ties may have more information about their competitors quality levels
and may be more able to make accurate assessments of their firm's
relative product quality, while firms with little knowledge may resort

to estimates that conform to industry standards or averages. As with

 

 

 

 

 

218
the Coercive/Dependence hypothesis, the Industry Variables category did
not report significant differences in homogeneity.

For this hypothesis, three of the six categories of business
strategy variables supported the research hypothesis. One was
equivocal, and one was in opposition, while the third yielded no
significant findings. The weight of the evidence suggests that
increased levels of professionalism through interorganizational
linkages via education, tenure, professional experience, trade
associations, and other mechanisms leads to increased homogeneity in

firms' business strategy.

Discussion; Normative Isomorphism

The results of the research reported in Table 4-15 supported the
research hypothesis: firms with greater numbers of professional ties
exhibited greater homogeneity of strategy. This professionalism
occurred primarily through personnel flows among organizations and
through professional networks; the CEO's tenure in the organization did
not seem to have a significant effect in the partitioning of firms. It
is somewhat interesting that, while the total amount of time spent in
the industry did not vary between the two comparison groups, firms in
the high professionalism cluster had many more interfirm linkages and
had CEOs who had been much more mobile in their career path in terms of
the numbers of firms with which they had been employed. It might be
hypothesized that the more time a firm or individual spends in an

industry or organization field, the greater the number of network ties

 

 

—7—

219
or relations that would develop. This does not appear to be the case
in this sample of firms.

The greatest difference in the firms occurred as a result of the
number of interfirm linkages. An analysis of the linkages among firms
found that most ties occurred through membership in similar trade and
industry associations and through shared or common sources of
information. Few linkages occurred from similarities in education or
in the use of common consultants. It might be suggested that as
individuals mature in their careers and rise through the organization,
the effects of early education experience and formal training will tend
to diminish. By the time an executive becomes a CEO of a supplier
firm, the individual will pass through many positions in several
organizations and will often have experience in a number of functional
areas. This was observed from the CEO's self—reports of career path on
the firm survey. As a result, effects of formal education on
professionalism may be minimal at the senior levels of the organization
and thus its impact on strategy also will be slight.

Firms with high professionalism do possess many ties to other
firms through industry, trade, and professional associations. In
addition, the CEOs reporting in this survey tend to read many of the
same professional journals. Their information base thus is relatively
homogeneous, and as predicted by the theory, the resulting norms lead
to pressure for isomorphism in strategic behavior.

These professional linkages can themselves become
institutionalized. Over time, as industries or organizational fields

develop, the process of institutional definition or "structuration"

 

 

 

—7—

220

(Giddens, 1979) may be applied to the professional associations within
the field. These associations become part of the structure of the
field itself, and thus are institutionalized within the field.
Professional networks that span organizations can increase
interorganizational interactions, represent a well-defined coalition,
serve to transmit increased amounts of information, and develop
awareness in their members of involvement in a common activity or
enterprise.

More than simply the presence of interfirm linkages and
professional ties, it is also the structure of the network that might
be of interest in assessing the effects of professionalism on
homogeneity of strategy. This research examined the number of
professional linkages of firms without regard to the nature of the
linkage. The concern was with connectedness rather than structural
equivalence. Future research should address this by examining the
linkages among firms in greater detail, perhaps through the use of
blockmodeling (DiMaggio, 1986), through analysis of network structures,
or using sociometric techniques. It is clear from the data in this
initial preliminary study that there is opportunity to develop more
comprehensive models of the effects of professionalism and normative
forces or isomorphism on homogeneity of business strategy among firms

in organization fields.

 

 

 

 

221
5.2d Institutional Forces for Isomorphism and Homogeneity of

Strategy: Integration of Results

The results of the analyses of this research can be integrated as
shown in Table 5—1. This table presents a comparison of the results
for those mechanisms of institutional isomorphism that indicated
positive results, Dependence and Professionalism. The Dependent
Variables, the measures of business strategy, are shown in the left-
hand column. Note that there is a letter designation that appears
after each measure of strategy, either an "O" or an "S." Those
variables identified with an "O" are measures that are based on
objective data from the firm, usually accounting-based numbers such as
sales, inventory, fixed assets, and expenses. Variables identified
with an "S" are measures based on a subjective assessment by the CEO,
usually of the firm’s status relative to competitors. The final two
columns indicate whether the results of the analysis for the particular
institutional isomorphic mechanism listed at the top of the column
supported or refuted the research hypothesis. These have been taken
from Tables 4—8 and 4-15 respectively.

In examining the results across institutional isomorphic forces,
certain patterns emerge in the data. One such pattern is found in the
greater homogeneity observed for those variables associated with
production and Investment activities and with Efficiency in operations.
The Inventory/Revenue Average, the Investment/Revenue Average, and the
Profit/Employee Average all showed greater homogeneity among firms with

high institutional isomorphic force. In the auto supplier organization

 

 

222
Table 5-1

Comparison of the Results of the Analysis:

Homogeneity

of Business Strategy for Two Mechanisms of

Institutional Isomorphism

Isomorphic Mechanism

DEPENDENCE

 

DEPENDENT VARIABLES:
INDUSTRY VARIABLES -

Technological Change (S)
Relative Compensation Average (S)

PRODUCT COMPETITION VARIABLES -

Product Quality Average (S)

Relative Price (S)

Market Share (S)

R & D VARIABLES -

New Products, 2 of Sales Average (S)
Product R&D Expenses/Revenue Average (0)
Process R&D Expenses/Revenue Average (0)
PRODUCTION AND INVESTMENT VARIABLES —
Inventory Expense/Revenue Average (0)
Plant & Equipment Newness Average (0)
Investment Expense/Revenue Average (0)

EFFICIENCY VARIABLES —

Capacity Utilization Average (0)
Sales per Employee Average (0)
Profit per Employee Average (0)

MARKETING VARIABLES -
Sales Force Expense/Revenue Average (0)

Media Adv. & Sales Promo./Revenue Ave. (0)
Relative Sales & Promotion Expense (S)

:-<:-<

ZZ

2K1

PROFESSIONALISM

'<I-<Z

r-<*<

K12

 

 

 

 

223
field, there is consistent homogeneity in these aspects of
manufacturing and production operations that may be due to the presence
of institutional forces. Manufacturing and production activities are
frequently the most critical functions within auto supplier firms. It
is plausible that institutional forces may have their greatest impact
in those areas which are crucial to firm strategies and operations.
The strategy variables associated with Research and development (R
6 D) activities gave mixed results. The New Products as a Percent of
Sales Average was consistent across both studies, but it was in the
opposite direction as predicted by the hypothesis: firms with greater
levels of institutional forces had less homogeneity for this variable.
This might be due in part to the production methods of the GEMS,
however. New models tend to be introduced every three to five years in
the industry, which requires concomitant changes in the components.
The frequency of change in components would lead to higher percentages
for those suppliers that are subject to model changeover effects in
their production activities. This is a potential t0pic for future
research on this field.
The measures associated with actual expenditures on R & D efforts

- the Product R & D/Revenue Average and the Process R & D/Revenue
average -indicate differences between the two institutional forces.
Firms with high dependence had less homogeneity than low dependence
firms in product R & D eXpenditures, and no differences were observed
among high and low dependence firms in process R & D spending. In the
case of professionalism, though, greater homogeneity was found among

firms with high levels of professionalism for both variables. It may

 

 

224
be that firms with many professional linkages to others within the auto
supplier field have greater information and awareness of the R & D
spending behavior of rivals, and are better able to adjust their own
spending plans to the industry norm.

The results obtained in the marketing strategy category are
difficult to explain. Opposing results were obtained for each of the
two variables reporting significant results. High dependence firms had
greater homogeneity in the Sales Force Expenses/Revenue variable, while
high professionalism firms had less homogeneity for this same measure.
It may be that firms with high dependence are required to offer greater
customer service through the sales force, while firms with high
professionalism find alternative ways to obtain sales. Conversely,
high professionalism firms had greater homogeneity in the Media
Advertising & Sales Promotion Expense/Revenue variable, while high
dependence firms had less homogeneity in this measure. These findings
are puzzling and admittedly difficult to explain, and further research
is necessary to account for this pattern of results.

The strategy variables associated with the Industry variables
category - Technological Change and the Relative Compensation Average —
were consistent across both analyses: no significant differences were
found in the homogeneity of these variables. It may be that these
industry—level measures reflect industry-wide norms or activities, in
which case all firms in the auto supplier field would be similar to one
another and homogeneity would exist for all firms within the field.
This same logic also might apply to the other variables that exhibited

the same pattern: the Plant and equipment (P & E) Newness Average, and

 

 

 

225
the Capacity Utilization Average. All supplier firms might pursue
similar arrangements with respect to these variables, and the result is
that there is homogeneity among all firms within the field for these
variables.

The pattern of results gives some additional support to the
general thesis of this research: firms with higher levels of
institutional force did tend to exhibit greater homogeneity in their
business strategies. Thirteen of the thirty four measures of strategy
were significant and in the hypothesized direction, while six were
significant but in the opposite direction as predicted. The consistent
pattern of "no difference" found in four of the variables suggests
possible field-wide homogeneity. While the findings are not strong,
the pattern of results and the consistency among certain variables
provide additional though modest support for the underlying theory of
institutional isomorphism.

An additional pattern in the results can be observed if
differences in the type of strategy measure are assessed. The majority
of the responses which support the research hypotheses were found among
those variables that are measured with objective or accounting-based
data. That is, there were available actual figures from the
organization reflecting the level of sales and the firm's expenses.
Eleven of the thirteen findings that were in support of the research
hypotheses were based on such data. In contrast, only three of the six
results that were in opposition to the hypotheses were based on
objective measures. The remaining three measures were based on

executives' subjective assessment of their strategy.

 

 

 

226
This pattern of findings suggests that homogeneity in strategy is
more likely to occur in the actual resource allocations of
organizations than in the assessment of the organization’s strategic
position. Managerial strategic assessments might be affected by
institutional forces. One such mechanism is coercion. To the extent
that powerful firms can dominate the strategy process and control the
key environmental assumptions and analyses, subordinate firms will come
to see themselves in similar ways. As a result of such perception
control, executives make similar strategy assessments.

For example, in the auto supplier study reported here, the
dominant OEM auto manufacturers place a great deal of coercive pressure
on firms to provide parts at the lowest possible prices. This
perception was brought out repeatedly in interviews and conversations
with firm CEOs. because firms are coerced into selling their output at
what they believe to be the lowest possible price, managers believe
that their pricing, relative to competitors, is equivalent to that of
their competitors. By emphasizing low costs, the OEM customers create
a similar perception among suppliers concerning pricing behavior and
the assessment of Relative Price indicates greater homogeneity among
firms with high dependence and coercive pressure.

An additional element that might influence strategy assessments is
the quantity of information available. Managers may have so much
information in conducting a strategy assessment that their strategic
position appears heterogeneous. This statement refers to a situation
in which management, because of greater awareness of the firm’s

position, is more able to make an accurate determination of the

 

 

 

 

227

organization’s strategy relative to competitors. Managers who lack
this information resort to using industry standards or averages for
comparison, and their evaluations appear more similar to other using
this assessment method. The presence of information allows managers
with high industry knowledge and awareness to make more diverse and
accurate evaluations of their relative position. High levels of
information would be found among firms with many professional linkages
and relationships. Note that two of the three contradictory findings
in the professionalism column occur in variables that are measured

subjectively.

5.2e Discussion of Results: Summary

The general conclusion derived from this discussion of the results
of the study is that institutional forces for isomorphism are operative
in the auto supplier organization field. The greater the level of
institutional isomorphic force, the more homogeneous the strategies of
auto supplier firms. This is particularly true for those mechanisms
associated with coercive isomorphism and normative isomorphism:
dependence and professionalism. Firms with greater dependence on the
U.S. OEM auto manufacturers indicated greater homogeneity in their
strategic decisions and in their strategy assessments than firms with
low levels of dependence. Similarly, firms with many professional ties
to other firms in the auto supplier organization field exhibited

greater homogeneity in their strategies than firms with few

professional linkages.

 

 

228

The results for mimetic isomorphism and uncertainty were not
significant. However, uncertainty alone may be insufficient as a cause
of imitative behavior. It may be necessary for firms to have a model
available that they can mimic. It is not possible for a firm to
emulate the strategic behavior of another organization if it is unaware
of the potential model's behaviors, or if it lacks information about
the model firm’s strategies.

Firms also may be very cautious and selective in their choice of
models. They may desire models which are seen as already similar in
some fashion to themselves. Such similarities might include the size,
age, product/market mix, or financial status of the potential model.
Many of the supplier firms in the sample were privately owned
organizations that tend to guard information about their activities.
Without information on the actions of potential models, firms may be
unable to engage in mimicry. Information that is readily available is
generally provided for publicly held firms, which tend to be larger in
size, have a wide product mix, and transact business in many different
industries. The small, privately owned auto supplier may tend to see
such firms as inappropriate models because of these differences. Thus
even when information is available, it may be insufficient to permit
firms to mimic one another.

Finally, firms may seek to mimic only those strategies that are
perceived as successful. Firm performance may be an important factor
in the choice of models for firms with high levels of uncertainty.

Companies wish to emulate strategies that will enable them to operate

 

 

 

229
profitably in the industry. This requires information about firm
performance, characteristics, and strategic behaviors.

Uncertainty may be the necessary but not sufficient cause for
mimicry to occur, for firms also can be uncertain about which firms or
strategies to mimic. Mimetic isomorphism may result not only from
uncertainty as an antecedent condition, but also may require available
models. Additional research is needed to examine the effects of
uncertainty and modeling as determinant of mimetic isomorphism. Firms
might be asked if they attempt to model their activities after any
other firms and if so, to identify those organizations they try to
emulate. Comparisons of the firms and their strategies might provide a
means of measuring mimicry, which could then be compared with the
homogeneity among firms within the organization field.

One issue that merits consideration concerns the possible effects
of interactions among the various institutional isomorphic forces. One
potential interaction might exist between dependence and uncertainty.
If a firm must contend with an environment in which there are high
levels of uncertainty and if the firm is highly dependent on another
firm or group of firms for critical resources, the dependent firm might
choose to mimic the dominant firm as a means of overcoming the
uncertainty. Or, it might acquiesce to the demands of the dominant
firm without regard for effects on firm operations.

There also may be an interaction between dependence and
professionalism. The dependence relation itself might be a source of
professional ties and information flows among firms. For example, the

U.S. OEM auto manufacturers occasionally call their suppliers together

 

 

 

230

for conferences and seminars. These meetings provide opportunities for
the representatives of supplier firms to interact with one another,
exchange information, and learn expected patterns of operations or
behaviors. The informal ties that exist among firms that result from
dependence on the same customer can become formalized, as executives
meet with one another and forge direct linkages between their
respective firms. Since they are required by the customer to attend
these sessions, dependence and coercive isomorphic force can lead to
increases in professionalism and normative isomorphism.

It is also possible that a three-way interaction effect might
exist between the institutional isomorphic mechanisms. Uncertainty,
dependence, and professionalism might be interrelated to such an extent
that isomorphism and homogeneity of strategy is very high. High
dependence on a customer which faces an uncertain future might increase
uncertainty for the supplier firm. If the number of professional ties
were high, these might serve to provide information or models that
would result in mimicry and homogeneity of strategy. Or, having a high
number of professional linkages might serve to counteract uncertainty
in the environment and reduce dependence. There are many such
combinations that might be suggested and investigated.

The results obtained in this research indicate that, in the
organization field defined as suppliers of parts and components to the
domestic U.S. automobile manufacturers, increased forces for
isomorphism often lead to homogeneity in the business strategies which
supplier firms pursue. The results also suggest additional research

questions in need of further study. While the effects of the various

 

 

 

231
institutional isomorphic forces are not universal, the results are

significant enough to warrant the tentative conclusions.

5.3 The Structure of Organization Fields, Institutional Isomorphism,

and Homogeneity of Strategy

The results of this study also can offer some considerations
relevant to the development and the study of organization fields.
Organization fields and field-level effects are not yet well defined
(Zucker, 1987). Studies of organization fields are a recent phenomena
within the sociological and organizational sciences. Because of the
limited knowledge base, the specific processes whereby institutional
forces operate within the field are not well understood. The results
of this study offer a tentative suggestion that forces for isomorphism
are a function not only of dependence, professionalism, and
uncertainty, but are also to a great extent influenced by the
underlying structure of the field itself. While the structure of an
organization field includes dependence relations and professional
linkages, there are other forms of structural arrangements that might
influence the effects of isomorphic forces on homogeneity.

There are many approaches to analyzing field structures. DiMaggio
(1986) discusses alternative methods of analyzing field structures to
evaluate possible effects of structure on isomorphic forces. One
measurement method that can be used to assess the position of an
organization relative to others in the field is the density structure.

Organizations with high density are central to the field and are seen

 

 

 

 

232
as hierarchically superior (DiMaggio, 1986). In such cases,
differences in the hierarchical position of the organization within the
field may lead to differences in the isomorphic force brought to bear
on the firm.

An example that illustrates this idea might be taken from this
study. By virtue of their position as customers for the parts and
components of suppliers, the OEM auto manufacturers in the United
States are central and hierarchically superior within the organization
field defined as the U.S. automobile industry. This position places
the OEM in a position to dictate relations, standards, and operating
practices to subordinate firms. This structure serves to maintain the
dependence of suppliers on the OEMs and establishes the coercive
mechanism within the field. Hence suppliers experience coercion in a
manner that differs from that of the OEMs.

High density firms may serve as a clearing house of information
about the field, and may be able to influence the development of
professional norms through the control of information. Density also
may affect centrality and perceptions of power and influence, which
would lead to greater potential for coercive pressure. Centrality
refers to the position of a firm in a network of organizations.
Central organizations have ties to all other organizations within the
network (Cook, Emerson, Gillmore, and Yamagishi, 983). Central
organizations can create networks among firms by providing a linkage
among diverse members of the organization population. Centrality
might influence the institutional forces within a field. For example,

centrality in a field might lead to the use of the central organization

 

 

 

233
as a model because of the position and status of the central
organization within the network.

DiMaggio (1986) also examines the position of firms within field
with respect to structural equivalence through the use of blockmodeling
techniques. Using asymmetric matrices in which cell entries represent
ties sent from row-organizations to column-organizations, blockmodels
permit the analyst to group members of a population of organizations
into self-consistent subsets of "blocks" on the basis of the relations
among them (Arabie, Boorman, and Levitt, 1978). Organizations within
similar blocks have similar relationships to other organizations, not
necessarily with those organizations that interact with one another.
This provides a basis for the claim that blockmodels operationalize the
notion of structural equivalence by grouping together organizations who
occupy the same position in a larger social structure or field
(DiMaggio, 1986).

Blockmodels might be used to assess the structure of an
organization field by specifying the relationships among firms and
identifying those firms that are structurally equivalent. The
institutional perspective would suggest that firms which are
structurally equivalent experience institutional forces in similar
ways, and that this similarity would tend to lead to isomorphism in
firm structure and behavior (DiMaggio and Powell, 1983). Determining
the underlying block structure of the field would allow for additional
tests of the effects of institutional forces for isomorphism.

There are many more dimensions of interorganizational structures

that might be included in an analysis of institutional patterns within

 

 

234
a field. Whether a connection is multiplex (Barnes, 1972) - based on
multiple content versus single content — might be an important

consideration. Such network properties as connectivity - the degree to
which units are linked directly or indirectly - or the clustering of
ties among organizations might be relevant (Laumann, Galaskiewicz, and
Marsden, 1978). To the extent that linkages among organizations are
themselves organized, additional variables such as centralization,
formalization, and loose coupling might be included in the structural
analysis of the organization field (Aldrich and Whetten, 1981).

The crucial point of this discussion is that institutional forces
operate primarily through the relations among firms within an
organization field. To the extent that these relationships would
create differences among firms within the field or would facilitate the
isomorphic processes, the structure of the organization becomes an
important variable in evaluating the extent of institutional
isomorphism and the process whereby institutional forces operate among
firms within a field to bring about homogeneity in strategy.

The result of differences in the structural relations within an
organization field is that certain aspects of the strategies or
operations of a group of organizations within a field are homogeneous,
while others will appear to be quite heterogeneous because of the
differences in position within the field structure. Not all
organizations experience the same institutional forces for isomorphism
in the same way. In this study, there were differences observed in the
group membership of firms in the comparison groups. A firm with high

dependence may have had few professional linkages and vice versa.

 

 

 

 

235
There is variation in the isomorphic forces that influence firm
behavior across organizations and across forces. A supplier with high
dependence is not necessarily high in professionalism. Thus when
examining the effects of the isomorphic forces individually,
differences in the effects might be anticipated to occur, as occurs in
this study.

Table 5-1 reinforces many of the issues raised in this discussion
of the effects of field structure on institutional isomorphism and
homogeneity of strategy. While the overall assessments were that
increased levels of dependence and professionalism resulted in greater
homogeneity of business strategy, note that the specific business
strategy variables affected differ to a great extent between the two
isomorphic forces. There are some similarities - the Inventory/Revenue
Average, the Investment/Revenue Average, and the Profit per Employee
Average all indicated greater homogeneity among high isomorphic force
firms, and the New Products as a Percent of Sales Average showed less
homogeneity among high isomorphic firms. However, Product Quality,
Relative Price, Market Share, Product R & D, Sales pre Employee, Sales
Force Expenditures, and Media Advertising Expenditures all showed
different results.

The analysis points out the necessity of examining the effects of
the individual isomorphic forces separately. As DiMaggio and Powell
1983) suggested, the individual effects of institutional isomorphism
may not always be clear, but they do stem from very different
mechanisms dependence, uncertainty/modeling, and professionalism) and

they may lead to very different results in firm behavior. The common

 

 

236

theme is that firms with high levels of institutional isomorphic forces
will tend to exhibit greater homogeneity in their business strategies.
The results of this study give support to the contention that the
institutional forces vary in their effects on homogeneity of strategy
among firms within an organization field. The suggestion is that the
structure of the field may play a significant role in the determination
of the impacts of institutional forces, and future research should
develop more precise models of the structural mechanisms through which
institutional forces operate.

From this discussion of the effects of institutional structures on
isomorphism and homogeneity, it also follows that if there are
differences among firms within a field there are also likely to be
differences in the effects of institutionalization and isomorphic
forces for homogeneity across organizational fields. While this study
examined organizations within a field, DiMaggio and Powell (1983) noted
that institutional forces are operative at the field-level of analysis
as well. Organization fields can differ significantly in structure.
The preceding discussion of the potential effects of field structure on
the isomorphic process leads to a suggestion that homogeneity in
strategy in one organization field such as auto suppliers would not
necessarily be the same as the homogeneity that might occur in an
alternative field such as universities, public hospitals, and others.
Differences in organization fields will result in differences in the

institutional isomorphic force and in the homogeneity observed among

firms in the field.

 

 

 

237

Summary

The results of the study reported in this research have given
moderate support to the general hypothesis suggested by DiMaggio and
Powell (1983) that increased levels of institutional isomorphic force
would lead to increased homogeneity in the behavior and in particular
the strategies associated with firm competition within a specific
industry or business. Though exploratory in nature, the data indicate
that for firms in the auto supplier industry which have greater
dependence and greater professional ties to other supplier firms had
less variance in their business strategies. At the same time, this
study has suggested additional questions and factors that need to be
researched to further develop an institutional perspective on business
strategy. Longitudinal research, consideration of field structures,
interaction effects, and firm characteristics, which might serve as

boundary conditions seem to be fruitful areas for further study.

5.4 Homogeneity of Business Strategy in Organization Fields

The purpose of this section of the discussion is to examine the
results of the study within the domain of theory and research on
organization strategy. Of primary interest are the potential effects
of institutionalization on strategy among firms in an organization

field, and in particular homogeneity of strategy.

 

 

238

5.4a Strategy and Interorganizational Relationships

Two broad perspectives can be identified in research on
organization strategy. The first is a macro level view, in which the
focus is on the markets or industries in which firms operate. In the
market-based approach, strategies are a viewed as the firm's response
to market forces such as product life cycles (Buzzell, 1966; Hofer,
1975; Anderson and Zeithaml, 1984), market growth/market share (Gale,
1972; Henderson, 1979; Woo and COOper, 1981; Woo, 1983), market
structure (Christenson and Montgomery, 981) or market imperfections
(Williamson, 1975). Industry-based perspectives are concerned with the
effects of industry structures, primarily economic in orientation
including concentration (Mueller and Rogers, 1980), entry and exit
barriers (Harrigan, 1980b, 1981b), and competitive rivalry (Porter,
1980, 1985) on firm strategy and performance.

The second is a micro-level view, in which the focus of attention
is on the individual firm. Research issues at the micro-level are
primarily concerned with understanding the process by which strategy is
formulated and implemented within the individual organization. Such
issues include strategy decision-making processes (Mintzberg, 1973;
Fredrickson, 1984), strategic choice behavior (Child, 1972; Bourgeois,
1984), managerial characteristics (Szilagyi and Schweiger, 1984), and
organization structure (Chandler, 1962; Armour and Teece, 1978; Miller
and Friesen, 1982).

Recently, a third level has emerged in the literature. Occupying

a "middle ground" between the macro- and micro—level views, this

 

 

 

239

approach considers explicitly the idea that organizations exist in
environments that consist of other organizations (Van de Ven, 1976; Van
de Ven and Walker, 1984), and that relations among organizations may
influence the strategy process (Astley, 1984). Previous efforts in
this area have been primarily concerned with organizations in the
public or not-for-profit sector (for example, Aldrich and Whetten,
1981; Lawless and Moore, 1989). However, recent efforts have attempted
to place the topic of interorganizational systems within the business,
for-profit strategy domain (for example, Astley and Fombrun, 1983;
Astley, 1984; Thorelli, 1986).

One approach to strategy in interogranizational relations is the
consideration of networks of organizations. Thorelli (1986) argued
that networks occupy a space between market structures and
organizations, and presented a paradigm that explicitly considered
position in a network structure, linkages among firms, and dynamics of
network relations as influences on firm strategy. Miles and Snow
(1984, 1986) proposed a special form called the "dynamic network" in
which four key characteristics combine to influence firm behavior.
They suggested that dynamic networks of organizations evolve in order
to keep pace with problems presented by increasingly complex and
turbulent environments.

Cummings (1984) discussed the concept of the "transorganizational
system" and suggested that one motivation for engaging in
interorganizational systems is the need to solve jointly problems that
are too large and complex for a single organization. One type of

transorganizational system is the organization collective developed by

 

 

 

240

Astley and Fombrun (1983) and Astley (1984). A collective is a group
of firms with a common or shared goal or objective. When organizations
coalesce in to collectives, there may be a need for an integrated
strategy to be formed that explicitly considers the collective goals,
and the strengths and weaknesses of the member firms. The type of
collective and the strategies of member firms differ according to two
dimensions of interorganizational relations: direct versus indirect
relations and competitive versus symbiotic or mutually advantageous
relations (Oliver, 1988). Collectives may be able to use
interorganizational relations to maximize the performance of the
collective in competing with powerful competitors, either single-firms
or other collectives.

Empirical research on interorganizational systems has considered
attachments in dyadic relations (Levinthal and Fichman, 1988), resource
allocations among governmental units (Schwochau, Feuille, and Delaney,
1988), the administrative structure of public schools (Rowan, 1982),
and charitable contributions of corporations (Galaskiewicz and
Wasserman, 1989), among others. To date there has been little
empirical research that has explicitly considered strategic behavior
among firms in interorganizational systems. One possible reason for
this is the lack of theoretical development concerning the forces
present in interorganizational systems and their relationship on firm
strategy. The research presented in this study offers some insights
into this neglected area of strategy research.

Interorganizational relationships are fundamental to institutional

theories of organizations. Whether the source of institutionalization

 

 

241
is external to the firm, as in the case of state governments Zucker,
1987; DiMaggio and Powell, 1983), or arises from internal processes or
organizations, such as embedded routines or imitation (Zucker, 1987),
institutional forces operate through interorganizational relational
networks (Meyer and Rowan, 1977). Such relational networks can be
found quite often within the environment of organizations. Suppliers

and customer organizations represent significant interorganizational

 

relationships for many firms (Porter, 1980). Governments also
influence organization actions Thomas and Meyer, 1984). There are even
relations among competitors such as occur through personnel transfers
and membership in common trade associations (DiMaggio and Powell,
1983).

To the extent that organizations exist in environments which
consist of other organizations and to the extent that such relations
among organizations can influence the behavior of firms,
interorganizational systems represent an important consideration in the
analysis of firm strategy. Institutional relations are one aspect of
interorganizational systems. The presence of institutionalized
patterns of behavior or structures in an interorganizational system

such as an organization field can affect the strategy process.

5.4b Homogeneity of Business Strategy: Implications

A discussion of the results of this research also must examine the

impact of the study for theories and research on strategy and business

strategy in particular. The issue in this research has been not only

 

 

242
the nature of institutional isomorphism but the resulting homogeneity
of firms’ business strategy.

Business strategy was defined as the choices about the competitive
and strategic behaviors necessary to compete with other firms in a
single business or industry segment (Hofer and Schendel, 1978). It has
been suggested that dominant perspectives on business strategy stress
the heterogeneity in strategy among firms that arises from
characteristics of the organization's environment and the organization
itself. The focus has been on the environmental forces that affect
strategy (for example, Hofer, 975; Porter, 1979a), or on the
characteristics of firms and strategists that influence strategic
choice (Hambrick and Mason, 1984). The results of this research
suggest that an additional factor might be included in assessing the
environment of organizations - interorganizational systems.
Relationships among organizations in a field might influence the
business strategy process. In particular, institutional relations
might affect business strategy in several ways.

This impact of interorganizational relations and institutional
structures of organization fields is shown in Figure 5-1. This figure
is similar to Figure 2-1, which depicts forces for heterogeneity of
strategy. In Figure 5-1, however, institutional forces operate within
the interorganizational relations among firms in an organization and
exert a force for homogeneity of strategy. Thus, for any group of
organizations in a field, there are forces for heterogeneity operative
in the environment and also forces for homogeneity of strategy. The

actual strategies of organizations will be influenced by the

 

 

 

243
combination of forces in the field and the interorganizational
relations among firms.

Figure 5-1 may be useful in considering the results displayed in
Table 5-1. Environmental forces for heterogeneity and homogeneity may
have differential effects on the strategic behavior of a group of firms
as a function of the array institutional, managerial, market, and
industry factors present in the relations among firms. Thus the
strategies of organizations would be subject to different forces as a
function of the structure of the field and the dynamic forces present.
The influence of coercive pressures might be felt differently by firms
than professional norms. Differences in the degree of homogeneity or
heterogeneity of business strategy among a group of firms would be
likely to occur. This is the case in the auto supplier field results
shown in Table 5-1.

The figure suggests a need for future research to define the
conditions under which the forces for heterogeneity and homogeneity are
exerted and the respective influence on strategy. What types of
interorganizational relations are most conducive to homogeneity of
strategy? Which strategies are most subject to isomorphic pressures?
These issues and others that might be suggested by the institutional

perspective on strategy require further development and empirical

testing.

 

 

 

244

 

COMPETITIVE
MARKETS

 

 

 

Product life Cycle
Market Growth/
Market Share

 

 

 

 

 

 

 

 

 

 

 

 

 

MANAGEMENT - Homogeneity — INDUSTRY
CHARACTERISTICS >> of Strategy <%———————- STRUCTURE
Personal/Demographic + Threat of New En-
Cognitive trants

Threat of Substi-
tute Products

Power of Customers

Power of Suppliers

 

 

 

 

 

Competitive
Rivalry
INSTITUTIONAL
FORCES
Coercive
Mimetic
Normative

Interorganizational System
Figure 5-1

Forces for the Homogeneity of Strategy:
An Integrated Model

 

 

 

245

Competitive Strategy and Institutional Isomorphism

The development of an institutional perspective on strategy also
suggests considerations relevant to many topical areas in the field of
business strategy. One potential effect of institutional isomorphism
might occur in the concepts of competitive advantage and distinctive
competence. Competitive advantage is a unique position in a product-
market; distinctive competence is a unique skill or expertise of an
organization that is superior to any of its competitors. Firms are
often encouraged to obtain a competitive advantage or to utilize a
distinctive competence in order to maximize performance or
profitability (Porter, 1980, 1985; Snow and Hrebiniak, 1980).

Isomorphic forces from institutionalized relations among firms in
a field would affect the development of a competitive advantage or a
distinctive competence. Coercive pressure from dominant customers,
suppliers, or government units place demands on firm behavior and limit
the range of strategy options available to organizations. It becomes
extremely difficult for firms to develop a unique position or expertise
if powerful organizations require similarity among organizations in a
field.

In the same manner, the presence of professional linkages or norms
within a field mitigates against competitive advantage. If firms have
many ties to other firms or have access to information flows about the
behavior of rivals, they are more able to engage in strategies that
deny competitors an advantageous position. For example, if an auto

supplier firm can anticipate a competitor's new pricing strategy, they

 

 

 

246
may be able to submit a low bid on specific or key contracts in order
to prevent the rival from gaining market share or making inroads into
an established market position. Such preemptory moves are recommended
as a form of strategic behavior (MacMillan, 1982, 1983). The ability
to engage in such a strategic "first strike" might be predicated on
the availability of information from professional ties within an
organization field.

If uncertainty is high and models are available, mimicry also can
prevent firms from obtaining a competitive advantage. Firms which are
models for others within the organization field are constantly in a
position of having their behaviors copied by rivals. Mimetic
isomorphism can serve to decrease the heterogeneity among firm
strategies and so limit the distinctive competencies of organizations.

An institutional approach to isomorphism suggests that one way to
identify potential areas in which to develop a distinctive competence
or competitive advantage is by examining the interorganizational
system and the existing strategies of firms within the organization
field. If firms appear alike on some dimension; that is, if there is a
great deal of homogeneity in strategy — a distinctive competence could
be developed by differentiating the firm with respect to this
particular dimension. For example, the results of the study indicated
that auto supplier firms with high levels of dependence on the GEMS
were more homogeneous with respect to their expenditures on the sales

force. An opportunity to develop a distinctive competence or a

competitive advantage thus exists for firms in this group, if they are

 

 

247
willing to invest more than their competitors on hiring and developing
a professional sales force.

In this way, isomorphism becomes the basis for differentiation.
Homogeneity leads to heterogeneity in strategy as firms seek a
competitive advantage in the marketplace. The theory also suggests,
however, that other firms in the field may be quick to follow the lead
of a rival, particularly if the field is highly structured and there
are many interorganizational linkages. The result is an interplay
between competitive and institutional forces that helps characterize
and define the organization field. The unique interchange of forces
will lead to diversity in the structure of organization fields and in
the activities of firms within those fields. Nonetheless, the central
point is that competition and institutionalization are not necessarily
in opposition to one another. Each may serve to reinforce the other or

it may counteract the other, depending on the structure of the field.

Strategic Choice, Determinism, and Institutionalization

The previous discussion has examined the role of
interorganizational systems and institutional forces within the
environment of organizations, and in particular the affects of these
forces in combination with others on firms’ competitive behaviors.
Implicit in this discussion is an assumption that strategy is the
attempt to position the firm within an industry, market, or
organization field. The focus is on the interactions among

environmental forces and the resulting business strategy of the firm.

 

 

248

There is an additional perspective for consideration, in which the
focus is not on strategy as a position but rather on strategy as a
decision-making or choice activity of organizational actors, in
particular top managers. In this view, strategy may be a conscious and
intended choice, such as a formal plan, or it can emerge through a
pattern of decisions (Mintzberg, 1988). If strategy is viewed as a
choice activity of organization members, how might institutional theory
apply?

To answer this question requires consideration of two opposing
frames: free will versus determinism. Much of the literature on
business strategy emphasizes the affects of environmental
characteristics on firm strategies (for example, Dill, 1958; Hofer,
1975; Aldrich and Pfeffer, 1976; Porter, 1979a; Ulrich and Barney,
1984). Strategies are aimed at adapting the organization to the
external environment (Chakravarthy, 1982; Meyer, 1982) or improving the
"fit" between an organization and its environment (Venkatraman and
Camillus, 1984). The environment is deterministic, that is, it
dictates or demands certain strategies for firms if they wish to
survive. Within this context, the structure of an organization field
and institutional forces for isomorphism become an additional factor in
the firm’s environment that must be considered in the planning
process.

Against this deterministic view of strategy are those who argue
that strategy requires a human agent who is able to exercise discretion
in strategic decision-making (Child, 1972). That is, managers have a

measure of "free will“ in the determination of the firm’s strategy

 

 

 

249
(Bourgeois, 1984). Strategies result not only from environmental
demands but from political processes within organizations (Murray,
1978) or through a process of enactment (Smircich and Stubbart, 1985).
The strategy process is not adaptive as much as it is interpreted
through social interaction (Chaffee, 1985).

Though some effort has been made to attempt to reconcile these two
opposing frames (Hrebiniak and Joyce, 1985), they remain largely
conceptually distinct. The institutional perspective addresses the
intersection of these two views directly. Through the emphasis on
interorganizational structures, institutional theory emphasizes the
role of environmental forces on strategy. However, the impact of
isomorphic force on homogeneity of strategy occurs through the
strategic decision-making process. DiMaggio and Powell note that
"[organization] actors making rational decisions construct around
themselves an environment that constrains their ability to change
further in later years" (1983: 148), and that "at some point, the
aggregate effect of individual change is to lessen the extent of
diversity within the field I983: 149).

While population ecologists or environmental determinists stress
natural selection through competitive forces as the primary mechanism
of organization change (Aldrich, 1979; Aldrich, McKelvey, and Ulrich,
1984). Strategic choice or "free will" emphasizes interpretation,
loosely coupled firms, and choice behavior in uncertainty (Daft and
Weick, 1984; Cyert and March, 1963; Cohen, March, and Olsen, 1972).
Neither View is adequate to account for the observed homogeneity in

strategy among organizations such as was found in this study. Despite

 

 

 

 

 

250

natural selection claims, less than efficient organizations are often
present in many fields and can be observed in the auto supplier field
in this research as is evidenced from data gathered on firm
profitability. The evolutionary process in strategy may not be wholly
efficient (Nelson and Winter, 1982). The data in the study also
indicate that supplier firms are often tightly coupled, with many
linkages to other organizations. There is frequently available
information and low uncertainty on the part of decision-makers.
Instead of confused, interpretive, muddling and incremental change
there is evidence of purposeful, planned choice behavior. It is
noteworthy that the results of these choices are often the observed
homogeneity in strategy, despite normative suggestions that strategy
should pursue differentiation, distinctive competence, competitive
advantage, and heterogeneity.

By considering structural relationships and isomorphism in
organization fields, institutional theory offers a perspective on
strategy that incorporates elements of both environmental determinism
and strategic choice. The institutional perspective suggests that
interorganizational relations among firms in a field and forces for
isomorphism operate within the field by influencing the decisions of
managers (DiMaggio and Powell, 1983; also Galaskiewicz and Wasserman,
1989). The result of these isomorphic forces in the decision process
is the often observed homogeneity in business strategy among firms.
Greater research will be needed to identify the processes by which

institutional forces affect firm strategic behavior.

 

 

 

 

251
Institutionalization, Homogeneity of Strategy, and Firm Performance

The relationship between competitive strategy, isomorphism,
homogeneity of strategy, and firm performance is an additional research
issue. DiMaggio and Powell (1983) have suggested that institutional
forces for isomorphism will occur even in the absence of evidence which
suggests that they increase firm efficiency. This is in contrast to
much of the research on firm strategy, which examines the effects of
strategic decisions and behaviors on firm performance such as
profitability and return on investment (for example, Lubatkin, 1983;
Dess and Davis, 1984; Anderson and Zeithaml, 1984). Whether
isomorphism and homogeneity can lead to increases in firm performance
is an empirical question that deserves research attention.

It may be that institutional structures reward firms for their
similarity. To the extent that firms are similar to one another within
a field, they may be granted legitimacy. For example, Levitt and Nass
(1989) documented gains among textbook publishers from incorporating
institutional factors in the decision process. Institutional forces
also can affect the adoption of innovations in organizations (Meyer and
Rowan, 1977; Dobbin et al., 1988). Early adoption of new technological
innovations can provide organizations with a preemptive or first-mover
advantage (MacMillan, 1983) or a competitive advantage through
experience curve effects and lower costs of production (Porter, 1985).
Or, homogeneous strategies among existing firms in a field may

represent a "minimum standard" to which firms in an organization field

 

 

 

 

252
must adhere if they wish to be perceived as legitimate members of the
field.

Conversely, homogeneity may hamper firm performance by limiting
opportunities to develop distinctive competencies or competitive
advantage. Coercive pressures from powerful customers or suppliers can
lead firms to adopt strategies that may not be the most effective or
efficient and thus would tend to restrict firm profitability (Porter,
1980). The data in Table 4-8 indicates that auto supplier firms with
high coercive isomorphic forces from the auto manufacturers were on
average less profitable than firms with low coercive forces, as
measured by the Profit per Employee average. Mimicry of innovations
eliminates the ability of firms to develop distinctive competencies.
Research on the isomorphism/homogeneity - performance relationship
would be beneficial in further developing an institutional perspective

on organization strategy.

5.40 Homogeneity of Strategy and Strategic Groups

This study also raises some issues concerning the concept of
strategic groups and strategic group research. Strategic groups were
defined as "groups of firms within an industry which follow similar
(but not identical) strategies” (Hatten, Schendel, and Cooper,
19782592), and almost by definition argued for the presence of
homogeneity in strategy among firms in an organizational field. The
review by McGee and Thomas (1986) of research on strategic groups

suggested that while strategic groups are prevalent among

 

 

 

 

253
organizations, there was little research on the formation of strategic
groups within industries.

The results of this study might offer a theoretical framework and
lead to formulation of some tentative hypotheses that would address
this issue of strategic group formation. The results of this study
have identified groups of firms which pursued similar, though not
identical, strategies, and suggested that one force that might lead to
such similarity in strategy is the presence of institutional isomorphic
mechanisms within an organization field. That is, homogeneity in
strategy can occur as a result of pressures for isomorphism inherent in
the structure and development of an organization field. Strategic
groups might therefore arise from the structuration and the
institutional patterns of interorganizational relations found among a
group of firms in a field or industry.

The previous discussion of the potential for differential effects
of isomorphic forces, field structures, and firm characteristics also
might prove useful in identifying the differences in strategic groups
within an industry. Groups may develop differently or at different
times as a result of the various factors that might influence the
firm’s strategies. The presence of institutional arrangements and
mechanisms for isomorphism such as dependence, professionalism, and
uncertainty, might lead firms to adopt similar strategic arrangements
and behaviors. The result is a group of firms that appears similar in
their strategies: strategic groups emerge. But not all groups have

the same characteristics, because of differences in the

 

 

 

 

 

 

2S4
interorganizational network, firm characteristics, and the
structuration of the field or industry.

This reinforces the need for longitudinal research to identify the
emergence of and change patterns in strategic groups. The
institutional framework might provide a theoretical basis for
developing a series of hypotheses concerning the development of
strategic groups that could assist in developing understanding of the
formation of strategic groups. In addition, an institutional
perspective should be considered explicitly when evaluating a strategic
group. The results of this study suggest that isomorphic forces found
in the institutional arrangements of firms in an organization field or
industry can lead to homogeneity, that is similarity, in the strategies
of firms within the field. Not all forces are experienced in the same
ways by all firms because of differences in the field structure and the
organization. As a result, groups of firms may emerge with very
similar strategic arrangements, but there may be differences across
groups of firms. This would account for the observed differences in
strategic groups within industries, while at the same time providing a
rationale for the emergence and development of groups. The concept of
institutional isomorphism would seem to have potential as an

explanatory device in research on strategic groups.

5.4d Homogeneity of Strategy: Intended, Realized and Corporate

This research explicitly examined homogeneity in firm's current

business strategies. While homogeneity of strategy was often found

 

 

 

 

255

among firms with high levels of institutional isomorphic force, the
discussion of the strategy construct suggests additional
considerations. Mintzberg and Waters (1985) developed a time-based
model which suggested that there are several forms of strategy. There
are strategies that are intended by management and formulated in
strategic plans, strategies that are deliberate and occur in the
strategic decision-making process, and strategies that are realized and
are the result of intentions and decision-making.

This research has focused on realized and deliberate strategies.
An additional consideration might be the potential effects of
isomorphic forces on strategy intentions. Perhaps dependence,
uncertainty, and professionalism lead managers to adopt similar
strategic plans, and there may be greater homogeneity in strategy
intentions than in actual decision-making or strategy outcomes. If
intentions influence strategic decisions and decisions influence the
realized strategy, the effects of institutional isomorphism might be to
lead to greater homogeneity over time in firm’s strategies. This would
be one possible issue to be examined in longitudinal studies of
institutionalization and strategy. The point in the strategy process
at which institutional forces are most influential is an issue that
merits additional investigation.

In addition, while this research dealt with business-level
strategies, there are also corporate-level strategies of firms. These
involve the decisions concerning the industries or business segments in
which a firm will compete (Schendel and Hofer, 1979; Andrews, 1971).

Included in this domain are issues of diversification (Bettis, 1981;

 

 

256
Rumelt, 1974), merger and acquisition (Jemison and Stikin, 1986;
Lubatkin, 1983), and divestiture (Harrigan, 1981b). It seems plausible
that a series of research hypotheses could be developed for corporate-
level strategies using the basic institutional perspective used in this
research. Firms with greater institutional forces for isomorphism
would be likely to exhibit greater homogeneity in their corporate
strategies than those with lower levels of isomorphic pressures. The
recent wave of mergers among firms in the United States might be due to
institutional pressures such as the effects of large investors on
management to increase returns and shareholder value. If companies are
dependent on large investors for financial fitness and legitimacy, they
may be more apt to pursue merger and acquisition strategies than firms
that are privately owned or are not dependent on a single large
shareholder for financial resources. Additional research should be
conducted to address questions of institutional isomorphism and

corporate strategy.

5.5 Limitations and Implications

While the findings gave general support to the basic contention of
this research, that is, greater levels of institutional isomorphic
forces would lead to greater homogeneity in the business strategies of
firms within an organization field, several limitations must be
considered in evaluating the results of the study. One significant
issue concerns the sample of firms in the study. This research focused

on firms in the organization field defined as "auto supplier firms."

 

 

 

257

The results, while significant, cannot be generalized to other firms in
other fields. The preceding discussions of the effects of
institutionalization, interorganizational relations, and field
structures illustrate the difficulty in taking results obtained in one
organization field and extending them to others. There is a need for
additional research to replicate the results of this study in other
organization fields.

A second limitation is imposed by the sampling procedure. Though
the basic characteristics of the firms that responded to the study did
not differ from non-respondents, it is difficult to assert that there
are no systematic differences. Non-responders may have differed in any
number of characteristics, which might have influenced the results
obtained. This may limit the ability to generalize the results to the
entire population of auto supplier firms. While many firms were
contacted, participation in the study was limited to those who returned
surveys. In effect, firms were self-selected into the sample
population. While there were no organization differences between
responders and non-responders in terms of size, the components
manufactured, or the manufacturing processes employed, any systematic
differences in the strategies between responders and non-responders
would not have been detected in the study and might bias the results.
There is a need to perform additional research on other supplier firms
in order to improve the generalizability of the study.

Also, the auto industry in 1989 - the time period of the study -
was in a state of flux insofar as the relations among suppliers and the

OEM manufacturers were concerned. The 1988 and 1989 periods were

 

 

 

 

258

relatively healthy for the industry, yet there were signs at the close
of 1989 that a slowdown in the performance of the auto industry was
imminent. The nature of the industry at the time of the study may
affect supplier's assessments of their strategies and may influence
their strategic decisions. Changes in the industry might lead to
changes in the strategies of supplier firms. This reinforces the
previous discussion of the effects of time on institutional forces and
the need for longitudinal research to investigate changes in field
structure on isomorphic forces.

Other isomorphic mechanisms might have affected the results but
were not considered in this research. These include government
regulation, dependence on suppliers, the legislative environment, and
social and cultural forces. While the selection of a single industry
as the organization field is intended to control for many of these
factors by equalizing the effects across firms, the measurement model
focused on a limited number of isomorphic mechanisms. Additional
effects from mechanisms as presented in Figure 3-3 might be present and
could impact the homogeneity of strategy. Additional research is
needed to consider the effects of multiple mechanisms for isomorphism
on strategy.

Despite these limitations, the findings in this study add to the
literature on institutional theory and organization strategy in several
Ways. First, the results suggest that institutional forces can affect
the business strategies of organizations and result in homogeneity in
strategy. This is in contrast to the dominant view of strategy that

emphasizes differentiation and heterogeneity. The research reported

 

 

 

 

259
here suggests that researchers in organization strategy would do well
to attend to similarity as well as differentiation in assessing the
strategic behavior of corporations.

Second, this study extends the field of institutional theory from
studies of firm structure (Meyer et al., 1988) and non-strategic firm
behavior (Galaskiewicz and Wasserman, I989) explicitly into the
strategy domain. Since strategy is central to many of the activities
of organizations, the use of institutional theory within the strategy
field adds to the utility of institutional theory as an explanatory
model for the organization sciences. In addition, this study has
called attention to several needed areas of research on institutional
theories of organizations and has suggested some tentative hypotheses
are issues for further investigation. This forms a framework for
additional research and inquiry to improve the understanding of
institutional phenomena.

Third, this study suggests several issues that might be of
importance to strategists in organizations. By attending to
institutional as well as competitive market forces, strategists might
be able to develop greater understanding of the forces that affect
their firms. In this way, decision-makers can develop more
comprehensive strategies through a greater awareness of the firm's
environment. The data suggest that homogeneity may be more prevalent
than many executives would expect. By drawing attention to
homogeneity, the study expands the understanding of strategic decisions

and the effects of those decisions on firm's competitive behaviors

within an industry.

 

 

 

 

260

By drawing attention to the presence of institutionalization and
isomorphic forces among firms in organizational fields, this study has
added to both the institutional framework on organizations and to the
field of organization strategy. Though exploratory in nature, the
results suggest that there is much to be gained from an understanding
of the effects of institutional isomorphism and homogeneity of strategy
for both researchers and practitioners. It is hoped that future
efforts will continue to develop greater awareness and knowledge of

these important factors of organizational life.

 

 

 

APPENDICES

 

261

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263

 

Auto Supplier Industry Research Project

Auto Supplier Survey

The purpose“. of this study Is to examIne some 0! the environmental factors which might

eve an In nce on the strategy form uIetIon and erformence 0 auto supplier firme.
Partlclpants are regluested to respond to the Items In the questionnalre as accurately and
completely as pox: I2.

PanCIDGIIOh Oil Ilrms Il'l thls astudy IS strictly volunatlary. and Ilrms are free to
the an time without tpen Ity.

Al results from this study will be treated with strict confldentiaflty. firms) can be assured
t Individual reeopneee Dwulel remaIn con IdentIel and t onymlty of their
esponse WIII be reserved. the nature Of the material In nthls surve N0

INDIVIDUAL FIRM D TA CAN BE MAeDE cIMIAILABLE To ANY PERSON 0R ORGANIZATIO

However. accreoate Industrywlde data can and WIII be made avaIIaDIe (0 Interested
partIprunts WIthIn the reatrlctIone epecflled above concernmg confidentIaIIty of responses.
PurtICIpunts WIsh Iung esurnmnry aggregated Industry data should contact the
Drama director at the atfdress oIven below.

By partIpratIn In thIS research project, respondents are glvlng consent to the use of the
data or scan" it: research purpo

If you have any questlons reaaralno thIS research prolect. contact:

 

rno A.ub chko. Project Director
Auto Supplier Industry Research Project
227 Eppley Center
Michigan State Unlversuy
East Lansing, MI 48824-1 121

PHONE: (517) 353-5415

 

DIRECTIONS
_

T in survey cor-Islets at ten sections. Please read each item carefully and respond as
IndIcated by the questlon. RESDOh hd IO as many Items as YOU DOSSIDIY can. If necessary.
thIs surv may be gIven to othe er oxecutwes to prove the requ eta tad InformatIon,
Return the survey promptly usIng the enclosed postage-pald envelope.

 

 

264

AUTO IIDUSIIY ”’LIEI suavzv

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cont .)

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I. Sala- Data
Total Ami 50in Row/w: S

 

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Z.
a. to Gar-r01 Koran: 8
b. to Ford later Co.: a
c. to Chryaior Corp.: S '
d. to a transplant mmlacturor: s

 

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a. to a foraion namlacturar:

 

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a. to another auta auppilar firm:
1. to limo outside thc auto Imtry: S

 

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in: icata thl Inmatriu othor than the auto indu-t try in mic h your firm participate: to. a., Appliancea,
Agricultural Iupimnt s, ) and the cult: revenue for each imtry “grunt:

INDUSTRY REVENUE

 

 

 

wanna

 

4. Wilt percentage of your firm's total sales come from products that ware introduced within tha last 2 years?
(write In tho percentage): ~

 

 

265

Auto Supplier Study
Page 2

C.

Operating Data

NOIE: Data from the last financial reporting year (fiscal year or accounting year) can be used to provide the

I o

12.

Information in this seCtion.

Size of the Served Market: what is your estimate of the total sales of all
parrots served by your firm? (Hrite in the dollar estimate of the market size) S

 

Market Share: write in your estimate of your firm's share (as a percentage) of
the markets in Question 1:

Capacity Utilization: write in the percentage of standard production capacity
utilized, on average, during the preceding year (including production
for delivery):

3!

Annual Product or Service R & 0 expenditures: Hrite in the dollar amount of
total expenses incurred to Improve existing products or services or to develop
new procucts or services within the last year:

 

Annual Process R L 0 expenditures: write in the dollar amount of total expenses
incurred to Improve the efficiency of the manufacturing and/or distribution

 

processes within the Last year: 3
Annual Sales force expenditures: Urite In the dollar amount of total expenses
incurred for personal selling efforts (includes manufacturer representative
commissions, sales representative salaries/commissions, and direct selling

5

 

expenses) within the last year:

Annual Advertising/Promotion expenditures: Urite in the dollar ampunt of total '
expenses incurred for (1) media advertising, (2) catalogs, (3) exhibits and
displays, (4) premiums, (5) brochures/fliers, (6) samples, and (T) temporary
price reOUCtions for promptional purposes within the last year:

 

Net Receivables: write in the average dollar value of receivables for the
year not of bad debt allowances:

 

Finished Goods Inventory: write in the average dollar of inventory for the
year, net of reserves for losses:

 

write in the original dollar value

Gross Book Value of Plant and Equipment: .
plus all transportation owned: 5

of buildings, Land, and manufacturing equipment,

 

Net Book Value at 9lant and Equipment: Write in the dollar book value net of S

accunulated depreciation to date:

 

Net Profit: write in the firm's net profit for the laSt accounting year (Note:

this information dill be kept strictly confidential!): S

 

Indicate the frequency with which major changes occur in the products or services offered by your firm:

(circle one)

No Change Infrequently Rather Often Very Often

0 1 2 3 L 5 6 7

To what ettcnt have there been major :hanges in the production processes or technology of the firm in the

last 8 years: (C'rcle one)

Moderate Significant

no
Change Change

Change
0 1 2 3 L 5 6 7

panama-7,1.

Auto Supplier Study
e S

2.

3.

b.

5.

Genetitive meant

Relativ eetCoiisaens ion:
the following scale:

Relative Prices: Estimte the average selling prices of this firm’s products and services coiipared to your
conpet iot are on the following sca azle

Estimate the relative status of your firm’s wages canpared to your conpetitors on

line's
firm's
Fire's
Finn's

firm‘s

266

wages more than 10% LWER than competitors:

wages 1 - 101 LWER than cospetitors:
wages EQUIVALENT to competitors:

wages 1 - 101 HIGHER than conpetitors:

wages more than 101 HIGHER than competitors:

Firm's prices more than 101 LOVER than competitors:

Finn's prices 1 - 10% LMR than coiipetitors:
Finn's prices EQUIVALENT to coapetitors:

Firn’s prices 1 - 10% HIGHER than coiipetitors:

Finn’s prices more than 101 HIGHER than conpetitors:

Relative Sales/Promotion Expenses:
re ativa to your competitors, on the following scale

Relative R L D E es:

Firm's
Firm's
Finn’s
Finn's

Finn's

Estimate the expenditures on prowct and process R I. D activities relative to

Estimate the expenditures on sales force and advertising activities,

expenses more than 102 LMR than conpetitors:

expenses 1 - 10% LOVER than coapetitors:

expenses EQUIVALENT to competitors:

expenses 1 - 101 HIGHER than competitors:

expenses more than 10: HIGHER than caipetitors:

, xpens
coiipetitors on the following scale:

Relative Product Duality. Estimate the
o,r " "Eauiv alent, " or "inferior" to those offered by con'pet itors (w

byc stomer s as "Suoe
appropriate percentages)

Superior:

Firm's
Finn’s
Firm's
Firm’s

Firm's

expenses more than 102 LMR than carpetitors:

expenses 1 - 102 LOVER than carpetitors:

expenses EQUIVALENT to coii'petitors:

expenses 1 - 101 HIGHER than canpetitors:

expenses more than 102 HIGHER than cmpetitors:

Z

 

Equivalent:

X

Inferior:

 

I 1 (check one)

(I

[I
I}
[1 (ch
()
(l

(I
[I

l 1 (check one)

i)
[I

l]
[I

I 1 (check one)

i]
[J

ecit one)

percentage of this firm’s products and services which are considered
rite in the

u
n

 

267

*U!0 Supplier Study
Rage a

m

. Projected Activity

On a scale of -4 (significant decrease) to .a (significant increase). please provide your best
of your firm’ s proie ted beha avior in the following activities over the next five years.

(Circle the appropriate response) Decrease Regain
. the same

1. War the next five years, this firm's sales to auto manufacturers
(OEHs) are likelyt -4 -3 ~2 -I 0 vi

2. Over the next five years, this firm’s sales to other auto industry

suppliers are likely to -4 -3 -2 -1 0 e1

3. Over the next five years, this firm's sales to firms outside the
auto irxsustry are likely to: -L -3 -2 -1 0 .1

F. "ejected (berating Activity

On a scale of -4 (significant decrease) to 04 (significant increase), please provide your best
of your firm's projx «ted behavior in the following operating areas over e next five years.

(Circle the appropriate response) Decrease Remain
t e same

1. (Over the next five years) This firm's market share is likely to: -£ ‘3 -2 -1 0 «I
2. (Over the next five years) This firm's production capacity is

likely -L -3 -2 -1 0 01
3. (Over the next ‘ive years) This firm's investment in engineering

activities is likel yt -4 -3 -2 -1 O .1
4. (Over the next five years) This firm’ s investment in plant and

equipment is likely to -4 -3 ‘2 -l 0 vi
5. (Over the next five years) This firm’s expenses for product research

and development are likely -4 -3 -2 -I 0 vi

6. (Over the next five years) This firm' s expenses for manufacturing and
process- related research and development are likely -4 -3 -2

7. (Over the next five years) This firm' s expenses for sales- and
advertising- related activities are likelyt

8. (Over the next five years) This firm's wages and salaries relative
l: -L -3 ’-2 -I o oi

IO CmflEOl’I Hi

*0

(Over the next five years) This firm’s prices for products and
services, relative to coepetitors, will: ~L -3 -Z -1 O 01

(Over the next five years) This firm's sales revenues will: -4 ~3 -2 -1 0 e1

_.
o

11. (Over the next five years) This firm's operating expenses will:

(Over the next five years) This firm's operating profit will: ~4 -3 -2 -1 0 o1

_.
N

G. Strategic Planning
Does your firm have a formal strategic plan? (check one)

I (If no proceed to Section H)
I (If yes, please answer items a f below)

which of the following items describes your formal strategic plan: (check all items that apply)

a. The time frame of the plan extends two (2) or more years into the future.

 

b. The plan identifies goals and objectives.
The plan specifies the means by which particular goals and objectives
achieved.

c. The plan identifies how necessary resources are to be acquired.

e. The plan includes
on a continuing baSTs

‘. The plan includes one or more contingencies that take c

procedures for detecting errors or failures and for correc.

assessment

Increase
.2 .3 .4
+2 93 e4
.2 .3 .4
assessment

Increase
92 a} .4
.2 s3 s4
.2 .3 .4
'2 *3 +4
‘2 +3 44
.2 .3 .4
02 .3 ‘L
.2 .3 .4
.2 .3 .4
.2 .3 .4
.2 .3 .4
.2 .3 .4
are to be

'ing them

onpetitor’s actions into account.

 

268

Auto Supplier Study
Page 5
ll. liscellaneous fir- Data

1. Are you or your cowanya and)" of any incest ryt, trade, or net tional associations) (Examples: Anieri'c
Management Association, National Association of Manufacturers, the Auto industry Action Group etc.) (check

no i] (if no, proceed to Question 2)
Yes i i (if yes, please answer item a below)
a. Please list the major national, iramstry, or trade associations to uhich you or your firm belong.

association iiaiae

 

 

 

 

uibudru

 

 

2. Please list the major inmstry, trade, and/or professional journals which you read regularly.
Publication (Title)

1.

 

 

 

 

 

 

 

2
3
¢
5.
o
7
8

 

3. Does your camany use any outside consulting firms or individual consultants to assist with planning or
operations? (Examples: Hctmsey and oiioany, Booz, Allen; A :hur Andersen and Coiioany; or individuals
)

~ academics, former executives, etc.): (check one
no [1 (if no, proceed to Section 1.)
Yes i 1 (if yes, please answer item 5, below)

a. If yes , please list the major individual(s) arid/or organization“) whose services are utilized by your
firm

Consultant

 

 

 

 

 

 

269

Auto Supplier Studv

Page 6

1. Environmental Perceptions

This study is interested in your perceptions of various sectors of the your enVironment (e.g., suppliers

customers)._ SpeCifically. please rate the characteristics or behavior of various sectors on the degree of their
predictability, where 1 I Highly Predictable and 7 a Highly Unpredictable.

'. How predictable are Suppliers of your firm's raw materials and components with respect to: (circle one)

 

 

Predictable Unpredictable
a. their price Changes ...... ... ............... ...................... 1 2 3 4 5 6 7
b. their quality cnanges ................. .. ............. ............ 1 2 3 4 S 6 7
c. their design Changes ...... . ...................................... 1 2 3 4 S 6 7
d. introduction of new materials of components ............ ..... ..... 1 2 3 4 S 6 7
2. How predictable are ngggtitors' actions with respect to: (circle one)
Predictable Unpredictable
a. their price Changes .. ............ ... ............ ................. 1 2 3 4 5 6 7
b. their proouct duality Changes ..... ..................... .......... 1 2 3 4 5 6 7
5. their product design changes ...... ............................... 1 2 3 6 5 6 7
d. introduction of new products ...... .................... ..... ...... 1 2 3 S 6 7
3. How precictaole are Customers with respect to: (circle one)
Predictable Unpredictable
a. their demand for eXisting products .................. ............ 1 2 3 4 5 6 7
b. their demand for new procucts ................... ........... ..... 1 2 3 a 5 6 7

4. How predictable are Financial Markets with respect to: (circle one)

3. interest rate changes:
Predictable Unpredictable
1. short term debt ....... ......................................
2| long.term debt 0.I...‘...-I.........OOIOOOIIOOQIIIIIODI ...... '
b. changes in financial instrcnents available:

1. short term debt ............................... ..... . ....... . 1 3 4 S 6

2. long-term debt ........... ............................. ...... 1 2 3 4 S 6 7
c. availability of credit:

1. short term debt ........... ..... ............................. 1 Z 3 4 S 6 7

2. long-term debt ... ............. . .......... ................... 1 2 3 L S 6 7

5. How predictable are Government Regulatory Agencies with respect to: (circle one)

 

Predictable Unpredictable

3. changes in laws or agency policies on pricing . ............. ..... 1 2 3 4 S 6 7
b. changes in laws or policies on product standards or quality ..... 1 2 3 4 S 6 7
c. changes in laws or policies regarding financial practices ....... 1 2 3 4 S 6 7
d changes in labor (personnel) laws or policies ........ ............ 1 2 3 4 S 6 7
e. changes in laws or policies affecting marketing and distribution ~
methods .. .................. ............. ........... ............. 2 4 S 6 I

f. changes in laws or policies on acceptable accounting procedures.. 1 2 4 S 6 7

the actions of Labor Unions with respect to: (circle one)

 

6. How predictable are

Predictable Unpredictable
3. changes in wages, hours, and working conditions...... ............ 1 2 3 4 S 6 7
b. changes in union security ..................................... ... 1 2 3 4 5 6 I
1 2 3 4 S 6 7

C. changes in grievance procedures ..................................

 

 

Auto Slnplier Study
Page 7

J. lmivianl lnfor-tion.

_n

taxation: Please list all colleges and/or miversities attended: major field of st - the t

erminal
degree ea. ned (BA, as ii,“ PhD, etc. ); and the data adegree was awarded (mnt th/yeartidybeginning with
the most recent degree awar

College or University laior Degree Date

 

 

 

 

 

 

 

 

 

 

2. Career Path: Please list the positions you have held in your career. List your positions beginning with
rrent title to the prec ecading posit ion, etc. indicate the conpany name, ti a, and functional area
marketing, Finance. Operations, etc.)
Finctional
Comany Mama Title Area
Current
Position
Previ
Position:
Previous
Position:
Previous
Position.

3. Considering the time spent with your present eitployar as well as previous eitoloyers you may have had - how
Mh total experience have with firms in the auto irnsst trfl hat is, how many years you been enpl oyed
with firm whose primary business is automotive? (write in the Miner )

years

4. Considering your total career experience: how many different firms have you worked for whose primary

business is automotive? (write in the nuiber)

firms

 

K. Board of Directors

This survey would like information on the conposition of your firm s Board of Directors. if thef min i

publicly traded stock: onoany, please list the enema ands ffiliations of the iiieiibers f your Board of Directors.

(y may if you choose, attach a copyo of the listing of the Board of Directors from a recent Annual Report

SEC 10-K form.)
XATIDN

NAME AFFIL ’
(organization, profession, etc.)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

L I ST OF REFERENCES

 

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