– Patrick Edward O’Toole –

A firm’s organization’s culture may provide a sustainable competitive advantage when it can create superior financial performance through a unique organization of internal resources (such as its organizational culture) that can not be copied by competitors.  Three conditions must be met for this to happen.  The culture must be (1) valuable: it’s activities lead to high sales and low costs.  (2) rare: there are characteristics uncommon to competitors.  (3) imperfectly inimitable:  attempts to imitate will create some sort of disadvantage to imitators.  This organizational culture will be comprised of unspoken, even undefinable patterns, agreements and expectations that “become part of the unspoken, unperceived common sense of the firm.” making it difficult to define and (hopefully) impossible to imitate.  Concurrently, a firm can modify its organization culture to gain a sustainable competitive advantage if it has valuable, rare, and imperfectly inimitable culture management skills to alter its organizational culture and create superior financial performance for the firm.

Sociologists seek to explain and predict behavior of large populations of firms and organizations, looking for trends and explanations diffused from the examination of multiple organizations.  Sociologists consider the social, historical and political influences in which an organization is formed and exists within, observing the impact of the socio-historical milieu upon the structure and behavior of firms.  Strategists are optimistic about a firm’s capacity to shapes its future according to plan and decision.  They focus on market factors with significantly less emphasis on historical, political, and social factors.  The overarching mission of strategists is to identify how firms gain efficiencies through strategy, creating prescriptive models used to make organizations more efficient.

DiMaggio and Powell argue that organizations tend toward homogeneity regardless of their intentions.  “Today, however, structural change in organizations seems less and less driven by competition or by the need for efficiency.”  They observed powerful tendencies toward organizational similarity that come from organizational needs (legitimacy; uncertainty) not necessarily rooted in strategy.  “Organizational change occurs as the result of processes that make organizations more similar without necessarily making them more efficient.”

According to DiMaggio and Powell, organizational form and structure are influenced by concerns of legality, uncertainty, and legitimacy that can trump organizational plans to differentiate from competitors.  This process occurs regardless of strategic intentions.  “Once a field becomes established, however, there is an inexorable push toward homogenization.”  DiMaggio and Powell identified this process as institutional isomorphism, an environmental dynamic that “constrains their (organizations) ability to change.”  DiMaggio and Powell do not refute the power or presence of strategic planning; they point out that firms are subject to constraints and pressures that shape organizational choices regardless of intention and planning.  Whether change by external forces (coercive), imitating other firms to manage uncertainty (mimetic), or changing to create legitimacy (normative), organizations trend toward similarity due to these social, political and historical forces that shape the society in which organizations exist.

As sociologists, DiMaggio and Powell would find Barney’s statement idealistic, failing to understand and account for the overarching influences of laws, social pressures, changes in institutional fields, and human reactions to uncertainty and desires for legitimacy that force and demand some quantity of unavoidable similarity.  “Organizational structures increasingly come to reflect rules institutionalized and legitimated by and within the state.”   DiMaggio and Powell would disagree with Barney’s statement in that it suggests it is possible to sustain highly specific organizational differentiation over time; i.e. possible to avoid imitation.

Further disagreements would revolve around the real need for organizations to adopt similar practices and forms to adapt to environmental challenges.  In effect, successful imitation is both unavoidable and necessary.  Similarities allow for the transfer of human assets across organizations, creating an interchangeability which is strategically important.  Failing to adopt industry standards could create legal issues as well as decreased public perceptions of legitimacy.  Having an organizational culture so different from other players could make integrating new agents and adaptation to new technologies very difficult over time and create uncertainty with consumers.  DiMaggio and Powell also point out that strategic differentiation might not be very possible due to a real lack of options “despite considerable search for diversity there is little variation to be selected from.”

Since organizational fields are subject to social and technological pressures and deeply influenced by public perception, successful imitation will be necessary to a sustained competitive advantage.  DiMaggio and Powell would thus disagree with Barney, asserting that

(1)  organizational imitation is unavoidable and inevitable.

(2)  organizational imitation is essential to survival.

Reference Page

1. Barney, Jay B. “Organizational Culture: Can It Be a Source of Sustained Competitive Advantage?” The Academy of Management Review 11.3 (1986): 661
2. Dimaggio, Paul J., and Walter W. Powell. “The Iron Cage Revisited: Institutional Isomorphism and Collective Rationality in Organizational Fields.” American Sociological Review 48.2 (1983): 147
3. Dimaggio, Paul J., and Walter W. Powell. “The Iron Cage Revisited: Institutional Isomorphism and Collective Rationality in Organizational Fields.” American Sociological Review 48.2 (1983): 147
4. Dimaggio, Paul J., and Walter W. Powell. “The Iron Cage Revisited: Institutional Isomorphism and Collective Rationality in Organizational Fields.” American Sociological Review 48.2 (1983): 148
5. Dimaggio, Paul J., and Walter W. Powell. “The Iron Cage Revisited: Institutional Isomorphism and Collective Rationality in Organizational Fields.” American Sociological Review 48.2 (1983): 148
6. Dimaggio, Paul J., and Walter W. Powell. “The Iron Cage Revisited: Institutional Isomorphism and Collective Rationality in Organizational Fields.” American Sociological Review 48.2 (1983): 147
7. Meyer, John W., and Brian Rowan. “Institutionalized Organizations: Formal Structure as Myth and Ceremony.” American Journal of Sociology 83.2 (1977): 340
8. Dimaggio, Paul J., and Walter W. Powell. “The Iron Cage Revisited: Institutional Isomorphism and Collective Rationality in Organizational Fields.” American Sociological Review 48.2 (1983): 152