Free Methodology Essay Sample

Institutional Theory in Business Marketing

Institutional theory definition
Institutional theory refers to globally accepted postures. It stresses on rational myths, legitimacy and isomorphism. Institutional theory deals with aggressive and deeper aspects of the structure of society. It also explains non-economic structural behaviors and policies in business markets. Institutions have forces that control economic activities through setting rules, which act as the foundation/guidelines for carrying out business activities. With time, these forces cause businesses to become more alike than diverse. Managers should follow the rules associated with institutional behaviors and ensure that their resources adapt and are flexible to these institutional environments in order to enhance their firm’s performance.

Application of institutional theory

Institutional theory is being used to market businesses these days. Managers are striving day in day out for legality while keeping adeptness of their firms at bay in order to have a competitive advantage. Institutional theory has been used in business to show the social progression of creating markets, channel structure, consumer choice of a retailer, customer trust, effects of socially oriented marketing actions, marketing influence within the firm, and firm strategy.
Institutional environments being the guidelines of how firms compete in the market, they are often classified into three; namely, macro-environment, meso-environment, and microenvironment. Furthermore, “these classifications have three distinct features: regulative, normative, and cultural-cognitive.” With these in mind, managers may make deductions and explain their effects on business strategies.

One would, therefore, ask if institutional environments constraint or facilitate firms in their quest for competitive advantage. The answer would be that they are both problematic and have been proved to provide opportunities. However, institutional distances may provide legality stresses that make firms legally responsible to their resident partners. Such liability negatively affects effectiveness due to the lack of trust and market uncertainty. According to Yang & Su, “These liabilities can be reduced by five conceptual legitimacy needs: social legitimacy, market legitimacy, alliance legitimacy, investment legitimacy and market legitimacy.” Firms should strive for legitimacy to build trust and cooperative associations in institutional environments.
Investment and adaptive efforts in reducing institutional liability help firms to create institutional capital that gives way to competitive advantage. In building legitimacy, firms may need to invest in establishing connections with several stakeholders in order to achieve social acceptance. They can also lobby, co-opt, standardize, and form memberships to enable cooperation. In the end, institutional capital will grow thereby creating obstacles for new entrants thus helping achieve competitive advantage.
Along the way, firms have the habit of making a trade-off between effectiveness and legality based on the equilibrium of their institutional liabilities. In such times, a manager is challenged to handle the dilemma of effectiveness and legitimacy. They are expected to manipulate and make use of evocative symbols to prompt social support and maintain technical rationality. They can also use loose coupling, ceremonial adoption, and decoupling to wade off the conflicting stresses from various legitimating institutions in the market. Various strategies have been proposed to achieve, uphold, and patch-up organizational legality in terms of pragmatic, cognitive, moral, and general legitimacy.
Notably, a governance answer to this predicament has been delivered by drawing the boundary of transaction cost economics and institutional theory. Firms operating in distant institutional environments can come up with governance strategies to deal with the elephant in the house since a governance structure may achieve legitimacy and at the same time uphold efficiency through growth of institutional capital and thereby maintaining competitive advantage.

Conclusion

This theory has not fully and diversely been ventured into. For this reason, more research directions can be developed. Researchers are therefore encouraged to contribute by filtering and outspreading already existing concepts and models in the field of business marketing.

End Bibliography

Yang, Z., & Su, C. “Institutional theory in business marketing: A conceptual framework and
future directions.” Industrial Marketing Management 43 (2014): 721-725. Print.