Institutional theory is a prominent perspective in contemporary organizational research. It encompasses a large, diverse body of theoretical and empirical work connected by a common emphasis on cultural understandings and shared expectations. Institutional theory is often used to explain the adoption and spread of formal organizational structures, including written policies, standard practices, and new forms of organization. Tracing its roots to the writings of Max Weber on legitimacy and authority, the perspective originated in the 1950s and 1960s with the work of Talcott Parsons, Philip Selznick, and Alvin Gouldner on organization–environment relations. It subsequently underwent a “cognitive turn” in the 1970s, with an emphasis on taken-for-granted habits and assumptions, and became commonly known as “neo-institutionalism” in organizational studies. Recently, work based on the perspective has shifted from a focus on processes involved in producing isomorphism to a focus on institutional change, exemplified by studies of the emergence of new laws and regulations, products, services, and occupations. The expansion of the theoretical framework has contributed to its long-term vitality, though a number of challenges to its development remain, including resolving inconsistencies in the different models of decision-making and action (homo economicus vs. homo sociologicus) that underpin institutional analysis and improving our understanding of the intersection of socio-cultural forces and entrepreneurial agency.
