What is institutional change?

Citation

Halal, W.E. (2005), "What is institutional change?", On the Horizon, Vol. 13 No. 1. https://doi.org/10.1108/oth.2005.27413aaa.001

What is institutional change?

I am grateful to Tom Abeles and Emerald Publishing for this opportunity to organize a special issue on “institutional change” (IC). This largely unrecognized field is often confused with organizational change. But the difference is enormously important because major institutions around the world are in upheavals of various types that go way beyond sheer organizational change. How does IC differ from the well-known study of organizational change and why should anybody care?

Institutional change transcends organizational change to focus on entire classes of organizations serving different societal functions (business, government, education, etc.) and how they are being transformed in response to a rapidly changing world. Unlike the “management” focus of organizational change – process design, teamwork, leadership, etc. – institutional change focuses on the underlying social rules or norms that define how these societal functions are structured and governed (North, 1990).

Perhaps the most striking example is the profit motive, which remains the organizing principle of corporations in the USA and much of the world. Profit served as the dominant goal of business in the Industrial Age because the main task was to build a physical infrastructure of manufacturing and distribution, which primarily required capital. But an Information Age is organized around knowledge (Halal, 1998, n.d.). This crucial shift in the economic landscape is slowly moving corporations toward a broader, more dynamic form of governance based on collaboration with various stakeholders to gain the support and knowledge central to successful enterprise (Halal, 2001).

There are many other prominent examples of social rules governing institutions. Hierarchy was once thought to be essential for managing people. Women were considered unacceptable for high-level positions. Quality was assured by inspections after all the work was done. Some of these rules have passed and others are in the process of transformation.

Some social rules are unique to specific institutions. For instance, the medical profession continues to believe its role is to prolong life under any circumstance, even as most people today would rather see a loved one put to rest painlessly rather than suffer a prolonged, agonizing death. The military holds honor and other values in highest esteem.

Most of us take the vast infrastructure of social institutions for granted because it is as ordinary and invisible as the air we breathe. But those who advocate changes are usually greeted with strong doubts and objections. This signals we are encountering subtle barriers operating at the cultural, subjective level of values and beliefs. These are the social norms governing institutions at a higher domain lying above the rational level of objective knowledge.

Ordinary change takes place within these institutional boundaries and it can be addressed in a rational manner usually. But IC provokes confusion and resistance because it violates these strongly held norms. Try challenging the concept of hierarchy or the profit motive, for instance, and your most persuasive arguments will usually fall on deaf ears. Institutional concepts are so deeply engrained in the prevailing social culture that they seem inviolate, accepted as matters of faith, the only reasonable way the world is presumed able to function effectively. Institutional rules are the sacred cows of society.

What do we need to learn?

This special issue attempts to dispel this confusion with the experience and insight of prominent authorities who have led change in various institutions. Our task is to identify these often unspoken but rock-hard social rules that govern institutional conduct and to understand how they operate. All institutions are interconnected in any society, so we are also interested in mapping out this nexus of social rules. For instance, the profit-motive causes business to ignore social impacts, thereby requiring government welfare programs and regulation. But if firms were “quasi-democratic” they could be self-regulated while serving society better. This interlocking set of institutional rules forms the structure of society itself operating at the mesoeconomic level lying above microeconomics and below macroeconomics[1].

We are particularly interested in how institutions change over time, especially as information technology (IT), globalization, higher-order social values, and other historic forces exert relentless pressure for transformation. Much has been said about this wave of change, but it has focused on the relatively minor aspects of organizational change rather than the underlying social rules. When and how do these more powerful rules begin to shift? How long is the process, and what initiates it? How much IC is taking place today, and to what extent will it grow? Where are the implacable forces of technology and globalization leading?

The power of the institutional level

One of the main conclusions of this line of study is that institutions are social artifacts designed to suit a period of time, and these revolutionary forces have been transforming all institutions for decades, with the biggest hurdles lying ahead. Working in this higher domain of the institutional level may be more difficult, but it also offers more powerful strategies for leveraging change across entire segments of society.

For instance, the superiority of American military power is attributable to a “force transformation” to “network centric warfare,” notably seen in the battles of Afghanistan and Iraq. Meanwhile, Enron, WorldCom, and other corporate scandals have heightened the urgency of redefining corporate governance. State and Federal agencies are being reinvented and moving toward e-government, health care is in upheaval, K-12 education continues to struggle with poor performance and universities with distance learning. Publishing, financial investment, and other “information-intensive” industries are all moving to the Internet.

This is a slow, agonizing, historic process. But if one grasps the newly emerging logic driving this change and how it is translated into institutional forms, it is then possible to understand the significance of what is happening to our social order and to anticipate how it will look and work in a knowledge-based world.

Contributions to this special issue

We are fortunate to have a distinguished group of authorities help us in understanding how institutions are changing today. Their credentials and the abstracts of their articles are provided elsewhere at your convenience, so I will merely summarize their background and the central point of their paper:

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  Willam E. Halal, the guest editor, offers a conceptual model integrating this field of study into three central themes describing major trends in IC.

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  Ian Wilson, one of our “deans” in strategy and future studies, focuses his seminal work with GE and other firms to argue that a “new corporate social contract” is coming.

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  Harlan Cleveland, another of our “deans,” summarizes insights from his experience in government policy to note how the Information Age is creating various paradoxes.

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  Arthur K. Cebrowski, director of US force transformation, provides seven principle strategies for transforming large institutions like the military.

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  Jonathan Peck, vice president of a health-focused think tank, punctures the grand claims of medical technology to argue that an aging population must accept death as part of healthcare.

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  Sohail Inayatullah, a renowned Asian scholar, draws on his work with corporations and governments to provide a different view focusing on vision, culture and spirit.

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  William H. White, a change consultant, uses living case studies to take us inside of the transformation process at some of his organizational clients.

Conclusions of this study

What can be learned from this wealth of knowledge?

The first conclusion is that the contributors generally support Halal’s framework of three central features, or themes. In fact, the first of these – “e-organization – is considered rather obvious by our authors, to the point that it is assumed to be almost here now. However, Harlan Cleveland takes issue with the assumption that e-organization can really automate much of the complex work of government.

The theme of “self-organizing systems” is also thought on target, although there is more to be considered here. Ian Wilson thinks this concept is at work in the network structures of dynamic corporations. Cleveland distinguishes between “decentralization” which he equates with retaining control, versus “uncentralization” offering greater autonomy; he also notes government’s need to reconcile structures based on function versus geography. Admiral Cebrowski offers the military concept of self-led teams of special operatives working behind enemy lines. And Sohail Inayatullah sees the need for self-organizing systems in his work building capacity for innovation in corporations and governments.

The third theme of “stakeholder collaboration” is central to Wilson’s call for a new corporate contract that serves society as well as financial gain. Cleveland notes the interweaving of the public and private sectors. And the need to form a “corporate community” of stakeholders is another of the issues arising in Inayatullah’s organizational workshops.

My main conclusion from studying these articles, however, is that other factors play a greater role than these three “structural” features. Almost all of our contributors focus on the powerful forces of knowledge, vision, culture, and spirit in originating and driving transformation. Wilson uses the concept of a “social contract” to capture the full meaning of the emerging social role for business. Cleveland organizes his entire analysis on the pivotal foundation of knowledge in the emerging economic system. Cebrowski is impressed with the central roles played by language, the media, and culture in transformation. Inayatullah notes time and time again the role of provocative ideas, symbols, aspirations, and a host of other ways of expressing an organizing vision. Jonathan Peck thinks the entire foundation of health care must shift to accepting a positive attitude toward death.

Another insightful perspective can be seen in the attempts to understand the rather mysterious process of transformation itself. Wilson thinks it is driven by external trends, especially economic pressures, relentlessly grinding away at the barriers to change. Cleveland is impressed with how political forces move government forward in time, albeit with great uncertainty and tentativeness. Cebrowksi is concerned with using any tool available to overcome the unyielding inertia of the status quo. Inayatullah focuses on the power of positive images and visions to draw an organization forward. And William White provides an inside appreciation of the arduous, turbulent challenge of transformation, while noting that it is basically a natural organic process.

Recommendations

This study confirms a conceptual framework outlining three central themes in the evolution of institutions, and it highlights the major role played by subjective factors of knowledge, ideas, culture, vision, and spirit. We also have sketched out a rough map of the transformation process, and there is a general sense that modern nations like the USA are in the grips of profound transformations in all social institutions.

While this is not surprising, it lays a concrete foundation for the study and practice of institutional transformation that has resisted analysis, largely because it is inherently subjective. Hopefully, scholars and policy-makers may be able to approach this delicate field grounded in knowledge rather than myth and confusion. Social institutions should no longer be considered invisible foundations of society not to be questioned, but almost a form of “social technology” designed to serve social needs best. We are not used to thinking in these terms, though it makes sense from a scientific view. Just as physical technology is the product of physical science, social technology is the result of studies in the social sciences.

It would be healthy if the adoption of progressive social structures could be openly acknowledged and actively managed, just as industry now manages (even forecasts) technological innovation. Major changes are almost certain over the next few decades, largely of the type that Admiral Cebrowski thinks we should accept as “inevitable.” Rather than struggling to approach the issue with misgivings, policy-makers should consider redesigning social institutions purposefully with good planning to serve all needs better.

This study makes it clear that today’s social order comprised of a network of interlocking institutions is in an accelerating stage of historic change that is badly misunderstood and even less carefully planned. If we do not learn how to control this process, the process may control us.

William E. Halal

Notes1. I am indebted to Professor Lee Preston of the University of Maryland for the concept of mesoeconomics.