Contingency Fit, Institutional Fit, and Firm Performance: A Metafit Approach to Organization–Environment Relationships

Abstract

In this paper, we attempt to reconcile contingency and institutional fit approaches concerning the organization–environment relationship. Whereas prior scholarly research has examined both theories and compared their impacts on organizational fit and performance, we lay the groundwork for a metafit approach by investigating how contingency and institutional fit interact to influence firm performance. We test our theoretical framework using a data set of 3,259 respondents from 1,904 companies, examining task environmental demands and institutional demands on organizational design across a broad range of industries and firm size classes. Our results show that contingency and institutional fit provide complementary and interdependent explanations of firm performance. Importantly, our findings indicate that for firms under conditions of “quasi fit” rather than perfect contingency fit or optimal institutional fit, improvements in contingency and/or institutional fit will result in better performance. However, firms with high contingency fit are less vulnerable to deviation from institutional fit in the formation of firm performance, whereas firms with perfect institutional fit will slightly decrease their performance when they strive to achieve contingency fit.