How Strategic Responses to Institutional Complexity Undercut Institutional Microfoundations

Abstract

Organizations are confronted with institutional complexity whenever they face incompatible prescriptions from an existing incumbent logic and from emerging challenger logics. While institutional scholarship has started to generate insight on the organizational level strategic responses to institutional complexity, much less is known about the individual level behavioral implications of institutional complexity. In this study, we advance and test theoretical claims on how organizations internally manage institutional complexity and how their strategic responses to institutional complexity influence individual member behavior. More specifically, we propose that organizations manage institutional complexity by selectively adopting organizational practices embedded in incumbent and challenger logics. The unwanted consequence hereof is that the behavior triggered by the practices embedded in the challenger logics may lead to unintended institutional disruption. Member behaviors may unwittingly undercut the socio-cognitive microfoundations of incumbent logics by undermining the assumptions and beliefs of the incumbent logic, disassociating incumbent organizational practices from their moral foundations, and disconnecting sanctions and rewards from the prescriptions of the incumbent logic. We apply and test our theoretical claims through a field study in the audit industry, a context where disruption behaviors can have highly consequential societal repercussions. By critically reflecting on the dynamics of institutional complexity, organizational practices, and individual member behavior, our findings contribute to a better understanding of the microfoundations of institutional logics.