In a competitive environment, where change is the only constant phenomenon, learning and knowledge management are vital for sustenance and growth of organizations. A precise universal definition of knowledge can be elusive, because it is complex and manifests itself in various forms in individuals as well as in organizations. Individual or tacit knowledge is confined to the people who possess it and cannot be structured or managed in the organizational sense. Implicit knowledge is difficult to communicate from person to person and limited to the perception of the individual. Organizational or explicit knowledge can be documented into policies and procedures and can be made available to employees. In whatever form, knowledge is regarded only within a system of legitimization that permits it to be accepted as knowledge (Mouritsen et al., 736). Put differently, knowledge is perceived and accepted based on social frameworks.
The rational theory of knowledge management is based on the theory that organizations can be rational in acquiring and managing knowledge and have choices as to what type of knowledge that they want to develop. As opposed to rational model is the institutional theory, which holds that institutional environment can impact the evolution of formal structures in organizations. Institutional theorists go further in arguing that the institutional environment can play a role greater than even market forces (DiMaggio and Powell, 150). In organizations that are early-adopters or trend setters, innovative structures that lead to improvements in efficiency and profitability are legitimized in the environment. In due course such innovations gain the status of legitimacy, beyond which failure to comply with the structures is seen as deviant or irrational. When this happens, organizations, whether existing or new, readily subscribe to the legitimized structures, irrespective of whether such a course leads to improvement in organizational efficiency or performance.
Max Weber, one of the earliest proponents of legitimacy is of the view that in every social system, powerful sections make attempts to sow seeds of belief in the legitimacy of their power. His approach is based on the reality that people do not question or resist rules and practices that are accepted by the society as legitimate. According to Weber, there are three types of legitimacy - traditional, charismatic and legal-rational. The traditional form of legitimacy is based on the sanctity of beliefs and practices in the society prevalent in the society since time immemorial. Charismatic legitimacy stems from devotion to the exemplary character of an individual. Legal-rational legitimacy is the consequence of people's willingness to acknowledge the legality of enacted rules. (Raymond, 35)
Weber's supposition is based on the existence of a rational order, which leads people to the belief that they should follow what is socially labeled as legitimate. Weber's theory is important to institutionalization because he drew a distinction between what he called as guaranteed law and general social norms. According to Weber, "an order will become law if it is externally guaranteed by the probability of physical or psychological coercion, to bring about conformity or avenge violation, will be applied by a staff of people holding themselves especially ready for that purpose." Thus, Weber distinguished between regulatory institutions from other normative elements and asserts that the legal-rational form of legitimacy that defines the form of authority in modern organizations. In essence, Weber advocated that bureaucracy is the most efficient form of organization and managers should be impersonal and work within the framework of rules. (Raymond, 36)
Institutional theorists are of the firm belief that organizations strive to attain stability and legitimacy within the cultural and normative framework of the society in which they are operating. Institutional theory deals with the reproduction or imitation of organizational structures and behavior in response to the acts and framework of the state, the expectations of the profession or collectively, the institutional environment. (Baum and Oliver, 1403).
Organizational behavior in response to change may be characterized by three types of isomorphism - coercive, normative and mimetic, which can result in development and transformation of formal structures and attributes within the organization. (DiMaggio and Powell, 151). Coercive isomorphism can arise from political, legal or governmental coercion by institutions on the organization. (Oliver, 162) It is only natural that organizations tend to yield to these pressures, as otherwise their very existence becomes uncertain. Normative isomorphism is the response of organization to the attitudes and behavior of professional bodies, network groups and regulatory institutions that directly or indirectly affect the functioning of the organization. As the organization interacts with professional and regulatory bodies, there is transfer of knowledge, which can be beneficial to the organization.
Mimetic isomorphism refers to the response of organization in times of business uncertainty; it describes the tendency to imitate or follow the strategies and practices of other organizations, perceived to be successful in the field. In another classification, there are three components of institutions - the normative, regulative and the cognitive, each type providing the basis for evaluating legitimacy. Cognitive elements refer to the structural features, rules and procedures that define the social systems and what types of actions are accepted in the social context. In reality, the cognitive framework provides the platform for normative and regulatory systems.
Organizational change is often the consequence of learning and acquiring of knowledge. Some forms of learning are involuntary as in the case of coercive isomorphism, where organizations must rise up to the demands and challenge of coercive pressures, if they are to survive and maintain legitimacy in the evaluation of stakeholders. Coercive environment may result not only from the government or law, but may also from competitive pressures, which will force organizations to adapt and change to maintain the legitimacy from the view point of customers. (Kloot, 48).
Normative and mimetic isomorphism are often referred to as voluntary, as under these circumstances acquiring knowledge depends on the ability and willingness of the organization's employees and agents. For instance, when the organization interacts with professional bodies, say a financial institution or an environment regulatory agency, it could gain information and knowledge through the efforts of employees. External knowledge can be transferred to the organization by expert consultants; this is often used to bridge the knowledge gaps within the organization by developing employee skills, solve problems and enhance the performance in specific areas.
Organizations have derived benefit from management consultants for gaining knowledge and experience in many fields including financial services, risk management, quality management and even knowledge management. For successful organizational learning, a key requirement is the knowledge of its employees and agents. It is important for them to possess the ability and capacity to learn, understand and apply new knowledge and transfer such knowledge to the organization for its betterment. Knowledge can be spread within the organization in formal methods such as training, but a more practical way of doing it is by informal interactions among the employees.
Within the organization, there are different levels where legitimacy processes can take place - the entire organization, individual organizations and specialized divisions. Generally, institutional approaches focus on the structures of organizational populations or set of organizations. Some theorists have argued that organizational or population density is an indicator of the cognitive legitimacy, since it measures the extent of relevant actors regarding the form as natural and acceptable. (Carroll and Hannan, 531). However, there are rather strong criticisms to this supposition, as it is not a direct method of assessing legitimacy.
With respect to individual organizations, research studies have pointed out that conformity to the rules or norms can vary for different organizations within the same population. The same is true for sub-divisions or functions within the organization, especially where the divisions carry out different and independent functions. For instance, in hospitals, the technical and managerial functions are structurally differentiated, which leads to distinct legitimating processes.
In practice, the organization's legitimacy is determined and acknowledged by its observers; more specifically, it is the stakeholders who have the final say in declaring whether the organization conforms to the norm or otherwise. The stakeholders are large in numbers, with varying degrees of knowledge, perception, culture, attitude and a host of other personality traits. Therefore, it is only natural that legitimacy represents the reactions of observers as they perceive the organization and thus only a general perception, which is subjective in nature. In view of this reality, the organization must exercise care and due diligence as to what sources of legitimacy they should address, so that the majority of observes perceive it as legitimate. Such sources may be internal or external - the internal sources include employees, managers and company board members; external sources comprise of regulatory authorities, financial institutions, public and the media.
The collective effect of institutional pressures, namely coercive, normative and mimetic will lead to firms becoming more homogenous by adopting similar structures to counter these pressures. The tendency of imitating organizations successful in overcoming these pressures will increase in terms of business uncertainty and increasing competition. This is true for almost all types of organizations, operating in a competitive environment. For instance,…