Full speed towards a sustainable future. The story of the electric car in Germany

An institutional approach


Master's Thesis, 2013

83 Pages, Grade: 1,7


Excerpt


Table of Content

1. Introduction
1.1. Research Objectives & Research Question..
1.2. Research Contribution.
1.3. Structure of the thesis..

2. Theoretical Framework
2.1. Sustainable Innovation
2.2. Institutional Theory
2.2.1. Coercive Pressure
2.2.2. Mimetic Pressure
2.2.3. Normative Pressure
2.2.4. Institutional Change
2.3. Strategic Responses

3. Methodology
3.1. Sample - Introducing the electric car.
3.2. Research Approach & Design
3.3. Data Collection: Sources & Search Terms.
3.4. Setting the timeframe
3.5. Database composition
3.6. Analysis.

4. Results.
4.1. A Niche Market (Q1 2003 - Q3 2006)
4.2. The Beginning (Q4 2006 - Q1 2008)
4.3. First Hype (Q2 2008 - Q2 2009)
4.4. Rising Skepticism (Q3 2009 - Q3 2010)
4.5. Second Hype (Q4 2010 - Q4 2011)
4.6. Disenchantment (Q1 2012 - Q4 2012)

5. Conclusion

6. Discussion
6.1. Limitations of this study
6.2. Future Research.

7. References

8. Appendices..

Acknowledgements

This thesis represents the end of my study at the VU University Amsterdam and simultaneously my graduation as a M.Sc. in Business Administration: Specialization in Strategy & Organization. It was a very exciting and valuable year for me on both, educational and personal levels. I’m grateful for all experiences I made and things I have learned during lectures, projects and in particular during the conducting of my master thesis.

In this regards, I would like to thank my research group for all the nice meetings, discussions and the teamwork during the last months. In particular, I would like to express my gratitude to my supervisors Dr. R.J.A. Klein Woolthuis and Dr. J.J. Berends for all their support during the conduction of this thesis. Their insights on the topic of sustainable innovation really in- spired me and even changed my way of thinking about business and my professional career plans.

Fabian Guse

Amsterdam, August 22th 2013

Table of Figures

Figure 1: Conceptual Model.

Figure 2: The Triple Bottom Line of Sustainable Innovation.

Figure 3: Overview of strategic responses to institutional pressures

Figure 4: Overview of identified events from institutional pressures

Figure 5: Overview of identified company actions

Figure 6: Electric Car Market Diffusion 2012

Figure 7: Amount of Institutional Pressure 2003-2012

Figure 8: Overview Actor per Institutional Pressure

Figure 9: Overview of Pressures during Phase 1

Figure 10: Overview of Pressures during Phase 2.

Figure 11: Sold Cars in the US 2008

Figure 12: Overview of Industry Cooperation

Figure 13: Overview of Pressures during Phase 3

Figure 14: Overview of Pressures during Phase 4

Figure 15: Overview of Pressure during Phase 5

Figure 16: Overview of Pressure during Phase 6

Figure 17: Overview of important Events during Phase 1-6

Figure 18: Overview Institutional Pressure & Focal Company Action

Figure 19: Summary of Results

Figure 20: Overview of current National Policy Initiatives

1. Introduction

“ I believe in horses, automobiles are a passing phenomenon ” 1 (Kaiser Wilhelm II, 1905)

More than 100 years ago when the first motorized vehicles appeared on the streets, Kaiser Wilhelm II was not able to see the potential of this invention and how it would change the world he lived in. Today we are facing the next revolution of transportation technology, elec- tric mobility (e-mobility). In consideration of continuous scarcity of fossil resources and pro- gressive environmental issues caused by increasing amounts of CO2 emissions in our atmos- phere, a rethinking of universally accepted habits is needed. Public and private transportation account for 19% of the overall CO2 emissions in Germany and is therefore one of the largest contributors to climate change and local air pollution (Umweltbundesamt, 2011). This cir- cumstance also shows the great political relevance of this topic as well as the need to make the whole industry more sustainable. A sustainable innovation like the electric car can help to decrease the negative externalities of economic growth and reduce the ecological footprint of a modern-day life. Against this background, the German government proclaims that Germany should be the leading market for e-mobility; aiming to have a diffusion rate of one million electric cars until 2020 (Delhaes, 2008). In order to achieve this, they are dependent on the innovation activities of the German automotive industry. But consumers as well as car manu- factures seem to be skeptical about this novelty, which results in a comparable small diffusion rate of only 7114 electric cars in the end of 2012 (Kraftfahrt-Bundesamt, 2013). For instance, in Denmark the diffusion rate of new electronic cars is 30 times higher than in Germany and even The Netherlands have a rate that is 8 times higher (Masson, 2013). The mentioned diffu- sion rate shows the total number of newly registered electric cars in comparison to the total number of traditional fuel cars within a year. This is curious on a first view as Germany has the largest automotive industry in the world, consisting of firms like BMW, Daimler, Opel and Volkswagen. One would hence expect great interest and a proactive stance from both the firms as well as the government in supporting this innovation.

Institutional theory describes the processes that lead to stability of organizations, industries or even societies and explains the phenomenon that firms or whole industries often seem to be so similar in their structure and behavior (Scott, 2001). Organizations tend to conform to existing institutions, consisting of regulations, norms, standards, values and common beliefs, which determine appropriate and legitimate behavior for an organization rather than changing them (Dimaggio & Powell, 1983; Scott, 2001). Referring back to the case of Kaiser Wilhelm II and his persistent preference for horses as common means of transportation, his statements can be described as legitimate behavior based on the existing institutions, even though if it seems to be not rational from today’s point of view. However, according to Oliver (1991) organizations have a range of strategic options when responding to institutional pressures.

The case of the electric car in Germany seems to support institutional theory in the sense that companies do not change and old beliefs and standards prevail despite the fact that change seems to be logical. The electric car is introduced into an established and hostile environment based on regulations, which consist of old paradigms, existing technological standards and infrastructures as well as normative determinants that influence social behavior, expectations and beliefs. In order to succeed, big changes are necessary. Manufacturing processes need to be adapted, regulations and infrastructures have to be altered and the consumer behavior needs to change. But simultaneously this innovation represents a huge opportunity for firms to generate additional income and enter new markets. The results is a negotiation process of two different institutional streams competing for dominance on the market; one aims to preserve the existing institutional logic and the other offers new solution from the outside of the institu- tional field. By looking on the mentioned German firms and the availability of electric cars in the end of 2012, it can be seen that they are lacking of concrete actions on innovations. On the German market, 38 different electric cars were available but Opel and Daimler were the only ones of the key players that already had one electric car in production. While international competitors, particularly from France and Japan like Toyota, Peugeot, Renault but also Amer- ican manufacturers like Ford offer a broad range of models (Appendix B).

Is this the proof that institutional theory is right? Are the pressures for stability and preservation of the status quo too high because of large dominant industry actors in Germany, which are not existent in other countries? Or can a new dominant institutional paradigm be established when new technologies occur (Kraatz & Zajac, 1996) or as described by Zucker (1987) through generation processes of new institutions?

1.1.Research Objectives & Research Question

In consideration of these circumstances and questions, this research will provide insights on the development and diffusion of an occurring sustainable innovation over a certain time within an institutional field. It will unveil the dynamics between institutional pressures and the actions of firms in that particular environment as well as provide explanations for different diffusion rates across several countries.

The research aim is explicated into the following main research question:

In the context of institutional theory, can sustainable innovation lead to the generation of institutional change and how can it explain the relatively small diffusion of the electric car in Germany and the lack of firm ’ s innovation activities?

The following conceptual model summarizes and illustrates the theoretical assumptions into a consistent framework.

illustration not visible in this excerpt

Figure 1: Conceptual Model

1.2. Research Contribution

Institutional theory delivers powerful explanations for stability and dominant paradigms with- in an organizational field but when it comes to change, in particular to a technological change; 7 it has less explanatory potential (Greenwood & Hinings, 1996). The literature lacks compre- hensiveness, especially when the question is about the reasons for potential institutional change. So far, no attempt has been made to operationalize such theoretical concepts in order to establish a solid measurement scheme for a general applicability. This research approaches two conceptual frameworks, institutional pressure as well as strategic responses of organiza- tions. Both are integrated into a model based on an extensive literature review on the topic of institutional theory. It further operationalizes both to measure and explore how and why insti- tutional change happens. A third approached theoretical framework introduces the concept of sustainable innovation into this coherence. This will improve the theoretical understanding of the dynamics between generated institutional pressure for change around sustainable innova- tions and strategic organizational responses embedded in existing dominant paradigms.

Regarding social or practical relevance, policy makers as well as organizational leaders will get a better understanding of how the institutional environment affects the introduction of new products and in particular sustainable innovation on a market. They will get insights on mar- ket adaption processes and on opportunities for the reduction of potential entry barriers.

1.3. Structure of the thesis

This research is segmented into the following structure. In order to establish a solid basis, chapter 2 will introduce the approached theoretical frameworks. The concepts of sustainable innovation will be examined and set in the context of institutional theory. A focus lays on the different kinds of pressure, which can be exerted on an institutional field as well as the rea- sons and causes for the change of existing paradigms. Combined with the associated potential strategic company responses, these theoretical analyses will result in a comprehensive coding scheme as basis for the empirical research. This coding scheme will be presented in chapter 3, which deals with the methodology of this research. Hence, additional information will be pro- vided on the chosen sample, the research approach and design as well as on data collection methods and the approached analysis of the collected data. Chapter 4 will present and de- scribe the results of the data analysis. Qualitative methods as well as quantitative methods are used to analyze the coded events and interpret them according to the theory. In Chapter 5, the research question will be answered and the results are consolidated, before they are discussed in regards to theory in chapter 6. Similarities and distinctions between the findings of this research and the theory are analyzed and interpreted. At last, the research will finish with an elaboration on the limitations of this study and give further advice and recommendations for future research.

2. Theoretical Framework

As mentioned in the introduction chapter, the research objective of this thesis is based on three theoretical frameworks that need to be further analyzed and consolidated in order to specify interrelations and find correlations. Firstly, the construct of ‘sustainable innovations’ will be examined before a deeper understanding will be built around it in the context of insti- tutional theory. The last concept to be reviewed is strategic responses of firms towards institu- tional pressures in order to investigate how they are interlinked with each other.

2.1. Sustainable Innovation

“ An innovation is an idea, practice or object that is perceived as new by an individual or other unit of adoption. ”

(Rogers, 1995, p. 11)

The term ‘sustainable innovation’ consists of two theoretical concepts, ‘sustainability’ and ‘innovation’ that both need to be further elaborated to in order to locate the electric car within these concepts. As Rogers stated it in the quote above, product or service innovations distinguish on the extent or level of innovativeness. Novelties like totally new products or services as well as minor adjustments can be considered as innovation (Booz, 1982). Ideally, an innovation meets a number of certain criteria, which directly influence its market success, it needs to be; profitable, applicable and conducive and problem solving (van de Ven, 1986). According to Clark and Wheelwright (1992), not only the technological dimension but also the degree of market renewal influences the success of an innovation.

Innovation research typically tries to get a deeper understanding of how innovations emerge, develop, grow and are replaced by other innovations (Hockerts, 2003). The succeeding of an innovation is also pending on the significance of the change or improvement, which comes along with the product, service or process compared with previous achievements (Amabile, 1997; Harper & Becker, 2004). The innovativeness of a country can be considered as one of the main drivers for economic growth. Innovation strengthens the competitiveness for coun- tries as well as for sectors and individual companies (Porter, 1985). On a firm level, it con- duces to the profitability and long-term stability. Further it can also contribute to quality im- provement, increasing variety and diversification in the product portfolio, increased produc- tiveness and a positive influence on turnover and employment (Guinet & Pilat, 1999). More strategic advantages are the securing or extension of market shares, improved operational ef- ficiency and overall cost reduction (Abernathy & Clark, 1985; Cooke & Mayes, 1996). Be- sides these direct economic influences, there are also non-economic developments, which can come along with an innovation. The latter focuses more on a better social and environmental corporate performance resulting in an improved market position and a higher reputation (Elkington, 1997; Larson, 2000).

It can be distinguished between three different types of innovation differing in the extent of newness; radical, incremental innovations and really new innovations (Garcia & Calantone, 2002; Henderson & Clark, 1990). However, the newness of an innovation in general can be considered less relevant compared to the fact that the ideas, practices or objects are new to units and actors that are adopting them (Bhaskaran, 2006).

The framework of ‘sustainable innovation’ builds up on the discussed innovation concepts and additionally focuses on the sustainable development. The WCED (1987) determines sus- tainable development as “ seeking to meet the needs and aspirations of the present, without compromising the ability to meet those of the future ” (p. 4) . This definition is widely used and adapted and can also be described as the ability to continue common behavior into the long term future (Bonevac, 2010). However, besides this theoretical classification, it has often been criticized that it lacks on operational goals and guidelines (Devereaux Jennings & Zandbergen, 1995). Therefore, research focused on the development of a more extensive and specified definition for sustainability, which resulted in the ‘triple bottom line’ consisting of multiple areas: social, economic and environmental (Elkington, 1997). Norman & MacDonald (2003) described these dimensions as ‘ people, planet, profit ’, by renouncing from the tradi- tional shareholder perspective of measuring a firm’s performance solely by financial success, towards a new paradigm of integrating the environmental as well as the social performance into measurement of the overall firm success. This addresses the simultaneous improvement of the general welfare of the people, the environment of the earth and the growth of the econ- omy. This concept goes beyond the mere consideration of environmental and social aspects as it suggests to measure as well as to report the performance within those two dimensions.

Combining the insights about sustainable development with the concept of innovation, sus- tainable innovation can be defined as innovations in which the renewal or improvement of products, services, technological or organizational processes not only result in an improved economic performance, but also in an enhanced environmental and social performance, both on short and long term (Alakeson & Sherwin, 2004; Biondi, Iraldo, & Meredith, 2002; von Weizäcker, Lovins, & Lovins, 1997). It distinguishes itself from ‘conventional innovation’ by its contribution to decrease negative externalities, involving stakeholder opinions and expecta- tions as well as creating value on economic, social and environmental. In general, sustainable innovations need to be considered as radical or transformational by nature (Rycroft & Kash, 2000). This means that they are concerned with the exploration of new and uncertain technol- ogies, which cause marketing and technological discontinuities on both macro and micro level (Garcia & Calantone, 2002). Figure 2 summarizes the identified key indicators of sustainable innovation.

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Figure 2: The Triple Bottom Line of Sustainable Innovation

When it comes to the introduction of a developed innovation to an intended audience or mar- ket, they will not always unconsciously adopt it. Rogers as one of the leading researchers in the field of the diffusion of innovation has published a lot of research referring to the topic of how and when an innovation will be adopted. He describes diffusion as: “ the process by which an innovation is communicated through certain channels over time among the members of a social system ” (Rogers, 1995, p. 605). There are certain criteria that influence the speed and the success and therefore the diffusion of an innovation. Rogers (1995) described in his research five characteristics, which are mainly determinative for the diffusion: relative ad- vantage, applicability, complexity, reliability and observability. The existence of these charac- teristics is supported by various studies (Dieperink, Brand, & Vermeulen, 2004; Smith, 2002).

However, looking from a more comprehensive perspective by not only focusing on the inno- vation itself, there are aspects such as institutional drivers, which are crucial for the succeed- ing of a novelty such as a sustainable innovation. Geels (2004), who describes diffusion more as a kind of a social change, stressed the significance of social interaction between people to change the way things are done. Further, the adoption of innovation is not always based on rational choices of the adopters, but can also associate with institutional pressures connected to certain fashions (Nutley & Davies, 2000). It is obvious that in the research field of sustain- able innovation external factors like institutional pressures have a big influence on the diffu- sion and the adoption behavior of customers. This is also supported from the perspective of firms and their motivation to integrate sustainability aspects into their strategic roadmaps. It can be stated that they look similar to the mentioned ‘conventional innovation’ advantages: competitiveness and legitimation, profitability, social responsibility, increasing stakeholder pressure, legal requirements, reputation concerns, internal organization improvements, media pressure (Bansal, 2005; Bansal & Roth, 2000; Daily & Walker, 2000; Dunphy, Griffiths, & Benn, 2003; van Marrewijk & Werre, 2002). However a stronger focus on institutional pres- sures and extrinsic motivation can be identified compared to the motivators of ‘conventional innovation’. As an example, legitimation refers to the motivation of a firm to improve the adequacy of its actions within an established set of regulations, norms, values, or beliefs, for long-term sustainability as well as for avoiding fines and penalties and reducing risks (Bansal & Roth, 2000). The reason for that can be found in the nature of sustainable innovation itself. In times of raising sustainability issues as mentioned in the introduction chapter, govern- ments, professionals and the public have a significant interest in tackling these social and en- vironmental issues and supporting sustainable development in order to preserve and improve the common welfare.

Coming to the case of the electric car in Germany, it is clear why the electric car can be con- sidered a sustainable innovation rather than a conventional innovation. Especially on the envi- ronmental dimension it has the chance to create significant improvements compared to the traditional fuel-based car. Studies showed the raising negative externalities associated with the current mobility systems, highlighting problems for the environment and health, compris- ing climate change, local air pollution, noise and accidents (Bickel & Friedrich, 2001; EEA, 2006). Further environmental impacts that come along with the current mobility system in- clude soil sealing as well as fragmentation of natural, semi-natural and agricultural areas. Linked to the social dimension, the car industry is the largest manufacturing sector in the world (Nieuwenhuis, Vergragt, & Wells, 2004); therefore contributes as one of the major generators of wealth and employment in the European Union. The interest for society and policy lays in the retention of the social and economic benefits associated with mobility while simultaneously reducing the negative environmental and social externalities from the traditional fuel-based cars.

To get a deeper understanding of how these interests can drive the diffusion of a sustainable innovation, the next chapter will elaborate on the institutional theory and the process of change associated with it.

2.2. Institutional Theory

Institutional theory originally can be used to explain the stability of organizations, industries or societies (Scott, 2001). This research field translates sociological theories to an organiza- tional level, in order to explain the phenomenon that firms or whole industries often seem to be so similar in their structure and behavior. DiMaggio and Powell (1983) define this process as isomorphism. The reason for the existence of stability and isomorphism behavior is based on institutions, which are defined: “Institutions are social structures that have attained a high degree of resilience. Social structures include norms, values, expectations, procedures, stand- ards and routines.”(Scott, 2001, p. 48). Organizations tend to conform to existing institutions, consisting of regulations, norms, standards, values and common beliefs, which determine ap- propriate and legitimate behavior for an organization (Dimaggio & Powell, 1983; Scott, 2001). In general, institutional theory states that three processes, also known as pressures, influence the behavior of a firm or organization: Coercive, Normative and Mimetic processes (Dimaggio & Powell, 1983; Zucker, 1987). Coercive pressure originates from institutional actors, which have the power to enforce certain standards or regulation. Firms normally need to align to this kind of pressure in order to survive as they have a direct financial or legal im- pact (Devereaux Jennings & Zandbergen, 1995; Zucker, 1987). Mimetic pressure originates from uncertainty and the desire of conformity with other organizations within an industry that are perceived to be more legitimate or successful (Dimaggio & Powell, 1983). Normative pressures are characterized by beliefs, expectations, values and norms expressed by large parts of the society about certain forms of (economic) behavior. It pressures firms to adopt in search of social justification (Devereaux Jennings & Zandbergen, 1995).

Several actors, also called institutional agents, are embedded in an institutional field. Those can play a significant role either in preserving existing institutions or in changing institutions.

In this context, Scott (2001) emphasized the role of the state, as a collective actor, which op- erates primarily via regulative processes, and the professionals which control formal knowledge. In addition to that, the public, consisting of social movements, non-governmental organizations (NGOs) and other collectives also needs to be considered as powerful institu- tional actor (Etling, Kelly, Faris, & Palfrey, 2010; Greening & Gray, 1994; Ramanath, 2008; Stolle, Hooghe, & Micheletti, 2005). As part of the public, large consumer groups or custom- ers also need to be considered as a significant source for creating institutional pressure (Dimaggio & Powell, 1983). Even firms which are in general more likely to be the receiver of institutional pressure, can put institutional pressure on other organizations, e.g. during their own innovation processes (Rogers, 1995) as well as normative pressure through lobbying (Henriques & Sadorsky, 1996).

In order to measure the amount and extent of institutional pressures, certain indicators or measurement scales are needed which can be considered as a difficult challenge (McCool, 2004; Zucker, 1987). This is based on the circumstance that indicators need to measure a large number of firms within a certain time frame, which are at least partial based on unique param- eters. Another challenge is the separation between the resource dependence of a firm and gov- ernmental intervention granting resources (Zucker, 1987). However the aim of the following literature review is to develop a comprehensive coding and event scheme for all three types of pressures in order to operationalize them. Based up on the identified institutional agents, the scheme will provide an overview of the links and possible action of these agents within each type of pressure.

2.2.1 Coercive Pressure

As mentioned in the chapter before, coercive pressure can result from formal and in-formal pressures exerted on organizations by other organizations on which they are dependent and further from cultural expectations in society in which the firm operates (Dimaggio & Powell, 1983). It normally originates from actors in the organizational field who have the power to enforce certain standards, mandates or rules which have a direct financial or sanction impact on a firm. This characteristic differs significantly from other institutional pressures, since firms have less flexibility to choose whether they should adapt to the pressures or not.

The literature dealing with coercive institutional actors mainly focuses on governmental agen- cies as the only actor within a firm’s institutional environment with legal coercion power (Devereaux Jennings & Zandbergen, 1995; Zucker, 1987). Coercive governmental pressures can be distinguished in two categories: market based incentives as well as command and con- trol actions (Devereaux Jennings & Zandbergen, 1995). The first-mentioned is characterized through the introduction of favorable condition for the adaptors of pressures that are more or less free in their decision to adopt. Fiscal incentives, as a tax reduction for certain factor in- puts (Johnstone, 2005) or the reduction of information and search costs linked to the adoption of a new technology by providing technical assistance (Delmas & Toffel, 2004), belong to this category. Additionally, tradable permissions, set by governments either on a national or transnational level, which regulate the trade of e.g. emission allowances can also be consid- ered as a market based incentive (Johnstone, 2005). Subsidies can also stimulate certain de- sired investment of firms through direct financial support or via purchasing incentives on the consumer side (Joosen, Harmelink, & Blok, 2004). Other instruments causing coercive pres- sure are governmental policies that guide actions in the market towards behavior that is most likely to achieve as a desired outcome. These policies often result in legislations in a later step (Sharfman, Ellington, & Meo, 1997). As opposed to this, governmental command and control actions typically restrict certain behavior through sanctions or prohibitions. One of the most powerful actions for regulation is the establishment of laws (Amran & Siti-Nahiba, 2009; Dimaggio & Powell, 1983; Frumkin & Galaskiewicz, 2004). But also the specification of re- quirements regarding performance standards as binding limits for outputs like emission (Johnstone, 2005; Noailly, 2012), technology forcing standards which regulate and restrict the use of certain technologies (Johnstone, 2005), or reporting requirements for firms to measure and publish results of definite examinations (Amran & Siti-Nahiba, 2009). Besides the in- struction and establishment of such actions, theory shows also that the mere fear of being held to strict policies can be considered as a coercive pressure as firms have started to introduce their own policies before regulators enforce their, often even stricter, laws or regulations (Clemens & Douglas, 2005). In that way, the fear coercive pressures, e.g. triggered through law proposals in the parliament can affect the behavior of firms without or before actual regu- lative action takes place.

Even though the literature mainly deals with governmental agencies as source for coercive pressures, also collectives or consumers as well as other actors firms within an industry can act as a source. In particular, DiMaggio and Powell (1983) emphasized the role of large con- sumer groups or customers as an important source for coercive pressure. Regarding industry actors, coercive pressure can be perceived through the active engagement of a firm in suing processes or lawsuits against the government or other parties. As a recent example, the case of the American insurance company AIG can be considered as they joined a 25 billion $ lawsuit against the U.S government for forcing unacceptable high losses on shareholders in its bailout during the financial crisis 2008 (Protess & de la Merced, 2013). Another form of coercive pressure can be exerted through contractor or supplier boycotts (Henriques & Sadorsky, 1996).

The latter can also be executed from consumers or collectives, known as political consumerism, and refers to the abstaining from particular products and services or also the particular purchase of certain products (De Bakker & Den Hond, 2008; Sharfman et al., 1997). As already mentioned, lawsuits or suing processes in general are common expressions of coercive pressures. Additionally to firms and individual consumers, collectives can exert this kind of pressure as well (Stolle et al., 2005). Another form are occupations that make the normal operations of actors impossible, examples are occupying buildings, blocking access routes or cyber-attacks (Stolle et al., 2005). Shareholder activism through resolutions or influence of firm’s strategies sourcing from the shareholders can also be considered as coercive pressure originating from collectives (De Bakker & Den Hond, 2008).

2.2.2. Mimetic Pressure

Apart from coercive authority, mimetic pressure is encouraged by uncertainty within an insti- tutional field or through technological changes. Firms tend to imitate similar organizations ,which they perceive to be more legitimate or successful (Dimaggio & Powell, 1983). This process of imitation doesn’t necessarily need to be intentionally or directly as in the case of adapting a practice that other organizations (such as competitors) successfully implemented (Zucker, 1987). But it still leads to a higher amount of homogeneity within an industry, origi- nating from credible industry leader or firms with superior resources and capabilities (Clemens & Douglas, 2006). Oliver (1997) further stated that a later imitation of another firm, especially a competitor, can prevent high first mover costs, which come along with the devel- oping or the first implementation of a practice.

There are several events, which can take place within an institutional field that build up mi- metic pressure. At first, the overall degree of the industry adoption, more specifically the number of firms, which are adopting to an innovation can be a strong source for pressure on other firms to follow (Haveman, 1993). Besides the overall degree of adopters to an innova- tion, it is also important how many products or innovations are introduced to a market based on a certain innovation like a new technology (Haunschild & Miner, 1997). But also the de- gree of interconnectedness within an industry in terms of collaborations, partnerships or net- works needs to be considered as a source for pressure (Galaskiewicz & Burt, 1991; Ramanath, 2008). The performance of individual firms regarding specific key figures also needs to be considered as a strong origin of mimetic pressure for a whole institutional field. These key figures cover the change in a firm / industry size, namely the amount of employees (Haveman, 1993); the change in firms profits and turnovers (Rogers, 1995), and the change in a firm’s prestige as well as visibility (Burns & Wholey, 1993). Besides the overall degree of adopters to an innovation, it is also important how many products or innovations are introduced to a market, based on a certain innovation like a new technology (Haunschild & Miner, 1997).

In addition to other firms within an industry, mimetic pressure can also originate from professional sources. One source for this pressure is the publication of benchmarks or rankings where firms are ranked for particular achievements, e.g. their sustainability performance (Scott, 2008). Such publications make it easy for firms to compare their performance against their competitors. The special training of staff in order to be capable of dealing with new technologies or innovation can also exert pressure on industry actors (Dimaggio, 1988). The same happens when professionals provide general and complex models that standardizes a certain approach within a field (Rao & Sivakumar, 1988). Another case for mimetic pressure originating from professional sources is the sharing of knowledge

2.2.3. Normative Pressure

Normative pressure originates from the search for legitimation of organizations and is trans- mitted through norms, common habits, values, assumptions and general believes within a so- ciety (Devereaux Jennings & Zandbergen, 1995; Oliver, 1997). Unlike coercive pressure, it has not a direct financial or sanction impact on organizations that choose either to align or not to align with the pressures. In general, normative pressures can be divided in social forms of pressure, which mainly originate from the societal sources such as the general public, collec- tives or NGOs, as well as in professional pressures depending on the industry knowledge and practices (Dimaggio & Powell, 1983; Oliver, 1997). Firm’s compliance to these pressures is mainly based on its taken-for-granted nature held by a larger community than the industry itself.

Dimaggio & Powell (1983) stated that normative processes are primarily based on profession- alization. They describe it as the collective struggle of members of an occupation to define the conditions and methods of their work. Professionals such as universities, knowledge insti- tutes, or industry experts need to compromise with nonprofessional clients, the public opinion, or regulators (Dimaggio & Powell, 1983). Through the introduction of new norms and stand- ards, professionals can put normative pressure on an institutional field as they have the power to influence others (Bansal, 2005). The same applies to the development of knowledge in form of reports or publications, which have an impact on the public opinion as well as on firms or governmental agencies (Scott, 2008). Also the simple sharing of knowledge within professional networks such as academic conferences or on consultancy levels (Benders, Batenburg, & van der Blonk, 2006; van Everdingen & Waarts, 2003), as well as the express- ing of opinions on specific topics (Campbell, 2007; Sharfman et al., 1997) needs to be consid- ered as a way of articulating normative pressure. The last event that also fits in this category is the training or educational program of schools or universities, which implements new ap- proaches in their curricula. (Campbell, 2007).

Government recognition of key firms or organizations through the grant or contract process may give these organizations legitimacy and visibility and lead competing firms to copy as- pects of their structure or operating procedures in hope of obtaining the same or similar awards. This governmental action can take the form of voluntary agreements with firms or whole industries (Delmas & Toffel, 2004) as well as certification/normalization, which tend to shape preferences of firms through the diffusion of norms (Vasudeva, 2013). Additionally, public procurement in terms of that a governmental agency sets an example by taking action or by being a lead customer can also build up normative pressure (Bulkeley & Kern, 2006). Another form of governmental normative pressure is the launch of awareness campaigns, ed- ucating and sensitizing the public about a certain topic through media (Bulkeley & Kern, 2006). But even the upcoming of a political discussion can trigger this kind of pressure, as it puts it on the top of the political agenda. There can be several sources for political discussion, reaching from external events until policy proposals from political parties. The latter can also create petitions or motions calling ministers or other representatives to responsibility, this normally results from a political discussion.

Besides the professionals, the industry actors and the government, the forth actor that can built up normative pressure are the general public, collectives and NGOs. The attached events can take the form of publicity activities like expressing public opinions in press or other me- dia (Greening & Gray, 1994; Rao & Sivakumar, 1988), the introduction of alternative models showing a different path (De Bakker & Den Hond, 2008) or the launch of campaigns like cul- tural jamming or social movements (Etling et al., 2010; Stolle et al., 2005). Leading to the same result, namely the building of normative pressure, the public also has the opportunity to influence important stakeholders and institutional actors through lobbying in the same way as firms can approach it (Ramanath, 2008). It also happens that collectives, mostly NGOs, form coalitions with partners from the private sector (De Bakker & Den Hond, 2008) as well as with governmental agencies (Ramanath, 2008) in order to not only influence them but also benefit through knowledge exchange. In some cases the activities originating from public ac- tors include and assimilate even illegal parts. This can reach from the reveal of information or public disclosure (Ramanath, 2008; Stolle et al., 2005) until civil disobedience, which literally means that laws or regulations are simply ignored or consciously broken (Stolle et al., 2005).

2.2.4. Institutional Change

As mentioned in the beginning of this chapter, institutional pressures lead to isomorphism and to behavior continuation of organizations (Oliver, 1997). Institutional theory delivers power- ful explanations for stability and dominant paradigms within an organizational field but when it comes to change, in particular to a technological change; it has less explanatory potential (Greenwood & Hinings, 1996). While institutional theorists view changing technological en- vironments as relatively unimportant, Kraatz & Zajac (1996) found that global and local tech- nical environment conditions are strong predictor for occurring change. Van der Hoed & Ver- gragt (2006) stated that technology could be seen the same way as every other set of practices and therefore described in institutional terms of norms, standards and values.

Besides the described isomorphism effect of institutional pressures, there seems to be also empirical evidence that institutional pressures can also result in changing existing paradigms and institutions. Zucker (1987) states that institutional pressures can lead to forced behavior adoption and separates the pressures into two motivational groups: reproduction and genera- tion, which can explain why actors adopt or not adopt new products, technologies or services. These parallel institutional processes compete for dominance; reproduction of the old para- digms and generation of new solutions outside of the existing institutional field whereas the former is a consequence of institutionalization and not a cause. Other researchers focused on the sources of institutional change in order to understand the process of how institutions change. Institutional change refers to the phenomenon of institutionalization (Scott, 2001), which is defined as: “The process by which activities come to be socially accepted as ‘right’ or ‘proper’, or come to be viewed as the only conceivable reality” (Oliver, 1997). This defini- tion gives insights of how formerly unaccepted organizational behavior becomes accepted. Simultaneously to this institutionalization process, certain forms of behavior become obsolete, redundant or not applicable to the changed organizational field. This process is called de- institutionalization (Oliver, 1992; Scott, 2001): De-institutionalization refers to the erosion or discontinuity of an institutionalized organizational activity or practice. Where the former highlights the continuous process by which new routine legitimate behavior is developed, the latter emphasizes the replacing of old rules and routines by new ones. The literature lacks of comprehensiveness, especially when the question is about the reasons for potential institu- tional change. Oliver (1992) identifies mainly political, functional and social pressures as rea- sons for deinstitutionalization, either from inside of a firm or from external sources. Scott (2001) views institutional change as a result of discourse and negotiation within an institu- tional field. This negotiation arises around issues of dominant problem definitions as well as dominant solution directions (Hoffmann, 1999). Van den Hoed & Vergragt (2006) proposed five factors within an institutional field, which are likely to induce institutional change as they are influencing the negotiation process: exit and entries of actors changing the power struc- ture, external shocks or crises leading to instability, new technologies, new practices by estab- lished members also called institutional entrepreneurship, and changes in the market or de- mand. In the end, the result of a potential institutional change is depending on the sum of all pressures generating an institutional change reduced by the sum of all pressures preventing a change as well as reproducing the existing institutions. The study of (Greenwood, Suddaby, & Hinings, 2002) developed a deeper evaluation of an explanatory framework for institutional change.

These aspects, in particular the different kinds of pressures, define the institutional theory and separate it from theories that regard decision making as a (strictly) rational process (Hille- brand et al 2011) such as the resource based view (Oliver 1997, Clemens & Douglas 2006). Some institutionalized activities even persist when organizations are not rewarded or in fact lead to disadvantages (Oliver, 1997). Therefore, in the next chapter it needs to be evaluated what the possible, strategic responses of firms assigned to institutional pressures are.

2.3. Strategic Responses

For firms within institutional fields, conformity to pressures and demands often constitutes an attractive opportunity as it results in organizational legitimacy. However, total conformity to pressures might result in tradeoffs between individual business objectives and resigning or- ganizational autonomy (Oliver, 1992). Shifting away priority and attention from a firm’s self- interest cannot be considered best for it. Zucker (1987) stated, as soon as organizational activ- ities are institutionalized, they are sustainable, repetitive and normally stable over time. But there seems to be empirical evidence that all these taken for granted norms, values and activi- ties are less inescapable than traditional institutional theorists suggest (Oliver, 1992). More specifically, the process of organizations responding to institutional pressures is not one- dimensional but an interplay between organizational context and organizational action (Greenwood & Hinings, 1996).

Several factors are identified that influence and limit the actions or responses of firms towards particular pressures. Oliver (1991) developed a framework consisting of five so called institu- tional antecedents; cause, constituents, content, control and context. ‘Cause’ deals with the question about why an organization is being pressured, what are the underlying rationales, expectations and intended objectives. ‘Constituents’ are defined as the source or the actor who builds up pressure. Often, firms are confronted with varying and conflicting institutional forc- es executed from multiple actors. The ‘content’ of an institutional pressure refers to the simi- larity between the organizational goals and the expectations and demands exerted by the pres- sure. Whereas ‘control’ is determined through the means by which pressures are imposed. It can be distinguished between legal coercion or enforcement and voluntary diffusion. The last antecedent ‘context’ deals with the framework conditions around the pressure, more precisely the extent of uncertainty within an institutional field as well as the interconnectedness be- tween organizations. All these factors influence to some degree decision of a firm whether to comply with a pressure or to ignore it.

Between complying with a pressure and ignoring it, the literature reveals that there are various alternatives for an organization in order to deal with these pressures and demands. Powell (1985) stated that organizations can create a facade in which it seems that the organization respects the existing standards and norms but in reality the operational activities are decou- pled from its formal structures and processes. In particular relevant for this study is the theo- retical framework, published by Oliver (1991), consisting of a set of strategic options that a firm can execute when responding to institutional pressures. Varying from total passive con- formity to active resistance, this framework can be considered as the most comprehensive for understanding strategic responses towards institutional pressures (Clemens & Douglas, 2005). In total, five different strategies are developed as follows: acquiescence, compromise, avoidance, defiance and manipulation (Oliver, 1991). All these strategies contain a sub-set of tactics, which further specify the different approaches that can be seen in figure 3.

illustration not visible in this excerpt

Figure 3: Overview of strategic responses to institutional pressures (Jamali, 2010)

Acquiescence

The strategy of acquiescence refers to a firms attempt to passively conform to institutional pressure which be executed via three types of tactics varying by their motives: habit, imitation and compliance. Habit means the “unconscious or blind adherence to preconscious or taken for-granted rules or values ” (Oliver, 1992); firms reproduce actions and practices according to the institutional pressures. Imitation is consistent with the concept of mimicry or isomorphism. It is executed to reduce uncertainly by imitating successful organizations. Compliance is a comparably more active way to acquiesce to institutional pressures as it is chosen in anticipation of self-serving organizational interests.

Compromise

This strategy can be considered as a mixture between conformity and resistance, which typi- cally occurs when different constituents build up conflicting pressures on an organization. The attached tactics are balancing, pacify and bargaining. Balancing can be determined as a firms attempt to achieve consensus among multiple stakeholders or internal objectives. Whereas pacify is primary driven by the motivation to conform at least the minimum standards re- quired by constituents in order to calm them. Lastly, the bargaining-tactic is described as more active compared to balancing and pacify as the focus lays on negotiating with constitu- ents and achieve some concessions.

Avoid

Oliver (1992) defines avoidance strategies as: “the organizational attempt to preclude the necessity of conformity. ” In order to execute this strategy, organizations can choose between concealing their nonconformity, buffering themselves from institutional pressures, or escap- ing from institutional rules or expectations. As mentioned earlier, Powell (1985) describes concealment as creating a facade structure in order to hide non-conformity to institutional pressures; this can also be described as ‘window-dressing’. With the buffering-tactic an or- ganization tries to reduce the extent to which it can be inspected by the outside, e.g. by de- coupling its technical activities from external and public contact. Escaping refers to an exit of a firm from the domain where pressure is exerted by changing its goals, activities or location.

Defiance

If an organization chooses a defiance strategy, it shows an active form of resistance against institutional processes. Typical reasons for these behaviors are comparable low overall costs of not complying with or if the pressures are in conflict with the organizational objectives. Attached to this strategy, three tactics can be identified: dismissing, challenging and attack. Executing a dismissing tactic means that institutional pressures are ignored by an organiza- tion, whereas the challenging tactic actively seeks confrontation with existing pressures. The attack tactic refers to a more aggressive and intense form of challenging institutional demands by “assault, belittle or vehemently denounce institutionalized values and the external constit- uents that represent them. ” (Oliver, 1991) .

Manipulation

Within the scope of possible response strategies, manipulation can be considered as the most active response strategy as it actively changes or exerts power on the content of a pressure stream. This opportunistic approach also includes three sub-tactics: co-opt, influence and control. When an organization tries to convince the sources of pressures to form a coalition or even join the organization, it can be considered as approaching a co-opt tactic. Influencing goes a step further and tends to directly change the perceived institutional demands and expectations. The tactic of control builds up on that and tries to dominate institutional content and sources in order to establish itself as opinion leader.

Additionally to this framework of potential responses an organization can approach towards institutional pressures, researchers also developed a concept for firms that proactively influ- ence institutional ideas and processes for their own benefit rather than just respond. DiMaggio (1988) focused on this proactive part of firm’s actions and introduced the concept of institu- tional entrepreneurship, consisting of organized actors with sufficient resources, which can play a significant role as initiators or drivers of institutionalized change.

[...]


1 „Ich glaube an das Pferd. Das Automobil ist eine vorübergehende Erscheinung“ ("Das Automobil - In Deutschland beginnt das Auto seine weltweite Erfolgsgeschichte.," 2013)

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Title
Full speed towards a sustainable future. The story of the electric car in Germany
Subtitle
An institutional approach
College
VU University Amsterdam
Grade
1,7
Author
Year
2013
Pages
83
Catalog Number
V281498
ISBN (eBook)
9783656754343
ISBN (Book)
9783656754336
File size
4469 KB
Language
English
Notes
Insgesamt 84 Seiten
Keywords
Sustainability, Innovation, Elektromobilität, Institutional Theory, Unternehmensstrategie, Elektroauto, Coercive, Normative, Mimetic, Sustainable Innovation, BMW, Daimler, Opel, Tesla, Electric Car
Quote paper
Fabian Guse (Author), 2013, Full speed towards a sustainable future. The story of the electric car in Germany, Munich, GRIN Verlag, https://www.grin.com/document/281498

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