Institutional isomorphism occurs when two organizations are similar to each other. Paul DiMaggio and Walter Powell developed the concept of institutional isomorphism. In the paper “The iron cage revisited institutional isomorphism and collective rationality in organizational fields,” they discuss what makes organizations similar. They find that the main drivers are rationalization and bureaucratization. These forces lead to organizations acting in a similar manner because of standardized processes and the desire to maximize their outcomes, typically profitability for businesses. However, institutional isomorphism is more likely to occur in mature industries, and it comes about as organizations seek legitimacy in these industries, which means they may not actually be maximizing efficiency. They also discuss the reasons institutional isomorphism can occur. These reasons are classified into three types of isomorphism: coercive, mimetic, and normative.
Coercive isomorphism occurs when outside forces shape organizations into a similar form. These types of forces include cultural norms or societal regulations. To adhere to these requirements, the organizations become similar, since there is often only one way to meet these requirements.
Mimetic isomorphism occurs when there is significant uncertainty about the best path forward in a given area, so organizations mimic each other or the market leader. This type of isomorphism makes organizations similar as they pick up traits of other organizations that they believe are beneficial. The goal of this mimicry is to make sure that the organization picking up the “beneficial trait” does not fall behind. This type of mimicry, however, can be risky because it can occur without a full understanding of why the “beneficial trait” leads to positive outcomes in another organization, or traits that are even negative instead of beneficial can be selected. However, because this type of mimicry superficially reduces uncertainty, it is still often done by organizations.
Normative isomorphism occurs when professional standards shape organizations. This can be due to licensing requirements or education for a given profession or larger professional organizations that develop standards for an industry. This leads to a labor pool for multiple organizations that has standardized ideas about the way to do things. This, in turn, leads to uniformity of the organizations, since they are all hiring from the same labor pool.