Chapter 7: Creating Organizations

Why are there organizations, and what are the conditions that foster the creation of organizations? These are important questions in organizational theory. Scott notes that "...the history of the development of modern society is also a history of the development of special purpose organizations..." (Scott p. 151). Various historical trends helped create modern organizations:

The Changing Relations of Individual and Corporate Actors
In pre-modern organizations, the participants were wholly contained in their organizations, who had full authority over them. Their rights and interests were determined by the membership. They were built on a strict hierarchy. Over time individuals gained rights, and corporate actors also gained rights and were allowed to pursue interests too (often under a charter of the ruler).

These new corporate actors no longer contained their individual actors but just the resources invested by the owners. They now contracted to individual participants to engage in certain activities for wages. Individuals were only partially involved now. This trend created a surgence of individualism that cooincided with the development of special-purpose organizations.

Societal Conditions Favoring the Devlopment of Organizations
Stinchcombe (1965) suggests that "the capacity of a population to develop and support special purpose organizations is determined by general factors like literacy, specialized advanced schooling, urbanization, money economy, and political revolution (Scott p. 153). Others like Parsons and Eisenstadt add role and institutional differentiation, allocation or roles by achievement instead of by other criteria, and competition for resources.

Stinchcombe adds that these factors have helped motivate individual to form organizations and have improved the chance that this new form will survive. "Stinchcome (also) asserts that organizations suffer from the liability of newness -- new organizations and in particular new forms of organization are likely to fail" (Scott p. 153).

Various Theoretical Perspectives on the Emergence of Organizations

Each theoretical perspective has a different explanation as to why organizations are created. The rational system perspective emphasizes that organizations are formed to improve efficiency and effectiveness through division of labor, reduced transaction costs, more efficient information processing, and more effective monitoring of agents. "From a rational system perspective, organizations arise to take advantage of the production economies offered by an elaborate division of labor and to meet the cognitive and control challenges posed complex and uncertain environments" (Scott p. 179).

"From a natural system perspective, institutionalists propose that organizations emerge as an embodiment of rationalized belief systems that proliferate in the wider social environment. Marxists argue that organizations arise as structures created by capitalists to expropriate surplus value from productive labor" (Scott p. 179).

But all parties agree that industrialization has caused the growth of large organizations (Scott p. 169).

Resource Mobilization
Organizations emerge through the collective mobilization of resources in pursuit of a goal. How an organization is formed is partly the result of it's intial resource mix, incentives, membership demographics, and ability to acquire resources. The failure rate of new organizations is high.