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Making decisions
Making decisions

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5.4 The pursuit of legitimacy

Social institutions affect which actions are seen as legitimate. As we make decisions in organisations it is common to be concerned not just with economic outcomes but also with ‘legitimacy ’: ‘How will this decision be seen by X ’?; ‘Does this fit the way things are done around here?’; ‘What would happen if the press got hold of this?’; and so on.

Some of this can be quite unconscious; the conceptual frameworks and notions of cause and effect that are available to decision-makers to reason with are largely socially determined. This can operate at different levels – national, industry, firm, team, and so on. For example, at the industry level some researchers have looked at the way in which cognitive communities develop. These are networks of firms whose managers share cognitive schema: core ideas about how the industry works, cause-and-effect relationships, and what constitutes reasonable conduct. These ideas simplify and constrain the ways in which managers within a group identify competitors and customers, and reason about competitive strategy. Box 3 describes some of this research.

Box 3: Cognitive communities in the knitwear industry

Porac et al. (1989) studied the shared mental models of managers in the Scottish knitwear industry. They found that managers in this industry shared core assumptions about customers and competitors and informal ‘rules’ about legitimate behaviour. These shared assumptions were reinforced by the informal networks and ties that existed between managers. For example, competition on price was frowned upon and firms competed mainly on the basis of design, service and quality. There was also a high level of consensus that their products were aimed at the top income group (although this seemed based on little actual market research).

(Source: Porac et al., 1989)

While senior managers often like to think that they are driven by the rational pursuit of economic success, there is evidence that some of the drivers for their behaviour have more to do with social legitimacy: Box 4 illustrates this.

Box 4: Legitimacy and popular management techniques

Barry Staw and Lisa Epstein (2000) carried out a study of the adoption of popular management techniques, such as quality and team-based initiatives in top US firms. They found that adoption of such techniques was not associated with increased economic performance. However, the techniques were associated with more positive firm reputation among top executives in other firms (Fortune's ‘Most admired company’ survey) and higher remuneration for the firm's chief executive officer (CEO). They concluded that CEOs are motivated to adopt such practices not because they are economically optimal for the firm, but because they are seen as highly legitimate management practices, which reassure company stakeholders and offer signals about the CEO's competence to compensation decision makers.

(Source: Staw and Epstein, 2000)