Fools rush in? The institutional context of industry creation
Citation: Howard E. Aldrich, C. Marlene Fiol (1994) Fools rush in? The institutional context of industry creation. The Academy of Management Review (RSS)
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Tagged: Business (RSS) Organization Theory (RSS), Entrepreneurship (RSS), Institutionalism (RSS)
Aldrich and Fiol article is a largely theory driven exploration of the role that legitimacy plays on the creation, and primarily on the success, of the creation of new organizational forms. It is a core early text in the institutional literature on entrepreneurship, legitimacy, and the creation of new industries and new forms. The article is largely speculative and presents no new empirical evidence.
The authors first argue that there are two core forms of legitimacy that provide barriers to the creation or success of new industries:
- Cognitive legitimacy or "how taken for granted a new form is";
- Socio-political legitimacy or "the extent to which a new form conforms to recognized principles and accepted rules and standards.
The article is essentially an methodical exploration of the way that each of these two pressures can play out at a variety of different levels in the creation of new forms. These levels include:
The rest of the article explores the two forms of legitimacy at each level and offers a proposition for each based on their reading of the literature or their own speculation.
The authors explain that on the organizational level, entrepreneurs will need to (1) use symbolic language and behavior and (2) communicate internally consistent stories to disguise the radical nature of their work.
On the intra-industry level, entrepreneurs will achieve legitimacy by (1) encouraging convergence around a dominant design and (2) mobilizing to take collective action within their emergent industry.
On the inter-industry level, it is proposed that entrepreneurs will (1) promote their activity through third-party actors like trade associations and (2) through negotiating and compromising with other industries through processes like bundling.
On the institutional level, it is proposed that entrepreneurs will achieve legitimacy more quickly by (1) establishing educational curricula and (2) organized collective marketing and lobbying efforts.
The authors conclude that by aiming for legitimacy in each of these ways, "foundings are risky, but they need not be foolish."
Theoretical and Practical Relevance
Aldrich and Fiol's article has been cited more than 1100 times in the 16 years since it's publication. It is the seminal article on institutional pressures in entrepreneurship (a active sub-literature in its own right) and is cited both in the wider entrepreneurship literature, the wider institutionalism literature, and the literature on institutional pressures and inter-firm and inter-industry relationships.