Goal Selection Internally and Externally : A Behavioral Theory of Institutionalization

This paper examines a paradox in the behavioral theory of the firm, and highlights how a complementary paradox from institutional theory suggests a theoretical integration with potential for significant progress. Current behavioral theory of the firm research has a strong record of showing a broad range of organizational changes in response to profitability. This is far from the original conception of internal organizational goals that trigger search in the vicinity of the problem. Profitability is a non‐specific goal that results from a multitude of factors, and is in part an externally imposed goal. Its central role in many organizational changes prompts the question of whether other external goals affect the organization as well. In contrast, institutional theory is focused on externally imposed practices, but usually examines specific actions rather than goals, leading to a theory of action without goals. These paradoxes and corresponding gaps in knowledge suggest a need for a behavioral theory of organizational responses to external goals