the influence of institutional and task environment relationships on organizational performance: the...

THE INFLUENCE OF INSTITUTIONAL AND TASK ENVIRONMENTRELATIONSHIPS ON ORGANIZATIONAL PERFORMANCE: THE

CANADIAN CONSTRUCTION INDUSTRY*

CHRISTINE OLIVER

York University, Toronto

ABSTRACT

This study compared the in¯uence of organizations' relationships to the institu-tional versus task environment on organizational performance in the Canadianconstruction industry. This industry is characterized by both intense institutionalregulation and strong market competition. Regulatory stringency and resourcestringency were proposed as key determinants of the relative importance of insti-tutional versus task environment relations in predicting organizational pro®tabil-ity and productivity. Results favoured the contribution of task environmentrelations to organizational success in support of an economic or strategic perspec-tive on organizations. However, under highly stringent conditions, institutionalrelations were shown to be associated signi®cantly with performance, suggestingthat future research needs to consider both institutional and task environmente�ects on organizational performance and success.

INTRODUCTION

An institutional perspective on organizational environments (DiMaggio andPowell, 1983; Scott, 1995; Zucker, 1987) represents a signi®cant departure fromtraditional task environment conceptions that focus on the role of markets,resources and competition in determining organizational processes and outcomes(Lawrence and Lorsch, 1967; Pfe�er and Salancik, 1978; Williamson, 1975,1985). Institutional theory calls particular attention to the state and professionalassociations in an organization's institutional environment and their potentiallyprofound in¯uence in shaping an organization's legitimacy and performance(Meyer and Rowan, 1977; Scott, 1987; Zucker, 1987). In contrast, economic andstrategic approaches have focused primarily on exchange relations with keyplayers in the organization's task or technical environment and on the organiza-tional need to acquire and control scarce resources, in the context of intensecompetition for these resources, in order to ensure organizational success andsurvival (Pfe�er and Salancik, 1978).The distinction between institutional and task environment relationships

re¯ects fundamental di�erences between institutional and economic or strategic

Journal of Management Studies 34:1 January 19970022-2380

# Blackwell Publishers Ltd 1997. Published by Blackwell Publishers, 108 Cowley Road, Oxford OX4 1JF, UKand 238 Main Street, Cambridge, MA 02142, USA.

Address for reprints: Christine Oliver, Schulich School of Business, York University, 4700 Keele Street,Toronto, Ontario, Canada M3J 1P3.

theories in the motives they ascribe to organizations in establishing environmen-tal relationships and the organizational outcomes that are predicted to resultfrom these relationships. Institutional theorists assume that organizations seeklegitimacy and social approval (DiMaggio, 1988); the establishment of institu-tional relations helps the organization to mobilize cultural support for its goalsand activities and to demonstrate its social validity and conformity with institu-tional rules, norms and regulations (Meyer and Rowan, 1977). From a taskenvironment perspective, organizations are motivated by economic considerationsor by e�orts to reduce uncertainty in exchange; organizations that establishe�ective task environment relationships obtain stable access to input resourcesthat are critical in producing a product or service to be exchanged in a market(Pfe�er and Salancik, 1978; Scott, 1992).Notwithstanding the recent recognition that organizations commonly operate

in environments that impose upon them both institutional and technical or taskrequirements (Powell, 1991; Scott, 1992; Tolbert, 1985; Zucker, 1987), studiesexplicitly incorporating both institutional and task environment in¯uences onorganizations have not been forthcoming in the literature (Carroll and Huo,1986; Fennell and Alexander, 1987; Oliver, 1988, 1991). Nor has research todate compared the relative contribution of institutional and task environmentrelations to organizational performance. This study sought to examine thequality of a range of interorganizational relationships between private sector®rms and key organizations in both the institutional and task environment ofthese ®rms in order to contrast the e�ects of institutional and task environmentrelationships on ®rm performance and to investigate the conditions under whichinstitutional versus task relationships are likely to contribute to ®rm success. Thequality of an interorganizational relationship refers to the degree to which therelationship is harmonious, nonconstraining, and perceived as satisfactory oruseful to the partners involved in the relationship. This de®nition of relationshipquality is motivated by the literature on strategic partnering which suggests thatgood partnering relations tend to be those that o�er perceived bene®t, generatemutual satisfaction, and permit each ®rm to retain some level of within-®rmautonomy (Anderson and Narus, 1990; Borys and Jemison, 1989; Mohr andSpekman, 1994). This literature indicates that the quality of interorganizationalrelationships contributes positively to ®rm performance.In the absence of prior studies comparing institutional and task environment

e�ects, this research attempts to contribute to our understanding of the relativerole of organizational adherence to institutional rules and norms versus thee�ective management of task environment relationships in determining highperformance, particularly when organizations operate in environments that areboth highly institutionalized and highly competitive simultaneously. Institutionaltheorists (Meyer and Rowan, 1977; Meyer et al., 1983; Scott, 1992; Scott andMeyer, 1983) have elaborated the distinction between institutional and technicalor task sectors, suggesting that these two types of environments impose funda-mentally di�erent and potentially opposing demands on the organization(Zucker, 1987). This study, therefore, attempts to shed light on both the utility ofthis distinction for investigating organizational performance and the relative roleof institutional versus task environment relationships in determining organiza-tional success. Given the pressures on contemporary ®rms to be both competitive

# Blackwell Publishers Ltd 1997

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and socially accountable in the production of their products or services, thisstudy's investigation of the quality of relations that ®rms establish with a range ofconstituents in both their economic and regulatory environment also has implica-tions for the relative importance of e�ective industry versus government relationsin achieving organizational success.The residential construction industry in metropolitan Toronto, Canada was

selected as the study population. This population provided a particularlyappropriate empirical setting within which to contrast the e�ects of institutionalversus task environment relationships on ®rm performance. Since the organiza-tions of this population are heavily regulated and subjected to a myriad ofinstitutional rules and requirements, it was anticipated that the quality of ®rms'relationships to the institutional environment would be an important determinantof ®rm performance. At the same time, the industry structure of this populationapproaches perfect competition; competing ®rms in the industry are typicallysmall, industry concentration is low, and competitive pressures are intense.Therefore, the quality of ®rms' relations to their task or competitive environmentwas also expected to be a critical determinant of organizational performance.

THEORETICAL BACKGROUND AND HYPOTHESES

Comparison of Institutional and Task Environment PerspectivesInstitutional theorists have advocated a conceptual distinction between institu-tional and technical or task environments in order to illustrate the di�eringdemands and requirements for organizational survival that these two types ofenvironments impose on organizations (Meyer et al., 1983; Scott and Meyer,1983; Scott, 1992). Scott and Meyer (1983, p. 140) de®ne technical sectors as`those within which a product or service is exchanged in a market such thatorganizations are rewarded for e�ective and e�cient control of the workprocess'; by comparison, institutional sectors are characterized by `the elaborationof rules and requirements to which individual organizations must conform if theyare to receive support and legitimacy from the environment'. In the purest case,technical sectors (e.g. general manufacturing) are synonymous with competitivemarkets (Scott, 1992, p. 132), whereas institutional sectors (e.g. public education)describe environments characterized by elaborated state jurisdiction andpressures for conformity to public expectations and demands (Meyer andRowan, 1977; Zucker, 1987). Organizational environments may be strong orweak along either of these two dimensions (e.g. high degrees of institutionaliza-tion and market competition simultaneously), although institutional research hasfocused almost exclusively on organizations operating in sectors with strong insti-tutional pressures and much weaker technical pressures, including, for example,public schools, universities, social service agencies, and civil service organizations(Baum and Oliver, 1991; Covaleski and Dirsmith, 1988; Rowan, 1982; Tolbert,1985; Tolbert and Zucker, 1983).The signi®cance of the institutional±task environment dichotomy surrounds

the divergent pressures, constraints, and relevant constituents in these respectiveenvironments that are predicted to be causally predominant in shaping organiza-tions' structure and performance (summarized in table I). Task environment


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conceptions tend to emphasize the technical interdependence of organizationsand environments, the scarcity of environmental resources, and the competitivepressures imposed on organizations to design e�cient work arrangements, tomanage problematic exchange dependencies, and to acquire and control criticalinput resources (Dill, 1962; Lawrence and Lorsch, 1967; Pfe�er and Salancik,1978; Thompson, 1967). A task environment perspective also coincides approxi-mately with economists' conception of the classic competitive market (Scott,1983, p. 158). From this perspective, key constituents in an organization'stask environment include those who control the critical factors of economicproduction, such as land, labour, capital and supplies, that are essential tothe organization's core work activities (Jacobs, 1974). Organizational success intask environments is dependent on the acquisition of scarce resources andthe e�ective management of task interdependencies in a competitive marketcontext.Institutional conceptions of the environment, in contrast, emphasize the

survival value of conformity and the advisability of adhering to institutional rulesand norms. Institutions refer to regulatory structures, government agencies, rules,laws and professions; the key constituents predicted to in¯uence organizations ininstitutional environments are not purveyors of scarce production factors butrepresentatives of the state and, to a lesser extent, professional associations thatde®ne or enforce the public or collective rules governing an organization'sactions. The mechanisms of environmental control over organizations are notexchange dependencies, but rules, regulations and inspections (Meyer et al.,1983). The requirements of the institutional environment specify the organiza-tional structures and activities that are publicly or collectively viewed as appropri-ate, legitimate, or socially acceptable. So, for example, government regulationsspecifying acceptable pollution emission levels for a given type of ®rm representthe institutional rules of acceptable organizational conduct to which these ®rmsare required to conform in order to receive support and endorsement from the

Table I. Institutional versus task environment perspectives

Relevant dimensions Institutional environment Task environment

Environmental context Political and legal Market

Key demand factor Legitimacy Resources

Type of pressure Coercive, mimetic, normative Competitive

Key constituents State agencies and Sources of scarceprofessional associations production factors

Mechanisms of external Rules, regulations, Critical exchangecontrol inspections dependencies

Organizational success Conformity to institutional Acquisition and controlfactor rules and norms of critical resources

Dominant threat to Government intervention Resource exchangeautonomy partners


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institutional environment. Organizational success in institutional environments isdetermined less by the acquisition of task resources than by the public conferralof legitimacy and approbation on an organization's processes or outputs.Task environment conceptions tend to focus on the competitive pressures in

an organization's environment that motivate organizations to enhance theire�ciency and control. Institutional environment conceptions, on the other hand,distinguish among coercive, mimetic and normative pressures in an organiza-tion's environment that motivate it to conform to or become isomorphic withsocial and regulatory expectations (DiMaggio and Powell, 1983). Coercivepressures are authoritative forces imposed primarily by government mandate. Astate agency, for example, that enforces organizational compliance to governmentpolicies on equal employment opportunity is a form of coercive pressure.Mimetic pressures occur through organizational imitation or modelling of normsor practices in the organization's institutional ®eld. Normative pressures havetheir origins in the professionalization of industry or sector members (e.g. tradeassociations) who attempt to de®ne the conditions and methods of their work tolegitimate their professional autonomy (Covaleski and Dirsmith, 1988). Scott(1987, p. 509) has noted that the government is more likely to apply coercivepressures in attempting to induce institutional conformity and threaten anorganization's autonomy, whereas professional associations `are expected to relyprimarily on normative and/or mimetic in¯uences'. In contrast, from a taskenvironment perspective, it is the external in¯uence on organizations by thosewho control scarce economic resources that represents the most formidablethreat to organizational independence.Institutional theorists propose that the survival advantages of compliance with

institutional pressures include enhanced stability, legitimacy, social support andprestige (DiMaggio, 1988; DiMaggio and Powell, 1983; Meyer and Rowan,1977; Meyer and Scott, 1983; Oliver, 1990). Zucker (1987) suggests that institu-tionalization increases the chances of long-term survival but reduces short-terme�ciency (e.g. by increasing the operational costs and paperwork burden ofregulatory compliance with legislated production standards). Others suggest thatinstitutional environment relations legitimate a ®rm's operations or outputs andcontribute directly to performance by increasing demand for the ®rm's productsor services or by making it easier for the ®rm to attract ®nancial and humancapital.In this study it is assumed that institutional relations will lead to increased

performance overall, based on the premise that institutional relations conferbene®ts that tend to exceed the costs of these relations. The costs of institutionalcompliance (e.g. investment in environmentally friendly manufacturing processes)are often one-shot investments or costs borne by all members of an industry andtherefore not a sustainable source of competitive disadvantage. The potentialbene®ts of institutional relations include not only higher consumer demand andbetter access to ®nancial and human resources. Institutional relations can also bea source of direct funding (e.g. government subsidies), strategically useful infor-mation and contacts (e.g. professional associations, government agencies),lucrative business contracts (e.g. state contracts eligible only to ®rms that demon-strate compliance with regulations), and in¯uential product endorsements (e.g.coveted endorsements for `green' products or `healthy' food products). Therefore,



this study proposes that both institutional and task environment relations willtend to contribute positively to ®rm performance.

Relative Contribution of Institutional and Task Environment ExplanationsTo contrast institutional and task environment perspectives, this study identi®edthe range of critical institutional and task environment relationships that organi-zations in a population establish to acquire legitimacy and scarce economicresources, and examined the strength of empirical association between thequality of these relationships and organizational performance.The quality of an organization's relationship is de®ned from the organization's

viewpoint as (a) the degree to which the relationship is viewed as harmonious orhelpful, and (b) the degree to which the relationship facilitates or constrains anorganization's functional autonomy in carrying out its central work activities.The ®rst component of this de®nition refers to the substantive quality of the rela-tionship (e.g. how well the ®rm `gets along' with a key environmental agent, therelationship's perceived usefulness to the ®rm). The literature on strategic part-nering indicates, for example, that the substantive quality of a relationship willbe more important to the success of the partnership and its ability to achieveanticipated objectives than the frequency of communication or duration ofrelations between partners (Anderson and Narus, 1990; Mohr and Spekman,1994; Parke, 1991; Powell, 1990). Frequency of communication may increase asrelations either improve or worsen. Similarly, relations may dissolve purposivelyand benignly or as an outgrowth of con¯ict. Therefore, these dimensions are notalways positively related to partnership success. The degree to which the partnershave noncon¯ictive relations and view the relationship as bene®cial is a moredirect measure of the substantive quality of the relationship.The second component of relationship quality, which is central to both institu-

tional and task-oriented explanations of organization±environment relationships,refers to the potentially constraining in¯uence of relationships. From a taskenvironment perspective, relationship formation to members of the organization'stask environment is assumed to compromise an organization's autonomy andconstrain an organization's operational discretion (Aiken and Hage, 1968; Cook,1977; Levine and White, 1961; Mohr and Spekman, 1994; Pfe�er and Salancik,1978; Provan, 1982; Rogers, 1974; Thompson, 1967; Whetten and Leung,1979). As Pfe�er and Salancik (1978, p. 261) state:

The price for inclusion in any collective structure is the loss of discretion andcontrol over one's activities . . . organizations seek to avoid dependencies andexternal control and, at the same time, to shape their own contexts and retaintheir autonomy for independent action.

From an institutional perspective, organizational relations to the institutionalenvironment also constrain the organization's freedom to perform its core tasks,although the source of social control over the organization's autonomy is not thedominance of linkage partners upon whom the organization is dependent forvital resources, but, rather, the elaboration of state rules and regulations thatconstitute potential `government interference' in the organization's ongoing taskactivities (Meyer and Rowan, 1977; Zucker, 1987). Therefore, the de®nition of


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relationship quality proposed here captures both the utility and constraints oftask and institutional relationships. Based on this de®nition of quality, thefollowing hypotheses can now be advanced.

Hypothesis 1: If an institutional perspective is supported, the quality of an orga-nization's relationships to its institutional environment will be positively relatedto performance.

Hypothesis 2: If a task environment perspective is supported, the quality of anorganization's relationships to its task environment will be positively related toperformance.

The foregoing hypotheses, then, predict an empirical relationship between thequality of an organization's relations to the task and institutional environmentand organizational performance. If institutional relationships are as important toan organization's success as institutional theorists propose (by virtue of the legiti-macy, stability and social endorsement that these relations confer on organiza-tions), then the quality of an organization's relations to the institutionalenvironment should have an important in¯uence on organizational performance.On the other hand, if task environment relations are central in shaping an orga-nization's performance (in terms of supplying organizations with stable inputs ofcritical factors of production), the quality of these relationships should have asigni®cant in¯uence on performance. Importantly, these contrasting hypothesesdo not rule out the potential for both types of relations to in¯uence performancesimultaneously, which is consistent with recent theorizing on the potential forcomplementarity between these perspectives (Powell, 1991). DiMaggio (1988,p. 17), for example, proposes that institutional and economic or strategic modelsshould be regarded as complementary rather than antagonistic perspectives onorganizations. Similarly, Scott (1987, p. 509) argues that `institutional argumentsneed not be formulated in opposition to rational or e�ciency arguments but arebetter seen as complementing and contextualizing them'. However, it issuggested below that under certain conditions institutional versus task environ-ment predictions are likely to predominate in explaining organizational perfor-mance.In the absence of previous tests comparing institutional and task environment

in¯uences, it is proposed that regulatory and resource stringency will be criticalfactors a�ecting the relative importance of institutional and task environmentrelations in predicting organizational success. Regulatory stringency is de®ned asthe complexity and burden of regulatory environments (Fennell and Alexander,1987). High regulatory stringency refers to particularly extensive or severe regula-tory pressures exerted on organizations (e.g. a large number of enforceable rules,regulations and codes) that potentially impede organizational autonomy or e�-ciency. Resource stringency is de®ned as the ease or di�culty of organizationalaccess to scarce production resources. High resource stringency refers torecurrent di�culties in obtaining timely access to necessary resources (e.g. unpre-dictable problem or delays in procuring critical supplies or ®nancing for coretasks). Where regulatory stringency is high, the quality of institutional relation-ships will be expected to predominate in explaining organizational performance;



where resource stringency is high, the quality of task environment relationshipswill be expected to be more deterministic in shaping organizational performance.

Hypothesis 3: The quality of an organization's institutional relationships will bemore strongly associated with high performance than the quality of its taskrelationships when the environment is characterized by high regulatory strin-gency.

Hypothesis 4: The quality of an organization's task relationships will be morestrongly associated with high performance than the quality of its institutionalrelationships when the environment is characterized by high resource strin-gency.

These hypotheses predict, then, that the criticality of institutional versus taskrelationships will be contingent upon the nature or severity of environmentalconstraints surrounding the formation of these relationships. Since institutionaland task environment perspectives suggest that regulatory and resource scarcitypressures, respectively, are causally prepotent in shaping organizational struc-tures, processes, and performance, the level of an environment's regulatory strin-gency, controlling for resource constraints in the environment, should be centralin determining the strength of empirical association between an organization'sinstitutional relations and organizational performance; similarly, the level of anenvironment's resource stringency, controlling for regulatory constraints in theenvironment, should be central in determining the e�ect of task relationships onorganizational performance. Stated di�erently, institutional relations should beparticularly important to an organization's success when regulatory stringency ishigh, whereas task environment relations should be a particularly powerful deter-minant of performance when resource stringency is high.To summarize, hypotheses 1 and 2 contrast the relative in¯uence of institu-

tional and task environment relations on organizational performance, andhypotheses 3 and 4 contrast the conditions under which each perspective is likelyto be a stronger predictor of performance. Support for one but not both of the®rst two hypotheses would provide evidence favouring the predictive strength ofone perspective over the other. Evidence supporting both hypotheses 1 and 2would be indicative of the potential for complementarity between these twoapproaches. A lack of support for both hypotheses would cast doubt on thecapabilities of legitimating institutional relationships and stable task interdepen-dencies to enhance organizational performance, suggesting that other factors (e.g.organizational characteristics, environmental uncertainty) are more deterministicin shaping organizations' success or failure than the quality of interorganizationalrelationships between organizations in a population and key players in the orga-nizations' institutional and task environments.Hypotheses 3 and 4 identify the conditions under which institutional versus

task environment relations might be more important to an organization's success.Support for one but not both of these hypotheses would mean that one type ofrelationship is much more critical to successful performance than the alternativetype of relationship when regulatory or resource constraints in the environmentare particularly severe. Evidence favouring both hypotheses would fortify intui-


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tively appealing, but previously untested, claims that the explanatory power ofthese alternative perspectives depends fundamentally on the empirical context towhich these perspectives are applied. That is, institutional explanations of organi-zational performance may be especially powerful in institutionalized or state-dominated contexts where regulatory stringency is particularly high, whereas taskenvironment explanations may be more appropriate for explaining performancein competitive settings with weak regulatory pressures and problematic access toscarce resources. By the same token, a lack of support for both these hypotheseswould imply that the relative importance of either institutional or task relation-ships is independent of the contextual conditions (regulatory and resource strin-gency) that are predicted to constrain performance in highly institutionalized orcompetitive settings. That is, both institutional and task environment relationsmay have an impact on performance regardless of whether these relations areestablished in predominantly resource-constrained or institutionally burdensomeenvironments.

METHOD

Population, Relationships and Data SourcesThe population of this study consisted of all residential (new home) building ®rmsin metropolitan Toronto, Canada. This population was selected for the presentstudy because it confronts strong pressures from its task and institutional environ-ments simultaneously. The residential construction industry in Toronto is charac-terized by low entry barriers, limited economies of scale, strong competition, andlow industry concentration (Canada Mortgage and Housing Corporation, 1988).Most ®rms in the industry are small, and in 1988, the latest year for whichaggregate industry data were available, pro®t margins for the industry averagedonly 3.6 per cent. From a task environment perspective, the industry approachesalmost perfect competition. At the same time, an elaborate institutionalframework is overlaid on this industry to regulate and oversee building activityand to represent or enforce a range of institutional standards and public policyconcerns (e.g. a�ordable housing, housing quality standards, adherence to strictbuilding safety codes). The regulatory component of the environment includesapproximately 280 provincial acts, 460 codes, and over 400 regulations to which®rms must conform. On average, up to 25 per cent of the ®nal cost of abuilding project is attributable to compliance with institutional rules and regula-tions. In recognition of these unusually extensive institutional demands andrequirements, recent reports from both industry and government sources, forexample, have advocated the need for new initiatives aimed at streamlining andrestructuring the regulatory environment governing builders to reduce the institu-tional burden imposed upon them. For the purposes of this study, therefore, theresidential construction industry was uniquely suited to an empirical comparisonof task and institutional environment e�ects on organizations, since the intensityof pressures from both sectors of the environment was expected to exert a strongin¯uence on performance.In order to identify the critical task and institutional environment relationships

in the study population, preliminary interviews were conducted with builders,



industry sources, and government representatives at municipal, provincial, andfederal levels, and an extensive search of industry literature was conducted frommaterials, reports, and trade magazines provided to the author by four separategovernment agencies and the industry's trade association. The identi®cation ofcritical institutional environment relationships was guided by institutionaltheorists' de®nition of the institutional environment incorporating both stateagents and professional associations (Zucker, 1987), and by institutional distinc-tions between coercive pressures (e.g. mandatory government linkages) andnormative or mimetic pressures that re¯ect voluntary established relations (e.g.involvement in trade associations, voluntary ties to state agencies) (DiMaggio andPowell, 1983; Scott, 1987). Critical task environment relationships were identi®edusing the theoretical classi®cation of economic production factors and criticaltask interdependencies suggested by Jacobs (1974): land, labour, supplies andcapital. Eight critical environmental relationships were identi®ed in total. Thefour institutional environment relationships incorporated links to municipalgovernment building inspectors, mandatory reporting relations to the governmentprogramme that enforces quality standards in the industry, voluntary ties togovernment agencies overseeing the industry (one at the provincial level and oneat the federal level), and voluntary membership in the industry's trade associa-tion. The four task environment relationships corresponding to land, labour,supplies and capital were operationalized as linkages to land developers, subcon-tractors, suppliers and lending institutions (e.g. banks). These operationalizationsare summarized in table II.Consistent with economic and institutional perspectives, it was anticipated that

task environment relations would a�ect performance primarily for economicreasons (e.g. better use of key economic factors of production) and that institu-tional environment relations would in¯uence performance primarily for institu-tional reasons (e.g. the legitimating e�ects of these relations). The study'smeasures, however, did not exclude alternative e�ects. Institutional environmentrelations could have a direct economic e�ect on performance by providing ®rmswith ®nancial assistance, for example, and task environment relations could have

Table II. Operationalization of critical interorganizational relationships

Institutional Relationships Task Relationships

Theoretical Critical Theoretical Criticalclassi®cation linkage classi®cation linkage

Coercive institutional Building inspectors Land Land developerspressures

Mandatory public Labour Subcontractorsprogrammes

Normative/mimetic Voluntary government Supplies Suppliersinstitutional pressures agencies

Capital Banks/lendingProfessional institutionsassociation


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a direct legitimating e�ect on performance, by increasing the ®rm's legitimacyand prestige through its association with a respected economic constituent, suchas a high-pro®le bank or land developer. So, by measuring the actual relation-ships between ®rms and their environment, the study's design included thesee�ects. As Powell (1991) has observed and as this paper proposes, the outcomesof institutional and task environment relations are not so neatly separated intopro®t-based versus social e�ects. Instead, both institutional and task environmentrelations can a�ect economic performance, and for reasons pertaining to botheconomic utility and social endorsement.The data collected were both archival and survey-based. Agreement to release

archival data on all ®rms' building activity and productivity was obtained fromthe government programme that oversees residential construction in the provinceof Ontario. This programme is one of only three mandatory programmes in theworld that monitors residential building activity and legally requires all building®rms to provide information to the programme on every home constructed. Thisprogramme also provided the author with the names and addresses of buildersin the study population, ensuring an exhaustive listing of population members,since every ®rm is required by law to maintain continuous registration in theprogramme in order to operate in the province. From this initial listing,currently inactive building ®rms (those that had not constructed a home in thelast ®ve years) and duplicate holding companies established by an owner forbookkeeping purposes were deleted.A questionnaire instrument was developed and pilot-tested on residential

building ®rms in an alternative geographical location in the same province(n=59) in order to obtain feedback from respondents on the questionnaire andto conduct an initial reliability assessment of questionnaire-based measures.Informal on-site interviews with heads of building ®rms were also conducted.The ®nal survey instrument was distributed to the head of each ®rm in the studypopulation (n=296). Survey administration to the head or owner of each ®rm(rather than multiple ®rm respondents) was considered acceptable because ®rmswere typically small (mean size = 13). Two written and telephone follow-upswere conducted for a ®nal response rate of 76 per cent. To check for samplingbias, early and late respondents were compared on age and size. The two groupsdid not di�er signi®cantly.

Variables and Data AnalysisThis section explains the independent, dependent, and control variables and howthey were measured and analysed. The independent variables, as explainedbelow, included the eight relationship variables and the two stringency variables.The dependent variable incorporated four indicators of performance. Threecontrol variables were included: ®rm age, ®rm size and perceived environmentaluncertainty. The Appendix provides the item correlations for all the variablesand explains the measures in more detail.

Independent variables. The independent variables included: (1) the quality of each ofthe four types of relations between ®rms and their institutional environment(relations to inspectors, relations to the mandatory programme that enforcesquality standards in the industry, relations to government agencies at provincial



and federal levels, and relations to the trade association in the industry); (2) thequality of each of the four types of relations between ®rms and their task envir-onment (relations to land developers, relations to building subcontractors,relations to suppliers, and relations to banks or other lending institutions, such astrust companies); (3) regulatory stringency, which referred to the restrictiveness ofthe regulatory environment; and (4) resource stringency, which referred to therestrictiveness of the resource environment. So the independent variablesincluded eight relationship quality variables and two stringency variables. TheAppendix gives all the item correlations and shows that only one of the indepen-dent variable measures (for relations to suppliers) included multiple items thatwere not highly correlated and signi®cant at p5 .01.Multiple measures were used to investigate the quality of all eight relationships

between ®rms and their institutional and task environments. The quality of thetwo institutional relationships that were mandatory ± relations to building inspec-tors and relations to the mandatory public programme responsible for monitor-ing quality standards ± were each measured so as to include both the utility orsubstantive quality and constraints of these linkages in accordance with the de®-nition of relationship quality given prior to the hypotheses. Two utility items andtwo constraint items were used for each of the two ties and these measures weresigni®cantly correlated (see Appendix). The quality of the two institutional rela-tionships that were voluntary ± membership in the industry's trade associationand voluntary ties to provincial and federal government agencies ± were eachmeasured using two substantive quality items. The constraining aspects of thesetwo relations were not measured because these relations were voluntary, the®rms were less dependent on these institutional relations than the mandatedinstitutional relations, and ®rms could discontinue the tie if it became constrain-ing to them. Therefore, it was anticipated that the substantive quality but notthe constraining aspects of these two institutional relations would be important,and so the former but not the latter was measured. The substantive quality ofthe two voluntary institutional relations was each measured with two items,described in the Appendix, that indicated whether the ®rms had ongoingrelations with these institutions, how helpful these relations were, and whether inthe case of the trade association, the institution was instrumental in representingthe ®rm's views. All items were signi®cantly correlated.The quality of the four task environment relationships (i.e. ties to developers,

subcontractors, suppliers and banks) was measured in the same way as the twomandated institutional environment relations, that is, by using four items foreach relationship to measure both the substantive quality of the relationship (twoitems) and the constraining aspect of the relationship (two items). Only oneaspect of one of the relationships ± the substantive quality of the relationsbetween ®rms and suppliers ± showed nonsigni®cant interitem correlations. TheAppendix lists all the correlations and explains in more detail how each itemmeasured task environment relationship quality.Finally, two types of stringency were examined in order to test hypotheses 3

and 4: regulatory stringency and resource stringency. Regulatory stringency orthe restrictiveness of the regulatory environment was measured in terms ofwhether a ®rm felt that it was overly regulated and whether these governmentregulations were seen to reduce the ®rm's ability to operate e�ciently and pro®t-


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ably. The two measures correlated signi®cantly (r = .83, p5 .01). These werecross-validated with archival documents on codes and regulations governing the®rms. Firms reporting high regulatory stringency would include, for example,those organizations for whom the regulatory environment was particularlyconstraining (e.g. ®rms building particular types of homes or a greater diversityof types that need to meet stricter requirements or cope with a broader range ofacts, codes and regulations). Resource stringency incorporated four measures ofthe ease or di�culty of ®rm access to scarce production resources, includingnecessary supplies, serviced lots of land on which to construct homes, skilledsubcontractors to carry out construction, and loans or credit to ®nance construc-tion. These separate measures were combined to arrive at a mean score forresource stringency.

Dependent variables. Four indicators of performance were used in this study: ®rmproductivity, the percentage of lots on which ®rms constructed a home in thelast two years that had yielded a pro®t, the ability of ®rms over the last twoyears to control construction costs and the ability of ®rms to stay within initialcost estimates for building a home. The latter three were combined into a singlemeasure of pro®tability. Archival data on ®rm productivity were cross-checkedwith a separate measure of productivity reported in the questionnaire responses.The two did not di�er signi®cantly (p5 .01), and the questionnaire item wassubsequently deleted from the analysis.

Control variables. Three control variables were included in the study. The ageand size of the organization were examined, since years of experience in theindustry and organizational size might be expected to exert a di�erentialin¯uence on performance. A ®ve-item measure of perceived environmentaluncertainty was also included (a= .61), since both institutional and task environ-ment perspectives have acknowledged the potential moderating impact ofperceived environmental uncertainty on organizational outcomes (DiMaggio andPowell, 1983; Galaskiewicz and Wasserman, 1989; Pfe�er and Salancik, 1978;Scott, 1992).

The data were analysed using multiple hierarchical regression. To compare therelative contribution of institutional and task environment relations (hypotheses 1and 2), all independent and control variables were entered into the regressionmodel and R2 changes were compared between the block of four institutionalrelations and the block of four task relations. Each block was also entered sepa-rately in the equation, excluding the alternative block, to determine whethereach block alone explained a signi®cant proportion of variance in performance.To test hypothesis 3, the sample was split between high and low regulatory strin-gency and both blocks of relations were entered in the regression model usingcases for high regulatory stringency, and controlling for resource stringency aswell as the control variables. Similarly, hypothesis 4 was tested with both blocksof relations using cases of high resource stringency and controlling for regulatorystringency. R2 changes were compared for both blocks of relationship variables.All regressions were run separately for the two dependent variables, pro®tabilityand productivity.



RESULTS

Table III shows the means, standard deviation, and intercorrelations of all thevariables. Table IV summarizes the correlation coe�cients and regression resultsfor both pro®tability and productivity. Both regression models were signi®cantoverall, suggesting that interorganizational relations to key constituents in theorganizations' environment were signi®cantly associated with organizationalperformance. Firms' relations to resource suppliers, in particular, were signi®-cantly related to both ®rm pro®tability and productivity, and relations to®nancial institutions were signi®cantly related to pro®tability. The correlationcoe�cients show relations to government agencies to be signi®cantly correlatedwith pro®tability and productivity, and an organization's membership in theindustry's trade association to be signi®cantly correlated with productivity. Allfour task environment relations were signi®cantly correlated with pro®tability;relations with developers and suppliers were signi®cantly correlated with produc-tivity.Table V compares the relative contribution of the institutional relationship

variables, task relationship variables, and control variables. Regression analyseswere ®rst run which included all eight of the relationship quality variables (i.e.for the four institutional environment relations and the four task environmentrelations) plus the control variables in the equation. This is what is meant by the`base model' in Table V. Two base model regressions were run, one for each ofthe two dependent variables (i.e. the two measured aspects of performance: prof-itability and productivity). The numbers in the two left-hand columns, then, givethe R2 changes for the institutional environment relations, task environmentrelations, and control variables, in terms of their e�ects on pro®tability andproductivity, when all the independent and control variables are included in theequation.The two left-hand columns show that both types of relations explained some

of the variance in pro®tability and productivity, but that task relations weremuch more powerful in explaining performance in terms of both pro®tabilityand productivity. These results indicate limited support for hypothesis 1 andstrong support for hypothesis 2. To examine these di�erences further, fourseparate regression models were then constructed to determine whether eachseparate set or block of variables alone explained a signi®cant portion ofvariance in pro®tability and productivity. The four right-hand columns of tableV show the separate and exclusive contribution of the set of institutional relation-ship variables and task relationship variables to performance. The support forhypothesis 1 is extremely weak (R2 changes of 6.04 per cent and 2.73 per centnear the p5 .10 level for pro®tability and productivity respectively), whereassupport for hypothesis 2 is stronger (14.03 per cent and 12.20 per cent atp5 .001). Overall, the results of hypotheses 1 and 2 show that the quality of®rms' relations to the task environment was much more signi®cantly related toperformance than the quality of their relations to the institutional environment.Table VI provides the results of the tests for hypotheses 3 and 4. These

hypotheses suggested that the relative predictive strength of institutional and taskrelations would depend on regulatory and resource stringency. The comparisonof R2 changes in table VI shows the separate contribution of the set of institu-


CHRISTINE OLIVER112

TableIII.

Means,standard

deviations

andintercorrelatio

nsforallvariables

Variables

Means

Standard

(1)

(2)

(3)

(4)

(5)

(6)

(7)

(8)

(9)

(10)

(11)

(12)

(13)

(14)

deviations

Independentvariables

(1)Inspectors

2.90

0.39

(2)Mandatory

programme

2.52

0.41

25(3)Governm

entagencies

0.13

0.27

0607

(4)Trade

association

1.22

1.34

0515

32(5)Developers

2.43

0.63

1215

3022

(6)Su

bcon

tractors

2.92

0.42

2013

09±01

17(7)Su

ppliers

2.58

0.47

2008

2919

3830

(8)Banks

2.82

0.54

2213

0906

2226

19(9)Regulatorystringency

2.96

0.69

0515

0205

±.03

01±32

±14

(10)

Resourcestringency

0.70

0.44

1304

1101

09±04

0805

±11

Dependent

variables

(11)

Pro®tability

3.32

0.90

0401

1801

1914

3522

±31

09(12)

Produ

ctivity

2.44

4.54

0201

1415

2612

3209

±15

0416

Controlvariables

(13)

Age

12.25

9.86

1506

1811

±08

±03

±01

±07

1812

±06

±07

(14)

Size

12.71

33.35

0506

1714

04±02

07±01

0612

±00

±05

40(15)

Uncertainty

3.16

0.77

1803

±01

0415

±05

0707

05±05

0713

±07

±10

Notes:n=224

Correlatio

ns5

.14aresigni®cant

atthe.05level;decimal

pointsareom

itted

tional relations and task relations to pro®tability and productivity. The fullmodels in table VI correspond to the two left-hand columns of table V and areincluded as a basis for comparison with conditions of high regulatory andresource stringency. Two overall ®ndings are noteworthy. First, all but one ofthe six regression models explained a signi®cant proportion of variance in perfor-mance and, second, interorganizational relations to the environment continued tobe more important than the organizational and environmental control variables(age, size and uncertainty). For both pro®tability and productivity the R2 for theset of institutional relations variables increased across all conditions. Therefore,institutional relations became much more important in explaining performance,relative to the base model, when both regulatory and resource stringency was

Table IV. Results of correlation and regression analyses: e�ects of institutional andtask environment relations on performance

Correlation coe�cients Regression results

Performance PerformanceIndependent variables Pro®tability Productivity Pro®tability Productivity

Institutional environmentrelationsInspectors .04 ±.02 .03 ±.09

(.20) (1.29)Mandatory Program .01 .01 .07 .05

(.19) (1.22)Government Agencies .18** .14* .14 .03

(.26) (1.57)Trade Association .01 .15* ±.07 .13

(.06) (.34)

Task environmentrelationsDevelopers .19* .26** .02 .11

(.13) (.79)Subcontractors .14* .12 ±.04 .09

(.18) (1.15)Suppliers .35** .32** .31** .26**

(.18) (1.13)Banks .22* .09 .20* ±.02

(.14) (.85)

Control variablesAge ±.06 ±.07 .02 ±.05

(.01) (.05)Size ±.00 ±.05 ±.01 ±

(.00) ±Uncertainty .06 .14* .10 .14

(.09) (.58)

R2 ± ± .21 .18

Adjusted R2 ± ± .14*** .12**

Notes:n = 224. Standard errors are in parentheses* p 5 .05; ** p 5 .01; *** p 5 .001


CHRISTINE OLIVER114

high. In two out of four cases, institutional relations explained more variance inperformance than task relations (see ®rst row of table VI). By the same token,the relative importance of task relations declined across all conditions, relative tothe base model. Therefore, when regulatory and resource stringency was particu-larly high, task relations became less important and institutional relations becamemuch more so. Hypothesis 3 suggested that the quality of institutional relationswould have greater explanatory power for organizational performance than thequality of task environment relations when regulatory stringency was high.Hypothesis 3 received strong support for pro®tability. Support for productivitywas in the predicted direction, in so far as the R2 change increased under condi-

Table V. Comparison of institutional and task environment relations' e�ects on performance

Exclusive contribution

Base model Pro®tability Productivity

Summary statistics Pro®tability Productivity Institutional Task Institutional Taskenvironment environment environment environmentrelations relations relations relations

R2 change (%)Institutional environmentrelations 2.48 2.42 5.18 ± 3.63 ±Task environment relations 12.49 10.40 ± 16.08 ± 12.14Control variables 0.92 2.09 0.99 0.75 2.76 1.69

Adjusted R2 (%) 14.17 12.10 6.04 14.03 2.73 12.20

Signi®cant F .0007 .0024 .1053 .0002 .0917 .0006

Table VI. Regulatory versus resource stringency: e�ects of institutional and task environmentrelations on performance

Pro®tabilitya Productivityb

Summary statistics Base High High Base High Highmodel regulatory resource model regulatory resource

stringency stringency stringency stringency

R2 change (%)Institutional environment relations 2.48 7.38 5.71 2.42 2.65 9.36Task environment relations 12.49 5.09 7.42 10.40 8.22 5.66Control variables 0.92 1.06 2.12 2.09 2.58 1.28

Adjusted R2 (%) 14.17 18.13 8.85 12.10 11.82 3.75

Signi®cant F .0007 .0037 .1043 .0024 .0324 .2698

Notes:a n = 95 for regulatory stringency; n = 79 for resource stringencyb n = 89 for regulatory stringency; n = 74 for resource stringency



tions of high regulatory stringency in comparison to the base model. However,task environment relations still continued to explain more of the variance inproductivity than institutional relations when regulatory stringency was high.Hypothesis 4 proposed that the quality of task relations would be moreimportant to performance than the quality of institutional relations whenresource stringency was very high. Hypothesis 4 was supported for pro®tabilitybut not for productivity. Under conditions of high regulatory and resource strin-gency, task relations explained less variance in both pro®tability and productivityrelative to the base model. The overall results indicate that institutional relationsbecame much more critical to performance when environmental stringency washigh than when it was not high.

DISCUSSION

Institutional and task environment perspectives o�er dramatically divergent theo-retical explanations of organization±environment relations and the causal factorsin an organization's environment that are predicted to determine organizationalsuccess and survival. In the absence of previous empirical comparisons betweenthese two perspectives, this study adopted an interorganizational framework toassess the relative contribution of these perspectives to the prediction of organiza-tional performance and to examine the conditions under which each perspectivemight be expected to predominate in explaining organizational success. Thisresearch also sought to compare these two theoretical perspectives in anempirical setting that would do justice to the predictions of both perspectives.Therefore, a study population was selected that confronted strong institutionaland competitive pressures simultaneously.Tests of the study's ®rst two hypotheses revealed that task environment relations

were signi®cantly more critical to organizations' success than institutional relations.The quality of an organization's relations to task environment constituents whocontrolled the critical factors of economic production for the industry ± land,labour, capital and supplies ± was more strongly associated with pro®tability andproductivity than the quality of an organization's relations to institutional constitu-ents in the environment ± regulatory authorities, institutional inspectors, theindustry's professional association, and state agents governing the industry. Theweak support for hypothesis 1 and stronger support for hypothesis 2, therefore,tend to favour economic and resource dependence explanations which proposethat organizational performance is shaped fundamentally by critical task inter-dependencies and the acquisition of scarce economic resources as opposed toinstitutional accountability and conformity. The quality of an organization'srelations to government agencies and its trade association were shown to be corre-lated with performance, and the four institutional relations together did explain aproportion of variance in pro®tability and productivity but they were only margin-ally signi®cant, suggesting that institutional relations exerted some in¯uence onorganizational performance but much less so than task environment relations.In addition to comparing the relative strengths of institutional and task envir-

onment predictions, this study also attempted to determine when institutionalversus task environment perspectives might be causally superior in explaining


CHRISTINE OLIVER116

organizational performance. To this end, hypotheses 3 and 4 gave considerationto the more speci®c context within which organizational relationships are estab-lished, in particular, those aspects of an organization's environmental contextthat are potentially most problematic or constraining for organizational perfor-mance. In accordance with the dominant constraints in an organization'senvironment that institutional versus economic or resource dependence theorieshave tended to emphasize (institutional rules and expectations versus scarcity oftask environment resources), it was hypothesized that regulatory and resourcestringency, respectively, would be key factors in determining the prepotency ofinstitutional versus task environment explanations of performance. Under condi-tions of high regulatory stringency (i.e. when the institutional environmentimposes particularly strong regulatory or institutional pressures and expectationson organizations), the quality of ®rms' relations to key constituents in the institu-tional environment was predicted to exert a greater in¯uence on performancethan task relations (hypothesis 3); under conditions of high resource stringency(de®ned as recurrent di�culties in obtaining timely access to scarce productionresources), the quality of ®rms' task environment relations was expected to be astronger predictor of performance than institutional relations (hypothesis 4).These hypotheses were supported for pro®tability: institutional environment

relations were more critical to pro®tability than task environment relations whenregulatory stringency was high, and task environment relations were more criticalto pro®tability than institutional environment relations when resource stringencywas high. This implies that legitimating institutional linkages and conformingrelations to the institutional environment play a particularly important role incontributing positively to performance when the institutional environmentimposes intense pressures on organizations, whereas the e�ective management oftask interdependencies is more vital in environments where access to scarceresources is especially problematic. These ®ndings substantiate both institutionaland task environment perspectives in terms of the external pressures (institutionalexpectations and scarce resources, respectively) that each perspective proposes asdominant in shaping organizational outcomes, and in terms of the criticality ofinstitutional and task environment relations in determining organizational perfor-mance within the context of these respective pressures. Results for productivitywere more equivocal, suggesting that the relative in¯uence of institutional andtask environment relations on organizational outputs was less dependent on thecontext within which these relations were established and maintained. Theimportant point is that both types of relations contributed positively to perfor-mance when environmental constraints were severe. Therefore, future researchon organizational performance should be attentive to the intensity of environ-mental constraints surrounding organization±environment relations and notassume a priori that institutional or, alternatively, economic factors in an organi-zation's environment are su�cient to explain organizational success or failure.Given that both types of pressures are potentially critical in shaping performanceoutcomes, future research should explore further the particular conditions underwhich institutional versus task environment relations are likely to predominate inexplaining organizational performance and success.The overall pattern of institutional e�ects on organizational performance was

also revealing. The importance of maintaining high-quality institutional relations



consistently increased overall when both regulatory and resource stringency wasespecially high, whereas task environment relations declined in overall importanceunder these conditions. In other words, institutional relations appeared to makeorganizations much more pro®table and slightly more productive when therewere intense constraints in both the regulatory and resource environment thanwhen there were not. This did not hold true for task environment relations.These results suggest that the formation of high-quality institutional relations

not only improves an organization's performance when it confronts intensiveinstitutional pressures and expectations; the development of these relations alsomitigates the problems of competition for scarce resources that emerge from theorganization's task environment. There are several reasons to suspect that organi-zational associations with the institutional environment do more than confersocial endorsement and legitimation on organizations, despite institutionaltheory's dominant focus on these particular outcomes of organizational confor-mity. For example, it may be that institutional constituents provide organizationswith not only higher social status but also strategically useful information. It isnot uncommon for government agencies and trade associations to supply organi-zations that choose to establish ties with these constituents with information onindustry suppliers, competitive characteristics of the industry, or the economic,market or labour force trends that a�ect them. High-quality relations to the statemight also enhance an organization's eligibility for government contracts, grants,subsidies or other economic infusions. In addition, the legitimacy that institu-tional constituents bestow on institutionally linked organizations may facilitate thesubsequent acquisition of task resources. Public endorsement of a ®rm mayenhance its institutional standing and credibility, making it easier for the organi-zation to obtain capital, establish a line of credit, or attract a labour force.Finally, links to trade or professional associations may help the organization toestablish and sustain a stable network of contacts for procuring information onalternative sources of supplies, labour, or other critical resources. If the cultiva-tion of high-quality institutional relations is important to an organization'ssuccess when resources are especially scarce, as the results of this study suggest,then the instrumentality of institutional relations in market contexts certainlywarrants further research attention, and investigations of organizational outcomesshould extend beyond the provision of legitimacy and social support as thepredominant consequences of institutional conformity. Since institutional theoristshave con®ned their explanations of institutionalization primarily to the legitimat-ing e�ects of organizational compliance with institutional rules and expectations(Baum and Oliver, 1991; Meyer and Rowan, 1977; Oliver, 1991; Scott, 1987),future researchers should begin to examine the possibility of a broader range oforganizational consequences associated with institutional isomorphism and legiti-mating institutional linkages, including the potential for institutional relations toimpart strategic information, mobilize economic resources, and facilitate resourceacquisition.This study also has implications for the utility of the institutional±task environ-

ment dichotomy proposed by institutional theorists (Meyer et al., 1983; Scott,1992; Scott and Meyer, 1983). The present research substantiated the usefulnessof this distinction for identifying the divergent constituents, pressures andconstraints in these environments and reinforcing the notion that success may be


CHRISTINE OLIVER118

de®ned in either economic or social terms. However, the institutional±task envir-onment dichotomy tends to de¯ect attention from those environmental contextsthat impose both institutional and task environment pressures on organizationssimultaneously. Since few environments are purely competitive or exclusively insti-tutionalized (Powell, 1991; Tolbert, 1985; Zucker, 1987), more research is clearlyneeded in organizational contexts where the relative in¯uence of these pressureson organizational success and failure can be fully explored. The institutionalargument that institutional relations tend to hamper organizational e�ciency,notwithstanding their overall positive in¯uence on success, remains largely specula-tive (Meyer and Rowan, 1977; Selznick, 1957; Zucker, 1987). As an initial test,this study's ®ndings for pro®tability suggest that this is not necessarily the case.Nor does the dichotomy between institutional and task environments address

the potential for multiple organizational motives in establishing and sustainingrelations to the environment (Auster, 1994; Oliver, 1990), including the desire toincrease pro®tability, enhance legitimacy, acquire and control resources, reduceuncertainty in exchange, and demonstrate social responsibility. It is in environ-ments where task and institutional expectations coexist in shaping organizationaldestinies that the priorities attached to and potential for con¯ict among thesemotives will be most vividly played out. When compliant institutional relationshelp organizations to succeed in resource stringent environments, as they did inthis study, then it may be that institutional legitimacy and credibility facilitate theachievement of other objectives, including the acquisition of resources and theenhancement of pro®tability.This research also has several limitations and shortcomings that need to be

noted. First, although the results for institutional and task environment relationswere signi®cant, a considerable amount of variation in performance could not beexplained by these interorganizational relations. These results are not surprising,given that a large number of factors probably account for ®rm performance.None the less, future studies should include factors such as leadership characteris-tics and top management team composition to determine how these factorsinteract with the e�ective management of interorganizational relations ina�ecting ®rm performance.A second limitation of the study was the purposeful selection of the residential

construction industry to investigate institutional and task environment relations.It may be that in other industries where either competitive or institutionalpressures predominate, the results might strongly favour the e�ects of one type ofrelationship over the other. So, these results need to be tested for generalizabilityin a broader range of industries. Finally, the study is limited in that the e�ects ofcompetitive and institutional environments may be more overlapping and lessdistinguishable than they appear in this study. The variables in this study werecon®ned primarily to speci®c relations between ®rms and constituents in the®rms' task and institutional environments. These variables do not capture theways in which task and institutional constituents might overlap, and in doing soa�ect ®rm conduct. Therefore, future researchers might examine how institu-tional environment constituents alter the competitive environment of industries(by limiting market entry or awarding patents, for example), and how task en-vironment constituents impose coercive pressures on institutional constituents (bylobbying to change regulations, for example).



This study is the ®rst to examine the impact of institutional relations oncompeting private sector ®rms, to compare institutional and task environmente�ects on organizational performance, and to investigate the conditions underwhich institutional versus task environment approaches might provide a morepowerful explanation of organizational pro®tability and productivity. Theevidence of this research is that those ®rms that developed high-quality interorga-nizational relations to key players in their task and institutional environmentssigni®cantly outperformed those that did not. These relationships were also morestrongly associated with organizational success than organizational age, size, orenvironmental uncertainty. This reinforces the need for further research on inter-organizational relations and their potentially profound in¯uence in shaping orga-nizational outcomes. Most research has focused on the determinants rather thanthe consequences of establishing interorganizational relations (Oliver, 1990).Moreover, the results of this study bear witness to the potential validity of both

institutional and task environment perspectives on organizational performance.Overall, task environment relations were more strongly associated with highperformance than institutional environment relations; however, institutionalrelations became critical to performance when constraints in both the institu-tional and task environment were particularly severe, suggesting that the explana-tory power of institutional versus economic or resource dependence perspectivescannot be substantiated conclusively without reference to the regulatory andresource context within which institutional and task environment relations areformed. In this study, industry relations with the key purveyors of economicproduction factors were critical to success, supporting an economic or strategicapproach to organization±environment analysis. Yet it was also the case that anorganization's relations to the government agencies that regulate its industrycontributed positively to success, particularly when environmental stringency washigh, supporting the institutional premise that relations between organizationsand their institutional environment play a critical role in shaping organizationalsuccess. Further research comparing institutional and task environment e�ects ina variety of populations would help to establish the explanatory power of institu-tional versus task environment perspectives and the relative importance ofe�ective economic exchange versus social accountability in contributing to orga-nizational success and survival

APPENDIX

Measures of Variables

Quality of task environment relations. The quality of organizations' relations to the taskenvironment incorporated both the substantive quality and constraining aspects ofthese relations. Substantive quality was measured by the extent to which the ®rmfelt that it got along with each of the four task environment constituents ± scaled1 = not at all well to 5 = extremely well ± and by an overall description of the®rms' relations to each constituent ± scaled 1 = very poor to 5 = very good. Theitem correlations for the substantive quality of each of the four task environmentrelations were: developers: r = .44, p 5 .01; subcontractors: r = .44, p 5 .01;


CHRISTINE OLIVER120

suppliers: r = .06, n.s.; and banks: r = .48, p 5 .01. The constraining aspect oftask relations included two measures for each of the four types of task environ-ment relations. The ®rst measured the frequency with which an organization feltthat the task constituent kept it from doing things the way the ®rm wanted andwas scaled 1 = never to 5 = very often. The second measured how often develo-pers, suppliers and subcontractors had caused the ®rm delays in starting orcompleting construction (1 = never to 5 = always) and the extent to which banksor lending institutions put a lot of constraints on the ®rm's operations (1 = not atall to 5 = to a large extent). The item correlations for each relationship were:developers: r = .55, p 5 .01; subcontractors: r = .45, p 5 .01; suppliers: r = .29,p 5 .01; and banks: r = .42, p 5 .01).

Quality of institutional environment relations. The overall quality of relations tomunicipal building inspectors and to the mandatory provincial programmegoverning residential construction was measured in the same way as relations totask environment constituents (r = .61, p 5 .01 and r = .74, p 5 .01 respectively).The constraining aspects of relations to inspectors and the programme were alsomeasured using the same type of items (r = .26, p 5 .01 and r = .28, p 5 .01respectively). Relations to government agencies were measured using dummyvariables by asking ®rms whether or not they had ongoing contacts with theprovincial ministry and the federal department that oversee the residentialconstruction industry and, if so, whether these relations were helpful (coded 1) ornot helpful (coded 0) to the ®rm (r = .39, p 5 .01). The quality of links to theindustry's trade association was measured by asking ®rms, ®rst, how helpful theassociation had been to the ®rm in terms of making important business contacts(scaled 1 = not at all helpful to 5 = I've made all my important contacts throughthem) and, second, how well the association was felt to represent the ®rm's ownviews, scaled 1 = not at all well to 5 = extremely well (r = .89, p 5 .01).

Resource and regulatory stringency. Measures of resource stringency included fouritems to capture land, labour, capital and supplies as the critical resources forthis industry. These items were measured on a 5-point scale re¯ecting the degreeof ease or di�culty in obtaining access to scarce resources: di�culty in access toserviced lots of land (land), di�culty in hiring the subcontractors the ®rm neededwhen they needed them (labour), di�culty in obtaining loans or lines of credit(capital), and di�culty in obtaining necessary supplies on time (supplies). Asdistinct facets of the resource environment, there was little reason to expect inter-correlation among them. Nevertheless, a factor analysis of the four items wasconducted (a = .53). Measures of regulatory stringency included the extent towhich ®rms felt that the residential building industry was or was not overregu-lated with too many government codes, rules and regulations, and the extent towhich ®rms felt that the regulatory environment did or did not reduce theirability to operate e�ciently and pro®tably. These were dummy variables coded 1= yes and 0 = no (r = .83, p 5 .01).

Firm performance. Performance was measured in terms of pro®tability and produc-tivity. Pro®tability was measured as the percentage of lots on which ®rms hadconstructed a home in the last two years that had yielded a pro®t, the ability of



the ®rm to control construction costs (scaled 1 = always able to control construc-tion costs to 5 = it's always a serious problem), and the frequency with which®rms exceeded their initial cost estimates for building a home in the last twoyears (scaled 1 = never to 5 = very often). The percentage of pro®table lots wasrecoded into ®ve categories (1 = 0±20 to 5 = 81±100) to combine the threeitems into a mean score for pro®tability. Lot pro®t correlated with both theability to control costs (r = .70, p 5 .01) and exceeding cost estimates (r = .77,p 5 .01). The two cost measures were also signi®cantly correlated (r = .45,p 5 .01). Productivity was calculated as the percentage growth or decline innumber of homes constructed in the last two years of a ®rm's operations (year t1+ year t2/year t1). Firm output as number of homes constructed was divided by®rm size to re¯ect ®rm productivity relative to the scale of a company's opera-tions. Since productivity and pro®tability did not signi®cantly covary, they weretreated separately in the regression analysis.

Control variables. The size of the ®rm was measured as the number of permanentemployees in the company, including the head of the ®rm, at the time of thestudy. The use of `permanent' employees was important for this particularindustry, since members of the industry make extensive use of subcontractors.The age of the ®rm was measured as the number of years since founding.Perceived environmental uncertainty was measured with the following question,with a response range of 1 = not at all con®dent in my predictions to 5 = verycon®dent in my predictions: `Builders operate in an industry where the future isoften di�cult to predict. Please indicate how con®dent you would be in yourpredictions of how each of the items listed below may change in the next ®veyears.' The ®ve items included cost of land, interests rates, availability of land,availability of subcontractors, and availability of building materials (a = .62).

NOTES

*This research was supported by a grant from the Social Sciences and HumanitiesResearch Council of Canada. The author is extremely grateful to the editors and threeanonymous reviewers of the JMS for their comments.

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