Biomedical Engineering Reference
In-Depth Information
organizational effectiveness in value-chains characterized by confl icted logics, and
where fi duciary obligations are relevant. Suchman (
1995
, p. 574) defi nes legitimacy
as a “generalized perception that the actions of an entity are desirable, proper or
appropriate within some socially constructed system of norms, beliefs and defi ni-
tions.”
5
That is, legitimacy is not an abstract, monolithic or enduring evaluation;
rather, it is socially constructed by an organization's value chain partners based on
a multidimensional evaluation including (1) pragmatic legitimacy or the degree to
which it delivers something that adds
value
to the system, (2) moral legitimacy or
the degree to which it employs means and procedures that are
trustworthy
, and (3)
cognitive legitimacy or the degree to which its activities are
meaningful
and desir-
able for the use and distribution of societal resources (Scott
1987
; Suchman
1995
).
As such, a legitimacy objective draws attention not only to value creation but also
on
how
(using trustworthy means?),
what
(using meaningful activities?) and
for
whom
(fair allocation of benefi ts).
A particularly foundational element in the open systems framework is that inter-
dependencies assume special importance in systems where value chain partners are
embedded in institutionally disparate logics. Unlike an economic framework that
achieves its coherence by its assertion of a unitary logic of consequences, an open
systems framework problematizes coherence by consideration of dualistic logics. In
our study, we have noted that the pharmaceutical value chain involves partners that
are beholden to different logics. An open systems framework argues that pharma-
ceutical industry embrace the dualistic logics of the value chain in designing its
strategies and tactics. Singular focus on its own logics ignores the interdependence
of the value chain as a system. Consequently, while the economic framework
focuses on the mechanisms of creating and extracting value, the open systems
framework requires focus on mechanisms that balance the organizational need to
extract value with the objective of gaining legitimacy (Table
24.2
).
To balance value extraction with legitimacy gains does not necessarily imply
accepting tradeoffs. Rather, an open systems framework suggests that organiza-
tional effectiveness is likely to be enhanced (compromised) when strategic actions
in pursuit of consequential logics also bolster (undermine) the social codes and
norms implied by the appropriateness logic of value chain partner. In studying hos-
pital survival rates from 1945 to 1990, Ruef and Scott (
1998
) found that, after con-
trolling for organizational and environmental factors, top-rated hospitals (with
greater legitimacy) improved their survival rates by factors of 2-5 over average-
rated hospitals (with lower legitimacy). Likewise, Arthur (
2003
) showed that
Fortune 500 organizations that gained (moral) legitimacy by investing in work fam-
ily initiatives during 1971 and 1996 posted “excess” shareholder returns to enhance
fi rm's fi nancial resources. Consistent with this, Rao et al. (
2008
) demonstrate that
US biotechnology fi rms derived greater stock market returns from innovations if
5
Deephouse and Carter (
2005
) note that legitimacy claims are distinct from reputational claims.
Organizational reputation is a qualitative assessment based on social comparison among a set of,
possibly legitimate, fi rms. However, legitimacy is about social acceptance based on conforming to
social norms.
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