Institutional Theory explains how organizational functioning is shaped by what?

• A. Social and organizational values and norms influence functioning.
• B. Market share and profitability.
• C. Technological efficiency alone.
• D. Vertical hierarchy without cultural considerations.

Answer: (A)

Institutional theory looks at how the social environment—values, norms, and expectations shared by a field or society—shapes how organizations operate. Organizations adopt practices and structures to gain legitimacy and acceptance within their professional and regulatory context, not just to chase profits or technical efficiency. That’s why the statement about social and organizational values and norms influencing functioning best captures the idea: culture, professional standards, and regulatory expectations guide what organizations do and how they do it. Other options miss this emphasis on legitimacy and social expectations, focusing instead on economic outcomes, standalone efficiency, or a purely hierarchical view without considering the cultural context.