Turkish owner-managers’ interpretations of institutionalization: the roles of perceived environmental complexity, regulatory focus and environmental scanning

Many owner-managers of medium size firms consider the issue of institutionalizing their firms by introducing rules and regulations. Some suggest that this is an opportunity for their firm to grow or believe that institutionalization has become a necessity given the pressures from the environment. On the other hand, some argue that the issue of institutionalization presents a threat; slowing down their reaction time to the changes in the marketplace and creating unnecessary paperwork to deal with. Such differences in owner-managers’ interpretations are expected to influence their strategic decisions on the issue of institutionalization. However, it is not clear how owner-managers reach these opportunity, threat or necessity interpretations. The present study was designed to understand the relationships between perceived environmental complexity, environmental scanning and regulatory focus (i.e., promotion and prevention) and owner-managers’ opportunity, threat and necessity interpretations of institutionalization for medium size family business firms. Survey data was collected from owner-managers of 90 medium size manufacturing firms in the industrial areas of Gebze and Istanbul in Turkey. The results, as hypothesized, showed that personal scanning of the external environment partially mediated the influence of perceived environmental complexity, and owner-managers’ regulatory focus (promotion vs. prevention) on threat, opportunity, and necessity interpretations. Specifically, perceptions of complexity as well as chronic prevention focus (vs. promotion) were positively related to less frequent personal external scanning and frequency of personal external scanning positively predicted the interpretation of institutionalization as an opportunity and necessity and negatively predicted threat interpretations. Results were discussed in the light of cultural values of Turkey and managerial interpretation of strategic issues.