Research Findings

On habit and organizing: a transactional perspective relating firms, consumers and social institutions

October 19, 2023

The surest way to get a player to come back to the game is to make it a habit, a part of their life.”

 — A game designer and product manager

Much of consumption, which includes the acquisition, appreciation, and use of goods and services, is habitual. On any typical day, millions of people engage in various activities available on their Apple or Android smartphones, communicate with friends and family through social networks such as Twitter, and use popular streaming services such as Netflix and Spotify to entertain themselves. Reinvigorated by the rise of social media, digital platforms, and artificial intelligence, and recently jolted by the COVID-19 pandemic, the recurrent and habitual transactions of individual consumers with provider firms are a mainstay of the market economy.

In these transactions, firms do not just design and deliver products and services for consumers to buy occasionally; they also craft institutional and structuring contexts for them to consume habitually. We refer to this as “habit engineering”, whereby dominant firms intelligently craft their products, services, technologies, and operations to shape consumers’ habits to their advantage. In this purposeful (and at times covert) process, firms use principles drawn from habit psychology and related fields strategically to form, sustain, break, and predict consumers’ habits.

Conventionally, habits and routines have been examined within organizations, leaving consumer habits and their engineering mostly outside the scope of key organizational theories. Stressing the theoretical and practical significance of these phenomena, our paper urges organizational scholars to reconsider this convention by looking beyond traditional organizational boundaries. In our paper, we sketch a new habit-based perspective relating firms, consumers, and social institutions and use it both to theorize habit engineering and to derive broader implications for organizing and habit-based theorizing as well as for practice.

We consider how consumers’ habits feed into firms’ production and innovation processes and join other, more familiar building blocks forming organizational capabilities, such as employees’ habits and routines. Our model stresses the continuity and overlap of reliable processes across firms’ boundaries, allowing both firms and consumers to activate the recurrent action patterns of one another. Moreover, in shaping the habits of resource providers and limiting their need to deliberate, firms are better able to coordinate their contributions with those of other organizational members.

In viewing institutions as structuring contexts, we, too, recognize the strong influence they exert on how individual and collective agents think and behave. However, we particularly highlight how firms structure the behavior of other resource providers. Institutional explanations of reproduction emphasize the roles of conformity, habit, and convention rather than organizational power and control in contributing to stability; and power tends to be attributed to the institutional environment rather than the organization itself. As we stress, however, recognizing the power exerted by institutions, when they engineer the habits of resource providers to their advantage, firms jointly draw on institutions as intermediaries and act as institutions, providing stable structuring contexts for habit development in the process. Thus, dominant firms assume several social functions and influence levers traditionally associated with impersonal social structures and institutions.

As others have recognized, institutional practices, routines, and capabilities are all, to a significant extent, grounded in habits. We extend this insight by bringing together the recurrent action patterns of different agents and institutions within the same overarching transactional framework. Going beyond the conventional stress on the agency-structure interplay, we shift perspective from agents, such as firms or consumers, to their habitual dispositions or potentialities and to the multiplicity and concordant effects of different structuring contexts where these develop and are deployed. As we stress, social institutions are key, but not as the only structuring contexts for habit development; we instead also add nature, peers, and other social groups to the equation. As we also highlight, overlap and recursive relationships exist not only between agents and social structures, but also between different kinds of agents.

Another important contribution of habit-based theories has been to provide a more plausible micro-foundation for organizing wherein choices and decisions (and their cognitive underpinnings) are less prominent than in the bounded rationality model. Our model adds a different spin: Whereas rationality and its bounds are usually viewed as shaped by impersonal institutions or by agents’ inherent biological limits, we highlight how they can be significantly structured by other powerful agents.

We contend that when viewed within a broader ecological framework, habits may also have a more central ontological role. As the case of platforms indicates, firms may repeatedly interact with a multitude of individual agents even more than they interact with other firms. Consequently, a focus on organizational routines as key theoretical building blocks can be highly useful in situations of business-to-business interactions and exchanges, such as between a supplier and buyer firm or between rivals. However, when broader ecologies are considered, habit can be an important theoretical building block in its own right.

Overall, our new perspective extends and redirects extant habit-based models, such as learning and routines, institutional, and capability, both by revisiting key foundational ideas, such as structure and agency, structuring, habits, and bounded rationality, and by opening up new frontiers which lie outside their traditional scope commitments.

Our paper also carries important implications to consumers, society, and firms’ managers. We discuss how firms may misuse their power to create “dopamine-driven feedback loops”, and, at the extreme, turn habit engineering into a form of “addiction by design”. As we discuss, individuals may not only be relatively unaware of their own habits, but also quite unaware of how their habits are shaped by institutions, by dominant firms, and, increasingly, by algorithms. Faced with the market power of dominant firms, consumers often have fewer choices at their disposal; nevertheless, consumers can act, individually and collectively, to counteract firms’ power, for instance by leveraging their own life transitions to switch habits or use the feedback provided by digital technology to modify their own habits.

Turning into society, habitual consumption (along with automation) can render the broader economy more mindless than mindful. Such a shift may lead to contrasting effects. Along with arguments made by Weber and Marx, unequal social transactions may compound into large, changing systems of exploitation and inequality; but as noted by Hayek and Whitehead, some forms of routinization may free up resources for non-routine tasks, making the economy more innovative and advanced as a result. As in other policy issues, governments need to balance different (and at times competing) claims made by consumers, firms, and other constituents. Habit engineering poses another unique consideration: to influence the well-being of their citizens, governments often rely on similar habit-forming practices to those used by firms.

As with other technologies and tools, the key overriding issue is therefore not with discarding habit engineering, but rather with channeling it for the greater good. This principle is particularly applicable to the firm’s managers. While they can draw on habit engineering to create competitive advantage, craft habit-based strategies, and shape their firms’ environments, managers should channel habit engineering principles for the greater good: cultivate “good” consumer habits such as health-related habits, and refrain from misusing power to promote unethical, “bad”, and potentially addictive behaviors.

Read more

Moshe Farjoun and Nudrat Mahmood. “On Habit and Organizing: A Transactional Perspective Relating Firms, Consumers, and Social Institutions” in Organization Science 2023.

image: bowie15 via iStock

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