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Resource dependence theory is the study of how the external resources of an organization affect the behavior of the organization. The procurement of external resources is an important tenet of both the strategic and tactical management of any company. Nevertheless, a theory of the consequences of this importance was not formalized until the 1970s, with the publication of The External Control of Organizations: A Resource Dependence Perspective (Pfeffer and Salancik 1978). Resource dependence theory has implications regarding the optimal divisional structure of organizations, recruitment of board members and employees, production strategies, contract structure, external organizational links, and many other aspects of organizational strategy.
The basic argument of resource dependence theory can be summarized as follows:
Organizations depend on multidimensional resources: labor, capital, raw material, etc. Organizations may not be able to come out with countervailing initiatives for all these multiple resources. Hence organization should move through the principle of criticality and principle of scarcity. Critical resources are those the organization must have to function. For example, a burger outlet can't function without bread. An organization may adopt various countervailing strategies—it may associate with more suppliers, or integrate vertically or horizontally.
Resource dependence theory is inspired by open system theory [1] and see organisations as a coalition of interests facing an environment of potentially conflicting demands and who need resources from this environement in order to survive. [2] Regarding the definition of the boundaries of an organisation (who is "in" and who is "out" of it), resource dependence theory suggest that what is coordinated by an organisation are specific behaviours rather than individuals. Thus, the inclusion of an individual in an organisation is defined by the proportion of the persons behaviours included in the organisation compared to the total amount of behaviours. [3]
Resource dependence theory postulate that there is no absolute criteria to define an organisation's success or performance, because these criteria depends on who evaluate the organisation. The theory use the concept of organisational effectiveness to reflect this idea. Organisational effectiveness is "the assessment of the organization's output and activities by each of the various groups or participants". [4] Effectiveness should not be confused with the concept of efficiency. Efficiency consist in producing the same output with less inputs, while effectiveness is about the definition of the desirable outputs. [5] An effective organisation is then an organisation "which satisfies the demands of those in its environment from whom it requires support for its continued existence". [6]
An organisation becomes dependent when the resource it is seeking is both important and concentrated in the hands of few organisations. [7] However, since organisations can be mutually dependent, an organisation will have power over another only if there is an asymmetry in the exchange relationship and that one organisation is more dependent than the other. [8]
To determine whether a resource exchange is important for an organisation, two criteria are used. First, the "Magnitude of exchange" is "measurable by assessing the "proportion of total inputs or the proportion of total outputs accounted for by the exchange". [9] For example, if a company sells only one product, it is dependent on the sale of this product. Then "Criticality" is "the ability of the organization to continue functioning in the absence of the resource or in the absence of the market for the output". [10] For example, electricity is a small portion of a company expenditure but most office cannot function without it.
Various means can be used to get control over a resource. These means includes possessing the resource (e.g. directly possessing knowledge), having ownership rights over the resource enforced by legal and social systems, [11] being part of the resource allocation process (e.g. a secretary can determine who access the boss) or being a user of the resource (e.g. workers can slow down production process to pressure employers). [12] Finally, control can stem from the ability to "regulate the possession, allocation and use of resources and to enforce the regulation". [13]
An organisation will be more dependent on another organisation if this organisation concentrate the control over an important resource. "Concentration of resource control" is then "the extent to which the focal organisation can substitute sources for the same resource". [14] Concentration can for example stem from market concentration, cartels, coordinated action, or regulation actors.
Resource dependency theory aims to explain why an organisation comply to the demands of external social actors. Pfeffer & Salancik propose that an organisation will comply to external control attempts if :
Recently, resource dependence theory has been under scrutiny in several review and meta-analytic studies. [16] [17] [18] Which all indicate and discuss the importance of this theory in explaining the actions of organizations, by forming interlocks, alliances, joint ventures, and mergers and acquisitions, in striving to overcome dependencies and improve an organizational autonomy and legitimacy.
Predictions of resource-depence theory has been confirmed by a meta-analysis in the domain of inter-organisational arrangements including interlocks, alliances, joint-ventures, in-sourcing arrangements and mergers and acquisitions. Resource dependence increase the likelihood of the formation of interorganisational arrangements, and the formation of these arrangements increases organisational autonomy and legicimacy. [18]
Mergers are a way for an organisation to control asymmetrical interdependence by "absorbing it" and to become more powerful. [1] Mergers can be used to manage diverse interdependence through vertical integration to avoid competition, horizontal integration to avoid dependence on supplier/clients or diversification to avoid dependence on a single activity. The prediction of resource dependence theory is largely supported by empirical research, although other factors or theories can also explain why organisations merge. [16]
While resource dependence theory is one of many theories of organizational studies that characterize organizational behavior, it is not a theory that explains an organization's performance per se
Resource dependence theory effects on nonprofit sector have been studied and debated in recent times. Scholars have argued that Resource dependence theory is one of the main reasons nonprofit organizations have become more commercialized in recent times. With less government grants and resources being used for social services, contract competition between private and nonprofit sector has increased and led to nonprofit organizations using marketization techniques used mainly in the private sector to compete for resources to maintain their organizations livelihood. Scholars have argued that the marketization of the nonprofit sector will lead to a decrease of quality in services provided by nonprofit organizations. [19]
Resource dependence concerns more than the external organizations that provide, distribute, finance, and compete with a firm. Although executive decisions have more individual weight than non-executive decisions, in aggregate the latter have greater organizational impact. Managers throughout the organization understand their success is tied to customer demand. Managers' careers thrive when customer demand expands. Thus customers are the ultimate resource on which companies depend. Although this seems obvious in terms of revenue, it is actually organizational incentives that make management see customers as a resource.
Resource dependence theory predictions are similar to those of transaction cost economics, but it also shares some aspects with institutional theory. [20]
Strategy is a general plan to achieve one or more long-term or overall goals under conditions of uncertainty. In the sense of the "art of the general", which included several subsets of skills including military tactics, siegecraft, logistics etc., the term came into use in the 6th century C.E. in Eastern Roman terminology, and was translated into Western vernacular languages only in the 18th century. From then until the 20th century, the word "strategy" came to denote "a comprehensive way to try to pursue political ends, including the threat or actual use of force, in a dialectic of wills" in a military conflict, in which both adversaries interact.
Empowerment is the degree of autonomy and self-determination in people and in communities. This enables them to represent their interests in a responsible and self-determined way, acting on their own authority. It is the process of becoming stronger and more confident, especially in controlling one's life and claiming one's rights. Empowerment as action refers both to the process of self-empowerment and to professional support of people, which enables them to overcome their sense of powerlessness and lack of influence, and to recognize and use their resources.
In the field of management, strategic management involves the formulation and implementation of the major goals and initiatives taken by an organization's managers on behalf of stakeholders, based on consideration of resources and an assessment of the internal and external environments in which the organization operates. Strategic management provides overall direction to an enterprise and involves specifying the organization's objectives, developing policies and plans to achieve those objectives, and then allocating resources to implement the plans. Academics and practicing managers have developed numerous models and frameworks to assist in strategic decision-making in the context of complex environments and competitive dynamics. Strategic management is not static in nature; the models can include a feedback loop to monitor execution and to inform the next round of planning.
In a corporation, a stakeholder is a member of "groups without whose support the organization would cease to exist", as defined in the first usage of the word in a 1963 internal memorandum at the Stanford Research Institute. The theory was later developed and championed by R. Edward Freeman in the 1980s. Since then it has gained wide acceptance in business practice and in theorizing relating to strategic management, corporate governance, business purpose and corporate social responsibility (CSR). The definition of corporate responsibilities through a classification of stakeholders to consider has been criticized as creating a false dichotomy between the "shareholder model" and the "stakeholder model", or a false analogy of the obligations towards shareholders and other interested parties.
Organizational behavior or organisational behaviour is the "study of human behavior in organizational settings, the interface between human behavior and the organization, and the organization itself". Organizational behavioral research can be categorized in at least three ways:
Environmental resource management or environmental management is the management of the interaction and impact of human societies on the environment. It is not, as the phrase might suggest, the management of the environment itself. Environmental resources management aims to ensure that ecosystem services are protected and maintained for future human generations, and also maintain ecosystem integrity through considering ethical, economic, and scientific (ecological) variables. Environmental resource management tries to identify factors between meeting needs and protecting resources. It is thus linked to environmental protection, resource management, sustainability, integrated landscape management, natural resource management, fisheries management, forest management, wildlife management, environmental management systems, and others.
Marketisation or marketization is a restructuring process that enables state enterprises to operate as market-oriented firms by changing the legal environment in which they operate.
Organizational effectiveness is a concept organizations use to gauge how effective they are at reaching intended outcomes. Organizational effectiveness is both powerful and problematic term. The strength of it is that it may be used to critically evaluate and improve organisational activities. It is problematic since it means various things to different individuals. And there are other alternative methods for measuring organizational performance. Organizational effectiveness embodies the degree to which firms achieve the goals they have decided upon, a question that draws on several different factors. Among those are talent management, leadership development, organization design and structure, design of measurements and scorecards, implementation of change and transformation, deploying smart processes and smart technology to manage the firm's human capital and the formulation of the broader Human Resources agenda.
The resource-based view (RBV), often referred to as the "resource-based view of the firm", is a managerial framework used to determine the strategic resources a firm can exploit to achieve sustainable competitive advantage.
William Richard Scott is an American sociologist, and Emeritus Professor at Stanford University, specialised in institutional theory and organisation science. He is known for his research on the relation between organizations and their institutional environments.
In organizational theory, dynamic capability is the capability of an organization to purposefully adapt an organization's resource base. The concept was defined by David Teece, Gary Pisano and Amy Shuen, in their 1997 paper Dynamic Capabilities and Strategic Management, as the firm’s ability to engage in adapting, integrating, and reconfiguring internal and external organizational skills, resources, and functional competences to match the requirements of a changing environment.
Jeffrey Pfeffer is an American business theorist and the Thomas D. Dee II Professor of Organizational Behavior at the Graduate School of Business, Stanford University, and is considered one of today's most influential management thinkers.
In economics, nonmarket forces are those acting on economic factors from outside a market system. They include organizing and correcting factors that provide order to markets and other societal institutions and organizations, as well as forces utilized by price systems other than the free price system.
Geoffrey P. Chamberlain's theory of strategy was first published in 2010. The theory draws on the work of Alfred D. Chandler, Jr., Kenneth R. Andrews, Henry Mintzberg and James Brian Quinn but is more specific and attempts to cover the main areas they did not address. Chamberlain analyzes the strategy construct by treating it as a combination of four factors.
Human resource planning is a process that identifies current and future human resources needs for an organization to achieve its goals. Human resource planning should serve as a link between human resource management and the overall strategic plan of an organization. Ageing workers population in most western countries and growing demands for qualified workers in developing economies have underscored the importance of effective human resource planning.
Resource slack, in the business and management literature, is the level of availability of a resource. Resource slack can be considered as the opposite of resource scarcity or resource constraints.
Jay R. Galbraith was an American organizational theorist, consultant and professor at the International Institute for Management Development, known for his work on strategy and organization design.
Gerald R. (Jerry) Salancik was an American organizational theorist, and Professor at Carnegie Mellon University. He is best known for his work with Jeffrey Pfeffer on "organizational decision making" and "the external control of organizations."
Joseph Galaskiewicz is an American sociologist and Professor of Sociology at the University of Arizona, known for his work on interorganizational relations and social network analysis.
The composition-based view (CBV) was recently developed by Luo and Child (2015). It is a new theory that explicates the growth of firms without the benefit of resource advantages, proprietary technology, or market power. The CBV complements some existing theories such as resource-based view (RBV), resource management view, and dynamic capability – to create novel insights into the survival of firms that do not possess such strategic assets as original technologies and brands. It emphasizes how ordinary firms with ordinary resources may generate extraordinary results through their creative use of open resources and unique integrating capabilities, resulting in an enhanced speed and a high price-value ratio that are well suited to large numbers of low- to mid-end mass market consumers. The CBV has been commented as “a new view with significant application” for emerging market firms and for small and medium sized enterprises in many countries. The view cautions though that composition-generated advantages are temporary in nature and that composition itself mandates special skills in distinctively identifying, leveraging, and combining open or existing resources inside and outside the firm.