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Resource Dependence Theory In Management

Guest post by: Dr. Fathi El-Nadi

Article Overview: In the early 1970s researchers began to question whether managers were able to accurately perceive the threats and opportunities actually present in the external environment. Scholars soon began to search for a more objective method of operationalizing the environmental uncertainty construct. Attempting to solve this dilemma, researchers in the 1970s began to explore resource dependency as a more objective measure of the uncertainty that organizations faced when dealing with their environment.

Resource Dependence Theory In Management

Pfeffer and Salancik (1978) utilized the previous environmental literature to develop resource dependence theory. Resource dependence theory is based on the notion that environments are the source of scarce resources and organizations are dependent on these finite resources for survival. A lack of control over these resources thus acts to create uncertainty for firms operating in that environment. Organizations must develop ways to exploit these resources, which are also being sought by other firms, in order to ensure their own survival.
According to Pfeffer and Salancik (1978):
… the elemental structural characteristics of environments are concentration, the extent to which power and authority in the environment are widely dispersed; munificence, or the availability or scarcity of critical resources; and interconnectedness, the number and pattern of linkages, or connections, among organizations. These structural characteristics, in turn, determine the relationships among social actors – specifically, the degree of conflict and interdependence present in the social system. Conflict and interdependence, in turn, determine the uncertainty the organization confronts (Pfeffer and Salancik, 1978, p. 68).
Pfeffer and Salancik determined three factors that influenced the level of dependence organizations had on particular resources. First, the overall importance of the resource to the firm was critical in determining the resource dependence of the firm. Second, the scarcity of the resource was also a factor. The more scarce a resource was, the more dependent the firm became. Finally, another factor influencing resource dependence was the competition between organizations for control of that resource. Together, all three of these factors acted to influence the level of dependence that an organization had for a particular resource.
Resource dependence theory also inferred that a firm’s strategic options were determined to a great extent by the environment. Since firms were dependent on the environment for resources, they needed to enact strategies that would allow them to acquire these resources. Therefore, the external environment had already been determined for these firms, and they experienced little strategic choice. However, those who supported the notion of managerial choice argued that some organizations were more effective than others in the same environments, thus proving that strategic choice did exist.
Hrebiniak and Joyce (1985) argued that strategic choice and environmental determinism did not have to be mutually exclusive. They reasoned, “control over scarce resources is central to the relationship between choice and determinism” (Hrebiniak and Joyce, 1985, p. 343). Lawless and Finch (1989) found limited support for the model developed by Hrebiniak and Joyce, stating that “parts of the model were not supported by our analysis, and that further questions … are actually raised” (Lawless and Finch, 1989, p. 361). Bedeian (1990) argued that neither argument is completely accurate, as “organizational adaptation is an ongoing, multi-directional relationship in which organizations neither mechanistically react to environmental forces nor exercise unrestricted free will (strategic choice)” (Bedeian, 1990, p. 571).
Within the resource dependence school, the environment was seen as the source of scarce resources that were critical to a firm’s survival. It was the lack of control over these critical resources, rather than a lack of information, that gave rise to environmental uncertainty. Environments that contained high levels of resources were perceived as less hostile to the stability of organizations, whereas those with low levels of resources acted to increase the intensity of competition among firms. Accordingly, resource dependence theorists argued that in order to reduce the impact of this environmental uncertainty on organizational performance, it was necessary for organizations to develop and sustain effective relationships with their external environment.


Perceptual versus archival measures of uncertainty
In operationalizing the environmental uncertainty construct, researchers in the resource dependence school have utilized both perceptual and archival measures of environmental uncertainty. However, archival measures have been most commonly employed to yield an objective measure of resource hostility (Dess and Beard, 1984; Yasai-Ardekani, 1989; Boyd, 1990; Wiersema and Bantel, 1993; Goll and Rasheed, 1997; Simerly and Li, 2000). These authors believed that the scarcity of resources in an environment was an objective reality, and thus needed to be measured objectively. Yasai-Ardekani (1989, p. 133) stated that “environmental munificence and scarcity refer to the objective condition of an environment and were thus measured with objective industry-demand data”.
A limited number of researchers have instead used perceptual scales in order to measure the level of environmental resource dependence (Koberg, 1987; Koberg and Ungson, 1987; Tan and Litschert, 1994; Tan, 1996). In a study of the joint effects of environmental uncertainty and resource dependence, Koberg and Ungson (1987) claimed that “consistent with the argument that perceptions of organizational contingencies and not objective properties determine decision-making behavior, two perceptual measures of environment were employed. One was a measure of environmental uncertainty … the other was a measure of environmental resource dependence” (Koberg and Ungson, 1987, p. 729).


Simple and complex measures of environmental uncertainty
As conceptualizations of environmental uncertainty have continued to evolve in the management literature, so too have operationalizations of uncertainty. Since the seminal works in the information uncertainty and resource dependence schools both posited that only one primary source of uncertainty existed in the external environment, researchers utilized simple measures to operationalize the uncertainty construct. As research in this area matured, scholars increasingly argued that several factors acted together to determine the total amount of uncertainty a firm faced in the environment. To reflect this belief and to form a more comprehensive view of uncertainty that had been lacking in the early literature, multidimensional operationalizations of uncertainty were developed (Milliken, 1987; Tan and Litschert, 1994).
Thompson (1967), in Organizations in Action, argued “uncertainty appears as the fundamental problem for complex organizations and coping with uncertainty, as the essence of the administrative process” (Thompson, 1967, p. 159). He conceptualized a firm’s external environment in terms of two main dimensions: heterogeneity/ homogeneity and stability/dynamism. A heterogeneous environment consisted of many elements that were different in nature; a homogeneous environment contained very similar elements. The stability/dynamism dimension referred to the rate of change present in the environment. A dynamic environment changed at a very rapid pace and thus created a great deal of uncertainty for firms; a stable environment typically remained unchanged and was therefore more predictable.
Duncan (1972), employing the works of Emery and Trist (1965) and Thompson (1967), also argued that there were two main dimensions along which the environment could be measured. Duncan called these the simple-complex dimension and the static-dynamic dimension. The simple-complex dimension measured the number of factors that were present in the environment. A simple environment consisted of a small number of key factors; a complex environment contained many different defining factors. The static-dynamic dimension of the environment was concerned primarily with the amount of change in these factors. A static environment experienced little or no change, while a dynamic environment was in a constant state of change.
Child (1972) utilized three dimensions to conceptualize the external environment. His first two dimensions were similar to those theorized by Thompson (1967) and Duncan (1972), measuring both rate of change and complexity. However, he also drew upon the resource dependence literature to develop a third dimension called “illiberality.” Illiberality referred to the overall availability of resources in the external environment.

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