Summary of Resource Dependence Theory

Pfeffer and Salancik (1978)'s External Control lay out a grand theory for RD perspective. The main idea is that firms develop a power dependence relationship with other organizations when they rely on other organizations' for resources. RD's definition of the environment is more elaborate than organization ecology's "resource niches" and institutional theory's "rational myths".

In RD, the job of the organization managers is to manage the coalition of different organizations and ensure the organizations can get continued supports from the environment.
RD theory derives from Emerson (1962)'s exchange-based theory of individual power and extends it to the power among firms. Emerson (1962)'s power theory is summarized as : the power of A over B comes from the fact that A has resources that B values and have no other options. Two organizations can have the same power dependence relationship on the basis of two assumptions. First, one organization should has the resources that can only be acquired from the other organizations. Second, organizations try to survival on their own autonomy to avoid the uncertainty in the environment. The two assumptions lead to the possibility for one organizations to have power over the other organization.

According to RD, the critical point for organizations to suvive is whether organizations can assess their environment accurately and the degree to which each parties are able to influence the organization. The basic idea is that when organizational members notice the demands in the environment, the power in the organization starts to concentrate on those who are the best equiptted in dealing with the issues. At the same time, organization members can also misunderstand the environment, because managers tend to interpret the environment with the approaches that are consistent with their past experience. Therefore, it is easy for them to carry on systematic biases in their assessments of the environment.


The applications of RD mainly focus on four sets of strategies firms use to deal with the external power controls. First, firms can engage in symbolic activities to manage conflicting demands from different stakeholders, such as restricting information flows, hiding controversial actions, blaming them on others, or actively working to shape the perceptions of external audiences" (Wry et al, 2013). Second, even though firms can grow organically, it is still reasonable for firms to engage in mergers to reconstruct the dependence relationships. Diversification can also buffer the uncertainty in the environment that cannot be handled by one organization.Third, firms establish bridging ties to other organizations to coordinate production, obtain information and establish legitimacy or co-optation. Fourth, firms can actively change the environment through political action. The idea is that firms can create favorable environment by establishing, altering, or dismantling government regulations.

Main contribution of RD

1) RD has strong influence on other domains of organization theories. For example, network theory, which focuses largely on inter-organizational linkages, has draw on insights from RD (Gulati and Sytch, 2007). The basic argument is that organizations will form networks with each other if they depend on each other for resources and the network will further influence the organizations' performances.
2) RD also has influence on new institutional theory. RD has served as one source of isomorphic power.The general idea is that if an organizational field depends heavily on a single support of resources, the level of isomorphism will be higher. The normative pressure in isomorphism can be interpreted as the idea that the organizational field depends on the single resources of professionals.

References:
Wry, T., Cobb, J. A., & Aldrich, H. E. (2013). More than a metaphor: Assessing the historical legacy of resource dependence and its contemporary promise as a theory of environmental complexity. Academy of Management Annals, 7(1), 441–488.

Preffer, J., & Salancik, G. (1978). The external control of organizations: A resource dependence perspective. The external control of organizations: a resource dependence perspective.

Emerson, R. M. (1962). Power-dependence relations. American sociological review, 31-41.

Gulati, R., & Sytch, M. (2007). Dependence asymmetry and joint dependence in interorganizational relationships: Effects of embeddedness on a manufacturer's performance in procurement relationships. Administrative Science Quarterly, 52(1), 32-69.