Resource Dependence Theory

Resource dependence theory argues that organizations, as open systems, necessarily transact with other organizations in their environment to obtain the resources necessary for their survival. Such resources include social legitimacy, financing including debt and equity capital, the inputs necessary to produce the products and services offered, and the funds received from the provision of the organization’s output to others. These transactions inevitably create power-dependence relationships among the entities because only in very rare cases will the dependence of the focal organization on its transaction partners be identical to their dependence on it. These power-dependence relations subject the focal organization to potential influence and constraint by those that hold power over it because of that dependence. Thus, the argument from resource dependence theory maintains that understanding organizational actions requires examining the pattern of constraints and the preferences of other important actors in the organization’s environment—that management behavior can be understood in part as a response to the resource dependencies leaders confront.

The second argument from resource dependence theory holds that organizational leaders seek to create as much autonomy as possible, given the system of interdependent relationships they confront. This autonomy can free them from constraints on their decision making, increase profits, and help ensure the organization’s survival. To manage external interdependencies, organizations engage in strategies such as co-opting others onto their boards of directors, merging in an effort to absorb interdependence and gain competitive leverage, forming joint ventures [Page 661]as a strategy of partial cooptation and absorption, and engaging in various forms of political activity, such as lobbying and organizing campaign contributions. Because these actions are presumably designed to mitigate resource dependence and the resulting constraint, patterns of mergers, joint ventures, and co-optive board relationships can be predicted and explained by the pattern of resource dependence a given organization or set of organizations faces.

A third strand of resource dependence theory links the internal organizational power of people and subunits to the external power-dependence relations that the focal organization faces. The theory argues that those units (and people) that can best cope with the most critical external resource dependencies come to have relatively more power because of that capacity to deal with external threats and constraints. The increased internal power is manifested, for instance, in the proportion of senior leaders with backgrounds from the more powerful units, representation on the board of directors and critical committees, the salaries leaders and frontline employees of the most important units earn, as well as other manifestations of relative status. Therefore, internal organizational power dynamics reflect the external constraints and contingencies organizations confront. This entry shows the arguments and empirical support for the theory, its evolution and relationship to other perspectives on organization-environment interaction, and the critiques and challenges to its approach to organizational analysis.