Resource Dependence Theory

Resource dependence theory(RDT) is the study of how the external resources of organizations affect the behavior of the organization. The procural 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 ofThe foreign Control of fundamental laws 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 resources. * These resources in the end originate from an organizations environment. * The environment, to a considerable extent, contains ot her organizations. * The resources one organization needs are thus often in the hand of other organizations. Resources are a basis of power. * Legally independent organizations can therefore depend on each other. * Power and resource dependence are directly linked Organization As power over organization B is equal to organization Bs dependence on organization As resources. * Power is thusrelational, situational and potentially mutual. Organizations depend on three-dimensional resources labor, capital, raw material, etc. Organizations may not be able to come out with countervailing initiatives for all these multiple resources. Henceorganization should move through the normal of criticality and principle of scarcity.Critical resources are those the organization must have to function. For example, a burger outlet cant function without bread. An organization may adopt various countervailing strategiesit may bear on with more suppliers, or integrate vertically or horizontally. Resourc e dependence concerns more than the external organizations that provide, distribute,finance, and compete with a firm. Although executive decisions have more one-on-one weight than non-executive decisions, in aggregate the latter have greater organizational impact. Managers throughout the organization understand their success is tied to ustomer ingest. 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 is one of many theories oforganizational studiesthat characterize organizational behavior. In many ways, resource dependence theory predictions are similar to those oftransaction cost economics, but it also shares some aspects withinstitutional theory.