Module MT120

Resource Dependence Theory

 

Module author

Jeffrey Pfeffer

Stanford Graduate School of Management
Stanford University
USA

Learning objectives

After you studied this module, you will be able to:

  • Define resource dependence of companies.
  • Explain what resource dependence theory is about and what it tries to explain.
  • Discuss why it is relevant to know about this theory in today's economic environment and management practice.
Workload units 1
Reading extract Resource Dependence Theory

 

Why Open School of Management believes that knowing the resource dependence theory is helpful

All types of businesses will require the use of external resources in order to provide the goods or services they sell to their customers. Some service-based businesses may utilize external resources to complete services, but they may also need to sell replacement parts, supplies or other items as part of the services they provide. Others will use external resources to make goods that are sold to customers. At the most basic level, everything from water, electricity, gas and even human manpower and customers may be viewed as external resources that companies are reliant on. After all, without these resources, the company simply would not be able to conduct business. Resource dependence theory is a popular business theory that was developed by Jeffrey Pfeffer and Gerald Salancik during the 1970s. In this theory, the concept that a business's organizational behavior is impacted by the availability of the external resources that are used. With a closer look at this theory, you may see how it is applicable to you and your business.

At the surface, the resource dependence theory states the obvious. All companies need access to different types of external resources, and without access to those resources, the company will be unable to perform its basic functions and work activities. However, the resource dependence theory has more depth, and it further states that the success of the company relates to the scarcity of the external resources and the business's overall ability to access and use those raw materials in a way that is superior to that of its competitors. Therefore, the organizational behavior related to external resources has a fundamental impact on the success of the business.

The role of power in resource dependence theory

Taking an even more in depth look at this theory, you can surmise that those who control the external resources essentially will be more successful overall. However, in many cases, the external resources are not controlled by the business. Instead, they may be controlled by government, third party municipality services, other companies and even private individuals or investors. Therefore, organizational behavior related to the resource dependence theory goes on to theorize that power underpins the success of a company, and companies must constantly be trying to gain power of the external resources they need in some way.

Strategies for increasing power over external resources

There are many steps that a company may take to increase power over external resources. In the instance where one entity controls vital external resources, that entity has power over the company. The entity may charge a high price for access to those resources, and this can make it cost-prohibitive for the company to use those resources at all. Therefore, many strategies developed by an organization may relate to increasing power over external resources. This may be done by locating multiple suppliers to use for access to the external resources. It may also be done by decreasing dependence on one specific type of resource and adopting the use of different types of external resources. This essentially can shift power to a more favorable balance for the company.

 

Why study resource dependence theory?

When you review a popular business theory like resource dependence theory, it is important to take a closer look at how it relates to your own business. For example, this may play a role in how your company interacts with vendors and suppliers as well as how it targets customers or conserves resources. In addition, it may also be adapted to relate to how specific departments or units inside an organization interact with each other to obtain access to the resources needed. The behavior of your organization as a whole as well as the actions of management to guide the company and the individual units will be impacted by the need to gain power over different resources in a cost-effective way.

External resources are a true necessity for all types of businesses regardless of the sector or niche that they are in, and this theory states that customers are the most important type of external resource to the success of a business. Companies will make decisions in an effort to gain power in the marketplace to control resources and to be more competitive than business competitors. This fundamental theory is essentially the backbone or underlying premise for many decisions that your managers and executives will make to guide the company.

 

Return to Management Theories (MT modules).