Resource Dependence Theory: Interactions and Competitive Landscape

This essay delves into Resource Dependence Theory (RDT), exploring how organizations rely on each other for essential resources like raw materials, technology, and funding. It examines the interdependencies that arise when one company's output becomes another's input, highlighting the uncertainties that can arise from over-reliance. The paper uses a Candy Company Ltd. example to illustrate RDT's core elements, including organizational autonomy and environmental constraints. The essay further analyzes various strategies organizations employ to minimize dependency and control the competitive landscape, such as mergers, acquisitions, joint ventures, the role of the board of directors, political actions, and leadership succession. It references key theorists like Pfeffer and Salancik, providing a comprehensive overview of RDT's principles and practical applications, as well as the strategies for managing the competitive landscape.

Running head: RESOURCE DEPENDENCE THEORY
Management Theory and Practice: Resource Dependence Theory
Author Name(s)
Institution
Author Note

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Introduction
The resource dependency theory provides an explanation of how organisations rely on
each other for the supply of the necessary resources. In this case, resources can be anything that
is key to an organisation’s operations. Among the resources include the raw materials that the
organisation requires for its processing, technology, workers, or funds. Dependency arises where
the output of one company becomes the input of another company. To a larger extent, over-
reliance on one company for the supply of resources creates uncertainty of the company
progress. That is, the uncertainties of the production of the output will affect any other company
that relies on that output for its input. The purpose of this paper is to discuss the resource
dependency theory by showing interactions between organisations. The paper will also discuss
ways in which a firm can minimize dependency.
The Basic of Resource Dependence Theory
The Resource Dependence Theory (RDT) is a theoretical framework that originated with
Pfeffer and Salancik’s in their 1978 analysis which they later republished in 2003 (Pfeffer &
Salancik, 2003). Since its publication, RDT has been used by different scholars to explain the
structure and performance of different organisations. Also, in the realm of organisational
theories and studies in strategic management, RDT has been taken as an important theory in
explaining the interaction between the organisations and their external environment (Hatch,
2018). The basic rationale in RDT is that a study of an organisation’s inter-organisational
network is an important approach for the managers who aspire to understand the organisation
power and how far does it depend on the existence of other organisations (Scott & Davis, 2015).
According to (Pfeffer & Salancik, 2003, p. 1), “to understand the behaviour of an organisation
you must understand the context of that behaviour which is the ecology of the organisation.”

RESOURCE DEPENDENCE THEORY 2
The knowledge of the interdependency allows the organisation executive to anticipate the
environmental factors that influence the success of the organisation. The theory further suggests
the various ways an organisation can mitigate some of the vital influences created by the
interdependence. On analysis, an organisation stays in the interdependency network due to the
supply of vital resources which could be raw materials, capital, labour, knowledge, equipment,
and channels for selling its final products. This is the organisational environment from where it
derives its power. Figure 1 demonstrates an example of such interdependency network.
Explaining RDT through Organisational Interaction
For a better understanding of the theory, this paper takes the example of a fictional Candy
Company Ltd that makes Candy products.
Figure 1
On analysis, RDT characterises an organisation as existing within an open system. For its
survival, the organisation depends on eventualities that exist within the external environment.
According to Pfeffer and Salancik (2003), it requires one to understand the organisation’s
ecology to understand its behaviour. For instance, in making Milk Candy (Figure 1), the
Sugarcane
Farmers
Sugar
Company
Milk Candy
Company
Milk Powder
Company
Daily
Farmers
Stores &
Distributors

RESOURCE DEPENDENCE THEORY 3
company relies on sugar as the main ingredient and milk powder as the other ingredient. In this
case, the Candy company is dependent on the companies that produce sugar and milk.
RDT provides four main elements. Firstly, it recognizes that organisations are not
autonomous, but they are constrained by what Pfeffer and Salancik (2003) termed as a network
of interdependencies. Within the interdependency, Pfeffer and Salancik (2003) stated that there
are multiple uncertainties due to the part that other subjects (other organisations) play in the
network. Pfeffer & Salancik (2003) explained that problems do not merely arise due to the
organisational dependence on its environment, but due to the fact that the environment is not
very dependable.” The third element states that the uncertainties caused by other subjects in the
network threaten the survival of the organisation that relies on the network (Hillman, Withers, &
Collins, 2009). Fourthly, each organisation within the network take its own actions to neutralize
the external interdependencies though some approaches do not succeed where interdependency is
inevitable (Pfeffer & Salancik, 2003). For instance, it is inevitable for the sugar company to stop
relying on farmers who grow sugarcane. Lastly, the network of dependence creates inter-
organisational and Intra-organisational power.
The RDT recognizes the influence of external factors on organisational behaviour and,
although constrained by their context, managers can act to reduce environmental uncertainty and
dependence. The basic rationale is that every organisation has some scarce resources. This can be
raw materials, expertise, or technology. This makes the organisation dependent on other
organisations for the resources that it does not have. For instance, the Candy Company has a
scarcity of sugar and milk powder and must rely on the sugar and milk powder companies for the
supply of scarce resources.

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Central to this relationship is the concept of power. According to Ulrich and Barney
(1984), this is the level of control that other organisations have on the vital resources required for
the survival of the organisation. While looking back at the rationale of the scarcity of resources,
these resources can be vital for the survival of the organisation, or less important. Organisations
must attempt to prevent the control of vital resources by other companies. Back to the Candy
example, sugar is a vital resource for candy, and to eliminate uncertainties, the Candy company
must get control of the sugar production. As would be discussed later, gaining this control would
be either by creating good relationships with the sugar company, to start producing sugar itself.
Control of The Competitive Landscape
RDT states that organisations can reduce their dependency on their external environment
through different strategies. According to Pfeffer and Salancik (2003), these strategies are (1)
mergers and acquisitions; (2) mitigating uncertainties through the board of directors (BOD);
(3)formation of joint ventures; (4) undertaking necessary political actions and; (5) succession in
leadership. Different authors have examined the efficacy of these approaches. For instance, a
comprehensive assessment of each of these approaches has shown that all of them are capable of
minimizing environmental dependencies (Hillman et al., 2009).
Regarding mergers and acquisitions, research has provided two incentives that underpin
the approach. Firstly, acquiring another firm helps in controlling competition for resources thus
gaining the required power (Schildt, Laamanen, & Keil, 2010). For instance, in the example of
Candy Company, acquiring the milk powder company will reduce the competition for sugar that
is supplied by the sugar company. Another incentive is that acquiring the company that is
supplying the vital resource would help the organisation to gain power over the availability of the
raw materials (Delke, 2015). In the Candy company, this would happen by acquiring the Sugar

RESOURCE DEPENDENCE THEORY 5
company to gain control of the supply of sugar. In a study conducted by McNaughton and
Cozzarin (2014) that used data from Canadian statistics, the authors found that there is a positive
impact of organisation linkage (mergers). The results showed that organisations can use linkage
approaches as a way or minimizing resource dependency hence reducing transaction costs.
Studies analysing the impact of joint ventures have focused on joint ownership, strategic
alliances, and relationship agreements. On their analysis, most of these focus mainly on the
efficacy of joint relationships in reducing the firm’s uncertainty (Sniazhko, 2019). For instance,
while analysing the reason why some research and development organisations embark on
forming ventures, the authors found that such approaches are important especially for sharing
intellectual property (IP) rights (Delerue & Lejeune, 2013). The research showed that joint
ownership of IP was the best way of allocation appropriate control of rights and hence
establishing shared value through collaboration. In another analysis conducted by Jolink and
Niesten (2016), the authors revealed that Joint Ventures is one of the main approaches to
addressing contractual hazards. The analysis showed that forming ventures can help in mitigating
contractual hazards where the venture would be a substitute in the sharing of equity.
Focusing on the effectiveness of the BOD is another approach that studies have analysed
in relation to RDT. Initially, Pfeffer (1972) was the first to explain how the size and composition
of BOD can reduce organisational interdependence. Later, Pfeffer and Salancik, 2003) provide a
summary of the key benefits of the BOD and its abilities to reduce interdependence. In summary,
these abilities included BOD’s advice and information; ability to utilize different channels in the
organisation environment; ability to gain the necessary access to the required resources, and it’s
the power to establish the legitimacy of the organisation (Pfeffer & Salancik, 2003). While
explaining these view, Bendickson, Davis, Cowden, and Liguori (2015) stated that directors can

RESOURCE DEPENDENCE THEORY 6
reduce interdependency on the fact that different directors have access to different vital resources
which they can bring to the organisation. Similar incentives are provided by Lawal (2012) where
he identifies the board as ‘boundary spanner.’ In this concept, Lawal (2012) explains that each
member of the board would use his or her external network to bring all kinds of the needed
indispensable resource.
On matters of political action, studies have only shown a little relation with RDT. Among
these studies is the work of Hillman et al. (2009) who try to explain it through the concept of a
“created” environment. Creation of environment was an idea explained by Pfeffer and Salancik,
2003) which uses social sanctions and the law. According to Pfeffer and Salancik, 2003), the
organisation can use political mechanisms and attempts to create a unique environment in which
the new environment would serve its interests.
This idea mainly emphasizes on altering market conditions. The approaches are also
referred to as corporate political actions (CPAs) which are the various activities that firms can
undertake targeting a change on the political system (Jia, 2014). The change, in turn, prospected
to influence decisions that contribute to the overall firms’ overall performance. Some of these
actions can include lawsuits, political activism and leaking secrets of trade of another rival
company. A more elaborate approach is provided in the study of King and Walker (2014). The
authors state that political actions aim to either change a market policy, win hearts, or change
public perception (King & Walker, 2014).
The changing of public perceptions to show the public why the organisation deserves
favour and this enables the organisations to gain societal prominence. Either, the organisation can
use social movement. In this approach, the organisation would target the government,
universities or other institutions that can impact a change. However, the role of the organisation

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is to change policies that create specific vulnerabilities (Walker, Martin, & McCarthy, 2008).
According to King and Walker (2014), these social movements are likely to destabilise the
prevailing market system which can then create favourable conditions for the organisation
seeking change. Finally, regarding succession in executive, studies focusing on this emphasize
on replacing the non-performing executives such as the CEO with best talents. It is the idea of
getting someone else with the best skills for coping with the changing environmental demands
(Hillman et al., 2009). By changing the executive, organisations can reduce interdependency as
the new person can come with ideas of making the organisations self-reliant.
Conclusion
This paper has shown the importance of resources for the survival of an organisation. On
the other hand, the organisation’s survival highly depends on its level of autonomy in a
competitive market. Higher control of its power by external environments threatens the
organisation's survival in competitions. The resource dependency theory serves a key position in
explaining the concept of the interdependency of organisations, and how they can attain their
autonomy. The role of this paper was to discuss the theory and discuss the various ways through
which firms can apply this theory to increase their competitive landscape.

RESOURCE DEPENDENCE THEORY 8
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