Resource Dependence Theory

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Resource dependence theory (RDT) is the study of how the external resources of organizations affect the behavior of the organization. The procurement 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 of The External Control of Organizations: 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 ultimately originate from an organization's environment. * The environment, to a considerable extent, contains other 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 A's power over organization B is equal to organization B's dependence on organization A's resources. * Power is thus relational, situational and potentially mutual. Organizations depend on multidimensional resources: labor, capital, raw material, etc. Organizations may not be able to come out with countervailing initiatives for all these multiple resources.Hence organization should move through the principle of criticality and principle of scarcity. Critical resources are those the organization must have to function. For example, a burger outlet can't function without bread. An organization may adopt various countervailing strategies—it may associate with more suppliers, or...
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