Resource Dependency Theory
In 1624, English poet John Donne wrote, 'No man is an island.' In that poem, he describes how everyone is a part of something bigger, and that we all rely on each other. The same can be said for any organization, firm, or company that exists and operates today. One way this is demonstrated is through a company's reliance on another organization for the resources it needs to operate. The idea is referred to as resource dependency theory.
Resource dependency theory examines the relationship between organizations and the resources they need to operate. Resources can take many shapes or forms, including raw materials, workers, and even funding. If one company maintains the majority of a resource, then another company will become dependent on it in order to operate, creating a symbiotic relationship. Too much dependency creates uncertainty, which leaves organizations subject to risk of external control. External control may be imposed by the government or other organizations, and can have a significant effect on operations, such as funding or personnel policies. Managers strategize alternative business plans in order to lower this risk.
For example, let's say that ACME Security Systems is the technology security firm for a large media company, XYZ Multimedia. XYZ Multimedia is also the security firm's only client. In this scenario, the security firm is completely dependent on the media company as its sole source of revenue, and there are many risks associated with this type of business model. This relationship gives XYZ Multimedia complete leverage during service and fee negotiation. In order to lower this risk, the security firm will have to explore other clients to lower the level of dependence on one client.
The importance of this theory was documented during the 1970s, when authors Jeffrey Pfeffer and Gerald R. Salancik published The External Control of Organizations: A Resource Dependence Perspective, which discussed their study of where power and dependence originate, and how organizations may use their power and manage those that are dependent upon them. Managers are constantly seeking advantages to improve partnerships with other organizations in order to strengthen their own.
