The External Control of Organizations:

A Resource Dependence Perspective

Pfeffer, Jeffrey, and Gerald R. Salancik 1978

Presented by Hila Lifshitz

Feb 23 2010

Copyright © President & Fellows of Harvard College.

Synopsis

contingency theory perspective: Resource dependence theory perspective:

Environment

Org
Synopsis
“Organizations are not autonomous actors pursing their own ends, instead they are
“other-directed, involved in a constant struggle for autonomy and discretion,
confronted with constraint & external control”

• Organizations require resources to survive and these resources typically come from
outside the organization

• The resource dependent perspective views an org as dependent on its environment

due to the resources it requires and the constraints it creates. These largely
determine the org’s path.
Background and intellectual heritage

1. The meta-question is not a new one: What drives organizational activities and
outcomes?

2. Intellectual heritage:
 Contingency theory (Lawrence and Lorsch): they elucidate the mechanism of how
environments influence organizations

 Institutionalism (Selznick): they similarly assume that organizations are mainly

about survival and their view of the agents (managers) is inspired by
institutionalism’s concept of symbolic management

 Coalition-based conceptualization of organizations( Cyert and March ):their image

of the internal organization is a group of coalitions

 Rational organizational perspective(Taylor): they contradict most theories that

describe organizations as rational tools oriented toward a unified purpose
Key concepts

1. External control: “To understand organizational behavior, one must understand how
the org. relates to other social actors in its environment”

2. Organizational Environment: Organizational environments are not objective realities,

they are created for the org. through a process of attention and interpretation
(Enactment). This process is largely determined by the existing org. and its
informational structures.

3. Constraints are anything external to individual actors that make them more likely to
behave in a particular way
Key concepts

1. Organizational Effectiveness: Their concept of “effectiveness” is an external,

sociopolitical standard of how well an org is meeting the demands of various groups
and organizations that are concerned with its activities. The effectiveness of an org. is
multifaceted, it depends on which group, with which criteria is doing the assessment.
This concepts stands in contrast to the traditional idea of efficiency

 Organizational effectiveness:
measures how an organization meets external goals

 Organizational efficiency:
measures how an organization meets its internal goals
What are organizations?

1. Organizations are coalitions serving the many interests of their participants, not
organization-level goals
 "Organizations are not so much concrete social entities as a process of
organizing support sufficient to continue existence“
 "There is no requirement for the participants to share vested interests or
shared, paramount goals... participants may come into the coalition when there
is some advantage to be gained and leave when there is no longer any
perceived advantage"

1. Organizational boundaries are defined by roles and behaviors, not individuals

 "It is behaviors, not persons, that are interstructured... it is perfectly possible for
a person to be both part of an organization and part of its environment through
different behaviors occurring at different times“
How do organizations survive?

1. Organizations must be aware of their context, what aspects of it matter, and how to
adapt to it
 "It is important to recognize that organizational actions are determined by an
enacted environment -- the organization responds to what it perceives and
believes about the world"
 "The enactment process, we would argue, is largely determined by the existing
organizational and informational structure of the organization"

1. Actions of an org can be predicted in part by the situation it faces in competing for
resources:
 The magnitude of exchange needs
 The criticality of the input or output to the org

1. The relative dependence of the resources is determined by three factors:

 Importance of the resource
 Extent to which the coalition has discretion over the resource's allocation and
use
 Extent to which there are few alternatives
What is the role of the managers and members of the
organization?
"Behaviors are frequently constrained by situational contingencies and the individual's effect
is relatively small"

1. Managers have a limited role, they have a small influence on their environment and can
have an impact in limited ways, through their symbolic, responsive & discretionary roles
(they account for less than 10% of the variance in organizational performance).

2. However, managers do have two key functions:

 Recognize these constraints and adjust accordingly
 Guide and control the process of manipulating the environment that constrains
organization behavior

1. The role of members depends on the relative dependence of the organization on the
resources provided by them
 Discussion
Contribution

1. They build a dynamic view of organizations’ environment (unlike most scholars at that time,
like Porter)

2. Their influence on the field is significant and has led to a shift from one extreme of
agency theory to the other extreme of population ecology

3. Their theory still offers significant explanatory power

 For the last several years the most important environmental factor that has accumulated
power is the capital market. As predicted by their theory, today more managers have a
financial background compared to the past we had more managers with operations and
supply chain background (Dobbin)

1. Their methodology (longitudinal analysis), at that time, was cutting edge

 Discussion
Critic and thoughts:

1. Despite the clear influence of institutionalism, their view of agents is similar to the
economist view of opportunist players and they do not offer a theoretical reconciliation
 "Participants may come into the coalition when there is some advantage to be
gained and leave when there is no longer any perceived advantage"

1. Their drastic underestimation of managers’ role does not fit the reality that took place
few years after their book (M&A, alliances, JV…)

2. Applying the contingent perspective on resource dependency theory yields the need for
a contingent analysis of environment in which managers have more/less impact
 Wasserman, Noam, Nitin Nohria and Bharat Anand. "When Does Leadership Matter? A Contingent Opportunities View
of CEO Leadership." Chap. 2 in Handbook of Leadership and Theory Practice, edited by Nitin Nohria and Rakesh
Khurana. Harvard Business Publishing, 2010.
 Discussion
Critic and thoughts:

1. Their view of the environment is indeed dynamic but may benefit from neglecting the
strong separation between the organization and its environment (ecosystem, networks,
alliances, co-optition)