Pfeffer, Jeffrey, and Gerald R. Salancik 1978

Presented by Hila Lifshitz Feb 23 2010

The External Control of Organizations: A Resource Dependence Perspective

Copyright © President & Fellows of Harvard College.

Synopsis

contingency theory perspective:

Org

Environment

Resource dependence theory perspective:

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"

2. 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"

2. 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

3. 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

3. 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)

4. 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"

2. Their drastic underestimation of managers’ role does not fit the reality that took place

few years after their book (M&A, alliances, JV…)

3. 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)