RESORCE DEPEDENCY THEORY:

RENAISSANCE AND EXTENSIONS—A CONCEPTUAL BASIS

By B.V.L.Narayana, Railway staff college, India

Abstract:
Resource dependency theory is one of the two resource based perspectives in Strategic
management which have contributed significantly to its literature. It explains the impact of
environment on a firm in terms of resources and how firms can use tactics to manage this impact.
This perspective has always looked at organisation or firms as the unit of analysis, maintained an
external perspective and therefore tried to fathom the inter-organisational actions of a firm in
terms of mergers, acquisitions, vertical integration, board interlocks and succession planning.
However, this perspective faces the problem of poor empirical support and inappropriate
operationalisation of its key concept.

This paper takes the view that this perspective has been plagued by the field’s reluctance to go
for processual research and emphasize research on implementation. This has led to use of cross
sectional studies, non use of intervening outcome variables and poor linkage of the key concept
of resource to its utility. The key question the field needs to answer is how do the qualities of
resource make it valuable and therefore confer power or necessitate the control of such a
resource.
This paper takes a Penrosian view that all resources are bundles of services. It proposes that
VRIN like qualities of a resource stem from the utility it serves and the criticality of such a
utility. This defines the degree of dependence, a firm will experience and therefore the firm
actions are towards the management of such a dependency. It treats Power and dependencies as
distinct concepts and links them by defining Power as the exercise of influence to leverage
control over Critical resources for the advantage of parent firm in an exchange. It also states that
management of dependencies need not always involve use of power.
Thus it rejuvenates the resource dependency perspective by linking it to implementation and
takes an internal perspective of a firm. It thus extends the concept of resource dependency to
implementation, actions which need not involve exercise of power.

Key words: Renaissance of RDT, Penrose, VRIN like resources, Implementation, Non
power based actions

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INTRODUCTION:
Evolution of strategic management has been like a swinging pendulum. Theoretically it has
oscillated between perspective external to the firm and internal firm characteristics and
methodologically between quantitative and qualitative methods (Hoskisson 1999). This evolution
has most significantly been influenced by the way the dynamism of the business environment has
varied and therefore the ability of firms to survive and grow (Gould and Luchs 1993).
The Resource Dependency Theory (RDT from now on) (Pfeffer and Salancik 1978), burst into
prominence when the business environment was dominated by large firms in form of
multinationals for whom growth and diversification was the key strategic perspective. It took a
view that organisations were positioned in a social context and source resources from the
environment. This singular action was fraught with uncertainties and hence management of
environment was important. It proposed that organisational actions are directed towards
management of dependencies arising out of critical resources required for its output and effective
management of these dependencies results in survival. RDT has influenced studies in fields of
management, sociology, education, health care, public policy, and other cognate disciplines
(Davis and Cobb 2009; Hillman, Withers and Collins 2009)
On completion of 30 years of existence it faces a peculiar problem that its main postulate has
been recognised and accepted at an axiom level yet faces poor empirical and conceptual
development opportunities. It has remained as an appealing metaphor but stagnated in its
development and empirical testing appeal (Casciaro and Piskorski 2005). With the field of
strategic management attempting to revitalize The Resource based theory or view (RBV from
now on) (Barney, Wright and Ketchen 2011), can a similar exercise be done on RDT.
This paper takes the view that Renaissance of RDT is possible if it revisits its roots and takes a
larger perspective on its key concepts of resources and dependencies. This paper is structured as
follows. After the initial introduction, it reviews the evolution and empirical research done on
RDT. This is followed by a discussion on the conceptual and methodological shortcomings
which then set the stage for a conceptual reorientation of the basic concepts of RDT. This is
followed by a discussion on the postulates of this rejuvenated RDT. The paper finally ends with
suggestions for future evolution and research opportunities.

RESOURCE DEPDENCY THEORY AND ITS EVOLUTION:

The seminal work of Thomson (1967) on how organisations work laid the foundation for five of
the most influential theoretical lenses – Transaction cost economics (TCE), Agency theory, New
institutional theory, Population theory and Resource dependency theory(RDT from now on)
(Davis and Cobb 2009). In the late 1970’s , the business environment was dominated by Large
multinational and national firms which were driven by strategies of Growth and Diversification,
since the business environment was stable, afforded growth and failure was not even considered
a possibility( Gould and Luchs 1993). They dominated the business landscape and because of
their immense size and financial strength exercised considerable power and influence on policies
impacting business and industry. This contextual condition drove the necessity to find answers to
questions such as what is the source of power and influence (Taken up by RDT), how does
power relations affect management of a firm (Agency theory), how and why do firms try to
internalize production functions (TCE), and how do firms manage power relations amongst
themselves and influence policy making (Population ecology and New institutional theory).

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These five theoretical lenses took different perspectives and unit of analysis and developed along
those lines for eg TCE looked at why and when firms will internalize productive actions and
used a Transaction as a unit of analysis at the firm level, while Population theory looked at how
and why firms will survive in a given population and chose population of firms as a unit of
analysis. Similarly, Agency theory looked at relations between owners and managers in a firm
and how does it impact the performance of a firm, using individuals or a group of individuals as
a unit of analysis.

Resource dependency theory took an external perspective and using firm as a unit of analysis
tried to explain how the necessity to control resources required by firms drove the firm’s
strategies (Pfeffer and Salancik 1978). The central proposition is that the social context in which
firm exists matters in understanding its activities as it is the source of resources required by firms
for their production functions. This dependence is a function of what use it is put to by the firm.
Thus firm’s managerial activities or strategies are designed and driven by the urge to control
these resources required. Its effectiveness in the business landscape is now a managerial function
of creating acceptable outcomes and actions which involves management of power exercised by
other firms controlling the resource required by it or using influence and power to extract
advantages from firms requiring the resources it controls. These dependencies on resources
continue even when the supply is stabilized as it is required for firm’s effectiveness. It also views
a firm as a coalition of interest groups or stakeholders who continually engage in a process of
exchange driven by actions of influence and control. It is these actions which determine the
degree of interdependencies among them and the power differences resulting from it. These have
a significant impact on the strategies of a firm (Pfeffer and Salancik 1978:2 to52).

Over the last thirty years, it saw empirical testing in the studies on Mergers and acquisitions,
diversifications, Interorganisational relationships such as alliances, Board interlocks and Political
action, advocacy and executive succession. Empirical evidence across these five areas, using the
firm as a unit of analysis and looking at it from an external perspective validates the theory
(Hillman, Withers and Collins 2009). It has also influenced studies in the fields of management,
sociology, education, health care, public policy and cognitive disciplines (Davis and Cobb 2009).
Reviews of RDT both at empirical and conceptual level (Casciaro and Piskorski 2005; Hillman,
Withers and Collins 2009; Davis and Cobb 2009) indicate that it has suffered from a recent lack
of interest in its theory leading to stagnation in the development of its main postulate. The main
infirmities identified being that its main construct of interdependence is ambiguous and does not
distinguish between Power imbalance and mutual dependence and an inability to explain
conditions under which constraint absorption occurs. A summary of methodological and
empirical issues faced by RDT is placed as table 1 below.
RDT had been increasingly cited till 1984; thereafter its citations have stagnated or gone down in
the field of management, but increased in other disciplines. Over the years, these infirmities or
issues with RDT have made it an appealing metaphor but a poor model for testable empirical
research. Reviews have suggested some solutions to facilitate its further development both for
sub-firm and at firm level activities (Casciaro and Piskorski 2005; Hillman, Withers and Collins
2009; Davis and Cobb 2009). However, further development of RDT can only occur if it goes
back to its roots and revisits its fundamental concepts of dependencies and power.

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TABLE 1: ISSUES IDENTIFIED IN RESOURCE DEPNDENCY THEORY

CATEGORY ISSUE REFERENCE

Conceptual RDT has been increasingly cited till 1984 and thereafter the citations have been constant. The Davis and Cobb
citations have been increasingly in management and sociology disciplines in initial years and slowly 2009; Hillman,
shifted to a broader application into political science and public policy, and level of analysis has Withers and Collins
been at firm or organisation level. over the years the citations in management and sociology 2009; Pfeffer and
disciplines has come down
Salancik 1978;
Several ambiguities in RDT make it an appealing metaphor but a poor model for testable empirical
Casciaro and
research
Four sources of ambiguity are seen --Constraint absorption does not distinguish between power
Piskorski 2005;
imbalance and mutual dependence which is the sum of their dependencies; it does not give Provan, Bayer and
cognizance to a firms ability to exploit a power imbalance; it does not specify the conditions under Kruytnosch 1980;
which constraint absorption occurs and empirical test on resource dependency have not tested the Narayana 2010
impact of power imbalance.
Irrespective of constraint absorption, dependencies continue and therefore power and dependencies
are not obverse of each other
RDT must distinguish between power imbalance and mutual dependence, and the dynamic nature of
interorganisational relationships and multiplexity of dependencies—levels
RDT overlooks the competitive side of the interorganisational relationships--does not look at
competition for resources
RDT was successful as it fitted the business environment of that time --late 1970's, it was all about
growth, size, power and concentration of resources yet the influence of power and exchange
relationships continues to influence organisational actions and therefore there is a need to relook at
the conceptual basis of power and dependencies
RDT came at a time when diversification and growth were the major strategies. But of late
the strategies have changed to lay offs, spin offs, outsourcing and others, therefore
provisions of RDT are no more valid. What is important is how firms manage dependencies
internally and what is the impact of external dependencies and power equations on internal
actions of organisations.

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TABLE 1 CONTINUED

CATEGORY ISSUE REFERENCE

Methodology RDT propagates the construct of interdependence which should have been broken into two constructs-- Davis and Cobb
power imbalance and mutual dependence. Each of these have different impacts on constraint 2009; Hillman,
absorption, independently and in an interactive way. Empirical Studies have looked at the combined Withers and
impact and not tested these separately Collins 2009;
RDT stands empirically tested for Mergers and acquisitions, interorganisational relationships Pfeffer and
and board interlocks while it is less tested for political action and executive succession Salancik 1978;
Empirical evidence across five areas of using firm as a unit of analysis and looking at a firm Casciaro and
from the external perspective validates the resource dependency theory. However there is a Piskorski 2005;
recent lack of interest in this theory which could have enhanced its further development and Provan, Bayer
application including refinement of its postulates and Kruytnosch
The inherent acceptability of the core concept of resource dependency has led to less emphasis 1980; Narayana
on its testing and exploration 2010
The problem with RDT is that the crucial concept of dependency and hence power is linked to
what would be the definition of resource. Empirical research in RDT tried to define it based on
definition and scope of industry and therefore SIC codes. The heterogeneity of the nature of
SIC codes made it difficult to specify which resources are critical and therefore lead to
dependency. To overcome this, it must define clearly the dimensions of a resource which
would make it critical and therefore must link it to its utility--output

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Fundamental issues with RDT:
RDT has been also affected by two of the most fundamental problems being faced by Strategic
management. The Field of Strategic management has been plagued by its reluctance to go for
processual studies (Pettigrew 1997) and shows an extreme emphasis on cross sectional studies.
Further, it has neglected research of implementation and has shown extreme emphasis on
strategy formulation research (Bourgeois1980; Ginsberg and Venkatraman 1985; Rose and
Dallenbach 1999; Hutzschenreuter and Kleindienst 2006; Narayana 2010). These problems have
also impacted how RDT has developed by influencing:
 Its approach to the definition of a resource
 Use of concept of dependency
 Use of concept of power

Definition of resource:
RDT uses resource/s as the central concept. Its main postulate states that firms are dependent on
the environment for resources to produce goods and services. It is the changing dynamics of how
such resource/s can be acquired is what determines the dependencies at a point of time. Firms
thus act to minimize these dependencies.
RDT starts by looking at a resource and links the utility of a resource to its ability to generate
dependencies (Pfeffer and Salancik 1978: 8). Yet its discussion always talks of acquisition of
resources (Plural emphasized) as evident in the quote below
“We have noted that we are dealing with the problem of acquisition of resources by
social organisations, of the organisations survival, as well as the use of such resources within the
organisation to accomplish something. To acquire resources, organisations must inevitably
interact with their environment. No organisation is completely self contained or in complete
control of the conditions of its own existence. Because organisations import resources from their
environments, they are dependent upon their environments. Survival comes when the
organisation adjusts to and copes with its environment not only when it makes efficient internal
adjustments. The context of an organisation is critical for understanding its activities.” (Pfeffer
and Salancik 1978:19).
This is primarily due to the emphasis on using firm as a unit of analysis, driven by the emphasis
on environment due to an external perspective orientation. This is also a purely formulation and
cross sectional perspective as it attempts to look at impact of an input (Resources) on
performance (output). This has been a fundamental issue with the field of strategic management
(Bourgeois1980; Ginsberg and Venkatraman 1985; Rose and Dallenbach 1999; Hutzschenreuter
and Kleindienst 2006; Narayana 2010) and it seems to have impacted the conceptualization of
RDT.
Because resource is now looked at an aggregate level (hence plural),the issue is that the critical
concepts of dependencies and power become operationalised as aggregates of dependency and
associated power at each resource level. This has its own issues as it is evident that levels of
dependencies and associated power would vary from resource to resource, based on its utility
value as linked to the productions of goods and services. Moreover, these can vary for the same
resource based on what utility value is extracted from it as a resource can be treated as a bundle
of services (Penrose 1959). This has impacted how the concepts of dependencies and power were
treated by RDT as seen below.

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Concept of dependency:
RDT defines dependence as the product of the importance a given input or output to the
organisation and the extent to which it is controlled by a relatively few organisations. Power is
the ability of firms to leverage their control over possession and allocation of resources of use to
other actors or firms. Thus, in RDT power and dependencies are two sides of the same coin and
are supposed to be co terminus with each other (Pfeffer and Salancik 1978: 46-48).

Thomson (1967) in his seminal work –Organisations in action- defined dependencies as the
criticality of utility of a resource in enabling a series of steps resulting in production of a revenue
generating output of a firm. Criticality is defined as the necessity or essentiality of resource for
production of a revenue generating output of a firm. Hence criticality is determined by the
essentiality of the input for a given output.
.
When we look at the definition of dependency in both the cases:
1. RDT takes an external perspective, uses the firm as the unit of analysis and defines them
in relation to other firms. Hence the basic assumption that firms controlling a resource
required by others will exercise power obtained by such control. Although it links the
dependency to criticality of resource controlled, it defines only in relation to the inputs
and does not link it to the specified output. This is perhaps due to the impact of the
fundamental problem of emphasis on formulation, and ignoring the aspect of
implementation. This is a not a process perspective.

2. Thomson (1967) defines dependencies in processual relations between inputs and

outputs. Thus it is a process, action oriented perspective, combining both internal and
external perspectives of resources and is linked to implementation. It actually emphasizes
the concept of dependency as linked to effectiveness and efficiency and therefore to
implementation. Here the unit of analysis is a sub-firm unit of productive service or use
of a resource.

This disconnect between the criticality of utility of a resource and its productive service (Penrose
1959; Narayana 2012) has led to problems in operationalisation such as use of SIC codes and its
inability to explain the change in tactics to manage the dependencies (See Table 1 ).

Concept of power:
The concept of power as enunciated in RDT is viewed at the Firm level. Power is viewed as use
of influence to manage the requirement of resources for survival and its resultant dependencies.
This has been also looked at the group and individual level by treating every firm as a coalition
of interest groups and individuals. Empirical research in this aspect has been limited to role of
corporate boards. The criticality of resources controlled or the contributions made by each group
determines the power differential (Pfeffer and Salancik 1978: 24, 26). Therefore it treats power
as an attribute of an actor.
This has been contested and it has been suggested that power is an attribute of a social relation—
the interdependencies which are driving the relationships among firms, groups and individuals
(Casciaro and Piskorski 2005). One aspect which it has neglected is the role of power as an
aggregate function in a dyad—power imbalance (Casciaro and Piskorski 2005). This is perhaps
due to an emphasis of actions at firm level and therefore the inherent emphasis on management

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of dependencies and exercise of power as part of the explanation in terms of how such resulting
Constraints are absorbed through mergers and acquisitions. Further the exercise of power has not
been linked to the very resource’s utility value which is the source of power.

To summarize the development of RDT through its central concepts of resource, dependency and
power was based on the situation in the business environment in 1970’s. This was represented in
the way the problem was defined as –Why do large multidivisional corporates wield so much
power and influence. How do they control resources necessary for their activities and other firms
business activities? This led to a perspective which looked at resources available in the business
environment outside the firm boundaries (external perspective) and the impact of the availability
of these resources on firm’s strategic actions. This ensured that the unit of analysis was a firm or
organisation and hence the plurality of resources as a concept and its further influence on
concepts of dependencies and power. it is this which is at the root of the methodological and
conceptual issues identified in Table 1.

Conceptual solution to development of RDT:

RDT looks at the relationships between resources and firms actions. Thus the central concept is
of resources and how they are used. It fundamentally necessitates the linkage between resources,
its use for production of outputs and the linkage of outputs to firm’s performance or survival.

A firm is an administrative organisation which is meant to produce goods and services in line
with the demand inherent in the economic environment and based on a plan by using the
available productive resources (Penrose 1959). This is a constructive combined internal and
external perspective of a firm. This means that activities of a firm are driven by opportunities in
the environment and a match between the two is a necessity. Best fit is what determines
competitive advantage. Since the opportunities in the economic environment change both in
quality and quantum over time and value erodes of the resources used for these productive
services, sustained competitive advantage necessitates adjustment and renewal of these resources
and relationships (Rumelt 1984). In doing so, the firm manages control over resources required
by it and its associated dependencies and/ or exercises power over resources required by other
firms to generate revenues.

Penrose (1959) defined resources of a firm as consisting of Tangible, Human and other
intangible assets as part of the human assets which are put to produce productive services
planned by the firm
Penrose’s definition clearly links resources to productive services of a firm. This linkage clearly
gives a focus and identity to what resources are being referred to and therefore links the external
perspective (customers and therefore competition and control of resources) to the internal
perspective (the utility value it generates by conversion to productive services and therefore
linkages to capabilities). It also allows a clear distinction of what utility value is extracted by a
firm as it treats every resource to be a bundle of services. This means that the same very resource
can be put to multiple uses or services and therefore the identification and extraction of services
from any resource is a function of human knowledge and capability. This enables the
identification of value and utility a resource is put to, by its very linkages to customers and the
matching of the productive services extracted from resource to the needs of the customer. This
also enables the linkage of resource to competitive advantage.

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Not all resources used to produce productive service/s in a business segment would be having
VRIN like qualities (Valuable, Rare, Inimitable and Non substitutable). It is the key resource
which allows attainment of competitive advantage over competitors which is likely to have
VRIN like qualities. It is the control over this resource which a firm would like to exercise. So
firms would like to put strategic actions in place which will either allow direct control or reduce
dependency over this resource. These actions would be specific for each business segment
depending upon the degree of dependency and availability of alternatives.

Further it also means that Sustained competitive advantage is specific to business segments as
competition is defined as fight to satisfy the same need of a customer. This also means that
“Resources” need to be operationalised in linkage with productive service it is utilized for and
Sustained completive advantage would be operationalised for the business segment where such
productive service is satisfying the need of the customers.
So the definition of a resource should be as suggested by Penrose (1959) , but modified to link it
to specific business segment is :
Resource of a firm can be Tangible, Human and other intangible asset or assets as part of
the human assets which are put to produce productive service or services planned by the
firm to satisfy the need of a set of customers.

A productive service is defined as the utility derived from a resource through a conversion using
a production process, which then satisfies a stated need of a set of customers leading to
appropriation of value.(Penrose 1959; Narayana 2012)

As discussed in the paragraph above, this definition gives a focus to the utility of a resource and
therefore links a firm’s production activity to an opportunity in the business environment. This
satisfies the condition enunciated for a resource by Barney (1991). It also defines clearly the
source and relationship between resource, dependency and power.
Extending this concept, Narayana (2010, 2011a, 2011b) deduced that criticality of a resource is
now linked to VRIN (Barney 1991) like qualities based on its linkage to production of a
specified output. Hence dependencies will always exist for a firm since the necessity of a
resource to an output exists if the firm is producing the specified output. The dependency will
continue to exist, even if the specified output is not produced but firm is exploiting the control
over such a resource to earn revenue. Power is only exercised by the firm only in the later case
and that too if it exploits the control. If it does not exploit it –seek rents—or in the process of
production of the specified output, dependencies continue but power is not exercised.
Hence dependency is an internal perspective applicable to actions of a firm and is an inherent
property of the resource based on its criticality and the availability of alternative producers of
such a critical resource (Casciaro and Piskorski 2005). Power is an external perspective
applicable to firm’s actions in relation to other firms or individuals and is volitional .

Power can necessarily be looked at multiple levels –individuals, groups and organisations. At
each level it is a function of a dyadic relationship, irrespective of the unit of analysis (Provan,
Beyer and Kruytnosch 1980). The basic problem with conceptualization of power in RDT is that
it is not linked to actions which can be directly attributable to source of power.

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Power needs to be enacted for it to result in outcomes, mere indication of potential of power
available is not enough. The causal linkages of actions to power exercised is best seen when the
concerned actions are related to the resource. Hence the resource, whose control generates the
power and whose requirements for productive services is sought by other firms, needs to be
linked to its utility value –its use for production of productive services. The power of a firm is
limited to the linkage of that resource to its productive service also being generated by other
firms. However, a firm in multiple business segments will have differential degrees of power and
they cannot be aggregated to finalize one power index for a firm as power is context specific.
How ever, multiple tendencies and so the power equation arising from it are seen between the
same dyadic pair, then only can one look at trade offs in the respective power equations.
Thus, the Exercise of power is a volitional decision and is strategic in nature. Its exercise is
contextual and time sensitive. The very decision not to exercise power may actually reduce
dependencies of a firm. Thus power is a function of the attributes of an entity –specifically
linked to those who take the strategic decisions.
Thus to summarize the main postulate of the revised RDT would be as follows:
Firms’ strategic actions are driven by the need to reduce their dependencies over
resource/s required for the production of the productive services. It is these productive services
which enable a firm to appropriate value from customers in the business segments in which they
are active participants and thus survive. So the social context in which the firms are competing
matters.
Thus this modified central proposition links resource dependency to a useful production function
of a firm –useful in terms of its utility value to customers and appropriation of value by the firm.

Methodological implications
In the revised RDT, the definition of resource necessitates that VRIN like qualities be identified
for a resource, as it becomes a conditional necessity to exploit dependencies of firms on such
resources. Only then would the concepts of power and dependencies can be operationalised by
identifying the linkages of resource with its productive use. One new dimension which has been
added is that power differential in a business segment is linked to control of both physical
resource required and the exploiting production technologies. Control over any one of them does
not allow complete exploitation of the power differential.
One such operationalisation would be concentration power or control over physical resource or
its exploiting technologies or both. One way to operationalise dependencies and therefore ability
to counteract power differentials is to look at the firms performance in a given business segment.
The varying levels of performance based on market shares would indirectly indicate an ability to
manage the productions processes and therefore the ability to manage its associated
dependencies. Better the performance better is the ability to manage dependencies and its
associated power differential.
At a firm level, the strategies used along with its logic can be used to understand the rationale
behind the strategic decisions. Methodologically it means that qualitative studies would be the
methodology of choice when one is looking at role of mergers, acquisitions, and board interlocks
in management of dependencies. Processual studies would be ideal to establish causal
mechanisms in such studies. Large longitudinal quantitative studies with case studies would be
ideal when industry level analysis is being done to appreciate preferences for certain strategies in
management of dependencies. Quantitative studies would be more ideal where the unit of
analysis is an individual.

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Development and Extension of RDT:
RDT looks at the relationships between resources and firms actions. Thus the central concept is
of resources and how they are used. It fundamentally necessitates the linkage between resources,
its use for production of outputs and the linkage of outputs to firm’s performance or survival.

So the concepts of dependency and power can be looked at three levels:

 At a firm level –external perspective –how VRIN resources are acquired and controlled
including exploitation through use of interorganisational relationships such as mergers,
acquisitions, alliances, Board interlocks, relational contracting, spin offs etc
 At a firm level –internal perspective – at how firm processes involving VRIN resources
are managed –implementation, governance and capability perspectives
 At Group level—how do stakeholders, both external and internal- differentially influence
the management of resource dependency of a firm’s business segment
 At an individual level— how do dependencies influence individual’s relationship with his
firm? This will also include the role of an individual both within a firm and outside the
firm but impacting the performance of the firm.

We will look at each of these individually

Figure 1: Extensions of RDT across units of analysis—sub firm units of analysis

The following figure looks at the extensions of the central concept of RDT across units of
analysis.
 When an individual or a group is the unit of analysis, then when the position of the
individual or a group with the resource required is within the firm boundaries then control
strategies are to be used. Control strategies require that the control of resource is with the
firm, even though the resource is in physical possession of the individual/group. This
means that the first right to use of the resource is with the firm. Control is thus defined as

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 having first right of use of the resource. Only when the individual/group is leaving the
organisation is that resource likely to cause increase in dependencies and loss of control.
Examples are tacit knowledge like research knowledge. Firms must use strategies to
spread and make this knowledge explicit and transferable to a large extent. This raises an
issue of imitation. Patent rights can overcome this issue.
 When the individual/group is outside the boundaries of the firm, then influence and
cooperation are sought after strategies. Here control and therefore reduction in
uncertainty of availability of resource is being sought through creation of a stake of the
resource holder, either emotionally –board interlocks, relationship contracts or through
financial payoffs – contracts, financial stakes, firm positions etc or through a combination
of both. Influence is defined as the ability to secure a first right of use of resource but
after having shared some portion of the future value likely to be appropriated due to
productive services being realized from the resource.
 When process is the units of analysis, then if the process is within the firm, control is
exercised by putting in place mechanisms which create, transfer and ensure utilization of
capabilities associated with the process ie capabilities and governance structures. When
the process is outside then it is a constraint and every effort must be made to absorb it—
ie vertical integrations, mergers, acquisitions, buy offs etc

At a firm level –how VRIN resources are acquired and controlled

Figure 2

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Figure 3

Using a firm as the unit of analysis, two possibilities are encountered:

 One is when the Firm is the only one able to exploit the resource but varies its
positioning of the production process—figure 2
 The other possibility is where the ability to exploit the resource is dispersed amongst the
firms—figure 3
The ability to exploit shows control or existence of power, while absence of ability to exploit
only indicates dependency on resource due to requirements for use for production but no
effective control.

When the firm is the only one which has ability to exploit a resource and it positions its
production system within its boundaries, then strategies should be control, exploit and innovate
to extend its ability to exploit. When it wants to position its production system outside the firm
boundaries, it should use strategies of alliances, Board interlocks, mergers or acquisitions. When
the firm has no ability to exploit the resource like all its competitors, and when the production
system is within the boundaries of the firm then strategies which should be used would be to
source resource exploiting technologies and innovate to improve the ability to exploit and reduce
power differential with resource providers. When the firm wants to position its production
system outside its boundaries, then the firm is in pure competition for resources as there is power
differential at all but all competitors have equal dependencies on the resource. –see figure 2

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When the ability to exploit is dispersed in the set of firms competing in a business segment, then
strategies used would be mutual dependence alliances, Board interlocks, and contracts with an
aim to balance the fluctuating power differentials and counteract competing cartelization. When
nne of the firms have ability to exploit, then there is no power differential and pure competition
for resource is seen. When competitors have the edge in ability to exploit the resource, and then
firm must source resource exploiting technologies and innovate to reduce the power differential.
When the source firm has the edge in ability to exploit a resource the strategies must be to
exploit the power differential such as acquisitions, mergers and purchase of resource exploiting
technologies. The aim is to further exaggerate the power differential—see figure 3

Extension of RDT to other theoretical lenses:

One way to look for applications of RDT and its further development is to look to its ability to
influence other theoretical lenses available in strategic management or management literature. A
diagrammatic representation is placed as figure 4 in the following page.
Based on the likely theoretical areas into which concept of resource dependency can be applied
(as given in the pre page discussion), following are the likely linkages with other theoretical
lenses:
 Resource is a central concept in both RDT and Resource based view. The most
productive linkage is when both these theoretical perspectives merge. When RDT starts
to get into implementation, governance and capability perspectives, then it is establishing
the micro-foundations of resource dependency. This is exactly the same for Resource
based view also. Actually it is seen that effective implementation is management of
resource dependency of productive services which form the basis for firm performance
(Narayana 2010, 2011a, 2011b, 2012).
 RDT looks at strategic decisions which manage dependencies based on resources
required. Intuitively, it heralds a basis of costs of managing resource dependency, if
managing such dependency is viewed as a set of transactions. This opens a linkage with
Transaction cost economics. It may open a route for operationalisation of transactions by
providing an input output linkage.
 One significant likely extension is the revival of concept of strategic groups from the
Industrial organisation economics. Resource dependency can become the central link
which can then define strategic groups and therefore can revitalize IO branch of
economics.
 Through the concept of Board interlocks and seeing a firm as a coalition of groups, RDT
can easily be extended into the stake holders and upper echelons theory. What would be
interesting is to see how do stakeholders use resource dependency and therefore power
differential to shape strategic decisions in a firm. It would have its own impact on the role
of boards in strategic decision making and therefore it would be interesting to see the role
of board interlocks in a similar way.
 At an individual level –as a unit of analysis—resource dependency can be looked at as
how it shapes entrepreneurship, both at corporate level and at individual level. Similarly,
a linkage can be established with agency theory on the same lines.

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Figure 4 : Diagrammatic representation of Extension of RDT

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Conclusion:
The Resource Dependency Theory (Pfeffer and Salancik 1978), burst into prominence when the
business environment was dominated by large firms in form of multinationals for whom growth
and diversification was the key strategic perspective. It took a view that organisations were
positioned in a social context and source resources from the environment. This singular action
was fraught with uncertainties and hence management of environment was important. It
proposed that organisational actions are directed towards management of dependencies arising
out of critical resources required for its output and effective management of these dependencies
results in survival. RDT has influenced studies in fields of management, sociology, education,
health care, public policy, and other cognate disciplines (Davis and Cobb 2009; Hillman, Withers
and Collins 2009)
On completion of 30 years of existence it faced a peculiar problem that its main postulate has
been recognised and accepted at an axiom level yet faces poor empirical and conceptual
development opportunities. It has remained as an appealing metaphor but stagnated in its
development and empirical testing appeal (Casciaro and Piskorski 2005).
This paper took the view that it is possible to revitalize RDT if it goes back to its roots and
relooks at its core concept of dependencies and power based on control of resources. Using a
Penrosian view, it was possible to redefine resource by linking it to the productive services it
generates. This enabled the redefining and delinking of Dependencies and power. it also enabled
to look at dependencies and power differentials at the level of an individual, a group, a process ,
a firm and a cluster of firms—strategic group. Thus a revitalized RDT holds more promise than
what it started with, both conceptually and empirically.

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