Resource Dependence

Resource dependence represents the traditional view of relationships among organizations. It means that organizations depend on the environment but strive to acquire control over resources to minimize their dependence.

Resource-dependence theory argues that organizations try to minimize their dependence on other organizations for the supply of important resources and try to influence the environment to make resources available.

OrganizationsOpens in new window are vulnerable if vital financial resources are controlled by other organizations, so they try to be as independent as possible.

Organizations succeed by striving for independence and autonomy. When threatened by greater dependence, organizations will assert control over external resources to minimize that dependence.

When organizations feel resource or supply constraints, the resource-dependence perspective says they maneuver to maintain their autonomy through a variety of strategies.

One strategy is to adapt to or alter the interdependent relationships. This could mean purchasing ownership in suppliers, developing long-term contracts or joint ventures to lock in necessary resources, or building relationships in other ways.

Types of Resource-Dependence Relationships

Organizations operating under the resource-dependence philosophy will do whatever is needed to avoid excessive dependence on other organizations and maintain control of resources and outcomes, thereby reducing their uncertainty.

Figure X-3 shows a hierarchy of resource-dependent relationships

The strategies at the top of the hierarchy offer managers more direct control over joint overcomes so that the organization can maintain its autonomy, whereas those at the bottom offer less direct control.

Figure X-3 Types of Resource-Dependent Relationships Figure X-3 Types of Resource-Dependent Relationships | Credit — Slideplayer Opens in new window
  1.    Acquisition/Merger

This type of relationship offers the greatest amount of control over joint outcomes because the acquiring firm absorbs all of the resources, assets, and liabilities of the target organization.

For example, both UberOpens in new window and its ride-hailing rival LyftOpens in new window have bought bike-rental companies to offer customers cheaper and faster means of travel in dense cities where bike rentals and electric scooter rental firms such as Bird RidesOpens in new window have become popular.

MattelOpens in new window acquired Canada’s Mega Brands Inc.Opens in new window to expand its line of toys and compete with LEGOOpens in new window in the market for plastic construction blocks. With the acquisitions, Uber, Lyft, and Mattel will own the acquired company and control what happens with it.

  1.    Joint Venture

A joint venture offers less control than full ownership. As Peter Drucker once said,

Business once grew by one of two ways: grass roots up, or by acquisition. … Today they grow through alliances—all kinds of dangerous alliances. Joint ventures and partnering which, by the way, very few people understand.Peter Drucker

A joint venture is a new and distinct organizational entity set up by two or more organizations to jointly develop an innovative product or shared technology.

HavenOpens in new window, an healthcare firm, was set up as a joint venture by Amazon, Berkshire Hathaway, and JPMorgan Chase. WhirlpoolOpens in new window has a joint venture with Hisense-Kelon Holdings Co. to make refrigerators and washers in China.

The successful video streaming site HuluOpens in new window is a joint venture that was set up by News CorporationOpens in new window (later 21st Century Fox), DisneyOpens in new window, and ComcastOpens in new window. After Disney bought 21st Century Fox in 2019, Hulu LLC is owned by Disney and Comcast. Although the companies compete with one another on the television airwaves, they knew they could be more competitive together than separately with video streaming.

  1.    Strategic Alliance

A strategic alliance is less formal and binding than a joint venture.

By definition, a strategic alliance is a collaborative agreement between two or more organizations that contribute resources to a common endeavor while maintaining their individuality.

Numerous companies are involved in strategic alliances for technology related to self-driving vehicles, as illustrated previously in Figure X-1Opens in new window.

In late 2018, at least 46 different corporations were participating in varius and sometimes overlapping alliances, joint ventures, and partnerships related to autonomous vehicle research and development.

FordOpens in new window has partnered with or acquired a number of small firms working in artificial intelligenceOpens in new window, mapping, and other technologies, and the company recently formed a partnership with Domino’sOpens in new window to develop a fleet of self-driving pizza delivery vehicles.

German luxury car rivals BMWOpens in new window and DaimlerOpens in new window, the maker of Mercedes BenzOpens in new window, entered into a partnership in early 2019 to collaborate on self-driving technology. BMW also has an alliance with suppliers IntelOpens in new window and MobileyeOpens in new window, and Mercedes has an alliance with Bosch for driver assist technologies.

Moreover, BMW has worked with ride-hailing firm LyftOpens in new window to test self-driving vehicles, while Daimler will be now be doing the same with Lyft’s main competitor UberOpens in new window.

  1.     Supply Chain

Many organizations establish contracts with key suppliers to acquire resources to supplement in-house resources and capabilities. Rather than going it alone, companies such as AppleOpens in new window, WalmartOpens in new window, DellOpens in new window, and TescoOpens in new window develop deep, mutually beneficial relationships to make sure they have the supplies and resources they need.

As one example, SCA (Svenska Cellulosa Aktiebolaget)Opens in new window uses fiber from recycled paper to make napkins, toilet paper, and paper towels for restaurants, offices, schools, and other institutions.

When the supply of recycled paper went down in recent years due to reduced paper waste along with competition for the fiber from Chinese paper companies, SCA developed partnerships with numerous recycling centers, providing them with financial backing to upgrade equipment in exchange for the centers selling recovered fiber exclusively to SCA.

Positive, equitable relationships with suppliers have been found to result in higher levels of customer service, lower costs, and increased trust for organizations.

At the same time, companies don’t want to become too dependent on one supplier. As described in the previous In PracticeOpens in new window, Apple has tried to broaden its supplier base to reduce dependence on Samsung. The company also strives to contract with different companies to assemble its iPhones and iPads. The goal is to reduce risk and overdependence on one company in the supply chain.

  1.    Trade Association

A trade association is a federation that allows organizations, often in the same industry, to meet, share information, and monitor one another’s activities.

A trade association can also use collective resources to lobby for government policies to protect the industry. In early 2019, the National Cannabis Industry AssociationOpens in new window, the nation’s largest trade group for the legal cannabis industry, hired Andrew Kline, a former vice-presidential advisor and federal prosecutor, to fill the newly created position of director of public policy. Kline will lead a group trying to influence federal and state public policy to protect and expand the legal cannabis industry.

  1.    Board Interlock

A board interlock occurs when a director serves on the boards of multiple companies, creating connections among the companies. The candy company HersheyOpens in new window, for example, has for decades had a board with at least a dozen interlocks with other companies at any one time.

This practice also occurs frequently in Silicon Valley, where venture capitalist Marc Andreesen is a director of several firms, including eBay, Hewlett-Packard, and Facebook.

Power Implications

In resource-dependence relationships, large independent companies have power over smaller suppliers or partners.

When a large company such as Walmart has power over small suppliers, for instance, it can ask the companies for shipping deals or lower prices and the companies have little choice but to go along.

Walmart began imposing fines on suppliers that fail to meet its tough standards for complete on-time deliveries. Disney illustrated its power by requiring movie theaters to show “Star Wars: The Last Jedi” in their largest auditorium for at least four weeks and to agree to other special requirements. Even though Disney was already getting 65 percent of revenue from U.S. ticket sales, theaters that violated any part of the agreement would have to hand over an additional five percent.

Resource dependence can work in the opposite direction too. Auto companies such as ToyotaOpens in new window and General MotorsOpens in new window are working to develop a new type of lightweight electric motor that doesn’t require the use of neodymium, a rare earth mineral that is almost entirely mined and refined in China.

Chinese suppliers have power over the auto companies as they strive to create more hybrid and electric vehicles, and the price of the mineral has soared. Power relationships in various industries are always shifting.

Managers in industries ranging from pharmaceuticals to banking are wrestling with the growing power of Amazon. Consider the relationship between JPMorgan Chase and the giant of e-commerce.

In Practice, JPMorgan Chase and Amazon
Twenty years ago, JPMorgan Chase’s revenue dwarfed that of Amazon. Today, things have shifted in the other direction. Amazon had its first $200 billion sales year in 2018, while revenue at JPMorgan Chase for 2018 was $131 billion. The retailer’s market value is more than twice that of the banking firm.

Amazon and JPMorgan Chase have long had a close relationship. Amazon struck a credit card deal with JPMorgan Chase in 2002, when Amazon’s business consisted mostly of selling books and CDs online. A few years before that, Amazon founder and CEO Jeff Bezos had tried to hire Jamie Dimon to be Amazon’s president. Dimon turned down the offer, saying it wasn’t the right time to make such a dramatic change. “I had this vision I’d never wear a suit again. I’d live in a houseboat,” Dimon told a CNBC reporter about considering the decision. Dimon joined JPMorgan Chase in 2004, becoming its CEO the following year. Over the next couple of decades, Amazon’s sales—and its power—soared. When the time came to renegotiate the credit card agreement, Amazon asked for a far higher percentage of card revenue and other concessions. Dimon might not have been happy, but he eventually signed off on the deal because Amazon was too big and powerful to put the relationship at risk.

Since then, the fortunes of the two companies have become increasingly intertwined. As described at the beginning of this post, the two have joined with Berkshire Hathaway in a healthcare venture, and they also partner in other ways. A key consideration of the shifting power dynamics for Dimon and JPMorgan is the question of Amazon potentially making a move into providing its own financial services. Dimon began thinking about the issue a few years ago and put together a team to consider various was Amazon might get into financial services and how JPMorgan could fit in. As Amazon continues to grow larger and more powerful, Dimon and other executives at JPMorgan Chase want to find ways to be a partner rather than a casualty.
Remember This!
  • The resource-dependence perspective is the traditional view of interorganizational relationships, arguing that organizations try to avoid excessive dependence on other organizations. In this view, organizations devote considerable effort to controlling the environment to ensure ample resources while maintaining independence.
  • Types of resource-dependence relationships include acquisitions or mergers, joint ventures, strategic alliances, supply sourcing, trade associations, and board interlocks.
  • Power affects an organization’s influence in a partnership. Power relationships among organizations are always changing, with some organizations increasing their power and others becoming less influential.
    Research data for this work have been adapted from the manual:
  1. Organization Theory & Design By Richard L. Daft