Resource Dependency Theory

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Tech Core

Environment

Firm

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Resource Dependency Theory

We now begin focusing on theories that are primarily concerned with the environment and how they influence organizational effectiveness and survival: resource dependence theory, network organization, and neoinstitutional theory. These theories and conceptual frameworks are relatively recent contributions to organizational research, most emerging in the literature in the 1980’s on-ward. All of these theories provide what Scott calls an “open systems” perspective on organiza-tions (Scott 2003). Each of these theories will ar-gue that there is no single best way to organize a corporation or to make decisions. The optimal course of action is always contingent (or depend-ent) upon the external situation of the firm. As such, the best way to organize a firm depends on the nature of the environment to which the organi-zation relates. The theory we will discuss in this chapter is Resource Dependence Theory, and it views an organization in terms of its resource de-pendencies with other firms in the environment.

Resource Dependency Theory Compared

Given we have already covered a series of different theories, it may help to contrast them with the theory of resource dependence. So let us review a few and compare them: we will look at coalition formation, organizational learning and organizational culture, and we will discuss how they differ from the resource dependence perspec-tive. In the earlier chapters, we learned about coa-lition formation and what it entailed. We learned that coalitions arise when multiple actors have in-consistent identities and preferences, and none of them can go it alone without the assistance of oth-ers. We read about “players” having their own in-terests and resources, and how they had to negoti-ate (or exchange and bargain) until they reached an agreement by which coordinated action could follow. We also learned that coalitions could be managed and formed through various processes of exchange and bargaining – like horse-trading and log-rolling. These exchanges were all pair-wise, or dyadic, and they aggregated within a group to

form a shared goal and agreement. The time frame on these exchanges and agreements were narrow – as the coalition agreement was often fleet-ing.

Resource dependence theory is similar to coa-lition theory in that it concerns exchange and ef-forts to produce agreements. However, it differs from coalition theory in at least two important ways. First, it shifts the unit of analysis from coali-tions of persons to inter-organizational relation-ships of dependence. Here, the concern is with a focal organization and its multiple resource de-pendencies with other organizations in the environ-ment. Second, while coalition theory focuses on narrow windows of time specific to each transac-tion, resource dependence theory concerns ex-tended forms of exchange, or exchange relations. An organization can form a wide variety of buffer-ing or bridging maneuvers used to overcome per-sistent dependencies in the environment. For ex-ample, you will learn that when a company merges with another, it is often a means of absorbing de-pendencies and acquiring a degree of autonomy in the environment.

These dependence relations can also be asym-metric – in fact, managers of resource dependence actively seek ways to render other firms dependent on them, but not vice versa. So with resource de-pendence theory, we have an egocentric view of an organization trying to acquire the best exchange relations it can in an environment of many poten-tial partners. In prior weeks we also discussed or-ganizational learning. If you recall, organiza-tional learning focused on how organizational par-ticipants adapted their practices within the firm as they engaged in the process of doing their work. This was facilitated by efforts to encode best prac-tices into organizational memory and by communi-cating about practice in local communities of prac-tice and by communicating outwardly in networks of practice beyond the organization.

Managers try to develop employee concern with improving practice and by forging social rela-tions and interactions that facilitate knowledge ex-perimentation and transfer. Most of the emphasis lies in local adaptations of routines – and as such, the argument is that internal application (learning

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by doing) is the main means to understanding and expertise.

Resource dependence theory has some simi-larities with organizational learning. Like organ-izational learning, resource dependence theory fo-cuses on the technological core of an organization. However rather than describe the internal process of practice improvement and knowledge transfer, it describes how the technological core of an or-ganization is buffered from the environment. Re-source dependence theory describes how the or-ganization (as a sort of unitary actor) bridges with firms in the environment so as to garner autonomy and control. Hence, concern is placed on becom-ing effective in an external environment and by es-tablishing certain SOP’s for resource exchanges with other firms. So the focus shifts from a mostly inward view to a mostly outward one.

In the last chapter we discussed organiza-tional culture, and there the goal was to create an ideology or culture that members identify with per-sonally, and managers used all sorts of strategies (rituals) to make that happen. Now of course, it’s possible that different paradigms of organizational culture (integrated, fragmented or ambiguous) will apply best to your firm’s goals or context – but the general argument is somewhat similar to that of or-ganizational learning: adaptation is internal to the organization and not focused on external relations outside. Whereas for organizational learning, the effort was to generate relations and practices, here the effort is to engineer deeper social structures of cognition and norms. Here, managers worry about internal contingencies, like layering on a culture too thick and having organizational members react-ing in resistant ways. For example, you recall Kunda’s worry about generating cynics. Managers have to balance the effort to prescribe a culture with allowing participants room for their selves. Otherwise, the participants relation to the culture will undermine its effect.

As such, organizational culture is inherently concerned with the process of sense-making and ritual performance. Standard operating procedures are viewed as practices, and deeper, broader sets of practices than perhaps organizational learning relates. By contrast, Resource dependence theory

is not concerned with sense-making but with the selection of SOP’s that manage the firms resource dependencies in the environment. In a way, re-source dependence theory is a step back toward the organizational process model. It brings our theories back up to the surface of ostensive rules and routines, and away from deeper forms of sense-making. Managers form and select SOP’s that concern relations in the environment; and they seek relations that create favorable exchanges – or favorable consequences. So resource dependence theory is also a shift back toward a logic of conse-quence in certain regards.

We can also discuss the prior theories in this textbook more generally – as natural systems, as compared to the open organizational system being characterized in resource dependence theory. A good example of this can be found in how prior theories described organizational uncertainty. It was something that arose within the firm, from in-consistent preferences, identities, unclear rules, routines, practices, and so on. Resource depend-ence theory is also concerned with organizational uncertainty, but it sees uncertainty as residing in the firm’s external relations of interdependence. When external dependence relations are not man-aged and coordinated well, they create uncertain conditions (if not unfavorable conditions) for the firm’s survival. Prior theories also regard depend-ence and uncertainty differently from resource de-pendence theory. For example, for coalition the-ory, dependence is not a problem but something sought after to make the coalition hold. And uncer-tainty or ambiguity is often reason for why a coali-tion stays together.

By contrast, in resource dependence theory, the firm tries to accomplish autonomy and cer-tainty, and it does this by freeing itself from de-pendence on other firms and by forging contracts. Hence, whereas uncertainty and dependence are an asset to coalition formation, they seem to prevent firms from acquiring an advantageous resource po-sition. In sum, the shift from immediate local ex-change conditions within a firm, to externally sus-tained exchanges in the environment, seem to have different consequences and implications for each of our theories.

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An Overview of Contingency Theory and Resource De-pendency Theory

Let’s now briefly discuss the history and core features of the theory of resource dependence. Resource dependence theory, in part, grew out of contingency theory. Therefore it helps to under-stand the core features of that theory before going further. Contingency theory was a class of organ-izational theory from the 1950’s through the 1970’s that argued a firm’s optimal course of ac-tion was contingent upon the internal and external situation it found itself in. As such, contingency theory offered a natural and open system view of a firm. Perhaps the most complete characterization of contingency theory can be found in Thompson’s work (1967). He describes how firms need to buffer and protect their technical core from all sorts of internal and external disturbances that can disrupt its functioning. He affords several prescrip-tions on how to minimize these contingent prob-lems:

• For example, managers need to seal off their technological core and buffer it from internal and external influences.

• Managers can prevent and reduce environ-mental uncertainty by distinguishing both the input-acquisition functions (such as supply) and output-disposal functions (such as sales) from the technical core.

• Internal strategies of the firm might include stockpiling and smoothing, or internalizing uncertainty through growth (thereby absorb-ing uncertainty).

• External Strategies include maintaining alter-natives and minimizing dependence. Some specific aspects of this include cooptation, contracting, and coalescing (like joint ven-tures).

Resource dependence theory builds off contin-gency theory and greatly elaborates on maneuvers firms can use to manage disturbances in the exter-nal environment. Resource dependence theory was founded by Jeffrey Pfeffer and Gerald Salancik. According to

Pfeffer and Salancick, organization’s modify their boundary so as to manage disturbances in the exter-nal environment. The firm’s central goal is effec-tiveness in a context or environment (e.g., sur-vival). This is different from Organizational Learn-ing where internal efficiency and improvement is the focus.

Resource dependence theory is primarily focused on relations with the external environ-ment, rather than on ones within the firm. As such, resource dependence theory views organiza-tional conditions in a particular way. It presumes there is environmental determinism. This means an organization’s behavior can be explained by looking at its context, such as external constraints and controls. It assumes an organization’s specific goals are contingent on dependence relations keep-ing it alive (i.e., the relationships that secure its necessary resources). Within this context, the firm’s general goals are to find greater certainty and autonomy. From this it follows that organiza-tions respond to resource dependencies in at least two ways: they comply and adapt to dependencies or they avoid & manage them.

What are the core features of resource de-pendence theory? One of the most important fea-tures of the theory concerns the resources involved and how they establish dependencies. To identify resource dependencies, it helps to ask - What are the key resources in an environment? Who con-trols the resources in question? Resources come in a variety of forms, they are valued differently depending on their importance and availability, and they differ in terms of who has discretion and control over them.

There are various types of resources firms depend on, such as physical materials. These might be actual materials the organization builds a product from. But firms may also depend on tech-nical resources like information or knowledge as well. And last, they may depend on social re-sources, like prestige and reputation, that enable them to survive. All these resources can vary in value. On the one hand, their value can differ by the importance of the resource. Is it in demand - is it valued? Does the firm need the resource to sur-vive? Is there a “critical” resource? For example,

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What does Stanford need to survive? Does it need students? Does it re-quire a physical location, books, teachers, students, money, heating, food? What can it live without? Is there demand for safety, healthy food, expert teachers, and awards? For example, what is the greatest demand of Stanford alumni – it is sustaining high SAT scores, winning national championships (prestige)? What resources are considered most and least important?

On the other hand, does the availability, or supply of the resource influence its value? Is the resource scarce? Do only some of the other organizations have it? How concentrated is the resource? Are there alter-natives to the resource? Can another kind of resource be substituted for it? Who else has it? Let’s consider Stanford again – what does it offer that is unique and that no other can provide? Discretion over a resource also defines relations of resource dependence. Discretion is defined in two ways: First, who controls the resource? Can the exchange partner dic-tate how you use the resource? Is the resource regulated by the govern-ment (changing districting to increase resource / student pool)? Is your firm dependent on the supplier (materials and funds) or consumer (stu-dents / families)? Second, what controls dependencies? (laws) Are there copyrights or contract licenses (curriculum)?

In sum, resource dependence varies from a variety of factors: there are different types of resources, and they can vary in value due to their im-portance and availability. And then certain actors and institutions can con-trol discretion over them. Now clearly, important and rare resources are of greater value. Moreover, actors and institutions that have the greatest discretion over them (and least amount of dependence) will be the most

Types of Resources

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Physical) Technical) Social)

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autonomous and capable for forging certain rela-tions with other firms in the environment.

Figure. Resource Value (Demand and Supply)(Source - http://commons.wikimedia.org/wiki/File:Supply_and_demand_curves.svg/)

Managing Resource Dependence

Once you understand the value attributed to a resource and the game of resource dependence – which is to be autonomous and establish beneficial resource relations with the environment (on impor-tant ones you control!) - a variety managerial strategies follow. Some of the first managerial strategies echo contingency theory: protect the technological core from the environment via buff-ering strategies – like coding, stockpiling, down-sizing (or what some call, “removing slack”), ad-vertising (which showcases strengths), an so on. None of these buffering strategies change the core task and technology of a firm. They are more con-cerned with putting SOP’s in place to manage the organization’s boundary. Let’s take each strategy one at a time:

1. First – firms can perform coding – Coding occurs when an organization classifies inputs before inserting them into the technical core. Such preprocessing facilitates proper routing

and, if necessary, proper exclusion. For ex-ample, many schools track and stream stu-dents. This classifies inputs (students) into homogeneous ability groups so as to buffer instruction from uncertainty (when you have students of wide ability, your technology – or curriculum in this case – is variably received and has uncertain effects.

2. Second, firms can buffer their core tasks by stockpiling. Organizations can collect and hold raw materials or products, thereby con-trolling the rate at which inputs are inserted into the technical core or outputs are released to the environment. It is easy to imagine this for raw materials like wood needed for furni-ture manufacturing. But another example of this can be found in universities. A good por-tion of a university’s budget is dependent on grants, but granting agencies can change the amount of funding they make available, and some years faculty fail to secure those funds (so you have cycles of feast and famine!). This is partly why universities are increas-ingly concerned with securing endowments and gift funds. Universities with large en-dowments can stockpile funds and dip into them during difficult times and maintain the same number of students in their programs.

3. A third strategy entails leveling, or smooth-ing. Leveling is an attempt by the organiza-tion to reduce fluctuations in input or output. Whereas stockpiling is a passive response, leveling entails a more active attempt to reach out into the environment so as to moti-vate suppliers of inputs or to stimulate de-mand for its outputs. Here, an example might be a district (or even a university again) advertising its strengths so that enroll-ments and housing values stay high. By cre-ating demand, they sustain inputs in a reces-sion.

4. A fourth maneuver entails forecasting – If en-vironmental fluctuations cannot be handled by stockpiling or by leveling, organizations

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may have to anticipate changes and attempt to adapt to them. For example, a university may foresee that their school will lack funds and look to identify sources for private fund-ing – say, if a Republican candidate is ex-pected to become president and slash the budget of the National Science Foundation or National Institutes of Health, then universi-ties might develop relations with private foundations and industry partnerships as a means to buffer research and student training from these resource constraints.

5. The final buffering strategy involves adjust-ing scale. Here, the firm changes the scale of its technical core in response to informa-tion provided by forecasting, or for other rea-sons. A good example of this occurs when firms downsize programs, or when school districts get rid of performing arts and for-eign languages but retain a focus on math and science. It is a drastic move, but it does not involve changing the nature of the techni-cal core, rather just its size.

In addition to buffering the technological core from the environment, an organization can protect itself via bridging strategies. The goal of bridg-ing strategies is to shape dependence relations in the environment. One can do this by negotiating with other firms, by selectively exchanging certain resources with them, by pooling resources across them (or partially absorbing other firms), or by per-forming mergers and totally absorbing other firms. These are all increasingly greater efforts at bridg-ing. Let’s look at examples of each in turn.

The most minor bridging efforts, or rather pre-bridging efforts, arise in negotiation. The least costly means is to negotiate with other firms and evoke normative coordination – here behavior is regulated by common informal expectations that reduce uncertainty. In Pfeffer and Salancik’s work (1978:147-151) they give a nice story of a teacher union relating their demands to a school board: the union gives a list of six demands, the first five of which concern the quality of education (smaller class sizes, more preparation time, etc.), and the

last concerns their salary. The school board ap-proves 1-5, but not 6, since they regard the last one to be a private demand cloaked in socially le-gitimate trappings.

The norm evoked here is one of informal expec-tations about trust and honesty. The manage-ment’s job is to note where normative constraints affect dependence relations, noting whether they are beneficial, and if not, to seek ways to change them via persuasion. And that’s what happened when the school board rejected the teacher’s 6th de-mand. Unfortunately, normative coordination does not always work, and free-riding and oppor-tunism can “burn” an organization (e.g., one as-sumes that teachers will not strike during school year, but that does not always happen). Hence, ad-ditional bridging efforts are typically sought.

A second pre-bridging tactic is to bargain. Here the manager uses a family of tactics to ward off impending dependence relations. The firms ne-gotiate and exchange in an attempt to prevent the resource relation from becoming imbalanced. We saw this type of bargaining occur in the week on coalitions, so we can gloss over it here.

More serious forms of bridging involve ex-change, or the mutual giving up of autonomy for an exchange of resources. Firms can do this through contracting. There, the firm attempts to reduce uncertainty by coordinating their future be-havior in limited, specific ways. They define the rules of inter-organizational contact and exchange. Negotiated contracts are an excellent way to ac-quire greater certainty in environmental relations. For example, it does not hurt to have routine nego-tiation with teacher unions about their contracts so as to avoid strikes.

Another, form of exchange can arise via the creation of interlocking directorates. Here, mem-bers of competing organizations are given a posi-tion within the central organization that oversees them (e.g., a board of directors). By being on each other’s boards, the firms trade away their sover-eignty in exchange for some mutual support. By giving external members a role, the organization accomplishes the partial co-optation of an external organization’s interests as their own, but also gives up some of its control. A focal organization may

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then become more effective in an environment be-cause they have coopted external members that might have control over resources central to its functioning.

For example, we had a student write up a case on Stanford’s Committee of Undergraduate Educa-tion when it was formed several years back (Pope 2006). The committee was trying to reform the un-dergraduate curriculum and it encountered a good deal of resistance from the environment and stake-holders. In response, the committee was organ-ized via a “Noah’s Ark” model where they secured representatives from all the environmental stake-holder organizations: 1 undergraduate from the stu-dent council, 1 graduate students from the student council, etc. This opened up representation but also co-opted their dissent in the process. The ad-ministration gave up some control for greater effec-tiveness in the environment of vocal stakeholders.

Another form of resource exchange can arise in hierarchical contracts. These are contracts de-veloped to manage dependencies via conditional clauses evoking hierarchical mechanisms to han-dle disputes. It is a contract that preserves and de-fines the rights of parties in case some problem of contingency arises. For example, it can be a clause for subcontracts ensuring full pay if the sub-contractor does not come through. These are more complete and detailed exchanges or developed con-tracts.

A more extensive means of bridging with other firms can entail the pooling of resources across them. One means of accomplishing this is to engage in a joint venture. Here, two or more or-ganizations create a new organization in order to pursue a common purpose. For example, two pri-vate schools pool their resources to create a day-care center to serve teachers and their children, thereby reducing the uncertainty of teacher attri-tion / retention.

Firms can also enter strategic alliances as a means of pooling resources. These are agreements between two or more organizations to pursue joint objectives through the coordination of activities or sharing of resources. For example, Berkeley and Stanford have a courtesy program where students can take courses at one another’s university.

Last, firms can join associations and cartels. Cartels entail more pooling and loss of autonomy, but they are also rare. Cartels like OPEC go above and beyond informal norms, and have actual means of sanctioning members for not following their decrees – they effectively act as a block of or-ganizations. Notably, cartels are illegal in the United States.

Producer

Supplier Supplier

Figure - Horizontal and Vertical Mergers(Source - http://commons.wikimedia.org/wiki/File:Horizontal_%28PSF%29.png/)

Now firms also can perform a complete pool-ing of resources – or total absorption through mergers. This can arise in several forms. First, the firms can perform a vertical merger. Here, the firm extends control over exchanges vital to its op-eration. Hence, a high school would merge with a middle school, or a manufacturer / producer would buy out a supplier to get control and to create cer-tainty of supply. Firms can also perform horizon-tal mergers. They can accomplish this by taking over their competition, thereby reducing uncer-tainty and increasing organizational power in their exchange relations. An example of this would be when one high school takes over another one so that it can benefit from economies of scale and pool resources. This actually arises sometimes in rural areas of the United States where a township high school is created as a merger of several smaller rural high schools. Last, one can engage in diversification. This is a Method for decreasing

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dependence by acquiring entirely different types of businesses. For example, I once observed a high school that took over a nonprofit dedicated to art. It became a museum and a school! I also saw a school that expanded into a private day care as well. Therefore, a firm can merge all its resources in several ways to bring itself greater autonomy and control over resources in the environment.

That is a lot of managerial strategies! They move from simple negotiation, to exchanges, to pooling and partial absorption, to complete merg-ers. I think it helps at this point to take a step back and ask what are the “general” managerial strate-gies one can take away from the resource depend-ence approach? I think there are two basic pre-scriptions. The first general strategy is to avoid re-source dependence on other firms. This can be done by using buffering strategies like stockpiling, and engaging in long-term contracts that buffer your output. You can also try and change the legal rules and set regulations so as to manage competi-tive markets. It also makes sense to diversify, and to find substitutable exchanges (backups). A sec-ond strategy is to break your firm’s dependence on other firms (and to possibly create their depend-ence on you!). Here you can use secrecy, restrict information, begin an anti-trust suit, co-opt the con-trolling firm, acquire control over the input of the controlling organization (via something like a verti-cal merger), and set up rules of regulation.

Forms of Dependence and Theory Limitations

So you have two general approaches, and a variety of particular managerial strategies you can use to work your firm’s resource relations in the environment. Can we predict certain forms of de-pendence will arise if some of these strategies are used over others? Scholars like Richard Scott think so (2003:118-119). He predicts that certain managerial strategies will result in certain resource dependence relations. For example, some firms tend to assume a symbiotic interdependence – this occurs when two or more kinds of organizations exchange different resources. This can give rise to power differences if the resources exchanged are not of equal importance and value (A!"B). An

example of this might be subcontracting – where money is exchanged for expertise. Such symbiotic dependence (from moderate to extreme – see Scott page 212) corresponds with normative coordina-tion, contracts and their clauses (hierarchical con-tracts); as well as joint ventures and vertical merg-ers.

Another form of dependence is commensalis-tic or competitive. This occurs when two or more organizations compete for the resources of a third party (A"C!B). This is often resolved by differ-entiation (one specializes and becomes a supplier, so there is division of labor and interdependence). An example of this might arise when multiple con-sulting firms compete for the same contract. Ac-cording to Scott, competitive dependence arises under normative coordination, co-optation and the forming of interlocking boards of directors, trade associations, joint ventures, and horizontal merg-ers (where competitors merge).

Just like all the other theories we review in this textbook, resource dependence theory is not a perfect theory and it has certain shortcomings. Re-source dependence theory assumes all organiza-tions are more or less similar. They acquire re-sources in an uncertain world and are staffed by boundedly rational managers who seek to optimize both their own and the organization’s interests. But is that accurate? Do some organizations live outside the issues of resource dependence? (e.g., rich ones?)

What does certainty and uncertainty mean for resource dependence theory? Is dependence on social resources and knowledge less clear than dependence on money and materials? Resource dependence theory is purely resource and exchange-based, and it assumes there is clarity of value and importance. Unfortunately, the value of a resource is often unclear until well after the fact. Moreover, meaning-making / sense-making are lost on resource dependence theory. All tasks are related to efficiency and effectiveness. But what happened to culture and mission? Normative coor-dination is not thoroughly described in resource dependence theory and we find stronger characteri-zations in theories of organizational culture.

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Last, all of these dependencies are described in pair-wise fashion. What about the larger net-work? Can the larger network pattern define op-portunities and constraints? Can the network de-fine norms and pressures better than relations of dependence?

Case: The Near Merger of Northwestern and the University of Chicago

In what follows, we will describe a case where two universities tried to perform a merger and failed. In the process of relating the case, we will review the main features of resource depend-ence theory and see how they apply to the case. In this manner, we hope you will get a better sense for how to apply the theory and recognize its strengths and limitations. The case we will relate was written by a historian, Sarah Barnes. She gives a nice account of the failed 1933 merger be-tween the University of Chicago and Northwestern University – or what might have been the world’s first “super-university”. The merger effort arose during the great depression when both universities were undergoing financial difficulties. In many ways, the two universities were competitors in the city of Chicago for students, recognition, funding, and so on. Northwestern was situated on the north side of Chicago in a bucolic area overviewing Lake Michigan. It was a large undergraduate insti-tution that mostly recruited locally and it placed a strong emphasis on applied programs like Journal-ism and Medicine. Like I said, Northwestern is in a bucolic setting. Very pretty, and the students seem to have lots of fun, even today.

In contrast, on the south side of Chicago in an urban neighborhood was the University of Chi-cago, a large graduate institution with an elite, na-tional reputation and a strong emphasis on the pur-suit of truth and theory. Now the University of Chicago is where I studied, and my recollection of the place (even in the 1990s) was that it still was a leading graduate school, and a very serious intellec-tual place; a wonderful place to learn, but often very somber. Back in 1933, the contrast between these institutions was quite stark. Northwestern

had tax exempt status, Chicago did not; Northwest-ern had a safe neighborhood, Chicago did not; Chi-cago had prestige and reputation, Northwestern did not; Chicago was innovative, Northwestern was not. Chicago was international, Northwestern was local. Chicago was theoretical, Northwestern was applied. Together, the two could benefit from each other’s strengths and lose their weaknesses.

In addition, the merger has some financial benefits. Merging would save each university $1.7M in annual upkeep and better economies of scale. And both institutions seemed to recognize this, and the negotiation moved swimmingly along until they broadened representation on Northwest-ern’s review panel so as to begin vetting the merger with larger constituents. Alumni and resis-tant groups were now included, and they saw things as too rushed. When the two schools got down to details, the merger began to unravel: Chi-cago wanted to keep its college and undergraduate program, so that would still compete with North-western University’s program; and neither wanted to lose their medical school or education school.

The merger also fell apart because a key pro-ponent on the Northwestern University board of trustees died. Also, when the Northwestern Uni-versity review panel expanded, damaging news and gossip leaked into the press upsetting alumni. The gossip was to the effect that the merger was “already decided”, that it was a “takeover”, that it was a “last ditch effort by Hutchins to save his “failed” presidency”; that “NW would lose it’s identity”, etc. The discourse was partisan and both social support and public focus on the mutual gain fell asunder.

So what can resource dependence theory tell us about this case? Let’s briefly review resource dependence theory again. When does resource de-pendence theory apply? It has relevance to a case when there are focal organizations interested in de-creasing competition, increasing autonomy, in-creasing power, and (possibly) increasing effi-ciency. The main mode of organizing action is to scan the environment for resource opportunities and threats, attempt to strike favorable bargains so as to minimize dependence and maximize auton-

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omy / certainty. So far, this seems to capture Northwestern University and the University of Chicago some.

Resource dependence theory also characterizes organizational ele-ments in certain ways. The technology (or what brings about changes in dependence), is focused on external adaptations in order to increase auton-omy and/or decrease dependence (see management). The participants are focal organizations and the organizations that have resource interdepend-ence with. The goal of a firm is survival through external adaptation, and this is accomplished by establishing certain relations that place the focal organization in control or with greater autonomy. The social structure fo-cuses on inter-organizational relations, and the effort is to manage stan-dard operating procedures and to perform bargaining / politics on these relations. And finally, the environment is central. The focus is on ex-change partners and external relations more than internal dynamics. All of these characterizations of organizational elements also seem applicable to our case.

Last, a manager guided by resource dependence theory would per-form some buffering strategies, like the stockpiling resources, leveling with advertisements, forecasting where their needs will be, and adjusting

Case: Merger of Northwestern University and the University of Chicago.

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Figure. Images of Northwestern and University of Chicago(Source - Clockwise starting at “Northwestern University”); http://commons.wikimedia.org/wiki/File:Wikipedia_Education_Program_Northwestern_University_logo.svg; http://commons.wikimedia.org/wiki/File:University_of_Chicago_biting_chimera.jpg; http://commons.wikimedia.org/wiki/File:University_of_Chicago_antique_postcard.jpg; http://commons.wikimedia.org/wiki/File:Hutchinson_Hall%2C_University_of_Chicago.jpg/; http://commons.wikimedia.org/wiki/File:Northwestern_University%2C_ivy.JPG)

the scale of their core technology. They will also bridge with other firms to bring security to the or-ganization within a competitive environment. The bridging strategies they will use can entail negotia-tion and long-term contracts, partial absorption and sharing of resources, such as in forming joint ventures and alliances, or total absorptions via company mergers. Here too we see aspects of merger, co-optation, adjustment of scale in the case.

So let’s apply resource dependence theory to the case. The Chicago-Northwestern merger is clearly a case where the environment is uncertain and problematic for both universities. It is also a case where the two organizations explore a hori-zontal merger (or in secrecy, an effort to co-opt) between competitors. In theory, the merger would entail some buffering, where each university down-sizes their core technology losing their worst pro-grams but keeping their best, But then they com-bine in a complementary form that would have an improved economy of scale. The merger would have made for an unparalleled “super-university". One can only image what it could have been by combining the strengths of the two campuses!

So why didn’t it happen? Does resource de-pendence theory give us an explanation? Let’s ap-ply our concepts and elaborate the theory’s applica-tion to each school and see. For Northwestern, the proposed technology of organizational change was the merger and how it might increase economies of scale (making the university more efficient and autonomous) and minimize some of the problems related to the great depression. The larger size of the combined university could also lead to in-creased diversification, thereby increasing auton-omy.

The participants mentioned on the Northwest-ern side were Walter Scott, the board of trustees, outside consultants, faculty, alumni, and the press. The goal of Northwestern was to become an ideal university, where they increased their positioning and quality of education via improving their ap-plied programs in professional and community practice. The social structure was such that under-graduate programs were more valued than gradu-ate programs. The network of supporters centered

on president Scott and a key Board of Trustee member, but then opponents emerged in the School of Education, the Medical School, and their College of Liberal Arts – all of whom wanted to get a fair deal from the merger. Other stakehold-ers enter later due to press leaks. These are alumni, and they are mostly opposed. The deeper belief structure at Northwestern sought to promote service, social pragmatism, and utilitarianism. These were in stark contrast with the University of Chicago, as you will see next. The environment in which Northwestern found itself was one of a ma-jor economic downturn hurting all aspects of the university.

Let’s next look at the University of Chicago. Chicago, like Northwestern, saw the merger as a means of increasing economies of scale, making the university more efficient and autonomous, and minimizing some of the problems related to the great depression. The larger size of the combined university would also lead to increased diversifica-tion, thereby increasing the university’s autonomy in the environment. The participants at Chicago were Robert Hutchins, Chicago’s board of trus-tees, an outside consultant, faculty, alumni, and the press. Chicago’s goal, like Northwestern’s, was to develop an ideal university. But here the goal was to increase the sustainability of the university by increasing the quality of education via the pursuit of theory and truth. Moreover, Chicago had an elite focus instead of an applied one. Chicago’s mission was also more developed and frequently voiced by the charismatic president Hutchins.

The social structure and values of Chicago were quite different from Northwestern. Hutchins was a strong leader, so it was a more centralized decision structure. In addition, Chicago valued graduate training far more than undergraduate training. Last, its professed beliefs rested in the pursuit of theory and truth, and an idealization of the “Great Books”. Northwestern, on the other hand, viewed Chicago as an Easterner funded (Rockefeller) school led by elitist, idealist (Hutchins). The fact that its goals clearly aligned with its practices and beliefs, served to form a rela-tively integrated university culture at Chicago. The environment for Chicago was much like that

124

125

Re

so

urc

e D

ep

en

de

nc

e,

Ch

ica

go

-No

rth

we

ste

rn M

erg

er

(19

33

):

Sum

mar

y/Ba

sic A

rgum

ent -

- The

reso

urce

dep

ende

nce

pers

pect

ive

sugg

ests

that

org

aniz

atio

ns se

ek to

avo

id d

epen

denc

e an

d un

certa

inty

. W

hen

does

it a

pply

?

Reso

urce

Dep

ende

nce

Theo

ry (R

DT)

No

rthw

este

rn U

nive

rsity

Uni

vers

ity o

f Chi

cago

Key

Elem

ents

Tech

nolo

gy

(wha

t brin

gs a

bout

ch

ange

s in

depe

nden

ce)

Exte

rnal

ada

ptat

ions

in o

rder

to in

crea

se a

uton

omy

and/

or d

ecre

ase

depe

nden

ce (s

ee m

anag

emen

t).M

erge

r wou

ld in

crea

se e

cono

mie

s of s

cale

(mak

ing

the

univ

ersit

y m

ore

effic

ient

and

aut

onom

ous)

and

m

inim

ize

som

e of

the

prob

lem

s rel

ated

to e

cono

mic

cy

cles

. Th

e la

rger

size

also

lead

s to

incr

ease

d di

vers

ifica

tion

–the

reby

incr

easin

g au

tono

my.

Mer

ger w

ould

incr

ease

eco

nom

ies o

f sca

le (m

akin

g th

e un

iver

sity

mor

e ef

ficie

nt a

nd a

uton

omou

s) a

nd

min

imiz

e so

me

of th

e pr

oble

ms r

elat

ed to

eco

nom

ic

cycl

es.

The

larg

er si

ze a

lso le

ads t

o in

crea

sed

dive

rsifi

catio

n –

ther

eby

incr

easin

g au

tono

my

Parti

cipa

nts

Foca

l org

aniz

atio

n an

d ot

her o

rgan

izat

ions

with

re

sour

ce in

terd

epen

denc

e.W

alte

r Sco

ttRo

bert

Hut

chin

s

Goa

lsG

oal i

s org

aniz

atio

nal s

urvi

val t

hrou

gh e

xter

nal

adap

tatio

n (fo

r cer

tain

ty a

nd a

uton

omy)

.In

crea

se th

e su

stain

abili

ty o

f the

uni

vers

ity, e

duca

te

and

train

citi

zens

.In

crea

se th

e su

stain

abili

ty o

f the

uni

vers

ity, e

duca

te

and

train

citi

zens

Soci

al S

truct

ure

Form

al ro

les,

stand

ard

oper

atin

g pr

oced

ures

, int

er-

orga

niza

tiona

l bar

gain

ing

/ pol

itics

. (n

ote:

coa

litio

n ap

proa

ch e

mph

asiz

es in

divi

dual

s and

inte

rests

. H

ere,

the

orga

niza

tion

is th

e m

ain

acto

r an

d ex

chan

ges a

re w

ith o

ther

org

aniz

atio

ns.)

Und

ergr

adua

te a

nd g

radu

ate

prog

ram

s. Ev

ansto

n Ca

mpu

s, D

ownt

own

Cam

pus,

Trus

tees

, D

eans

, Alu

mni

, Stu

dent

s.Co

aliti

ons/O

ppon

ents:

Sch

ool o

f Edu

catio

n, M

edic

al

Scho

ol, a

nd C

olle

ge o

f Lib

eral

Arts

.Co

gniti

ve /

Nor

mat

ive:

Ser

vice

, Dew

ey p

ragm

atism

, ut

ilita

riani

sm.

Und

ergr

adua

te a

nd g

radu

ate

prog

ram

s.Tr

uste

es, D

eans

, Alu

mni

, Stu

dent

s.Co

gniti

ve /

Nor

mat

ive:

The

ory/

Trut

h, Id

ealis

m a

nd

“Gre

at B

ooks

”

Envi

ronm

ent

Key

com

pone

nt o

f the

per

spec

tive.

Exc

hang

e pa

rtner

s and

ext

erna

l rel

atio

ns m

ore

salie

nt th

an

inte

rnal

dyn

amic

s; Br

idgi

ng m

ore

rele

vant

than

bu

fferin

g.

Maj

or e

cono

mic

dow

ntur

n hu

rting

all

aspe

cts o

f the

un

iver

sity.

Sup

pose

dly,

eco

nom

ic p

ress

ures

wer

e gr

eate

r for

Nor

thw

este

rn th

an fo

r Chi

cago

.In

fluen

ce o

f the

med

ia/p

ress

,

Maj

or e

cono

mic

dow

ntur

n hu

rting

all

aspe

cts o

f the

un

iver

sity.

Influ

ence

of t

he m

edia

/pre

ss

Man

agem

ent S

trate

gies

Buffe

ring:

pro

tect

ing

tech

nica

l cor

e fro

m

envi

ronm

enta

l thr

eats

(cod

ing,

stoc

kpili

ng, l

evel

ing,

fo

reca

sting

and

adj

ustin

g sc

ale)

.

Brid

ging

: sec

urity

of e

ntire

org

aniz

atio

n w

ith re

latio

nto

the

envi

ronm

ent.

Tota

l abs

orpt

ion

via

mer

ger

(ver

tical

, hor

izon

tal,

and

dive

rsifi

catio

n), p

artia

l ab

sorp

tion

(coo

ptat

ion

[ver

tical

or h

oriz

onta

l],

inte

rlock

s, jo

int v

entu

res,

strat

egic

alli

ance

s, as

soci

atio

ns)

Hor

izon

tal m

erge

rH

oriz

onta

l mer

ger

for Northwestern. Chicago was experiencing ma-jor economic woes that hurt all aspects of the uni-versity. However, these economic pressures were supposedly greater for Northwestern than for Chi-cago.

In sum, simply identifying the organizational elements and how they are characterized in the case reveals how the two organizations differed. They had very different social structures and goals, and Chicago was slightly less financially de-pendent on the environment than NW.

Let’s consider the different managerial con-cerns these two schools had. For Northwestern there was much to be gained from the horizontal merger, but also some to lose. There were certain resources it wanted to retain. It wanted to retain the tax break it got (a buffer) as part of its charter. It was willing to lose its graduate programs if it could retain its applied professional schools and undergraduate program. In exchange it would get an elite graduate program and international pres-tige. In addition, it would co-opt its regional com-petition for students, faculty, funding, etc. Chicago on the other hand wanted the bene-fit of Northwestern’s tax break. But it was not very willing to lose its professional programs and undergraduate college. It wanted to keep its school of education, medical school and college– Chicago was working for an edge! In some re-gards, Chicago saw the merger as an opportunity to move its less desirable programs off-site (ap-plied programs). Last, it saw this as a chance to co-opt its competition and form a world-leading super-university.

Resource dependence theory would approach this case with a focus on the different levels of de-pendence. And it would cite those levels as a rea-son for Chicago’s more aggressive approach and the merger failure. It would note that Chicago tried to change the rules of the merger toward a more asymmetric contract and that Northwestern saw this as a violation of normative coordination. Other theories seem to help with the details of this case. The internal workings of each school’s decid-ing bodies are better characterized by coalition the-ory. There we can see how the build-up to a con-tract and merger required a good deal of political

wrangling. Also, the death of a key player at Northwestern seems central, at least as presented by Barnes. Moreover, coalition theory can help make sense of all the camps for and against the merger at either school. So coalition theory may help explain how the internal mobilization efforts fell apart while resource dependence theory helps explain why the two universities approached the merger differently and incompatibly for a merger.

However, mergers are often somewhat asym-metric, so the issue becomes how asymmetry got in the way. My sense is that neither resource de-pendence theory nor coalition theory are well-tuned to the deeper “cultural” differences in the two universities that likely played a huge role. The distinctive, highly valued cultures of each uni-versity made it imperative for the merger to pro-ceed in an equal form or long term contract even though Chicago may have had the greater resource advantage. Moreover, Chicago had a more pro-nounced and integrated intellectual culture at that time, and it may have made Hutchins and the Chi-cago camp over-value their notion of a university and make them approach the merger more as a takeover than a pooled effort. In this manner, the two sides never came to an agreement.

126

Su

mm

ary

Ta

ble

of

Re

so

urc

e D

ep

en

de

nc

e T

he

ory

(R

DT

)

Org

aniz

atio

nal L

earn

ing

(OL)

Org

aniza

tiona

l Cul

ture

Reso

urce

Dep

ende

nce

Theo

ry (R

DT)

Whe

n do

es it

ap

ply?

Exist

s whe

n th

ere

are

clea

r fee

dbac

k lo

ops,

adap

tatio

ns,

mem

ory,

and

supp

ort o

f act

or-e

xper

tise

/ ada

ptat

ions

of

rule

s to

loca

l rea

lity.

Whe

n th

e co

gniti

ve a

nd n

orm

ativ

e as

pect

s of s

ocia

l stru

ctur

ear

e of

con

cern

and

seem

to g

uide

org

aniz

atio

nal d

ecisi

ons

(sen

se-m

akin

g) a

nd o

utco

mes

.

Exist

s whe

n th

ere

is a

foca

l act

or in

tere

sted

in d

ecre

asin

g de

pend

ence

, in

crea

sing

auto

nom

y, in

crea

sing

pow

er, a

nd (p

ossib

ly) i

ncre

asin

g ef

ficie

ncy.

Pref

eren

ces a

nd g

oals

are

uncl

ear e

xcep

t in

rela

tion

to d

epen

denc

e.

Sum

mar

y or

Ba

sic

Argu

men

t

Ack

now

ledg

es ro

utin

es, b

ut fo

cuse

s on

prac

tices

with

in

them

that

ena

ble

thei

r con

tinua

l ada

ptat

ion

and

chan

ge

to fi

t rea

lity

– i.e

., pr

actic

es re

flect

ing

orga

niza

tiona

l in

telli

genc

e.

Act

ors s

eek

expr

essio

n an

d fu

lfillm

ent o

f ide

ntity

, and

or

gani

zatio

nal c

ultu

re is

the

med

ium

for s

uch

expr

essio

n/se

nse-

mak

ing.

Foca

l org

aniz

atio

n w

ith in

put/o

utpu

t con

cern

s tha

t can

not b

e re

solv

ed

with

out c

onsid

erin

g th

e en

viro

nmen

t.

For t

he m

ost p

art,

orga

niza

tions

are

con

sider

ed u

nita

ry a

ctor

s (so

me

of

the

strug

gles

/inte

rnal

div

ision

s are

min

imiz

ed) i

n or

der t

o hi

ghlig

ht th

e in

tera

ctio

ns w

ith su

pplie

rs a

nd c

lient

s.

Key

Org

aniz

atio

nal E

lem

ents

Tech

nolo

gy

(how

solu

tions

ge

t dec

ided

)

Inte

rnal

ada

ptat

ion,

or w

here

act

ors a

lter r

outin

es fo

r the

bette

r and

fit r

ealit

y (k

now

ledg

e).

Mat

chin

g, se

nse-

mak

ing

/ mea

ning

-mak

ing,

or w

here

act

ors

seek

to e

xpre

ss b

elie

fs, n

orm

s, an

d va

lues

via

a v

arie

ty o

f pr

actic

es a

nd e

xter

naliz

e th

em in

arti

fact

s dep

ictin

g sh

ared

un

ders

tand

ings

/ no

tions

of a

ppro

pria

tene

ss.

Exte

rnal

ada

ptat

ions

in o

rder

to in

crea

se a

uton

omy

and/

or d

ecre

ase

depe

nden

ce (s

ee m

anag

emen

t). C

ompl

y / a

dapt

, avo

id /

man

age.

Parti

cipa

nts

Mem

bers

of o

rgan

izat

ion

doin

g w

ork

/ SO

P’s

Act

ors w

ithin

the

orga

niza

tion,

and

thos

e sa

lient

to m

eani

ng-

mak

ing.

Foca

l org

aniz

atio

n an

d ot

her o

rgan

izat

ions

with

reso

urce

in

terd

epen

denc

e,G

oals

(wha

t pro

bs to

re

solv

e)

App

licat

ion

prob

lem

s – p

atte

rn re

cogn

ition

not

ther

e (n

ofit

). Cr

eate

intri

nsic

mot

ivat

ion

(sen

se o

f ful

fillm

ent),

and

re

mov

e di

ffere

ntia

tion

/ cyn

icism

in m

ost c

ases

. G

oal i

s org

aniz

atio

nal s

urvi

val t

hrou

gh e

xter

nal a

dapt

atio

n (c

erta

inty

an

d au

tono

my)

.

Soci

al

Stru

ctur

eIn

form

al, l

ater

al re

latio

ns, c

omm

unic

atio

n, n

egot

iatio

n,

& c

olle

ctiv

e im

prov

. Act

or id

entit

ies (

dem

and)

im

porta

nt. N

etw

ork

of p

ract

ice

(pro

fess

iona

l ide

ntity

/ re

ach)

& c

omm

unity

of p

ract

ice

(coh

esiv

e gr

oup)

.

Dee

p str

uctu

re c

ompo

ses t

he e

lem

ents

of c

ultu

re –

them

es

(bel

iefs

& n

orm

s), t

heir

expr

essio

n vi

a pr

actic

es (r

itual

s, et

c), a

nd th

eir m

anife

statio

n or

exp

ress

ion

in a

rtifa

cts

(repo

rts, m

issio

n sta

tem

ents,

etc

).

Form

al ro

les,

stand

ard

oper

atin

g pr

oced

ures

, int

er-o

rgan

izat

iona

l ba

rgai

ning

/ po

litic

s.

(not

e: c

oalit

ion

appr

oach

em

phas

izes

indi

vidu

als a

nd in

tere

sts.

Her

e,

the

orga

niza

tion

is th

e m

ain

acto

r and

exc

hang

es a

re w

ith o

ther

or

gani

zatio

ns.)

Envi

ronm

ent

Sour

ce o

f int

er-o

rgan

izat

iona

l kno

wle

dge

/ tric

ks /

trans

fers

.M

any

elem

ents

of c

ultu

re h

ave

orig

ins f

rom

out

side,

and

th

ey a

re tr

ansp

orte

d in

, the

n tra

nsla

ted

to th

e lo

cal c

ultu

re.

Key

com

pone

nt o

f the

per

spec

tive.

Exc

hang

e pa

rtner

s and

ext

erna

l re

latio

ns m

ore

salie

nt th

an in

tern

al d

ynam

ics;

Brid

ging

mor

e re

leva

nt th

an b

uffe

ring.

Dom

inan

t Pa

ttern

of

Infe

renc

e

Act

ion

= re

sult

of lo

cal a

ctor

s col

labo

rativ

e se

arch

(tria

l &

erro

r / tr

ansf

er) a

nd a

dapt

ing

rule

to si

tuat

ion.

Act

ion

= re

sult

of d

eep

struc

ture

or c

ultu

re th

at is

gen

erat

ed

in th

e or

gani

zatio

n, b

ut w

hich

is m

edia

ted

by th

e m

embe

r’s

rela

tion

to it

.

Act

ion

= sc

an e

nviro

nmen

t for

reso

urce

opp

ortu

nitie

s and

thre

ats,

atte

mpt

to st

rike

favo

rabl

e ba

rgai

ns so

as t

o m

inim

ize

depe

nden

ce a

nd

max

imiz

e au

tono

my

/ cer

tain

ty.

Man

agem

ent

Stra

tegi

esFi

nd w

ays t

o cr

eate

late

ral t

ies a

mon

g w

orke

rs so

“k

now

ledg

e” is

pas

sed

/ tra

nsfe

rred

mor

e re

adily

/ qu

ickl

y (if

pos

sible

, qui

ckly

), cr

eate

mea

ns to

or

gani

zatio

nal m

emor

y of

wha

t wor

ks. C

reat

e ap

plie

d,

soci

al le

arni

ng e

xper

ienc

es w

ith m

eans

to re

tain

ing

and

trans

ferri

ng e

xper

tise.

Wan

t com

mun

icat

ion,

col

lect

ive

impr

ovisa

tion,

pra

ctic

e an

d kn

owle

dge

shar

ing

to a

rise.

Find

way

s to

conf

er id

eolo

gy a

nd le

ad o

ther

s to

iden

tify

with

it (u

sing

a va

riety

of p

ract

ices

and

arti

fact

s), b

ut d

on’t

mak

e it

so e

xplic

it / f

anat

ical

that

cyn

icism

em

erge

s. G

ive

room

fo

r aut

onom

y an

d se

lf-ex

pres

sion

so d

istan

cing

is

unne

cess

ary,

and

enc

oura

ge m

embe

rs to

gen

erat

e a

cultu

re

of th

eir o

wn

(~or

g le

arni

ng c

ultu

re N

E to

Tec

h cu

lture

whi

chis

top-

dow

n en

gine

ered

).

Buffe

ring:

pro

tect

ing

tech

nica

l cor

e fro

m e

nviro

nmen

tal t

hrea

ts (c

odin

g, st

ockp

iling

, lev

elin

g, fo

reca

sting

and

adj

ustin

g sc

ale)

.Br

idgi

ng: s

ecur

ity o

f ent

ire o

rgan

izat

ion

with

rela

tion

to th

e en

viro

nmen

t. To

tal a

bsor

ptio

n vi

a m

erge

r (ve

rtica

l, ho

rizon

tal,

and

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127

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