RESOURCE DEPENDENCY THEORY

This theory investigates how the importance of the resources being exchanged by the various stakeholders to the continuity of their relationships. From the theory explored above, it can be seen that aside from those who are involved in the relationships that we have reviewed there are other things also important. The contract is more important than the members of the society that are parties to it, as without it there would be no relationships between the various actors involved. These contracts are put in place to protect the different interests of the stakeholders involved as they lay claim to the resources being exchanged amongst them in such relationships. Frooman and Murrell (2005) are of the view that stakeholder relationships should actually be studied with a concentration on the relationships and not the stakeholders themselves. This theory has been previously applied to stakeholder discussions where the stakeholders have been considered as holders of resources critical to the survival of the firm (Kreiner and Bhambari, 1991; Agle et al., 1999; Frooman, 1999; Jawahar and McLaughlin, 2001).

The theory mainly focuses on the dependence of the firm on the environment for critical resources that lead to uncertainties (Chin et al., 2004), with Emerson (1962) as well as Pfeffer and Salancik (1978) being credited with much of its make up Emerson (1962) explored the concepts of power and dependency, with much attention paid to how these two are related to each other, laying a foundation for the development of the theory. However, Pfeffer and Salancik (1978) insisted that for any organisation to be successful and survive the challenges of the modern business environment it needs to manage its external

117 environment so that it maintains the critical resources that it requires to keep it going. According to Chin et al. (2004), over the years contributors have taken to the opinion that firms should be proactive in ensuring they control required resources in their pursuit of the firm’s effectiveness. It is noteworthy to point here that most of the works on RDT have used a business-business approach within a competitive environment, which is based on the view that the firm has some of the resources needed by other firms.

Froelich (1999) sums up the theory by referring to Pfeffer and Salancik’s (1978) position that what ensures the survival of any organization is its ability to get as well as keep needed resources. This implies that while a firm can acquire resources, it also stands the chance of losing them. Jawahar and McLaughlin (2001) agree but note that the level of importance of such resources will lead to dependence by the firm on the resource controller or holder, so the firm must make an effort to maintain such resources once they are acquired. Froelich (1999) warns that this responsibility is not an easy one because of the unstable and uncertain nature of the external environment which is competitive as other firms are after these same resources, and this makes it important for the firm to interact with those that control such resources.

The management of stakeholder relationships becomes the major strategy used by firms to achieve maintenance of these resources, as these stakeholders hold the key to the different resources required for the achievement of organizational goals. Jawahar and McLaughlin (2001) state that as a function of the different levels of dependence firms will use such strategies as Reaction, Defense, Accommodation and Proaction in their management of these relationships.

118 They further argued that the particular strategy to be applied to a stakeholder will be based on the level of importance and attention which that stakeholder attracts as a result of the firm’s dependence on it. However, in consideration of the dynamic nature of the firm’s needs, such levels of attention could also change over time which means the firm will apply different strategies in line with its needs at the point in time. Frooman and Murrell (2005) argued that in order for managers of firms to properly manage the firm’s relationships with its stakeholders, they need to be aware of the likely strategies or options that are available to such stakeholders.

Frooman (1999) had earlier generated four types of stakeholder influence strategies (as discussed in detail in Section 3.3.5, p. 75) which could be used by stakeholders and firms in their relationships with others, which are Withholding, Usage, Direct and Indirect strategies. These have to do with the stakeholder deciding to either withhold its resources from the firm or use such against the latter. These could be done directly by the stakeholder or through allies that have direct relationships with the firm or other stakeholder. He also stated that the level of dependence on each other for resources by each of the stakeholders involved in the relationship results in different types of firm- stakeholder relationships, according to the power possessed by each as a result of its control of the resources. These relationships dictated by the resource dependence between the stakeholders include Stakeholder Power, Firm Power, High Interdependence and Low Interdependence (Frooman, 1999; Frooman and Murrell, 2005).

119 Aside from the focus of the theory on the resource as being at the centre of the relationship, there is the other angle of the relationship which has to do with the options available to the stakeholder or the firm in terms of alternatives for sourcing critical resources (Casciaro and Piskorski, 2005). These authors further emphasized that in order to really understand the theory; two concepts have to be looked at, which are Power Imbalance and Mutual Dependence. Power Imbalance refers to the level of influence which the different actors have on each other in the relationship and how that tilts in favour of each one. On the other hand, Mutual Dependence refers to the level of dependencies between the actors, irrespective of whether they are balanced or not. This implies that the level of dependence existing between the different actors will either affect or be affected by the level of power that is exerted in the relationship. The dependence resulting from the scarcity of resources leads to uncertainty and takes decision-making slightly out of the control of the firm (Chin et al., 2004), and that is exactly what the firms want to avoid which is why they seek strategies that can be applied.

In spite of the discussion of Power Imbalance and Mutual Dependence above, it is noteworthy to point out that this does not have anything to do with equality or inequality, but it is mainly about importance of a stakeholder to another stakeholder in relation to resources. The implication of all this is that firms do not operate as islands; rather they depend on others outside of themselves to bring their goals to fruition as given further credence by Emerson’s (1962) discussion of dependence. Consequently, the kind of dependence or reliance that a firm has on another firm or group will be a function of the resources

120 required by the dependent firm from the latter which puts the balance of power in favour of the resource holder. This further puts into perspective the importance of the firm or stakeholder properly managing its relationships with others, knowing that such could be crucial in its maintenance of access to the resources deemed critical to it.

4.4.1 Critique of Resource Dependency Theory

The theory is very useful for this study, but it still has a few weaknesses. Firstly, Casciaro and Piskorski (2005) had identified one major challenge that has plagued the theory as being the non-separation of power and mutual dependence from each other bearing in mind that they work against each other. The merger of these two together is purported to weaken the theory as an increase in one results in a decrease of the other, making them counteractive to one another. Secondly, they also pointed out that the theory has been referred to as being too dyadic being that it neglects other relationships that the firm is involved in and focuses on just the direct relationships of the firm. This study deems this to be a major challenge, considering that it is aimed at discussing the various relationships between stakeholders in the industry under study. Thirdly, it can be seen also that most of the works done in this area has been from the point of making sure that the firms get it right in maintaining access to the scarce resources that are needed for its success and survival. This approach has neglected the need for resources by other stakeholders with whom the firm has interactions, as agreed to by Casciaro and Piskorski (2005) who posited that the theory has been one-sided with regards to this. This approach considers only the interests of the firm as being important which

121 explains why the focus is on helping the firm maintain its access to critical resources required.

Finally, Chin et al. (2004) posited that despite the theory’s popularity, it lacks empirical evidence as there is not much empirical work to back up or support its supposed popularity. This view is supported by the researcher as being true to a certain extent as reflected by the unavailability of such empirical literature, which could further enhance the growth of the theory and give it more credence.