The concept of dependence is useful in understanding how organizational decision making is constrained by the environment. If organizations achieve their own ends by using their power to affect the behavior of other organizations, then it is possible to conceive of organizational behavior as the consequence of influences. While it is more common to view organizations as self-directed, making strategic decisions and vigorously pursuing courses of action, the concept of dependence suggests that organizations are partly directed by elements in their environment. Organizations formulate their own actions in response to the demands placed upon them by other organizations. The extent to which a given organization will respond to the demands of other organizations can be explained by the variables we have described previously, particularly focusing on the dependence of the organization on the various external organizations. Below, we describe two studies testing these ideas.
1. Israeli Managers
Aharoni (1971) interviewed the general managers of the 141 largest manufacturing plants in Israel and, as part of this study, asked them what they might do in a variety of hypothetical situations. These data were used in a study of the extent to which sales interdependence, foreign ownership, and financial problems could explain the managers’ expressed willingness to comply with various governmental requests and policies (Pfeffer, 1972).
Each manager was presented with a hypothetical decision situation in which he was asked what level of profit he would be willing to accept on an investment in a development area. The Israeli government had designated certain areas for development and had encouraged firms to invest in these areas. Managers were asked to answer, along a seven-point scale, what rate of return they would be willing to forego to invest in the development area, assuming that, after government incentives and other considerations, they would earn 15 percent in the development area. An expressed willingness to accept lower returns was assumed to be a measure of the managers’ commitment to accede to government demands.
Two sources of interdependence with the government were used to examine variation in the answers to this question. The government was both a purchaser of goods and a source of financing. We would expect that firms which sell a large proportion of their goods to the government would be more willing to comply with the governments request concerning plant location. And, we would also expect that firms which were in worse, financial condition and were restricted in finding sources of financing would be more dependent on the government for financial assistance and would also be more willing to comply with the government’s wishes.
To examine the hypothesis that dependence affects organizational decisions, the managers’ responses regarding the size of the return they would be willing to give up to invest in the development area were correlated with lie proportion of the firm’s sales to the government. In Table 3.1, rank-order correlations are presented.
For total government sales combined, the correlation of .21 indicates that firms selling a larger proportion of their output to the government were willing to give up larger yields from investment elsewhere in order to comply with the government’s request. The correlations in Table 3.1 also indicate that the proportion of sales to defense were the least related to willingness to comply, while sales to the Shekem, the Israeli equivalent of the American commissary or PX, were most related. This result is not surprising if we consider that a large number of firms can potentially supply the commissary, while there were only a few large firms selling to defense. Because the dependence was more asymmetrical in the case of firms selling to the commissary, those firms were more willing to comply as a function of their dependence on government sales.
The firms’ potential reliance on the government for financing was also related to their willingness to comply. The managers were asked, “Do you think your firm is limited in choosing its sources of funds?” and were given four responses, ranging from “No” to “Yes, always.” This question was assumed to measure the firms’ dependence on the government for assistance in financing. The correlation with the expressed willingness to invest in the development area was .11 (p < .04), consistent with our expectations but not a very strong relationship. Answers to another question asking about the influence the Ministry of Finance had on the firms’ decisions correlated .17 (p < .003) with a question about access to alternative funding sources.
Although the strength of the relationships were not large, the results of the study of responses of Israeli managers (Pfeifer, 1972) were consistent with our argument that organizational actions are constrained by the environment to the extent the organization is dependent on the environment. The Israeli managers study has a number of limitations. Data were collected for other purposes; organizational behavior was assessed by asking about responses in hypothetical situations, even though the answers were provided by the same people who would make the actual decisions; and the data were collected by a respected professor of business who had been Dean of the Business School at Tel Aviv University. This last fact may have affected the responses given; for instance, the managers may have been reluctant to admit their willingness to forego higher profits or may have wanted to appear even more loyal to the interests of the country. Such factors would introduce randomness into the responses, attenuating the strength of the correlations.
2. Sales Interdependence and Affirmative Action
An attempt to gather more evidence on the effects of dependence (Salancik, 1976) was made shortly after the study of the Israeli managers. The context in this case was American firms and their responses to the government’s requirement for affirmative action regarding the employment of women. In a series of presidential executive orders, first blacks and then women were included in the requirement that organizations doing business with the government not only cease discriminatory hiring practices but also engage in affirmative action to increase the proportion of such people in the work force. To obtain some indication of the extent of response to these governmental demands, the top 100 defense contractors were examined. Letters were mailed to the executive vice-president inquiring about the firm’s plans for hiring women MBA graduates in June. The letter, from a. university department of business administration, implied the purpose in writing was to find out how to advise female graduates regarding job opportunities. The letter also asked for any information or brochures the firm might have. Careful records were kept of replies, including weighing the response and noting the time required to respond. Some firms did not reply, others sent short notes explaining they were not hiring, while others sent long letters from their affirmative action directors. Some firms sent brochures describing management opportunities for women in their organizations. From this information, each organization was rated according to how actively it appeared to be in pursuit ofifemale management graduates. One measure of response was the length of time it took to obtain a reply. Another measure was the extent to which the response encouraged female management students to seek employment, with the most encouraging being those responses from the director of equal employment opportunity accompanied by brochures describing opportunities – for women, while the least responsive was either no reply or a short note from a secretary indicating there were no positions. These two measures correlated highly (r —.89).
From the original sample of 100, some firms had to be dropped: some were only holding companies and did no direct hiring; some were engineering firms and did not hire people with only MBA degrees; for others sales information about them could not be publicly obtained. In all, 78 firms were examined. For each of these firms, 1970 information was collected on their total sales, sales to the government, and the proportion of the total procurement in the defense department each furnished. From these data, the following were computed: (1) the firm’s percent of sales to the government, a measure of its dependence on the government; (2) the dollar amount of nongovernment sales, a measure of its potential visibility to the public; and (3) the firm’s contribution to the total defense expenditures, a measure of the government’s dependence on the firm. The one-third of the films with the largest amount of dollar sales to nongovernment organizations were designated as large, visible organizations, while the remainder were considered to be less visible, smaller organizations. Within each category, the firms were further categorized according to their control of the market. A firm controlled the market to the extent it had a larger proportion of the total sales of that commodity. For instance, Colt Industries, in 1970, accounted for more than 50 percent of the small arms business with the government. Such concentration, we assumed, indicated greater government dependence on the firm for purchases.
As in the case of the decisions of the Israeli managers, our interest is in the way the organization’s responsiveness to government demands varies with dependence on the government. One would expect firms to respond more to government pressures according to how dependent they were on the government for their business, which is measured by the proportion of their sales to the government. At the same time, one might expect that if the Department of Defense were dependent on a contractor because of the contractor’s control of the production of a given item, the government would be less likely to pursue compliance vigorously. Some contractors, of course, because of pressures from other groups, might comply even if not under pressure from the De- partment of Defense. Large consumer goods firms, for instance, because of their public visibility, might be more inclined to comply even without government pressure. Thus, we would expect that the degree of responsiveness of contractors to affirmative action pressures as a consequence of their dependence on the government to itself vary with the visibility of the contractor and with his importance as a source of supply. For large, visible firms that are not major sources of defense supplies, the enforcement pressures should be greatest; for less visible contractors that are major suppliers of defense requirements, the enforcement should be least. From the point of view of the contractors confronted with pressures to comply, the decision should depend on how much they need the government as a purchaser of their output. Those firms very dependent on the government should be more responsive than those not so dependent. But we should also expect that, as the enforcement demands are less, the relationship between a firm’s dependence and its compliance would also diminish.
The data testing this argument are presented in Table 3.2.
The four types of firms are ranked according to our assumptions about the amount of enforcement pressure they are likely to face, and the correlations represent the extent to which the firms of each type respond as a function of the proportion of their total sales to the government. As can be seen, when enforcement pressures are assumed to be greatest, responses evidencing concern for affirmative action are strongly related to the degree of the organization’s dependence on the government (r = .84). This relationship diminishes as firms face less enforcement pressure. Indeed, for small firms that are important sources of supply, the relationship between the firm’s dependence and the response to our inquiries about affirmative action is actually negative.
Source: Pfeffer Jeffrey, Salancik Gerald (2003), The External Control of Organizations: A Resource Dependence Perspective, Stanford Business Books; 1st edition