Interdependence of Organizations

Interdependence is the reason why nothing comes out quite the way one wants it to. Any event that depends on more than a single causal agenhis an outcome based on interdependent agents. Interpendence is the reason you cannot find the word in the American Heritage Dictionary—an outcome which depends both on your obtaining the dictionary and looking up the word and on the publishers’ having included the word in the volume. In social systems and social interac- tions, interdependence exists whenever. one antnr does not entirely control all of the conditions necessary for the achievement of an action or for obtaining the outcome desired from the action.

Virtually all organizational outcomes are based on interdependent causes or agents. Interdependence characterizes the relationship between the agents creating an outcome, not the outcome itself. A seller is interdependent with a buyer because the outcome of concluding a sale depends on the activities contributed by each. A seller is also interdependent with another seller if each is negotiating with the same buyer for a sale.

There are various ways of categorizing interdependence. One way is to distinguish between outcome interdependence and behavior in- terdependence. these two forms of interdependence are themselves independent, meaning that they can occur either alone or together. In a situation of outcome interdependence, the outcomes achieved by A are interdependent with, or jointly determined with, the outcome achieved by B. Consider a market of a given size in which there are two participants; the quantity sold is determined by the price charged; and the profits earned by the participants are determined by the amount sold, the price charged, and the quantity produced. In such a situation, the two participants, A and B, are in a situation of outcome interdependence. While each independently may make price and quantity decisions, the outcome—profit—will be a function of both the participant’s own decisions and those of his or her competitor. In the case of behavior interdependence, the activities are themselves dependent on the actions of another social actor. Organizing a poker game is an example of behavioral interdependence. In order for one person to play poker, it is necessary that he or she convince others to participate in the game, which involves having them at a certain place at a certain specified time. If the others do not cooperate, then the person cannot engage in the activity of playing poker.

A further distinction can be made between lands of outcome in- terdependence by whether the participants are in a competitive or symbiotic relationship. In a competitive relationship, the outcome achieved by one can only be higher if the outcome achieved by the other is lower. In the terminology of game theory, this is a fixed sum, or zero sum, game. In a situation of symbiotic interdependence, the output of one is input for the other. It is possible for both to be better off or worse off simultaneously. Many efforts have been made to define competitive and symbiotic relationships (e.g., Hawley, 1950). In terms of human ecology, competitive relationships exist when the actors each require identical resources for survival. Symbiotic relationships involve one actor’s using the by- ’proTucts of the other, or in other words, using different resources.

Interdependencies are not necessarily symmetric or balanced. They can be asymmetric. Moreover, interdependence existing between two social actors need not be either competitive or symbiotic—frequently, relationships contain both forms of interdependence simultaneously. For instance, a conglomerate firm may sell the product of one of its divisions to another firm, thereby existing in a symbiotic relationship, and at the same time, be in competition with that other firm in the sale of the product of a different division.

Interdependence is important to an organization because of the impact it has on the ability of the organization to achieve its desired outcomes. Consider the following illustration:

In a small town in Maine there is one seller of a perishable product and one buyer. The buyer requires 100 units of product every two days, with the probability of his needing the 100 units on any given day being .5. The supplier has a .9 probability of having 100 units of the product on hand on any given day. The probability of the buyer, buyer A, being able to obtain what he wants is .9 and results from his dependence on the supplier. One day a new buyer, buyer B, comes into town. Buyer B also needs 100 widgets on average every two days, with demand varying randomly. Buyer A’s probability of now getting what he wants is a function of his getting to the supplier either on a different day or, if on the same day as B, on the probability of getting there before B. The probability of A now getting what he wants is reduced to .675. This added uncertainty is troublesome to A, so he decides to find an alternate source of supply for the product. Meanwhile, the first supplier notes that his sales have fallen from the time when both A and B bought from him. When A and B were both in the market, there was only a .25 chance of not selling the product that day, but with only B in the market, there was a .5 chance of not selling the product. The supplier, therefore, decides to cut down on the amount of product he carries, so if B does not come in, he will not be out so much inventory. This, in turn, reduces the likelihood of a B getting what he wants. Eventually, it is likely that the buyer and supplier will work out some arrangement to coordinate their behaviors so that neither faces as much uncertainty. In short, to cope with the interdependence of outcomes, the two will probably decide to make their behaviors more interdependent.

This simple illustration demonstrates a number of important points about the consequences of interdependence for analyzing organizational behavior. First, we can see that interdependence varies with the availability of resources relative to the demands for them. When there is a large amount of resources relative to the demand, interdependence between actors who need the same resource is reduced. Second, interdependence characterizes individuals transacting in the same environment, with the connection being through the flow of transactions. We can also see that interdependence can create problems of uncertainty or unpredictability for the organization. This uncertainty, which is typically troublesome to organizations, derives from the lack of coordination of activities among social units. Organizations facing uncertainty attempt to cope with it on occasion by restructuring their exchange relationships. The solution to one organization’s uncertainties—for instance, finding a new supplier—can create new uncertainties for other organizations. Most importantly, the example illustrates how organizations, to solve their problems of uncertainty regarding outcomes, are likely to be led to increase their interde-pendence with respect to behavior, that is, to interstmcture their behaviors in ways predictable for each. The typical solution to problems of interdependence and uncertainty involves increasing coordina- tion, which means increasing the mutual control over each others’ activities, or, in other words, increasing the behavioral interdependence of the social actors.

Interdependence is a consequence of the open-systems nature of organizations—the fact that organizations must transact with elements of the environment in order to obtain the resources necessary for survival. It might be noted that interdependence has been increased with the increasing specialization and division of labor among organizational entities. In the days of the pioneers on the American frontier when a family grew and made most of the things it required, the interdependence between the family and the various organizations it dealt with was less than for a family-in the present, where there are specialized organizations providing a variety of goods and services, as well as organizations that purchase labor. To the extent that social organizations are self-contained, there is less interdependence between them. The amount of interdependence existing between organizations is not a given, but can change over time as organizations become more or less self-contained.

Source: Pfeffer Jeffrey, Salancik Gerald (2003), The External Control of Organizations: A Resource Dependence Perspective, Stanford Business Books; 1st edition

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