Managing and Avoiding Dependence of Organizations

The strategies we have discussed for avoiding influence may be effective in avoiding the influence of relatively less powerful groups. Such strategies are less likely to work when dealing with powerful interests controlling critical organizational dependencies. General Motors’ power over its automotive suppliers was great enough that it could not only make demands about permissible prices but also enforce de-, mands to audit the suppliers’ books and ensure they were not making excessive profits (Perrow, 1970). Confronted by powerful external organizations, organizational adaptation requires managing the interdependencies themselves, as avoidance may no longer be possible.

1. Organizational Change Strategies

There are two broadly defined contingent adaptive responses—the organization can adapt and change to fit environmental requirements, or the organization can attempt to alter the environment so that it fits the organizations capabilities. The “marketing concept” (Kotler, 1967) is an example of the former strategy. According to the marketing concept, which is a derivative of classical economics, the firm assesses the needs of the marketplace, and then adapts its products and production process to fill some of these needs. In an extension to nonprofit marketing (Kotler and Levy, 1969), the social organization assesses what the social needs are, and defines as its market segment some set of those needs which it will attempt to meet. The concept is that of the organi-zation as an adapter or responder to the signals provided it by con-sumers and other organizations. As the firm is said to be a price taker in classical economics, the organization can be characterized as a need taker, or an environmental requirement taker, responding to demands that are implied by the context in which it operates.

Alternatively, the organization can adapt by attempting to operate on that environment. If the organization and the environment must be mutually compatible, then either the organization can change or the environment can be changed. Galbraith’s (1967) notion of demand creation is consistent with this second strategy. If rapidly changing environments require certain kinds of organizational structures, the organization can adapt its structure to fit the environment or it can alter the environment so that it becomes compatible with the present structure. Since the environment is enacted, the potential for adapting the environment is greatly expanded) as the organization”can choose which parts of the environment to attend to.

In one’ senseyorganizations create the environments to which they adapt by selecting the market segment they will serve—by excluding some elements of the environment and including others. Universities which obtain major portions of their resources from alumni, for instance, institute selection procedures which ensure adequate supplies. Many private universities have quotas which provide favorable treatment to the children of their own alumni. Since the occupational backgrounds of the parents are reliable predictors of the success of the offspring, such an admissions policy ensures a potential source of funding for the future. A similar strategy may be employed by job training agencies. To make sure they can demonstrate their effectiveness, only the most trainable applicants are accepted for the program, and difficult cases are excluded. Such a strategy is similar to market segmentation, in which the organization searches for a market within which it can successfully operate.

Within each of these broad categories of altering the organization or the environment, there are many subsets of possible organizational responses. The organization can adapt its structure, its information system, its pattern of management ancUhumanljelations. its technology, its product,, its values and norms, or its definition of the environment. In attempting to affect the environment, the organization carTengage in strategies of diversification, total absorption of the environment as in merger, partial absorption as in cooptation, or in activities that are designed to influence the rules under which interorga- nizational action takes place. Organizations can lobby to have the government control the environment in their interest or can persuade established regulators to create favorable environmental contexts.

Not only are organizations constrained by the political, legal, and economic environment, but, in fact, law, legitimacy, political outcomes, and the economic climate reflect, in part, actions taken by organizations to modify these environmental components for their interests of survival and growth.

The forms which organizational adaptations take are contingent on the environment and depend on the nature and amount of interdependence confronted by the organization. Organizational adaptations are discussed in the remainder of this book, and we will briefly outline these responses in this chapter. Recall that the two major components of interorganizational power are (1) the focal organization’s dependence on important critical resource exchanges, and (2) the control which other organizations might possess over the exchange of that resource. Organizational attempts to manage and avoid dependencies focus on these two components of interorganizational power.

2. Strategies for Avoiding Resource Dependence

Organizations can take a number of actions to avoid dependence that results from reliance on a single critical resource exchange. A common solution to the problem of overreliance on single sources or markets is to buffer the organization against possible instability. In the case of input, this is accomplished by developing inventories of sufficient size to permit the organization to continue operating even when supplies are scarce (Thompson, 1967). Generally, the more unstable the source of supply, the larger the inventory must be. In the case of output, a similar degree of stability may be attained by committing the organization to long-term contracts for disposal of the output.

While buffering may provide the organization with the capability to survive periods of uncertainty or instability, buffering does not remove the basic source of the vulnerability. A somewhat more adequate strategy is to control the input or output exchange itself, to control the stability and predictability of the exchange relationships. One method of achieving this predictability is to control rules of .trade using either formal or informal, legal or illegal means. Industries with sizeable investments in single purpose technologies, such as oil, steel, or utilities, tend to operate under protection from foreign competition and with either formal regulation or informal interfirm organizations that manage competition and markets. Control over extraorganizational influences provides some measure of protection from the problems resulting from unstable input or output exchanges.

Like buffering, control over demand and supply exchanges still leaves the organization somewhat vulnerable. Cartels can disband, government regulators can become hostile, and informal arrangements can be broken. Another, more direct form of controlling input and output exchanges is to take control of the organizations which either provide the needed resource or absorb the output. However, even such merger or vertical integration has limitations. The organization merely alters its interdependence, but does not eliminate its reliance on the environment.

The most effective strategies for dealing with dependence which arises from reliance on a single product or market are those which alter the purposes and structure of the organization so that it no longer requires only a limited range of inputs or serves only a few markets. Given that the organizations vulnerability derives from dependence on single exchanges, the most direct solution is to develop an organization which is dependent on a variety of exchanges and less dependent on any single exchange. A family with two of its members working at different jobs will be less vulnerable to shifts in employment conditions than a family dependent on a single individual.

The two ways of diminishing dependence are the development of substitutable exchanges and diversification. Developing substitutable resources, such as oil to replace natural gas, is essentially the redefinition of an exchange so that it is no longer critical. The ease of developing the capacity to accept other inputs or for creating other outputs depends on the current stall of knowledge and the flexibility of the organization’s technology. Cereal firms, for instance, found it relatively easy to manufacture natural cereals and to market cereal products as snack foods in addition to marketing cereal as breakfast food. The major change was in marketing strategy.

The more radical form of dependence avoidance is through diversification into~3ifferent lines of business. The effectiveness of this strategy is enhanced to the extent the new businesses are different from the current set of activities, presumably using different resources, supplying different markets, and facing different competitors. The range of possible diversification is great, extending from expansion into a related geographic area, or market, to the conglomeration of the firm so that it includes diverse lines of business with practically no resource exchanges in common.

3. Strategies for .Avoiding Control

The problems which arise for an organization because of its dependence on a single exchange in part arise because the exchange is controlled by some other organization. Many of the adaptations which interdependent organizations undertake focus on diminishing the control of others or of obtaining control for the focal organization.

When the interdependence an organization faces derives from the concentration of power possessed by other organizations, one approach is to eliminate the concentration of control through antitrust suits. Most antitrust suits are filed by large organizations attempting to reduce the control of other large organizations. In just this way Budget Rent-A-Car (a division of Transamerica) successfully entered airports with its concession stands. The courts agreed that it was unlawful for the three major car rental firms to control all the leases for booth rental space at airports and that other competitors must have the opportunity to compete on the premises.

A less direct method of restricting another’s control is through cooptation, in which members of the controlling organization are invited to participate in various activities of the vulnerable organization, to sit on the board of directors, advisory panels, and so forth. The aim of bringing in potentially hostile outsiders is to socialize them and to commit them to provide assistance to the focal organization.

More direct means for avoiding unfavorable situations of control involve acquiring countervailing control or otherwise regulating control. Many of the oil companies own the pipelines through which oil and gas must be transported to markets. While these firms could, potentially, use their control of vital transportation links to eliminate competition from smaller independent firms, this is not possible because pipelines are regulated and must provide nondiscriminatory access for all users. Mergers and acquisitions not only control asymmetrical interdependence By absorbing it. but also make the surviving organization more powerful since it now possesses more resources and more resource control itself. Control may also be limited through the socialization of executives, causing them to avoid using interorganizational power, through informal agreements and arrange- ments, and through the development of norms and values which restrict the exercise of interorganizational influence.

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

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