The Social Control of Organizational Choice

Organizations engage in exchanges and transactions with other groups or organizations. The exchanges may involve monetary or physical resources, information, or social legitimacy. Because organizations are not self-contained or self-sufficient, the environment must be relied upon to provide support. For continuing to provide what the organization needs, the external groups or organizations may demand certain actions from the organization in return. It is the fact of the organization’s dependence on the environment that makes the external constraint and control of organizational behavior both possible and almost inevitable.

Organizations could not survive if they were not responsive to the demands from their environments. But, we have noted that demands often conflict and that response to the demands of one group constrains the organization in its future actions, including responding to the demands of others. This suggests that organizations cannot survive by responding completely to every environmental demand. The interesting issue then becomes the extent to which organizations can and should respond tn various environmental demands, or the conditions under which one social unit is able to obtain compliance with its demands. By   understanding   the   conditions   of   the   social   control   of organizations, we believe it is possible to understand how organizations decide to comply with, or attempt to avoid, influence.

The nature of control and influence in social processes has been explored in a variety of disciplines, including social psychology, political science, sociology, and economics. In the study of interorganiza- tional influence, there have been some preliminary attempts to develop an adequate theory. Most of these theories assume that some form of interdependence is a necessary condition for exerting influence (e.g., Emerson, 1962; Jacobs, 1974; Blau, 1964). As Hawley wrote, “Dominance attaches to the unit that controls the conditions necessary to the functioning of the other units” (1950:221). We would concur that, in general, organizations will tend to be influenced by those who control the resources they require. But there are a number of other conditions which increase the likelihood of the influence being successful. Below is a list of the conditions which affect the extent to which an organization will comply with control attempts:

  1. The focal organization is aware of the demands.
  2. The focal organization obtains some resources from the social actor mak- ing the demands.
  3. The resource is a critical or important part of the focal organization’s operation.
  4. The social actor controls the allocation, access, or use of the resource; alternative sources for the resource are not available to the focal orga-nization.
  5. The focal organization does not control the allocation, access, or use of other resources critical to the social actor’s operation and survival.
  6. The actions or outputs of the focal organization are visible and can be assessed by the social actor to judge whether the actions comply with its demands.
  7. The focal organization’s satisfaction of the social actor’s requests are not in conflict with the satisfaction of demands from other components of the environment with which it is interdependent.
  8. The focal organization does not control the determination, formulation, or expression of the social actor’s demands.
  9. The focal organization is capable of developing actions or outcomes that will satisfy the external demands.
  10. The organization desires to survive.

It is not necessary that all conditions be present for influence to be observed. We would argue, however, that as more of the conditions are met, the probability of external control becomes more and more likely. These conditions are not themselves unalterable givens in a situation. Social actors can and do attempt to affect the conditions in order to create greater likelihood of being able to exert control successfully over other organizations. Attempts are made to obtain more control over important resources, to obtain better access to information in order to assess the organization’s actions and outcomes, and to increase the importance of what the influencing organization supplies. Social control involves a process in which both the influencer and the focal organization act to affect the conditions governing the influence process.

These conditions have parallels in other discussions of interorgani- zational power. Thompson (1967:31) noted that “an organization is dependent on some element of its task environment 1) in proportion to the organization’s need for resources or performances which that element can provide, and 2) in inverse proportion to the ability of other elements to provide the same resources or performance.” Blau (1964:119-125), in specifying the conditions for independence, the converse of dependence, states that 1) strategic resources promote independence; 2) the fact that there are alternative sources from which a needed service can be obtained fosters independence; 3) the ability to use coercive force to compel others to dispense needed services is another condition of independence, where the inability to use force may be due to weakness or to normative restraints; and 4) a lack of need for various services’also fosters independence.

The conditions are also partly consistent with various models of intraorganizational power—that is, power of various subunits within the organization. Hickson et al. (1971) noted that power accrues to those in the organization able to reduce uncertainties for the organization, and the more central the uncertainty and the more irreplaceable the actor, the more influential he will be. Salancik and Pfeffer (1974) have indicated that the power of a department in an organization is a function of the amount of important resources contributed by the department. In both formulations, the concepts of alternative sources and the importance of what the actor controls are present.

The argument that the organization is a coalition of support implies that an important factor determining the organization’s behavior is the dependencies on the various coalition participants. An organization’s attempts to satisfy the demands of a given group are a function of its dependence on that group relative to other groups and the extent to which the demands of one group conflict with the demands of another. Three factors are critical in determining the dependence of one organization on another. First, there is the importance of the resource, the extent to which the organization requires it for continued operation and survival. The second is the extent to which the interest group has discretion over the resource allocation and use. And, third, die extent to which there are few alternatives, or the extent of control over the resource by the interest group, is an important factor de- termining the dependence of the organization.

1. Resource Importance

An organization’s vulnerability to extraorganizational influence is partly determined by the extent to which the organization has come to depend on certain types of exchanges for its operation. There are two dimensions to the importance of a resource exchange—the relative magnitude of the exchange and the criticality of the resource. These two dimensions are not completely independent.

The relative magnitude of an exchange as a determinant of the importance of the resource is measurable by assessing the proportion of total inputs or the proportion of total outputs accounted for by the exchange. An organization that creates only one product or service is more dependent on its customers than an organization that has a variety of outputs that are being disposed of in a variety of markets. Similarly, organizations which require one primary input for their operations will be more dependent on the sources of supply for that input than organizations that use multiple inputs, each in relatively small proportion. Single- material organizations—two examples are wood-product and petrochemical firms—are less common than singleoutput organizations. Historically, universities have defined themselves as processing a relatively narrowly defined input—people between 18 and 22 years of age. As the supply of people in that cohort has decreased, relative to capacity to process it, universities have faced problems. One response has been to broaden the range of needed inputs to include older people in adult education and continuing education programs.

The second dimension of importance concerns the criticality of the input or output to the organization. The criticality of a resource in the functioning of an organization is more difficult to determine than the sheer magnitude of its use. Criticality measures the ability of the organization to continue functioning in the absence of the resource or in the absence of the market for the output. A resource may be critical to the organization even though it comprises only a small proportion of the total input. Few offices could function without electric power, even though the utility may be a relatively small component of the organization’s expenditures.

The criticality of a resource for an organization may vary from time to time as conditions in the organization’s environment change. A lawyer may be relatively unimportant until the organization is confronted with a major lawsuit that threatens its survival. In Crozier’s (1964) example of the maintenance workers in a French factory, the workers were important only when and if the machinery broke down. As the environmental contingencies change, what is a critical resource may change also. The fact that a resource is important to the organization’s functioning is, in itself, not the source of the organization’s problems. Problematic conditions of resources come from the environment. When the supply of a resource is stable and ample, there is no problem for the organization. Organisational vulnerability derives from the possibility of an environment’s changing so that the resource is no longer assured. Forms of organization which require scarcer resources, for which acquisition is more uncertain, would be less likely to survive than those that require resources in more stable and ample supply. One might expect, then, to see a succession of organizations until one evolves that requires resources that are more stable and more abundant in the environment.

Achieving stability in the supply of a resource or in the absorption of an output is problematic for an organization that requires steady resource exchanges to operate. Instability may change a situation of adequate supply to one of insufficiency. For some organizations, stability is a more important dimension of its operation than either profitability or growth. Instability with respect to an important resource means the organization’s survival has become more uncertain. The apparent desire for stability and certainty noted by many observers of organizations (e.g., Hazard, 1961; Cyert and March, 1963) derives, then, not just from the desire of management to have an easier job or more security. Rather, it is in the interests of all coalition participants to have the organization survive, for their continuing participation in the organization indicates that they are obtaining benefits they would like continued. Uncertainty or instability with respect to an important resource threatens the continued existence of the organization, because it makes the participation of coalition members more doubtful. If participants have come to rely on an organization for performances or resources and these become unpredictable, the benefits of participation in the coalition diminish, and it is in the interests of all participants either to abandon the unstable organization for a more stable coalition or to stabilize the uncertainty confronting the organization. It is the necessary responsibHity”f*lnanagement to ensure the survival of the coalition, and this entails working to minimize the possibilitiy of resources becoming scarce or uncertain.

2. Discretion over Resource Allocation and Use

The second major determinant of dependence is the extent of discretion over the allocation and use of a resource possessed by another social actor. There are many forms of discretion over a resource, which is the capacity to determine the allocation or use of the resource. Such discretion is a major source of power and is more important when the resource is more scarce. In an environment dense with organizations and interest groups with a variety of laws and norms, discretion is rarely absolute. More commonly, there are degrees of shared discretion.

One basis for control over a resource is possession. Knowledge is one resource controlled in this fashion. An individual possesses his knowledge in a direct and absolute manner. He is the sole arbiter of its use by others. The basis for the power of such professionals as doctors, lawyers, and engineers, with respect to their clients, lies in the access to knowledge and information. Ownership or ownership rights are also a means of possessing a resource and therefore controlling it. However, unlike the case of knowledge and information, ownership is a form of indirect discretion in that it depends on a sociahpoliticaLc.Qnc.eption and on enforceable social consensus. American and British oil firms that built and owned production facilities in other countries were only able to maintain their ownership while the legal and social foundations permitting their ownership existed. When their Middle East hosts passed a law giving themselves 51 percent ownership, the oil industry dramatically learned the tenuous nature of property rights. Thus, although ownership provides a basis for exerting control over a resource, it is not absolute and depends on the consent of others in the social system.

Another basis for control is access to a resource. It is possible to regulate access to a resource without owning it. Any process that affects the allocation of a resource provides some degree of control over it. An executive secretary gains considerable power from the ability to determine who is permitted access to the boss. The agents of organizations who influence the allocation of the organization’s contracts develop personal power from their positions, a point noted by Thompson (1962) in his discussion of organizations and output trans- actions. Thus, salesmen attempt to win the favor of purchasing agents because the purchasing agents influence the allocation of resources even though they do not own them. Lockheed’s bribes to Japanese intermediaries were their means of gaining access to the government which purchased their planes.

Another important basis for control is the actual use of the re- source and who controls its use. It is possible for a resource to be used by other than the owners, in which case the users have some measure of control over the resource. Although both the owners of taxis and city police departments, which regulate cab drivers, may prefer drivers to accept fares throughout the city, the fact is that, in many cities, taxi drivers refuse fares in what are considered dangerous areas.

The ability to control the use of a resource is a major source of influence for some interest groups. Employees are frequently in a position to control use most directly and occasionally obtain satisfaction of their demands by using the power such use confers. In the fall of 1974, the air traffic controllers in Chicago staged what might be described as a slowdown, though it was accomplished merely by precisely following procedures specified for their jobs. At issue was the withdrawal of familiarization passes by the air carriers. These passes allowed the controllers to become familiar with problems involved in air transport by riding in the cockpit of airplanes, frequently to places such as Miami and Denver.

The final source of control derives from the ability to make rules or otherwise regulate the possession. allocationT and use of resources and to enforce the regulations. In addition to being a source of power, the ability to make regulations and rules _can_dete.rmine the very existence and concentration of power. Laws permitting, if not facilitating, the organization of workers into unions permit the concentration of power, while laws regulating interactions among competitors presumably limit the concentration of buyer and seller power. The ability of rules to affect the concentration of power against organizations is nicely illustrated in a recent case decided by the Supreme Court. In a case that took eight years to resolve, Morton Eisen, a New York shoe salesman, filed a class action complaint on behalf of all the people who had bought or sold odd lots of stock (less than 100 shares) on the New York Stock Exchange in dealings with the defendants, two brokerage houses accused of controlling odd-lot trading and illegally fixing prices that resulted in increased fees. While Eisen’s damage was only $70, the total class could have been entitled to almost $8 million. The Supreme Court ruled that the plaintiff filing on behalf of a class had to give individual notice to all class members who can be identified with reasonable effort and must bear the cost of such notification. In this particular case,, that would have required $272,000 for the preparation and mailing of notices. Of course, such a rule makes the prosecution of such actions much less likely.

Rules also determine the extent to which dependence relations, developing from resource excE^gesT~can be used to accomplish the external control of behavior. In a series of cases brought under the antitrust laws, it has been determined that franchisors cannot compel their franchisees to buy machinery or other inputs from them. Other cases have held that sales territories cannot be restricted. In the absence of such prohibitions, the franchisors, with their greater power, would be able to control the activities of the franchisees much more tightly. Normative restraints also occasionally operate to limit the use and scope of interorganizational influence attempts.

3. Concentration of Resource Control

That an interest group or organization controls a resource and that the resource is important, still does not assure that it will be able to create a dependency for another organization. The dependence of one organization on another also derives from the concentration of resource control, or the extent to which input or output transactions are made by a relatively few, or only one, significant organizations. The sheer number of suppliers or purchasers is not the critical variable. Rather, the important thing is whether the focaLorganization has access to the resource from additional sources. There are many rules and regulations that can restrict access despite the availability of alternatives. For instance, a law governing the shipment of freight traveling between two points on an American coast requires that the cargo be carried on a United States ship. This law requires shippers transporting goods between the mainland and Hawaii to use more expensive American shipping. Concentration of resource control, then, refers to the extent to which the focal organization can substitute sources for the same resource.

Economists have typically measured concentration in terms of the proportion of the market accounted for by the largest four or eight organizations (Adelman, 1951). Alternative measures might include the Gini ratio of concentration, which measures the extent to which a distribution departs from a uniform distribution. The relative number of alternatives available, as well as the size or importance of these alternatives, has consequences for the extent to which organizational behavior is constrained.

Concentration can arise in a multitude of wavs. An organization can have a monopoly position legally protected or legally established, as in the case of electric and telephone utilities. Or, a group of firms can act together as one, constituting a cartel. For coordinated action to develop, it is not necessary for the organizations to communicate with one another. As Phillips (1960) has noted, when there are a small number of firms with similar goals and similar cost structures, implicit coordination is possible. Collective organizations and associations are another form of achieving concentration over some resource. Unions and, to a lesser extent, trade and professional associations are instances of these attempts to achieve coordinated action, or to have many organizations or individuals act as one.

With mass coverage of social activities by television, it is increas- ingly possible for large numbers of individuals to engage in collective action without interpersonal communication and without the need to form an association. In 1974, for example, farmers across the United States took action to reduce their supply of livestock in order to increase prices, and they did so, not only as a result of communications within farm organizations, but also because they learned on the evening news of such actions taken by other farmers.

Any system that regulates resources and their exchanges, in effect, concentrates influence over those resources. If an organization wanted to influence a class of organizations when there are many such organizations to be influenced, it would be in a better position to exert influence if the multitude of organizations were regulated by a single agency or governed by a single law. Instead of having many targets for influence, there would be only one. Concentration of resource control means that influence attempts can be concentrated similarly, with the possessor of the resource control as the target.

As an illustration of this effect, consider the issue of controlling hospital costs and activities. In most states there are thousands of hospitals, and the task of influencing decisions at each hospital would be; enormous. However, most hospitals are now largely reimbursed by third-party payers, Blue Cross, some other private insurance firm, or the federal government through the Medicare and Medicaid programs. Furthermore, reimbursement is based on defined standards for service and allowable costs. Instead of having to influence thousands of individual hospitals in order to have an impact on the activities of the medical system, it is only necessary to influence two organizations— Blue Cross and the Department of Health, Education, and Welfare. Although these are larger organizations and, therefore, perhaps more difficult to influence, it is clear that influence attempts can be focused on fewer targets.

4. Dependence

Concentration of the control of discretion over resources and the importance of the resources to the organization together determine the focal organization’s dependence on any given oilier group or organization. Dependence can then be defined as the product of the impor-tance of a given input or output to the organization and the extent to which it is controlled by a relatively few organizations. A resource that is not important to the organization  cannot create a situation of dependence; regardless of how concentrated control over the resource is. Also, regardless of how important the resource is, unless it is controlled by a relatively few organizations, the focal organization will not be particularly dependent on any of them. When there are many sources of supply or potential customers, the power of any single one is correspondingly reduced.

The dependence we are describing results from exchange processes and from the requirements of organizations to acquire resources and engage in exchange with their environments. Dependence, then, measures the potency of the external organizations or groups in the given organization’s environment. It is a measure of how much these organizations must be taken into account and, also, how likely it is that they will be perceived as important and considered in the organization’s decision making.

5. Countervailing Power and Asymmetric Dependence

Some writers have maintained that the concentration of resources is the basis of interorganizational influence (Mintz and Cohen, 1971). We disagree. The problems associated with concentrated power do not arise because the power is concentrated but because others are not able to muster equal power or equal concentration of opposition. The concentration of power itself is inevitable. It arises from a need to take organized action in cases where the interests of a number of parties are involved. And to the extent that the interests of one party cannot be achieved without other parties, concentration is necessary. The basis of organization is the concentration of effort, coordinating some set of activities to achieve some outcomes of interest to the participants. Perrow (1972) has seen this clearly and has consequently noted that the critical issue in organization is not whether  there will be a concentration of control but, rather, whose interests are being served by the organized, coordinated activities.

A variety of decision mechanisms have been invented to resolve differences in interests and preferences, ranging from using some random selection device, such as coin flipping or dice rolling, to relying on accepted, legitimate authority, to using power based on the control over resources vital to the organization. The point is that some concentration of power is inevitable to achieve collective outcomes. The mechanisms through which effort is organized and coordinated are varied and are not the topic we are examining.

It is the case, however, that the concentration of force to accomplish something is more likely to cause those in opposition to concentrate and coordinate their actions also. Galbraith (1967) has spoken of this in terms of the notion of countervailing_power—that the concen- tration of power or resourcesjn one sphere tends to set up forces that result in ‘a“’cduhlervailing, concentrateTjopp.osition. There are many anecdotal instances of this occurring, though the phenomenon has not been subjected to systematic empirical testing.

For instance, in the area of labor-management bargaining, it is known that if employers move to industry- wide bargaining, the union will also concentrate its bargaining efforts and work for industry-wide settlements. As companies have expanded abroad, developing production facilities for a product in many countries, unions have begun to explore the possibility of developing cross-national federations to engage in worldwide bargaining with a company or an industry, which would prevent a company facing a strike in one country from making up the production in its plants in other countries.

For the dependence between two organizations to provide one organization with power over the other, there must be asymmetry in the exchange relationship. If organization X sells to organization Y and is dependent on Y for absorbing its output, it is simultaneously true that Y purchases from X and is, therefore, dependent upon X for the provision of some required input. Asymmetry exists in the relationship when the exchange is not equally important tojboth organizations. This may occur because the organizations differ greatly in size, so that what is a large proportion of one’s operations is a small proportion of the other’s. For instance, General Motors purchases many components from a wide variety of relatively small suppliers. Many of these sup- pliers furnish virtually 100 percent of their output to General Motors, although each contributes only a small fraction to the total input of General Motors.

Without asymmetry in the exchange relationship neither organization possesses a particular power advantage, reducing the likelihood that-one organization will dominate interorganizational influences. Of course, there can be asymmetries with respect to one resource, though the net relationship between the two organizations is counterbalanced because of corresponding asymmetries for other resources. Thus, an organization may exchange information for sales or may exchange purchases of a product from one organization for sales of some other product to the same organization. This reciprocity is quite common among industrial concerns and is frequently encouraged.

When the net exchange between organizational entities is asymmetrical, some net power accrues to the less dependent organiza-tion. This power may be employed in attempting to influence or constrain the behavior of the other more dependent organization. To summarize the preceding discussion, the potential for one organization’s influencing another derives from its discretionary control over resources needed by that other^and the other’s dependence on the resource and lack of countervailing resources pr access to alternative sources. Perrow (1970) reports on a striking example of interorganiza- .tibnaT influence deriving from asymmetrical exchanges. He reported that it was the practice of the large automobile-manufacturing Arms to audit the records of their small suppliers, thereby ensuring that the small suppliers were not earning excessive profits on their transactions. In fact, it has been argued that the profitability of General Motors derives not so much from its production efficiencies but from its market position. It can take advantage of its suppliers’ production efficiencies by using its influence to .control the price at which it buys. General Motors absorbs much of the output of the small suppliers, while each supplier provides only a fraction of the input to General Motors. Further, while General Motors confronts a large number of firms competing for its business, the suppliers must sell to only three major automobile companies, with General Motors accounting for more than half the market. The small suppliers are quite dependent on General Motors, which, in controlling the market for cars, also controls the market for parts. Since General Motors can always decide the quantity to be purchased from each supplier, it can maintain the size and number of suppliers at a level sufficient to continue its position of relative power.

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

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