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8/10/2019 Class Presentation (RDT)
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Resource Dependence
Theory
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RDT in 2 minutes less
One of the most influential theories in organizational theory and strategicmanagement (Hillman, Withers, & Collins, 2009, p. 1404)
RDT views orgs as influenced by the environment, but managers can andshould manage their dependencies and uncertainties in the environment
Focus on power, control, resources, dependencies
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Resource Dependence Social Exchange
Basic Idea Orgs can limit the influence
of the environment bymanaging dependencies
People interact with others
in a series of exchangesthat maximize their own
utility by weighing costs and
benefits
Utility Explain how orgs can
maximize profit
Explain why people (orgs)
act the way they do
Focus concepts Power, control,
dependencies
Costs, benefits
Purpose Proscriptive? Descriptive?
Value Added ? ?
Limitations ? ?
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Question Theories Explored Conclusion Theo
Zajac, 1988 Are interlocking dyadsmarkers of companiestrying to increase theircontrol?
RDT is challenged (notexplicitly)
Most links are acrosssub-specialties;interlocks in highlycolluded industriesarent higher thanrandom samples
Astley & Zajac, 1990 How do companysub-groups get theirpower?
Exchange theory vs.functional centrality
Sub-groups get theirpower throughcentrality
Func
Westphal & Zajac,1997
When is a board morelikely to hold its CEOaccountable?
Social exchangetheory vs. networkdiffusion theory
When there arent alot of director-CEOson the board, or whenthese CEOs are beingheld accountable attheir own company
Soctheo
Li, Jie, & Zajac, Are government tiesgood or bad for firmperformance?
Limited RDT vs.economics vs. morecomprehensive RDT
Government ties bringsome advantages,but these advantagescan lead to lowerinnovation(attenuated byforeign investment ordomestic blockownership)
MorRDT
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Other Questions
Why are social exchange theory and resource dependency theorysoappealing?
Why doesnt exchange theory have blanket application to firm- or org-level interactions and phenomena?
What is the purpose of theory?
If the goal is to produce interesting research, why do we care aboutlogical holes?
How do you identify logical holes in application of theory?
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Astley & Zajac, 1990The Question
Exchange Theory Goal is to not be dependent, to have
other sub-units dependent on you.
Is there really reciprocation betweensub-units?
Functional Centrality Power is a result of holding a
role in the division of labor.
The more interdependent yomore power you have. (regadirection of dependence)
Focus on increasing the levedirectional interdependenc
How do sub-units within organization get their power?
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Astley & Zajac, 1990Measures
Questioned Sub-unit heads as to their perception of their units
Dyadic-Level
Focal sub-units dependence on others (IV)
Dependence of other sub-units on the focal sub-unit (IV)
Calculated interdependence and net dependence
Functional centrality (IV): (extent to which their work was connected to the work of each of the other sub
units in the org) Dyadic power (DV): how much influence the sub-unit had over activities performed
Organizational-Level
Organizational decision-making power (
Organizational net dependence
Organizational interdepdent
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Astley & Zajac, 1990Results
Dyad-Level Results The more others are dependent on a
sub-unit, the more power it has
Dependence on others actuallyincreases a sub-units power
Functional centrality is positivelycorrelated with dyadic power
Negative relationship between netdependence and sub-unit power
Positive relationship between non-directional in
Org-Level Results
Organizational net dependenegatively correlated with odecision-making power
Non-directional interdependsub-unit power positively co
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Astley & Zajac,1990Take Away
Thinking of exchanges between sub-units of organizations doesnt reallymake sense (and isnt empirically supported)
Perhaps blanket applications of exchange theory to organizations isnt thebest idea.
Also, dont just use universities to study sub-units and expect they aregeneralizable to businesses.
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Westphal & Zajac, 1997The Question
Boards of directors & managements teams (including the CEO) aresupposed to be separate; board is supposed to hold CEO responsible.
Historically, they wasnt really happening.
Board members are often CEOs of other companies
But, in the mid-90s, there was an increase in board independence Why?
Network diffusion theory vs. social exchange theory
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Westphal & Zajac, 1997Propositions
Proposition 1: the great the proportion of CEO-directors on a board, thelower the likelihood of an increase in board independence
Proposition 2: The greater the proportion of CEO-directors on a board whohave experienced an increase in board independence at their homecompanies, the great the likelihood of such change in the focal
company.
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Westphal & Zajac,1997Measures
Board Independence
Separation of the CEO and board chair positions (allocation of each position to
separate individuals)
Ratio of outside to insider board members
Demographic dissimilarity between CEO and boardmembers
Increase/decrease in unrelated diversification
Increase /decrease in compensation contingency
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Westphal & Zajac, 1997Results
The more CEO-directors on the board:
likelihood of CEO/board chair separation
demographic dissimilarity
outsider ratio
reduced diversification
compensation contingency
The more CEO-directors were experiencing change at home company:
The higher the likelihood of CEO/board chair separation, demographic dissimilarity,outsider ratio, reduced diversification, compensation contingency
Non-significant results for CEO-directors experiencing change as outsidedirectors
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Westphal & Zajac, 1997Take Away
Results lend support for social exchange perspective, but not traditionalnetwork diffusion perspective
Findings stress the importance of social and psychological forces withinthe inner circle, rather than emphasizing how external forces influence acohesive class of managerial elites (p. 178)
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Li, Jie, & ZajacThe Set-up
Management scholars (using RDT) say political ties are good for the firmbecause they allow more resources
Economists say political ties are bad because they allow moregovernment interference
This article posits that it is both are true
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Li, Jie, & ZajacThe Hypotheses (datasupported these)
Gets
Improved access to financialresources
Better information on policy, etc.
Improved legitimacy in the eyes of thestakeholders
Gives
Freedom is hampered by gointerference
E.g., firm is required to be lo
less profitable, economicall
area
Reduced motivation to be e
foreign ownership and domestic block ownershipattenuated decreased efficiency
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Questions for the Group
Why is social exchange theory so appealing?
What is the role of truth?
Why doesnt exchange theory have blanket application to firm- or org-level interactions and phenomena?
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Zajac, 1988The setup
Research up to this point had assumed that interlocking directories were aform to exert and maintain control; presented certain industries asunlawfully colluded
Research had just been counting links, not looking at which specificcompanies were connected
Research had also been comparing these interlocks to 0.
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Zajac, 1988The Result