class presentation (rdt)

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

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