Organizational Resources: Competition, Costs, and Attainment

Introduction

The continual securing of organizational resources is a critical factor in an organization's success. If resources are not secured efficiently and effectively, this can negatively impact the organization's competitiveness. In an increasingly competitive, globalized world, failure to do so can lead to organizational demise. How the initial mix of resources is mobilized when the organization is created is critical, because this often sets a structural pattern that is imprinted on organizational members.

This paper explores several issues centering on organizational resources. An explanation of how all organizations compete for resources is presented. A description of the consequences and costs of obtaining resources is discussed. Finally, how resource attainment varies with the type of organization, environment, and stage of development is examined.

Competition for Resources

In the late 1960s and early 1970s, organizational scholars began to explore the external forces that affect organizations. The realization that organizations were open systems came through the understanding that organizational systems cannot be fully explained without taking into account the environmental relationships that affect them. This change in perspective—from closed to open systems—resulted in further study of the dynamics of the organizational environment, as well as how organizational systems and the environment interact (Blegen, 1968; Hickson, 1973; Kast & Rosenzweig, 1971). With the open system perspective, attention is drawn to how an organization exchanges information and resources with the environment, and how the organization and the environment influence one another. Through this lens, an appreciation emerges for how an organization maintains functional autonomy while still adapting to the external forces to which it is subjected.

There are four critical functions that organizational open systems must perform in order to not only survive, but also to prosper:

1. Transform inputs and information to produce desired outputs;
2. Interact with the environment to obtain the organizational resources needed and dispose of outputs;
3. Regulate the organization's systems to reach stable performance; and
4. Adapt to continually changing conditions.

Organizations, as open systems, strive to maintain an activity cycle that takes inputs of resources and information received from the environment and transforms these inputs into organizational goods and services, which are then exported back into the environment. As long as there are sufficient resource and information inputs and the organization is able to dispose of its outputs, this cycle allows the organization to continually replenish itself.

There has been a significant amount of research focused on understanding how information and resource flows are managed by organizations (Dobrev, 2007; Kangas, 2007). Specifically, research has concentrated on how an organization must compete for resources through the management of key resource dependencies. Organizations face the challenge of garnering access to the resources needed to produce their outputs without becoming too dependent on the suppliers of those resources. Both internally and externally, organizations must compete for resources.

Externally, organizations must compete for a finite number of resources with other organizations. These organizations may be direct competitors utilizing the same inputs for the production of similar products and services. Efficient and effective acquisition of these resources often leads to a competitive advantage. Even organizations that are not direct competitors can be involved in the competition for resources by using similar inputs to produce different products or services.

As Kangas (2007) notes, even entire countries compete for resources. Thanks to globalization, when changes take place in one region of the world, the effects are felt in others. Today, countries and regions are inextricably connected. Kangas argues this is particularly true of the Greater Middle East region. The European reaction to, and relationship with, the Greater Middle East regarding energy resources has been of significant concern. Programs such as the European Union's "dialogue with Islam" and NATO's "Mediterranean Dialogue" demonstrate how Europe must maintain engagement with this region because of its dependence on the energy resources the Greater Middle East controls. This is true for the Far East as well, as growing countries must evaluate their resource needs and capabilities. Political concerns also play a factor in this competition for resources, and the competition between countries directly affects the organizations within those countries—resulting in situations such as increased costs for energy resources.

In addition, as more companies merge to form increasingly large multinational conglomerates, this too affects the competition for resources. As Dobrev (2007) notes, although it may seem unorthodox, as large firms are absorbed by even larger ones, they are replaced by smaller specialized entrants. Even though consolidation means that some firms grow very large, the overall combined area in resource space controlled by such dominant firms decreases somewhat, because utilizing all available resources tends to lead to diseconomies of scale. The resources freed following consolidation provide staying power to firms that deploy them, so long as those firms avoid direct competition with dominant-scale producers. Some firms can thus thrive on unexhausted resource patches that open up once consolidation drives out existing firms from the market center. As Dobrev explains, "organizational exits lead to reduced competition and partitioning (of resources), which makes the position of incumbents and new entrants alike more viable" (p. 1271).

Consequences and Costs of Obtaining Resources

There are consequences and costs that organizations encounter as they obtain the resources needed to produce their goods and services. These costs can be direct and obvious or hidden. The actual purchase cost of input resources is a direct cost organizations face each time they obtain a resource. This cost may be affected by a variety of factors, including: the quantity of a resource purchased; an exclusivity agreement with a supplier; the demand level for that particular resource by both competitors and other organizations utilizing the same resource for a different output; and the time frame in which an organization needs the resource. The greater the demand for a particular resource, the higher the cost to the organization. Even in instances where there is little demand from other organizations, if the organization has a strong and immediate need for the resource, the cost will typically be higher. Likewise, if there is only one or a very limited number of suppliers and few or no alternatives exist, the supplier's bargaining power is significantly higher, typically resulting in higher organizational costs.

Hidden costs are also often present when an organization obtains resources. These costs are less obvious than direct costs, but can be an important factor in organizational competitiveness ("Project managers," 2003). For example, long lead times for hard-to-find specialty resources can result in additional hidden costs, including the warehousing of extra resources to compensate for those lead times. If production runs short of a resource that is not readily available, this can result in stopped production. The resulting lost productivity increases overhead costs as a percentage of production, which can lead to reduced competitiveness, reduced revenues, and an inability to continue taking advantage of economies of scale—not only for that particular resource, but for all other resource inputs for that product or service.

The consequences of obtaining resources are both external and internal. Externally, the primary consequence is that the acquired resource is no longer available in the environment for other organizations to acquire. This can further strengthen the competitiveness of the organization that obtained the resource, particularly if the other organizations vying for it are direct competitors.

This consequence also affects organizations outside the direct competitive sphere. Even if another organization is not a competitor regarding the final product or service, it too will be negatively affected by the removal of the resource from the environment. Heightened demand and scarcer availability will directly impact the cost of the resource for all remaining organizations that need it as an input, regardless of what their end output is.

A final external consequence of obtaining a resource is the impact the acquisition can have on the political relationship between two countries, when the resource is located outside the home country of the acquiring organization. An economically advantageous relationship between entities in different countries can help foster positive political relations between those nations. Profit is a common language around the globe. Conversely, if resources from a country become scarce or are withheld for other reasons, this can generate resentment between nations and strain political relationships that had previously been on solid ground.

Internally, the primary consequence of obtaining a resource is that the financial resources used to make the acquisition are no longer available for other acquisitions. Each time an organization obtains a resource, it is making a conscious choice to allocate financial resources to that input rather than to something else—thereby setting organizational priorities. This establishment of priorities from early on sets a precedent for future operations. For example, if an organization makes research and development a priority and therefore acquires resources to facilitate it from the very beginning, that priority is likely to persist as the organization advances through its stages of development.

Furthermore, it is the setting of these priorities that often determines the organization's success within its competitive environment. The financial resources of an organization are finite. Selecting their most effective use in the acquisition of resources can make or break organizational competitiveness. Devoting financial resources to unneeded or ineffective inputs can result in lost competitiveness and, if errors cannot be quickly corrected, ultimately in organizational failure.

Conclusion

Securing organizational resources is key to an organization's success. When an organization is able to secure the needed resources efficiently and effectively, this can result in increased competitiveness and greater market share. From early on, the organization's obtainment of resources sets a precedent for future operations, establishing what is and is not an organizational priority.

All organizations must vie for resources. This competition occurs not only between direct competitors, but also among organizations that produce different products yet utilize similar resource inputs. Competition for resources also occurs between countries, often affecting political relationships and the organizations that depend on those resources. Internal competition for resources occurs within organizations as well. The costs of these resources are both direct and hidden. The external consequences include the resource no longer being available for other organizations to utilize, while the internal consequences include the commitment of finite financial resources to one acquisition rather than another.

Finally, the type of organization, the environment in which it operates, and its stage of development all affect resource attainment. As an organization becomes more complex, the decision-making process for obtaining resources becomes more complicated. External factors such as supplier power and industry competitiveness also affect resource attainment. And as the organization develops from inception to maturity, its power to negotiate more effectively with resource suppliers improves, allowing it to attain necessary resources on increasingly favorable terms.

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