Who controls the company, the manager or the customer? Successful companies know that the customers control everything, what the company can and can’t do. This is known as resource dependence, which the company is limited to the resources it is given by customers and investors in order to survive. Companies that do not provide what the customers and investors require, will not survive, because they will not generate the revenue in order to do so. It is a similar theory to survival of the fittest in the business world. The fittest are the ones that listen to the needs and wants of their customers and investors above all else. This theory also negates the manager, that managers’ attempts to improve the company will be rejected if it is not customer focused. This makes the manager question his purpose for trying to come up with different ways to increase revenues.
Resource allocation and innovation could be synonyms. Resource allocation is the process that customers control the investments and determines which resources the money needs to be allocated to within the company. The new product development that receive the funding are the ones that succeed, which reflects the innovation within the company based on the resources that receive the funding. This process is meant to create the things customers want and take out the things that customers don’t want. Any company that follows this process will be successful.
This process starts down from the lower end of the company not the higher managerial end. The non-executives make the resource allocation decisions. They do so by deciding which projects to make a priority by considering which projects would be most profitable for the company by understanding what the customer wants. This is very important to these non-executive positions because it can improve their career depending on what they present to the managers, and this what drives the innovation in most companies. Management scholar Chester Barnard commented on this topic “From the point of view of the relative importance of executives properly call for first attention. But from the point of view of aggregate importance, it is not decisions of executives, but of non-executive participants in organizations which should enlist major interest.”
There is another possibility other than customer controlled, although it is very rare. Managers used the power of the resource dependence to create new independent companies to create the disruptive technology. One other even more rare case is the manager that fought the resource dependence and did not listen to where to allocate the resources. It is very exhausting for a project to be able to survive this but it has been done.
Resource dependence based businesses are the most successful companies. They learn from what the customers and investors want and to invest in the product development through the resource allocation. A customer focused business is a successful one. Where the decisions of resource allocation start from the bottom and work there way up, so by the time they are proposed to the senior management it has been weeded out several times, by several levels only presenting the best ideas to benefit the customers and investors. There are other possibilities but they are very risky, and probably not worth the risk.
Christensen, Clayton, The Innovator’s Dilemma (Boston: Harvard Business School Press, 1997).