Sources of Power - Principles of Management

If a manager is to accumulate and use power, he or she first has to understand where power comes from. In organizations, power comes from formal position within a hierarchy, from expertise, from control over valuable information, from a network of allies, and from individual attributes. The degree to which these factors confer power on an individual or unit also depends on certain contingencies, including substitutability, centrality, discretion, and visibility (see Figure below).

FORMAL HIERARCHICAL POSITION

Hierarchical rank within an organization obviously determines power. A CEO has more power than a functional vice president, and a vice president has more power than a frontline manager. Hierarchical power comes from a number of sources:

legitimate power, power over rewards and sanctions, and power over the allocation of scarce resources.

Sources and Contingencies of Power

Sources and Contingencies of Power

Legitimate Power Legitimate power derives from an implicit agreement among organization members that people higher up in a hierarchy can ask certain behaviors of their subordinates. A frontline manager, for example, can request that employees under his supervision work overtime if conditions warrant.

Similarly, a marketing manager at Microsoft will no doubt accept the legitimate power that the CEO, Steve Ballmer, has to send him to meet an important customer in Beijing. For the most part, legitimate power comes not from formal job descriptions, but from the well-understood social norm that those higher up in an organization have the right to direct their subordinates.

However, legitimate power is bounded by laws, formal company rules, and established norms, as well as by managers’ need to get subordinates to accept their legitimacy. Laws limit what managers can do. It is illegal, for example, for a manager to instruct a subordinate to alter accounting statements to hide a company’s debt from investors. Company rules and norms similarly constrain power. Thus a company may have negotiated certain work agreements with labor unions, and those agreements might restrict the tasks a manager can assign.

Similarly, company norms may forbid a manager from telling employees how they should dress. The need for subordinates to accept managers’ legitimacy is also a strong factor limiting managerial power. If leaders act outside of what is implicitly accepted by their subordinates as legitimate, subordinates can exercise their countervailing power by refusing to comply, appealing to a higher authority for redress, working slowly, walking away from the job, or staging a strike.

Power over Rewards and Sanctions Hierarchical rank lets managers shape the incentive and control systems within an organization and administer rewards and sanctions. Managers can reward behavior that they deem consistent with company goals and punish those whose performance is below par. Rewards can take the form of pay increases, bonuses, promotions, and other benefits. Punishments include denying the same, and perhaps dismissal.

Like legitimate power, power over rewards and sanctions is often bounded by laws, norms, and a need to maintain legitimacy. Terminated employees can sue managers for unfair dismissal if they believe the managers have overstepped their power. In 2006, for example, three former brokers at Merrill Lynch won a total of $14 million in damages after a court decided that the company had overstepped its power when firing them in the wake of a trading scandal.

The brokers had been helping a client to trade mutual funds after a 4 p.m. deadline established by the company; but according to them, Merrill knew what they were doing and applied sanctions only when the government started to investigate the practice. They were, in the words of one, “sacrificial lambs.” The court apparently agreed.

More generally, if the administration of rewards and sanctions is seen as unjust or biased in some way, the administrating managers can lose their legitimacy. To ensure that reward and sanction systems are fair and do not involve bias, favoritism, or coercion, many firms now use 360-degree performance evaluation systems in which subordinates review the performance of their bosses, giving them some countervailing power.

Power over Scarce Resources The allocation of scarce resources can be an important source of hierarchical power. Scarce resources include, but are not limited to, capital, people, plant, equipment, and work space. The CEO of a multibusiness company such as United Technology, for example, derives considerable power from the ability to allocate capital between competing requests of different divisions.

Similarly, as head of product development at Genentech, Susan Desmond-Hellmann must allocate scarce scientific and financial resources between drug development projects, which gives her considerable power to shape the drug development pipeline at Genentech.

The power that comes from control over scarce resources has been summarized in what is termed the “new golden rule”— he who has the gold makes the rules. Of course it is not that simple. The need to maintain legitimacy and resulting countervailing power remains an important constraint on management action. If Hellmann were to allocate money to projects that had shown poor results in clinical trails, she would soon lose legitimacy among other scientists at Genentech, and that would quickly undermine her power.

EXPERTISE

Knowledge is power as the saying goes, and this is certainly true in organizations. Expertise in a particular area can give a person considerable power. Susan Desmond-Hellmann started to gain power within Genentech because she was one of the few people with oncology expertise in the organization when Arthur Levinson decided to push the company toward cancer research. In another example, the CFO of WorldCom, Scott Sullivan, wielded enormous personal power in that organization.

Sullivan’s power came from more than his hierarchical rank. It also came from his expertise in arcane accounting regulations and complex financial transactions. Sullivan was considered a “whiz kid” who had won a prestigious “CFO Excellence Award.” Thus when Sullivan asked accounting staff to make questionable entries, they assumed Sullivan had found an innovative —and legal—accounting loophole. Unfortunately Sullivan, along with CEO Bernie Ebbers, was engaging in an $11 billion accounting fraud to inflate WorldCom’s earnings and boost the company’s stock price (from which Sullivan and Ebbers profited handsomely).

When the fraud was uncovered, WorldCom collapsed into bankruptcy. Ebbers and Sullivan ended up in jail. Management writer Peter Drucker has theorized that as our society moves from industry toward a knowledge-based economy, more employees are gaining expert power. In industries from biotechnology to computer software, employee knowledge is becoming the pivotal factor of production. This knowledge is ultimately outside the control of those who manage the company, making them more dependent on powerful expert employees to achieve their corporate objectives.

CONTROL OVER INFORMATION

It is often said that information is power. This phrase is increasingly relevant in a knowledge-based economy because information is the basis of knowledge. Power, however, derives not so much from information per se as from the ability to control the flow of information within an organization.

People who are located at a central node in a communication network are in a particularly powerful position. They can act as information gatekeepers, scanning and selectively releasing information in a manner that is consistent with attaining their goals. In the language of politics, they can “spin” the information. They can also use preferential access to information to increase their knowledge and argue more persuasively for policies, programs, or strategies they advocate.

Information also helps an organization cope better with change and uncertainty in the external environment, and those who control such information may enjoy significant power. For example, a marketing researcher who understands changes in consumer preferences and future demand trends may be able to leverage that information to gain power and influence within the organization.

Information thus confers an advantage to those that have it. Consistent with this view, management researchers have found that centrality in a communication network is positively correlated with an enhanced chance of being promoted, an increase in that person’s reputation for power within an organization, and higher pay.

In an interesting example of the value of centrality, a few years ago SAP, the German business software company, introduced innovative ways for employees to receive the latest company news through their car radios, e-mail newsletters, and intranet sites. SAP employees appreciated this direct communication, but the company’s middle managers objected because it undermined their power as the gatekeepers of company information.

Previously SAP’s middle managers had distributed, regulated, and filtered information throughout the organizational hierarchy. They derived power from this central position, and their power was diminished by the adoption of new methods for information dissemination.

The right to control information flow is a form of legitimate power and is most common in highly bureaucratic firms. The wheel formation in Figure below depicts this highly centralized control over information flow. In this communication structure, employees depend on the information gatekeeper in the middle of this configuration—such as the middle managers at SAP—to provide the information they require.

However, in today’s knowledge-based economy the problem facing information gatekeepers is that a centralized information control structure may be incompatible with knowledge management and high-performance work teams. Consequently, SAP and other organizations are encouraging more knowledge sharing by moving toward an all-channel communication structure (see Figure below) in which all employees enjoy relatively equal access to information. This structure democratizes information, allowing

Power through Information Control

Power through Information Control

employees and self-directed work teams to make better decisions while reducing the power of information gatekeepers. In its purest form, however, the all-channel network may seem chaotic, so large organizations with bureaucratic cultures tend to slip back into the wheel pattern. The wheel pattern also reemerges because, as we saw at SAP, it confers more power on those who distribute the information.

NETWORKS OF ALLIES

It is not only what you know that matters, it is also whom you know. An important source of power in organizations is a network of allies, or supporters, who can help you get things done. Skilled managers put together coalitions of supporters who work collectively to pursue a particular objective, such as the adoption of a strategy or process. A key to building and maintaining a network of allies is reciprocity. Put simply, to get somebody to help you, you have to be prepared to help him or her in some way. Reciprocal social exchanges help build and hold together a network of allies.

For example, as a young political staffer, former U.S. President Lyndon Johnson apparently went out of his way to cultivate a network of powerful friends. These included Sam Rayburn, one of the most powerful congressional representatives of the 20th century.

Rayburn, a fellow Texan and a bachelor, was a lonely man. The Johnsons frequently invited him to their home. Through his connection with Rayburn, Johnson participated in informal gatherings of powerful figures in Washington, which opened doors for the ambitious young Texan. Johnson also derived power from his association with Rayburn: As a friend of Rayburn, Johnson was not somebody to take lightly.

INDIVIDUAL ATTRIBUTES

There is no doubt that individual attributes are an important source of personal power (see Figure below). Several attributes have been identified as important for acquiring and holding power in an organization:

  1. Energy, endurance, and physical stamina.
  2. The ability to focus one’s energy and avoid wasted effort.
  3. Empathy, which makes it possible to read and understand others.
  4. Flexibility, particularly with respect to selecting various means to achieve one’s goals.
  5. The willingness, when necessary, to engage in conflict and confrontation.
  6. Eloquence—the ability to make points in a logical and evocative fashion.
  7. Integrity.

Consider again Susan Desmond-Hellmann. In addition to her expertise, her rise within Genentech was in part due to her willingness to work long hours—requiring energy, endurance, and physical stamina. Similarly, the young Lyndon Johnson displayed enormous energy and endurance. He got to work earlier than other congressional staffers, did not stop for lunch, and often worked past eight in the evening.

The ability to discern what is important and focus time and effort on that is another critical skill. In a study of successful general managers, John Kotter found that those who had focused on one industry, and in one company, tended to be more successful.

Empathy—the ability to understand the beliefs, desires, and motives of others—can be a particularly important attribute when it comes to assembling a network of allies. Lyndon Johnson’s empathy toward Sam Rayburn allowed him to recruit the older man as a valuable ally. Similarly, the rapport Susan Desmond-Hellmann enjoys with other people is probably due to empathy.

Flexibility is the opposite of stubbornness. Flexibility is the ability to recognize that there are multiple ways to achieve a goal and that if one method is failing, it may be better to try another

Individual Attributes as Sources of Power

Individual Attributes as Sources of Power

route. Susan Desmond-Hellmann demonstrated flexibility when Genentech’s Avastin failed in a late-stage clinical trial for treating breast cancer. After reviewing data, she pushed Avastin ahead in another clinical trial for treating colon cancer, which ultimately produced strong results.

A willingness to engage in conflict when necessary—to be tough—can be an important source of personal power. This does not mean you should be habitually difficult, stubborn, or argumentative. Rather, it implies a need to take a stand on important issues, particularly when the facts are on your side. If you shy away from conflict, you are not likely to get your way; you may be pushed around by individuals who are more assertive; and your power will be diminished.

Lyndon Johnson did not avoid conflict when it was necessary; and by signaling to others that he was willing to fight for certain things, Johnson deterred others from moving against him because they feared the consequences.

The ability to communicate in an eloquent fashion is important because it helps make people listen to you—and people who are listened to have power. The expert who mumbles incoherently and does not explain his position in a precise and logical fashion is unlikely to accumulate much power and influence in an organization, no matter how valuable his expertise.

Conversely, an eloquent expert can become uniquely powerful. Such people can use their knowledge, and the power of words, to influence the destiny of an organization.

The great physicist Richard Feynman was a powerful figure in every organization he was associated with—from Los Alamos, where he worked on the Manhattan Project, to the independent commission looking at the failure of the Challenger space shuttle. His power derived not just from his expertise, which was considerable, but also from his eloquent ability to use words to capture the attention of others.

Finally, integrity can be a source of power, particularly when coupled with other sources of power such as expertise. People with integrity gain the respect and trust of others. They build a reputation for being just, reasonable, and incorruptible, which increases their social capital.

People with integrity can better build a network of allies, because people are more likely to enter reciprocal exchanges with somebody who has a reputation for integrity. Moreover, the opinions of people who have a reputation for behaving with integrity will be given greater weight than those with a reputation for duplicity, whose opinions may be perceived as self-serving.


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