Power - Chapter Summary

Chapter Summary

The chapter attempts to assess the nature of power and culture within large organizations and their effects on the goals and accomplishments of those organizations, particularly where contractual agreements fail to provide adequate structure or guidance.

Power is defined as the individual’s ability to accomplish his or her goals by means of resources obtained through noncontractual exchange relationships with other actors. There are five general bases of power: legitimate (formal) power, reward power, coercive power, and resource dependence. Power can also be based on image or reputation. Successful managers likely need to build several bases of power.

The most common view of power in organizations is based on the idea of social exchange. Power arises from persistent inequalities in the terms of repetitive social exchanges between a pair of individuals concerning access to valuable resources. The resource dependence view argues that power arises from dependence relationships based on access to these resources. Individuals and firms seek to gain power by reducing their dependence on other actors, while increasing the dependence of other actors on them. Individuals who control critical resources will gain power.

Power is difficult to measure. The resource deployment and resource mobilization perspectives on power seek to clarify the exchange of power in observed uneven exchanges, but they are not precise. Transactions costs are another way to view power, arguing that power comes from the ability to reduce the costs associated with transactions involving valuable resources. By eliminating an internal holdup problem, for example, managers can acquire great power within an organization.

Power can also be obtained by occupying particular locations within the structure of the firm. By occupying “structural holes,” individuals can create power for themselves by serving as a link between different parts of the organization that might not interact otherwise. If this linkage creates value, the person spanning the structural hole will gain power.

Firms may or may not benefit from powerful managers. Firms will benefit from an accumulation of power if the firm is relatively stable and there are high agency costs between management and lower level workers. They will be harmed if the firm’s environment is relatively unstable and there are high agency costs between levels of upper management. When power is allocated within an organization, the firm is best off when knowledgeable individuals whose interests are most aligned with the firm are given the most power.

While power is primarily concerned with the effects of certain individuals on firm performance, corporate culture refers to a set of collectively held values, beliefs, and norms of behavior that influences individual employee preferences and behaviors. These are the behavioral guideposts