Vertical Sources of Power

All employees along the vertical hierarchy have access tosome sources of power. Although a large
amount of power is typically allocated to top managers by the organization structure, people
throughout the organization often obtain power disproportionate to their formal positions and can
exert influence in an upward direction, as Tom Hicks did at the Discovery Channel. There are for
major sources of vertical power: formal position, resources, control of information, and network
centrality.

Formal Position. Certain rights, responsibilities, and prerogatives accrue to top positions. People
throughout the organization accept the legitimate right of top managers to set goals, make dicisions,
and direct activities. This is legitimate power, as defined earlier. Senior managers often use symbols
and language to perpetuate their legitimate power. For example, the new administrator at a large
hospital in the San Francisco area symbolized his legitimate position power by issuing a news latter
with his photo on the cover and airing a 24-hour-a-day video to personally welcome patients.

The amount of power provided to middle managers and lower-level participants can be built
into the organization’s structural design. The allocation of power to middle managers and staff is
important because power enables employees to be productive. When job tasks are nonroutine, and
when employees participate in self-directed teams and problem solving task forces, this encourages
them to be flexible and creative and to use their own discreation. Allowing people to make their own
decisions increases their power.

Power is also increases when a position encourages contact with high-level people. Access to
powerfull people and the development of a relationship with them provide a strong base of
influence. For example, in some organizations an administrasitive assistent ti the president might
have more power than a department head because the assistant has access to the senior executive
on a daily basis.

Resources. Organization allocate huge amounts of resources. Building are constructed, salaries are
paid, and equipment and supplies are purchased. Each year, new resources are allocated in the form
of budgets. These resources are allocated downward from top managers. Top managers often own
stock, which gives them property rights over resource allocation. In many of today’s organizations,
however, employees throughout the organization also share in ownership, which increases their
power.

In most cases, top managers control the resources and, hance, can determine their
distribution. Resources can be used as rewards and punishments, which are additional sources of
power. Resource allocation creates a dependency relationship. Lower-level participants depend an
top managers for the financial and physical resources needed to perform their tasks. Top
management can exchange resources in the form of salaries and bonuses, personnel, promotions,
and physical facilities for compliance with the outcomes the desire.

Control of Information. The control of information can be a significant source of power. Managers
recognize that information is a primary business resource and that by controlling what information
in collected,how it is interpreted, and how it is shared, they can influence how decisions are made.
In many of today’s companies, information is openly and broadly shared, which increases the power
of people throughout the organization.

However, top managers generally have access to more information than do other
employees. This information can be released as needed to shape the decisions of their people. In
one organization, Clack Ltd., the senior information technology manager controlled information give
to the board of directors and thereby influence the board of directors had formal authority to decide
from which company the system would be purchased. The management services group was asked to
recommend which of six computers manufacturers should recive the order. Jim Kenny was in charge
of the management service group, and Kenny disagreed with other managers about which system to
purchase. As shown in Exhibit 7.5, other managers had to go through Kenny to have their viewpoints
heard by the board. Kenny shaped the board’s thinking toward selecting the system he preferred by
controlling information given to them.

Middle managers and lower-level employees may also have access to information that can
increase their power. An assistant to a senior axecutive can often control information that other
people want and will thus be able to influence those people. Top executives depend on people
throughout the organization for information about problems or opportunities. Middle managers in
order to influence decision outcomes.

Network Centrality. Means being centrally located in the organization and having access to
information and people that are critical to the company’s access. Managers as well as lower-level
employees are more effective and more influential when they put themselves at the center of a
communication network, building connections with people throughout the company. For example,
in Exhibit 7.6, Radha has a well-developed communication network, sharing information and
assistance with many people across the marketing, manufacturing, and engineering departments.
Contracts Radha’s contacts with those of Jasmine or Kirill. Who do you think is lakely to have greater
access to resources and more influence in the organization?

People at all levels of the hierarchy can use the idea of network cetrality to accomplish goals
and be more successful. A real-life examplecomes from Xerox Corporation. Several years ago, Cindy
Casselman, who had little formal power and authority, began selling her idea for an intranet site to
managers all over the company. Casselman had a well-developed network, and she worked behind
the scenes, gradually gaining the power she need to make her vision a reality-and win a promotion
in the process.

People can increase their network centrality by becoming knoeledgeable and expert about
certain activities or by taking on difficult tasks and acquiring specialized knoeledge that makes them
indispensable to managers above them. People who show initiative, work beyond what is expected,
take on undesirable but important projects, and show interest in learning about the company and
industry often find themselves with influence. Physicallocation lets a person be visible to key people
and become part of important interaction networks.
2
A factory worker on the assembly line is in a low power position and should accept that he
or she will have little influence over what happens.

Answer: Disagree. Althouhg an assembly line worker typically has little formal power and authority,
all employees have access to some sources of power. It is up to the individual to network or gether
information to expand his or her power in the organization. An addition, when employees band
together, they can have a tremendous amount of power. Managers can’t accomplish goals unless
employees cooperate and do the work they’re supposed to do.

People. Top leader often increase their power by surrounding themselves with a group of loyal
executives. Loyal managers keep the leader informed and touch with events and report possible
disobedienceor troublemaking in the organization. Top executive can use their central positions to
build alliances and excercise substantial power when they have a management team that is fully in
support of their decisions and actions.

Many top executives strive to build a cadre of loyal and supportive executivs to help them
achieve their goals for the organization. Smart managers also actively work to build bridges and win
over potential opponents. Gary Loveman, who left a position as associate proffesor at Harvard
Business School to be the chief operating officer of casino company Harrah’s, provides a good
example. Some Harrah’s executives,including the CFO, resented Loveman’s appointment and could
whave derailed his plans for the company. Because he knew CFO’s information, knowledge, and
support would be critical for accomplishing his plans, Loveman made building a positive relationship
with the CFO a priority. He stopped by his office frequently to talk, kept him informed about what he
was doing and why, and took care to involve him in important meetings and decsions. Building
positive relationships enable Loveman to accomplish goals that eventually led to him being named
CEO of Harrah’s.

This idea work for lower-level employees, and managers too. Lower-level people have
greater power when they have positive relationships and connections with higher-ups. By being loyal
and supportive of their bosses, employees sometimes gain favorable status and exert greater
influence.

The Power Of Empowerment

In forward-thinking organizations, top managers want lower-level employees to have greater power
so they can do their jobs more effectively. These managers intentionally push power down the
hierarchy and share it with employees to enable them to achieve goals. Enpowerment is power
sharing, the delegation of power authority to subordinates in an organization. Increasing employee
power heightens motivation for task accomplishment becouse people improve their own
effectiveness, choosing how to do a task and using their creativity.

Empowering employees involves giving them three elements that enable them to act more
freely to accomplish their jobs: information, knowledge, and power.
1. Employees receive information about company performance. In companies where
employees are fully empowered, all employees have access to all financial and operational
information.
2. Employees have knowledge and skill to contribute to company goals. Company use training
programs and other development tools to help people acquire the knowledge and skill they
need to contribute to organizational performance.
3. Employees have the power to make substantive dcisions. Empowered employeeshave the
authority to directly influence work procedures and organizational performance, such as
through quality circles or self-directed work teams.

Many of today’s organizations are implementing empowerment programs, but they are
empowering employees to varying degrees. At some companies, empowerment means
encouraging employees’ ideas while managers retain final authority for decisions; at other it
means giving people almost complete freedom and power to make decisions and exercise
initiative and imagination. The continuum of empowerment can run from a situation in which
front-line employees heve almost no discretion, such as on traditional assembly line, to full
empowerment, where employees even participate in formulating organizational strategy. One
organization that pushes empowerment to the maximum is Semco.

IN PRACTICE

The brazil-based company Semco’s fundamental operating prinsiple is to harness the wisdom of
all its employees. It does so by letting people control their work hours, location, and even pay
plans. Employees also particiapate in all organizational decisions, including what businesses
Semco should persue.

Semco leaders believe economic success requires creating an atmosphere that puts power
and control directly in the hands of employees. People can veto any new product idea or
business venture. They choose their own leaders and manage themselves to accomplish goals.
Information is openly and broadly shared so that everyone knows where they and the company
stand. Instead of dictating Semco’s identity and strategy, leaders allow it to be shaped bu
individual interests and efforts. People are encouraged to seek challenge, explore new ideas and
business opportunities, and question the ideas of anyone in the company.

This high level of employee empowerment has helped Semco achieve decades of high
profitability and grow despite fluctuations in the economy and shifting markets. “at Semco, we
don’t play the rules,”says Ricardo Semler. Semler, whose father started the company in the
1950s, says in doesn’t unnerve him to “step back and see nothing on the company’s horizon.” He
is happy to watch the company and its employees “ramble through their days, running on
instinct and oppotunity ...”

Horizontal Sources of Power

Horizontal power pertains to relationships across departments, divisions, or other units. All vice
presidents are usually at the some level on the organization chart. Does this mean each
department has the same amount of power? NO. Horizontal power is not defined by the formal
hierarchy or the organization chart. Each department makes a unique contribution to
organizational success. Some departments will have greater say and will achive their desired
outcome, whereas others will not.reseacher and scholar Charles Perrow surveyed managers in
several industrial firms. He bluntly asked, “which department has the most power?” among for
major departments: production, sales and marketing, R&D, and finance and accounting. Partial
survey results are givenin Exhibit 7.7.

In most firms, sales and the greatest power. In a few firms, production was alsoquite
powerful. On average, the sales and production departments were more powerful than R&D and
finance, although substantial variation existed. Differences in the amount of horizontal power
clearly accurredin those firms. In another recent study of 55 top-level decisions in 14
organizationsin the United Kingdom, researchers found that production, finance, and marketing
had the greatest influence on strategic decisions compared to R&D,HR, and purchasing. Power
shifts among departments depending on circumstances. Today, finance department have gained
power in many companies becauseof the urgent need to control cost in a tough economy. Ethic
and compliance offices may have greater power because they help reduce uncertainty for top
leaders regarding ethical scandals and financial malfeasance. In the Federal goverment,
watchdog and regulatory agencies for Wall Street have increasedpower because of the 2008
financial meltdown. Under the leadership of former chairman Sheila Bair, for example, the
Federal Deposit Insurance Corporation (FDIC) gained broad new powers to police large financial
institutions, including installing examiners at financial firms to monitor their managers’ activities.

Horizontal power is difficult to measure because power differences are not defined an the
organization chart. However, some initial explanations for power differences, such as those
shown in exihibit 7.7, have been found. The theoritical concept that explains relative power is
called strategic continguencies.

Strategic Contingencies. Strategic Contingencies are events and activities both inside and
outside an organization that are essential for attaining organizational goals. Department
involved with Strategic Contingencies for the organization tend to have greater power.
Departmental activities are important when they provide strategic value by solving problems or
crises for the organization. For example, if an organization faces an intense threat from lawsuits
and regulations, the legal department will gain power and influence over organizational
decisions because it copes with such a threat. If product inovation is the key strategis issue, the
power of R&D can be expected to be high.

The strategic contingency approach to power is similar to the resource dependence model
described in chapters 4 and 6. Recall that organizations try to reduce dependence on the
external environment. The strategic contingency approach to power suggests that the
departments or organizations most responsible for dealing with key resource issues and
dependencies in the environmentwill become most powerfull. The National Football League, for
instance, bowed to the power of the cable companies and arranged for its television partners,
CBS and NBC, to simultaneously broadcast along with the NFL Network the highly-anticipated
December 2007 game between the undefeated Patriots and the Giants. The NFL tried for years
to get the cable companies refused because the price was too high. The NFL has a popular
product, but with limited distributions options,it is in a low power position compared to the
cable operators.
Power Sources. Jeffrey Preffer and Gerald Salancik, among others, have been instrumental in
conducting research on the strategicn contingencies theory. Their findings indicate that a
department rated as powerful may possess one or more of the characteristics illustrated in
exhibit 7.8. in some organizations these five power sources overlap, but each provides a useful
way to evaluate sources of horizontal power.

1. Dependency. Interdepartmental dependecy is a key element underlying relative power.

Power is derived from having something someone else wants. The power of department A
over departmen B is greater when department B depends on department A. Materials,
information, and resources may flow between departments in one direction, such us in the
case of sequentialtask interdependence (see chapter 13) in such cases, the department
receiving resources is in a lower power position than the departement providing them. The
number and strength of dependencies are also important. When seven or eight
departements must come for help to the engineering department, for example, engineering
isin a strong power position. In contrast, a department that depends on many other
departments is in a low power position. Likewise, a department is an otherwise low power
position might gain power through dependencies. If a factory cannot produce without the
expertise of maintenance worker to keep the machines working, the maintenance
departement is in a strong power position because it has control over srtategic con tingency.
2. .
Case For Analyze: the daily tribune

the daily tribune is the only daily newspaper serving a sixcountry region of eastern Tennessee. Even
though its staff is small and it serves a region of mostly small towns and rural areas, the Tribune has
won numerous awards for news coverage and photojournalism from the Tennessee Press
Association and other organizations.

Rick Arnold became news editor almost twenty years ago. He has spent his entire career
with the Tribune and feels a great sense of pride that it has been recognized for its journalistic
integrity and balanced coverage of issues and events. The paper ha been able to atract bright,
talented young writers and photographers thanks largely to Rick’s commitment and his support of
the news staff. In his early years, the newsroom was a dynamic, exciting place to work-reporters
thrived on the fast pace and the chance to occasionally scoop the major daily paper in Knoxville.

But times have changed at the daily Tribune. Over the past view years or so, the advertising
department has continued to grow, in terms of both staff and budget, while the news department
has begun to shrink. “Advertising pays the bills.” Publisher John Freeman reminded everyone at this
month’s managers’ meeting. “Today advertisers can go to direct mail, cable television, even the
internet, if they don’t like what we’re doing for them.

Rick has regularly clashed with the advertising department regarding news stories that are
critical ofmajor advertisers, but the conflicts have increased dramatically over the past view years.
Now, Freeman is encouraging greater “horizontal collaboration,”as he calls it, asking that managers
in the news department and the ad department consult with one another regarding issues or stories
that involve the paper’s major advertisers. The move was prompted in part by growing number of
complaints from advertisers about stories they deemed unfair. “We print the news. “Freeman said,
“And I understand that sometimes we’ve go to print things that some people won’t like. But we’ve
got to find ways to be more advertiser-friendly. If we work together, we can develop strategies that
both present good news coverage and serve to attract more advertisers.”

Rick left the meeting fuming, and the didn’t fail to make this contempt for the new
“advertiser-friendly” approach known to all, including the advertising manager, Fred Tomas, as he
headed down the hallway back to the newsroom. Lisa Lawrance, his managing editor, quietly agreed
but pointed out that advertiserswere readers too, andthe newspaperhas to listen to all its
constituencies. “if we don’t handle this carefully, we’ll have Freeman and Thomas in here dictating
to us what we can write and what we can’t.”

Lawrance has worked with Rick since the first came to the paper, and event though the two have
had their share of conflicts, the relationship is primarily one of mutual respect and trust, “Let’s just
be careful,”she emphasized. “read the stories about big advertiders a little more carefully, make
sure we can defend whatever we print, and it will all work out. I know this blurring of the line
between advertising and editorial rubs you the wrong way, but Thomas is a reasonable man. We just
need to keep him in the loop.”

Late the afternoon, Rick received a story from one of his corresponding reporters that had
been on the works for a couple of days. East Tennessee Healthcorp (ETH), which operated a string of
health clinics throughout the region, was closing three of its rural clinics because of mounting
financial woes.