Well, both sides are wrong. A little more than 100 years after Frederick W. Taylor´s pioneering and often misinterpreted work on management science, we should finally end the quackery around organizational power and leadership. And turn to theory and insights that have long been available to us, but that have been widely ignored by the business community as much as by academics.
This is what one of my heroes, Douglas McGregor, said about structure, power and leadership:
It is probable that one day we shall begin to draw organization charts as a series of linked groups rather than as a hierarchical structure of individual “reporting" relationships”
Douglas McGregor, The Human Side of the Enterprise, 1960
McGregor was right, of course. We have, however, only just started with what he predicted more than fifty years ago. A theory of organizational leadership of the kind McGregor theorized about will certainly have to deal with, and explain power within organizations.
Let´s turn first to the concept of organizational power we know best, and the one that McGregor implicitly describes as insufficient and maybe irrelevant. The most widely-understood and well-known concept of power in orgs is that of hierarchy. And hierarchy resides within formal structure. I don´t want to get further into this in this article, so let´s just sum it up here:
Hierarchy = power within Formal Structure = formal power.
Formal Structure: The domain of Hierarchy, or formal power.
So much about that. Formal Structure is needed for compliance, that´s why every organization, large or small, old or young, has one. But Formal Structure is also usually over-emphasized: We make too much of it! Even though we all know that too much formal power, or hierarchy, has serious downsides. The question is: Why the downsides? And the answer to that is that Formal Structure is just one of three structures within any organization. If you accentuate Formal Structure, or over-use it, then the other two structures or what happens in them, suffer.
So what are the other two structures? A hint first:
They are both networked.
The second structure is Informal Structure. Informal Structure became more popularly known and talked about with the rise of social networks. But it had been a well-known phenomenon to the social sciences long before that. Informal Structure can be mapped as “clouds” of interconnected individuals, with varying numbers of links to others – placing individuals either in central or more peripheral positions in the cloud.
Informal Structure is neither good, nor bad. Informal Structure is. And of course there is power in the informal. We call this power Influence.
Influence = power within Informal Structure = informal power.
Or put differently:
Informal Structure: The domain of Influence, or informal power.
It should be mentioned here that the two structures, and powers we looked at so far, are interdependent. So if a CEO scares the crap out of people by mentioning that he intends to hire McKinsey for a restructuring exercise, he is probably intervening in both. Both structures will duly react: In the formal structure, most managers will probably take some steps to secure their turfs. But most of the reaction is likely to happen within informal structure: politics, gossip, coalition-building, intrigue - these are also phenomena arising from informal structure. They can be incredibly powerful, even wrecking any corporate restructuring effort. And especially those executed by consultants and managers who intervene almost exclusively on Formal Structure.
One of the few large companies that has developed mastery in positively acting on and engaging with its Informal Structure is Google.
Now let´s turn to the least-understood of the three structures any organization has. Ironically, it is the structure in which the work is done. From which performance and success can arise. Because look at it: neither success nor performance can be produced through Formal or Informal Structure, because these just carry the compliance dimension and the social dimensions of the organization. For actual work, or value creation, organizations possess a third structure: Value Creation Structure. And from this structure, again, arises a particular kind of power. We call this power Reputation.
Reputation = power within Value Creation Structure = professional power.
Or put differently:
Value Creation Structure: The domain of Reputation, or professional power.
Value Creation is networked. It flows from the inside out - always. From center, to periphery, to market (for more on this distinction read my book Organize for Complexity). You have seen professional power, or Reputation happening. It´s when people have a work problem they cannot solve on their own, and they turn to someone else, asking: "Who knows about this?" or "Who is the expert in this matter who I can ask about it?" They are looking for mastery, and they can find it by hooking up to the network of power that is Value Creation Structure.
Sadly, Value Creation Structure is rarely consciously designed in organizations, and most of the time it is not even being worked upon systematically – with a few notable exceptions. One large company that has developed true mastery in empowering and leading through its Value Creation Structure, by turning it into its dominant structure, is Toyota.
Value Creation Structures can be mapped as networks of cells, which contain functionally integrated teams, and which are interrelated by value flow, pay, and communication relationships. In the structure, any cells either creates value for other network cells or for the outside market. Cells, or teams, respond to market pull, not hierarchy.
Now let´s sum this up:
Every organization has three kinds of power:
Hierarchy (arising from Formal Structure),
Influence (arising from Informal Structure) and
Reputation (arising from Value Creation Structure)."
The three kinds of power, and structures, are interdependent, not independent."
Hierarchy is necessary for (and only for!) building compliance. It is not networked. As formal power, It is not a form of leadership - but of management. In the presence of formal power,
leadership is actually quite impossible to happen.
Influence is necessary for social density and connection. It is networked. It is a form of leadership.
Reputation is necessary for value creation. It is networked, as well. It is the second form of leadership.
All organizations know three kinds of power, and two forms of leadership.
Ignore them at your own peril.
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