The Influence of Power on Strategic Change

My article is called “Power and Glory: Concentrated Power in Top Management Teams” by Henrich R. Greve and Hitoshi Mitsuhashi.

The article discusses the power of the top management team within a company and the way they influence the strategic decision-making process. The authors believe that there are two driving forces that can promote significant change in an organizing. One is the power of the top management team, and the other is described as the inertia, or mechanisms that can lead to change. They define power as “the ability to get things done the way one wants them done.” It can be determined by either rules and hierarchies, the ability and resources possessed to reward others, or interpersonal relationships. The authors believe that a concentration of power will be most effective in promoting significant strategic change in an organization.

The article also discusses the difference between formal and informal power and how each type is developed within organizations. Like Scott and Davis, they describe informal power as power that is gained over time through relationships, expertise, personal characteristics, etc. Formal power, on the other hand, is gained through a predetermined position or role that must be filled. With regard to formal power, the authors describe the CEO power and compare it to that of a group of top managers. They believe that in both cases, the presence of the positions facilitate change by giving those in power a means by which to express and solidify their positions. Informal power can complicate a company’s ability to make decisions. For example, if a long-time, well-respected employee with a low rank voices an opinion regarding an issue, is his informal power enough to influence anyone? And if his thoughts are disregarded simply because of his low rank, does the company risk losing a valuable employee?

The authors conducted several studies to measure power within organizations. For formal power, they constructed models that would measure the “distance” between individuals within a company, thereby analyzing the physical hierarchy. To measure informal power, they developed a model that measures the expected gain in a given variable an individual could get if given the choice to trade places with a randomly drawn individual. They determined several variables to consider when measuring power. These include:

–    Firm performance
–    The entropy index of diversification
–    Average tenure of employee
–    Number of executives
–    Proportion of executives within a given sector
–    Market growth
–    Peer change of diversification
–    Interest rates

The authors believe that all of these factors can significantly influence the decision-making process among top management. Ultimately they argue that CEO authority and top management team authority (both concentrated) promote a culture that where power is executed from the top down and is rewarded by the successful implementation of strategic decisions.

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