Economic power is defined in English-language literature as the ability of one firm (referred to as the source) to influence another firm (referred to as the target) with its intentions and actions. French and Raven were among the first to study the issue of power and its foundations in supply chains. According to these authors, the basic assumption was to distinguish between five fundamental sources of economic power: legitimate power, reward power, coercive power, referent power, and expert power.
Legitimate power is associated with a formal position in a structure. It refers to the right to define tasks for subordinates, which must be performed by them due to the obligation to follow the orders of superiors. Everyone who joins a formal organization agrees to the distribution of power by it, by superiors, and by regulations.
Reward power depends on a manager’s ability to control scarce resources within an organization. Money and promotion are typical examples of valuable rewards that lead to the performance of official duties by subordinates who are influenced by the reward. Coercion is the “inverse” of reward. Compliance with orders is rewarded, while lack of discipline and results is punished. Punishments can be formal, regulated by structures and procedures (such as lower pay, dismissal), or informal (such as lack of group acceptance, assigning heavier tasks, etc.).
Referent power (charisma) is based on the emotional bond between a leader and colleagues, resulting in admiration, loyalty, and devotion. The influence of this source of power increases when the leader’s behavior becomes a model for the group to follow.
Expert power refers to the leader’s abilities, skills, and “know-how,” which are the source of their power. This power is greater the more subordinates are convinced that they can learn something useful from the leader or benefit in some way from their wisdom or experience.
Various concepts of economic power have sought different sources of a leader’s influence on other participants-subordinates, examining their effectiveness. The results obtained were interesting, although often inconsistent. It was found, among other things, that the use of legitimate power and reward power as foundations of power most often led to high effectiveness and job satisfaction; punishment caused low effectiveness and low satisfaction, while the use of expert and referent power fostered greater commitment and higher effectiveness. The basic conclusion drawn from these approaches was the recognition of different sources of power and the different effects of using various combinations of them. The use of a single type of power does not lead to the expected results, but the use of an appropriate mix of legitimate power, referent power, and expert power significantly increases the leader’s effectiveness. Table 1 presents the foundations of economic power and possible reasons why one party may dominate another. In the subject literature, there is no consensus on how economic power affects supply chain integration. Reward and coercion remain the most obvious and generally accepted foundations of power, indicating the ability of the firm holding power to mediate in benefits resulting, for example, from profit sharing, cost reduction, or punishing its subordinate firm by dictating terms for cost reduction or terminating cooperation. Other foundations of economic power can also play a significant role in supply chains. For example, power resulting from possessing knowledge in a given field can be perceived by another firm as valuable to itself. Another foundation of power can be referring to and identifying in the market with one’s strong partner. Finally, legitimate power, which consists of both natural and legal premises, based on which a firm believes in the right of another firm to hold power.
The article comes from the magazine “Logistyka” 6/2009.