5 Types of Power in Businesses

by Justin Johnson, Demand Media

Learn the different types of power in business and how to use them effectively.

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Businesses are run by people in power. There are, however, different kinds of power that allow those wielding them
to use varying approaches and methods with varying degrees of effectiveness. There are five basic types of power in
business, and it is important to learn how to recognize each type, and how to use each type effectively in business
situations.

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Coercive Power
Coercive power is the most primitive type of power in the workplace. Coercive power exists when a person in
authority threatens a subordinate with some type of punishment if a certain duty or activity is not completed or
performed correctly. It is important to note that coercive power is used most effectively in scenarios where the
business is in a crisis or is somehow threatened. Coercive power can also be used effectively when attempting to
make cuts in personnel as a result of management shifts and transitions.

Legitimate Power
Legitimate power exists when the subordinates of someone in authority comply with orders given to them because
they believe that the position or title that the person holds gives him the right to use that power. Legitimate power
can be enhanced by ensuring that the business has a clearly defined chain of command and organizational structure.

Related Reading: What Types of Businesses Are Most Suited for the Internet?
Reward Power
Many employees are motivated by rewards and incentives to comply with orders given by a superior. This
motivation is an example of reward power. Additional examples of reward power include public praise, wage
increases and job promotions as a result of jobs well done. The purpose of reward power is to trigger that part of
human nature that appreciates being recognized for high performance.

Referent Power
Referent power refers to the power that is gained as a result of being admired by subordinates in the workplace.
Business leaders who have gained referent power often have done so as a result of entrusting their employees with
increased responsibility and latitude in how to perform their jobs. Referent power is best achieved and used in a
workplace where employee turnover is low and in an environment where personal relationships can be cultivated.

Expert Power
It is natural for people to respect and follow those who are experts in a given field or occupation. Expert power
results from the expertise a person has gained through the experiences and training that have marked her business
career. Subordinates of a person who has gained expert power believe that the leader will guide them correctly due
to her vast expertise.

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Managers require different types of power to make things happen in their organizations. This lesson
focuses on positional power. There are three types of positional power that will be explained in this
lesson, including legitimate, reward and coercive power.

Managerial Power
Managers require power to make things happen in their organizations. Power can be defined as a
manager's ability to influence others. Influence is what managers have when they use power in such
a way that it results in some behavioral response in others. Effective managers understand how to
use their power to influence organizational members to act according to their wishes and to put into
place processes and procedures that work toward organizational goals. A manager obtains his or
her power from both the organization (positional power) and from him or herself (personal power).
The key to successful management lies in using a combination of positional power and personal
power. This lesson will discuss the first of these: positional power.
Positional Power
The most commonly recognized form of power that a manager has is positional power. Positional
power is a result of a manager's position within the organization. The three main bases of positional
power include legitimate power, reward power and coercive power.
Legitimate power stems from the manager's position in the organization and the authority that lies
in that position. Subordinates acknowledge the legitimate power that comes from being in a
leadership position in an organization. A manager's employees believe that the manager has the
authority to direct their actions, and they willingly comply with those requests. For example, when
Kelly asks her manager Jack to approve her personal time off, Kelly knows that Jack has legitimate
power to either approve or deny that request. Regardless of Jack's decision, Kelly must comply.
Reward power is the extent to which a manager can use rewards to influence others. Managers
have power to reward subordinates for their actions when those behaviors meet or exceed
performance expectations. Examples of such rewards include pay increases or bonuses,
promotions, more responsibility and autonomy, as well as recognition and praise. For example,
when Kelly exceeds her sales quota for the first quarter of the organization's fiscal year, her
manager Jack rewards her with a bonus check for $500 and sends out an e-mail to her coworkers
acknowledging the good job Kelly has done.
Coercive power is the opposite of reward power, and it is used by managers to punish subordinates
for not meeting performance expectations or to deter subordinates from making decisions that will
negatively affect the organization.
Examples of coercive power include things such as reprimanding or criticizing a subordinate; writing
up, demoting or firing an employee; withholding pay increases or lowering an employee's salary and
denying a reward. The manager may only have enough coercive power to recommend these
sanctions to someone else who has the authority to carry them out, but nevertheless, the very threat
of punishment is usually enough to influence employee behavior. For example, Jill is a coworker of
Kelly who, unlike Kelly, failed to meet her sales quota last quarter. Jack is fed up with Jill's inability to
make sales and wants her to be transferred to another team or even fired. However, Jack does not
have this authority. He does have the power to recommend Jill's transfer and/or termination to his
boss, who has the authority to carry out the sanction.
It is important to note that subordinates respond differently to the three types of positional power.

Different Types of Power

Power has been an important aspect of human civilization since time immemorial. Power might be
physical, political or social. In the context of business as well, power dynamics tend to influence decisions
and people transactions heavily. So defining power can be difficult as it is understood and interpreted in
several ways however power can definitely not be called a force which gets you what you want. Power
basically emanates from position or authority which can influence people both positively and negatively.

For simplicity and understanding purposes power is usually classified into following categories:

1. Coercive Power- This kind of power involves the usage of threat to make people do what one
desires. In the organizational set up, it translates into threatening someone with transfer, firing,
demotions etc. it basically forces people to submit to ones demand for the fear of losing
something.
2. Reward Power- As the name suggests, this type of power uses rewards, perks, new projects or
training opportunities, better roles and monetary benefits to influence people. However an
 interesting aspect of this type of power is that, it is not powerful enough in itself, as decisions
related to rewards do not rest solely with the person promising them, because in organizations, a
lot of other people come into play like senior managers and board.
3. Legitimate Power- This power emanates from an official position held by someone, be it in an
organization, beurocracy or government etc. The duration of this power is short lived as a person
can use it only till the time he/she holds that position, as well as, the scope of the power is small
as it is strictly defined by the position held.
4. Expert Power- This is a personal kind of power which owes its genesis to the skills and expertise
possessed by an individual, which is of higher quality and not easily available. In such a situation,
the person can exercise the power of knowledge to influence people. Since, it is very person
specific and skills can be enhanced with time; it has more credibility and respect.
5. Referent Power- This is a power wielded by celebrities and film stars as they have huge
following amongst masses who like them, identify with them and follow them. Hence, they exert
lasting influence on a large number of people for a large number of decisions; like from what car
to buy to which candidate to choose for a higher office in the country.

So, power can be defined in a number of ways however what is important is the usage of the power by
people who possess it. Within the organizational context the power dynamics and equations need to be
carefully managed as they have a huge impact on the motivation and engagement level of employees. It
also defines the organizations culture in general and people transactions within the organization in
particular. A very hierarchy and power driven organization finds it difficult to accommodate new and
innovative ideas, any change is vehemently refused, egos clash and lesser opportunities are made
available for the high performers, thus delaying organizational growth. On the other hand, in an
organization which is flat in structure, people are encouraged to innovate and explore, thus bringing in
new concepts and ideas to accelerate organizational growth and expansion.