Balanced Business Relationships: Power Dynamics Explained

Power has a rich history in politics, society, and business. Kings and queens fight wars to gain more power. Empires rise and fall in the pursuit and loss of power. Business tycoons are obsessed with gaining more power and influence. Power has negative connotations, but it is worth exploring the multifaceted nature of power.

John French and Bertram Raven researched the bases of social power in 1959. The dimensions of power they identified—coercive, reward, legitimate, expert, and referent—are very relevant in business interactions, influencing how individuals interact and manage their business relationships with others. This post examines these dimensions applied to business relationships and their implications for healthy functioning business relationships.

Dimensions of Power in Business Relationships

• Coercive power in business relationships refers to the ability of one party to influence another through the threat of negative consequences or punishment. For example, large retailers such as Walmart often use coercive power when negotiating with their suppliers for the lowest prices. This can result in small suppliers exiting the market or looking for possible mergers with other suppliers to survive.
• Reward power in business relationships involves positive reinforcement to encourage desired behaviors. Reward power encourages positive interactions and reinforces behaviours that contribute to the health and success of the business relationship. For example, manufacturers will often devise sales contests tied to achieving sales targets and reward salespeople with incentive trips or bonuses.
• Legitimate power in business relationships is derived from roles or positions recognised and accepted by both parties. For example, IBM holds legitimate power in the technology industry space due to its established authority and long-standing reputation in the technology industry over many decades.
• Expert power in business relationships comes from one party's knowledge or skills valued by the other. For example, Caterpillar has expert power; their cat dealers respect and rely on them for the service and support of their equipment in the field.
• Referent power refers to personal appeal and the ability to attract and influence others through admiration and respect. For example, Apple customers and dealers exhibit referent power by displaying strong brand loyalty and admiration for the Apple brand.

Relevance in Business Relationship Management

By understanding French and Raven's dimensions of power, business relationships can

• Develop collaborative relationships: Recognising the downside of coercive power in business relationships allows business partners to develop a shared destiny relationship where the gains are equally shared. It is important for retailers to see their preferred suppliers as valued partners and ensure they remain viable. The upside of using coercive power is that it may help a troubled business relationship get back on track. It might force one party to make behavioural changes and concessions to better align with the other partner's goals and expectations.
• Move toward balanced power: Balanced power should be a key goal in business relationships. This allows for mutual recognition of each business partner's strengths and capabilities. A balanced power relationship is one characterised by mutual dependency, fair negotiation, shared goals, and long-term orientation.

Key Takeaway

French and Raven's dimensions of power offer valuable insights and applications in business relationships. By understanding and thoughtfully applying these dimensions, individuals can foster healthier, more balanced relationships characterised by mutual respect, admiration, and cooperation.

Recognising the multifaceted nature of power in business relationships empowers individuals to navigate their interactions more effectively, creating a foundation for collaborative long-term relationships.