According to Daniel Mezick, there are two systems in an organization — formal and informal. Leadership is exercised through authority in the formal system, and through reputation in the informal one. Combined, Mezick calls this simply, ‘hierarchy’, which he says is neither good nor bad. It just is.
I would agree that both exist. We are getting more interested in the informal system and the value of reputation as society and our organizations become more networked. In a networked world, reputation is gaining power. In organizations with increasingly shorter lifespans, formal authority is temporary while reputation can extend beyond the life of an organization.
Rita McGrath says that, “Hierarchy [authority] creates the illusion of control”.
“… but you want to avoid the usual trappings of hierarchy—top-down decision making, approvals, committees. These things create the illusion of control, but in a world that’s changing rapidly, they ironically don’t provide you with actual control. The more you rely on top-down decision making, the less you get that input from the edges that’s so critical to the ability to respond to rapidly changing external environments.”
People in positions of organizational authority may have temporary power but it is their reputation that will help them find their next engagement. There are few of us working today who will not have a ‘next engagement’. Helping make our networks smarter, more resilient, and able to make better decisions will enhance our reputation in our human networks. It will also make for more human organizations.