What is a patronage network? If we go by the definition, patronage means to be in favor of or to support unanimously and network is a group of such like minded people.
To go a little more in detail, patronage usually has 2 key elements, one being the patron and the other being the client.
While the patron is the person who dispenses power, resources, protection etc, client is the one who provides loyalty and support to the patron. A patron usually has many such clients and each client (depending on the position and power he holds) may in turn have many clients associated with him. Thus it builds a network; an informal chain.
In an organization, it is not uncommon to find one or many such patronage networks. These are essentially voluntary networks developed amongst close knit people generally belonging to the same cultural background. These networks operate seamlessly and are very transparent (read as - not seen) to the outside world. Here essentially the patron disposes favors to his clients in return for their loyalty and sometimes return of favors as well.
Examples would be, if there is a patronage network developed between a manager and a set of his subordinates who belong to the same cultural background, then it may result in biased favors like promotions, partial recruitments, biased work delegation and so on.
On the contrary a formal system has no scope for such a bias. In this system, rules and regulations overrule any other demand. Here there is no scope for personal benefit or bending the law.
In a formal system, there is a defined hierarchy. Everybody is seen to be bound by this. There are also a set of rules and regulations which are meant to be applied to everyone impartially. Though this would seem to be the best way of operating, there are several personal elements which are not going to be addressed through this system. This may be one of the key reasons for the patronage to exist within an organization.
As a manager it becomes challenging to handle an atmosphere where a formal system co-exists with an informal patronage network. It is worthy to note here that though patronage network is being highlighted as a powerful culture oriented group, it need not essentially be a negative force. If the arrangement within an organization allows this group to work together and reap the benefits without getting into a conflict then such a patronage brings out high efficiency and keeps the team motivated.