Inside the Informal Organization

By: Kristin Clarke

That conversation going on around the coffee machine may be the key to your organization's future success. Jon Katzenbach and Zia Khan, coauthors of Leading Outside the Lines, demystify the "informal organization"—the unofficial networks and communities that develop among staff—and explain why associations in particular are poised to benefit from its strengths. (Titled "The Secret Life of Your Association" in the print edition.)

Pop quiz: When you see staff gathered around the coffee machine chatting, do you:

  1. Smile and join them;
  2. Smile but walk past;
  3. Frown but walk past;
  4. Frown and encourage the group to break up.

Those casual chats may seem to be time wasters, or at best inefficient. But according to Jon Katzenbach and Zia Khan, coauthors of Leading Outside the Lines: How to Mobilize the (in)Formal Organization, Energize Your Team, and Get Better Results, such informal conversations and the unofficial groups that grow out of them are actually the secret to organizational success.

"Everybody knows there's an informal organization out there," says Katzenbach, senior vice president of Booz & Company. "We get differences, though, in terms of whether that's good or bad."

Katzenbach cites a favorite story from his coauthor as an example. Khan, vice president of strategy and evaluation at the Rockefeller Foundation, was leading a session in Silicon Valley about the informal organization when one executive said, "I'd like to stamp it out. I don't know what's going on around the water cooler, so I'd like to get rid of all that informal stuff."

That leader wasn't alone in his frustration with the idea of a fuzzy but powerful subculture operating beneath the neat, formal structure he had carefully installed. But Katzenbach says leaders who understand how the informal actually complements the formal can create powerful synergies between the two.

"The informal organization is a very useful and potentially powerful supplement to the formal," Katzenbach says. "This isn't a case of one versus the other. When you get them jumping together, you gain, because the formal organization provides for alignment, scale, and consistency. The informal organization provides for motivation, emotional commitment, responsiveness, and flexibility. … If you ignore [the informal], you don't get that added acceleration factor."

Formal vs. Informal

Comparing the Formal and Informal Organization
  Formal Informal
Policies/Procedures Written Adaptive
Leaders CEO Hubs at any level
Operations Set boundaries Fluid, flexible
Rules Defined Fuzzy
Structure Hierarchical Collaborative
Attitude Rational Emotional

"Formal," as Katzenbach and Khan describe it, comprises the rational, programmatic elements of an organization generally found in charts and on paper. These elements include the written structure of the business, formal strategies and programs, reporting relationships, processes, and performance metrics.

The informal organization is more emotional. It's what goes on in the hallways and behind closed doors, including relationships that connect people in ways that aren't possible in the formal organization. The informal organization encompasses elements such as workers' personal values, informal networks they develop, communities of common interest, pride-building connections, and peer-to-peer interactions.

Leadership consultant Nancy Axelrod, who works with myriad associations, says that the informal organization extends to the board level, too.

"The informal organization is often defined as 'the way we do things around here,'" she says. "For me, what distinguishes effective organizations, good management teams, and effective boards are that they are robust, effective social systems. … [That includes] what the informal norms are that influence how the organization actually does the work and how [the organization] rewards people and practices, rather than what elegant values get listed on their website."

Working for You or Against You

The tension between formal and informal organizations is becoming more critical as the workplace shifts toward collaboration, relationship building, and cross-functional or global communication—behaviors that rely heavily on informality.

Meanwhile, the recession has led to decisions that may have weakened those informal networks. "[Organizations] cut back drastically," Katzenbach says. "That meant they took people out of the organization, putting emotional stresses on people in the organization. Now, the recovery requires them to step up, but they can't move as fast to step up with formal help as they could with informal help."

Associations, which focus on connecting people and sharing knowledge, can especially benefit from balancing the formal and informal because of the tremendous motivational force of the informal organization. "If you're clear about what you want and need to accomplish, then you can energize and activate your informal organization," says Katzenbach. "That's the part of your organization that creates strong emotional commitments, which is where the big advantage comes from."

More specifically, competitive advantage can be established because informal organizations are so difficult to replicate: "The world is full of best-practice circulations of formal structures, processes, programs, and procedures that everyone can, if they wish, pick up and use. The informal stuff is much more amorphous, harder to codify, and certainly a lot harder to copy," Katzenbach says. "Companies that get the informal working with their strategic and performance imperatives, like Southwest Airlines or Apple or Microsoft, are tough to duplicate, and it's largely because they have an informal organization that works so well."

The bottom-line issue is performance: how to drive it at all levels no matter what is happening around the organization. The informal is the avenue through which many association professionals can boost performance even when they may have no formal authority over those whose help they need.

Aetna, for instance, "was probably the poster child for turnarounds in the last decade in North America," Katzenbach says. "What's interesting about that turnaround is that three previous leadership teams tried to create the same formal changes in their capabilities and performance, and they were defeated every time by the informal organization or what came to be called the Mother Aetna Be-Nice Culture. That culture was resistant informally and emotionally to the efforts they were trying to make. It wasn't until Jack Rowe and Bill Donaldson came in and combined the efforts of the formal with the actions of the informal side that they were able to get the two working together."

The results have been an emotional, as well as business, success. "If you can get that emotional connection, instead of just getting rational compliance, you gain emotional commitment to the performance imperatives," he says. "So what you get is an acceleration factor in terms of how people work and what they do. You also gain a sustainability factor, because the informal continues to connect and energize people, and it does it in ways that are complementary to the formal."

Common Misconceptions

But many informal organizations do not operate at the peak level of a transformed Aetna. Katzenbach blames leadership for that failure.

"The most common misconception about the informal organization is that it will follow the formal," he says. "Since organizations and leaders are trained and know how to use the formal side of the organization, it's not uncommon for them to assume, 'If we get the formal aligned, the informal will follow.' It is equally likely, if not more likely, that if you don't pay attention to the informal, it will not follow—but it will resist. And if you get things like peer-to-peer interactions resisting what you're trying to accomplish in your top-down formal structures and programs, they slow things down, derail them, and sometimes completely defeat them."

Khan adds that the informal organizations within associations and nonprofits often have an advantage over corporations in terms of the institutional pride that they can tap. Within the Rockefeller Foundation, for instance, "most people who come work here have taken a pay cut or are really driven by the mission of a place," he says. "The pride in the institution tends to be very strong. What gets overlooked is translating that into pride in the day-to-day work. People tend not to capitalize on that aspect."

Another variant is the need for alignment. Khan notes that many formal processes within nonprofits have no way of being optimized or compared to anything: "Sometimes they just exist. Then organizations or large foundations can become relatively bureaucratic … so people start to develop informal networks just to get things done. They also create informal networks with other organizations, so the whole notion of partnerships and collaboration with other organizations is much easier and much stronger than it might be in the for-profit world where product competition and intellectual-property issues pop up."

The CEO and the Informal Organization

While it may appear that the CEO wouldn't have a place within the informal organization because he or she heads up the formal structure, Katzenbach strongly disagrees. "Successful leaders believe that one thing they can't delegate … is the culture of the organization, and a big part of how you get at the culture of an organization is through the informal side," he says.

He urges leaders to think carefully about how they can use informal networks to tap into elements of the organization that they couldn't reach through the formal side. CEOs can greatly influence the informal organization if they connect with it through the people who are its key influencers. Those influencers often differ from identified "key people" in the hierarchy, providing a CEO with "a different mix of people who can help you."

Khan and Katzenbach use the word "hubs" to refer to these often-unacknowledged high performers. "They're the go-to people in the organization," they write. For example, a "trust hub" may be someone whose advice people seek and who will keep confidences. They can be helpful to CEOs at calming jittery workers concerned about, say, a new change initiative. Meanwhile, an "energy hub" may be someone people approach when they're feeling down or overstressed because that worker will make them feel better and bring them out of their funk.

"They're very valuable people, but the formal organization doesn't often use them as well as they could," says Katzenbach.

That's likely because the leadership doesn't know about the hub's informal role within the organization. How can an executive team uncover such elements of the informal organization, and then how does it actually leverage that information into a support system for the association's formal structure and activities?

Katzenbach and Khan report that in the past, interested leaders simply trolled for "the real story," asking people they knew to be sensitive about organizations to identify the influencers at every level. Today, they can go a step further and explicitly map those influencers through simple survey and electronic techniques.

"The network-mapping capability should be more utilized than it is by executives at all levels at the organization," Katzenbach states. "Understanding those hubs is very valuable data."

First, though, leaders must identify the specific issue they are trying to understand, such as which employees are knowledge-sharing hubs or "fast zebras." The latter is a term the United Nations uses to label individuals who instinctively seem to catch on to the informal elements of an organization and then utilize those elements in highly productive combination with the formal pieces, so they can avoid "being eaten by lions and crocodiles" sharing a common water hole.

Katzenbach suggests that CEOs answer the following questions as they go through this introspection:

  1. Do I know who the go-to people are throughout my organization?
  2. If I need to find out, do I know how, or am I always trying to think of how to go through the formal side of the organization?
  3. Do I think the informal peer-to-peer interactions in my organization are supported by what we're doing formally, or are the formal elements inhibiting or slowing things down?
  4. Am I satisfied with rational compliance in terms of behaviors I need, or do I want (and can I get) emotional commitment from people?

"The formal organization provides you with ways to get alliance and rational compliance; the informal organization provides you with ways to gain responsiveness, flexibility, and emotional commitment," Katzenbach says. "Trying to figure out what the balance is—how you're doing—is a good question to ask yourself."

He cautions leaders to revisit these questions regularly, because the balance changes during an organization's lifecycle, especially in times of growth or decline when market conditions shift.

"When that [happens], the formal organization will lag behind," Katzenbach says. "The informal organization will try to pick up on it, so the two get out of balance a bit. … You want to keep that balance in line with what your performance and strategic priorities are. That doesn't mean you change things all the time, but you're constantly thinking about changing your formal approaches to match what's going on in the marketplace and … [asking], 'How do I keep [both elements] working on the same set of behavioral priorities that my market is requiring?'"  

Kristin Clarke is a business journalist and editor at ASAE. Email: [email protected]

Sidebar: Three Questions To Help You Regain Your Balance

Association leaders ready to connect and balance the best of their organizations' informal and formal structures can start with these three questions:

  1. Nail down the performance purpose. Ask yourself, "Why do I want to get the informal doing something? What is the performance priority?"
  2. Inform yourself about what the informal organization looks like in your organization. Ask yourself, "What are the networks and communities that exist in my organization?"
  3. Re-examine your own habits, rituals, and familiar modes of operation as a leader. Ask yourself, "How do I get better integration between what I'm doing on the programmatic side and what I could be doing on the informal, cross-organizational emotional side?"