03/24/10
Rapid Recovery Demands That U.S. Companies Mobilize the Often Overlooked "Informal Organization" – New Strategic Initiatives Won't Work Without Higher Employee Commitment and Organization

In successful turnarounds, energizing the cultural “soft” side of the organization drives impressive “hard” results in financial and operational performance.

NEW YORK – (March 16, 2010) – A rapid turnaround will require U.S. businesses to engage and mobilize their organizations from the bottom up, according to Booz & Company Senior Partner Jon Katzenbach and Zia Khan, authors of the upcoming book – Leading Outside the Lines: How to Mobilize the (in)Formal Organization, Energize Your Team, and Get Better Results (Jossey-Bass, April 2010).

In the new white paper, “Fast Track to Recovery: Leading Outside the Lines Can Turn Survivors into Winners,” Katzenbach and Khan argue that the economic crisis has left the human side of many organizations traumatized and ill-equipped for recovery. Harnessing the power of the human side of the enterprise, they believe, can make the difference between either eking out incremental improvement or roaring back to life.


No Time to Wait: Your Culture is Working For You or Against You... Right Now

“The informal organization needs to be harnessed right now,” says Katzenbach. “It cannot wait on strategic planning, corporate restructuring or some other formal initiative.”

“Informal elements of corporate culture are always at work, and they are either working for you or against you,” adds Khan. “By not engaging the informal organization, executives risk that negative cultural influences will slow the company down, or even impede its recovery.”


Fighting Back from the Brink Demands Skills Embedded in the Informal Organization

According to Katzenbach and Khan, two of the greatest challenges now facing U.S. companies are speed and adaptability. But these are not strengths of the “formal” organization, which they define as being codified in reporting lines, policies, procedures and corporate departments. In fact, they believe that formal structures often get in the way of speed and adaptability.
The skills most vital to recovery are embedded in the informal organization:

  • The informal takes place between, around and beyond the organization’s formal constructs.
  • It consists of working norms, values, peer relationships, constructive conflict, emerging ideas, social networks and communities of common interest.
  • It hides within and around the formal organization, secretly influencing critical attitudes and behaviors.

This informal organization is often a hot-bed of creativity and change, and can be an enormous positive force; it can also be a strong negative resistor. But in today’s environment of crisis, it has become frozen and self-preserving.


Peak-Performers Get Formal and Informal Working Together

Katzenbach and Khan see the informal as a tool kit for achieving hard results and believe that it is most powerful when balanced by, and integrated with, formal imperatives. Alignment and integration matter because the informal organization can do some things much better than the formal – and vice-versa. They cite the following key differentiating qualities:

  • Formal: efficient, scalable, predictable, controlling, clear, disciplined, hierarchical, rational
  • Informal: adaptive, local, innovative, motivating, ambiguous, spontaneous, collaborative, emotional

In the paper, the authors explain why formal and informal are complementary and indispensable to each other: emotional satisfaction is tied to achieving concrete goals; and concrete goals serve as a motivating focal point for soft enablers like commitment, creativity and collaboration.


“Soft” Initiatives in the Informal Organization Can Deliver “Hard” Results

“In most successful turnarounds, harnessing the informal can accelerate performance results beyond what would have been possible through formal efforts alone,” says Khan. Their paper provides multiple examples of companies that had failed at turnaround efforts until they engaged and mobilized the informal organization. Companies such as:

  • Aetna, where a “pride movement,” combined with employee councils advising management, drove a historic turnaround: from losing $1 million in a day to making $5 million a day; and increasing return to shareholders by more than 700 percent.
  • Bell Canada, where informal peer-to-peer sharing of best practices increased call center customer satisfaction by 23 percent and improved first-call problem resolution by 11 percent.
  • Campbell’s StockPot, where bottom-up development of core values, combined with new performance metrics, improved profitability by 50 percent, increased plant efficiency by 23 percent and increased employee engagement scores by 14 percent.


Leaders Must Mobilize the Informal: It Won’t Follow and You Can’t Drag It Along

“Too many executives believe that if the informal organization is left alone it will fall in line with the formal,” says Katzenbach. “They are mistaken. Simply formalizing a new set of rules, programs and structures will not drag the company’s culture along.” He observes that:

  • Deeply embedded cultures often resist new initiatives or actively undermine them.
  • Even if positive change does happen, without buy-in from the informal organization, it often doesn’t happen fast enough.

According to Khan, “Because executives don’t know how to influence negative cultural elements by informal means, they push harder on formal levers. But formal mechanisms seldom work on the informal organization and can even be counter-productive.” He counsels:

  • “Top down” programs alone fail because they don’t take into account emotional motivators.
  • Prescribed behaviors can dampen individual initiative and emotional commitment.
  • Motivation seldom happens without a personal, emotional connection to the work itself, which only the informal organization can provide.

The authors argue that it does no good to keep yelling at the informal from the top. It has to be energized and influenced across and bottom up as well top down.


Accelerating Performance and Turning Survivors into Winners

Ultimately, Katzenbach and Khan believe in leveraging the informal organization for financial and operational excellence – ensuring distinctive human performance that turns today’s economic survivors into tomorrow’s next generation of winners.

Their paper explains how companies can marshal the power of the informal for better performance against five of today’s biggest management challenges:

  1. Sustainable Cost Cutting
  2. Sustainable Competitive Advantage
  3. Breakthrough Innovation
  4. Superior Customer Service
  5. Collaboration in a Flattening World

They believe that in these and other challenges, formal and informal dimensions are important “influencers of behavior,” and that the “best of both” is needed now more than ever.

“Fast Track to Recovery: Leading Outside the Lines Can Turn Survivors into Winners” can be downloaded at www.strategyand.pwc.com/katzenbach_center