Over the past couple of decades, management innovations have pushed companies toward the ideal of the “boundaryless” organization. On the inside, delayering, reengineering and the rise of cross-functional teams have pushed decision making and accountability downward and made functional boundaries more permeable, increasing the flow of information in the process. On the outside, joint ventures, alliances and supply-chain integration have blurred borders between companies.
As a result of these changes, formal reporting structures and detailed work processes have a much diminished role in the way important work is accomplished. Instead, informal networks of employees are increasingly at the forefront, and the general health and connectivity of these groups can have a significant impact on strategy execution and organizational effectiveness.
Informal networks often, for example, provide the glue that holds together cross-functional process-improvement initiatives, alliances and mergers. They can also be significant contributors to new-product development; in the pharmaceuticals industry, for instance, the type of informal network known as a community of practice is critical to reducing drug development costs and to the more rapid introduction of new products. In addition, informal networks are important sources of job satisfaction and retention. Many employees today join and commit to local sets of relationships while feeling no particular allegiance to the corporation as a whole.
Many corporate leaders intuitively understand these facts —put an org chart in front of any executive today and he or she will tell you that the boxes and lines only partially reflect the way things are done in the organization — but few spend any real time assessing or supporting informal networks. Their very invisibility as formal organizational entities, combined with the absence of clear ownership, are major reasons for this neglect. And because they do not receive adequate resources or executive attention, these groups are often fragmented and their efforts disrupted by management practices or organizational-design principles that are biased in favor of task specialization and individual rather than collaborative endeavors.
Informal networks — also known as social networks — are especially important in knowledge-intensive sectors, where people use personal relationships to find information and do their jobs. This fact is supported by our own research and that of many others.