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. One researcher who looked at this question for more than a decade, just to give one example, found that engineers and scientists were roughly five times as likely to turn to friends or colleagues for information as to impersonal sources.1 Despite the explosion of information that is accessible through the Internet and databases, people still rely heavily on their networks for help with their work.

Because of the increasing importance of relationships in the workplace, we initiated a research program two years ago to determine how organizations can better support work occurring in and through informal networks of employees. Working with a group of Fortune 500 companies and government agencies, we assessed more than 40 networks in 23 organizations. In all cases, the networks provided strategic and operational benefits by enabling members to collaborate effectively.2 We discovered, however, that executives had to make counterintuitive shifts in their thinking if they truly wanted to promote the health of these groups. In almost every organization we studied, management’s decisions to intervene in a network were based on myths —deeply held assumptions — about what would, and wouldn’t, make them more effective.

We saw that executives believed broadly in six myths about social networks. In the course of our work, we helped managers understand the myths and how they were misguided at best and harmful at worst. We also helped them operate according to reality checks; in other words, to find alternative ways of intervening in informal networks for the greater good of the organization. Senior managers who can separate myth from reality, and act accordingly, stand a much better chance of fostering the growth and success of these increasingly important organizational structures. We’ll review each assumption in turn to explain how and why that is true.

Myth: To build better networks, we have to communicate more.

Executives often assume that communication of any and all kinds — even pure socializing — is the essence of an informal network. As a result, they commonly conclude that uniting fragmented networks or developing sparse ones is simply a matter of more and better communication. Their thinking usually changes when they are asked, “Do you, yourself, want to attend more meetings or receive more e-mail?” Most executives cringe at the thought and start to see that more communication in a world of information overload is not the solution.

Extend the thought, and it’s clear that the quantity of communication in any situation has no necessary bearing on its quality. It’s easy to prove this by asking people two different questions and then mapping the resulting networks: With whom do you routinely communicate? and To whom do you typically turn for information to do your work? (These maps can appear forbidding to the uninitiated. For help in demystifying them, see the exhibit “How To Read a Network Diagram.”) In our research, we found that answers to these questions yield very different diagrams. When the diagram of information seekers (second question) is subtracted from the diagram of communicators (first question), a web of people who say they are communicating but aren’t exchanging useful information often comes to light.

Reality Check: To build better networks, focus on who knows what.

Managers should resist the tendency to equate communication and socializing with network building. They are better served by distinguishing between the actual achievements of a network — what it has done or is currently doing — from its potential accomplishments. To do that, they must shift the question from Who is currently obtaining information from whom? to Who knows what? Answers to the second question will show fruitful connections that might be made in the future; the result of this analysis should be a network that can leverage its members’ expertise in the face of new problems or opportunities.3 This was the case in a recent merger between two financial institutions, where managers developed an awareness of who had unique skills and expertise at each organization. Such understanding is critical to the success of any merger involving knowledge-intensive organizations.

Beginning with who knows what also gives managers ways of building networks that can complement efforts based on assessments of current flows of information. Thus if they find that a network is sparse, they might apply technical solutions such as skill profiling to help employees search for expertise in the organization. (Skill profiling requires employees to record their expertise and experience in a central, searchable database, updating their file as new projects yield new skills or knowledge.) Companies can also leverage HR practices to improve awareness of who knows what. For example, they can bring together newcomers and experienced hands by scheduling lunches for that express purpose. Or the knowledge and skills of new people can be advertised by creating “baseball cards” that can be posted in common areas.

Companies may also benefit by changing staffing practices. One professional services firm attempts to have its people work on a project in another office at least once a year. The relationships that result from this practice benefit the firm as a whole by building connections between offices. They are often critical to the firm’s ability to win new contracts and to deliver high-quality service on existing ones. The relationships help employees accomplish more than they could if they had to rely solely on their own expertise or that of local colleagues.

By working with networks that start from what people know, managers can intervene to sustain informal groups without adding the burden of more and potentially useless communications.

Myth: Everyone should be connected to everyone else.

In the course of our analysis, we frequently found that executives jumped to the conclusion that more connections within a network must always be better. However, in networks of any size it is not possible for everyone to be connected to everyone else, nor is it desirable. Rather than leading to improved collaboration and problem solving, an indiscriminate increase in connectedness can be a drag on productivity, as people get bogged down maintaining all their relationships.

Reality Check: People should be connected when a strategic payoff is likely.

Instead of trying to develop a fully integrated network, managers will find it more fruitful to invest in developing and maintaining relationships that have strategic value. A tool called social network analysis can be applied to make clear where such critical junctures exist within the organization. (For a brief look at this tool, see “Conducting a Social Network Analysis.”)

We found, for example, that many organizations were not getting the kind of cross-boundary collaboration they needed to take advantage of new opportunities. Mapping the pattern of information flow (or, more frequently, lack of flow) across functional barriers revealed where management should make efforts to promote strategically valuable collaboration. Defining these critical junctures in networks allows managers to take a targeted approach to improving collaboration. It’s much easier to bring about change in this manner than to attempt it through broad, top-down mandates designed to get everyone working together, or through a full-scale organizational-learning intervention or by altering an entire organization’s incentive schemes.

Consider how a focus on targeted collaboration based on strategic needs played out at a commercial bank. The sponsor of the project asked us to assess the network of the bank’s top 62 executives; his goal was to create a more fluid leadership group so that employees in the organization could more effectively tap into their colleagues’ expertise to respond to new lending or fee-based opportunities. He knew that such opportunities were often overlooked by his employees simply because they did not know that the organization had expertise to address them.

As we engaged in analysis of the network, we discovered that 49% of all pairs of individuals within the real estate lending division had collaborative relationships. In stark contrast, only 10% of all pairs in which one person was a member of the real estate division and the other a member of the commercial lending division were collaborating. Needless to say, given the organization’s strategic initiative to integrate service offerings for key customers, this lack of collaboration was a real problem. Similarly, we found a lack of integration between the risk assessment unit and the lending divisions (collaboration with real estate, 7%; with commercial, 8%), despite the institution’s recent restructuring to integrate risk assessment into the lending processes earlier in order to reduce rework and cycle time on loan applications.

As a result of the analysis, the bank made several policy and procedural changes. It established sales goals to ensure cross-selling between the commercial and real estate lending divisions. It required lending teams to include a credit analyst in the proposal stage. These and other changes had the desired effect: the cost of booking loans declined as time and energy spent on low-quality loans diminished, and revenues increased as a result of cross-selling to existing accounts.

Myth: We can’t do much to aid informal networks.

Many executives were either taught in business school or decided as a result of their own experiences that it’s not possible to do much about the informal parts of an organization.4 At the root of such thinking is the pervasive belief that network patterns are exclusively the result of personal relationships. Personality differences, executives say, are the reason some networks exist and others fail to form; thus two groups are not integrated because they are made up of “different kinds of people,” and two other networks exist because of a feud between two managers. While such dynamics can be important, systemic forces create network patterns as frequently as personality clashes.

Reality Check: Informal networks can be aided by changing the organizational context.

When executives do attempt to promote collaboration, they usually turn to a technical solution. In fact, most of the organizations we work with have a more than adequate but underused technical infrastructure which includes such elements as skill-profiling technologies and tools that allow people to work together in different locations. Rather than relying heavily on technology, managers should consider how changes in four areas of organizational context can improve collaboration in informal networks.5

The first area of context to consider is the organization’s formal structure. To intervene in networks, managers must understand how the formal structure impedes group effectiveness. For example, in organizations with a strong top-down culture, informal networks themselves tend to closely mirror the prevailing pattern of hierarchy; as a result, they lack the flexibility to respond effectively to new opportunities. Some degree of empowerment is necessary in these situations if flexible networks are to evolve. In other cases, informal networks can be heavily constrained by functional or departmental boundaries as leadership, job design, information systems and performance-management practices promote collaboration within units but not between them. Creating time and space for cross-unit collaboration is a critical leadership challenge in these settings. A pharmaceutical organization in our study does this by building cross-functional projects into its annual budgeting and planning processes. By bringing together expertise on different drug compounds, the organization has become more efficient and realized new market opportunities.

Work management practices constitute a second important element of organizational context. The natural unit of work for a group is one of the most powerful levers available to managers who want to develop a network’s effectiveness. In contrast to off-site events or team-building exercises, the development of relationships in this context occurs in the pursuit of organizational objectives and so is comparatively inexpensive.

Managers should be creative in thinking through ways to carve out assignments that can lead to effective collaboration. Several consulting firms, for example, have begun to put two or more people on projects even when it might be more efficient to have only one person involved for a longer period of time; they have found that the value of the relationships that develop outweighs the costs associated with starting up and marketing more projects. Morale is higher and turnover lower in such settings, and the consultants build stronger personal networks that they can tap into on future projects.

Employee management practices are a third area of organizational context affecting collaboration. Human resource decisions, which become institutionalized to the point of being taken for granted, often have long-lasting effects on collaborative activity. In addition, executives can take a range of actions that promote collaboration, from hiring people who have demonstrated collaborative practices to rewarding people for collaborative efforts. (Paradoxically, companies often use critical-incident techniques that require job candidates to describe actual scenarios in which they were collaborative; yet the same companies admit that they base hiring decisions purely on individual expertise.) Managers often have the latitude, at a minimum with targeted rewards, to formally recognize collaborative behaviors. Such recognition can be a powerful signal about what kind of work is valued by the company.

(Reprint #:4337)

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