Coming out of the worst recession of modern times will, for many companies, be more challenging than navigating the downturn itself. To put it simply, the human side of many businesses — the employees, the culture, and the emotional aspects of a company’s DNA — is poorly equipped for recovery. Yet harnessing the power of this “informal organization,” balancing it against the formal processes and systems that drive the operations of a company, can make the difference between eking out incremental improvement and roaring back to life.
Two of the skills companies most need in this nascent phase of the economic turnaround are speed and adaptability. However global conditions evolve — whether developing markets expand rapidly, consumers in developed nations begin to spend freely again, or something unexpected happens — organizations will have to move quickly to respond to complex and sometimes illogical or unpredictable market forces. Unfortunately, these are not strengths of the formal, rational organization, which is typified by analysis, strategies, structures, processes, and programs codified in charts, graphs, flowcharts, spreadsheets, and PowerPoint presentations. The capabilities most vital to recovery are actually embedded in the informal organization, which is emotional, highly interactive, and cross-organizational, and encompasses personal beliefs and values, peer relationships, consensus building, emerging ideas, social networks, and communities of common interest.
In most successful turnarounds and recoveries, informal activities accelerate behavior change and improved performance beyond what would have been possible through formal efforts alone. It’s no accident that in enterprises that operate at peak performance (for example, Southwest Airlines and Google) and values-driven organizations (such as the U.S. Marine Corps and Johnson & Johnson), the informal side usually exerts a relentlessly positive influence on overall operations, far more than in less flourishing enterprises.
Top managers often subconsciously draw on the informal when driving change programs; they intuitively grasp that transformation and rejuvenation cannot be diagrammed and designed. But rather than deliberately tapping into the instinctive and innovative veins of the company to achieve sustainable results, they institute their change program from the top down, through the established hierarchy. In some cases, this one-dimensional approach to bringing out a company’s informal characteristics might work fine. But when the stakes are as high and the obstacles as numerous as they are today, executives must focus purposefully on the power of the informal organization to accelerate change.
Typical of the results that informal aspects of organizations deliver are the recent series of improvements at Bell Canada Enterprises (BCE). When Michael Sabia became CEO in 2002, the telecommunications giant was in deep trouble. A spate of expensive and unwieldy acquisitions, failed strategies in its international voice and data business, and a hidebound culture had stunted the company’s performance. Worse yet, the company’s creaking bureaucracy had seriously harmed relations with its customers, who complained about poor service and slow responses to problems.
To turn around the company, Sabia initially tugged rigorously at all the formal levers: sharpening strategy, redesigning organizational structures, and realigning priorities. And although these efforts did improve the company’s financial performance somewhat, they did nothing to change the customer experience, which was obviously critical to long-term success. Sabia’s eventual solution was to target the company’s best talents on the informal side. He took a small group of high-performing supervisors who understood which front-line behaviors were critical to improving the customer experience and who were most adept at motivating employees to deliver, and tried to “clone” them.
Sabia started with a group of 40 and set them on a course of peer-to-peer sharing of best practices and motivational techniques. Within two years, almost exclusively by word of mouth, the group grew into the largest community at the company, with more than 2,000 members. More importantly, these informal interactions and knowledge-sharing mechanisms yielded gains that were quantified in pilot tests. For example, in one test call center, customer satisfaction increased by 23 percent and first-call problem resolution improved by 11 percent. By the time Sabia left BCE in 2008, he had energized the company sufficiently to make it competitive again on a number of critical measures, including wireless penetration, cash flow, and operating profits.