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strategy and business
 / Summer 2010 / Issue 59(originally published by Booz & Company)


Leading Outside the Lines

The informal organization, by contrast, is an agglomeration of all the human aspects of the company: the values, emotions, behaviors, myths, cultural norms, and uncharted networks. The power of the informal is visible in every organization every day — it is an undeniable, emotionally resonant force. Even the most rational managers recognize that the informal organization within a company can create effects that seem like magic, especially in situations of change or transformation. Unexpected leaders emerge from the ranks. Passion swells up and pushes work forward. Units and operations swiftly transform themselves. And there are also less positive effects: Unexpected opposition lurks in the shadows, anxiety and fear hold work back, and critical operational improvements are derailed.

Organizations that sustain high performance over time have learned how to mobilize their informal organizations while maintaining and adding formal structures, each in sync with the other. And in general, people appreciate the value of “leading outside the lines”: of balancing formal and informal measures in the pursuit of higher performance. Sports fans know that great coaches pay just as much attention to the emotional aspects of the game as they do to the skills involved. In business, the informal organization is most successfully mobilized when there is also a sharp focus on performance. People want to know how their informal collaboration will lead to an improvement in results.

But it’s difficult for any manager, even one who has a predilection for the informal, to understand exactly how to lead outside the lines. There is, after all, no universal recipe book: The right balance of formal and informal measures will look very different depending on the company, the business, and the circumstances. In business, leaders who are well versed primarily in formal measures may feel less comfortable dealing with what they see as the “fuzzier” aspects of an organization. They may assume that a company’s culture is largely the by-product of formal measures: Get the right reporting relationships and programmatic imperatives in place, and the hearts and minds will follow. They may also believe that informal measures require time-consuming “high-touch” conversations, which busy leaders never quite fit into their schedules. (If they did invest that time in building relationships, they would discover that it often ultimately saves time, because people who understand one another can move in sync at a much faster speed. When changing key behaviors in critical populations, working through the informal side of an organization can be much faster.) Finally, while the behavioral effect of these elements has been studied in the academic world, many informal aspects of organization are not understood well enough to be exploited with any regularity in business.

If you are interested in creating that balance for your organization, one good place to start is with performance goals and metrics. This means figuring out how to use metrics, which are inherently quantitative in nature, to evaluate and improve the performance of an organization, which is often qualitative. No matter how important the informal organization may be, the company has to perform, and perform up to or beyond expectations. If you can get a feasible approach to metrics under way that does not constrain the organization through the misuse of formal controls, then you can not only accelerate higher performance, but provide employees with a much greater understanding of the results that matter and why they are important.

The Turnaround Challenge

Take, for example, the case of Ed Carolan and his team at StockPot. They began their turnaround work by revisiting the company’s strategy. They recognized that to improve the company’s performance, they needed to drive more focus and resources toward large retailers. This would enable them to take advantage of their capacity to produce in large volumes, and to cut down the number of stock keeping units they produced for inventory, both important considerations in a business with considerable fixed costs.

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  1. Andrea Gabor, The Capitalist Philosophers: The Geniuses of Modern Business — Their Lives, Times and Ideas (Three Rivers/Crown, 2000): Introduction to business thinkers on the hard (Taylor, McNamara), soft (Maslow, McGregor), and integrated (Deming, Drucker) sides.
  2. Jon R. Katzenbach and Zia Khan, Leading Outside the Lines: How to Mobilize the Informal Organization, Energize Your Team, and Get Better Results (John Wiley & Sons, 2010): More ideas and tools for helping both sides of an organization work together well.
  3. Zia Khan and Jon R. Katzenbach, “Are You Killing Enough Ideas?s+b, Autumn 2009: Making innovation more effective by rethinking your informal and formal practices.
  4. Harold J. Leavitt, Top Down: Why Hierarchies Are Here to Stay and How to Manage Them More Effectively (Harvard Business School Press, 2005): Formal structures exist because they fulfill basic human needs — and thus we’d better learn to manage them humanistically.
  5. Douglas McGregor, The Human Side of Enterprise, Annotated Edition (McGraw-Hill, 2006): The classic on escaping the tyranny of the formal — and reconciling the two sides of the corporate personality.
  6. For more thought leadership on this topic, see the s+b website at:
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