SOURCE: Booz & Company

Booz & Company

April 26, 2010 09:04 ET

Mobilizing the "Informal" Organization Is a Strategic Imperative That Cannot Wait, but Few Corporate Leaders Make It a Priority, or Even Know How to Address It

Energizing the "Soft" Side of a Company Can Deliver Hard Results, Once Leaders Learn Disciplined, Bottom-Up Approaches, According to LEADING OUTSIDE THE LINES, New Book From Booz & Company by Jon Katzenbach and Zia Khan

NEW YORK, NY--(Marketwire - April 26, 2010) -  Businesses need to work harder and be smarter about engaging and mobilizing their organizations. Increasingly, top-down imperatives need help from the bottom and cross-organizationally as well. To compete effectively, especially in a slow-growth economy, no company can afford to leave key resources idle -- especially the creativity, problem solving skills, speed, and adaptability that reside in the human side of the enterprise.

According to the just-published Leading Outside the Lines: How to Mobilize the (in)Formal Organization, Energize Your Team, and Get Better Results (Jossey-Bass, April 2010, www.leadingoutsidethelines.com) by Booz & Company Senior Partner Jon Katzenbach and Rockefeller Foundation Vice President of Strategy and Evaluation Zia Khan, smart companies have discovered that the best way to create lasting value for their businesses is to nurture informal and non-hierarchical initiatives, rather than mainly relying on formal top-down "rules of engagement."

What is the informal organization? It is NOT merely the opposite of the formal -- nor is it some mysterious force to be ignored, feared, or quashed. It is a living network of connections, interactions, beliefs, and influences at work in the organization at all times, the authors say.

The balance point between the formal and informal will be different for each organization, depending on size, strategy, developmental phase, and other factors, according to Katzenbach and Khan. But the core of today's most critical challenge is the same for every company: leveraging informal motivators, values and communities to get behaviors aligned with formal financial and operational objectives.

"There are, in fact, ways to influence the informal elements of an institution's organization and culture to achieve concrete, quantitative objectives. The informal approaches do not need to be fuzzy and unsystematic. They can be practical and teachable," says Katzenbach.

Balancing the Formal and Informal Is the Goal: And It Can Take an Organization to New Heights

"The most successful organizations are ahead of the curve in the way they balance the formal and informal," said Khan. "They don't just ensure that they have well-defined and effective formal approaches to compensation and reward, including pay, benefits, bonuses, and recognition. They also make sure that employees have emotional sources of motivation that commit them to specific results -- in ways that the formal mechanisms cannot."

Leading Outside the Lines in Action

The outcomes of effectively balancing the formal and informal -- i.e., "leading outside the lines" -- can include:

  • Faster, broader, more sustainable change.
  • Measurable and sustainable operational and financial gains.
  • Enduring competitive advantage.
  • Breakthrough innovation.
  • Superior customer service.
  • Collaboration in a flattening world.

The book describes informally "boosted" behavior changes at a range of companies -- changes that led to dramatically improved performance results. For instance:

  • At Bell Canada, a program of 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.

  • At Campbell's Soup StockPot, bottom-up development of core values, combined with new performance metrics, improved profitability by 50 percent, increased plan efficiency by 23 percent, and increased employee engagement scores by 14 percent.

  • Aetna developed a "pride movement" and employee councils to advise management. The result was an historic turnaround: from losing $1 million per day to making $5 million a day -- and increasing return to shareholders by more than 700 percent.

  • HCL Technologies recognized that formal elements were in the way of frontline employees' ability to create value. So the company created an "Employees First, Customers Second" program that focused on empowering these frontline employees. As a result of putting employees first, HCLT's service performance improved significantly, and the company won major contracts against global giants.

These organizations succeeded through the integration of informal and formal leadership behaviors, which linked personal values and emotional motivations. These successes stand in contrast to the formally driven shortfalls that preceded the integrated initiatives within the companies.

A Guide to Managing Culture

Organizations must learn how to develop their workforces so people are motivated outside the formal reward system, collaborate across organizational boundaries, and make the right decisions quickly with little guidance from formal sources, according to the authors. "This requires a level of insight, risk-taking, and trial-and-error responsiveness," says Katzenbach.

That's why effective leaders understand...

  • What the "formal" is:
    • Reporting lines, policies, procedures, strategies, directives, and corporate departments.
    • Characteristics include: efficient, scalable, predictable, controlling, clear, disciplined, hierarchical, rational.
  • What the "informal" is:
    • Working norms, values, peer relationships, consensus, emerging ideas, social networks, and communities of common interest.
    • Characteristics include: Adaptive, local, innovative, motivating, ambiguous, spontaneous, collaborative, emotional.
  • Why most executives get informal aspects of their culture wrong:
    • They don't know what it is.
    • It's hard to identify and measure.
    • They try to manage it with top-down strategies.
    • They assume it will take care of itself.
    • It's not part of their management training.
    • It's philosophically foreign.
  • How leaders can get it right:
    • Identify key elements of the informal organization (e.g., networks, shared values).
    • Know which personal and emotional motivators work (e.g., pride in the work itself).
    • Know why formal motivators, such as money, can be counterproductive.
    • Develop bottom-up and cross-organizational approaches that complement and accelerate hierarchical efforts.
    • Design meaningful "values" that are tied to specific behaviors and results.
    • Enlist employees adept at managing both sides of the organization.
    • Mobilize peer networks and communities to spread knowledge, behaviors, and message.

Key Imperative: Marshal "Fast Zebras," Master Motivators, and Pride Builders

Effective organizations translate vision, targets, and strategies into personal purpose, accomplishments and choices that employees can understand and feel good about. They accomplish this by deploying their "fast zebras," "master motivators," and "pride builders."

  • Fast zebras are people who can draw on both the formal and informal organizations with equal facility: They absorb information quickly, adapt to sudden challenges, and act constructively -- just as, on the African savannah, the fast zebra survives a visit to the watering hole, while the slower herd members fall prey to predators lurking in the shadows. Adept leaders identify and increase the proportion of fast zebras in the organization -- and implant them wisely in critical networks.

  • Master motivators are leaders down the line who are sources of insight and energy, and who understand that motivation is individual and emotional. An effective organization taps into their knowledge and identifies specific behaviors that the company needs these leaders to help motivate.

  • Pride builders are people who are adept at finding personal sources of pride within the work itself, even when it may be routine, repetitive, and boring. It's important to seek out potential pride-builders in different parts of the organization who can understand, identify, and draw on specific sources of employee pride.

Focus on the Real World, Focus on Measurement, Focus on Results

Harnessing the power of the informal must be focused on measurable results, according to Katzenbach and Khan. Tracking the performance of the formal organization is commonplace because changes in strategies, structures, and processes are readily measurable. But measuring changes to the informal organization is equally important and requires equal discipline, they said.

However, too many executives abdicate management of the informal organization, choosing to believe that, if left alone, it will fall in line with the formal. But, in reality, simply formalizing a new set of rules, programs, and structures will not pull the company's culture along. The book reminds readers 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, broadly enough, or isn't sustainable.

Says Katzenbach, "Because executives don't know how to influence negative cultural elements by informal means, they push harder on formal levers. But the informal organization is impervious to such approaches."

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

Two of the greatest challenges now facing U.S. companies are speed and adaptability, according to Katzenbach and Khan. But these are not strengths of the "formal" organization. In fact, the authors 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.

"Leading the informal organization out of the woods has to start right now," says Katzenbach. "It cannot wait on strategic planning, or 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 impeded, its recovery."

For more information or to schedule an interview, contact Frank Lentini of Sommerfield Communications at (212) 255-8386 or lentini@sommerfield.com. Please visit www.leadingoutsidethelines.com for more information on Leading Outside the Lines.

About Booz & Company

Booz & Company is a leading global management consulting firm, helping the world's top businesses, governments, and organizations.

Our founder, Edwin Booz, defined the profession when he established the first management consulting firm in 1914.

Today, with more than 3,300 people in 60 offices around the world, we bring foresight and knowledge, deep functional expertise, and a practical approach to building capabilities and delivering real impact. We work closely with our clients to create and deliver essential advantage.

For our management magazine strategy+business, visit www.strategy-business.com.

For information on the Katzenbach Center visit www.booz.com/katzenbach_center.

Visit www.booz.com to learn more about Booz & Company.

About the Authors

Jon Katzenbach is a senior partner at Booz & Company and leads The Katzenbach Center, where promising new approaches in leadership, culture and organization performance are developed for client application. His consulting career has been largely focused in these areas, and spans several decades across three different professional books, including Wisdom of Teams, Peak Performance and Why Pride Matters More Than Money. He received his MBA from Harvard, where he was a Baker Scholar. Jon is a founding partner of Katzenbach Partners.

Zia Khan is vice president for strategy and evaluation at the Rockefeller Foundation, which supports innovations that help people share globalization's benefits more equitably and strengthens their resilience to social, economic, health and environmental challenges. Zia also advises leaders on the integration of strategy and organization as a senior fellow of the Katzenbach Center, which he co-founded with Jon Katzenbach, and as an individual consultant. Prior to joining the Rockefeller Foundation, Zia established and led Katzenbach Partners' San Francisco office and West Coast Practice and pioneered the firm's work on the informal organization. Zia holds a B.S. from Cornell University and an M.S. and Ph.D. from Stanford University. He currently lives in Brooklyn, NY.

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