Balancing the Formal & the Informal Organisation

Think for a moment about your organisation. If you were to draw it what would it look like? In all likelihood you would probably draw the organogram of the organisation - the delineation of functions, roles and reporting lines that make up its formal, bureaucratic structure. What if we told you, however, that this is only half the story? That, in fact your organisation consists of two distinct and interconnected systems - the Formal and Informal system? And that the main reason most transformation efforts fail is an inability to embrace this inherent duality in their approach to change?

Typically when we think of an organisation, we think of the Formal System. It is represented by the more visible and tangible elements of an organisation, such as its strategy, structure, processes, policies, and espoused values. It relies upon certainty, specification and control - with the role of leadership focusing on rigorous analysis, detailed prediction and close supervision. Typically, most approaches to transformation focus on the Formal Organisation alone, relying on a rational, top-down approach to change which we call “Directional Leadership”. With this approach, leadership teams spend significant amounts of time developing clarity and specificity around the transformation plan, before then translating it into a detailed set of instructions to be cascaded by their direct reports down the organisation. 

All of this is essential stuff, of course; it would be ridiculous to try and transform a business without paying attention to the Formal System. In an increasingly volatile environment, however, it is no longer enough on its own. Why is that? Because, in today’s environment, businesses face increasingly complex, adaptive challenges. Whereas the challenges they typically faced in the past were complicated, they were nowhere near the level of complexity they face today. Complicated problems are hard to solve but can be tackled by established rules and processes – like the algorithms that place ads on a Twitter feed, or the processes that drive Search Engine Optimisation.  

Complex problems, on the other hand, involve more interrelated factors and unknowns, meaning it is not possible to reduce the issue to rules and processes, or to solve it merely by redesigning the organisation’s structure. Adapting to Covid 19 is a complex problem. Responding to digital disruption or a new start-up is a complex problem.. Becoming a more customer-centric organisation is a complex problem. Since there is no one right answer to any of these questions, there is no process or algorithm that will tell you how to respond. What is required instead is the co-creation of a range of potential solutions and collectively agreeing upon a few potential paths forward - before then experimenting, learning and adapting as a whole system, as the organisation embarks on its collective journey of transformation.

When leaders focus exclusively on the Formal System, they ignore its sibling that sits in its shadow - the Informal System. Whilst the Formal System is designed to formalise and standardise how people work together, it often bears little resemblance to how work really gets done. This is represented instead by the Informal System. It is represented by the networks of relationships that employees form within and across groups, as they work to accomplish tasks together. It is the basis of organisational culture, serving as a social system of relationships, an informal communication system (“the grapevine”) and an informal learning system. Here’s the thing, though. Whereas the Formal Organisation can be directed by leadership from the top and commanded via detailed instructions and specifications, the Informal System is self-organising and emergent. This means that the more you try and control and coerce the Informal Organisation, the more it pushes back and works in opposition to the Formal System. Unless leadership pays equal attention to both the Formal and Informal System when planning and leading change, therefore, transformation efforts are bound to fail. In such situations, “culture ends up eating strategy for breakfast”.

Traditional approaches to transformation discount the role of informal social connections, emotional attachments and relationships to organisational development and cultural change. Ignoring the Informal System is a surefire path to failure, however, since it is the Informal Organisation, not the Formal, that enables an organisation to implement, learn and adapt as a cohesive whole. It is the Informal Organisation that generates new knowledge and innovation and is constantly working to renew the Formal System. It is the Informal System that can respond rapidly to unforeseen challenges and that builds organisational resilience. And it is the Informal System, not the Formal, that motivates and serves as the glue that binds and holds an organisation together. As a result, breakthrough innovation and transformation comes only by considering both Formal and Informal Organisation in tandem – in effect by learning to balance direction with connection. 

At Living Systems, we have developed an alternative approach to complex transformation which we call “Whole Ecosystem Change”. This does not eliminate existing formal approaches to change. The leadership team still holds oversight and steers overall transformational activity; work is still implemented by a series of transformation teams, with activity being cascaded and implemented through organisational silos. Whole Ecosystem Change, however, supplements traditional approaches to transformation with three additional steps which leverage the Informal Organisation, as well. By leveraging both the Formal and Informal Systems, breakthrough transformation is made possible and, over time, the organisation develops the capacity to sense, adapt and respond as a cohesive whole.

1. Use Organisational Network Analysis to assess the informal system as well as measuring the formal system

Through our business partnership with Temporall we are able to provide our clients with critical insight into the make-up of their Informal System via Organisational Network Analysis (ONA), as well as detailed business intelligence around formal structure and systems, organisational culture and climate. This enables leadership teams to develop clarity on how work really gets done – identifying networks of best practice within the business, as well as showing where there are silos or poor information flow. Equipped with this information, they are able to determine exactly what pattern and level of connectivity would best help them achieve their goals. In this way, it enables organisations to target change activity not only on formal structure and processes, but also the specific informal collaboration networks that will deliver the highest return on transformation efforts. 

2. Identify and involve key influencers from across the ecosystem early on in transformation planning efforts

Whole Ecosystem Change involves diverse representation from across the system early on in the transformation process. This doesn't need to be the whole but rather a representative sample of the system – and it can be established via virtual channels or via face to face meetings. This has two benefits. Firstly, by involving a microcosm of the system in a consultative capacity early on, the organisation develops a more complete view of the challenge – what we call “whole system sight”. This is important, since a complex challenge shows up differently, depending upon where you sit in the organisation. By involving diverse representation from across the whole system system early on, solution quality is improved.

A second benefit of this approach is that, by including and involving people from across the business earlier on, it ends up securing greater buy-in in across the organisation. At Living Systems, through the application of ONA technology we are able to identify and recruit key informal influencers from across the organisation, ensuring they are brought into change planning efforts early enough in the process. This ensures these critical informal influencers feel genuine ownership and develop greater commitment for proposed solutions – enabling them to act as authentic, engaged change agents with their peers, as the change programme is rolled out. This small but critical step dramatically increases the likelihood of buy-in and engagement, since there is an inverse correlation between the degrees of separation between people in an organisation and levels of trust.

3. Transform how work gets done in informal networks, in addition to formal structures, systems & processes

Finally, Whole Ecosystem Change seeks to transform how works get delivered within and across teams, as well as changing formal business structures, systems and processes. This might be focusing on critical areas along the value chain, identifying and extending best practice across delivery teams, or by addressing critical interfaces where there are silos or poor information flow. The use of ONA data here not only allows us to identify the critical interfaces and networks that need attention for the strategy to work, but also serves as an invaluable tool to optimise patterns of collaboration and communication between functions, groups and departments. This might be through working with signature patterns, comparing and contrasting patterns of similar high performing networks, or even overlaying sentiment onto quantitative ONA maps as a catalyst for transformational dialogue between critical groups and interfaces.

Because traditional approaches to change ignore the Informal System, they typically end up with the organisation continuously restructuring or redefining RACI charts, without achieving anything near the step change in business performance that is required for change efforts to succeed. By transforming not only formal structures and processes but also how work actually gets delivered within informal relationship networks, leaders are able to make transformation a reality and enhance the adaptive capacity of the organisation - laying the foundations for sustainable success.

Within this piece we have introduced Whole System Change as an approach for tackling complex transformation. It does this by focusing organisational change efforts not only on formal structure, systems and processes, but also on its informal collaboration networks. To be successful, however, this is not enough on its own. This is because the kind of process outlined above requires a step change in conversational effectiveness across all levels of the organisation. In addition to adopting this whole system approach, therefore, complex transformation also requires us to transform how we collaborate, communicate and relate together as humans – by developing the capacity for Connected Intelligence in groups. We will cover this in more detail in future articles.