Leveraging the Informal Organization Mobilizing Your Ad Hocracy

1. Leveraging the Informal Organization � Mobilizing Your �Ad Hocracy� May 16, 2006 Thanks for having me today; I really appreciate this opportunity because: You have an interest in the human capital side of your enterprises, You help make the things I care about happen at your companies And I grew up on a cattle ranch in the Wyoming Big Horns! First, a true story: Several years ago, I was researching teams at GE Jim Rogers was CEO of GE�s Motors & Industrial Systems in Ft. Wayne, Ind. He was also the best CEO I have ever encountered with respect to teams I was in Ft. Wayne to learn why he was so good at team performance. When I asked to see his organization chart, he said he didn�t have one When I expressed surprise, he explained: Well, there is one somewhere in the GE corporate HR files, but �I never use it because that�s not how things really work around here.� You all know what Jim was talking about � There is a formal part of the organization, like organization charts. Then there�s an informal part � the way people get their work done. Unfortunately, most leadership systems overlook the informal construct. My purpose: Challenge you to make better use of what I call �your adhocracy�.Thanks for having me today; I really appreciate this opportunity because: You have an interest in the human capital side of your enterprises, You help make the things I care about happen at your companies And I grew up on a cattle ranch in the Wyoming Big Horns! First, a true story: Several years ago, I was researching teams at GE Jim Rogers was CEO of GE�s Motors & Industrial Systems in Ft. Wayne, Ind. He was also the best CEO I have ever encountered with respect to teams I was in Ft. Wayne to learn why he was so good at team performance. When I asked to see his organization chart, he said he didn�t have one When I expressed surprise, he explained: Well, there is one somewhere in the GE corporate HR files, but �I never use it because that�s not how things really work around here.� You all know what Jim was talking about � There is a formal part of the organization, like organization charts. Then there�s an informal part � the way people get their work done. Unfortunately, most leadership systems overlook the informal construct. My purpose: Challenge you to make better use of what I call �your adhocracy�.

2. Questions I Will Try to Answer What does it mean to �balance� the formal with the informal organization? How does this balance work at different levels of a company? What can you do to manage the informal?

3. What Is Formal and Informal Organization? Let me clarify what I mean by these terms A. Here is how I view the formal construct: <Click> 1. Its primary purpose is to align people�s decisions and actions. 2. It is based on clearly defined strategic priorities and decisions 3. It consists of well-defined structures, systems and programs, e.g.: Structural charts with lots of lines and boxes Systems & processes like performance management, annual planning, and strategy formulation Critical programs like compensation, recruiting and training. 4. Every company, large or small, has a formal organization construct B. But every company also has an informal organization construct, <Click> i.e., it is: 1. How we �fill gaps� that the formal construct overlooks 2. Things like: cultural norms, values & beliefs, ad hoc groupings, informal networks and emotional connections 3. The �fuzzy stuff� that determines �how things get done around here.� 4. The �squiggly lines� made by Ad hoc work teams and social networks The emotions and feelings like fear, anxiety, pride and commitment that motivate day-to-day behaviors Simply put, without the informal, the formal just does not work!Let me clarify what I mean by these terms A. Here is how I view the formal construct: <Click> 1. Its primary purpose is to align people�s decisions and actions. 2. It is based on clearly defined strategic priorities and decisions 3. It consists of well-defined structures, systems and programs, e.g.: Structural charts with lots of lines and boxes Systems & processes like performance management, annual planning, and strategy formulation Critical programs like compensation, recruiting and training. 4. Every company, large or small, has a formal organization construct B. But every company also has an informal organization construct, <Click> i.e., it is: 1. How we �fill gaps� that the formal construct overlooks 2. Things like: cultural norms, values & beliefs, ad hoc groupings, informal networks and emotional connections 3. The �fuzzy stuff� that determines �how things get done around here.� 4. The �squiggly lines� made by Ad hoc work teams and social networks The emotions and feelings like fear, anxiety, pride and commitment that motivate day-to-day behaviors Simply put, without the informal, the formal just does not work!

4. The Balance � Company Level Three dimensions to consider: the company as a whole, its working groups, and the individuals who work there. Starting with �the company�� The formal construct is mostly about aligning actions and decisions It is rational and often written down Comprised of things like leadership templates, employee handbooks, compensation packages, and training programs Clear priorities are needed to align the explicit goals of different functions Explicit goals translate into operating plans that cascade down Clear priorities and goals also enable people to plan for an expected situation The informal organization is mostly about culture, and is much more intuitive It does not exist in manuals, handbooks, PP presentations Culture integrates values and attitudes so people interact constructively It generates the emotional commitment that motivates behavior change It promotes a meaningful work experience The informal also responds to unpredictable challenges and situations AND most importantly, it motivates front-line commitment and behavior Each construct supports and enhances the other <Click> Strategy articulates the challenge and the directional imperatives Culture shapes and motivates the behaviors needed to meet the challenge AND the capabilities you get from culture open up strategic options The proper balance ensures both alignment and motivationThree dimensions to consider: the company as a whole, its working groups, and the individuals who work there. Starting with �the company�� The formal construct is mostly about aligning actions and decisions It is rational and often written down Comprised of things like leadership templates, employee handbooks, compensation packages, and training programs Clear priorities are needed to align the explicit goals of different functions Explicit goals translate into operating plans that cascade down Clear priorities and goals also enable people to plan for an expected situation The informal organization is mostly about culture, and is much more intuitive It does not exist in manuals, handbooks, PP presentations Culture integrates values and attitudes so people interact constructively It generates the emotional commitment that motivates behavior change It promotes a meaningful work experience The informal also responds to unpredictable challenges and situations AND most importantly, it motivates front-line commitment and behavior Each construct supports and enhances the other <Click> Strategy articulates the challenge and the directional imperatives Culture shapes and motivates the behaviors needed to meet the challenge AND the capabilities you get from culture open up strategic options The proper balance ensures both alignment and motivation

5. The Shifting Balance

6. Customer Service Through Strategy and Culture Nordstrom illustrates how to balance strategy with culture. The company prides itself on its customer service Employees are committed to care about customers The employee handbook and value statement is only one page A simple premise: �Use good judgment and offer the best possible service, selection, quality and value.� A deeply engrained culture helps them realize strategic intent, e.g.: In the 1970s, Nordstrom purchased a chain of stores in Alaska Those stores sold everything from clothes to auto parts Soon after the takeover, they phased out everything but apparel One day a woman came in with a set of tires from the �old store� (before the merger) that she wanted to return Without batting an eye, the clerk took the tires and gave the woman her refund That�s the Nordstrom culture at work � AND it�s still working. Nordstrom had its most successful year ever in 20051. $7.7 billion in revenue (8% increase over 2004)2. $551 million in net income (40% increase over 2004!) That�s what a culture that supports your strategy can doNordstrom illustrates how to balance strategy with culture. The company prides itself on its customer service Employees are committed to care about customers The employee handbook and value statement is only one page A simple premise: �Use good judgment and offer the best possible service, selection, quality and value.� A deeply engrained culture helps them realize strategic intent, e.g.: In the 1970s, Nordstrom purchased a chain of stores in Alaska Those stores sold everything from clothes to auto parts Soon after the takeover, they phased out everything but apparel One day a woman came in with a set of tires from the �old store� (before the merger) that she wanted to return Without batting an eye, the clerk took the tires and gave the woman her refund That�s the Nordstrom culture at work � AND it�s still working. Nordstrom had its most successful year ever in 20051. $7.7 billion in revenue (8% increase over 2004)2. $551 million in net income (40% increase over 2004!) That�s what a culture that supports your strategy can do

7. Several elements determine the ultimate success of an enterprise <Click> A. Strategic intent is where and how the company intends to compete It is a function of market-place realities and leadership philosophy It provides a rational framework for priority setting and accountability It is determined largely by experience, analysis and judgment <Click> B. The formal alignment elements are structure, processes and programs A rational construct for aligning the decisions and actions of their people Determines individual accountabilities We know how to �manage� these fairly well <Click> C. But Culture is also critical in determining enterprise success A primary source of emotional commitment in peak performing enterprises Innovative and high performance behaviors demand emotional commitment Rational compliance is never enough <Click> Both structure and culture require a �complementary adhocracy� 1. It consists of informal networks and other integrating mechanisms 2. We typically rely on judgment and instinct to manage the adhocracy The Good News: You can manage the adhocracySeveral elements determine the ultimate success of an enterprise <Click> A. Strategic intent is where and how the company intends to compete It is a function of market-place realities and leadership philosophy It provides a rational framework for priority setting and accountability It is determined largely by experience, analysis and judgment <Click> B. The formal alignment elements are structure, processes and programs A rational construct for aligning the decisions and actions of their people Determines individual accountabilities We know how to �manage� these fairly well <Click> C. But Culture is also critical in determining enterprise success A primary source of emotional commitment in peak performing enterprises Innovative and high performance behaviors demand emotional commitment Rational compliance is never enough <Click> Both structure and culture require a �complementary adhocracy� 1. It consists of informal networks and other integrating mechanisms 2. We typically rely on judgment and instinct to manage the adhocracy The Good News: You can manage the adhocracy

8. Organization Through Structure and Culture A client example Let me illustrate with an example This shows the organizational structure and teaming approach taken by a large software company The �formal structure� is basically �functional�, i.e. Sales, marketing and R&D are all on the same level These related functions only �come together� at the CEO But a lot of the necessary cross-functional work has to depend on the �informal networks� What�s formally laid out isn�t always enough It fails to take into account motivational factors, and also the informal aspects of the organization What this organizational chart doesn�t show, is the informal networks that determine �how� any organization actually works We�ve found that mapping these informal networks can provide tremendously valuable insights Let me share with you an example of this �mapping�� Let me illustrate with an example This shows the organizational structure and teaming approach taken by a large software company The �formal structure� is basically �functional�, i.e. Sales, marketing and R&D are all on the same level These related functions only �come together� at the CEO But a lot of the necessary cross-functional work has to depend on the �informal networks� What�s formally laid out isn�t always enough It fails to take into account motivational factors, and also the informal aspects of the organization What this organizational chart doesn�t show, is the informal networks that determine �how� any organization actually works We�ve found that mapping these informal networks can provide tremendously valuable insights Let me share with you an example of this �mapping��

9. Probing the Adhocracy � Insights for Leaders Understanding informal networks � yields valuable insights A. Network mapping provided unique insights not otherwise clear. This map illustrates the relationships between individuals in a group, e.g.: 1. Responses to �who do you communicate with several times per week? The larger the circle, the more inbound connections received <Click> The �denser� the lines, the more informal interactions <Click> 2. For each type of relationship, two principal insights can be gained : Group structures of informal organization - Individual hubs who connect to a high number of other individuals B. What�s your reading, i.e., how might you interpret this network, for a Marketing group at a major software and technology company? C. The Group�s interpretation: Their communication network is tightly organized around a few major nodes Disrupting this network arrangement could lead to declines in information flows, and therefore productivity These individuals can be used to quickly and efficiently disseminate information or influence group opinionUnderstanding informal networks � yields valuable insights A. Network mapping provided unique insights not otherwise clear. This map illustrates the relationships between individuals in a group, e.g.: 1. Responses to �who do you communicate with several times per week? The larger the circle, the more inbound connections received <Click> The �denser� the lines, the more informal interactions <Click> 2. For each type of relationship, two principal insights can be gained : Group structures of informal organization - Individual hubs who connect to a high number of other individuals B. What�s your reading, i.e., how might you interpret this network, for a Marketing group at a major software and technology company? C. The Group�s interpretation: Their communication network is tightly organized around a few major nodes Disrupting this network arrangement could lead to declines in information flows, and therefore productivity These individuals can be used to quickly and efficiently disseminate information or influence group opinion

10. Probing the Adhocracy (Cont�d) A second example: The finance leadership group of an interactive software company This map shows responses to �Who would you want to work with on a critical strategic initiative?�. So how might you interpret this network? (audience response) Here�s the group�s interpretation: <Click> An surprisingly intense network that reflects a lack of proper structure and process <Click> Several leaders command respect from their peers for their ability to work effectively on critical strategic initiatives <Click> This dense, relatively balanced network actually underlines the absence of needed structure/process A situation typical of start-ups and smaller companiesA second example: The finance leadership group of an interactive software company This map shows responses to �Who would you want to work with on a critical strategic initiative?�. So how might you interpret this network? (audience response) Here�s the group�s interpretation: <Click> An surprisingly intense network that reflects a lack of proper structure and process <Click> Several leaders command respect from their peers for their ability to work effectively on critical strategic initiatives <Click> This dense, relatively balanced network actually underlines the absence of needed structure/process A situation typical of start-ups and smaller companies

11. The Balance � Working Group Level The balance also matters at the working group level i.e.: A. Formal structures make responsibilities and opportunities clear. Coupled with efficient processes, they align behaviors & decisions Most useful in solving predictable and well-defined problems. Formal structures lead to efficient decision-making They also clarify roles and responsibilities. And they provide a framework for employee recognition and promotions. B. Informal networks and ad hoc teams are also important because : 1. They allow for flexibility in how people work together with respect to: Information sharing and communicating Pitching in and advising how to solve work problems Making sense of change and building trust They are critical in solving unpredictable and ill-defined problems Informal networks evolve �virally� according to different needs And they provide people with a sense of community and identity. C. People satisfy important needs from both, e.g.: A formal structure delineates �the pecking order� and An informal network develops a sense of belonging Both are important in how your company gets the work doneThe balance also matters at the working group level i.e.: A. Formal structures make responsibilities and opportunities clear. Coupled with efficient processes, they align behaviors & decisions Most useful in solving predictable and well-defined problems. Formal structures lead to efficient decision-making They also clarify roles and responsibilities. And they provide a framework for employee recognition and promotions. B. Informal networks and ad hoc teams are also important because : 1. They allow for flexibility in how people work together with respect to: Information sharing and communicating Pitching in and advising how to solve work problems Making sense of change and building trust They are critical in solving unpredictable and ill-defined problems Informal networks evolve �virally� according to different needs And they provide people with a sense of community and identity. C. People satisfy important needs from both, e.g.: A formal structure delineates �the pecking order� and An informal network develops a sense of belonging Both are important in how your company gets the work done

12. The Balance � Individual Level Let�s now talk about the third and last dimension of balancing the formal and informal: The Individual Level : A. �Formal� meets our �rational� needs for money and recognition They help companies to attract and retain talent They help identify development paths for high-potential talent B. �Informal �meets equally critical �emotional� needs to feel good about what you do, how you do it, and who you do it with (pride in the work itself) C. Money, promotions and formal recognition have significant limits, e.g.: Large amounts to a few people - or small amounts to lots of people Primarily useful in �good times.� Money affects people most when they�re making job decisions. Money and promotions are not equally important to everyone. D. Informal pride picks up where formal rewards leave off. It motivates when things are bad as well as when they�re good. It can motivate front-line workers when things are changing. And it is generated spontaneously by pride-building managers. Money attracts and retains, whereas pride motivates behavior Let�s now talk about the third and last dimension of balancing the formal and informal: The Individual Level : A. �Formal� meets our �rational� needs for money and recognition They help companies to attract and retain talent They help identify development paths for high-potential talent B. �Informal �meets equally critical �emotional� needs to feel good about what you do, how you do it, and who you do it with (pride in the work itself) C. Money, promotions and formal recognition have significant limits, e.g.: Large amounts to a few people - or small amounts to lots of people Primarily useful in �good times.� Money affects people most when they�re making job decisions. Money and promotions are not equally important to everyone. D. Informal pride picks up where formal rewards leave off. It motivates when things are bad as well as when they�re good. It can motivate front-line workers when things are changing. And it is generated spontaneously by pride-building managers. Money attracts and retains, whereas pride motivates behavior

13. One typical illustration of why pride is so important A. Results of a random survey of employees 1. 600 plus employees selected at random 2. Results typical of other similar surveys B. Pride is a more powerful motivator than money Money is a short-term, self-serving motivator and it can always be outdone by competitors Money �runs out�; pride works in good times and bad Money and power presume one definition of success, whereas pride deals with different definitions Frontline employees are motivated by emotional feelings like �What my customers think of me,� Not market-share, profits or other metrics that drive monetary rewards This result is born out of hundreds of case studies One typical illustration of why pride is so important A. Results of a random survey of employees 1. 600 plus employees selected at random 2. Results typical of other similar surveys B. Pride is a more powerful motivator than money Money is a short-term, self-serving motivator and it can always be outdone by competitors Money �runs out�; pride works in good times and bad Money and power presume one definition of success, whereas pride deals with different definitions Frontline employees are motivated by emotional feelings like �What my customers think of me,� Not market-share, profits or other metrics that drive monetary rewards This result is born out of hundreds of case studies

14. Motivating with Pride in Difficult Times The GM Assembly Plant in Wilmington, Delaware 1991 GM decides to �close the plant� Ralph Harting�s courageous response �I will tell you what we can do about it� �We can make them feel really stupid!� A great example of this is a true story from General Motors: The GM Assembly Plant in Wilmington, Delaware More than forty years old (1947) Costly, inefficient, unprofitable Out of realistic product options 1991 decision to �close the plant� Corporate executive visit to announce their decision All employee meeting in the plant They�re told �. . . nothing you can do about it�� Ralph Harting�s courageous response �I will tell you what we can do about it �We can make them feel really stupid!� <Click> Plant still running as #1 Assembly Plant in GM, AND Every year they play the video clips of Ralph and the Corp. ExecA great example of this is a true story from General Motors: The GM Assembly Plant in Wilmington, Delaware More than forty years old (1947) Costly, inefficient, unprofitable Out of realistic product options 1991 decision to �close the plant� Corporate executive visit to announce their decision All employee meeting in the plant They�re told �. . . nothing you can do about it�� Ralph Harting�s courageous response �I will tell you what we can do about it �We can make them feel really stupid!� <Click> Plant still running as #1 Assembly Plant in GM, AND

15. Enterprise performance requires both alignment and motivation Senior Leaders typically focus on alignment in change situations. <Click> They begin with a Vision, which leads to mission, values and strategy, which leads to structures and processes These formal elements are used to create alignment You can see how this leads to, but doesn�t quite connect, with the frontline B. They assume that workforce motivation will follow automatically <Click> from Structural and process alignment plus Clear communication of the future direction of the company This is a �rational approach� for motivating employees C. However, motivating the front line requires emotional commitment as well as rational compliance, <Click> i.e.: �Why my job is important in achieving �strategic intent.� A sense of pride in the work itself The journey is at least as important as the destination Front-line pride-builders must make these �critical connections.�Enterprise performance requires both alignment and motivation Senior Leaders typically focus on alignment in change situations. <Click> They begin with a Vision, which leads to mission, values and strategy, which leads to structures and processes These formal elements are used to create alignment You can see how this leads to, but doesn�t quite connect, with the frontline B. They assume that workforce motivation will follow automatically <Click> from Structural and process alignment plus Clear communication of the future direction of the company This is a �rational approach� for motivating employees C. However, motivating the front line requires emotional commitment as well as rational compliance, <Click> i.e.: �Why my job is important in achieving �strategic intent.� A sense of pride in the work itself The journey is at least as important as the destination Front-line pride-builders must make these �critical connections.�

16. The Formal �Aligns� the Informal �Motivates� A true story to illustrate how the informal makes it happen A. Situation Summary: Bell Canada is the largest telecom in Canada Their industry was undergoing unprecedented change with disruptive technologies, new competitors, and changing customer preferences After intense study, Bell decided to focus on an IP network-based future, Articulated new leadership behaviors needed to achieve their future Formulated a strategy around three themes: customer experience, bandwidth, and next generation services Reorganized from regional to customer-segment based divisions: Re-designed core processes, e.g.: leadership development programs and a performance management process tying leader�s pay to objective goals B. Disappointing early results: Even after a year of effort, Formal alignment not getting traction within the workforce Most employees felt unappreciated and under-valued (survey data) Senior leadership lacked team performance capability 200 executive leaders increasingly �untrusted�, and unaligned Mid-level managers still working in silos; collaboration was difficult Front-line did not see how their day-to-day work connected with the vision. They were weary and skeptical of future layoffs and change Good progress on alignment; less so on motivation. A true story to illustrate how the informal makes it happen A. Situation Summary: Bell Canada is the largest telecom in Canada Their industry was undergoing unprecedented change with disruptive technologies, new competitors, and changing customer preferences After intense study, Bell decided to focus on an IP network-based future, Articulated new leadership behaviors needed to achieve their future Formulated a strategy around three themes: customer experience, bandwidth, and next generation services Reorganized from regional to customer-segment based divisions: Re-designed core processes, e.g.: leadership development programs and a performance management process tying leader�s pay to objective goals B. Disappointing early results: Even after a year of effort, Formal alignment not getting traction within the workforce Most employees felt unappreciated and under-valued (survey data) Senior leadership lacked team performance capability 200 executive leaders increasingly �untrusted�, and unaligned Mid-level managers still working in silos; collaboration was difficult Front-line did not see how their day-to-day work connected with the vision. They were weary and skeptical of future layoffs and change Good progress on alignment; less so on motivation.

18. Organizing the �Un-Organizable� So what do I do to encourage informal leadership? Emphasize �emotions� Create a few �meaningful themes� Map the �informal networks� Seek out �hubs� and �pride-builders� Develop repeatable �stories� And never forget the motivational power of PRIDE IN THE WORK ITSELF! So what can YOU do to help �mobilize your adhocracy��? Emphasize the �emotional element� that produces commitment It is essential in motivating change, and It is critical in peak performing organizations Shape a few compelling themes, e.g.: �Remove what frustrates you and your customers�; it is A much better linking of strategy and culture than �cut costs� Map your informal networks: Use the �hubs�, i.e., the disproportionately connected members They are very influential people in informal networks They help leverage networks to bring about behavior change 4. Seek out and learn from your �master pride-builders� Never forget the power of frontline pride in the work itself. Ensure that the frontline�s experience with rewards and recognition, supervisory relationships, and team experiences, helps them take pride in what they do on a day-to-day basis. 5. Inventory and spread �repeatable stories� That are from your work environment The best way to �connect� with front-line people The �informal construct� really can be �managed�!So what can YOU do to help �mobilize your adhocracy��? Emphasize the �emotional element� that produces commitment It is essential in motivating change, and It is critical in peak performing organizations Shape a few compelling themes, e.g.: �Remove what frustrates you and your customers�; it is A much better linking of strategy and culture than �cut costs� Map your informal networks: Use the �hubs�, i.e., the disproportionately connected members They are very influential people in informal networks They help leverage networks to bring about behavior change 4. Seek out and learn from your �master pride-builders� Never forget the power of frontline pride in the work itself. Ensure that the frontline�s experience with rewards and recognition, supervisory relationships, and team experiences, helps them take pride in what they do on a day-to-day basis. 5. Inventory and spread �repeatable stories� That are from your work environment The best way to �connect� with front-line people The �informal construct� really can be �managed�!

19. Concluding Observations To recap what we�ve discussed today: A. Tapping the �adhocracy� is increasingly essential The informal construct is more important that the formal Leaving it to �instinct and chance� will not work The techniques, tools and approaches for doing this are broadly accessible The top team needs to build this capability within itself and beyond Striking the right balance between the formal and informal is also key Without formal plans and strategies the informal will not work Strategy articulates the challenge and the directional imperatives, Culture shapes the behaviors needed to meet the challenge. AND the capabilities you get from culture open up strategic options Pride is an essential component of higher motivation and behavior change Money and promotion are finite resources, while pride is limitless Instilling pride in the work itself is the best way to motivate employees and build employee and emotional commitment Pride in the individual work must complement pride in the institutionTo recap what we�ve discussed today: A. Tapping the �adhocracy� is increasingly essential The informal construct is more important that the formal Leaving it to �instinct and chance� will not work The techniques, tools and approaches for doing this are broadly accessible The top team needs to build this capability within itself and beyond Striking the right balance between the formal and informal is also key Without formal plans and strategies the informal will not work Strategy articulates the challenge and the directional imperatives, Culture shapes the behaviors needed to meet the challenge. AND the capabilities you get from culture open up strategic options Pride is an essential component of higher motivation and behavior change Money and promotion are finite resources, while pride is limitless Instilling pride in the work itself is the best way to motivate employees and build employee and emotional commitment Pride in the individual work must complement pride in the institution

20. Group Discussion How might these ideas be useful in your business? What aspects of your company�s �adhocracy� � or informal organization � are most important for business performance? Can you think of examples of pride builders in your organization? (Pose main questions to group): How might these ideas be useful in your business? What aspects of your company�s �adhocracy� � or informal organization � are most important for business performance? Can you think of examples of pride builders in your organization? (Pose main questions to group): How might these ideas be useful in your business? What aspects of your company�s �adhocracy� � or informal organization � are most important for business performance? Can you think of examples of pride builders in your organization?