At Living Systems, we have been helping our clients tackle complex transformation for over 20 years. One of the key learnings we have made over that period is the need for what we call an “ambidextrous” approach to transformation – focusing on both the Formal as well as the Informal Organisation.
In this blog we want to introduce what we mean by the Formal and the Informal Organisation – as well as explore how an increasingly volatile, complex and uncertain environment requires leaders to focus on both aspects, if they are to succeed in leading sustainable organisational transformation.
The Formal and the Informal Organisation
Typically, most approaches to change focus on the Formal Organisation. The Formal System is represented by the more visible and tangible elements of an organisation – such as its structure, official roles, business processes, rules and policies, and espoused values.
This focus on the Formal Organisation is normally associated with a top-down, rational approach to leadership, which we call “Directional Leadership”. Within this approach, senior leaders isolate themselves at the outset of the process to engage in detailed analysis and prediction – normally via a series of off-sites.
Only once they have defined the change strategy and a detailed activity plan do they then involve the rest of the business – by first engaging their direct reports and then by cascading detailed instructions down through organisational silos.
Whilst more recently leaders have started to pay increased attention to engagement surveys to understand whether people are in the right emotional space to receive the strategy, most organisations today still deploy this top-down and “tell” approach to strategy and change, focused solely on the Formal Organisation.
The Formal System is designed to formalise how people work together, but in a fast-changing environment, it bears little resemblance how people really work with each other within the organisation. This is represented instead by the Informal Organisation.
The Informal System represents the networks of relationships that employees form across functions or divisions to accomplish tasks within the organisation. It serves as a social system of relationships, an informal communication system (“the grapevine”) and an informal learning system.
Whereas the Formal Organisation can be commanded and controlled by leadership at the top, the Informal Organisation is self-organising and emergent. Together, the Formal and the Informal Organisation form an interconnected whole.
Why does any of this matter, beyond a purely theoretical viewpoint?
Because, in today’s disruptive environment, organisations face complex, adaptive challenges. Whereas the challenges organisations typically faced in the past were complicated, they were nowhere near the level of complexity we face nowadays.
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.
Adapting to Covid 19 is a complex problem. Responding to a disruptive competitor — like Uber or Airbnb — is a complex problem. A technological disruption like blockchain 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, collectively agreeing a few potential ways forward – and then experimenting, learning and adapting as a whole system, as the organisation embarks on its transformation journey.
And herein lies the rub. Collective co-creation, experimentation and adaptation requires the Informal System, as well as the Formal. Traditional approaches to change, however, tend to discount the role of informal social connections, emotional attachments and relationships to organisational development and cultural change.
This means that, on their own, therefore, they are not enough to address complex transformation challenges. This is because it is the Informal System, not the Formal System, that enables an organisation to 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 builds 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.
The problem with traditional approaches to change
In our experience, many of the problems organisations face today in making complex transformation succeed arise from paying insufficient attention to the Informal Organisation, alongside the Formal Organisation.
Let’s bring this to life by thinking about the three typical phases of organisational transformation – planning, mobilisation and implementation, and how problems typically emerge from an overly formal, top-down approach:
During the planning phase the leadership team will normally seek to develop a high degree of detail around the design of the future organisation, before involving many levels further down. They will tend to work in isolation, undertaking a lengthy series of offsites to develop absolute certainty around what needs to happen, before including the rest of the organisation.
Whilst this is not an issue with complicated problems (which can be analysed and have a right answer), complex challenges tend to show up differently in different parts of the organisation. When faced with a complex, transformation challenge, traditional approaches to change pay insufficient attention to the diverse perspectives of employees further down the organisation, when developing the solution.
Whilst many leadership teams will undertake surveys across the organisation, in our experience they often fail to surface or take into account the unique perspectives of people who are actually closer to the customer – thereby significantly decreasing solution quality.
By the time comes for the leadership team to cascade the change programme down the Formal Organisation, rumours will often already have been circulating through the Informal Organisation. Moreover, since top-down change engages people solely by order of seniority, key informal influencers further down the organisation will normally feel disconnected from the process of solution development.
This means that, by the time the leadership team launches the strategy, key people across the organisation will feel indisposed towards any proposal the leadership team makes. Since complex challenges have no one right answer, people inevitably end up finding flaws and taking issue with the chosen route – and the leadership team encounters significant resistance to change, as a result.
What makes this process even more dangerous is that this resistance is often expressed tacitly, rather than explicitly. The leadership team presents the strategy via a presentation, and people cheer and clap – since this is what they feel they are expected to do. But it is only when they are around the coffee machine with their friends that people express the real reservations and objections they feel (i.e. within the Informal Organisation).
This means that the resistance to change that is already present in the organisation is often only discovered by senior leaders further down the line, when it emerges to sabotage implementation efforts.
The problem with formal, top-down approaches to implementation lies in the fact that they tend to focus only on re-engineering the Formal Organisation, as well as in the fact that implementation tends to be designed in a fragmented manner.
As a result, the organisation spends an inordinate amount of effort endlessly redesigning formal structures, processes and RACI descriptions – without touching the critical informal networks where the work actually gets done. And, because implementation is controlled and conducted in a fragmented manner, silos end up emerging between functions, levels and transformation teams as this work is carried out.
As a result, the whole ends up becoming less than the sum of its parts, and the change programme fails to deliver on its aspirations.
Whole Ecosystem Transformation
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 and significant of activity is still cascaded and implemented through organisational silos, focused on the Formal Organisation.
Whole Ecosystem Change, however, supplements traditional approaches 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. Developing Insight through Organisational Network Analysis (ONA)
Analyse informal networks as well as formal structures and systems
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 get a much clearer read on what is actually going on within the organisation – identifying networks of best practice within the business, as well as showing where there are silos or poor information flow. Armed with this information, they are able to determine exactly what pattern and level of connectivity would best help them achieve their goals, as well as how to best accomplish this through the Formal and Informal Organisation. In this way, it enables organisations to target transformation activity not only on formal structure, systems and processes, but also the specific informal collaboration networks that will deliver the highest return on transformation efforts.
2. Involving key influencers and developing “full system sight”
Identify key influencers and involve diverse representation early on
Whole Ecosystem Change involves diverse representation from across the system, early on in the change process. This doesn’t need to be the whole organisation 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 engaging 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 success for transformation initiatives further down the line, as they move into the implementation phase.
3. Transforming informal networks – how work gets done
Transform patterns of collaboration in key informal networks, as well as formal systems
Finally, Whole Ecosystem Change seeks to transform how informal networks work across the organisation as well as changing formal business structures, systems and processes. Early application of ONA data allows us to identify and target implementation efforts around the specific networks that will have the most direct impact on transformation efforts. This may be focusing on critical interfaces along the value chain, by identifying and leveraging best practice or by addressing areas where there are silos or poor information flow. When these networks come together, ONA enables us to provide them with specific information and data on how they are currently collaborating, as well as comparing and contrasting this with the collaboration patterns of best practice examples from within the business and the industry.
Within this article we have introduced Whole Ecosystem Transformation as an effective approach for tackling the complex transformation challenges presented by an increasingly volatile and complex environment. It does this by transforming an organisation’s informal networks, as well as formal structure, systems and processes. But it’s not enough on its own. Complex challenges have no single, right answer and they show up differently depending upon where you sit in the system. When groups come together from across a system to solve a problem, they bring their biases and their conflicts. This requires us to significantly up our game in how we communicate, relate and work together in groups. For that reason, complex transformation requires an integrated focus on personal and group development, alongside whole system change approaches.
At Living Systems we develop the capacity for Connected Intelligence – enabling whole system change, fostering collective intelligence in groups and developing leadership agility. Start the conversation to move your business forward by contacting us today.