From the January 2000 issue of Entrepreneur

Jennifer Johnson knew she had a problem when she discovered that some of her 15 employees were taking their complaints to someone other than her. "People were going to [a senior consultant at the company] for the real scoop, as opposed to coming to me," Johnson says. "I found it kind of troubling."

The 37-year-old founder of Johnson & Co., a 2-year-old Santa Cruz, California, marketing consulting and media relations firm, was right about one thing: It's important for entrepreneurs to understand who is talking to whom, who is listening, and how most of the information and influence really flows in your company. No matter what your organizational chart looks like, experts in an emerging discipline called social network analysis say all companies have hidden, shadow organizations where the real work gets done.

Shadow organizations have aroused the interest of such companies as Lucent Technologies, IBM, Rubbermaid Inc. and Boeing Co. These firms have discovered that social network analysis is more than just an exercise in clique-finding. In 1998, consultants at Ernst & Young LLP reported finding opportunities to save a large auto industry supplier more than $14 million just by using social network analysis to uncover inefficient communication that was hamstringing innovation.

Understanding and effectively managing the informal relationships and unofficial communication channels in shadow organizations can greatly reduce employee turnover, improve diversity and help make the most of your company's invaluable knowledge resources, says Valdis Krebs, a Westlake, Ohio, consultant who specializes in social network analysis. "If you go back to the old question of whether it's who you know or what you know that gets you ahead," says Krebs, "the answer is, it's who you know."


Mark Henricks is an Austin, Texas, writer who specializes in business topics and has written for Entrepreneur for 10 years.

Age-Old Theory

Social network analysis can trace its origins to the 1930s, when sociologists began using tools called sociograms to map patterns of personal connection among members of a group. Sociometry, as the emerging discipline came to be known, was further refined after World War II, but until recently, social network mapping remained of interest mainly to academics. The key to making network mapping useful to businesses was the availability of personal computers that could analyze and graphically display even very complex social networks quickly and inexpensively.

Organizational network mapping, as the practice is also known, still isn't quite ready for prime time, however. "There are a few of us who know the tools and can do it," says Eric Darr, a social network analysis consultant who works out of Ernst & Young's Philadelphia office. "But to make it mainstream, it needs to be made easier."

Social network mapping's benefits to businesses are already proven. Tracking informal relationships within your company can explain how and why new hires either succeed or fail to assimilate into your corporate culture. It can also explain why failure dogs efforts to boost work-force diversity, says Krebs. "You can get two people with identical abilities and resumes, but one is a white male and the other is a black female," he says. "A year later, one will have connected to the right information flows and will perform better, not because of ability but because of better connections."

Similar factors control how well a company retains valuable employees, especially new hires. Workers are more loyal and perform better when integrated into a shadow organization. "Employees who are well-connected into a social network," says Darr, "are less likely to leave." Companies undergoing mergers have found that social network mapping illuminates unsuspected leaders and other employees who control influence and information flows--both of which may be critical to conducting an optimal reorganization.

Connect The People

Network mappers start by surveying a company's employees to get answers to a handful of crucial questions. The basic one: Who do you go to for information about what's going on? Questions may also address the frequency of interaction or differentiate between requests for information and requests for influence. Using answers, mappers draw diagrams that graphically show who is connected to whom.

The maps, while superficially little more than collections of dots connected by lines, reveal important information about the employees who are your real nodes of influence and information. By looking at the number and location of the connections between people, you can also highlight individuals or groups who have become partially isolated from the rest of the network. These fragments hamper efficiency by creating bottlenecks if they're getting information but not passing it on, Krebs says.

Once you've identified problem areas, you can deal with them by changing communications systems, such as upgrading e-mail systems or altering the chain of command. You can also change the processes you use to communicate, for instance, setting aside time for company retreats. Often, you can even modify the official organization. After her epiphany about the shadow organization at her firm, Johnson created a new title: account planner. She fills the position with people she's identified as shadow mentors to help new employees find their way. Network tinkerers also get results by relocating employees to bring them into the loop.

Missing Links

Although the process can be effective, mappers have to be careful. If you don't get a 100 percent response to your surveys, you risk creating an incomplete network map that lacks important links, warns Darr. Even if everyone completes the survey, answers may intentionally be inaccurate. Some employees may inflate their actual importance in the network. Others may fear the answers will be used against them. This is especially likely if layoffs are anticipated because the surveys may be seen as tools for deciding who is expendable.

Shadow organizations are less important in highly structured environments, such as assembly lines, than in so-called knowledge organizations, such as customer service related work or new-product-development operations. However, they're just as important in small organizations as in large ones. And, because groups larger than a few hundred can't be mapped very well, small businesses have the advantage of being able to map their entire company, Krebs notes.

One problem with mapping entrepreneurial companies is they're often dominated by the founders. These individuals, who may require all important information and decisions to go through them, can become bottlenecks rather than networking facilitators, say network mappers. The personal style of an overcontrolling founder may be the first casualty of a network mapping project.

And that's not the only cost. Consultants such as Krebs may charge $5,000 or more to map a small company, including administering surveys, analyzing results and following up. But as tools become polished and more companies try social network analysis, costs should drop. The Internet's rise has increased appreciation of the value of networks, and, as more workers become knowledge workers, managing their knowledge through social networks also gets a higher profile.

As important as internal networks are, it may be more valuable to apply similar tactics to understanding external networks such as your customers, suppliers and partners. Spotting a gap between two unconnected groups--known as a structural hole--can help entre-preneurs make companies run better. "Spanning structural holes," observes Krebs, "is how an entrepreneur creates opportunity."

Next Step

  • Social network mapping consultant Valdis Krebs maintains a Web site with a variety of information and links on the topic at http://www.orgnet.com
  • Management and human resources writer Phyllis Gail Doloff discusses shadow organizations in a February 1999 article, "Beyond the Org Chart," in Across the Board magazine. For reprints, call (212) 221-9595.

Contact Sources

Ernst & Young LLP, (215) 448-5234, eric.darr@ey.com

Johnson & Company, http://www.joandco.com