The Shadow Knows

Are you clued in to what's really going on in your company? According to experts, the real deal can be found lurking in a shadow organization.

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.

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This article was originally published in the January 2000 print edition of Entrepreneur with the headline: The Shadow Knows.

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