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.
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Jennifer Johnson knew she had a problem when she discovered thatsome of her 15 employees were taking their complaints to someoneother than her. "People were going to [a senior consultant atthe 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 SantaCruz, California, marketing consulting and media relations firm,was right about one thing: It's important for entrepreneurs tounderstand who is talking to whom, who is listening, and how mostof the information and influence really flows in your company. Nomatter what your organizational chart looks like, experts in anemerging discipline called social network analysis say allcompanies have hidden, shadow organizations where the real workgets done.
Shadow organizations have aroused the interest of such companiesas Lucent Technologies, IBM, Rubbermaid Inc. and Boeing Co. Thesefirms have discovered that social network analysis is more thanjust an exercise in clique-finding. In 1998, consultants at Ernst& Young LLP reported finding opportunities to save a large autoindustry supplier more than $14 million just by using socialnetwork analysis to uncover inefficient communication that washamstringing innovation.
Understanding and effectively managing the informalrelationships and unofficial communication channels in shadoworganizations can greatly reduce employee turnover, improvediversity and help make the most of your company's invaluableknowledge resources, says Valdis Krebs, a Westlake, Ohio,consultant who specializes in social network analysis. "If yougo back to the old question of whether it's who you know orwhat you know that gets you ahead," says Krebs, "theanswer is, it's who you know."
Mark Henricks is an Austin, Texas, writer who specializes inbusiness topics and has written for Entrepreneur for 10years.
Age-Old Theory
Social network analysis can trace its origins to the 1930s, whensociologists began using tools called sociograms to map patterns ofpersonal connection among members of a group. Sociometry, as theemerging discipline came to be known, was further refined afterWorld War II, but until recently, social network mapping remainedof interest mainly to academics. The key to making network mappinguseful to businesses was the availability of personal computersthat could analyze and graphically display even very complex socialnetworks quickly and inexpensively.
Organizational network mapping, as the practice is also known,still isn't quite ready for prime time, however. "Thereare a few of us who know the tools and can do it," says EricDarr, a social network analysis consultant who works out of Ernst& Young's Philadelphia office. "But to make itmainstream, it needs to be made easier."
Social network mapping's benefits to businesses are alreadyproven. Tracking informal relationships within your company canexplain how and why new hires either succeed or fail to assimilateinto your corporate culture. It can also explain why failure dogsefforts to boost work-force diversity, says Krebs. "You canget two people with identical abilities and resumes, but one is awhite male and the other is a black female," he says. "Ayear later, one will have connected to the right information flowsand will perform better, not because of ability but because ofbetter connections."
Similar factors control how well a company retains valuableemployees, especially new hires. Workers are more loyal and performbetter when integrated into a shadow organization. "Employeeswho are well-connected into a social network," says Darr,"are less likely to leave." Companies undergoing mergershave found that social network mapping illuminates unsuspectedleaders and other employees who control influence and informationflows--both of which may be critical to conducting an optimalreorganization.
Connect The People
Network mappers start by surveying a company's employees toget answers to a handful of crucial questions. The basic one: Whodo you go to for information about what's going on? Questionsmay also address the frequency of interaction or differentiatebetween requests for information and requests for influence. Usinganswers, mappers draw diagrams that graphically show who isconnected to whom.
The maps, while superficially little more than collections ofdots connected by lines, reveal important information about theemployees who are your real nodes of influence and information. Bylooking at the number and location of the connections betweenpeople, you can also highlight individuals or groups who havebecome partially isolated from the rest of the network. Thesefragments hamper efficiency by creating bottlenecks if they'regetting information but not passing it on, Krebs says.
Once you've identified problem areas, you can deal with themby changing communications systems, such as upgrading e-mailsystems or altering the chain of command. You can also change theprocesses you use to communicate, for instance, setting aside timefor company retreats. Often, you can even modify the officialorganization. After her epiphany about the shadow organization ather firm, Johnson created a new title: account planner. She fillsthe position with people she's identified as shadow mentors tohelp new employees find their way. Network tinkerers also getresults by relocating employees to bring them into the loop.
Missing Links
Although the process can be effective, mappers have to becareful. If you don't get a 100 percent response to yoursurveys, you risk creating an incomplete network map that lacksimportant links, warns Darr. Even if everyone completes the survey,answers may intentionally be inaccurate. Some employees may inflatetheir actual importance in the network. Others may fear the answerswill be used against them. This is especially likely if layoffs areanticipated because the surveys may be seen as tools for decidingwho is expendable.
Shadow organizations are less important in highly structuredenvironments, such as assembly lines, than in so-called knowledgeorganizations, such as customer service related work ornew-product-development operations. However, they're just asimportant in small organizations as in large ones. And, becausegroups larger than a few hundred can't be mapped very well,small businesses have the advantage of being able to map theirentire company, Krebs notes.
One problem with mapping entrepreneurial companies isthey're often dominated by the founders. These individuals, whomay require all important information and decisions to go throughthem, can become bottlenecks rather than networking facilitators,say network mappers. The personal style of an overcontrollingfounder may be the first casualty of a network mapping project.
And that's not the only cost. Consultants such as Krebs maycharge $5,000 or more to map a small company, includingadministering surveys, analyzing results and following up. But astools become polished and more companies try social networkanalysis, costs should drop. The Internet's rise has increasedappreciation of the value of networks, and, as more workers becomeknowledge workers, managing their knowledge through social networksalso gets a higher profile.
As important as internal networks are, it may be more valuableto apply similar tactics to understanding external networks such asyour customers, suppliers and partners. Spotting a gap between twounconnected groups--known as a structural hole--can helpentre-preneurs make companies run better. "Spanning structuralholes," observes Krebs, "is how an entrepreneur createsopportunity."
Next Step
- Social network mapping consultant Valdis Krebs maintains a Website with a variety of information and links on the topic athttp://www.orgnet.com
- Management and human resources writer Phyllis Gail Doloffdiscusses shadow organizations in a February 1999 article,"Beyond the Org Chart," in Across the Boardmagazine. For reprints, call (212) 221-9595.
Contact Sources
Ernst & Young LLP, (215) 448-5234, eric.darr@ey.com
