Strategy + Business has just published an article Leading Outside the Lines. Its summary reads:
In every company, there are really two organizations at work: the informal and the formal. High-performance companies mobilize their informal organizations while maintaining and adding formal structures, balancing the two.
Reading the full article reveals that
In every company, there are really two organizations at work: the formal and the informal. The formal organization is the default governing structure of most large companies founded in the past century. Businesspeople recognize the formal organization as that rational construct that runs on rules, operates through hierarchies and programs, and evaluates performance by the numbers.
The informal organization, by contrast, is an agglomeration of all the human aspects of the company: the values, emotions, behaviors, myths, cultural norms, and uncharted networks. The power of the informal is visible in every organization every day – it is an undeniable, emotionally resonant force.
The authors Katzenbach and Khan point out (no surprises) that :
Organizations that sustain high performance over time have learned how to mobilize their informal organizations while maintaining and adding formal structures, each in sync with the other.
And then make the obvious statements that it's difficult to a) know how to do this and b) do this. However, they then make a suggestion to focus on goals and metrics – a very few of each, and a lot of communication and involvement on both agreeing these and keeping them uppermost in people's minds. This makes sense and neatly marries the formal organizational aspects – in the goals and metrics, with the informal – in the communication and involvement.
It's an approach that has a popular track record – remember the article in the HBR – The One Number Your Need To Grow, for example. And David Nadler and Michael Tushman were writing about the informal and formal organizations many years ago. (See Nadler, D. and Tushman, M. (1999). The Organization of the Future. Organizational Dynamics, Vol. 28. No.1. Summer).
Then there is the old but practical and readable guide by Geary Rummler and Alan Brache, Improving Performance: How to Manage the White Space in the Organization Chart which is more about process change that flows across the "white space" between the departmental silos one finds on any organization chart, but covers the formal and informal 'marriage'. This book was updated last year and is available as White Space Revisited: Creating Value Through Process the authors this time around are Geary Rummler, Alan Ramais, and Richard Rummler.
Considerations of both informal and formal aspects of an organization also has a theoretical track record. Chester Barnard (management theorist) in his 1938 book The Functions of the Executive suggested that 'managing the informal organization was a key function of successful executives'. His theories 'foreshadowed participant-observation studies that were later used to establish the symbolic-interpretive perspective [of organization theory]. (See: Hatch, M-J and Cunliffe, A. (2006). Organization Theory. Oxofrd University Press).
The lesson for organization designers, and managers, that comes out of considering both the formal and informal aspects of an organization is (yet again) not to focus on the formal structure of an organization i.e. the formal organization chart, when you're thinking of reorganizing or restructuring for performance improvement. The structure, as shown in the charts, cannot improve performance if it is not addressed simultaneously with all the other formal and informal aspects of an organization.