November 5, 2019
Organizations are wasting fortunes by ignoring their social structures. We explain you the business case, and four steps companies need to follow to harvest the value of their informal relational structures.
All organizations have social structures that do not resemble their formal structures. Cliques of employees that hang out during lunch breaks, or even after work. Tribes of people that support different agendas inside and outside the workplace. Shadow organizations that perform the work of the functional organization, because they are less bureaucratic, and an effective shortcut. Networks of people that know, trust, and help each other. All these social structures hold the key to unleashing fortunes in the form of employee productivity.
In this article, we show how organizations are wasting fortunes by ignoring their social structures, we provide the business case, and we share four steps companies need to follow to harvest the value of their social structures.
Companies ignore their social structures
For more than a decade, we have diagnosed the social structures of hundreds of organizations of different sizes and across a variety of industries. One of the findings that have repeated itself over the years is that it takes a lot of time for a new employee to become embedded into those social structures.
On average, it takes two years for a new employee to get fully integrated into the informal social structures of the company.
Our benchmark database shows that, on average, it takes two years for a new employee to get fully integrated into the informal social structures of the company. But still, sometimes it takes much longer. In an oil company we worked with, it took six years, and in an aviation company, it was five years.
How does this impact the value of the employee? What is the impact of the person not knowing who to turn to for knowledge, or to make a decision?
Time-to-integration directly impacts time-to-adding value.
Time-to-integration directly impacts time-to-adding value. You are more likely to reinvent existing methods and procedures if you don’t know of their existence. You experience friction in your daily work that slows you down until you have learned how to live with it (typically after two years). Only then, you are positioned to deliver full value together with your longer-tenured colleagues.
But what happens if employees remain in the company for less than two years?
In our projects, we have also found that people tend to stay shorter and shorter in the organizations they work for, which is another area where social structures play a crucial role.
In one US-based technology company we worked with, the average tenure was only 3 ½ years. The competition for talent meant that people jumped from one opportunity to another. Few stayed for the long haul.
In a pharma company, we saw an increase in employee turnover risk of up to 500% after a key employee left. We observed the same in an engineering company, where an entire department jumped from one organization to another. One key-person resigned, and within 3-6 months the rest of the team followed.
In a not-for-profit organization we worked with, we discovered that the determining factor for employees to stay with the company was not a tangible factor, such as the number of work hours or the salary, but the possibility of building a network of relationships with their colleagues, in the form of friendship, and knowing where to turn for help for their everyday tasks.
Integrating and retaining your key people in the informal social structures of your organization is crucial for reducing flight risk.
Therefore, integrating and retaining your key people in the informal social structures of your organization is crucial for reducing flight risk. If you can nurture these social network structures, you can make people stay longer and thereby extend the period your employees add value to your company.
So, what is the Business Case?
We believe organizations need to take a more disciplined approach to their social structures, and their executives should pay attention to the business case for doing it.
Each of the two business challenges we mention above (speeding up the integration of newcomers and reducing employee turnover), has a very attractive business case. Take a look at the example depicted on the picture you will find at the bottom of this article (The numbers are calculated under the assumptions that 1) the all-inclusive cost of an employee is $15,000 / month, 2) an employee that realizes value adds $20,000 / month and 3) the value curve of a new employee is s-shaped):
1) Integration of newcomers: If you can speed up the time-to-integration of a newcomer from 24 months to 18 months, you speed up her time-to-adding value so the newcomer – in the first year – generates an additional value of $ 34,000. Multiply this figure by the number of hires you make, and you have the value of your improved onboarding practice.
2) Employee retention: Retaining a value-realizing employee and saving the cost of bringing in a replacement –with the current onboarding practices– is worth $277,000 plus recruitment cost per employee over two years. Multiply this number by the number of value-realizing employees who leave, and you have the value of your improved employee retention practice.
As you can see, although the exact amount will vary by case, there is a tremendous value to be gained or saved by improving onboarding and retention practices.
Four steps for harvesting the value of social structures
If you are interested in harvesting the value of the social structures of your company, we propose you to start with the following four steps:
Step 1 – Understand the social structures of your organization
Diagnose the social structures of your organization, so you know the cliques, tribes, communities, siloes, and key individuals amongst leaders, middle managers, and employees. This is your baseline, so make sure you also understand how long it takes for them to get embedded into those social structures.
Step 2 – Set your targets for how much you want to improve
Define exactly how and when to measure progress, and concretize its financial value, so you can communicate it, and determine who is responsible for reaching the target. For your inspiration, we have always been able to show how we can accelerate the integration of a new employee into the social structures by up to six months.
Step 3 – Discipline connections in the Social Structures
Find out who should be connected to who across organizational tribes, cliques, and communities, both in small groups and on a one on one basis. Give them a common task, time, and the necessary resources, so they can build mutual trust, and awareness of each other’s competencies. For new employees, use mentoring and reverse mentoring. And treat them as an opportunity for innovation.
Step 4 – Track your progress
Finally, make sure to follow up on your progress. Share success stories with the organization, and use them to build momentum around the need for further focusing on social structures.
Harvesting the potential of social structures takes leadership skills and discipline. Many leaders have the skills, but very few of them show the discipline. We hope this is about to change, as the business case becomes more widely known.
This article has been jointly written by Jeppe Vilstrup Hansgaard, CEO, & Christoffer Lynggaard Kønigsfeldt, Head of Client Enablement at Innovisor