The Hidden Economics of Connection

Organizations spend heavily on talent, technology, and process, but much of their performance is determined by what happens in the space between those pieces.

A few months ago, I was sitting in a room listening to a few of Chicago’s better-known private equity firms talk about where the next wave of value creation might come from.

One of them put the challenge plainly. Private equity, he argued, has gotten very good at financial engineering. The tools are well understood and the playbooks have been refined across disciplines. There was only so much value left to squeeze from changing capital structures, cutting costs, or renegotiating contracts.

The next frontier, he suggested, sits inside the organization itself: culture, people, and connection.

The comment seemed to pass by a few people in the room, but to me it signaled a fairly seismic shift in where some sophisticated investors are looking for the next stage of value. Historically, the industry tends to be disciplined, so when those whose job is to find overlooked ways to improve the economics start looking at something as soft-sounding as people, there is probably something harder underneath it.

I got my start on the post-integration side of M&A, where I got to see the financial thesis where it met the organization and its people. For a long time, I’ve believed that connection is one of the more underappreciated forces driving an organization. Back then, we tended to talk about it as something that makes work more enjoyable or more tolerable. A good manager can unlock hidden talent. A trusted colleague can make difficult work easier. A team that ‘works together stays together’.

All of that matters, of course. But it drastically understates its importance.

There is a simple reason organizations exist in the first place. We bring people together because we believe they can accomplish more together than they could separately.

A hospital is more than a collection of talented physicians, nurses, technicians, and administrators. A technology company is more than thousands of individual engineers. Their value comes from what those people are able to create together.

Put differently, every organization is making the same basic economic bet: 1+1 should equal more than 2.

Sometimes it does. Two people combine different skills, challenge one another’s thinking, share information, catch mistakes, and create something neither could have produced alone.

Sometimes, though, the opposite happens. People duplicate work. Information gets stuck. Teams protect their turf. Experts become bottlenecks. Employees stop raising concerns because speaking up feels risky. The organization may have paid for two units of capability, yet the system produces something closer to 1.7.

That is where connection matters. The value of an organization does not live only in the people it hires, the technology it buys, or the processes it designs. Some of it exists between them.

In other words, connection is what allows individual capability to become collective capability.

Start with something simple: two people whose jobs depend on one another.

If they know how the other works, trust each other’s judgment, and can solve problems quickly, very little energy is lost between them. They can move quickly and efficiently. A question gets answered. A handoff happens. A problem gets surfaced before it becomes something larger.

If that relationship is weak, however, the work does not necessarily stop. It just gets more expensive.

Another email gets sent. Another meeting gets scheduled. Someone checks the work again. A manager gets pulled in. A decision waits because nobody is quite sure who has the authority to make it. Small amounts of friction accumulate until a relatively straightforward piece of work suddenly requires far more time, attention, and people than it should.

I’ve seen versions of this play out across organizations. They will spend enormous amounts of money redesigning structures, rebuilding processes, and installing new technology, while paying surprisingly little attention to the relationships required to make any of them work.

The research helps explain why. A large meta-analysis of 112 studies, covering nearly 8,000 teams, found a meaningful relationship between trust and team performance. More interestingly, trust mattered more when the work required people with different skills to depend heavily on one another.¹

If two people can perform their jobs almost entirely on their own, the quality of their relationship may have limited economic consequence. But as soon as the work becomes interdependent, the relationship itself becomes part of the production system.

Healthcare makes this particularly easy to see.

A patient moving through a hospital may encounter physicians, nurses, therapists, technicians, pharmacists, and administrators. Each person can be excellent at their individual job and the overall experience can still break down between them.

Research by Jody Hoffer Gittell found that stronger relationships built around shared goals, shared knowledge, mutual respect, and timely communication were associated with better patient care and greater operating efficiency, including shorter lengths of stay.²

The process had not suddenly become more sophisticated. The people had become better able to work through it together.

That’s an important distinction I want to underscore: we tend to think about productivity as something individuals possess, who works harder, who has more experience, who has the right skills. But in an organization, some amount of productivity lives in the space between people. A handoff is not simply a step in a process. It is a relationship between two people trying to move some shared purpose forward.

And when that relationship works, the work gets easier. When it doesn’t, the organization pays for the friction.

Steve Jobs understood this intuitively. When Pixar designed its headquarters, he pushed for a central atrium that would pull people out of their individual departments and into the same physical space. Animators would cross paths with engineers and writers would run into executives. People who had no reason to schedule a meeting together might end up standing next to one another over coffee.³ (He later did the same thing with Apple Park in Cupertino.)

The point was not collaboration for collaboration’s sake. It was exposure.

Sociologist Ronald Burt studied managers inside a large technology company and found that people who connected otherwise disconnected groups were more likely to develop ideas others judged as valuable.⁴ These individuals were not necessarily smarter or more creative than their peers. Their advantage was that they were exposed to conversations, information, and perspectives that did not usually meet.

That relationship is often misunderstood in innovation: new ideas rarely come from simply adding more intelligence to a room. It more often comes from the intersection of two or more ideas that had previously been kept apart.

Imagine a customer problem directly reaching an engineer. Or an operational constraint changing a designer’s approach. Or someone in one business unit discovering that another team solved a similar problem three years earlier.

None of those connections guarantee a breakthrough. But they increase the odds that useful ideas collide.

And this is where connection becomes more complicated. The relationships that make execution easier are not always the same relationships that help us see something new. Familiarity can make a team faster. Too much familiarity can also narrow what enters the conversation.

And that creates a bit of a paradox. A tightly connected team can move with remarkable speed. People know one another well. They understand how decisions get made. They share context and trust the handoff. But that same familiarity can also narrow the field of view. The team may hear the same ideas, rely on the same assumptions, and keep returning to the same people for answers.

Broader connections, however, create a different advantage. They expose people to unfamiliar problems, different expertise, and ideas that may never surface inside a close-knit group. But those relationships are often weaker. They can take more effort to navigate, and they rarely carry the same level of trust or shared understanding.

Research by Ray Reagans and Bill McEvily helps explain why both matter. They found that cohesive relationships made people more willing to invest in sharing knowledge, while broader network range made it easier to access and transfer knowledge across different groups.⁴

In other words, different connections create value in different ways. Sometimes value comes from depth: trust, familiarity, and repeated interaction. Sometimes it comes from range: exposure, difference, and access to something new.

The real question, then, is not whether an organization is well connected. It is whether it is connected in the right way for what it is trying to accomplish.

And that is really what fit-for-purpose means.

If a company is trying to innovate, it may benefit from more connections across disciplines, functions, or businesses. New ideas often depend on people seeing problems through different lenses.

If the priority is execution, however, the equation changes. Speed and reliability depend more heavily on trust, shared context, and repeated interaction among people whose work is tightly connected.

Transformation creates another challenge. A new strategy rarely moves through an organization simply because leaders announced it. It moves through the colleagues others trust, the managers they watch, and the connectors who can carry an idea from one part of the business into another.

None of these situations call for more connection in the abstract. They call for the right connection. And yet, most organizations spend surprisingly little time thinking about that distinction.

They hire more engineers when they want more innovation. They redesign the org chart when decisions feel slow. They install new technology when collaboration breaks down. They launch communications when a transformation stalls.

Those choices may be perfectly reasonable. But they often change the pieces without asking whether the relationships between them are suited to the work.

This is where I think most organizations still have a blind spot. They are very good at measuring the pieces: How many people do we have? What skills do they possess? What does the process look like? Who reports to whom? What technology are they using?

Far less attention goes to what happens between those pieces: Who gets asked for help. Who people trust when something is misunderstood. Which teams rarely interact. Where information tends to bottleneck. Whether a key individual holds connection between two critical parts of the business.

Those relationships have traditionally been treated as informal, even intangible. But they can now be measured and mapped, revealing the informal architecture of an organization. Think of it less as a scorecard and more as an x-ray. The value is not in seeing the picture, but in knowing where to act.

And that brings me back to the private equity room. This is where connection stops being an interesting cultural idea and becomes an economic one.

… sometimes value is sitting in an idea that got stuck along the way.

… sometimes it is trapped in a transformation that can’t gain traction.

… sometimes it is concentrated in a handful of people the company cannot afford to lose.

… and sometimes it is consumed by the friction required just to get work done.

Capital structures can be copied. Technology can be purchased. Processes can spread quickly across portfolio companies. Even talent can move from one company to another.

What is much harder to copy is the system through which all of those things come together. The opportunity those investors were describing was not simply to create a “better culture.” It was to find value that traditional operating playbooks were leaving behind.

Organizations create value by combining human capability. Connection determines whether that capability stays trapped inside individuals or becomes something larger. The extra value is not hiding inside either person. It is created between them.

That’s how you make 1+1 = 3.

About the Author

Jason L. Zimmerman is the founder of 3Fold Collective, a consulting firm focused on turning strategy into realizable outcomes by designing the formal and informal systems to work in harmony with the strategy they are meant to deliver.

1. de Jong, B. A., Dirks, K. T., & Gillespie, N. (2016), “Trust and Team Performance: A Meta-Analysis of Main Effects, Moderators, and Covariates,” Journal of Applied Psychology, 101(8), 1134–1150. The authors synthesized 112 independent studies covering 7,763 teams and found a positive relationship between intrateam trust and team performance. The relationship remained after accounting for factors including prior team performance and trust in the leader, and became particularly important as work required greater interdependence and differentiated skills. https://doi.org/10.1037/apl0000110

2. Gittell, J. H., Fairfield, K. M., Bierbaum, B., et al. (2000), “Impact of Relational Coordination on Quality of Care, Postoperative Pain and Functioning, and Length of Stay: A Nine-Hospital Study of Surgical Patients,” Medical Care, 38(8), 807–819. Studying 338 healthcare providers and 878 patients across nine hospitals, the researchers examined relationships characterized by shared goals, shared knowledge, mutual respect, and frequent, timely, problem-solving communication. Stronger relational coordination was associated with better quality of care, lower postoperative pain, and substantially shorter hospital stays, offering a particularly tangible example of relationships showing up in operating outcomes. https://doi.org/10.1097/00005650-200008000-00005

3. McKinsey & Company (2008), “Innovation Lessons from Pixar: An Interview with Oscar-Winning Director Brad Bird”; Steven Levy, WIRED (2017), “Inside Apple’s Insanely Great (or Just Insane) New Mothership.” In the McKinsey interview, Bird describes how Steve Jobs deliberately placed Pixar’s mailboxes, meeting rooms, cafeteria, and even bathrooms around a central atrium so employees from different disciplines would repeatedly encounter one another. WIRED later reported that Jobs carried the same basic idea into Apple Park, designing spaces where employees could concentrate individually and then unexpectedly “bump into” people from other groups.

4. Burt, R. S. (2004), “Structural Holes and Good Ideas,” American Journal of Sociology, 110(2), 349–399. Burt studied managers inside a large American electronics company and found that people whose networks bridged otherwise disconnected groups were more likely to generate ideas judged as valuable. The mechanism matters: groups tend to develop similar information and ways of thinking, while people spanning the gaps between them gain access to alternatives others may never encounter. https://doi.org/10.1086/421787

5. Reagans, R., & McEvily, B. (2003), “Network Structure and Knowledge Transfer: The Effects of Cohesion and Range,” Administrative Science Quarterly, 48(2), 240–267. Studying knowledge transfer inside a contract R&D organization, Reagans and McEvily found that both social cohesion and network range improved knowledge transfer beyond the effects of a strong individual relationship alone. Cohesion increased people’s willingness to invest in sharing knowledge, while connections into different knowledge pools improved their ability to move complex ideas across groups. https://doi.org/10.2307/3556658

Made it this far? Good. You’ve now spent several minutes thinking about workplace relationships without a single team-building exercise!

For the next rabbit hole, read The Trillion-Dollar AI Question Is Not Adoption. It Is Absorption. It takes the same basic idea into AI: buying the technology is relatively easy. The harder part is redesigning the human system around it so the investment actually creates value.