The case for formalising early
The strongest argument for early formalisation comes from Jay Galbraith’s information-processing view of organisation design. Galbraith’s core claim is that task uncertainty — which rises sharply as an organisation adds headcount, functions and geographic reach — drives the need for greater information-processing capacity, and that organisations which fail to build that capacity in time experience a widening gap between what the organisation needs to coordinate and what its informal systems can actually handle. For a Zurich organisation specifically, that gap opens faster than it might elsewhere, because cantonal, linguistic and regulatory variation adds to task uncertainty even before international expansion is considered.
Ronald Coase’s argument reinforces this from a different angle: internal coordination has a cost, and that cost is a function of complexity and dispersion, not of intention. An organisation that waits to formalise coordination until the informal system visibly breaks is not avoiding the cost — it is paying it in a more disruptive form, as a crisis rather than as a planned investment. Larry Greiner’s growth-stage model describes exactly this pattern: each phase’s informal solution becomes the next phase’s crisis, and organisations that formalise reactively, at the point of crisis, generally experience more disruption than organisations that anticipate the transition.
The practical version of this case: build the decision-rights clarity, the documented process and the escalation paths before the organisation’s headcount and geographic spread outrun the informal system’s capacity — because by the time the strain is visible to leadership, in Sull and Homkes’s research, it has usually already been absorbed, invisibly and at some cost, by the layer of the organisation below leadership for some time.
A further piece of supporting evidence, specific to this position, comes from the compounding nature of coordination debt. Coase’s argument is not simply that coordination has a cost — it is that the cost rises with complexity and dispersion, which means a coordination gap left open at twenty employees does not remain a twenty-employee-sized problem at eighty. It grows, roughly in step with the additional complexity the organisation has taken on in the interim, and it grows in a way that is harder to see precisely because the people managing it day to day have had time to build informal workarounds that mask the underlying strain from anyone not directly involved in it.
The case for preserving informal coordination
The strongest argument against early formalisation comes from Edith Penrose’s account of managerial capacity as the binding constraint on growth. Penrose’s argument is that a firm’s growth is limited by the capacity of existing management to absorb and direct it — and formal structure, if imposed before the organisation’s actual coordination needs justify it, consumes exactly the scarce managerial capacity and attention that Penrose identifies as the constraint. An organisation that spends its limited senior bandwidth building process for complexity it does not yet have is, on this view, misallocating the one resource growth genuinely depends on.
There is also a governance-specific version of this argument, drawn from research on partner-led and founder-led firms: formal coordination structures, once built, tend to persist even after the specific complexity that justified them has changed or receded, because undoing formal structure is organisationally and politically harder than building it. V. F. Ridgway’s research on the dysfunctional consequences of performance measurement is relevant by extension — formal systems, once in place, tend to be optimised for rather than periodically re-examined for continued fit, which means premature formalisation carries a long-tail cost even after its original justification has expired.
The practical version of this case: preserve judgement-based, informal coordination for as long as it is genuinely working, and treat the moment it visibly strains — not a headcount threshold or a growth-stage model — as the actual signal to formalise, because formalising ahead of genuine need spends scarce managerial capacity on complexity that has not yet materialised and might never fully materialise in the form anticipated.
A further piece of supporting evidence, specific to this position, is that formal coordination structures are not neutral once built — they carry ongoing maintenance cost, in attention and in organisational politics, whether or not the complexity that justified them persists. Ridgway’s broader finding, that undue confidence in a measure or a system produces its own dysfunction once relied on without re-examination, applies to coordination structures as much as to performance metrics. An organisation that formalises early risks building a system that continues to structure decisions — and continues to consume review capacity — well after the specific complexity it was designed for has changed, simply because dismantling formal structure is organisationally harder than building it.
Why the disagreement persists — and what it means for a leader
The disagreement persists because both arguments are correct about a real cost, and the two costs trade off directly against each other. Formalising early risks spending scarce managerial capacity (Penrose’s constraint) on coordination capacity the organisation does not yet need (Galbraith’s argument notwithstanding). Formalising late risks absorbing a coordination crisis reactively (Coase’s and Greiner’s argument) after it has already degraded execution quietly for some time (Sull and Homkes’s finding about problems that remain invisible to leadership). Neither research tradition claims the other is wrong; they are describing two different costs of the same underlying transition, and no study in this pool resolves which cost a specific organisation should prioritise avoiding.
What this means in practice is that the question cannot be answered generically, and any source claiming it can — a universal headcount threshold, a fixed timeline, a one-size answer — is overstating what the evidence supports. What the research does support is a more specific diagnostic question: is the organisation’s current informal coordination genuinely still working, in the sense that decisions are being made at the right level without silent strain building up beneath leadership’s visibility — or has that strain already started, whether or not it has yet reached the people who would need to act on it?
For a Zurich organisation specifically, the environment’s own baseline — cantonal variation, multiple working languages, a business culture already oriented toward precision and formal coordination — means the “informal coordination” side of this trade-off starts from a more formal baseline than in many other markets. That does not resolve the disagreement, but it does mean the practical stakes of getting the timing wrong in either direction are somewhat different here than they would be in a less coordination-intensive environment: the cost of waiting too long compounds faster, given the coordination load the environment already imposes, while the cost of formalising too early is somewhat cushioned by an organisational culture that is, on the evidence discussed elsewhere in this series, already more comfortable with formal process than many of its international peers.
Where this shows up
This perspective is read through the Zurich setting. The Zurich market page brings together the related Perspectives, and the Markets page places Zurich alongside the other business hubs.
Related advisory: family office consulting.
Questions worth considering
- At the organisation’s current size, which decisions and handovers still depend on informal coordination that a few individuals are quietly holding together?
- What would formal structure cost in managerial capacity, and what is the informal arrangement already costing?
- What would the leadership team need to see to know that the balance had shifted?
Your team is facing similar challenges?
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