Compensatory informality: How informal networks enable and constrain formal public sector bureaucracy

Abstract Public managers worldwide face a persistent dilemma: navigating rigid formal rules to achieve results. Hybrid governance literature often depicts a synergistic blend of hierarchy and networks. However, it seldom explores the dysfunctional, compensatory relationship between them. Drawing on an in‐depth qualitative study of the Indonesian civil aviation authority, this research develops the concept of ‘compensatory informality’: a governance mode where informal networks and practices become the primary mechanism not to complement but to actively bypass and compensate for the deficiencies of a malfunctioning formal bureaucracy. Findings reveal how practices such as personal messaging to circumvent official channels and ad hoc collaborative budgeting ensure operational continuity. However, this study argues that compensatory informality is a paradox: (1) while it enables the system to function day to day, (2) it simultaneously entrenches the formal system's flaws by alleviating the pressure for fundamental reform, (3) thereby creating long‐term risks for accountability and sustainability. The primary contribution is a novel concept that offers a critical refinement to hybrid governance theory. Furthermore, it provides a new, realistic lens for analysing the persistent struggles within public sector bureaucracies. Points for practitioners This study suggests that managers should view staff workarounds not just as ingenuity but as valuable diagnostic signals. Each informal shortcut that employees create pinpoints a specific bottleneck or flaw within the formal system, offering a clear target for procedural reform. The focus should shift from merely praising the patch to fixing the underlying process it was designed to circumvent. Our findings also highlight a key paradox: the most effective informal fixes often carry the greatest long‐term risks. While ad hoc collaborations solve immediate problems, they erode formal accountability and mask the urgency for systemic change. By making a dysfunctional formal system seem tolerable, these successful workarounds inadvertently reduce the pressure on leadership to undertake essential, though difficult, institutional reforms. A central lesson from this research is that celebrating informal ‘heroes’ can delay necessary improvement. The ultimate strategic goal for public leaders, therefore, is not to foster a culture of more effective workarounds, but to redesign the formal ‘rules of the game’ to be so robust and adaptive that such workarounds are no longer necessary for organisational survival.