Signal, Noise, and the Health of an Organization
Using Shannon’s Information Theory to Understand How Teams Communicate and Make Sense of Complexity
Flowing water can give life to ecosystems, carve out valleys, or tear down entire landscapes. The flow of information is no different. It has the power to fuel performance, shape decisions, and sculpt the direction of a business. But only if the signal gets through.
If we want to build responsive organizations and high-functioning teams, we have to understand how information actually moves through them. Claude Shannon, known as the father of information theory, gave us the foundation to do just that.
Where the Modern Understanding of Communication Began
In 1948, Shannon published A Mathematical Theory of Communication, a landmark paper that introduced concepts still used today to assess how well a message travels from sender to receiver.
At the center of his work is the channel capacity formula, which quantifies how much information can be transmitted over a noisy channel:
C = B × log₂ (1 + P_signal / P_noise)
Where:
C is the channel capacity
B is the bandwidth
P_signal is the power of the signal
P_noise is the power of the noise
This is the original signal-to-noise ratio. No matter how powerful your message is, if the noise is too high, it won't get through clearly.
Now apply that to an organization.
Stock Markets as Communication Channels
Billions of dollars move daily in financial markets, based almost entirely on the price signals of assets. Every tick up or down is treated as information. But that information channel has a low bandwidth. A single stock price is supposed to compress and represent countless variables at once, including company performance, news events, investor sentiment, and macro trends.
Compression introduces distortion. Not every fluctuation tells us something meaningful. That is why market participants often shift to broader vehicles like ETFs and index funds. These aggregate variables and amplify common signals while smoothing out individual noise.
Macro investors operate this way because they understand something many organizations miss. The medium is noisy, so the signal must be clarified and strengthened intentionally.
Organizations Are No Different Than Markets
Forget the org chart for a moment. Most modern organizations behave more like ecosystems of information than rigid hierarchies. People communicate across functions, loop through informal channels, and adjust behavior based on what they hear, not what they are told.
Each employee is both a transmitter and receiver. Each conversation is a channel. And just like markets, there is noise — unclear goals, misaligned incentives, distractions, conflicting data, and corporate jargon.
If you want your ideas to land, if you want your technical team to align, or if you want your leadership message to stick, you need to boost your signal and reduce your noise.
How to Boost Signal in a Complex Organization
The best organizations, like the best trading strategies, find ways to amplify the variables that matter most.
1. Align to a Clear Purpose
Every company has a strategic aim, but not every team is tuned to it. When direction is clear and frequently reinforced, individual decision-making becomes easier. Noise starts to drop because irrelevant actions are easier to spot and cut.
2. Group Around Bullish Variables
Just like bullish stocks get grouped into an index, the people and teams within your organization should orient around shared wins. Highlight progress. Reinforce what is working. When people see others acting in alignment, it increases coherence and trust.
3. Control Internal Noise
A strong signal can sometimes push through external volatility, but internal confusion is harder to overcome. Avoid unrelated diversification. Limit half-baked initiatives. Reduce conflicting metrics. Every bit of ambiguity weakens the flow of action.
4. Evaluate the Signal-to-Noise Ratio Regularly
Shannon’s formula becomes a pulse check. Is our message landing? Are people acting in line with our purpose? Are we seeing energy wasted on static, or channeled into movement?
Just like engineers monitor bandwidth and investors track volatility, leaders need to monitor the clarity of the system itself.
When Signal Fades, Culture Follows
We have all seen organizations lose their way. A confused strategy leads to distracted execution. Execution drifts. Morale dips. Then comes the finger-pointing. Culture takes the hit, and recovery becomes much harder than course correction would have been.
That spiral often begins with something simple: communication without clarity.
The Takeaway for Technical Leaders and Teams
In high-velocity environments such as engineering firms, product teams, and consulting organizations, your edge comes from how clearly you move information. The technical strategy matters. But clarity of direction, coherence of communication, and alignment around shared models matter more.
At Franklin Kinetics, we help engineering managers, technical team leads, and organizational strategists measure and improve the flow of information inside their systems. We apply structured models like the OODA Loop, Shannon’s Law, and signal design principles to modern leadership problems.
In complexity, your clarity is your advantage.