The application of a knowledge management strategy does not take place in a vacuum. Successfully meeting objectives of a knowledge management strategy may depend not only on the efficacy of the strategy itself or of the team that is responsible for its implementation, but also on the environment into which it is being introduced. Research carried out with an application service provider (ASP) indicates that existing informal communication networks will continue to operate independently of any formal strategy introduced. The significance of informal knowledge sharing activity may be in its incompatibility, or possible conflict, with any formal structures that are introduced. The success of any formally instigated knowledge management strategy might therefore depend on an understanding of the existence and nature of already active informal knowledge sharing structures. It is important for management to recognize the existence of such informal networks and to understand how they might affect the success of any formally introduced knowledge management strategy. In this paper the existence and reasons for informal networks and their subsequent effects on formal knowledge management policy are examined.