Grooming, Gossip, and the Evolution of Language, by Robin Dunbar, 1998 (read 1999)
Anthropologist and psychologist Robin Dunbar says the view that language evolved to help early humans become better hunters is wrong. He says that language is first a way for people to keep up with with family and friends.
He discusses social group size in primates. While monkeys and chimpanzees live in groups for protection, they also form cliques within the main group for protection from other cliques. Observation confirms that primates maintain relationships by grooming, more often within cliques and at least occasionally outside the clique but within the main group. Grooming is mutual, but relative frequency of grooming depends on relative status.
Humans form analogous groups, but Dunbar says language and gossip stand in for physical grooming in human society. He goes on to say that even when groups grow large, sub-groups always form. He cites numerous examples demonstrating that these smaller groups, which he calls clans, tend to stop growing at around 150 members. Included are the military unit called the company, the Hutterite Christian communities of North America, and villages of modern horticulturists in the Philippines. A study by the Church of England found 150 to be the size of the ideal congregation.
In Six Degrees, Duncan J. Watts established informal communication as the way to create dramatically shorter link chains, with apparent benefits to business. Perhaps a company with thousands of employees can benefit by fostering groups of 150 or less. On the other hand, I interpret Dunbar's writing as evidence that in large organizations which insist on "proper channels," entrenched bureaucracy is inevitable.