Everything you need to know about the formal and informal organisation. Formal organisation means the intentional structure of roles in a formally organized enterprise.

Organisation certainly develops some formal procedures for regulating relations and work. Relationships are prescribed and communication flow horizontally and vertically among members.

Chester I. Barnard says, “A system of consciously coordinated activities or forces of two or more persons.” It refers to the structure of well-defined jobs, each bearing a definite measure of authority, responsibility and accountability.

Informal organisation refers to the relationship between the people in the organization based on personal attitudes, emotions, prejudices, likes and dislikes etc. Informal organisations are created because of the operation of social and psychological forces operating at the work place.


Chester I. Barnard described informal organisation as any joint personal activity without conscious joint purpose, even though contributing to joint results.

Learn about:- 1. Classification of Formal and Informal Organisation 2. Advantages of Formal and Informal Organisation 3. Disadvantages 4. Differences between Formal and Informal Organisation and a Few Others.

Formal and Informal Organisation: Concept, Nature, Classification, Advantages, Disadvantages and Differences

Formal and Informal Organisation – With Merits and Demerits

Organisations are structured in different ways.

It can be broadly classified into the following:


1. Formal organisation structure and

2. Informal organisation structure.

Formal Organisation Structure:

A formal organizational structure refers to a type of structured and planned organizational structure that may be adopted by an organization. One of the attributes of a formal organizational structure is the fact that it divides the roles of the individuals in the organization in a hierarchical manner, from the top to the bottom.

Some of the formal organisation structure are:


i. Line organisation

ii. Functional organisation

iii. Line and Staff organisation

iv. Project management organisation

v. Matrix organisation

i. Line Organisation:

This is the oldest form of organisation. This is known by different names, i.e. military, vertical, scalar, departmental, organisation. The characteristic feature of this type is that line of authority flows vertically form the top most executive to the lowest subordinate throughout the entire organisational structure. The authority is greatest at the top and reduces through each successive level down the organisational scale.


a. It is the simplest of all types of organisations. It can be easily established and easily understood by the workers.


b. It is economical and effective

c. Because of direct authority—responsibility relationships, discipline can be maintained more effectively

d. Since – The authority and responsibility of every person is clearly defined, it is easier to fix up the responsibility if there is any lapse

e. As the superiors enjoy full authority, quick decisions are taken by them


f. Promotes unity of command

g. Conforms to the scalar principle of organisation


a. Since the departmental head has to look after all the activities of his department, he is over burdened with work


b. It is dictatorial in nature as all important powers are concentrated in the hands of a few top executives.

c. Line organisation suffers from lack of specialised skill of experts.

d. Based on autocratic system of management

e. Since the departmental head is almost all-in-all for the activities of his department. There is scope for favouritism.

f. It is rigid and inflexible.

ii. Functional Organisation:


In this type of organisation the personnel and their work are organised on the basis of the same type of work of activities. In this type of organisation few managers are at the top and most people at the bottom, organized by the tasks they performed. Job classifications were well defined and authority was top-down.


a. There are separate functional departments, for the major functions of the business viz., engineering, purchase, sales, etc. Each department performs its specialised function for the entire organisation

b. Functional structures are useful for relatively big companies.

c. Employees within the functional structure are differentiated to perform specialized tasks.

d. The functional structure facilitates segregation of company assets and resources into the areas that are most important for the company’s success


e. It leads to operational efficiencies where employees become specialists within their own realm of expertise.


a. Communication within the .company can be rather rigid, making the organization slow and inflexible

b. Changes in personnel often lead to instability

c. Functional structures may be most effective for companies operating in rather stable environments with low rates of change and dynamism.

d. Communication within the company can be rather rigid, making the organization slow and inflexible.


e. The functional structure works best when the surrounding environment is rather stable

f. Because of high degree of specialisation functional organisation is difficult to establish

iii. Line and Staff Organisation:

In order to avoid the defects of the line and functional types of organisation, too much concentration of control in the former and too much division of the same in the latter, the line and staff organisation was evolved. It seeks to strike a balance between the first two types. Line officers are the executives, and the staff officers are their advisers.


a. It adds the benefits of both the organisation type


b. Stability and discipline of line organisation are preserved with an added advantage of specialist feature

c. Better control of managers over the activities of subordinates.

d. There is unity of command. There is no conflict among juniors due to conflicting demands placed by seniors.

e. Duties and responsibilities are clearly defined and related to each other.


a. It requires that a high degree of specialisation and co-ordination of functions are achieved without which efficiency is bound to suffer.

b. In a line and staff organization, there are two authorities flowing at one time. This results in the confusion between the two.

c. In line and staff concern, the concerns have to maintain the high remuneration of staff specialist.

d. Decision making procedure could be more time consuming.

iv. Project Management Organization:

Project management organisation is not a separate type of organisation structure but is an organisation structure present within an organisation. It is mostly purpose related organisation structure. An organisation may have one or more project. As the project completes so do the need for project management organisation structure ends.

When an organization has a fewer number of projects but the projects have longer duration, a pure project organization is proposed. Each project manager is appointed and he or she is responsible to conduct all activities associated with the project, so the project manager is responsible to the program manager.

The project manager has fully authority for the execution of the project and he reports to the program manager in the parent organization.


a. Increasing the probability of project success

b. Enabling agreed upon objectives to be achieved

c. Providing clarity of goal definition and measurement of its achievement

d. Improving resource coordination

e. Improving risk and issue management

f. Reducing project cycle time

g. Reducing project cost.


a. It is time consuming.

b. While project planning documents can be useful to a team or organization, they are of little use if they are not created with genuine effort and thought put into them.

c. Consistently heavy stress, overtime demands, and resource juggling

d. Sometimes, in projects carried out neither individual is made completely responsible for the project which may lead to lack of coordination.

v. Matrix Organization:

A matrix structure pulls together employees who combine the relevant product and functional expertise in order for the business to meet its goals. The people selected come from different levels and departments within the business. This structure can be used in both hierarchical and flat organisations.

This form is suited for project-driven companies such as construction. The matrix structure is for project-driven companies such as construction. Each team member has two bosses; project manager and functional manager.


a. Can help to break down traditional department barriers, improving communication across the entire organisation

b. Allow individuals to use particular skills within a variety of contexts

c. Likely to result in greater motivation amongst the team members

d. Helps in sound decisions

e. Optimum utilisation of resources

f. Avoid the need for several departments to meet regularly, so reducing costs and improving coordination

g. Helps in the development of specialisation

h. Development of skills


a. High operational cost

b. Work load is very high

c. There may not be a clear line of accountability for project teams given the complex nature of matrix structures.

d. Difficult to co-ordinate

e. It takes time for matrix team members to get used to working in this kind of structure

f. Team members may neglect their functional responsibilities

g. Absence of unity of command

h. There may be a power struggle between functional manager and project manager

Informal Organization:

Informal organisation evolves over time and is a network of relationships that exist within an organisation. The relationships arise due to common interests or friendships. These relationships can be across divisions and it is that daily interactions between members of staff take place. This informal structure may be different from that which is set out on paper.

Informal structures develop because:

(a) People find new ways of doing things which they find easier and save them time

(b) Patterns of interaction are shaped by friendship groups and other relationships

(c) People forget what the formal structures are

(d) It is easier to work with informal structures.

(e) Individuals’ goals may differ from the organisations – workers with the same goals gravitate together.

(f) Certain members of the organisation may be natural leaders and so lead a group, even though they have no formal managerial place.


a. If managers can work with the informal groups within their department, there should be higher levels of motivation and productivity.

b. Communication between the various departments is better through the informal network. This could lead to increased innovation and motivation of the employees which should help the company succeed.

c. Makes the whole system more efficient

d. Gives satisfaction and stability to employees


a. Communications which take place within the grapevine structure are often misinterpreted.

b. Resistance to change

c. If the formal structure is in conflict with the informal structure, the organisation may end up being inefficient at meeting its objectives cause employees become reluctant to accept formal structure.

d. The informal groups exert strong pressures for conformity

Effect of Informal Organization:

The informal organisation can either enhance or hold back the business. Managers need to be aware of the informal structure and ensure that they-

(a) Adapt the formal structure to complement the informal one.

(b) Maintain a looser formal structure so that the informal structure can thrive.

(c) At the very least take account of the informal structure in decision making.

Formal and Informal Organisation – Characteristics, Advantages and Disadvantages

Formal Organisation:

The formal organisation represents the classification of activities within the enterprise, indicates who reports to whom and explains the vertical journal of communication which connects the chief executive to the ordinary workers. In other words, an organisational structure clearly defines the duties, responsibilities, authority and relationships as prescribed by the top management.

In an organisation, each and every person is assigned the duties and given the required amount of authority and responsibility to carry out this job. It creates the co-ordination of activities of every person to achieve the common objectives. It indirectly induces the worker to work most efficiently. The inter-relationship of staff members can be shown in the organisation chart and manuals under formal organisation.

Characteristics of Formal Organisation:

The important characteristics of a formal organisation are given below:

1. It is properly planned.

2. It is based on delegated authority.

3. It is deliberately impersonal.

4. The responsibility and accountability at all levels of organisation should be clearly defined.

5. Organisational charts are usually drawn.

6. Unity of command is normally maintained.

7. It provides for division of labour.

Advantages of Formal Organisation:

1. The definite boundaries of each worker is clearly fixed. It automatically reduces conflict among the workers. The entire building is kept under control.

2. Overlapping of responsibility is easily avoided. The gaps between the responsibilities of the employees are filled up.

3. Buck passing is very difficult under the formal organisation. Normally exact standards of performance are established under formal organisation. It results in the motivating of employees.

4. A sense of security arises from classification of the task.

5. There is no chance for favouritism in evaluation and placement of the employee.

6. It makes the organisation less dependent on one man.

Keith Davis observes that formal organisation is and should be our paramount organisation type as a general rule. It is the pinnacle of man’s achievement in a disorganised society. It is man’s orderly, conscious and intelligent creation for human benefit.

Disadvantages of  Formal Organisation:

1. In certain cases, the formal organisation may reduce the spirit of initiative.

2. Sometimes authority is used for the sake of convenience of the employee without considering the need for using the authority.

3. It does not consider the sentiments and values of the employees in the social organisation.

4. The formal organisation may reduce the speed of informal communication.

5. It creates the problems of coordination.

Informal Organisation:

Informal organisation is an organisational structure which establishes the relationship on the basis of the likes and dislikes of officers without considering the rules, regulations and procedures. These types of relationships are not recognised by officers but only felt. The friendship, mutual understanding and confidence are some of the reasons for existing informal organisation. For example, a salesman receives orders or instructions directly from the sales manager instead of his supervisors.

The informal organisation relationship exists under the formal organisation also. The informal organisation relationship or informal relations give a greater job satisfaction and result in maximum production.

According to C.J. Bernard, “Informal organisation brings cohesiveness to formal organisation. It brings to the members of a formal organisation a feeling of belonging, status of self-respect and gregarious satisfaction. Informal organisations are important means of maintaining the personality of the individual against certain effects of formal organisation which tend to disintegrate personality.”

Characteristics of Informal Organisation:

1. Informal organisation arises without any external cause i.e., voluntarily.

2. It is a social structure formed to meet personal needs.

3. Informal organisation has no place in the organisation chart.

4. It acts as an agency of social control.

5. Informal organisation can be found on all levels of organisation within the managerial hierarchy.

6. The rules and traditions of informal organisation are not written but are commonly followed.

7. Informal organisation develops from habits, conduct, customs and behaviour of social groups.

8. Informal organisation is one of the parts of total organisation.

9. There is no structure and definiteness to the informal organisation.

Advantages of Informal Organisation:

The advantages of informal organisations are briefly explained below:

1. It fills up the gaps and deficiency of the formal organisation.

2. Informal organisation gives satisfaction to the workers and maintains the stability of the work.

3. It is a useful channel of communication.

4. The presence of informal organisation encourages the executives to plan the work correctly and act accordingly.

5. The informal organisation also fills up the gaps among the abilities of the managers.

Disadvantages of Informal Organisation:

The disadvantages of Informal Organisation are summarised below:

1. It has the nature of upsetting the morality of the workers.

2. It acts according to mob psychology.

3. Informal organisation indirectly reduces the efforts of management to promote greater productivity.

4. It spreads rumour among the workers regarding the functioning of the organisation unnecessarily.

Formal and Informal Organisation – Characteristics (With Difference between Formal and Informal Organisation)

Formal Organisation:

It refers to the structure of jobs and position with clearly defined functions and relationships. Under a formal organisation, the activities of two or more persons are consciously coordinated towards a given objective. In formal organisation, every subordinate must obey his superior, whether he likes him or not. As such everybody becomes responsible for the performance of a given task.

Characteristics of a Formal Organisation:

i. Formal organisation is consciously designed.

ii. It provides for specialization.

iii. It is based on delegated authority.

iv. It is based on ideal relationship, i.e., the authority, responsibility and accountability of each level is clearly defined.

v. The principle of unity of command is usually observed.

vi. It is deliberately impersonal.

vii. It is usually supported by organisational charts.

viii. It based on the ‘rabble hypothesis’ of the nature of man, i.e., there will be the same kind of reaction if human beings are punished or rewarded.

Informal Organisation:

It refers to the personal relationships developing spontaneously as people work together outside the formal organisational structure, like friendship, etc., which are unconsciously coordinated. In this case, a subordinate may offer an advice to his superior as his friend. Management cannot be effective unless it recognizes and makes use of the informal organisation.

Characteristics of an Informal Organisation:

i. An informal organisation arises spontaneously.

ii. It is based on personal attitudes, emotions, likes and dislikes etc.

iii. It provides for social satisfaction to its members.

iv. It is an integral part of a total organisation and the management cannot eliminate it.

v. It has no place in the formal chart.

vi. It is a network of personal and social relations.

vii. It has its own rules and traditions.

viii. It is indefinite and has no structure.

A manager can establish or cancel any of the formal organisations. However, he can neither create nor cancel an informal organisation. Informal relationships do affect the workers behavior. A good management must recognize the impact of informal groups if it wants to succeed.

Difference between Formal and Informal Organisations:

Formal Organisation:

i. Formation – Deliberately planned and created by management

ii. Purpose – To achieve planned goals of the organisation

iii. Structure – A well-defined structure of tasks and relationships

iv. Flexibility – Rigid, stable and predictable

v. Focus – Jobs, functions and technical aspects

vi. Standards of Behaviour – Standards of behavior are prescribed and enforced by management

vii. Leadership – Managers act as leaders by virtue of their superior position

viii. Communication – Formally established or official lines of communication

ix. Organisation Chart – Official structure, can be shown in the form of a chart

x. Rules and Regulations – Written and fixed

Informal Organisation:

i. Formation – Emerges spontaneously as a result of social interactions among people

ii. Purpose – To provide social satisfaction to members

iii. Structure – No clear-cut structure. A complex network of relations

iv. Flexibility – Flexible, unstable and unpredictable

v. Focus – Interests and other human aspects

vi. Standards of Beha viour – Standards of behavior are evolved by mutual consent among members

vii. Leadership – Members voluntarily choose their leaders

viii. Communication – Members communicate according to convenience

ix. Organisation Chart – Unofficial structure, not shown on the chart of the company

x. Rules and Regulations – Oral norms

Formal and Informal Organisation – Concept, Nature, Features and Difference

Organisation implies a formalized intentional structure of roles or positions. The term is generally used in reference to a formalized structure of roles, although it is sometimes used to denote an enterprise. What does “intentional structure of roles” mean?

Management creates certain type of authority relationships by delegating authority and allocating resources; which is very critical for the organisation. The roles, relationships, hierarchy are established and created to look an after the affairs and to communicate effectively.

Group dynamics is another extreme point that describes how a group should be organized and operated. This includes democratic leadership, participation, and co-operation. Group dynamics creates forces and interaction between group members. This also create informal organisation. It is necessary for a manager to study thoroughly the working pattern of informal relationships in the organization and use these forces to achieve organizational objectives.

Formal Organisation – Concept and Nature:

Formal organisation means the intentional structure of roles in a formally organized enterprise. Organisation certainly develops some formal procedures for regulating relations and work. Relationships are prescribed and communication flow horizontally and vertically among members.

Chester I. Barnard says, “A system of consciously coordinated activities or forces of two or more persons.” It refers to the structure of well-defined jobs, each bearing a definite measure of authority, responsibility and accountability.

It is created by management. It is a network of official authority-responsibility relationships and communication flows. It is official structure and channel of communication. Formal organisation must be flexible.

There should be room for discretion, for advantageous utilization of creative talents, and for recognition of individual likes and capacities in the most formal of organisation. Yet individual effort in a group situation must be channelled toward group and organisation goals.

The essence of formal organization is conscious common purpose and formal organization comes into existence when persons:

(a) Are able to communicate with each other,

(b) Are willing to act, and

(c) Share a purpose.

It refers to the organization structure deliberately created by management.

The formal organization in built around four key Pillers:

(i) Division of labour,

(ii) Scalar functional processes,

(iii) Structure, and

(iv) Span of control.

Formal organisation are created and maintained to fulfill specific needs or tasks which are related to the organization mission.

The salient features of formal organisation are as follows:

i. Formal organisation is deliberately and consciously created by management.

ii. Organisation structure is laid down by the management.

iii. It is directed towards the attainment of organizational goals.

iv. It is a network of official authority responsibility relationships.

v. Communication flows horizontally or vertically prescribed by management.

vi. Relationships are prescribed.

vii. Norms are laid down and imposed.

viii. Formal procedure for regulating relations between members, among members and their organisation.

Informal Organization – Concept and Nature:

Informal organisation refers to the relationship between the people in the organization based on personal attitudes, emotions, prejudices, likes and dislikes etc. Informal organisations are created because of the operation of social and psychological forces operating at the work place.

Members create such groups for their own satisfaction and their working is not regulated by the general framework of organisational rules and regulations.

Chester I. Barnard described informal organisation as any joint personal activity without conscious joint purpose, even though contributing to joint results.

Keith Davis and John Newstrom described the informal organisation as “a network of personal and social relationships not established or required by the formal organisation but arising spontaneously as people associate with one another.” Thus, relationships are not appearing on an organisation chart in informal organisation.

Informal Organisation describes social relations and action that do not coincide with formal structure. Informal relations are unstructured. Relationships are not prescribed, but sought by members in a group. Unofficial norms evolve in such group.

Communication flows in any direction. For example, the teachers of Delhi University form a group called DUTA due to the similarity of job or work. They are working on the basis of their own norms. It is an unofficial and social pattern of human interactions.

The salient features of informal organisation are as follows:

(i) Informal organisation emerges spontaneously on account of socio-psychological forces operating at work place.

(ii) Unofficial norms evolve in informal organisation.

(iii) Communication may flow in any direction.

(iv) This is based on common taste, problems, language, religion, culture, etc.

(v) Membership is voluntary.

(vi) It is an unintended and non-planned network.

Distinction between Formal Organisation and Informal Organisation:

The formal and Informal organizations differ from each other in the following respects:

1. Origin – Formal organisation is created deliberately and consciously by management. In contrast, informal organisation is created because of the operation of socio-psychological forces at the work place. They arise spontaneously.

2. Purpose – Formal organisation is created to achieve the legitimate objectives of the organisation, while informal organisation is created by organizational members for their own social and psychological satisfaction.

3. Size – Formal organisation may be quite large in size. The informal organisation tends to be small in size so as to maintain the group cohesiveness.

4. Nature of Groups – Formal Groups are stable and may continue for a long period of time. While the informal groups are quite unstable in nature.

5. Number of Groups – Generally, the number of informal groups is larger than the number of formal groups. In fact, the number of formal groups is decided to serve the organizational purpose. This depends upon the organizing pattern.

6. Authority – Formal organisation is an official hierarchy of relations. It refers to the structure of well-defined authority and responsibility relationships. In contrast, informal organisation refers to the personal and group relationships which develop automatically when people work together.

7. Communication – Communication flows through the chain of command to which people refer as formal channel of communication. In informal organisation, on the other hand, communication flows in any/many directions. Communication passes through informal channels.

8. Abolition – The formal groups can be abolished at any time. Since these are created by organizational process, these can be abolished by organizational process also. While informal groups are difficult to abolish by organisational process. Management has no control over informal groups since these are by-product of natural desire of human beings to interact.

Formal Organization vs. Informal Organization:

Formal Organization:

1. Structured

2. Status bestowed on positions

3. Official norms

4. Relationships Prescribed

5. Built around job

6. Legitimate objective

7. Communication pass through formal channels of communication (specified channels)

8. Leadership is vested in legitimate authority.

Informal Organization:

1. Unstructured

2. Status acquired by persons

3. Unofficial norms

4. Relationships not prescribed, but sought

5. Built around people and their roles

6. Social and psychological-needs

7. Communication flows in any/many direction (unspecified channels)

8. Leadership is vested in power

Reasons for Creation of Informal Groups:

The informal organisation is created because of the limitations of the formal organisation. The basic question is why Informal Groups are formed? What are the bases of their formation? Individuals may form a group or join an existing one for many reasons. One of the most important reasons is affiliation with a group to satisfy a need; whereas formal organisation does not satisfy the needs of individual in any way –

1. Social Affiliation:

The need for relationship with others is a basic human need. One can express his feelings only through companionship. People join or form a group because they are attracted to other people in the group.

The quest for social satisfaction prompts a man to form informal groups. Formal organisation does not satisfy all the needs of the employees and they tend to coordinate their work force together, informal groups may develop, leading to have interaction and feelings of closeness.

2. Social Identification:

An individual may join a group to attain a social identity. Work, friendship, and interest groups may all offer a person a social identity. Workers also get more identification in informal groups; and they tend to enjoy high morale there.

The individuals need not engage in any behaviour to support the group goals. Identification with the group, however, means that the individual perceives himself as psychologically intertwined with the group and personally experiences the group’s success or failure.

3. Job Satisfaction:

Job specialization can create serious motivational and morale problems. Employees have little sense of accomplishment, autonomy, or identification with work. Their fragmented jobs yield both monotony and drudgery. An informal organisation adds a human touch to the inhuman qualities of formal structure.

It provides a means for developing friendship and fellow feeling. Informal groups fill the psychological vacuum and allow the people to satisfy their psychological needs. Thus, informal groups exercise significant influence on job satisfaction and productivity.

4. Protective Force:

Informal organisation provides a sense of protection to individual members against threatening and oppressive forces of formal organisation. It provides a sense of security by protecting the individual members against arbitrary treatment by management. Informal groups help to protect their members from (formal organisation) outside pressure and work pressure. Group members collaborate to protect their interests from outside pressure or threats.

5. Source of Information:

In Informal Groups, the members get information easily. Individual members are free to discuss everything outside the boundaries of formal structure. Communication flows in any/many directions. There are no rigid rules and regulations; and they use these information’s in various ways.

Moreover, if the communication downward does not carry any meaningful message from subordinates, they resort to seek such information from the informal sources. Greater the degree of bottlenecks in hierarchical communication, the greater is the chance for informal communication.

6. Outlet for Frustration:

An individual may be faced with several problems relating to work and family. At times, he feels tremendous stress in life and gets frustrated. Sharing of feelings to group members releases his tension and frustration to a great extent. An informal group helps to release tension and frustration, which also plays a counsellor role to the members.

7. Overcomes Managerial Limitations:

Informal group helps to overcome managerial limitations. Authority may not always be effective, and several ticklish situations arise for which the prescribed guidelines do not provide any direction. In such situations, an informal group can fill in the managerial gaps by educating people how to perform the task.

Disadvantages of Informal Groups:

Informal organisation creates difficulty in the smooth functioning of the organisation.

It has dysfunctional aspects, too:

1. Resistance to Change:

Informal groups have tendency to resist change, or they have tendency to perpetuate the status quo. Each group tries to maintain equilibrium; it resists innovation and change in working methods. They react violently to the proposed changes; and this is the major obstruction in implementing new ideas which are necessary for survival and growth.

2. Role Conflict:

An individual perceives role conflict when he has to fulfill conflicting requirements of both his group as well as that of the organisation as a whole. Such a conflict may be dysfunctional from the organisation point of view.

3. Rumour:

Rumour is not desirable from organisation’s point of view. Since most of the time rumours carry false information, they become detrimental to organizational functioning. The rumour gets twisted and distorted always when it passes from one person to another. The message gets its own head, tail and wings on its journey and swells un-proportionally to an exaggerated shape.

4. Conformity:

The conformity to informal groups implies that the members become subject to willful control of an informal leader who may manipulate the group towards selfish or undesirable results. The group’s norms generally must have been followed by the group member. This restricts the smooth functioning of the organisation. This leads to dilution of the effect of organizational practices on the group members.

5. Source of Conflict:

Informal group evolve their own norms and standards with regard to that group members must have followed these norms, which, in general, are the sources of conflict between management and (union) groups. The informal group may turn out to be a trouble shooter for the organisation. A group may include members who work against the interest of the organisation.

Managing Informal Groups in an Organisation:

Informal organisation is a natural outcome of the operation of psychological and social factors at work place. As such, it can neither be created nor dispensed with. According to Keith Davis, “beneath the cloak of formal relationships there exists a more complex system of social relationships called informal organization.”

It should be noted that management cannot eliminate the informal groups because it does not create them. The best course of management is to use the informal groups in the interest of formal organisation.

Managers take the advantage of existing informal groups. Management might develop overall loyalty by making proper use of informal organisation. It can modify informal behaviour to make it more meaningful for organisational functioning. Management can influence it by such means as what management communicates, which people are committed to work close together, and how management recognizes an informal leader.

Keith Davis and John W. Newstrom have identified the following in this respect:

(i) Manager should make the employees feel that management accepts and understands informal groups,

(ii) He should consider possible influence upon informal systems when taking any decision,

(iii) He can integrate interests of informal groups with those of formal ones, and

(iv) He can keep formal activities from unnecessarily threatening informal organisation in general.

Managers must also be aware of the many factors that affect the group performance and understand the people as well as the group issues. Such an understanding will make the manager to manage certain kinds of conflicts that arise in organisations. A manager can modify the behaviour of informal groups to make it more useful to the organisation. Management recognizes the informal groups and tries to accommodate the perceptions of their members.

Management should use flexible and accommodating approach towards informal groups. To sum up, informal groups can be used constructively for attainment of legitimate goals. After all, the best approach would be to recognize the existence of informal groups with formal ones, and take care of the interest of the informal groups. This is the effective way to manage informal groups in an organisation.

Formal and Informal Organisation

Formal Organization:

This is one, which refers to a structure of well-defined jobs each bearing a measure of authority and responsibility. It is a conscious determination by which people accomplish goals by adhering to the norms laid down by the structure. This kind of organization is an arbitrary set up in which each person is responsible for his performance. Formal organization has a formal set up to achieve pre-determined goals.

Informal Organization:

It refers to a network of personal and social relationships, which spontaneously originates within the formal set up. Informal organizations develop relationships, which are built on likes, dislikes, feelings and emotions. Therefore, the network of social groups based on friendships can be called as informal organizations. There is no conscious effort made to have informal organization. It emerges from the formal organization and it is not based on any rules and regulations as in case of formal organization.

Formal and Informal Organization:

While discussing organization and organization structures, one should not forget that in an organization both formal and informal organization and organizational relationships exists. The formal organization refers to the structure of jobs and positions with clearly defined functions and relationships as prescribed by the top management.

This type of organization is built by the management to realize the objectives of an enterprise and is bound by rules and regulations, systems and procedures. In the formal organization, every employee has a position and he will carry out the work for which he is responsible. Chester Bernard says that the organization is formal when the activities of two or more persons are consciously co-coordinated towards a common objective.

1. Informal Organization:

Informal organization refers to the relationships between people in an organization based not on procedures and regulations but on personal attitudes, whims, prejudice, likes and dislikes etc. For example, when the members of an organization go to deputy general manager for advise, because he is kind and easily available to them, when the organizational rule stipulates that they have to go to general manager, is a clear indication of informal organization.

Many a time, the management makes use of this informal organization to get the things done in a more easy way. If proper use is made of informal organization it will be more effective than the formal organization. Chester Barnard in his work “The functions of the executive” described informal organization as a joint personal activity without conscious joint purpose, even though contributing to joint result.

In informal organization, personal relationship acts more than the organizational structural relationship. Keith Davis writes that the informal organization as “A network of personal and social relations not established or required by the formal organization but arising spontaneously as people associate with one another”. Thus, the relationship among people no appearing on an organization chart in informal organization. A good manager always appreciates the existence of informal organization.

2. Formal Organization:

Formal Organization is an intentional structure of roles in a formally organized enterprise. When we say formal organization, it does not mean that it is rigid structure. If a manager has to organize well, the structure must furnish an environment in which individual performance contributes effectively to attain organizational objectives.

Formal organization must be flexible because it will help the manager to utilize individual experience, talent and likes for the benefit of the enterprise in the most formal of the organization. This is possible when individual effort in a group is channeled towards group and organizational goals.