Formal Organization and Informal Organization

An organization is a collection of people who work together to attain specified objectives. There are two types of organization structure, that can be formal organization and informal organization. An organisation is said to be formal organization when the two or more than two persons come together to accomplish a common objective, and they follow a formal relationship, rules, and policies are established for compliance, and there exists a system of authority. On the other end, there is an informal organization which is formed under the formal organization as a system of social relationship, which comes into existence when people in an organization, meet, interact and associate with each other. In this article, we are going to discuss the major differences between formal organization and informal organization.

Formal Organization and Informal Organization

What is Formal Organization?

Meaning of Formal Organization: – A formal organization is an organization that has a set of set rules and procedures within an organization. In a formal organization, the work is delegated to each and every individual of the organization. Everyone works towards the attainment of definite goals, which are in compliance with the goals of the organization. The authority, responsibility, and accountability of individuals in the organization are very well defined. Hence, promoting the co-ordination of various activities of the organization very effectively.

The responsibilities of the individuals in the organization are well defined. They have a definite place in the organization due to a well-defined hierarchical structure that is inherent in any formal organization. The formal organizational structure clearly articulates the job to be performed by each individual, authority, responsibility assigned to each individual, superior-subordinate relationship, and designation of each individual in the organization. This structure is deliberately created by managers for achievement of organizational goals.

What are the characteristics of Formal Organization?

The characteristics of Formal Organization are as follows: –

  1. Well defined rules and regulations;
  2. Determined objectives and policies;
  3. The formal organizational structure is deliberately created by the process of organizing;
  4. The purpose of a formal organization structure is the achievement of an organizational goal;
  5. In the formal organizational structure, each person is assigned a specific task;
  6. Strict observance of the principle of co-ordination;
  7. Messages are communicated through scalar chain;
  8. It is to best attain the objectives of the enterprise;
  9. Hierarchical work distribution or clear division of labour;
  10. Every person in a formal organization is entrusted with a certain authority or decision-making power;
  11. Formal relationships are formed by formal organizational structure;
  12. Formal organizational structure constitutes a scalar chain of communication in the organization.

What are the advantages of Formal Organization?

The advantages of Formal Organization are as follows: –

  1. Systematic Work: – Formal organization structure results in the systematic and smooth operation of an organization. This is because there exist systematic and well thought out work cultures and relationships.
  1. Organizational Objectives Achievements: – Formal organization structure is established to achieve organizational objectives. It leads to the achievement of organizational goals and objectives.
  1. No Overlapping of Work: – In a formal organization structure, work is systematically divided between different departments and employees. Therefore, there is no chance of duplication or overlapping of work. As the duties of each member is clearly defined, there is no ambiguity or confusion in individual roles whatsoever. Further, there is no duplication of efforts which eliminates any wastage.
  1. Division of Work: Work is divided into smaller units and assigned to individuals on the basis of their skills and abilities. Division of work results in specialisation and increases organizational output.
  1. Co-Ordination: – Formal organizational structure results in coordination of activities of various departments.
  1. Create Chain of Command: – The formal organizational structure clearly defines the superior subordinate relationship, that is, who reports to whom. An established chain of commands maintains the unity of command.
  1. More Emphasis on Work: – Formal organizational structure places more emphasis on work than interpersonal relationships.
  1. Easy to Fix Accountability: Since the authority and responsibility of all the employees have been already fixed, inefficient employees can easily be apprehended and in this way their accountability can be fixed.

What are the disadvantages of Formal Organization?

The disadvantages of Formal Organization are as follows: –

  1. Action Delay: – While the scalar chain and chain of command actions are delayed in formal structure. Decision making is slow in a formal organisation. It is important to realise that any organisational need has to flow through the respective chain of commands before being addressed.
  1. Ignoring Social Needs of Employees: – The formal organizational structure does not give importance to the psychological and social need of the employees which may lead to the demolition of the employees. The formal organization does not take into account the social nature of humans as it talks about only structure and work. Interestingly, we cannot eliminate this integral part of our nature. Hence, it does not entirely display the functioning of the organization.
  1. Emphasize Only on Work: – Formal organizational structure only gives importance to work; It ignores human relationships, creativity, talents etc. Formal organisation is very rigid in nature. This means that there prevails perfect discipline coupled with no deviations from the procedures. Hence, this can lead to low recognition of talent.

What is an Informal Organization?

Meaning of an Informal Organization: – An informal organization is an aggregate of interpersonal relationships without any conscious purpose but which may contribute to joint results. Informal organizations have no fixed rules or hierarchies defined between people. It is fluid and dynamic in nature. Both formal and informal groups coexist in an organization and are essential for efficient functioning. An informal organization is primarily a social creature made up of the sum total of social norms, relationships, and interactions that affect how an organization works.

While a formal organization is cold and impersonal, but an informal organization is intensely personal. It’s all about social interactions and relationships between the members. Members of an informal organization can certainly hold official offices and have formal duties, but they also bring their own values, personal interests and assumptions into the equation of how they act. Members of an informal organization develop friendships, alliances, enemies, trusted sources of information, and preferences on how tasks should be performed.

Informal organizations can be classified into three groups which are defined by the similarities and dissimilarities of work performed by the members of the group: –

  1. Horizontal Group: – People who work at the same level in an organization belong to a horizontal group. Such groups promote mutual support and information sharing among the members. It is often found that people share the same problems, concerns and interests. They solve problems without depending on their bosses or higher or lower hierarchical members. For example, people working for different departments like sales, operations, production, etc. but are at the same level in organisational hierarchy form a horizontal group.
  1. Vertical Group: – People working at different levels in an organization belong to the Vertical Group. Such groups are formed through skip-level relationships. For example, a top-level employee may associate with a first-level employee or a group of first-level employees form a group with their bosses. Such groups promote better communication and quick access to the problems arising in the organization. 
  1. Mixed Group: – People from different levels and different departments form Mixed Groups. Such groups are formed based on common interests like club memberships, common interests or their backgrounds. For example, the president of the sales department may bond with the director of technology.

Individuals are appointed to various job positions in a formal organizational structure. While working in those job positions, individuals interact with each other and develop certain social and friendly groups in the organization. This network of social and friendly groups creates another structure in the organization called Informal Organizational structure.

Informal organizational structure is formed on its own and the main objective of such a structure is to achieve psychological satisfaction. The existence of informal structure depends on formal structure because people working in different job positions interact with each other to form informal structure and job positions are created in formal structure.

What are the characteristics of an Informal Organization?

The characteristics of an Informal Organization are as follows: –

  1. In Informal organization, there are no written rules and procedures to govern inter-relationship. But there are group norms which have to be observed. For example, employees working in an organization and belonging to a particular community form a separate group in an informal way;
  1. Informal organizational structure is created automatically without any intended efforts of managers. Informal organization is not deliberately created. It emerges out of mutual relationship and tastes;
  1. Informal organizational structure is created by employees to achieve psychological satisfaction. It’s being personal means that under this the feelings of individuals are kept in mind and nothing is imposed upon them;
  1. The informal organizational structure does not follow any definite path of authority or flow of communication. In this organization, relations among different people are not defined because a person at the lowest rank can have direct contact with the person at the highest level. The flow of communication cannot be specified;
  1. The source of information cannot be known under informal structure as any person can communicate with anyone in the organization;
  1. The existence of informal organizational structure depends on the formal organization structure.

What are the advantages of Informal Organization?

The advantages of Informal Organization are as follows: –

  1. Fast Communication: – The informal organization structure does not follow a scalar chain so that communication can be rapidly spread. In this type of organisation, communication does not need to follow the defined chain. Instead, it can flow through various routes. This implies that communication in an informal organisation is much faster relative to formal organisation.
  1. Meeting Social Needs: – Informal communication gives due importance to the psychological and social need of the employees which motivates the employees. Again, humans are social animals. The needs to socialize exists deep within our existence. The informal organization ensures that there is socialization within the enterprise. Consequently, members experience the sense of belongingness and job satisfaction.
  1. Correct Response: – Through the informal organization structure top level managers can know the actual response of employees on various policies and plans. Informal organization, getting true feedbacks and reactions is not easy. Hence, in informal organization, various limitations of formal organisation is covered up.
  1. Strategic Use of Informal Organization: – Informal organization can be used to gain in formal organization in the following way: –
    • Informal group knowledge can be used to gather staff support and improve their performance.
    • Managers can take advantage of both formal and informal organizations by collaborating with informal groups.

What are the disadvantages of Informal Organization?

The disadvantages of Informal Organization are as follows: –

  1. Spreading Rumors: – The informal organisation is random and can result in the spread of rumours. Again, we cannot manage and control informal organisation. Consequently, this may result in chaos within the enterprise. According to a survey, 70% of information circulating through informal organizational structure is rumors that can confuse employees.
  1. Any Systematic Work: – Informal structure does not create a structure for an organization to function smoothly.
  1. Can Bring Negative Results: – If informal organizations resist policies and management changes, it becomes very difficult to implement them in the organization. It is important to realise that it is not possible to effect changes and grow without the support of the informal organization. This can work in both ways, for growth or decline of the enterprise.
  1. Greater Emphasis on Personal Interest: – Informal structure values ​​satisfaction of personal interest more than organizational interest. To point out again, informal organization conforms to group standards and behaviours. If such behaviours are against the organiational interests, they can eventually lead to disruption of the organization.

Difference between Formal Organization and Informal Organization

The difference between formal and informal organization can be drawn clearly on the following grounds: –

  1. Formal Organization is an organization in which job of each member is clearly defined, whose authority, responsibility and accountability are fixed. Informal Organization is formed within the formal organisation as a network of interpersonal relationship when people interact with each other.
  2. Formal organization is created deliberately by top management. Conversely, informal organization is formed spontaneously by members.
  3. Formal organization is aimed at fulfilling organization’s objectives. As opposed to an informal organization is created to satisfy their social and psychological needs.
  4. Formal organization is permanent in nature; it continues for a long time. On the other hand, informal organisation is temporary in nature.
  5. The formal organisation follows official communication, i.e. the channels of communication are pre-defined. Unlike informal organization, the communication flows in any direction.
  6. In the formal organization, the rules and regulations are supposed to be followed by every member. In contrast to informal communication, there are norms, values, and beliefs, that work as a control mechanism.
  7. In the formal organization, the focus is on the performance of work while in the case of an informal organization, interpersonal communication is given more emphasis.
  8. The size of a formal organization keeps on increasing, whereas the size of the informal organization is small.
  9. In a formal organization, all the members are bound by the hierarchical structure, but all the members of an informal organization are equal.
Formal Organization and Informal Organization

The Comparision between Formal Organization and Informal Organization is given as follows: –

Basis of ComparisonFormal OrganizationInformal Organization
MeaningAn organization type in which each member’s job is clearly defined, whose authority, responsibility and accountability is fixed, is a formal organization.An organization formed within a formal organization as a network of interpersonal relationships, when people interact with each other, is known as informal organization.
CreationDeliberate by top management.Spontaneously by members.
PurposeTo fulfill, the ultimate objective of the organization.To meet their social and psychological needs.
NatureStable, it continues for a long time.Not stable
CommunicationOfficial CommunicationNot an official communication.
Control MechanismRules and Regulations.Norms, Values and Beliefs.
Focus onWork performanceInter-personal work
AuthorityMembers are bound by a hierarchical structure.All members are equal.

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