Everything you need to know about formal and informal organisation.

Formal organization refers to the organisational structure designed by the management to achieve organisational goals in which the responsibilities, authority and mutual relationships among all the employees working in an enterprise are clearly defined.

Informal organization arises spontaneously as a result of personal and social relations among the employ­ees in the work place. It develops on the basis of personal attitudes, emotions, likes, interests, habits, etc., of employees in the work place.

Informal organization comes into existence due to the limitations of the formal organizational structure.


Additionally, learn about the characteristics, advantages and disadvantages of formal and informal organisation.

Formal and Informal Organisation

Formal and Informal Organisation – Characteristics, Advantages and Disadvantages

The structure of an organisation is both formal and informal. In other words, two kinds of relationship can be established among the employees – firstly, the relationship that is definite and defined beforehand, and secondly, those relations which are not definite and defined beforehand. We will now study them in detail.

Formal Organisation:

A formal organisation means an organisation in which the responsibilities, authority, and mutual relationships among all the employees working in an enterprise are clearly defined. This structure of the organisation is created after a lot of deliberation and is based on the division of activities, so that the objectives of the organisation can be easily achieved by a human group.

Under this each individual has inter-relationship with others and consequently they know as to who happens to be their superior or the subordinate. This organisation is bound by rules and procedures. It means that everything is done according to the pre-determined rules and procedure.


According to Chester Bernard, “An organisation is formal when the activities of two or more persons are consciously coordinated towards a common objective”.

Main Characteristics of Formal Organisation:

(1) It is deliberately created- This organisation is deliberately created for the successful attainment of the objectives of the concern.

(2)It is based on Rules and Procedures- In a formal organisation it is necessary to observe the pre-determined rules and procedures.


(3) It is Impersonal- Under this personal feelings are ignored and strict discipline is observed. It is, thus, completely impersonal.

(4) Authority- Authority is connected with the office or post and moves from above to downwards.

(5) It is based on Division of Work- The main foundation of formal organisation is division of work.

(6) Defined Inter-relationship- A formal organisation is a system that clearly explains the inter-relationship and, thus, everybody knows his authority and responsibility.


(7) It is more stable- Under this organisation changes cannot be introduced according to the desires and needs of individuals. Therefore, it is more stable.

Advantages of Formal Organisation:

(1) Specialisation Possible- In a formal organisation the work is divided into many parts and each part is accomplished by an individual who performs it repeatedly. After some time he becomes an expert in his work and the organisation gets the benefit of specialisation.

(2) More Coordination- In a formal organisation the activities and authority of everybody are pre-determined, and as a result of which coordination is established in their activities.


(3) Good Human Relationship- All the persons work within their authority as a result of which good human relations are established.

(4) Easy to find out Inefficient Employees- Inefficient employees can easily be found out because the authority and responsibility of all the employees are pre-determined. Thus, inefficient employees will be easily detected.

(5) No overlapping of Work- In a formal organisation everything moves according to a definite plan and, therefore, there is no possibility of any work being left out or repeated unnecessarily.

(6) Less Chances of Partiality- As the whole system is bound by rules there is no possibility of bias or partiality.


(7) Easy to get Objectives- In a formal organisation the objectives can be easily obtained because of coordination and optimum use of human and material resources.

(8) Easy Control- By comparing the actual work performance of the employees with the desired work, deficiency can easily be worked out which helps in having an easy control.

Disadvantages of Formal Organisation:

(1) Lack of Initiatives- In this organisation the employees have to do what they are told to do and they have no opportunity of thinking. Thus, their initiative gets slackened.

(2) Pressure of Officers’ Autocracy on Employees- Employees are always under pressure because of the autocratic attitude of the officers and a rigorous implementation of rules as a result of which efficiency in reduced.

(3) Delay in Work- Since the work is bound by rules, it causes unnecessary delay.

(4) Mechanisation of Relations- By defining inter-relationship among different people, they are bound or restricted to take advantage of the knowledge and experience of other persons, even if they desire so.

Informal Organisation:

An informal organisation is that organisation which is not established deliberately but comes into existence because of common interests, tastes, and religious and communal relations. The chief quality of this organisation lies in friendly relationship and cooperative nature. In this organisation an individual does not help another individual in his activities simply because he is responsible for it but because it is his personal liking.

For example- in a formal organisation a supervisor in a purchase department consults only the manager of his department regarding all his problems connected with his activities, but in an informal organisation any manager of any department or supervisor can be consulted. Not only this, a supervisor can talk directly to the general manager.

Thus, it is clear that in an informal organisation no stringent rules or procedures are to be followed but it is completely based on mutual goodwill. In other words, in an informal organisation, the office and level of individuals are ignored in preference to their tastes, habits and thinking which get more importance.

On this basis the whole organisation automatically gets divided into small groups. The people belonging to different departments and different levels sit together in their group and find out solutions to their problems during the course of their conversation.

According to Chester Bernard, “That organisation is informal where the mutual relations are established unconsciously for common objectives.”

Main Characteristics of Informal Organisation:

(1) It is not Deliberately Created:

An informal organisation is not deliberately created but comes into existence on the bases of relationship and interests.

(2) No Written Rules and Procedures:

In this organisation 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 organisation and belonging to a particular community form a separate group in an informal way. Gradually some norms do emerge – like helping the member of their group to find solution to the problems related to his work or his own self.

Similarly, they protect the members of their community from the managerial exploitation. In this way all the persons joining this informal group will be bound to observe the norms of the group.

(3) It is Personal:

It is being personal means that under this the feelings of individuals are kept in mind and nothing is imposed upon them.

(4) Authority:

In this organisation the authority can move from top to bottom or it can move horizontally.

(5) No Defined Inter-Relationship:

In this organisation inter-relationship cannot be defined because an employee at the lowest level can have relationship with the person at the top-level.

(6) Lack of Stability:

There is generally a lack of stability in such an organisation. For example- an individual mixes with one group of people today but can cross over to another group tomorrow. Not only this, an individual can be a member of more than one group at a time.

(7) No place on Organisation Chart:

An informal organisation has no place on the organisation chart prepared in a systematic way. (Organisation chart is a diagram which clarifies the relationship among various posts established in the organisation).

Advantages of Informal Organisation:

(1) Increase in Initiative:

Because of a free environment provided by an informal organisation the initiative gets developed among the employees. They come forward with new ideas.

(2) Decrease in Pressure of Officers:

In an informal organisation there is no pressure from the officers as a result of which the efficiency of the employees increases.

(3) Effective Communication:

It is an effective way to communication. Through its medium messages can be quickly communicated from one place to another.

(4) It makes the Formal Organisation Strong:

In an informal organisation there is an atmosphere of goodwill which directly affects the formal organisation. Consequently, work is performed more efficiently.

(5) Quick Solution of the Problems:

In an informal organisation the subordinates can speak out their mind before the officers which helps the officers to understand the problems of their subordinates, and all the problems can be solved immediately.

Disadvantages of Informal Organisation:

(1) Specialisation not Possible:

In an informal organisation there is no question of division of work because on the basis of mutual relationship anybody can talk to any person in any department with regard to the problem of any department. For example- it is not necessary that the production manager should be consulted only on matters pertaining to production but he can be consulted on any subject. Hence, specialisation is not possible because of the non-division of work.

(2) It Resists Change:

This organisation resists change and lays stress on adopting the old techniques.

(3) It Creates Rumours:

All the persons in an informal organisation talk carelessly and sometimes a wrong thing is conveyed to the other person which may bring in horrible results.

(4) Sometimes it Creates Hurdle in Management:

Sometimes employees gathered in an informal group become oblivious of their objective and unanimously decide to oppose their officers. In such a situation productivity is adversely affected.

This is clear from the above description that both the types of organisations have their merits and demerits. On the one hand, formal organisation is helpful in attaining the objectives of the organisation very easily, but on the other hand, the informal organisation is not less important if used properly. In short, informal relations among the employees are complementary to formal relationship.

In this context it is said, both formal and informal organisations are necessary for any group action just as two blades are essential to make a pair of scissors workable. In this context, it will be appropriate to say that, the attitude of the management towards informal organisation should be positive.

Formal and Informal Organisation

Formal Organisation:

Formal organization refers to the organisational structure designed by the management to achieve organisational goals in which the responsibilities, authority and mutual relationships among all the employees working in an enterprise are clearly defined. It can be functional or divisional.


“The formal organization is a system of well-defined jobs, each bearing a definite measure of authority, responsibility and accountability”. – Louis Allen


1. It is deliberately created by the top management.

2. It is based on rules and procedures which are in written form.

3. It is impersonal – Does not take into consideration emotional aspect.

4. It clearly defines the authority and responsibility of every individual.

5. It is created to achieve organisational objectives.

Advantages of Formal Organisation:

1. Easier to fix responsibility since mutual relationships are clearly defined.

2. No overlapping of work because things move according to a definite plan.

3. Unity of command through an established chain of command.

4. Easy to achieve objectives because of coordination and optimum use of human and material resources.

5. Stability in the organisation because behaviour of employees can be fairly predicted since there are specific rules to guide them.

Disadvantages of Formal Organisation:

1. The work is based by rules which cause unnecessary delay.

2. Lack of initiatives because the employees have to do what they are told to do and they have no opportunity of thinking.

3. Limited in scope as it is difficult to understand all human relationships in an enterprise as it places more emphasis on structure and work.

Informal Organization:

An informal organisation is that organisation which is not established deliberately but comes into existence because of common interests, tastes and religious and communal relations.


1. It originates from within the formal organisation as a result of personal interaction among employees.

2. It has no written rules and procedures.

3. It does not have fixed lines of communication.

4. It is not deliberately created by the management.

5. It is personal i.e.; the feelings of individuals are kept in mind.

Advantages of Informal Organisation:

1. Speed- Prescribed lines of communication are not followed which leads to faster spread of information.

2. Fulfillment of social needs- Informal organization fulfills the social needs of employees which enhances job satisfaction and thereby gives them a sense of belongingness in the organisation.

3. Quick solution to the problems- As the subordinates can speak out their mind before the officers which helps the officers to understand the problems of their subordinates.

Disadvantages of Informal Organisation:

1. It creates rumours- All the persons in an informal organisation talk carelessly and sometimes a wrong thing is conveyed to the other person.

2. It resists change and lays stress on adopting the old techniques.

3. Priority to group Interests- It Pressurises members to confirm to group expectations.

Formal and Informal Organization – With Features and Benefits

Organization may be viewed as a structure of relationships. As a structure, organization is a network of inter-relationship of employees operating at various levels.

According to the framework of relationships, organizations are of two forms, namely:

1. Formal organization and

2. Informal organization.

1. Formal Organization:

Formal organization is a planned structure of relationships among employees, departments, divisions, etc., so as to achieve the goals of the organization smoothly. It is a system of well-defined jobs where each employee bears a definite authority, responsibility, and accountability. Here, the delegation of authority flows from the top level to the bottom and the accountability flows from the bottom to the top.

The rights, duties, and liabilities of different employees are specified in the organizational charts and manuals. Formal organization operates in accordance with the predetermined policies, rules, and procedures. It helps in achieving organi­zational objectives smoothly. It provides a definite network of communication and interaction. This type of organization minimizes conflicts among employees.

Features (or Characteristics) of Formal Organization:

i. Formal organization is bound together by authority-responsibility relationship among its employees.

ii. It is a well-defined and properly designated official organization.

iii. It follows a certain pre-determined communication network and patterns.

iv. It does not take into consideration the emotional aspects of employees.

v. It puts much emphasis on efficiency, discipline, consistency, conformity, and control.

vi. It defines well the roles and relationship of each employee in the organization.

vii. It focuses on effective achievement of organizational objectives.

viii. It is required to be successful in the competitive world for its survival.

ix. It must have a sizable span of management for ensuring proper control on employees.

x. It is designed deliberately and consciously and its activities are properly coordinated.

Benefits (or Advantages) of Formal Organization:

i. Formal organization brings clear determination of duties, authorities, and responsibilities.

ii. It provides an appropriate platform from where the management can perform its functions efficiently.

iii. It ensures optimum use of technical and human resources of an enterprise.

iv. It helps in adapting the latest technology to cope with the changing environment.

v. It stimulates creative thinking and initiative among organizational employees.

vi. It defines the scope of work of every individual and allows them to grow.

vii. It facilitates coordination by bringing in harmony of work and unity of efforts of individuals.

viii. It facilitates formal communication through a well-defined line of authority

ix. It necessitates delegation of authority among various managerial positions.

x. It avoids duplication of work and overlapping in responsibility.

2. Informal Organization:

Informal organization arises spontaneously as a result of personal and social relations among the employ­ees in the work place. It develops on the basis of personal attitudes, emotions, likes, interests, habits, etc., of employees in the work place. Informal organization comes into existence due to the limitations of the formal organizational structure.

Employees in the formal organization have a tendency to cut across formal channel and communicate informally with employees of other departments. It represents natural grouping of employees based on their personal and social needs. It is regarded as a shadow organization which cannot exist without any formal organization. It ensures mental security of the job and power of the employees.

Features (or Characteristics) of Informal Organization:

i. Informal organization develops spontaneously on the basis of common taste, temperament, language, culture, thinking, etc.

ii. Informal organization is a network of personal and social relationship.

iii. Employees in the informal organization are influenced by some leaders without any formal authority.

iv. This organization exists in every enterprise which can neither be avoided nor be abolished.

v. It is a relationship of friendship and not of authority and responsibility.

vi. Authority of a leader in the informal organization is earned by competence and it cannot be delegated.

vii. Informal organization has its own norms of behaviour and value system followed by its members.

viii. It develops through interaction and communication among the members of the formal group.

ix. Informal relations are multi-directional and multi-dimensional in nature; they do not have any prescribed way to move.

x. Informal relations do not require any deliberate planning and efforts.

Benefits (or Advantages) of Informal Organization:

i. Informal organization provides social satisfaction and relaxation to its employees.

ii. It leads to the satisfaction of security and egoistic needs of its members. It considers emotional needs of employees.

iii. It helps in developing a sound communication network for keeping its members informed about what affects them.

iv. It acts as a safety valve for employees in order to release their work-related tensions.

v. It supplements the functioning of the formal organization by filling up its gaps and inadequacies.

vi. It inspires employees to work efficiently and sincerely by satisfying their social and psychological needs.

vii. It helps the superior in improving personal rapport with subordinates to make him more acceptable to them.

viii. It provides readily available alternative and supplementary channel of communication without any cost.

ix. It helps the employees to share their work-related problems and personal difficulties with their peers.

x. It helps in resolving the conflicts among employees in the enterprise.

Formal and Informal Organisations – With Examples

Have you ever stood in a school corridor and observed teachers discussions? I am sure you must have overheard them and shared the gossip with your friends. Many times, it might have been directly related to your studies, exams, performance etc. but at times, it might have been their personal conversation like discussing family or children’s education.

Let us analyse few conversations and identify them as formal or informal:

1. “Principal has fixed a meeting for Mathematics department on Monday afternoon” – Formal

2. “I heard about your husband’s promotion. He is now CEO of the company. Congrats!” – Informal

3. “The exam department has fixed 11th August for mid-term exam” – Formal

4. “I overheard principal talking to someone. She was saying that will take off tomorrow” – Informal

5. “You know, Mr. Mehta filled marks without checking papers” – Informal and Rumor

From the above examples and your personal experiences, you must have realized that individuals working in an organisation have well defined relationships and are guided by stated rules and regulations. This is formal structure of an organisation. However, employees do interact with each other outside their formally defined relationships. This brings the informal structure in an organisation.

Formal Organisation:

Formal organisation refers to the structure where an organisation lays down the job description for each task to be performed and the rules and procedures related to work processes. The formal organisation may have functional or divisional organisational structure.

Features of Formal Organisation:

i. Means to achieve objectives – Formal organisation provides rules and procedures related to specific tasks to be performed so that organisational objectives are achieved effectively.

ii. States boundaries of authority and responsibility – Formal organisation specifies the relationships among job positions and nature of their inter-relationship. This clarifies the reporting system by clearly stating who will report to whom.

iii. Coordinates activities – Formal organisation systematically coordinates, interlinks and integrates the efforts of various departments and different activities to achieve organisational goals.

iv. Facilitates smooth functioning – The rules and regulations guide each employee in the organisation to facilitate smooth functioning.

v. Emphasis on work processes – Formal organisation emphasizes on work to be performed rather than interpersonal relationships among employees.

Few Definitions of Formal Organisation:

The formal organisation is a system of well-defined jobs, each bearing a definite measure of authority, responsibility and accountability. – Louis Allen

Formal organisation is a system of consciously coordinated activities of two or more persons toward a common objective. – Chester Barnard

Evaluation of Formal Organisation:


It has following advantages:

i. Easy to fix responsibility – The clearly defined mutual relationships make it easier to fix responsibilities.

ii. No ambiguity in instructions – It assigns specific responsibilities or duties to each member. This minimizes ambiguity and avoids duplication of effort.

iii. Maintains unity of command – The well-established relationships through chain of command enable to maintain unity of direction.

iv. Focuses on organisational goals – Pre-defined framework for the operations ensures that each member works towards achievement of organisational goals effectively.

v. Provides stability – Behaviour of each employee is guided by the rules and regulations, this provides stability to the organisation.


Though the formal organisation makes it easy for employees to complete tasks but the formal way of handing business may act as a hurdle.

Some of the limitations of Formal organisation can be listed as follows:

i. Procedural delays – The decision-making in formal organisation need to follow the chain of command which may take longer time to decide leading to delays.

ii. No recognition for creativity – The employees are required to follow the pre-determined rules and procedures without any deviations. This makes employees just ‘doers’ and restricts them from using their creativity.

iii. No understanding of human relationships – Formal organisation fails to understand human relationships as its main focus is on work processes as compared to interpersonal relationships.

Informal Organisation:

Informal organisation refers to a structure where employees interact beyond their officially defined roles. Informal organisation can be defined as a ‘network of social relationships among employees’.

Features of Informal Organisation:

i. Originates within the Formal organisation – Informal organisation is the result of frequent contacts or interactions among employees who are part of formal organisation. Therefore, informal organisation originates within the formal organisation.

ii. No official standards of Behaviour – Informal organisation involves formation of groups among employees who frequently contact as part of formal relationships. Since the groups are formed because of common interest, the standards of behaviour evolve from group norms. There are no officially laid rules and regulations for informal organisation.

iii. Independent channels of communication – Informal organisation is not defined by rules or lines of communication. The information flows among the group members without any specified direction or line of communication.

iv. No formal structure – Informal organisation does not follow any organisational structure. It is self-created by a group of people, which emerges spontaneously. It is a complex network of social relationships among members, thus organisation has no role to play in its formation.

Few Definitions of Informal Organisation:

An informal organisation is an aggregate of interpersonal relationships without any conscious purpose but which may contribute to joint results. – Chester Barnand

Informal organisation is a network of personal and social relations not established or required by the formal organisation but arising spontaneously as people associate with one another. – Keith Davis

From the above discussions, you will observe that the informal organisation strengthens the relationships among employees, provides useful communication channels leading to improved organisational performance and increases job satisfaction. Considering the effect of informal organisation, let us evaluate the importance of informal organisation in a business enterprise.

Advantages of Informal Organisation:

i. Quick communication and faster feedback – In the absence of formal or pre-defined lines of communication the information is transferred faster with instant feedback as well.

ii. Fulfills social needs – Informal organisation allows like-minded people to form groups and discuss their problems or issues of common interest. It satisfies their social needs, creates bonding with other employees, develops sense of belongingness and eventually enhances job satisfaction.

iii. Makes up for inadequacies of formal organisation – The informal organisation helps management to overcome the inadequacies of formal organisation, helps them to receive feedback on policies and procedures through informal network and bring in necessary changes to achieve organisational objectives more effectively.

Despite having advantages of better work atmosphere, faster communication, the informal organisation has its own limitations as well.

Limitations of Informal Organisation:

i. Disrupts the formal setups – The informal organisation may spread rumours or leak confidential information. This may spoil the company’s image, create suspicion among employees and work against the interest of the formal organisation.

ii. Resistance to change – If the informal organisation is strong and united, they may oppose the changes proposed by formal organisation. This will delay the decision-making and restrict organisational growth.

iii. Group interest may supersede organisational interest – The group formations may pressurise members to follow the norms of the group. If the group interests are not in line with the organisational interest it may harm the organisational performance.

Formal and Informal Organisation – According to George R. Terry, Barnard Chester, J.A.C. Brown and Davis

An organisation may be divided into two categories, on the basis of the interrelationship of individuals, viz., formal organisation and informal organisation. Both types of relationships are necessary for any group action.

Formal Organisation:

A formal organisation is one in which position, responsibility, authority and accountability at each level is clearly defined. In such organisation, authority is delegated from higher to lower levels, and the whole structure, is designed to accomplish the objectives, of the organisation. Thus formal organisation is more or less an arbitrary structure to which the individual must adjust. It tells him to do certain things in a specified manner, to obey orders from designated individuals and to co-operate with others.

A formal organisation is bound by rules, systems, procedures and methods as laid down by the top management from time to time. Co-ordination also proceeds according to a prescribed pattern in the formal organisation structure.

According to George R. Terry, there are four basic components of a formal organisation:

i. The work which is divisionalised.

ii. Persons who are assigned to and perform the divisionalised Jobs.

iii. The environment under which the work is to be done.

iv. The relationship among persons or work units.

According to Barnard Chester, formal organisation is a system of consciously co-ordinated activities or forces of two or more persons. Thus formal organisation is created through the co­ordination of efforts of various individuals. The formal organisation facilities the determination of objectives and policies. The degree of success of these objectives, is determined on the basis of the capacities and attitudes of the people within the organisation.

According to J. A. C. Brown formal organisation possesses the following characteristics:

i. It is deliberately Impersonal

ii. It is based on ideal relationship and

iii. It is based on Rabble hypothesis of the nature of man.

Formal organisation is the official hierarchy as it appears on paper. It is the basis and official version of the organisation.

The above mentioned characteristics have also been the main points of criticism of formal organisation. Firstly as it is deliberately impersonal, emotions and sentiments of individuals are ignored in determining the interactions, communication and accountability. But human beings cannot live without social interactions and that is why they develop informal relations. Secondly it is based on ideal relationships. Human beings are thought to be rational and economic beings.

It is assumed that there should be no unofficial channel of communication. But it is very difficult to find such ideal relationships in actual life. Lastly it is based on the rabble hypothesis of the nature of man. It is assumed that there will be the same kind of reaction if human beings are punished or rewarded. But the individuals are not always motivated by the rewards and punishments in the same manner. Formal organisation is deliberately constructed to achieve some goals.

They are not changeable with the passage of time. This is another point of criticism put forward by the critics. The rules and regulations of the organisation may be too rigid that it becomes difficult to achieve the goals. Moreover formal organisation does not consider the goals of the individuals. Because of these reasons, formal organisation usually gives birth to informal organisation which cannot be separated from it. As a matter of fact, there is a close relationship between the formal and informal organisation.

Thus formal organisation is systematically planned and is based on the principle of delegation of authority and the principle of responsibility. It makes use of organisation charts and attempts to maintain a balance among the various type of work to be done, each being given the importance that it true value deserves.

The merits and demerits of formal organisation include:


i. Avoidance of role conflict.

ii. Avoidance of over-lapping of authority and responsibility.

iii. Advantages of specialisation.

iv. Defining and standardising systems, rules, policies and procedures of the enterprise etc.

Demerits or Limitations:

i. It does not recognise informal relationship

ii. It creates problem of communication.

iii. It emphasises structure rather than people.

Informal Organisation:

An informal organisation always exists together with a formal organisation in every enterprise. In such organisation people evolve informal groups among themselves which are bound together by common social or technological work or other interests. Such groups make an informal organisation.

Informal organisation refers to the relationship between people in the organisation, based on personal attitudes, emotions, prejudices, likes dislikes etc., Their relations are not developed according to procedures and regulations laid down in the formal organisation structure. Generally, large formal groups; give rise to small informal or any such other factor. These groups are not preplanned but they developed automatically within the organisation.

Informal organisations are small groups and these groups can overlap because a person may be member of more than one group. A manager cannot eliminate the informal organisations because he does not create them, many times informal organisations comes into being to support and supplement the formal organisation. For instance informal communication is very fast and it can break the barriers.

Informal organisations may also create problems for the management by spreading rumors and resisting the introduction of change. That is why some people do not favour the recognition of informal groups by the management.

According to Davis, “an informal organisation is that network of personal and social relations which is not established by formal organisation”. It is an accepted fact that wherever people work together, social relationships and groupings are bound to arise on account of their frequent contracts with each other which gives rise to informal organisations. Such organisations are not needed by formal organisations and therefore they find no place in organisation charts or manuals.

They establish their own unwritten rules which are usually followed by individuals in the informal group. Informal organisations are never defined and have no structure like that of a formal organisation but they form an integral part of formal organisation.

Merits of Informal Organisation:

i. It provides a useful channel of communication.

ii. It covers the deficiencies of formal organisation.

iii. It influences the formal organisation to work carefully.

iv. It brings about mutuality among group members who derive job satisfaction by exchange of ideas and views etc.

Demerits or Limitations of Informal Organisation:

i. It may tend to act on the basis of mob psychology.

ii. It may become a source of rumors or wastage of time.

iii. It may tend to oppose change.

The informal organisation is a reality in every enterprise and every office manager should accept this fact. He should utilise it as a part of the total organisation, as an effective channel of communication, as a forum for exchange of ideas and as an instrument for obtaining support from the informal groups. As a matter of fact informal organisations are complementary to formal organisations and are in no way less important.

Formal and Informal Organisation – Characteristics, Advantages and Disadvantages

Formal Organisation:

A formal organisation is well defined structure of activities which is directed towards a pre-determined goal. It is a consciously co-ordinated activity by two or more persons.

“A formal organisation is governed by a set of rules and procedures set by the top management of the organisation. It also follows a set path and pattern of communication. This helps in better communication amongst all the employees of the organisation.”

Following are the characteristics of a formal organisation:

i. Well established – A formal organisation is well defined or established in advance. The structure of such an organisation is known to all the individuals of the organisation.

ii. Clearly defined relationships – In a formal organisation, the relationship amongst the employees, departments, sections etc., are clearly defined. These are determined on the basis of the activities to be performed.

iii. Determined by top management – A formal organisation structure is determined by top management of the organisation. Here the procedures and instructions etc., are given by the top level of the management.

iv. Emotional aspect – A formal organisation does not take into account the emotional needs of an individual. It ignores the social aspect of the individuals working in the organisation.

v. Based upon scientific analysis – A formal organisation is formed through scientific research and analysis in order to achieve the organisational goals.

Type of Formal Organisational Structure:

Following are the major types of formal organizational structures:

i. Line Organisation:

Line organisation is the simplest and the oldest method of organisation structure. In this organisation authority and responsibility moves from top to bottom in a straight line. Chief executive officer gives orders to the department heads and department heads gives order to their subordinates. Every subordinate services order from its immediate superior and passes on to its immediate junior.

Advantages of Line Organisation:

a. The line organisation can be easily established.

b. All functions or activities can be performed easily, quickly and efficiently.

c. Decision making is easy in case of line organisation.

d. Coordinate in activities can be maintained as man controls other.

Disadvantages of Line Organisation:

a. Line Organisation leads to a tax on superior or key men.

b. With division of attention a manager loses its specialty.

c. One sided communication is major drawback of Line Organisation.

ii. Functional Organisation:

Functional organisation is completely based on principle of specialization. Experts are appointed for each function and they not only give advice but actively participate in decision making. Under functional organisation work is divided into small parts and allotted to different experts.

“The functional organisation consists of so dividing the management that each man down from the assistant superintendent shall have as few functions as possible to perform. If practicable, the work of each man in the management should be confined so the performance of single leading functions.” – F.W. Taylor

Merits of Functional Organisation:

a. Advantages of experts knowledge is being offered by functional organisation.

b. Benefits of specialization leads to benefit of mass production.

c. Better organisation and more Flexibility are some other advantages offered by functional organisation.

Demerits of Functional Organisation:

a. As everyone is expert in his/ her field so it sometimes leads to lack of coordination.

b. Appointment of experts leads to increased administrative expenses.

c. Sometime it becomes difficult to fix responsibility.

iii. Line and Staff Organisation:

Under the Line and staff Organisation, the function of line is similar to its function under the line organisation but experts are appointed as advisors to the line officers. Experts only advice but ultimately decision making authority lines with line managers so work of thinking and execution is done by different persons.

“Line executives are those in charge of function that contribute directly to the main objective of business, staff executives are those who contribute counsel and special services to the line.” – Earnest Dale

Merits of Line and Staff Organisation:

a. Advice of expert’s makes decision of Line manages good.

b. Division of work of the line executives increases their efficiency.

c. Line and Staff organisation proves advantageous from line organisation.

Demerits of Line and Staff Organisation:

a. The major demerits of this organisation is conflict between line and staff authority.

b. Decision making process gets unduly lengthy.

c. Dependence on experts and their incompetency sometime act as demerit.

Advantages of Formal Organisation:

Following are the advantages of a formal organisation:

i. Division of labour – A formal organisation makes the division and sub-division of work. The division is balanced and it leads to specialization amongst the employees.

ii. Co-ordination – A formal organisation helps in achieving better co-ordination amongst the employees and the various departments of the organisation. This helps in establishing better control in the organisation.

iii. Better communication – A formal organisation establishes better communication in the organisation. Due to well established structure, the chain of communication is also well established.

iv. Growth of Business – A formal organisation helps in the growth of the business/ enterprise. The well-defined structure of the organisation leads to managerial efficiency and therefore reduction of costs and wastage. Thus, the organisation can easily think of expansion and diversification.

v. Optimum use of human efforts – A formal organisation helps in the optimum use of human efforts. As the formal organisation follows the principle of division of labour, this helps in achieving managerial efficiency and specialization.

vi. Fixing of responsibilities – In a formal organisation responsibilities can be fixed easily in case of any failures.

Due to clearly defined authority and responsibility, accountability can be easily done.

vii. Clearly defined authority and responsibility – A formal organisation clearly determines the relationship between authority and responsibility. With pre­determined objectives to be attained and well defined activities, a formal organisation clearly states the authority and responsibility assigned to every individual of the organisation.

Informal Organisation:

“An informal organisation may be defined as the network of personal and social relationship, which is not established or required by formal organisation.”

“Informal organisations are supplementary to the formal organisation. It is based on relationships between the people of the organisation based upon personal attitude; prejudices, likes and dislikes. It is basically a relationship or friendship and not of authority and responsibility. It does not follow formal procedures and regulations.”

i. Rigidity – A formal organisation structure is rigid as it follows a predetermined set of procedures. Such organisations cannot survive in the dynamic environment.

ii. No emotional aspect – Every individual has some social needs and the formal organisation ignores it. This can adversely affect their efficiency and can increase the employee turnover in the organisation.

iii. Conflicts – Conflicts between the senior and the subordinate can exist in a formal organisation. Due to a set system of Communication conflicts are bound to happen.

Features of Informal Organisation:

The features of an informal organisation are given as under:

i. No formal authority – An informal organisation is not established by any formal authority. It is based upon personal likes and dislikes of the individuals.

ii. Social needs – Informal organisation are formed by the individuals to satisfy their social needs. Every individual has the desire to communicate with the other individual. This need is fulfilled by the informal organisations.

iii. Increases satisfaction – Informal organisation helps in increasing satisfaction amongst the employees of the organisation. It satisfies their social needs therefore increasing their level of satisfaction.

iv. Spontaneous – An informal organisation is spontaneous and does not follow any rules and regulations. It is established due to personal choice of the individuals of the organisation.

v. Pervasive – An informal organisation is pervasive i.e., it can-establish at any level of the organisation. And it cannot be avoided.

vi. Can be disadvantageous – Informal organisations can sometimes be dangerous also. Important information can easily be leaked through such informal organisations. Thus, making a manager’s job more difficult.

Advantages of Informal Organisation:

The various advantages of informal organisation are given as follows:

i. Co-operation and Co-ordination – An informal organisation ensures proper co­operation and co-ordination amongst the various individuals. It helps in bringing all the employees close to each other.

ii. Better efficiency – An informal organisation leads to better efficiency among the employees. It helps in fulfilling their social needs therefore the employee has a sense of belongingness in the organisation. Thus he works effectively and efficiently.

iii. Personal growth – An informal organisation helps the employee to grow personally as well. It not only makes them productive and efficient but also happy to work hard in order to achieve the organisational goals.

iv. Effective communication – Informal organisation helps in determining an effective system of communication. It makes communication easy and without any senior-subordinate conflicts. The informal communication is also faster than a formal one.

v. Spreads social values – An informal organisation helps in spreading social and cultural values amongst the individuals. People with common background, mother tongue, culture come together and interact with each other. Thus, spreading cultural and social values.

vi. Regulates Behaviour – People with common interests, likes and dislikes form a group within the organisation. This group has certain set of rules which each member has to follow. Thus, it helps in regulating the behaviour of every individual.

vii. Lightens the workload – An informal organisation helps in lightening the burden of the managers. The employees work efficiently and are satisfied, the channels of communication are effective and faster, there is better co-operation and co­ordination etc. Thus, leading to less burden on the managers.

Disadvantages of Informal Organisations:

Following are the disadvantages of an informal organisation:

i. Difficult to control – An informal organisation exists without any authority so it cannot be controlled. It becomes difficult for the managers to control the flow of communication in such organisations.

ii. Instable – An informal organisation follows no set of rules and procedures therefore has no structure. This makes it unstable and unpredictable.

iii. Rumours and leaks – An informal organisation leads to spreading of rumours and can also help in leaking important information.

iv. No fixing of responsibility – As the informal organisation is structure less; it becomes difficult to fix responsibility in case of failures.