The informal organization can help the formal organization to achieve its goals

The organizational structure of your business refers to the way management levels are established, and the way decisions are made and implemented to achieve your desired goals. As a business owner or company leader, it’s your responsibility to decide whether the organizational structure that underlies your business is formal or informal.

These are not mutually exclusive choices, because a business can have a formal structure and still operate with the characteristics that define an informal structure. However, understanding the differences between a formal and informal organizational structure can help you make the best decision for your business.

Formal Organizational Structure Elements

In a formal organizational structure, the management and divisions within a company are typically written and explained so all employees understand how things work. This documentation may take the form of an organizational chart that visually depicts how each level of management works to prevent misunderstandings.

Formal structure organizations usually have a hierarchical pyramid structure with a company president, CEO and senior managers at the top; mid-level managers in the middle; low-level managers at the bottom. Staff employees are expected to implement decisions and processes made at the levels above them, and they are not usually solicited for their opinions or ideas about how the company should operate.

Informal Organizational Structure Elements

In an informal organizational structure, your business doesn’t operate under the guidelines of a written document that spells out the rules, regulations and chain-of-command. Under this structure, your business operates by a system developed by your employees who have proven effective. This structure relies on relationships forged between staff members, cooperation between teams and communication that focuses on achieving shared goals.

Informal structures are unique for every company, because they are based on the personalities of your employees and collaborative techniques developed over time.

Advantages of Formal and Informal Organizational Structures

The primary advantage of a formal organizational structure is that it clearly delineates the roles and responsibilities of every employee, from the top level to a staff member. As a result, everyone in your company knows what they have to do and how they’re supposed to achieve desired goals. The formal chain of command also keeps work processes under your control, because there is an established method of decision-making and implementation of your directives.

The major advantage of an informal organizational structure is that it’s highly adaptable to change. If your business must respond to external influences that demand an organizational shift, an informal structure is fluid enough for you to make that change quickly and efficiently.

Disadvantages of Formal and Informal Structures

The main disadvantage of a formal organizational structure is that decisions take a long time to move down management levels to the rank-and-file, and there is often a disconnect between executives and staff employees because they don’t interact very often.

The primary disadvantage of an informal organizational structure is that things can become too informal, which can lead to disorganization, confusion and misinterpreted communication. Another disadvantage is that because your business lacks a centralized management structure, employees may take advantage of that freedom to make decisions that are not well thought out.

What is an informal organization?

An informal organization is a group of people who share a common identity and are committed to achieving a common purpose. Informal organizations are created by the will and shared identity of their members. The operation of an organization, in reality, is known as an informal organization as opposed to a formal organization, which is based on roles and responsibilities.

Informal organizations emerge from the interaction or communication between employees irrespective of their designations and hierarchies. It runs parallel to a formal organization.

Definition

According to Chester Barnard, "an informal organization is an aggregate of interpersonal relationships without any conscious purpose but which may contribute to joint results."

According to Schein, an informal organization exists in the sense that it has no legal existence, no legal boundaries, no membership roster, no tangible assets, no formal structure, and no official leadership. The distinguishing feature of an informal organization is the social fabric that binds its members together with a common identity.

Concept and Types

Informal organizations have no fixed rules or hierarchies defined between people. It is fluid and dynamic in its form. Both formal and informal groups coexist in an organization and are essential for efficient functioning. We can classify informal organizations into three groups that are defined by the similarities and dissimilarities of the work performed by the members of each group.

These are listed below:

• 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 who are at the same level in the organizational hierarchy form a horizontal group.

• 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 be associated with a first-level employee, or a group of first-level employees may establish a group with their bosses.

Such groups promote better communication and quick access to the issues arising in the organization. 

• Mixed Group- People from different levels and different departments create a Mixed Group. The groups are created 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.

Example of Informal Organization

Members of the sales team join every day for lunch with the human resource team. Another example of such informal groups is that sales team personnel help tech development employees to figure out the requirements of the product.

Features of Informal Organization

• Informal organizations exist in every organization. They are built spontaneously, over time, and not deliberately.

• Policies, procedures, or norms are not required to create such groups; they are formed merely based on personal interactions and common interests.

• There is no specific direction in the flow of information.

• It does not possess any definite structure or hierarchy.

• Another feature of informal organizations is that they are found in every business. It is because social interactions are essential.

• Employees who do not get along well with one another may not be able to work cooperatively. This affects the organization's financial profitability.

• Finally, managers can only regulate rather than prohibit informal organizations. This regulation is significant because it has the potential to influence the productivity and morale of everyone involved.

Difference Between A Formal and Informal Organization

• A formal organization is created by the management deliberately, whereas an informal organization is created spontaneously by members.

• Formal organizations are stable and run long, but informal groups are unstable.

• The purpose of a formal organization is to accomplish its organizational goal, as opposed to an informal organization, which fulfills the psychological and social needs of its members.

• In a formal organization, the job of a member is clearly defined by the management and is held accountable to the organization. This is in contrast to an informal organization, which is formed based on interpersonal relationships and has no defined responsibilities or roles.

• Formal organizations are bound by hierarchies, but informal group members are equal.

• In formal organizations, the focus is on work performance, whereas in informal ones, it's interpersonal relationships.

• Rules and regulations are well-defined in a formal organization, while informal organizations have their norms, beliefs, and values.

• The size of formal organizations is large when compared to informal organizations, which are small.

Functions of Informal Organization

Informal organizations have several important functions. They are: 

• It provides a source of friendship and social connections for members of the organization. 

• Interpersonal relationships and informal groups can help employees better understand what is going on in the company and establish contact with it so that they have a certain sense of control over the work environment. 

• Informal organizations can provide status and recognition that formal organizations cannot or will not provide employees. 

• The interpersonal network can help the socialization of new employees by informally communicating rules, responsibilities, basic goals, and job expectations. 

• Organizational grapevine helps employees better understand what is happening in their workplace by quickly transmitting information and conveying it to places that cannot be reached by the formal system.

Importance of Informal Organization

• Information is exchanged between groups and people quickly because the lines of communication are not defined.

• Quick feedback is received.

• Job satisfaction is attained because the social needs of the members are fulfilled, thus leading to stability in the organization.

• People in an organization are diverse, and so are their needs, which cannot be fulfilled by the formal design of the organization.

• They provide the members with an opportunity to build status and social interaction and enable them to overcome identity crises. It also provides an audience to listen to and reach out to.

Advantages

The informal organization has several advantages. They are:

• First, they instill a sense of unity and solidarity among members. 

• It happens because they are obsessed with each other's social interactions. Therefore, this leads to job satisfaction and stability in the organization. 

• In addition, a strong informal organization can be an effective means of rapid communication. Managers and employees can use this.

• The informal organization can compensate for the limitations imposed by formal structure, enabling it to successfully achieve organizational goals.

• The managers also benefit from the informal organizations by using them to understand the grievances of employees.

• Workers benefit from the emotional security provided by the informal organization. A sense of being present and belonging in a positive atmosphere boosts job satisfaction. A positive influence from an informal organization leads to increased productivity.

• Managers know that members of the informal organization will keep an eye on its activities, which is why they plan carefully after going through the benefits and drawbacks.

Disadvantages

Conflicts

Informal grouping gives rise to conflicts because multiple people tend to boss each other.

To achieve social satisfaction sometimes, the members slip away from formal organizational timelines, thereby decreasing productivity.

Rumors

With communication between different members across departments, there are chances of rumors getting spread quickly.

Spreading of wrong information disrupts the work environment hampering the work balance.

Conformity

People share common interests in clubs to form groups. However, when a non-conforming member joins this group they may be pressured to conform to the group which can be against the organizational interests. This can be a cause of harassment or physical abuse.

Change Resistance

Informal groups can create resistance to the rules or strategies set by the management and cause difficulty in implementation.

An informal group may restrict modifications in the work environment.

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