Informal Organisation: Types, Functions and Structure (With Diagram)

After reading this article you will learn about:- 1. Definition of Informal Organisation 2. Types of Groups in the Informal Organisation 3. Functions 4. Structure 5. Significant Characteristics 6. Impact 7. Strategies for Working.


  1. Definition of Informal Organisation
  2. Types of Groups in the Informal Organisation
  3. Functions of the Informal Organisation
  4. Structure of the Informal Organisation
  5. Significant Characteristics of Informal Organisations
  6. Impact of the Informal Organisation
  7. Strategies for Working with the Informal Organisation

1. Definition of Informal Organisation:

The informal organisation may be defined as “a network of personal and social relationships that arise spontaneously as people associate with one another in a work environment. It is composed of all the informal groupings of people within a formal organisation.” Over time there are changes of memberships in most informal organisations.

There is interdependence among the members be­cause each one needs the other’s company. People from such informal groups because they do benefit from such memberships in one way or another. On the contrary, the informal organisation throws a challenge for a manager because it consists of actual operating relationships not prescribed by the formal organisation.


Since informal organisation exists everywhere in a organisation we can give a number of examples of such organisations. For example, one may consider the case of only two workers whose habit it is to gossip and have their perceptions of company affairs and personnel. They can do this on the job, at work, or after work.

Likewise there are instances where one employee assists someone else in another department in solving a work problem. Not only workers but also managers form informal groups that cut across departmental lines. Moreover, managers often actively participate in other groups with non-managers.

2. Types of Groups in the Informal Organisation:

In general the informal organisation consists of groups of people. Information groups are of three categories — horizontal, vertical and mixed. These titles identify the composition of the group by the levels of the formal organisation, in which the positions of different members are defined on the basis of similarity or dissimilarity of their work assignments.

We may now make a brief review of these three groups:

a. Horizontal Groups:

Persons whose positions are on the same level of the organisation belong to horizontal groups. Such informal groups may consist of all the member (managers and non-managers) in the same depart­ment or different members across departmental lines (by virtue of the case of accessibility).

Since all members operate at the same organisational level, they do not have to cross any inherent vertical barrier. Such groups are formed for common concern over security, communication or equity.

Membership in a horizontal group is often found to be mutually beneficial to individuals because it promotes information sharing and provides mutual support. People in the same or related areas of work often share the same problems, interests and concerns. They attempt to solve the problems themselves, without turning to the boss for instruction and guidance.

In this context one may cite the example of an interaction between an operating department and another department, for which involvement is only supportive rather than primary. For example, members from five departments — production, marketing and sales, quality control, inventory, and finance — regularly meet at lunch intervals and share problems and concerns together.

As a result of this alliance ongoing problems get solved informally, special orders are expedited and coopera­tion in general at the operating level is created.

b. Vertical Groups:

Vertical groups are often the result of outside interest or various employment relationships within the same department. Such groups include people on different levels of the formal organisation’s hierarchy. Usually these people voluntarily come together within the same work areas. For example, in a production department a vertical group might include a supervisor and one (or more) of his subordinates.

Alternatively a supervisor or group of supervisors might form a group with their bosses. Moreover, such a group may be formed through skip-level relationships: a top level manager may associate with a first level manager, or an operating employee with a second level manager.

This type of informal group relationship provides quicker access to problems that arise in the structure and permits improved communication. But the danger is that the supervisor loses objectivity with the subordinate and may be accused of favoritism.

c. Mixed Groups:

A mixed group may be formed by two or more people who belong to different levels of the formal organisation and in different work areas. For instance, the vice-president (finance) may develop a close relationship with the director of computer services for getting preferential treatment (i.e., greater and timely access to computer facilities).

For precisely the same reason a production manager, for instance, may attempt to gradually develop an informal, social relationship with the director of maintenance or the marketing manager.

Such groups are often formed because of common bonds outside the work place, e.g., common interests, club memberships, ethnic back­grounds, and so on.

However, a manager must realize the important point that informal groups do function quite naturally and often in the daily operation of the organisa­tion. As Fig. 9.22 shows, they are an integral part of the inter­action of managers and operat­ing employees.

Types of Groups in the Informal Organisation

After making a brief review of three different types of infor­mal groups we must explore why the informal groups arise and why they remain in exist­ence.

3. Functions of the Informal Organisation:

People form informal groups because they have common problems, interests and concerns. Once such groups are formed, they serve their members in a number of ways. Otherwise such groups would not exist in the long run.

(a) Why People Form Informal Groups:

People form informal groups for the following three reasons:

1. Need for satisfaction:

All people in an organisation are not alike. So their needs differ. These diverse needs of people cannot be met through the formal organisation. People join informal groups to get the opportunity to fulfill security, affiliation, esteem and, sometimes, self- actualization needs. For example, taking lunch with the same group every day may meet affiliation needs. The cultural unit may meet both friendship and ego needs.

2. Proximity and interaction:

People often form joint groups because they prefer to work in close proximity to another. This may refer to either physical proximity or frequent interac­tion. The prime examples of this are horizontal informal groups.

3. Similarity:

‘The birds of a feather flock together’ like many other proverbs contains an element of truth. Karl Marx also pointed out that when diverse people have the same interest they become friends. Otherwise they became foes. Thus people join informal groups because they want to associate themselves with other people who are similar to themselves.

This is why it is observed that different people with the same attitudes and beliefs often join a group. There may be similarity on other points also: Personality, race, sex, economic position and perceived abilities. In general, people associate with other people because they have the same beliefs and characteristics.

(b) Why Informal Groups Remain in Existence:

Informal groups continue to exist in the long run because they serve four important purposes.

The functions performed by informal groups may now be discussed:

1. They maintain the social and cultural values the group members are supposed to have in common:

Group members tend to share the same beliefs and values as a result of background, education, or cultural heritage. The various areas (such as the work ethic, the job system, promotional patterns and employment status) about which the group may have common beliefs are reinforced and maintained by the group environment.

2. They provide group members not only opportunity for status but also opportunity for social interaction and fulfillment:

Individuals are enabled to receive what the formal organisation is unable or reluctant to provide. In a large company, an individual, worker is just nobody. He loses his identity. The informal organisation enables the same worker to overcome this identity crisis and provides him with companionship, an audience to listen to him (his stories and experiences), and the chance to be important.

An informal group gives him importance far beyond his formal organisational role.

3. They provide necessary information for their members:

Quite parallel to management’s formal channels the informal group develops its own system and channels of communica­tion. One major function of informal groups is to give members access to information.

4. They influence the work environment:

Informal groups also play a regulatory role. They influence or regulate the behaviour, dress, or work standards of their members through positive and negative means. Positive means include acceptance, support, affiliation and negative methods refer to threats of ostracizing non-complying members.

It is also possible for the informal groups to regulate or influence the actions of management. The reaction of employees to the implementation of a new system for performance appraisal illustrates this point. The informal group may boycott the system which provides category quotas, volumes of written documentation and no appeal process.

Management was left with two options: fire all employees or modify the system. A strong informal group may force management to modify the system.

As the groups continue to function in the informal organisation, group dynamics take place. The group members assume roles. It is now instructive to enquire (a) how does a manager deal with a group? And (b) what should a manager look for?

4. Structure of the Informal Organisation:

We may now examine in detail two different but interrelated issues — emergence of leaderships and evolution of member roles in informal organisations.

Leadership of the Group:

Like a formal organisation, the informal group also develops leader-follower relationships. Because of the multiplicity of informal groups in an organisation, a person may be a leader in one group and a follower in another.

Various factors lead to the emergence of leaders in such group: age, seniority, charisma, work location, technical ability, or the opportunity to move around the work area freely. While, in horizontal groups, charismatic leadership is common and in vertical and mixed groups, the leader is usually the most seniors person or the person holding the highest position in the informal organisation.

It is also possible for an informal group to have several leaders of varying importance who perform different functions. One person may be looked at by the group as an expert on organisa­tional matters and another as its social leader.

The organisation may need a third person on the matter of-technical, job task questions. However, all leaders are not equally strong or powerful. Usually one leader may dominate — he may exert more influence on the group than the others.

Non-Leader Roles for Members:

The leadership role apart, members play other roles as well in an informal organisation. In general, there is an inner core or primary group; a fringe group, which functions in and out of the group; and an out-status group which, though identified with the group, does not actively participate. Fig. 9.23 illustrates this com­position make-up of an informal group.

Composition of an Informal Group

Two different methods or tools are available to identify the existence of informal groups as also their composition, viz., (i) a sociogram and (ii) an interaction (or informal organisation) chart.

A sociogram which is a diagram of group attraction was first developed by J.L. Moreno. It is based on the belief that interactions within a group are the result of people’s feelings of attraction (like) and aversion (dis­likes) for each other. Thus it is developed through a process of asking members when they like or dislike and with whom they wish to work or not.

Fig.9.24 illustrates a sociogram.

In this hypothetical example 8 different workers are involved and they developed this pattern:

(i) A, B and C are a cohesive group and may form the inner core.

(ii) B is the star and develops the leadership role as A, B, G, D and E are all attracted to him.

(iii) H works in isolation and does not have any relation with anybody – an out – status. He cannot attract any-body and is rejected by both G and F.

(iv) Although E and F are attracted to each other they appear to be on the fringe of the group.

Sociogram of the Group

An interaction chart is a diagrammatic device for depicting the informal interactions among people. The chart can show, for any specific reason, with whom, the person spends the maximum portion of his time and with whom the person communicates informally.

As soon as this chart is developed, it can be compared or even superimposed on the formal organisational chart to illustrate non-leadership differences among individuals. Fig 9.25 illustrates the informal communication patterns that was developed from information known only to manager 110. The bulk of the information communicated was transmitted outside the formal channels.

Informal Communication Patterns

The chart is built on the basis of observations of actual communications by recording the length (volume) and duration of discussions taking place among individuals, rioting who initiates the discussions with individuals, and who initiates discussions with the entire group.

Utilising Group Roles:

After recognising the existence of informal group and identifying the roles members play within that group, a manager must develop sufficient intelligence to use the information to work with the informal group. The reason is easy to find out. Since a manager has to work with employees on a daily basis, he has to recognize and adjust to individual differences, values, and beliefs. The manager has simultaneously to work with a group or groups of employees who have a personality, values and a culture. It is absolutely essential for managers to be able to identify the leaders of these groups and work with them to influence the total group.

There is no logic in trying to influence a group by appealing to a fringe (small) number. The leaders are at the core (heart) of decision-making. A manager can identify the composition of groups by utilizing both the interaction chart and the sociogram.

Apart from the knowledge regarding the structure of leader-member roles it is necessary for a manager to gather necessary information about the characteristics of a group. As a group interacts, it develops certain characteristics. The manager must recognize two such characteristics, viz., group norms and cohesion. These two major characteristics may now be discussed.

5. Significant Characteristics of Informal Organisations

(a) Group Norms:

Norms are simply standards of behaviour that are accepted by all group members. Such norms serve as guidelines and instruct members what they can or cannot do under certain circumstances. Such standards of behaviour are-set by the group through consensus of ideas and activities or through the influence of the leader of the group.

As soon as these norms are established and agreed on by the group, they act as an internal control device on members.

For example, the leader may set the standard for dress at the executive level (such as gray suits, block ties and nice haircut). The young generation of executives imitate this without question. The failure to adhere to this norm may have an adverse consequence; it may result in a short career within the organisation.

In general, groups establish their norms, not management. However, if management finds the norms unacceptable, management is never in a position to change group norms without taking an extreme action such as firing the group or disbanding it. The only choice before management is to work with the group and to try to influence the group to change its norms.

(b) Cohesion:

The second important characteristic of informal groups is cohesion, which is simply measured by the degree to which members share the group’s goals, and cooperate with one another. The degree of cohesiveness indicates how much control the group has over its members: the greater the degree of cohesiveness, the more the control.

The factors favourable to high cohesiveness are stable membership, open communication, small group size, physical isolation from other groups. As informal groups continue to function they develop varying degrees of cohesiveness. What is generally true is that the more cohesive the group, the greater its success in achieving and controlling its environment.

When a highly cohesive informal group deals with external influences — such as management and other groups — it is guided by the singleness (unity) of purpose. Because of this unity of purpose, the group can open some opportunities before management or can be a threat to it.

In other words, the group can cause a lot of problems for management if it is in opposition to management, or it can achieve positive organisational results when working in unison with management. By contrast, informal groups displaying a low degree of cohesion is unlikely to be a major force in either the informal environment or the formal organisation.

6. Impact of the Informal Organisation:

After examining the nature of the informal group, we may now consider the impact of informal organisation on the formal organisation. The groups that compose the informal organisation are likely to have both positive impact and negative impact on the formal organisation. We may now discuss each category.

Positive impact:

Informal groups do have the potential to be helpful to managers because they perform three important functions:

(1) They establish, enforce and perpetuate social and cultural norms and values important to group members.

(2) They stimulate effective and dynamic communication.

(3) They provide the members with the social satisfaction and status the formal organisation is unable to give.

Five major benefits provided by the informal organisation are the following:

1. Improving organisational effectiveness:

In case there is wonderful blend between the formal and informal organisations, greater organisa­tional effectiveness can be achieved. In other words, the informal organisation makes the total system effective. This is possible only if the two systems grow simultaneously by assisting one another on a reciprocal basis.

To be more specific: “the ability of the informal group to provide flexibility and instantaneous reactions will polish the plans and procedures developed through the formal organisation.”

2. Support service to management:

The informal organisation may provide support to management in various ways. Firstly, it can fill in gaps in the manager’s knowledge through advice or through performing the work — for example, budgeting and scheduling. By being able to discuss the causes of frustrations and grievances with fellow members in a supportive environment they are relieved of emotional pressures.

3. Useful communication:

The informal organisation provides a useful channel of communication. It provides employees with the opportunity for social information, for discussing their work, and for understanding what is happening in the work environment.

4. Better management:

The informal organisation promotes better management. The informal organisation is powerful because it acts as a check and balance system. Management should be aware of it. They should, therefore, take note of the fact that the informal group has the ability to make any organisational plan successful or unsuccessful. So managers should make planned changes keeping this view in mind.

Negative Impact:

Although not part of the formally established organisation, these informal groups can cause managers a number of problems. They often create conflict, especially with organisational goals, generate and spread rumors, encourage resistance to change and lead to conformity among members, including restricting performance.

These points may now be discussed separately:

1. Resistance to change:

The informal organisation is always in a position to resist change. In an effort to protect its values and beliefs, the informal groups can set a number of constraints in the path to any modifications in the work environment. A five-day compressed work week or the hiring of Scheduled Caste and Scheduled Tribe candidates could impinge (infringe) on the values of the informal groups, resulting in resistance to the change.

2. Conflict:

The informal group gives birth to multiple bossing systems. To be more specific, it can create two ‘masters’ for an employee. In his attempt to satisfy the informal group, an employee can come in conflict with the formal organisation. For instance, group members may spend 60 minutes everyday while taking lunch.

They may go together as a group, eat slowly, while gossiping, and analyze the business affairs of the company. But the manage­ment has authorised only a 30-minute lunch break. Thus employees’ social satisfaction is in direct conflict with the employer’s need for higher productivity.

3. Rumour:

The informal communication system, known as the grapevine, can create and process wrong information and spread false rumours. The spread of rumours may distort the entire work environment and can upset the balance of the environ­ment.

4. Pressure to conform:

The norms that the informal groups develop often act as a strong inducement towards conformity. The more cohesive the group, the more accepted are the standards of behaviour. Non-conforming in person’s reference group is likely to result in gentle verbal reminders from the group but can cause harassment — ostracism or rearrang­ing the work area. It can even lead to physical abuse.

7. Strategies for Working with the Informal Organisation:

The effects of informal organisation cannot be ignored by any manager. Successful managers come to learn that if the informal organisation is managed correctly it can confer a number of advantages to the formal organisation. So managers have to develop strategies for working with the informal organisation.

A manager must first of all recognize and accept the existence of the informal organisation and start strategy development thereafter. The manager must first of all try to develop an appreciation for the potential impacts (positive and negative) of the informal organisation on the formal structure.

This awareness is likely to result in the realistic strategy of always considering the potential impact of any action on the informal organisation before it is undertaken.

Another element of strategy development is to identify the informal groups and its leaders. It is necessary to find out the norms of the organisation and also the degree of cohesiveness of the group. Two important aids to the process are the sociogram and the informal organisational chart.

Another way to identify the informal leader is to watch for the arbitrator or mediator in disputes in the work unit. This role indicates the existence of informal power.

After completing the above two stages of strategy development the manager can be confident about what he is dealing with. Then it becomes essential for the manager to develop strategies to align the goals and activities of the informal organisation with those of the formal organisation. The manager must cultivate the informal organisation.

Four points for implementing this strategy are the following:

Firstly, every manager must seek the support and co-operation of the informal leader.

Secondly, the manager should provide open and complete communications by using both formal and informal channels.

Thirdly, the manager should control rumour by:

(a) Removing its causes,

(b) Applying efforts to counter false rumours that can cause trouble, while letting the others die out automatically.

(c) Providing facts as quickly as possible.

(d) Using a credible source to supply the fact, and

(e) Using face-to-face communication.

Finally, the manager should keep the activities of the formal organisation from unnecessarily threatening the informal organisation; in general, he should be sensitive to its existence.

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