The following points highlight the two main types of organisation. The types are: 1. Formal Organisation 2. Informal Organisation.

Type # 1. Formal Organisation:

A formal organisation is deliberately designed to achieve some particular objectives. It refers to the structure of well defined-jobs, each bearing a definite measure of authority, responsibility and accountability. According to Chester I Barnard it is a “system of consciously co-ordinated activities or forces of two or more persons.”

This structure is consciously designed to enable employees to work together for accomplishing common objectives. The individual must adjust to the formal organisation. It directs him to perform things in a specified manner, to obey orders from designated individuals and to co-operate with others. Co­ordination also proceeds according to a prescribed pattern in the formal organisation structure.

This has been developed around four key pillars namely:


(i) Division of labour

(ii) Scalar and functional processes

(iii) Structure and

(iv) Span of control.


These may also be called as the principles of formal organisation. In division of labour the work is divided into a number of small opertaions and each operation is performed by a different person so that there is maximum specialisation. The scalar and functional processes imply the growth of the organisation both vertically and horizontally.

The structure of the organisation refers to the overall arrangement in the organisation which ensures a proper balance between different parts of the organisation and secures the execution of all operations and the achievement of organisational objectives. The span of control refers to the number of subordinates directly reporting and accountable to one superior.

Features of Formal Organisation:

The features of formal organisation structure are:

(a) It is consciously designed.


(b) It is based on delegated authority.

(c) Authority, responsibility and accountability of each level is clearly specified and well defined.

(d) The principle of unity of command is usually observed.

(e) It provides for division of labour.


(f) It is deliberately impersonal.

(g) Organisation structure concentrates on the jobs to be performed and not the individuals who are to perform jobs.

(h) The organisation does not take into consideration the sentiments of organisational members.

(i) The authority and responsibility relationships created by the organisation structure are to be honoured by everyone.

Type # 2. Informal Organisation:

Informal organisation refers to the relationship between people in the organisation based on personal attitudes, emotions, prejudices, likes, dislikes etc. These 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 social groups. These groups may be developed on the basis of same taste, language, culture, or some other factor. These groups are not preplanned but they develop automatically within the organisation according to its environment.

Formation of groups, cliques and sub-cliques are very common in an organisation. Such organisations represent relationship between individual in the organisation based on personal attitudes, emotions, likes and dis-likes, physical location, similarity of work etc. There are so many informal groups in an organisation.

Each group has its own social system that influences power fully on productivity and job satisfaction. They all collectively called, informal organisation but the organisation of each informal group is distinct from others, and influences the formal organisation in its separate entity.


According to Joseph A. Gitteror “The informal organisation refers to people in group associations at work, but these associations are not specified in the blue print of the formal organisation. The informal organisation means natural groupings of people in the work situation.” This is not shown anywhere in the organisation chart, but it still exists in all organisations. It satisfies human needs of working in a group sharing common ideas and values, communicating in familiar language and protecting group interests.

Features of Informal Organisation:

The features of an informal organisation are as follows:

(A) Arises from Social Interaction:

The members of the group join together to meet personal needs of the group and it act as an agency of social control. The group does not care for former channels of communication and they communicate amongst each other.


(b) Natural and Spontaneous Growth:

People form groups conscious or un-consciously. It is an off-shoot of formal organisation and it arises naturally. A person may become its member at any time he likes. So there is voluntary membership.

(c) It is a Part of Total Organization:

It is found at all levels of managerial hierarchy in all organisations.

(d) Based on Informal Authority:

Informal authority is earned and not delegated. Informal authority is granted to any person because of his age, seniority, job knowledge, information, personality, strength etc.


(e) Develops from Customs, Contacts and Habits:

Its growth is spontaneous and voluntary. It may develop due to customs, contacts and habits. The informal set up will have its own rules, regulations and traditions. These are to be inferred by the behaviour of members and they may not have any written rules and regulations.

(f) Valuable Impact:

Their influence on productivity and job satisfaction is very profound. So managements generally consider them and treat term carefully as they cannot be abolished. Formal managers must be capable of performing effectively in spite of their prominent presence in all organisations.

(g) It tends to remain smaller, less permanent and less stable.

Nature of Informal organization:

The natures of informal organisation are as follows:


(A) Arises from Social Interaction:

Hawthorne experiments pointed out that informal organisation were an integral part of the total situation. These are the network of personal and social relations which arise spontaneously as and when people come into contact with one another. Power in informal organisation is attached to a person and not to position irrespective of the position he occupies in the organisation. The authority is earned by the leader.

It is quite unstable as it relates to the sentiments of the people of the group. It cannot be abolished in organisations. They are small in size and many in number in a formal organisation.

(b) Informal Leaders:

The informal leader is normally elected based on age, seniority, technical competence work location, responsive personality etc. depending on the work situation. There may be many informal leaders in an organisation. These leaders may enjoy certain privileges and rewards and they may be looked upon as the respectable member of the society. A successful informal leader need not be a successful formal leader.

(c) Informal Communication:


Informal organisation develops its own communication system and it is known as grapevine. This has got tremendous capacity to carry information with helpful and harmful effects on the organisation in an unpredictable manner. It is much faster than formal communication. But it lacks accuracy. It can spread rumours and false information.

(d) Common Interest of Members:

Employees become members of informal organisation voluntarily due to commonality of interest and willingness to honour the norms of the organisation. They have certain group norms which the members voluntarily accept—with a view of achieve their goals.

Functions of Informal Organisations:

Every formal organisation used to have informal organialisation. It cannot abolish the emergence of informal organisations. Informal organisations play both a positive and negative role in every organisation. Their presence and influence can be felt and experienced by all formal managers.

Normally they perform the following functions:

(a) Satisfaction of Individual Needs:


The prime function of informal organisation is to satisfy the individual needs of its members. These needs include social needs, egoistic needs, security needs, esteem needs etc. They can be satisfied only with the help of such groups. These groups provide then- members recognition status and further opportunity to relate to others.

(b) Perpetuate Cultural Values:

Informal organisations perpetuate cultural values among members. Culture is considered as the best cementing force. This function facilitates life style and helps to preserve the unity and integrity of the group. This gives more psychological satisfaction to members.

(C) An Effective Source of Informal Communication:

Informal organisation is a good source of communication to its members. With the object of meeting the different needs of members and keep them aware of the situation of what is going on in the organisation the group develops systems and channels of communication. Any information of mutual interest which is known to a member is passed on to others. This minimises communicational barriers.

(d) It is a Regulatory Device:


Informal organisation serves as a device of social control by which the behaviour of persons can be influenced and regulated. The social control may be internal as well as external. It is internal when it confines to members of informed organisation. Any deviation of norms is not permitted. It becomes external when social control is directed towards management, unions and other groups.

Merits of Informal Organization:

The main advantages of informal organisation are:

(1) Influences Productivity and Job Satisfaction:

Informal organisation is responsible for creating a sense of security and belonging. This motivates them to stay in the organisation. As a result, labour turnover is reduced and productivity increases. It develops job satisfaction as well.

(2) It Achieves what Formal Organisation cannot Achieve:

An informal organisation is a social structure which is formed to meet personal needs of the members of the group. Such needs cannot be met by formal organisation. It cannot consider the sentiments and values of the social organisation.

(3) Informal Organisation is Playing a Complimentary Role:

A fair blend of formal and informal organisations produces an effective total system for achieving performance. A formal organisation alone cannot achieve performance and meet problems because it is pre-established and inflexible due to its plans and policies. Informal organisations can better meet certain requirements of formal organisation as it is flexible.

(4) Informal Organisation Facilitates Easy Flow of Communication:

This serves as a useful channel for the flow of communication. The members of the group remain in close contact with each other and plans the future course of action even before the formal communication reaches them. Normally the flow of communication is much faster.

(5) Minimises the Work Load of Management:

When management is sure of the fact that informal organisation is with them then need not check the workers’ mind frequently. With minimum hesitation the managers can delegate and decentralize their authority as they are confident of the co-operation of the employees.

(6) The Informal Organisation can Make-Up for Deficiencies:

There may be gaps in manager’s ability. For example, a manager is weak in planning, another manager may be weak in organising, the members of the informal group may help in correcting the defective plans and organising by giving their valuable suggestions and improve them in implementation.

(7) They Serve as Safety Valves:

They serve as safety valves for employees, frustrations and other emotional problems. Psychologists are of the opinion that frustrations and emotional feelings are subsided when they are discussed with others in the group in a friendly manner.

(8) A Check on Manager’s Performance:

The presence of informal organisation managers performs their functions carefully. They cannot think in terms of misuse of their powers and if they indulge a befitting reply may be given by the employees. So managers are aware of the fact that informal organisation act as a check on their powers of authority.

(9) Informal organisations give due recognition to social conventions and group norms which cannot be given by formal organisations.

Demerits of Informal Organization:

The disadvantages of informal organisation are:

(1) Clash of Objectives:

There may be clash objectives between formal and informal organisations. This may lead to confrontation.

(2) Job of Formal Managers made Difficult:

Informal organisation may place blocks against performance of formal managers. This may be of subversive nature or may act on mob psychology.

(c) Integration:

Integration of both formal and informal organisations is a difficult job. The interests of the two organisations may clash to the extent that confrontation may be inevitable on the two sides.

(d) Imposes Self-Regulation:

Informal organisation may try to impose discipline on its members through social pressures, social ostracism or through physical threat in extreme cases. Members who do not confirm to norms are first persuaded and then attempts are made to bring them into line by making their life miserable.

Every formal organisation will have informal organisations. They are beneficial in the interest of workers as well as of the formal organisation, subject to certain limitations which should be taken note of.