Formal and informal organisation

The essentials

Formal organisation is the structure of authority and relationships deliberately designed by management to achieve organisational goals. It is shown on the organisation chart. Informal organisation is the network of social relationships that arises naturally when people interact at work on the basis of shared interests, tastes or backgrounds. It exists within the formal organisation.

Key points

• Features of formal organisation: specifies relationships among jobs, is deliberately created by top management, is based on rules and procedures, emphasises work, and helps coordination.
• Merits of formal organisation: easy fixing of responsibility, no duplication of effort, maintains unity of command through the scalar chain, helps achieve goals, and provides stability.
• Limitations of formal organisation: procedural delays, may ignore creative talent, and does not fully reflect human relationships.
• Features of informal organisation: arises from social interaction, has unwritten norms, has no fixed lines of communication, and grows on its own without being planned.
• Merits of informal organisation: faster spread of communication through the grapevine, fulfils social needs of members and gives a sense of belonging, and helps managers understand employees' feelings.
• Limitations of informal organisation: spreads rumours, may resist change, and group pressure may make members act against organisational goals.

Exam tips

• Communication in informal organisation is called grapevine communication.
• The leader of an informal group is chosen by the members, not appointed by management.

Common mistakes

• Saying informal organisation is always harmful. Managers can use it to get feedback and spread information quickly.
• Saying informal organisation is shown on the organisation chart. Only the formal structure is shown.