UNIT 2.

1 Formal organizations
A formal organization has a certain set of rules and codes to be followed by its workers.
In contrast, an informal organization is one in which the firm's climate is such that it
focuses on building social affinities and networks. A formal organization is akin to a well-
oiled machine where each cog has a defined function. It's a climate outlined by rules and
regulations that every employee must follow. It's an ordered structure where everyone
knows their role, the hierarchy is clear, and methods are routine and predictable. An
informal organization stressing social relations and flexibility can provide a nurturing
climate that fosters creativity, motivation, and job delight. It can boost team bonds,
enhance contact, and create a sense of belonging among workers. Recruitment and
Selection as well as training and development could be a way to deal with the formal and
informal organizations.

Formal and informal organization is a very integral part of the UGC-NET commerce
examination and so learners should be very clear with the actual meaning of both terms to
answer correctly in the examination.

In this article, we will study in detail the formal and informal organizations, along with
their advantages and disadvantages, along with types and differences between the same.

Formal and Informal Organization

Organizations, in a societal context, are organized into two main types: formal
organizations and informal organizations. These two types of firms have distinct features
and often serve different purposes within the societal structure. The functions and
importance of organizational culture will help to understand the formal and informal
organizations as well.

Formal Organizations

A formal organization refers to a fixed set of rules of intra-organization methods and

forms. This is generally dictated by a set of policies, which add structure and direction to
the organization's operation.

Examples of formal organizations include corporations, governmental bodies,

universities, nonprofit organizations, and the military.

Advantages of Formal Organizations

The advantages of formal organization can be better understood with the points mentioned
below.

Clear Structure: Formal organizations have well-defined orders, making roles and
responsibilities clear to everyone.
Predictability: There is predictability in the firm's functioning because of standardized
methods and rules. Accountability: Accountability is easy to establish as roles are
defined clearly.
 Efficiency: Due to standardized methods, efficiency and productivity can be high.

Disadvantages of Formal Organizations

The disadvantages of formal organization have been better understood with the points
mentioned below.

Inflexibility: Due to strict rules and regulations, there may be less room for
creativity or adaptability. Bureaucracy: Red tape and bureaucracy can slow down
decision-making processes.
Risk of Alienation: Strict hierarchical structure may lead to a lack of personal
relations and alienation among workers.
Resistance to Change: Formal organizations may resist change due to their set methods
and structures.
Types of Formal Organizations
The types of formal organizations are mentioned below.

Coercive Organizations: These can be further ordered based on the nature and aim of
the firm.
Detention Centers: These include prisons, correctional facilities where individuals
are held as a form of punishment for their actions.
Healthcare Institutions: These include mental health facilities, rehab centers where
the primary aim is to provide care and therapy.
Utilitarian Organizations: These can be divided into retail and academic institutions.
Commercial Organizations: These include firms and corporations which aim to
yield profit.
Educational Institutions: These cage universities, colleges, and schools where the
goal is to provide education and enrich learning.
Normative Organizations (Voluntary Organizations): These can be split into social
clubs, fraternities, and nonprofits.
Social Clubs: These include clubs centered around hobbies, and interests,
such as a sports club. Fraternities and Sororities: These are social firms
normally present at colleges and universities. Nonprofit Organizations: These
institutions aim to promote a cause and not to make a profit.

There are several types of organizational culture which will in turn affect the types of
formal or informal organization.

Informal Organizations

An informal organization, on the other hand, is a network of private and social relations
that spontaneously form within a formal firm. These affinities are typically not defined or
denied by the formal organization's
systems or methods.

Examples of informal organizations include social webs, a group of coworkers who form
a close-knit group, or an informal network of communication within a firm.
Advantages of Informal Organizations
The advantages of informal organizations can be better understood with the points
mentioned below.

Flexibility: Informal organizations allow for more flexibility and creativity.

Social Support: They provide social support, friendships, and a sense of belonging to
members.
Faster Communication: Informal communication channels often boost faster
decision-making methods. Adaptability: Informal organizations can be more flexible
to changes.

Disadvantages of Informal Organizations

The disadvantages of informal organizations have been mentioned below.

Lack of Structure: The lack of a clear structure can lead to chaos or conflict.
Risk of Favoritism: Informal relationships may foster bias or bias, which can
affect corporate fairness. Inefficiency: The lack of formal methods can sometimes
lead to inefficiency.
Unclear Accountability: It can be difficult to establish fault in an informal setting.

Types of Informal Organizations

The types of informal organizations are mentioned below.

Social Networks: They can be classified into skilled and personal networks.
Professional Networks: These are informal affinities within a skilled setting, such
as industry links.
Personal Networks: These include friends, families,
and neighbours. Interest Groups: They can be classified
based on their shared interests.
Hobby-Based Groups: These consist of people who share a common hobby, like a
photography group within a firm.
Cause-Based Groups: These are groups of people who come together to support a
shared cause or belief.
Grapevines: They can be split into positive and negative grapevines.
Positive Grapevines: These foster positive talk and engagement within the firm.
Negative Grapevines: These can sometimes spread rumors and misinformation,
causing discord.
Cliques: They can be classified into workplace cliques, social cliques, and online
cliques.
Workplace Cliques: These are groups of coworkers who share
a close bond. Social Cliques: These consist of friends who
often socialize together.
Online Cliques: These are groups of people who connect and engage regularly
online, such as a gaming ward.

There are various factors affecting organizational culture can also define the formal or
informal organization.
Difference Between Formal and Informal Organization
The difference has been stated below.

- Formal Organization Informal Organization

Purpose and Deliberately created with Emerges spontaneously based

Structure specific goals and on social interactions and
objectives. relationships.
 Hierarchy Has a defined hierarchical Lacks a formal hierarchy or
structure structure.

Authority and Clear delegation of Informal power dynamics

Accountability authority and responsibility. often exist without clear
accountability.

Communication Follows predefined Often relies on informal,

channels and protocols. spontaneous communication
among members.

Decision-Making Decision-making follows a Decision-making is less

structured process and structured, often consensus-
established rules. based.

Rules and Adheres to established rules Typically lacks formal rules

Procedures and procedures. and procedures; more flexible.

Examples Corporations and Friend groups and social

government agencies networks,

Conclusion

Both formal and informal organizations play crucial roles within any societal
structure. Knowing the features, benefits, and drawbacks of each can help us better
navigate our relations within these systems and also relish their unique grants to
our daily lives and larger societal processes. Knowing the types and features of
formal and informal organizations can give us a deeper sense of the dynamics
within offices, institutions, and societal structures. Both formal and informal
organizations have their own strengths and challenges, and they often coexist, each
enriching the other in unique ways. The formal and informal organizations defines
the types of organizational culture.