Q.What is an informal organization?
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Imagine you walk into a new office on your first day. You have an official desk, a job title, and a reporting manager. That is the formal organization — the neat, official chart that tells you who reports to whom.
But within an hour, you notice something else. A senior colleague quietly shows you where the good coffee is. Two people from different departments always eat lunch together. Someone whispers, "Don't ask Mr. Sharma for approvals after 4 PM — he's grumpy." This invisible network of friendships, cliques, shared habits, and unwritten rules is the informal organization.
It is the "real" organization that lives inside the official one. It is not drawn on any chart, not mentioned in any policy document, and nobody appointed its leaders. Yet it powerfully shapes how work actually gets done.
What the NCERT textbook says
The NCERT Class 12 Business Studies textbook (Chapter 5, Organising) defines informal organization as:
"A network of personal and social relationships which arises spontaneously when people associate with each other in a work environment."
Key points from the textbook:
- It emerges spontaneously — nobody plans it. It grows naturally from human interaction.
- It is based on personal relationships — friendship, common interests, shared language, or even just sitting next to each other.
- It has no formal structure — no written rules, no hierarchy, no designated authority.
- It creates informal leaders — the person everyone actually listens to, who may not be the manager.
Why it matters (and why you should care)
The informal organization is not a problem to be fixed. It is a reality to be understood. Here is why it matters for a manager:
The good side:
- It speeds up communication. Information flows faster through the grapevine than through official memos.
- It fills gaps in the formal structure. When the official system is slow or unclear, the informal network helps people get things done.
- It provides emotional support. New employees learn the ropes from informal mentors. Friendships reduce stress and increase job satisfaction.
- It creates a sense of belonging. People stay in organizations where they feel connected, not just employed.
The tricky side:
- It can spread rumors. The grapevine is fast but not always accurate.
- It can resist change. If the informal leaders oppose a new policy, it may fail no matter what the official order says.
- It can create group pressure. People may conform to informal norms even when those norms hurt productivity.
- It can undermine formal authority. If the informal leader and the formal manager clash, the team may follow the informal leader. …
An informal organisation arises on its own from the social interaction of employees, independent of the official structure. It is based on personal relationships rather than formal rules. …
Informal organisation is the spontaneous network of social relationships among employees, outside the official structure.
An informal organisation emerges automatically when people working together interact socially. It is not deliberately created by management; it grows out of friendship, common interests, caste, language or shared attitudes. It has no fixed rules or structure, communication flows in all directions (grapevine), and it exists to satisfy the social and psychological needs of members. Though not shown on any chart, it strongly influences behaviour and the flow o …
Showing the 12 most recent of 26 on this concept.
- CBSE 2026Set ANNUAL1 markMCQQ.Characteristic of formal organisation is A) Unplanned B) Purposeless C) Uncontrolled D) Created by management
›Reveal solutionSolution
A formal organisation is consciously set up by management, so the answer is D) Created by management.
In the Class-12 Business Studies topic on formal versus informal organisation, a formal organisation is the structure of authority and responsibility deliberately created by management to accomplish organisational goals. Its features include:
- Deliberately planned and purposeful (so A 'Unplanned' and B 'Purposeless' are wrong). …
- CBSE 2026Set ANNUAL1 markMCQQ.Psychological and social needs get satisfied in ________. (A) Informal organisation (B) Formal organisation (C) Divisional organisation (D) Functional organisation
›Reveal solutionSolution
Informal organisation (the network of social relationships that forms naturally among employees) is where psychological and social needs like belonging, companionship and recognition get satisfied.
Formal vs informal organisation
Aspect Formal organisation Informal organisation Origin Created deliberately by management Arises spontaneously out of social interaction among members Purpose To achieve organisational goals To satisfy members' social and psychological needs Relationships Official, defined by rules Personal, based on common tastes/interests … - CBSE 2026Set ANNUAL1 markMCQQ.Which of the following is not a feature of formal organization?(a) It is deliberately designed by the top management(b) The standards of behaviour evolve from group norms rather than officially laid down rules and regulations(c) It specifies the relationship between various job positions and clarifies who is to report to whom(d) It places more emphasis on work to be performed than interpersonal relationships among the employees
›Reveal solutionSolution
Formal organisation features are deliberately designed, rule-based structures — behaviour arising from group norms belongs to informal organisation instead.
A formal organisation is a structure of authority relationships, job roles, and rules deliberately created by top management to achieve organisational objectives. Its genuine features include:
- deliberately designed by management (not spontaneous),
- clearly specifies reporting relationships (who reports to whom),
- emphasises the work to be performed over personal relationships,
- coordinates activities of different departments through officially defined rules. …
- CBSE 2026Set ANNUAL1 markMCQQ.For fast communication and to get correct feedback, which of the following organizations is suitable?(a) Formal organization(b) Informal organization(c) Both(a) and(b)(d) None of the above
›Reveal solutionSolution
Informal organisation is better suited for fast communication and quick, genuine feedback.
Formal organisation communication must usually travel through official hierarchical channels — slower, but structured and accountable. Informal organisation, built on personal relationships among members (friendship groups, the 'grapevine'), transmits information much faster because it bypasses the formal chain and spreads person-to-person.
…
- CBSE 2025Set 66/1/11 markMCQQ.In an informal organisation, authority arises out of ________. (A) Virtue of position in management (B) Company's rules and policies (C) Scalar chain (D) Personal qualities
›Reveal solutionSolution
In an informal organisation, authority is not assigned by management but emerges from an individual's personal qualities and the respect they earn from their peers.
Organisations, whether large or small, often have two distinct structures operating simultaneously: the formal and the informal. The formal organisation is deliberately created by management to achieve specific objectives. It has a defined structure, clear lines of authority, responsibility, and a set of rules and procedures. Think of the organisational chart you might see in a company – that's the formal structure.
However, alongside this planned structure, an informal organisation spontaneously develops within the formal one. This arises from the natural social interactions, friendships, and common interests among employees. People working together inevitably form groups, share ideas, and develop relationships that go beyond their official job descriptions. These groups are not officially sanctioned or designed by management; they emerge organically.
NoteThe informal organisation is often described as the 'shadow organisation' because it operates beneath the surface of the formal structure, influencing communication, decision-making, and employee behaviour in significant ways.
Now, consider how authority operates in these two contexts. In a formal organisation, authority is clearly defined and flows from the top down, following the scalar chain. It is attached to the position an individual holds in the management hierarchy. For instance, a manager has authority over their subordinates because of their designated role, and this authority is backed by company rules and policies. Options (A), (B), and (C) – virtue of position in management, company's rules and policies, and scalar chain – all describe how authority arises in a formal organisation.
In stark contrast, the informal organisation does not have a formal hierarchy or assigned positions of power. Therefore, authority in this context cannot stem from a job title or official rules. Instead, authority in an informal group is earned and arises from an individual's personal qualities. …
- CBSE 2025Set MARCH1 markMCQQ.Identify the network of Social relationships which arises spontaneously due to interaction at work.(a) Decentralisation(b) Delegation of Authority(c) Informal Organisation(d) Formal Organisation
›Reveal solutionSolution
The correct option is (c) Informal Organisation — the spontaneous network of personal and social relationships among employees that forms naturally through workplace interaction.
In the Kerala Plus Two (DHSE) Business Studies chapter on Organising, two kinds of organisation are compared. The formal organisation is deliberately designed by management, with defined authority, responsibility and reporting relationships. The informal organisation, in contrast, is not planned — it emerges on its own out of the day-to-day social interaction of people working together, and is built on friendship, common language, similar interests and shared feelings.
Checking each option:
- (a) Decentralisation — a deliberate policy of pushing decision-making authority down the hierarchy; planned, not spontaneous. …
- CBSE 2025Set ANNUAL1 markMCQQ............. organisation is automatically formed. (A) Functional (B) Informal (C) Formal (D) Divisional
›Reveal solutionSolution
An informal organisation emerges automatically out of the personal and social relationships among employees, unlike a formal organisation which is deliberately created by management.
Formal organisation is consciously designed with defined authority, responsibility and structure. Informal organisation, in contrast, grows on its own as people interact, form friendships and share co …
- CBSE 2025Set ANNUAL1 markMCQQ............. depends upon the sweet will of the employees. (A) Formal organistion (B) Functional organisation (C) Informal organisation (D) Departmental organisation
›Reveal solutionSolution
An informal organisation depends upon the sweet will of the employees — option (C) — because it emerges from voluntary social contact, not from a formal design.
An informal organisation is a network of personal and social relationships that develops spontaneously among people working together. Management does not create it; it comes into being because employees naturally interact, share interests and form friendships. Since no rule compels these relationships, the informal organisation survives only as long as members choose to maintain it — that is, on their own sweet will. If members stop interacting, the informal group simply dissolves.
…
- CBSE 2025Set ANNUAL1 markMCQQ.In case of informal organisation authorities are (A) Decentralised (B) Centralised (C) Equally distributed (D) None of these
›Reveal solutionSolution
In an informal organisation, authorities are best described by option (D) None of these, because it carries no formal authority structure at all.
Formal authority is a feature of the formal organisation, where it can be concentrated at the top (centralisation) or pushed down to lower levels (decentralisation). An informal organisation, however, is not created by management and has no official chain of command. Whatever influence a member has comes from personal qualities, knowledge or social standing — a popular worker may have great influence without any designated authority at all.
…
- CBSE 2025Set ANNUAL1 markMCQQ.______ depends on the willingness of employees.(a) Formal organisation(b) Functional organisation(c) Informal organisation(d) Divisional organisation
›Reveal solutionSolution
Informal organisation depends on the willingness and social interaction of employees.
Informal organisation is the network of personal and social relationships that develops spontaneously among people working together, based on their likes, friendships and interactions — not on official rules. Because it is not created deliberately by management but emerges from employees' own willingness to associate, i …
- CBSE 2025Set ANNUAL1 markQ.Fill in the blank: Rumours spread in ________ organization.
›Reveal solutionSolution
Rumours spread through the informal organisation.
The informal organisation arises spontaneously from social relationships among employees and has no official rules. Its communication network, called the grapevine, spreads information — including rumours — very quickly …
- CBSE 2025Set ANNUAL1 markMCQQ.Write True or False: Rules are written in informal organization.(a) True(b) False
›Reveal solutionSolution
False; written rules belong to the formal organisation.
A formal organisation is deliberately created by management and works through official written rules and procedures. The informal organisation arises spontaneously from social relationships and is governed only by unwritten group n …
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