Q.‘Rewton Ltd.’ was a reputed computer software company providing unique software all over India. The turnover of the company was very high resulting in good profits. The Chief Executive Officer, Vihaan, was very strict and disciplined. He specified the boundaries of authority and responsibility for achieving organizational goals. There was systematic coordination among the various activities and specific relationships among various job positions. The company provided facilities like a canteen, a gym, a library, a music room, and a rest area for its employees, which they could use during rest intervals. Using these facilities, the employees developed friendships and discussed not only their personal, social and emotional issues, but also the official ones. The General Manager was of a different view. He told the Chief Executive Officer that there was no use providing these facilities to the employees as it is an extra financial burden on the organization on one hand and on the other hand, it encourages groupism and whenever any change is required in the organization, they all resist. He suggested that they should do away with these facilities. But the Chief Executive Officer, Vihaan, explained to the General Manager that this type of social interaction is necessary, and is in the best interest of the organization. These interactions among people at work give rise to a network of social relationships among employees and have many benefits.
You're viewing a preview — the full solution, concept, methods & PYQ mapping are locked.
Start your 14-day free trial to unlock the full solution →The CEO is defending the informal organisation — the network of personal relationships and social groups that naturally emerge within any formal workplace — and arguing that its benefits outweigh its drawbacks.
The Scene: Two Organisations at Once
Every company has two parallel structures running at the same time. One is the formal organisation — the official hierarchy of job titles, reporting lines, rules, and responsibilities that Vihaan had carefully laid out. That is the skeleton: it tells everyone who reports to whom, what each person is supposed to do, and how work flows from one department to another. Rewton Ltd. had this in good shape, which is why its turnover and profits were high.
But the moment people start working together, a second, invisible structure springs up. Employees chat over tea, share jokes in the gym, complain about a supervisor in the library, or form a cricket team during breaks. These friendships, cliques, and grapevines are not written in any company manual. They are the informal organisation — the living, breathing network of social relationships that grows out of daily interaction.
Vihaan, the CEO, understood that the canteen, gym, library, music room, and rest area were not just perks. They were the soil in which this informal organisation took root. When employees used these facilities, they talked about more than just work — they discussed personal worries, shared emotional support, and also exchanged office gossip and opinions about company policies. That is the informal organisation at work.
The General Manager saw only the costs: the money spent on facilities, and the risk that groups of friends would resist change together. He wanted to scrap everything. But Vihaan pushed back, arguing that this social interaction is necessary and beneficial. He was right — and the NCERT textbook agrees.
The formal organisation is deliberately created by management. The informal organisation is spontaneous — it emerges on its own, and no CEO can order it into existence or abolish it by decree. Even if Rewton Ltd. removed all the facilities, employees would still find ways to chat, form groups, and build informal ties.
(i) The Type of Organisation the CEO Defended
The organisation whose existence Vihaan felt was necessary is the informal organisation.
It is defined as the network of personal and social relationships that arise spontaneously when people interact at work. It is not shown on any organisational chart, has no written rules, and no official leader — yet it exerts a powerful influence on behaviour, morale, and communication. The friendships formed in the canteen, the discussions in the music room, the emotional support shared in the rest area — all of these are threads of the informal organisation.
Vihaan recognised that this informal structure, far from being a nuisance, serves important functions. It fills gaps that the formal organisation cannot cover. It gives employees a sense of belonging, a channel for venting frustrations, and a way to get things done when official procedures are too slow or rigid. That is why he insisted on keeping the facilities that nourish it.
The informal organisation is not an alternative to the formal one — it coexists with it. Every formal organisation inevitably gives rise to an informal one. A wise manager learns to work with it, not against it.
(ii) Two Advantages and Two Disadvantages of the Informal Organisation
Advantages
1. Fulfils social needs and boosts morale.
Employees are not machines. They need friendship, recognition, and a sense of belonging. The formal organisation often treats people as cogs in a wheel, but the informal group gives them emotional support. At Rewton Ltd., employees used the gym and library to share personal and social issues. This reduces stress, increases job satisfaction, and makes people happier at work — which in turn reduces absenteeism and turnover.
2. Acts as a channel of communication (the grapevine). …
Unlock everything free for 14 days
- Full step-by-step solutions
- Concept-first explanations
- Methods, shortcuts & mistakes
- PYQ mapping + timed mock tests
Full access for 14 days. No credit card required.