Formal and Informal Organisation

The Two Faces of Every Organisation

Every enterprise has two structures running inside it at the same time. One is the formal organisation — the official, deliberately designed hierarchy of jobs, rules and reporting relationships that management creates to get work done. The other is the informal organisation — the unofficial, spontaneous network of friendships and social groups that emerges naturally when people interact.

You cannot understand how an organisation really works unless you understand both. In this section we look closely at the formal organisation; the informal organisation is taken up in the section that follows.

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Formal Organisation

Meaning: Formal organisation refers to the organisation structure that is designed by the management to accomplish a particular task. It clearly specifies the boundaries of authority and responsibility, and there is systematic coordination among the various activities to achieve organisational goals. The structure in a formal organisation can be functional or divisional.

Features of Formal Organisation

1. Specifies relationships: It defines the relationships among various job positions and clarifies who has to report to whom.
2. Means to achieve objectives: It lays down the rules and procedures essential for achieving the goals set in the plans.
3. Coordinates efforts: The efforts of different departments are coordinated, interlinked and integrated through the formal organisation.
4. Deliberately designed: It is intentionally created by top management to facilitate the smooth functioning of the organisation.
5. Emphasis on work: It places more emphasis on the work to be performed than on interpersonal relationships among employees.

Advantages of Formal Organisation

• Easier to fix responsibility: Since mutual relationships are clearly defined, fixing responsibility is straightforward.
• No role ambiguity: Every member knows the role they have to play as duties are specified, which also avoids duplication of effort.
• Unity of command: It is maintained through an established chain of command.
• Effective accomplishment of goals: It provides a framework for operations and ensures each employee knows the role he has to play.
• Stability: Behaviour of employees can be fairly predicted because specific rules guide them. …