An informal organization refers to all the channels of interaction that are
not defined by the formal organizational structure. As opposed to the formal
organization, the various relationships in an informal organization arise
spontaneously as people interact with one another and discover common areas
of interest. There are various differences between a formal and an informal
organization. In a formal organization, the primary focus is on the official
position, held by an individual while in an informal organization; it is on
the relationships between people. Another significant difference between
formal and informal organizations is that power in a formal organization is
derived from the position held in the organization, while, in an informal
organization, the personality of the individual provide him with power.
According to J. L. Gray and F. A. Starke, formal and informal organizations
also differ from each other on the parameters of organizational structure,
position terminology, goals of the organization, basis of influence, control
mechanisms, channels of communication, charting of member relationships, and
Members of an informal organization differ from one another in their
experience, seniority, salary, educational or technical qualifications,
personality, birthplace and the nature of their workplace. These
characteristics not only differentiate the members of an informal
organization, but also accord status to them. The informal leaders are chosen
on the basis of the status ascribed to them by the other members of the
informal organization. These leaders wield a considerable amount of personal
power and can affect the productivity of the organization either positively
Although it is not necessary for an informal organization to have only one
informal leader, the person who exercises a greater degree of control over
the other members of the informal organization is generally considered the
primary leader. The management of an organization should identify these
informal leaders and develop a good professional relationship with them to
facilitate the smooth functioning of the organization.
Informal organizations benefit the organization in many ways. They help in
the development of an effective organizational system and reduce the workload
of managers. Informal organizations also provide employees with an outlet to
express their anxieties and problems, improve job satisfaction, and reduce
In spite of its merits, informal organizations, at times, also create many
problems. It may act as a barrier to organizational change. Conflicts may
also arise between the members of the informal organization. Sometimes, its
members may experience a conflict due to the diverse roles they have to play
as members of the formal work group and the informal group. The biggest
problem an informal organization faces is to ensure that the members conform
to its norms and the use of penalties and sanctions to punish those who
deviate from these norms.
The communication channel in an informal organization is called the
grapevine. The grapevine thrives in all those places where people interact
with one another and tends to be active in periods of stress or insecurity.
The nature of a person's job as well as his personality affects the role he
plays in a grapevine. Earlier, the management ignored the grapevine. Now
however, in many organizations, the management acknowledges the presence of
the grapevine. It tries to identify the key players in the grapevine and how
information travels along the grapevine.
Rumors are so strongly associated with the grapevine that these two terms are
often used interchangeably. However, they do not mean the same. A Rumor is
incorrect information that is not supported by substantial evidence. It
generally arises out of ambiguity and interest in a particular situation.
Various types of rumors may spread in an organization and the management can
control rumors by paying heed to them, identifying the causes, and above all,
by releasing the facts behind the rumors. The management can also seek the
support of union leaders to prevent the damage caused by rumors.
The management should realize that informal organizations cannot be done away
with. They should try to integrate both formal and informal organizations
such that it facilitates the achievement of organizational goals.