Chapter Summary 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. ray and !. A. "tar#e, 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 mi$ed characteristics. %embers of an informal organization differ from one another in their e$perience, seniority, salary, educational or technical &ualifications, personality, birthplace and the nature of their wor#place. 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 or negatively. Although it is not necessary for an informal organization to have only one informal leader, the person who e$ercises a greater degree of control over the other members of the informal organization is generally considered the primary leader. The management of an organization should identify these informal leaders and develop a good professional relationship with them to facilitate the smooth functioning of the organization. Informal organizations benefit the organization in many ways. They help in the development of an effective organizational system and reduce the wor#load of managers. Informal organizations also provide employees with an outlet to e$press their an$ieties and problems, improve 'ob satisfaction, and reduce employee turnover. In spite of its merits, informal organizations, at times, also create many problems. It may act as a barrier to organizational change. (onflicts may also arise between the members of the informal organization. "ometimes, its members may e$perience a conflict due to the diverse roles they have to play as members of the formal wor# 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 'ob as well as his personality affects the role he plays in a grapevine. *arlier, the management ignored the grapevine. +ow

however, in many organizations, the management ac#nowledges the presence of the grapevine. It tries to identify the #ey players in the grapevine and how information travels along the grapevine. ,umors are so strongly associated with the grapevine that these two terms are often used interchangeably. -owever, they do not mean the same. A ,umor is incorrect information that is not supported by substantial evidence. It generally arises out of ambiguity and interest in a particular situation. .arious 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 see# 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.

/ithin any company, there are two types of organization 0 !ormal "tructure and Informal "tructure. 1oth effect the organization and relationships between staffs. 2. The formal Organization refers to the formal relationships of authority and subordinates within a company. /hile the informal organization refers to the networ# of personal and social relations that is developed spontaneously between people associated with each other. 3. The primary focus of the formal organization is the position of the employee4manager holds. /hile the primary focus of the informal organization is the employee as an individual person. 5. 6ower is delegated from the top levels of the management down to the organization. In an informal organization power is derived from the membership of the informal groups within the organization. 7. In formal Organization, each position has rules governing what can be done or what cannot be done. There are rewards and penalties for complying with these rules and performing duties as well. /hile in an informal organization, the conduct of individuals within organization is governed by norms that is social rules of behavior