Informal organization refers to the relationships between people in an organization based not on procedures and regulations but on personal attitudes, prejudices, likes and dislikes, etc. Informal organization is a natural or spontaneous network of relationships based upon individual needs, moods, and emotions.
Distinction between Formal and Informal Organization
| Formal Organisation | Informal Organization |
| It is based on delegation of authority and may grow to immense size | It arises on account of social interaction of people and tends to remain small. |
| It is shown on the organization chart. | It has no place in the formal chart. |
| Formal authority attaches to a position | Informal authority attaches to a person. |
| Rules, duties and responsibilities are written and clearly defined. | It has unwritten rules and traditions. |
| It is created deliberately and is consciously planned | It is natural and arises spontaneously |
| Formal authority flows downwards. | Informal authority flows upwards or horizontally. |
| It provides for division of labor and has a definite structure. | It is structure less and develops out of social contacts. |
| It is permanent and stable. | It is relatively fickle and unstable. |
| Formal organization is created to meet organizational goals. | Informal organization arises from mans quest for social satisfaction. |
Merits and Demerits of Informal Organization
| Merits | Demerits |
| Enables work to be done quickly and effectively | Opposes change of any kind |
| Reduces managerial work-load | Encourages negativism. |
| Promotes co-operation | Generates inter-personal and group rivalries |
| Leads to effective communication. | Promotes undesirable rumor mongering |
| Provides an outlet for employee emotions | Promotes dissatisfaction among employees |
| Promotes job-satisfaction on the part of employees | Causes undue harassment to certain employees |
| Makes the organizational system highly effective | Causes frustration and lack of motivation |