An organization may be formal or informal. In most organizations, formal groups will function as it is essential to execute specific tasks of the concerned formal organization. Chester Barnard states that an organization will be a formal one when the activities of two or more persons are consciously cordial to a given objective. It refers to the structure of positions with clearly defined functions and relationships as determined by the top management. A formal organization is mainly guided by its rules, systems and procedures. In a formal organization, authority, and responsibility and relationships must be clear, fixed and definite. A formal organization is generally based on delegation of authority and it is a legally constituted one. In fact, a formal organization is created and propagated through organization charts, rule books, manuals, procedures, models, etc. Chester Barnard states that a formal organization comes into existence when persons are (a) willing to communicate with one another, and (b) willing to act and share a common purpose. William Brown states that “I personally believe that the more formalization that exists, the more clearly we will know the bounds of discretion which we are authorized to use and will be held responsible for; and prescribed policies make clear to people the area in which they have freedom to act.”

A formal organization according to Keith Davis “is a pinnacle of man’s achievement in a disorganized society. It is man’s orderly, conscious, intelligent creation for human benefit. A formal organization is a system of well-defined authority positions and responsibility centers “.

Informal organization can be beneficial to management. Keith Davis states that work groups are important as they provide various benefits. Some of them are as follows.

  • Informal work groups blend with the formal organization to make a workable system for getting work done.
  • Informal work groups lighten the work load for the formal manager and fill in some of the gaps in the manager’s abilities.
  • Informal work groups provide satisfaction and stability to the organization.
  • They provide a very effective channel of communication within the organization.
  • Managers will be more careful and effective with the informal work groups.

Management can neither establish nor abolish an informal organization. But any sensible management will try to live with an informal organization and can effectively develop its influence on such an organization for its advantage. It should see than an informal organization remains secondary to the formal organization.