Essay: Differences between formal and informal organisations

The formal organisation, as defined by Barnard (1968, p. 72) is ‘a system of consciously coordinated personal activities or forces.’ From this definition it can be gathered that what takes place in the formal organisation is what has been planned to take place, with actions having been coordinated by management with the goals of the organisation in mind. It represents what is supposed to occur in the organisation. This means that the opposite of this, the informal organisation, is what actually happens within a business, and all of the unofficial activities that it undertakes in order to meet its unofficial goals. Consequently, it can be described as having no official structure, with a lack of definite subdivisions (Barnard, 1968). In contrast, the formal organisation usually has a rigid structure, with an explicit hierarchy that allows for a clear chain of command and official communication which ensures that top level management is at the centre of the organisation and retains the highest amounts of power and control. The opposite of this is true for the informal organisation, in which members are equal regardless of their positions, authority is more dispersed, and communications are more casual, with a prevalence of word of mouth or grapevine conversations rather than formally organised discussions. Because of this, it is within informal organisations that particular cultures are likely to be born and norms, customs and traditions will arise (Barnard, 1968).
When looking at the differences between formal and informal organisations it may be useful to consider what perceptions are held about each one. Possibly due to the fact that it allows for more freedom for the members, a common perception held is that the informal organisation is ‘both stronger and more positive than the formal organisation’ (Monczka, Newstrom & Reif, 1973, p. 391). This links to the idea that the informal organisation has a dominant purpose of meeting the social and psychological needs of its members, in contrast with the formal organisation which generally has a main purpose of simply fulfilling the objectives of the organisation, therefore potentially placing less importance on its employees and so developing a less positive reputation. Having said this, based on data gathered in their study, Monczka, Newstrom and Reif (1973) were able to conclude that it was in fact the formal organisation that has a better public image as it is more dominant and authoritative, and is also perceived to be better at meeting the needs of its employees. Whilst the study didn’t investigate exactly why this may be, with knowledge of both types of organisations it may be assumed that the formal organisation is perceived to represent the ‘proper,’ ‘correct’ and more ‘official’ way of doing business, therefore possibly giving the impression that it is good at making a profit (as it focuses heavily on meeting objectives and targets) and so is able to provide greater financial benefits to its members than the informal organisation.
The formal organisation can be linked with placing high importance on profit due to the fact that it is created by management with the purpose of fulfilling the ultimate objective of the organisation, which, for most private sector companies, is to make a profit. Consequently, similarities can be drawn between the formal organisation and Scientific Management – a theory developed by Frederick Taylor (1911) which claims that the single superior way to manage employees is by ‘observing and measuring norms of output and human movements’ so managers are able to adapt the design of the workplace in order to achieve maximum efficiency (Clegg, Kornberger & Pitsis, 2008, p. 459). By achieving maximum efficiency, Taylor believed that this could lead to ‘maximum prosperity’ for both the employer and the employee, which should be the principal objective of management (Taylor, 1911, p. 10). Therefore, the focus on creating wealth is arguably common both to the formal organisation and to Scientific Management theory.
However, the same cannot be said for the informal organisation, which tends to have a more dominant purpose of meeting the social needs of its members. This is more in line with the Human Relations theory. The Human Relations theory came about when Elton Mayo analysed the findings of the Hawthorne experiments – a range of studies that measured employee productivity in relation to changing working conditions – and determined several key principles for the theory, one of which is that workers are not solely motivated by money, with production instead being largely influenced by their ‘relations with other workers,’ with employees wanting to fit in by producing at similar levels to their co-workers (Whyte, 1956, p. 126). This principal links with one of the defining obdurate aspects of the informal organisation – its focus on the interpersonal relationships between members. The importance placed on these interpersonal relationships arguably creates an organisation in which the culture is to fit in with fellow employees and perform at the same level as them, with workers consequently being motivated to do this rather than being economically motivated, as Scientific Management claims they are. Taylor concluded that employees are motivated by money after carrying out the Schmidt Experiment, in which he was able to use the promise of higher wages to motivate a steel worker to more than triple his productivity in a day by carrying increased amounts of pig iron (Taylor, 1911).
2019-2-13-1550056392