Organization classification is based on authority and responsibility assigned to the personnel and the relationship with each other. In this way, an organization can be either Formal and Informal organization.
Formal organization is formed on the basis of delegation of authority. Each formal organization has its own objects and the activities are performed to achieve them. Under formal organization, the duties and responsibilities of each employee are well designed and exhibited in the organization chart.
Features of Formal organization
- Formal organization is consciously designed.
- It provides for specialization.
- It is based on delegation of authority.
- The authority, responsibility, duties, policies and rules are properly well defined.
- The principle of unity of command is usually observed.
- It is deliberately impersonal.
- It is supported by organization chart.
Merits of Formal Organization
- There is no conflict among the employees since their respective duties and responsibilities are clearly defined.
- Overlapping of responsibility is easily avoided.
- It results in the motivation of employees.
- There is no personal bias since clear cut rules and regulations are framed and followed.
- It makes the organization less dependent on one man.
Demerits of Formal Organization
- It reduces the spirit of initiative.
- There is a delay in taking a decision since rules and regulations are getting importance than situation.
- It does not give any importance to sentiments and values of employees.
- It reduces the free flow of communication.
- It creates the problems of co-ordination.
Informal organization refers to the informal relationships develop among the group of employees in an organization. These groups fulfill their needs which are largely personal in nature by creating informal relationships. Relationships are created during breaking hours of an office and in sometimes even outside the office.
Features of Informal Organization
- An informal organization arises spontaneously.
- It is based on personal attitudes, emotions and likes and dislikes.
- It provides social satisfaction to its members.
- It is an integral part of a total organization and the management cannot eliminate it.
- It has no place in the formal chart.
- It is a network of personal and social relations.
- It has its own rules and traditions.
- It is indefinite and has no structure.
Merits of Informal Organization
- The informal organization overcomes deficiency and fills up the gaps of the formal organization.
- The flow of communication is very fast.
- The motivation of employees is very easy.
- Decisions are taken very quickly.