Types of Organisation

Organisations are formed with a specific purpose. It may be business organisation established with the purpose of earning profit for owners. It can even be established for serving the society like universities, hospitals or welfare organisations. These are called non-profit organisations. Some organisations are formed to serve and satisfy the needs of their members, which are called mutual-benefit organisations like clubs, unions, political parties etc. These are also organisations which provide standardised service to large groups of people i.e., people at large. These are called "Commonweal" organisations (non profit organisation serving all members of given population) which are in the form of Indian services, Fire stations, Police department, Government educational institutions, Public utility services, etc.

These organisations are functioning with some standard structure. Our discussion here is focused on business enterprises. Keeping in view the business concept, the activities of the organisation have to be divided, grouped, and establish relationship between managers and employees, between managers and between employees. Each major activity becomes department with specific function. These departments have to be formally structured. There are three general structures standardised over the period. There are three common types. One of them is selected by an organisation according to its objective. The three types are (i) Functional (ii) Product or market and (iii) Matrix form. In business enterprises, we can observe all those three types. These organisaitons will have formal structure. But informal structure (invisible relationship between members) also exists.

Formal and Informal Organisation

According to Chester Barnard, "an organisation is formal when the activities of two or more persons are consciously co-ordinated towards a common objective." In a formal organisation, the position, authority, responsibility and accountability of each level are clearly defined. By means of rules, policies and other regulations of the organisation, it prescribes the relationships amongst the people working in the organisation. In this way, all enterprises which have a system of well-defined positions, authority, responsibility, relationships, rules, policies etc. are considered formal organisations.

An informal organisation arises from the personal and social relations of the people, not established by any formal authority.

The people cut across formal channels (as established by the formal organisation) and communicate amongst each other. It arises spontaneously and not based on rules, regulations and procedures. It is influenced by the personal attitudes, whims, likes and dislikes etc. For example, an assistant sales manager may take advice from the production manager instead of the sales manager. He may prefer to approach the production manager for advice, probably due to his personal friendship with him or due to his regard for the production manager's job knowledge, skill, personality, age, seniority, leadership qualities, etc. This type of inter-relationships which are found in an informal organisation, cannot be shown in the organisation chart while the inter-relations of formal organisation can be shown.

An informal organisation exists in every enterprise and at all levels of managerial hierarchy. However, there cannot be a completely formal or a

Distinctions Between Formal and Informal Organisation

Formal Organisation

Informal Organisation

1. It is a prescribed structure of roles and relationships consciously co-ordinated towards a common objective.

2. Its goals and tasks are oriented towards productivity, profitability, growth and so on. '

3. It is hierarchical, pyramid-shared and bureaucratic in structure.

4. Emphasis is on status differentials and based on superior-subordinate relationships.

5. There is a prescribed system of behaviour. People are rewarded for their "desired behaviour" and punished for their "undesirable behaviour." Rewards can be both monetary and non-monetary.

1. It is a natural and spontaneous structure arising out of the social tendency of people to associate and interact.

2. Its goals and tasks predominantly centre around individual and group satisfaction, affiliation, friendship etc.

3. It is shapeless and uncharitable.

4. It is based on friendship, common values, and interests.

5. There are unwritten norms of behaviour enforced by common consent by all the members. Rewards for obeying the norms can take the form of continuous membership, social esteem, group leadership, etc. Punishments are isolation, censure etc.

completely informal organisation. The formal managers should not try to abolish informal relationships of employees because they are very important and useful for managing the concern efficiently and for achieving the objectives of an enterprise. In the words of C.I. Barnard, "Informal organisation brings cohesiveness to a formal organisation. It brings to the members of a formal organisation, a feeling of belonging, of status, of self-respect and of gregarious satisfaction." According to Keith Davis, an "informal organisation is a powerful influence upon productivity and job satisfaction." Both formal and informal systems are necessary for group activity, just as two blades are essential to make a pair of scissors workable."

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