Ch. 20: Formal and Informal Organizational Structures

As a business owner it is important to understand organizational structures and the differences in informal and formal structures. Businesses are not just one or the other. They can incorporate elements of both. This blog will discuss the differences between formal and informal organizational structures and how power is defined in both. It will also discuss the importance of both internal and external networking. 

Image found at Pixabay @geralt


In a formal organizational structure, the divisions and management within the company are written and explained so all employees understand how things work often through organizational charts and other visual depictions with upper management near the top and lower management towards the bottom (Quain, 2019). The chart or other visual is very descriptive on what each role entails and the positioning of power found therein. The relationships between employees and individuals in these charts are an example of interpersonal networks. The value these individuals can extract from their interpersonal relationships is the basis of social capital and they play a large role in the productivity, learning, and career success of the individuals of the company (Gulati, Mayo, & Nohria, 2016). The text also describes how by building these relationships with influential mentors and other well-connected individuals, we can create interpersonal networks that support personal and professional development. 

In an informal organizational structure, a business doesn't operate under the guidelines of a written document such as an organizational chart, instead this structure operates by a system developed by effective employees and relies of relationships forged between teams and its members and focuses on achieving shared goals (Quain, 2019). It's based on collaboration and not on power. While relationship is an important aspect in the informal organizational structure, there is the issue with it being too informal and can lead to some confusion. This disorganization can be caused by misinterpreted communication from the lack of a centralized management structure, which might lead to some employees taking advantage of the freedom to make decisions that are not well thought out (Quain, 2019). New employees may also struggle understanding their role in an informal system. Asking questions may help them better understand the collaborative process better, rather than just standing back unsure of how to proceed.       


Image found at Pixabay @geralt

In both of these structures, building interpersonal relationships is important for both business and personal reasons. Those with strong networking skills and efforts have a tendency to climb the formal organizational systems faster and gain more tasks in informal structures. Both internal and external networking are important skills individuals need to establish if they plan to grow within their career. External networking included broadening ones network of industry professionals and other individuals for mutually beneficial purposes, such as referrals and job searches (Glassdoor, 2019). Internal networking typically includes increasing interaction and building relationships with your colleagues and coworkers in your job. An understanding of both formal and informal organizational structures are also important for individuals who are looking for the right business environment that they prefer to work in. If an individual thrives on structure, they may do better in the formal organizational structure and find the informal one too disorganized for their liking. And on the flip side of that, if they struggle with micromanaging and rigidity they may do better in an informal structure. Both have their advantages in the business world. 

References

  • Geralt. (2020a). Human Heirarchy. Pixabay. https://pixabay.com/illustrations/silhouettes-hierarchy-human-man-81830/
  • Geralt. (2020). Organization Chart. Pixabay. https://pixabay.com/illustrations/businessmen-silhouettes-man-woman-3731323/
  • Glassdoor. (2019, September 25). What Is Internal Networking? Grammarly Blog. https://www.grammarly.com/blog/internal-networking/
  • Gulati, R., Mayo, A. J., & Nohria, N. (2016). Management: An integrated approach. Australia: Cengage Learning

  • Quain, S. (2019, February 12). Basic Types of Organizational Structure: Formal & Informal. Chron. https://smallbusiness.chron.com/basic-types-organizational-structure-formal-informal-982.html

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