In every institution, two types of organizations exist, namely, formal and informal organizations.
Formal Organization is one resulting from planning where the pattern or structure may have already been determined by the top management. Formal organization of groups is created in order to facilitate specific work and achievement of institutional goals.
A formal group is a legitimate subset of an institution which is consciously established. Some example of formal groups includes committees, small departments/units, task force, research teams etc. The structure, procedural rules and membership of a formal group are explicitly stated.
The emphasis here is on office, order, definite duties and responsibilities, line of command and hierarchy, communication chain in the organizational position. Formal organization denotes a power structure, delegation of authority as per the organizational chart, a bureaucratic system of rules and accountability.
Informal Organization emerges out of interactions and interpersonal relationships among the members of the formal groups. These are centered on common interests, friendships and social needs of people and evolve naturally. Informal groups have their own leaders.
It has no formal structure, prescribed rules, positions, duties, responsibilities and authority flow. Informal organization is a psycho-social system developed by employees themselves. The authority of the leader in informal groups is based on personal acceptance.
It can threaten informal organization through rumours, oral exchanges or grapevine. It can carry information correct or false with tremendous speed in the form of gossips and talks. Very often, grapevine results in distorted information.
Informal organization can give rise to resistance to change, influence the morale of the staff and the speed of work. Usually, informal organization arises when formal system of communication is poor, laws are implemented rigidly and in letter, red tape is prevalent and action is slow in the institution. It is generally seen that formal and informal organizations exist simultaneously and may or may not support each other.