Formal Vs. Informal Organizational Structures

by Stephanie Faris ; Updated October 25, 2018
Group of people working in the office

Any type of organization relies on structure, from a local homeowners’ association to a multinational corporation. The formality of that structure depends on the choice of its leadership. Structures can vary in formality, with some groups having no rules whatsoever and others having everything documented and signed by each new employee. To decide the type of organizational structure your business should have, it can help to know your options.

Formal System vs. Informal System

Often, a business’s organizational structure will set the precedent for the work culture as a whole. As you describe your structure during the interview process, you’ll naturally attract the type of employees who prefer to work in that type of environment, and those workers will recommend you to others. A formal organizational structure is one that has carefully documented processes, from organizational charts detailing the chain of command to the job descriptions specific to each position.

In an informal work culture, those hierarchies may never even be discussed. A solo business owner may hire his first employee without ever stating out loud where that worker will fit within the business’s organizational chart. As even more employees are hired and the business grows, some companies never officially address those issues. Of course, many organizations fall somewhere between those two extremes, perhaps discussing which employees report to whom without ever putting it in writing.

Advantages of Formal Work Structures

Structure can help an organization run smoothly, with all members knowing exactly where to go if they need help or have concerns. For leaders, that means being able to put a structure in place where other managers motivate and assist employees, rather than having everyone come to those at the top for everything. A top-tier manager can have meetings with the entire management team and then have the information filter down to the employees below them. This saves time and money, allowing leaders to focus on goals specific to growing the business.

If you run a business, you may find that a formal work structure allows you to be better organized. If you put your goals, your organizational chart and your policies and procedures in writing, you may find you regularly revisit them and ensure you’re staying on track. Having everything documented will also help you if you reach out to investors or ask for a bank loan to grow your business. You’ll have the paperwork necessary to show that your business has a solid structure in place.

Video of the Day

Brought to you by Techwalla
Brought to you by Techwalla

Advantages of Informal Work Structures

When discussing the advantages and disadvantages of formal and informal groups, the concept of flexibility always seems to arise. One of the biggest disadvantages of a formal work structure is that it tends to put bureaucracy in place that can slow down operations. If an employee has to go to a supervisor with an issue and wait for it to make its way up the chain, progress slows and the business can face issues as a result. Information can also get lost as it makes its way up or down, with important details forgotten or becoming skewed.

However, perhaps the biggest advantage of an informal work structure is flexibility. Rather than having processes set in stone, your business has the freedom to change as the organization ebbs and flows. This also means that if you have a major change, your team will be able to quickly adjust and fill in those gaps, rather than having to wait to move forward until you’ve realigned your company structure.

What Is Work Culture?

Setting the tone for everything your business does is its work culture. Culture refers to the core beliefs that power your organization, from the decisions you make to the dress code you have in place for your workers to follow. If you founded the business and built it yourself, your work culture is probably a direct reflection of your own personality and core values. As you hire people, you may stock your team with people who also reflect those values, whether you’re doing so consciously or not.

Even with the best intentions, though, you’ll likely find it challenging to maintain that work culture as your business grows. It may simply be one person who doesn’t quite fit with the rest of the team, or you may find that you bring on a new client who puts a strain on the positive, casual work environment you’ve worked so hard to build. The more you understand the work culture you’re striving to maintain, the quicker you’ll be able to get things back on track.

Formal Work Cultures

Since work culture is tied tightly to structure, it’s important to discuss the advantages of a formal culture. As more businesses have pushed for informal work cultures, it has become clear that it’s a setup that doesn’t work for every company. In fact, some organizations are much better suited to a formal structure. A legal or accounting firm, for instance, may find that a formal work culture is a better fit for its own employees.

Not only does a formal work culture work best for employees who prefer structure, but it also helps businesses attract clients who insist on formal work cultures. A company may also find it easier to get investment money when it has a more formal setup since more traditional investors may be drawn to the structure provided.

Informal Work Cultures

In recent years, businesses have shifted toward a more informal environment, with studies linking certain work cultures to improved morale. A positive work culture is about employee engagement, which means empowering workers to be a part of building and growing the organization. Informal culture goes beyond casual dress codes and perk-filled break rooms to include flexible work hours and open-door policies.

In an informal work culture, employee satisfaction is the top goal, but it’s important to ensure that this type of environment fits your own personality as well as the preferences of the people you hire. This may mean occasionally having to adjust the way you operate or rethinking some of your hiring practices. You may find that adding a few contractors or remote fulltimers is a better fit for the environment you’re trying to create, for instance. Whatever the case, an informal work culture will give you the flexibility to make those changes.

Setting Structure in an Informal Environment

Eliminating structure doesn’t mean that you don’t offer guidance on what is expected of each employee or feedback on how they’re performing. One of the best things you can do as far as formal documentation is to use it to guide your employees. In addition to putting in writing your HR policies on things like vacation time, you should also outline the job expectations of each position to give your workers guidance on the job duties. This will also give you a jumping-off point when it’s time to provide feedback on the work an employee is doing.

However, that feedback goes both ways. Successful companies are investing in feedback mechanisms that allow employees to let leadership know how they’re doing. Instead of merely waiting around to find out if their managers are happy with their work performance, employees are allowed to regularly provide feedback on how they feel about the work culture and their own roles within it. When their changes are implemented, employees feel more engaged because they see that they’re a part of how the organization runs.

About the Author

Stephanie Faris is a novelist and business writer whose work has appeared on numerous small business blogs, including Zappos, GoDaddy, 99Designs, and the Intuit Small Business Blog. She worked for the State of Tennessee for 19 years, the latter six of which were spent as a supervisor. She has written about business for entrepreneurs and marketing firms since 2011.

Cite this Article A tool to create a citation to reference this article Cite this Article