Examples of informal organization include social standards, relationships and interactions that take place among various individuals in companies, while formal organization includes the rules, regulations and guides that govern standard operating procedures of companies. Formal organization generally includes governing rules written in official documents such as contracts and rulebooks, while informal organization includes the social interactions that take place among those employed in companies.
Both formal and informal organization affect how businesses work and operate, but do so in different ways. Formal organization sets rules and regulations that have consequences for noncompliance, which might include reprimands or even termination. Formal organization is more clinical in nature, and can be compared to the structural framework that creates homes and buildings. Formal organization is void of life and emotions, but nevertheless helps organizations remain intact. Formal organization helps to clarify and delineate certain roles and tasks that individuals within companies are expected to perform. Formal organization can be used to separate the work tasks between individuals of different levels of skill (such as laborers from upper-level managers and CEOs). Informal organization, in contrast, is more dynamic. This organizational structure includes societal standards, such as dress and relationships between individuals and groups within organizations. Informal organization, like formal organization, can make companies stronger and more effective when individuals work together, but can also create divides.