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ijcrb.webs.comINTERDISCIPLINARY JOURNAL OF CONTEMPORARY RESEARCH IN BUSINESSAPRIL 2012VOL 3, NO 12THE EFFECTS OF INFORMAL GROUPS ON ORGANIZATIONALPERFORMANCE: A CASE STUDY OF IRANAuthors:Author’s names and affiliations:Farveh Farivar (corresponding author)Part Time Lecturer: Attar Institute <strong>of</strong> Higher EducationPostal address: No 84, Farhad 7, Farhad St, Malekabad Blvd, Mashhad, IranOsveh EsmaeelinezhadPhD studentUniversity <strong>of</strong> MalaysiaPostal address: 107-24-03, Bistari condo, Jalan 1/64 D, <strong>of</strong>f Jalan Putra, K50350, kualalumpour, MalaysiaAbstract:Informal <strong>groups</strong> form within formal systems and their activities have an undeniableimpact on organizations’ progress. Nevertheless, managers sometimes fail to realize thepressures <strong>of</strong> <strong>informal</strong> <strong>groups</strong> that influence and regulate individuals’ behavior. Thisstudy examines the impact <strong>of</strong> <strong>informal</strong> <strong>groups</strong> on the organizational performance.Although previous studies emphasized on the importance <strong>of</strong> formal employeeinvolvement, the way in which <strong>informal</strong> <strong>groups</strong> influence organizational performanceremains obscure. In this study, methodology was survey. Two questionnaires weredesigned that the first one determined the benefits resulted from <strong>informal</strong> <strong>groups</strong> and thesecond one evaluated the <strong>effects</strong> <strong>of</strong> these benefits on organizational performance. Toestimate the organizational performance, the Based scorecard model <strong>of</strong> Kaplan wasused. A sample drawn from Iranian IT companies answered to the questionnaires anddata were analyzed by chi-square and normal test. Total result <strong>of</strong> study displays thepositive <strong>effects</strong> <strong>of</strong> <strong>informal</strong> <strong>groups</strong> on organizational performance.Key words: Informal group, formal group, organizational performance, Basedscorecard modelCOPY RIGHT © 2012 Institute <strong>of</strong> Interdisciplinary Business Research 364

ijcrb.webs.comINTERDISCIPLINARY JOURNAL OF CONTEMPORARY RESEARCH IN BUSINESSAPRIL 2012VOL 3, NO 121. Introduction:Rapid developments <strong>of</strong> technology and dynamic environment have increased the role <strong>of</strong>human resource as a capital for organizations’ competitive advantage. Employees andorganizations establish communications with each other that are not formed or designedby <strong>of</strong>ficial systems to various causes such as common interests and goals. <strong>The</strong>se kinds<strong>of</strong> communications are self-created and independent <strong>of</strong> formal channel.Organizations create a formal net <strong>of</strong> communication which determines the line <strong>of</strong>authority and activities to achieve organizational goals. According to Krackhardt andHanson (1993) formal <strong>groups</strong> have public identity so are recognized by management.Previous surveys mentioned positive <strong>effects</strong> <strong>of</strong> group-building and team working onorganizations. For instance, Driskell and Salas (1992) argued <strong>groups</strong> can solve problemfaster and improve efficiency. <strong>The</strong>refore, the attention <strong>of</strong> management to formal <strong>groups</strong>has increased radically. Controversially, <strong>informal</strong> <strong>groups</strong> form within formal systemsand rising spontaneously as people work together. Informal <strong>groups</strong> are built on the base<strong>of</strong> common interests and friendship without management control. Although <strong>informal</strong><strong>groups</strong> play important roles in organizations, managers sometimes fail to realize thatthere are <strong>of</strong>ten <strong>informal</strong> group pressures within every organization which influence anddetermine employees’ behavior.Informal <strong>groups</strong> formulate implied codes <strong>of</strong> moral rules and establish behavioralstandards un<strong>of</strong>ficially in organizations. <strong>The</strong> approaches toward <strong>informal</strong> <strong>groups</strong> arevaried in the different level <strong>of</strong> analysis. At the individual level, based on social controltheory, group norms control people by creating group cohesiveness so competencyperformancerelationship would weaken. On the contrary, at the group level analysis,synergistic interaction among group’s members creates high level <strong>of</strong> performance(Barrick et al, 1998). By the way, the formation <strong>of</strong> <strong>informal</strong> <strong>groups</strong> is inevitable and itwould be difficult for organization to forbid <strong>informal</strong> working relationships to arise.Gulati and Puranam stated some external conditions which are largely out <strong>of</strong> controlinfluence the relationship between formal and <strong>informal</strong> <strong>groups</strong> into an organization.Although considerable research has provided strong support on the linkage betweenorganizational performance and formal group, there are notable gaps in the literature onthe empirical examination <strong>of</strong> whether or not <strong>informal</strong> <strong>groups</strong> would affectorganizational performance positively, especially in developing countries. Since cultureis the base <strong>of</strong> group’s behavior and form the way that they interact with each other andorganization (Willcoxson & Millett, 2000), the impacts <strong>of</strong> group can be various fromcountry to another one so more research on <strong>groups</strong> in developing countries seemsessential to reach a better understanding <strong>of</strong> their <strong>effects</strong>.<strong>The</strong> major aim <strong>of</strong> this paper is to explore the impact <strong>of</strong> <strong>informal</strong> <strong>groups</strong> onorganizational performance. To reach this purpose, the study was divided in three steps.Firstly, the <strong>effects</strong> <strong>of</strong> <strong>informal</strong> <strong>groups</strong> on organizations have been drawn by literaturereview and the accuracy <strong>of</strong> these <strong>effects</strong> was examined. Secondly, according to balancedscorecard model <strong>of</strong> Kaplan and Norton (1996), the indicators <strong>of</strong> organizationalperformance were chosen. Finally the impacts <strong>of</strong> <strong>informal</strong> group’s <strong>effects</strong> on four-sidedprism <strong>of</strong> BSC model were investigated by questionnaire in a sample <strong>of</strong> IT industry inIran.COPY RIGHT © 2012 Institute <strong>of</strong> Interdisciplinary Business Research 365

ijcrb.webs.comINTERDISCIPLINARY JOURNAL OF CONTEMPORARY RESEARCH IN BUSINESSAPRIL 2012VOL 3, NO 122. Literature review:2.1. Informal group and organizational performance:Blau and Scott (1962) declared that employees usually do not accomplish their duties byall <strong>of</strong> their power because formal authority <strong>of</strong>ten cannot motivate employeescompletely. Additionally, formal authority has forced employees to show certainbehaviors standardized by regulations so they contract their efforts and avoid beinginnovative and creative. On the other hand, <strong>informal</strong> organizations are the interlockingsocial structure created to answer employees’ social and psychological needs becausepeople need to feel they are part <strong>of</strong> something.Organizational sociologists count several reasons why <strong>informal</strong> <strong>groups</strong> form. Mongeand Eisenberg (1987) discussed <strong>informal</strong> <strong>groups</strong> pop out when people try to express<strong>effects</strong>, influence attempt, and exchange information or services. Some researchers haveidentified some psychological reasons for the existence <strong>of</strong> <strong>informal</strong> networks such asaffiliation needs, the sense <strong>of</strong> identity, social reality, and defense mechanism (Baker,1981; Han, 1983). Waldstrom (2001) have classified the reasons why employees engagein <strong>informal</strong> <strong>groups</strong> into three categories: (1) technical reasons related to work issues, (2)political reasons related to individual and group goals, and (3) cultural approaches. Inaddition, Crampton and Hodge (1998) indicated that <strong>informal</strong> structures can satisfy theneed <strong>of</strong> knowing by their faster and less cumbersome communication network. Someothers stated that people seek benefits so individuals might join an <strong>informal</strong> group to useits power to bias colleagues or superiors in order to obtain an advantage (Waldstrom,2001).Overriding factor that creates an <strong>informal</strong> group is friendship or common interest butthe role <strong>of</strong> members is not the same into an <strong>informal</strong> network. Stephenson (1998)categorized three kinds <strong>of</strong> roles in <strong>groups</strong> by focusing on the flow <strong>of</strong> information in thegroup: (1) Hubs; people who are most connected with others, (2) Gatekeepers; transportinformation between hubs, and (3) Pulse takers; they influence how other membersperceive the information. Moreover, she believes that <strong>informal</strong> networks are the initialstage <strong>of</strong> organizational structure and have hierarchical development which set its ownorganizing principles. This kind <strong>of</strong> classification and argument demonstrate that theimportance and effect <strong>of</strong> members are different so the concept <strong>of</strong> <strong>informal</strong> leaders wascreated. Although, Informal leaders have not legislative power <strong>of</strong> hiring and firingemployees, they are followed by members because <strong>of</strong> their inspiring and moral <strong>effects</strong>.Some studies reveal that <strong>informal</strong> leaders have a strong influence on group operationsand outcomes (Pescosolido, 2001) so it is not questionable to consider them as a source<strong>of</strong> power beside formal authority. <strong>The</strong>refore, there are controversy surroundingswhether <strong>informal</strong> <strong>groups</strong> are positive entities in organizations.<strong>The</strong>re is a plethora <strong>of</strong> debates demonstrating <strong>groups</strong> have a strong effect onorganizational effectiveness by influencing on both employees and superiors’ functions.First <strong>of</strong> all, according to the social identity theory, employees would be satisfied by thesense <strong>of</strong> belonging which stimulates the process <strong>of</strong> motivation and improve self-esteem,resulting in high level <strong>of</strong> performance (Gary, 1996; Smith, 2008). Secondly, formalcommunication arranged by management are likely unidirectional and underprivilegedwhile <strong>informal</strong> <strong>groups</strong> use <strong>informal</strong> communication net that is spontaneous, interactive, andmore effective because <strong>of</strong> the lack <strong>of</strong> pre-specification (Ouchi, 1980; Kraut et al, 2002).Spontaneously, group awareness increases when the sharing <strong>of</strong> information increases soCOPY RIGHT © 2012 Institute <strong>of</strong> Interdisciplinary Business Research 366

ijcrb.webs.comINTERDISCIPLINARY JOURNAL OF CONTEMPORARY RESEARCH IN BUSINESSAPRIL 2012VOL 3, NO 123. Research Hypotheses and methodology:In this study, the research methodology was survey and data were gathered byquestionnaire and interview. <strong>The</strong> main hypothesis is:Main Hypothesis: <strong>The</strong> existence <strong>of</strong> <strong>informal</strong> <strong>groups</strong> has a positive effect onorganizational performanceTo evaluate organizational performance, Based Scorecard model was adopted as thebasis <strong>of</strong> instrumentation for this study. This model introduced by Kaplan and Morton in1992 and has been modified several times by them to masseur organizationalperformance and strategic objectives and strategy maps (Kaplan, 2010). <strong>The</strong> modelconsists <strong>of</strong> four perspectives: (1) Financial consisted <strong>of</strong> cost structure and pr<strong>of</strong>itabilityand measured by residual income (2) Customer comprised <strong>of</strong> product-service attributesand market share indexes (3) Process included operation management process, customermanagement process, innovation process, and regulatory and social process thatcalculated by productivity, product leadership, and public responsibility, and finally (4)Learning and growth with metrics personnel development, employee attitudes, andbalance between short-range and long-range objectives.Because <strong>of</strong> some limitations the study does not cover financial dimension so accordingto the other perspectives three alternative hypotheses are considered:Hypothesis 1: <strong>The</strong> existence <strong>of</strong> <strong>informal</strong> <strong>groups</strong> has a positive effect on the customersatisfactionHypothesis 2: <strong>The</strong> existence <strong>of</strong> <strong>informal</strong> <strong>groups</strong> has a positive effect on processHypothesis 3: <strong>The</strong> existence <strong>of</strong> <strong>informal</strong> <strong>groups</strong> has a positive effect on employees’learning and growth<strong>The</strong> research focused on IT industry <strong>of</strong> Iran and sampling was conducted at the biggestIranian IT company consists <strong>of</strong> 26 main firms and 20 Subsidiary firms scatteredthroughout Iran. <strong>The</strong> company has 600 full time employees so 320 questionnaires sentout and 290 questionnaires were thoroughly completed and returned.To design main questionnaire, at first, a random sample including 25 employees andmanagers were interviewed to determine how they express their opinion to the <strong>effects</strong> <strong>of</strong><strong>informal</strong> <strong>groups</strong>. Eight factors were mentioned by respondents as the most importantadvantages <strong>of</strong> <strong>informal</strong> <strong>groups</strong> which are displayed in table 1:Table 1: <strong>The</strong> benefits <strong>of</strong> <strong>informal</strong> <strong>groups</strong> according to the respondentsFactors n Frequency (F) f % RankingImproving motivation 25 21 84 1Job security 25 19 76 2Enhancing involvement 25 18 72 3Innovation 25 16 64 4Modifying job problems 25 15 60 5<strong>The</strong> sense <strong>of</strong> identity 25 12 48 6Improving communication 25 11 44 7Developing efficiency 25 8 32 8COPY RIGHT © 2012 Institute <strong>of</strong> Interdisciplinary Business Research 368

ijcrb.webs.comINTERDISCIPLINARY JOURNAL OF CONTEMPORARY RESEARCH IN BUSINESSAPRIL 2012VOL 3, NO 12Secondly, to make sure that these factors were selected correctly, a five point scalequestionnaire was designed and given to employees. <strong>The</strong>n, the result was analyzed bynormal distribution test at the significance level <strong>of</strong> α = 0.05H0: µ ≤3H1: µ≥3Since z-statistic was 8.71 and the z-table was 1.645 so z falls in the rejection region andnull hypothesis can be rejected at this level <strong>of</strong> confidence. <strong>The</strong>refore, these eight factorswere chosen correctly as the advantages <strong>of</strong> <strong>informal</strong> <strong>groups</strong> in this study. <strong>The</strong>conceptual model is illustrated in figure below:Figure (1): Conceptual frameworkMotivationJob securityInformal groupInnovationInvolvementModifyingIdentityCustomerLearning & growthProcessOrganizationalPerformanceCommunicationEfficiencygroupFinally, according to conceptual framework, a questionnaire consisted <strong>of</strong> 28 questionson a five point scale from strongly agree (5) to strongly disagree (1) was designed. Apilot test <strong>of</strong> 20 respondents was taken to examine the reliability <strong>of</strong> questionnaire that theCronbach Alpha was 0.8735 so the reliability <strong>of</strong> questionnaire was acceptable.4. Findings:Of the 320 questionnaires sent out, 290 were completed and returned and data wasanalyzed by chi-square that the results are shown in table (2) and table (3) below:Table 2: descriptive statisticsFactors n MinimumPointMaximumPointMeanStd.deviationCustomer 290 25 45 35.4069 3.79Process 290 22 45 33.7103 3.97Learning andgrowthOrganizationalperformance290 16 38 27.0379 3.59290 75 114 96.1552 6.62COPY RIGHT © 2012 Institute <strong>of</strong> Interdisciplinary Business Research 369

ijcrb.webs.comINTERDISCIPLINARY JOURNAL OF CONTEMPORARY RESEARCH IN BUSINESSAPRIL 2012VOL 3, NO 12Table 3: chi-square analysisFactorsChi-square (a,b, c, d)dfAsymp.SigCustomer 160.621 19 .000Process 176.400 21 .000Learning andgrowthOrganizationalperformance154.993 18 .000171.228 33 .000a.0 cells (.0%) have expected frequencies less than 5. <strong>The</strong> minimum expected cell frequency is 14.5.b. 0 cells (.0%) have expected frequencies less than 5. <strong>The</strong> minimum expected cell frequency is 13.2.c. 0 cells (.0%) have expected frequencies less than 5. <strong>The</strong> minimum expected cell frequency is 15.3.d. 0 cells (.0%) have expected frequencies less than 5. <strong>The</strong> minimum expected cell frequency is 8.5.According to the above tables it can be said that employees believe <strong>informal</strong> <strong>groups</strong> canaffect customers positively because df=19, so at the 95% level <strong>of</strong> confidence χ2 - table=30.1 which is less than χ2 – statistic (160.621). Moreover, according to the table 1 theaverage point <strong>of</strong> Customer factor is approximately 3.54 that shows respondents had atendency to choose “agree” and “strongly agree” options. For Process factor df=21 andχ2 - table=32.7 so at the 95% level <strong>of</strong> confidence analysis shows that the formation <strong>of</strong><strong>informal</strong> <strong>groups</strong> can improve the process <strong>of</strong> organizations. This result is supported bythe data <strong>of</strong> table 1 too because the average point <strong>of</strong> Process factor (3.37) is more thanthe average point (2.5). <strong>The</strong> same discussion can be cited for third dimension <strong>of</strong> BCSmodel: Learning and growth (df=18, χ2 - table=28.9). However, respondents declaredthe impact <strong>of</strong> <strong>informal</strong> <strong>groups</strong> on this factor is less than others. Learning and growthcould obtain average point <strong>of</strong> 2.7 that is a little more than the average point <strong>of</strong>questionnaire (2.5).Finally, to data, the results <strong>of</strong> three alternatives hypotheses prove that <strong>informal</strong> <strong>groups</strong>can affect organizational performance positively. To ensure more, a chi-square test wasmade separately which confirmed a same outcome, including χ2 - table=46.3 and χ2 –statistic= 171.228 .5. Conclusion:Overall, this paper provides a better understanding <strong>of</strong> the reasons why managers shouldpay attention to <strong>informal</strong> <strong>groups</strong> and their influences. Findings explored that <strong>informal</strong><strong>groups</strong> can strongly improve organizational performance indirectly so managers shouldconsider them as a source <strong>of</strong> high energy. To reach this result, firstly, a frameworkmodel was designed to illustrate how <strong>informal</strong> <strong>groups</strong> can affect organizationalperformance by BSC model. <strong>The</strong>n, the model was tested. <strong>The</strong> literature shows someaspects <strong>of</strong> <strong>informal</strong> group can cause conflict when their goals are not aligned withformal scheduled goals so the way how manager treats <strong>informal</strong> group is important.One alternative <strong>of</strong> this study corroborates the surveys <strong>of</strong> researchers who studied intothe benefits <strong>of</strong> <strong>informal</strong> <strong>groups</strong> like Gray (1996), Björk and Magnusson (2008), andAtkinson & M<strong>of</strong>fat (2005).COPY RIGHT © 2012 Institute <strong>of</strong> Interdisciplinary Business Research 370

ijcrb.webs.comINTERDISCIPLINARY JOURNAL OF CONTEMPORARY RESEARCH IN BUSINESSAPRIL 2012VOL 3, NO 12This study, also, is important because to the best <strong>of</strong> our knowledge, there have been alimited number <strong>of</strong> empirical studies about <strong>informal</strong> <strong>groups</strong> in Iran so the results can beuseful for future research. However, it must be noted that the study suffer from somelimitations. Firstly, information regarding financial perspective <strong>of</strong> BSC model was notavailable so more comprehensive research is necessary to reach to richer outcomes.Additionally, the research focused on Iran so the result cannot be generalized to othercountries. <strong>The</strong>refore, more conclusive result could be extracted from comparativestudies in future. Furthermore, it is recommended that demographical aspects take underconsideration in future studies.COPY RIGHT © 2012 Institute <strong>of</strong> Interdisciplinary Business Research 371

ijcrb.webs.comINTERDISCIPLINARY JOURNAL OF CONTEMPORARY RESEARCH IN BUSINESSAPRIL 2012VOL 3, NO 12ReferencesAtkinson, R.S and M<strong>of</strong>fat, J (2002) the agile organization: from <strong>informal</strong> networks tocomplex <strong>effects</strong> and agility. CCRP publication series, ISBN 1-893723-16-XBaker, H. K. (1981) Tapping Into the Power <strong>of</strong> Informal Groups. SupervisoryManagement, 26(2), pp. 18-25.Barrick, M. R, Stewart. G. L, Neubert, M. J, and Mount, M. K. (1998) Relating MemberAbility and Personality to Work-Team Processes and Team Effectiveness. Journal <strong>of</strong>Applied Psychology 83, pp.377–391Bezrukova, K., Jehn, A.K,and Zanutto, E (2002) A Field Study <strong>of</strong> Group Fault lines,Team Identity Conflict, and Performance in Diverse Groups. Working paper.Wharton: University <strong>of</strong> PennsylvaniaBititchi, U.M. Carrie, A.S. & McDevitt, L. (1997) Integrated performance measurementsystems: an audit and development guide. <strong>The</strong> TQM Magazine, 9(1), pp. 46-53.Björk, J and Magnusson, M. (2008) Ideation Performance in Projects and InformalGroups. Center for Business Innovation Working Paper Series, No. 13, ChalmersUniversity <strong>of</strong> Technology, SwedenBlau, P.M. & Scott, W.R. (1962) Formal organizations. San Francisco: Scott, Foreman.Crampton, S. M., and Hodge, J. W. (1998) <strong>The</strong> Informal Communication Network:Factors Influencing Grapevine Activity. Public Personnel Management, 27(4), pp.569-584Gary, J. (1996) Social Behavior and Organizational Processes. Organizational Behavior:Understanding and Managing Life at Work, Harper Collins College PublishersGaiss, M. (1998) Enterprise Performance Measurement, Management Accounting,December Issue.COPY RIGHT © 2012 Institute <strong>of</strong> Interdisciplinary Business Research 372

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ijcrb.webs.comINTERDISCIPLINARY JOURNAL OF CONTEMPORARY RESEARCH IN BUSINESSAPRIL 2012VOL 3, NO 12Pescosolido, T.A. (2001) Informal leaders and the development <strong>of</strong> group efficacy. Smallgroup research: Sage Publications, Vol. 32 No. 1, pp. 74-93,.Smith, M. K. (2008) what is a group? the encyclopedia <strong>of</strong> <strong>informal</strong> education.[www.infed.org/groupwork/what_is_a_group.htm].Stephenson, K. (1998) Technology Management. CRC Press Inc, pp. pp.40-5Van Vianen, A. E. M. and. De Dreu, C. K. W. (2001) Personality in Teams: ItsRelationship to Social Cohesion, Task Cohesion, and Team Performance. EuropeanJournal <strong>of</strong> Work and Organizational Psychology 10, pp. 97–120.Willcoxson, L and Millett, B. (2000) <strong>The</strong> management <strong>of</strong> organizational culture.Australian Journal <strong>of</strong> Management & Organizational Behavior, 3(2), pp. 91-99Waldstrom, C. (2001) Informal Networks in Organizations: A literature review. DDLWorking Paper No. 2, Aarhus school <strong>of</strong> business, Denmark.Xu Bi-lin; Zhao Tao (2008) An empirical study <strong>of</strong> relationship between <strong>informal</strong><strong>groups</strong> and perceived job satisfaction from China.International Conferenceon Management Science and Engineering, Tianjin, ISBN: 978-1-4244-2387-3COPY RIGHT © 2012 Institute <strong>of</strong> Interdisciplinary Business Research 374