What are Formal and Informal Communication in Business?

Formal communication is communicating of official information about the business or workplace. Examples of formal communication are reports, business letters, purchase orders, while informal communication are often telephone or in person conversations.

Successful channels of communication typically support profitable businesses. When a business is based on strong communication skills, the company is more organized, more open to new ideas, and overall more successful. While some individuals overlook the importance of effective business communication, intelligent entrepreneurs and owners know that without fluid communication, companies cannot achieve their potential.

Business communication falls into two main categories: formal communication and informal. Formal communications typically bolster organization and provide meaningful structure. Informal communication allows individuals to form productive relationships and explore alternative problem-solving methods. For example, our California business attorneys nearly always practice formation communication with the courts, and use information communication with our clients during telephone conversations.

The best companies utilize a streamlined mix of formal and informal communication. These two types of communication work together to help the company, its owners, and its employees continue to meet goals and surpass expectations. When a business practices both forms of communication, the business runs more efficiently and achieves greater outcomes.

Informal communication often occurs spontaneously, but companies can plan for and work on formal and informal interactions. Therefore, communication is an asset that companies can develop, and the best companies work to improve their overall sense of business communication.

This article will define formal and informal communication in business and provide examples to illustrate both interactions. It is vital that every entrepreneur and business owner understand the value of strong business communication and how to achieve excellent informal and formal communication, allowing the two to work together.

What is Formal Business Communication?

Think of formal business communication as a calculated exchange of information to create clear expectations and goals. Formal communication has a clear purpose and, when performed correctly, contributes to a well-structured and well-run company.

Formal business communication usually takes place in-house but sometimes includes planned interactions with parties outside the organization.

Formal communication also can create opportunities for productive informal communication. For example, a small business owner could arrange for people to come to tour their business, hoping to increase publicity in the local area. After a short, planned speech, the owner might circulate the room, encouraging a spontaneous flow of information as visitors ask questions and tell stories. In this example, both formal and informal interactions help the business owner and company gain exposure.

How Do Businesspeople Communicate Formally?

Companies use various techniques to pass down information from team to team or from the owner or CEO to employees. Often, supervisors and managers work to relay information from the top of the business down to their teams of workers.

Managers often use formal written means such as newsletters, blog entries, memos, and emails. When managers hire new workers, an employee handbook, for example, usually serves as a vehicle for detailed, formal information about the company.

Companies also use verbal techniques to pass information on, such as speeches, presentations, and meetings. For example, a supervisor might schedule a conference with their employees in person or via the web and use that formal setting to make suggestions or pass down new instructions from the owners or board of directors.

Other forms of written communication include signs in the office, written reviews of workers, and documented interactions with non-profit companies. In addition, creative companies use news briefs and media appearances to communicate the values and characteristics of their companies. For example, a small business owner might agree to a brief, planned interview on television to enhance exposure and communicate with the public.

What Are the Types of Formal Business Communication?

When entrepreneurs hear the term “formal communication,” they envision interactions that encourage a constant, organized flow of information. Formal communications rest on a planned chain of command, and information moves clearly and logically from one party or source to the next.

Formal communication is a built-in element of every workplace, yet some companies define their interactions and methods more accurately than others. Organizations practicing the best formal communication follow a set path. They use established channels yet also continually work to improve interactions and try new ways to get information across when information can flow freely but in a structured fashion, the business benefits.

For example, if a superior send financial reports to their team of employees, that is a formal interaction. Likewise, if a company owner orders their employees to stop working at home and report to work three days a week in person, that is formal communication.

Here is a brief list of some of the most important means of formal communication:

Vertical Communication

When businesspeople exchange information at unique organizational levels; they harness the power of vertical communication. The vertical flow of information usually goes from someone of higher authority to someone of lower authority, and vertical communication includes the reverse.

Vertical communication can therefore be divided into two different concepts:

Bottom-Up Dialogue: where information rises from an employee, for example, to a supervisor, or from any business party of lesser authority to higher authority

Top-Down Dialogue: where information flows from higher authority to subordinate; for example, a manager informs an employee of a change to their job duties.

A variety of companies often use vertical communication. It is the most traditional means of informing subordinate parties of new responsibilities and duties and checking in with superiors regarding performance.

Horizontal or Lateral Communication

Horizontal communication usually involves two workers at the same level in the company. However, these employees usually work for different departments and have different responsibilities. For example, suppose a corporation has a marketing department as well as an advertising department. In that case, the employees from each department may discuss ideas and promotions often, laterally exchanging ideas. Or, two managers from different departments might meet to discuss plans for the next quarter, for example, a Sales Manager and a Marketing Manager.

Diagonal Communication

Diagonal communication takes these examples a step further and occurs between workers in different departments who also work at different levels than each other. Diagonal communication is important because it encourages interactions and Dialogue between individuals who may not normally have communication opportunities.

Diagonal communication can result in interesting new concepts and ideas and helps people in different departments and levels in the company learn from each other.

For example, diagonal communication could involve a productive meeting between someone in sales and one of the company’s top executives. The two could exchange ideas for a new sales campaign and inform the other how they plan to help the new campaign succeed.

What is Informal Communication?

Many business owners and entrepreneurs do not attribute enough importance to informal communication, but these interactions fully support a successful, productive business environment.

Informal communication is the opposite of formal communication in many ways and involves different expressions of casual communication along employees. Informal communication stems from social relationships within the workplace, which are unofficial and unsanctioned.

For example, perhaps an hourly, part-time employee and the company COO can chat casually as they refill their coffee. The hourly worker tells the COO what she is working on, and the COO tells the part-time worker that the company may add some full-time workers and that she is welcome to apply. This seemingly innocuous conversation is illuminating for both parties, yet performed according to neither a plan nor schedule.

Just because informal communication is unofficial, it does not mean it is unimportant. On the contrary, informal communication is vital for a healthy workplace and aids worker morale. This communication also makes workers feel like they are a part of a community instead of simply being a number. Instead of isolation, constant informal communication promotes feelings of togetherness, and that feeling goes beyond the company and impacts customers and clients as well.

What Are Examples of Informal Communication?

When one worker interacts with another fellow worker in a laid-back and conversational manner, they exchange informal communication. These conversations do not always have to be about the business or even be of substance. For example, two employees might chat about a local sports team, or a manager and a worker might discuss the company’s new “no jeans to work” policy.

Many compare informal business communication to families’ interactions around the dinner table. When one envisions a child asking their parent a question, or a parent telling a story or asking, “how was school today,” they get a sense of what informal communication looks like. In a calm, carefree setting, all parties feel free to communicate for different reasons: to ask questions, inform people of things, and listen.

Therefore, chats and unofficial interactions at work are examples of informal communication. Additionally, not all informal business communication must relate to the company or business world. Employees learn about each other and strengthen their bonds by exploring other topics. This sense of togetherness helps the business function more effectively and run more smoothly.

What Are the Different Types of Informal Business Communication?

Different categories of informal communication exist, and each type has a time and a place. However, each category also comes with advantages and disadvantages.

Workers, for example, must be careful about how personal their conversation gets and not violate the trust of their peers or any workplace rules or regulations. Some topics are inappropriate for informal business communication, such as personal relationships or Gossip about the business, not to mention trade secrets.

Here are some of the most common types of informal office communication:

Cluster Chain: a cluster chain occurs when one person shares information with a group, and then the people who comprise the group share that information with others. This “chain” carries the information along informally, but accuracy and tone are sometimes lost.
Single Strand: This simple interaction occurs when one individual speaks to another single individual, and then that person passes their communication on. Essentially, information travels from one person to the next.
Gossip Chain: Conversations circulate in informal groups, during which all individuals volunteer views and ideas, which are known as gossip chains. These chains are frequently scattered and vibrant.
Probability Chain: When each person tells another person the same message at random intervals, information spreads in a continuous but haphazard manner.

These information pathways are all different, but they all center on the flow of information between workers in a nonprofessional environment. When information flows but the interactions occur in a formal board meeting, for example, that is an example of formal business communication.

However, when employees trade insights and ideas on-the-fly, and their Dialogue is casual and peppered with personal thoughts, they communicate informally.

What Are the Advantages of Informal Communication?

Informal communication is relaxed and encourages confidence and closeness. On the contrary, formal communication often appears cold and detached. However, both of these communication types are vital ingredients for businesses.

Informal business communication is essential because it helps bring people from different departments and levels together. In addition, people value friendship and approachability, and many of us complete our best work when we feel comfortable and appreciated.

When workers enjoy their jobs and the workplace atmosphere, they work harder and help increase the entire company’s productivity.

Additionally, employees who feel lost or confused or struggle with their duties rely on informal communication channels for help and guidance. Through informal interactions, employees can understand the company and its policies more deeply and feel supported and connected. Therefore, the value of strong informal business communication at any company is undeniable.

What Are the Disadvantages of Informal Communication?

Informal business communication is not without its drawbacks, as well. Often, it is not the actual method of communication that can be harmful but how employees view the interactions. Overall, informal business communication can spread inaccurate information, as unconfirmed rumors or disinformation can spread quickly.

Here are the main disadvantages of informal communication:

Incomplete information: often, the information circulating in the office is not fully formed, and therefore when it reaches workers, they misinterpret it.

Rumors and Gossip: unconfirmed rumors are sometimes spread through the office via unofficial channels.

Uncontrollable and Divisive: Once information spreads, it can be difficult for authority figures to identify false information or stop it from spreading. Plus, disinformation can separate the office into groups, as employees “take sides” based on what they hear. This separation can ruin the office’s sense of community.

No Privacy: When informal communication gets out of control, workers defy the rules and violate each others’ privacy. They also sometimes violate office rules as they freely interact.

While informal communication has downsides, businesses can prevent these drawbacks with clear policies and rules that the owners and supervisors routinely enforce.

What Are the Advantages of Formal Communication in Business?

As noted, formal communication is a necessary element of all successful businesses. Five of the top advantages of formal business communication are:

Improved Efficiency: formal communication follows established rules and channels and helps keep everyone informed. For example, when a business communicates effectively, all departments understand their roles and responsibilities, and employers answer workers’ questions quickly. The company runs smoothly and productively.

Improved Communication: All departments, from the top down, stay informed about new rules, new clients, and new projects. As communication moves vertically, horizontally, or diagonally, everyone takes advantage of the ability to communicate.

Documentation: Since formal communications are typically recorded, references exist for employees to fall back on. Documentation also helps keep communication businesslike and elevated.

Established Authority: While formal company communication encourages discussion among individuals at all levels, there is never a question of who is in charge. When employees understand, for example, who their superiors are, the system works more consistently.

Accuracy: Thanks to well-defined regulations and respected, visible rules, errors do not normally plague formal business interactions.

What Are the Disadvantages of Formal Communication in Business?

While formal communications help companies run smoothly and engage in productive Dialogue, there also exist drawbacks to this type of communication. However, when businesses and individuals are aware of these disadvantages, preventing them from negatively impacting the business is relatively simple.

Time Delays: Sometimes, formal communication takes a long time to make its way through the appropriate channels. An employee with a question for someone at the top of command must ask the question of people of lesser authority, so they can pass the worker’s concern up the chain of command. This formal web of command can result in wasted time.

Rigidity: Often, formal business communication does not incorporate changes in perspective, especially if a person’s views change quickly. The formal communication system can be inflexible, and this refusal to open up to new ideas can prove damaging.

Lack of Creativity: Formal communication emphasizes following the channels of a specific system. Creative solutions and ideas can prove difficult to develop when there is no room for deviation or experimentation.

Detachment: Formal communications are often strict and impersonal; when superiors employ a cold tone, they can alienate employees.

Stressful: Formal business interactions rely on strict deadlines and do not allow for flexibility, leading to pressure and stress when employees cannot meet unreasonable deadlines.

What is the Difference Between Formal and Informal Business Communication?

It is important that both individuals and businesses understand the values of both formal and informal communication and how the two sources of information differ.

Formal business communication relies on the distribution of official company information. Formal interactions follow the hierarchical channels established by the company and rely on authority figures and strict guidelines. A company’s structure creates the routes of formal communication, and the company’s rules inspire the chain of command.

On the other hand, informal communication is not governed by rules and features workers sharing informal information at opportune times. Informal interactions help businesses build community and function productively and harmoniously. Informal communication is casual in nature.

Which Type of Communication is More Important?

Successful business owners know that their companies must utilize a mix of formal communication and informal business interactions. Both types of communication are vital to a company’s success. When employees feel free to communicate informally, they feel encouraged and supported. When workers follow formal communication lines, the company conducts business in an organized and productive manner.

When a business features formal and informal communication, the business is more efficient and profitable. Therefore, both informal business communication and formal company communication are equally important.

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