Network structure

Network structure is used in modern organizations. It breaks with traditional organizational solutions and bring new ways of managing. Today there has been a move away from the organizational solution characteristic in the industrial era in the direction of the network structure.

The reason for the formation of the network structure is changes in Information technology, new perception of the environment organization and blurring the boundaries between the enterprise and the environment. Immediate environment is seen as one which is made up of stakeholders from both inside and outside the organization, they in turn, are a source of additional benefits.

A network structure, in the context of organizations, refers to a type of organizational structure in which individuals or groups within the organization have a high degree of autonomy and are connected through a network of relationships rather than a centralized hierarchy. This structure is often used in decentralized organizations, such as those in the technology or consulting industries, where individuals or teams work independently on specific projects or tasks, but still collaborate and share resources with others within the organization. The structure is considered more flexible, adaptable and can be more efficient in decision-making.

Development of network organizational structure

The network structure is formed by combining the resources of cooperating independent companies, working on a joint venture for achieving greater benefits than working in a traditional way. The basis for development of an efficient network structure is computerization and efficient flow of information. It is an alternative to the basic structures, which are increasingly unable to meet the demands faced by a company in a highly competitive and dynamic environment. It can function as a joint management venture, strategic alliance, distribution services, merging smaller units in the new corporation.

The emergence of this type of structure is not a revolution, but an evolutionary step towards creating new intellectual values, better information exchange, smooth communication. Increased level of cooperation with external partners from other countries or areas allows to build direct contacts between stakeholders, which allows to achieve various synergies. The network consist of self-managed, cooperating units concentrated on various steps in value creating processes.

Types of network organizational structure

Immediate environment consists of stakeholders associated not only with the organization but also the inter-connected network of relations. There are four types of the network between organizations:

• Integrated network: This type of network structure consists of different units or branches that are legally and formally a part of the same organization or parent company. These units may be located in different geographical locations and may have different functions, but they all operate under the same organizational structure and share resources and information. Examples of integrated network include a retail chain with different store locations, or a manufacturing company with different factories.
• Correlated network: This type of network structure consists of different units or organizations that are aware of common needs and goals and collaborate to achieve them. These units may be competitors, but they have a shared interest in certain aspects of the business, such as supply chain management or research and development. Examples of correlated network include a group of companies in the same industry, such as car manufacturers, who collaborate to develop new technologies.
• Contract network: This type of network structure consists of independent partners who enter into agreements, such as franchises, concessions or contracts, to work together. These partners may have different ownership, management and control structures, but they collaborate based on the specific terms of the agreement. Examples of contract network include a fast food chain that operates through franchise agreements, or a hotel chain that manages properties through management contracts.
• Direct relations network: This type of network structure consists of direct relationships between individuals or groups, such as in the field of politics or religion. These networks are often informal and may be based on personal or social connections. Examples of direct relations network include a political party with different branches or a religious organization with different congregations.

How management of network structure differs?

Management of network structure requires a change of policy, new activities and methods, change in the staff, Managers face new tasks that are determined by four factors:

• Specificity of the requirements for skilled workers: Managing a network structure requires a different set of skills than traditional hierarchical structures. Skilled workers who are able to work independently, collaborate effectively with others, and adapt to changing circumstances are essential for the success of this type of structure. Managers must be able to identify the specific skills needed for their organization and ensure that their staff have the necessary training and development to meet those needs.
• Untraditional incentive system: Traditional incentive systems, such as those based on hierarchical structures and promotions, may not be effective in a network structure. Managers must develop new incentive systems that reward collaboration, innovation and adaptability. This may include performance-based incentives, team-based rewards, or other non-traditional methods of motivation.
• Leadership as a management style: In a network structure, leadership is essential to maintaining collaboration and coordination among different units and individuals. Managers must be able to lead by example, inspire and motivate others, and provide guidance and direction when needed. This often requires a different management style, focusing on coaching, mentoring and empowering employees.
• Increased requirements for new organizational culture: A network structure requires a different organizational culture than traditional hierarchies. This culture should be based on open communication, collaboration, flexibility and adaptability. Managers must create an environment that encourages experimentation and innovation, and that fosters a sense of community and shared purpose among employees. This will require changes in the way the organization operates, including in decision-making, communication and the way resources are shared.

When to use network structure?

A network structure may be an appropriate organizational structure to use in certain situations, such as:

• Decentralized organizations: A network structure is well-suited for organizations that operate in a decentralized manner, where individuals or teams work independently on specific projects or tasks, but still collaborate and share resources with others within the organization.
• Businesses with changing and complex environment: The network structure allows for more flexibility and adaptability, which is important in a rapidly changing and complex business environment.
• Companies with multiple locations: A network structure allows for the sharing of resources and information among different units or locations, which can be beneficial for companies with multiple branches or subsidiaries.
• Companies with multiple functions or services: A network structure allows for collaboration and coordination among different functions or services within an organization, which can be beneficial for companies with diverse operations.
• Companies with a high degree of interdependence: Network structures allows for different units to work together to meet common goals, which can be beneficial for companies with a high degree of interdependence between different functions or services.

It's important to note that not all companies or situations will benefit from this structure, it depends on the nature of the business, the culture, the market, and the strategy of the organization.

Advantages of network structure

The advantages of a network organizational structure include:

• Increased flexibility: Network structures allow for quick adaptation to changes in the market or environment.
• Greater access to resources and expertise: Organizations can tap into the resources and expertise of other companies or individuals in the network.
• Reduced costs: Network structures can lead to lower costs through shared resources and increased efficiency.
• Enhanced innovation: The diverse perspectives and experiences of network members can lead to greater creativity and innovation.
• Increased competitiveness: Network structures can make companies more competitive by allowing them to respond more quickly to market changes and take advantage of new opportunities.
• Improved coordination and communication: The network structure can facilitate better coordination and communication among members, which can lead to more effective decision-making and problem-solving.

Disadvantages of network structure

The disadvantages of a network organizational structure include:

• Lack of control: Network structures can make it difficult for an organization to maintain control over its operations and resources.
• Dependence on other organizations: Companies that rely on networks may become dependent on other organizations for resources or expertise, which can create vulnerabilities.
• Conflicting goals: The goals of different organizations in a network may not always align, which can lead to conflicts and inefficiencies.
• Complex decision-making: The decentralized nature of network structures can make decision-making more complex and time-consuming.
• Difficulty in maintaining long-term relationships: Maintaining long-term relationships with other organizations in a network can be challenging, especially if the network is constantly changing.
• Potential for information leaks: Network structure can lead to information leaks as the information shared among the participants may be sensitive and not intended for all parties.
• Difficulties in maintaining the quality standards: As the network members may come from diverse backgrounds, it can be challenging to maintain the same level of quality throughout the network.

Other organizational structures

Some other common organizational structures include:

• Hierarchical structure: This structure is characterized by a clear chain of command, with a clear division of labor and a clear division of responsibilities. This structure is often used in large, bureaucratic organizations.
• Matrix structure: This structure combines elements of a hierarchical structure with elements of a network structure. It involves cross-functional teams that work on specific projects, with team members reporting to both a functional manager and a project manager.
• Flat structure: This structure is characterized by a minimal hierarchy and a decentralized decision-making process. It is often used in small organizations or startups, and is designed to be more flexible and responsive to change.
• Functional structure: This structure is based on the division of labor, with each department or function of the organization reporting to a single manager. It is often used in manufacturing or service-based companies, where the focus is on efficiency and economies of scale.
• Divisional structure: This structure is based on the division of the organization into separate business units or divisions, each with its own management team and resources. It is often used in large, diversified companies.
• Hybrid structure: This structure combines elements of different organizational structures, such as functional and divisional or matrix and flat, in order to achieve specific goals or respond to specific challenges.

Network structure — recommended articles

Adhocracy — Functional structure — Importance of teamwork — Virtual organization — Specialization — Organic organization — Organizational structure — Grouping of posts — Departmentalization

References

• Reagans, R., & McEvily, B. (2003). Network structure and knowledge transfer: The effects of cohesion and range. Administrative science quarterly, 48(2), 240-267.