BUS608: Ethical and Strategic Management

In the network structure, managers coordinate and control relationships with the firm that are both internal and external.

Learning Objectives

Identify the structural implications of a network-based organizational design

Key Takeaways
Key Points

• The network structure is a newer type of organizational structure viewed as less hierarchical (i.e., more "flat"), more decentralized, and more flexible than other structures.
• In a network structure, managers coordinate and control relationships that are both internal and external to the firm.
• The concept underlying the network structure is the social network-a social structure of interactions. Open communication and reliable partners (both internally and externally) are key components of social networks.
• Proponents argue that the network structure is more agile than other structures. Because it is decentralized, a network organization has fewer tiers, a wider span of control, and a bottom-up flow of decision making and ideas.
• A disadvantage of the network structure is that this more fluid structure can lead to more complex relations in the organization.

Key Terms

• network: Any interconnected group or system.
• decentralized: Diffuse; having no center or several centers.
• agile: Apt or ready to move; nimble; active.

Overview of the Network Structure

An organization can be structured in various ways that determine how it operates and performs. The network structure is a newer type of organizational structure often viewed as less hierarchical (i.e., more flat), more decentralized, and more flexible than other structures. In this structure, managers coordinate and control relations that are both internal and external to the firm.

The concept underlying the network structure is the social network-a social structure of interactions. At the organizational level, social networks can include intra-organizational or inter-organizational ties representing either formal or informal relationships. At the industry level, complex networks can include technological and innovation networks that may span several geographic areas and organizations. From a management perspective, the network structure is unique among other organizational structures that focus on the internal dynamics within the firm.

A network organization sounds complex, but it is at its core a simple concept. Take, for example, a T-shirt design company. Because the company leaders are mainly interested in design, they may not want to get too heavily involved in either manufacturing or retail; however, both aspects of the business are necessary to complete their operations. To maintain control of their product, they may rent retail space through their network and purchase production capabilities from a variety of partner organizations that have their own manufacturing facilities. While the core company focuses mainly on designing products and tracking finances, this network of partnerships enables it to be much more than just a design operation.

Like other organizational structures, the network structure has its advantages and its disadvantages.

Advantages of a Network Structure

Proponents argue that the network structure is more agile compared to other structures (such as functional areas, divisions, or even some teams). Communication is less siloed and flows freely, possibly opening up more opportunities for innovation. Because the network structure is decentralized, it has fewer tiers in its organizational makeup, a wider span of control, and a bottom-up flow of decision making and ideas.

Disadvantages of a Network Structure

On the other hand, this more fluid structure can lead to a more complex set of relationships in the organization. For example, lines of accountability may be less clear, and reliance on external vendors can be quite high. These potentially unpredictable variables essentially reduce the core company's control over its operational success.