Network structure

Meaning

A network (or virtual) organisation is built around a central hub organisation that contracts out functions such as design, manufacturing, distribution, financing and transport to other firms, and coordinates their work; the partners are linked electronically and join or leave the network as its needs change. Because the hub works through partners beyond its own boundaries, it is also called a boundaryless organisation. A Jaipur home-furnishings brand that designs in-house but uses contract weavers, a logistics firm and an online marketplace works in this way.

Features

It relies on cross-hierarchical teams and participative decisions; the hub's managers concentrate on strategic choices about which relationships to build or drop; and it rests on coordination, cooperation and electronic technology.

Merits and limitations

Partners bring their best capabilities together, small efficient firms gain a place in the network, and alliances can be changed quickly as the environment changes. On the other hand, it depends on reliable partners, harmonising their work is difficult, and activities cannot be controlled closely, so performance may suffer; critics call it a hollow corporation.