Network organisation structure, with an example

Meaning of a network organisation

A network organisation is built around a central firm, the hub, which keeps only a few core activities and has other firms perform functions such as design, manufacturing, marketing, distribution, financing or transport for it under contracts. The partners are linked to the hub electronically, and the hub coordinates their work and keeps control over it. Partners join or leave the network as the hub's needs change. Because the hub's working relationships reach far beyond its own walls, the form is also called a boundaryless or virtual organisation; it aims to combine the efficiency of a mechanistic structure with the flexibility of an organic one.

Features

1. Electronic links. Computers, e-mail and similar technology hold the network together.
2. A strategic hub. The hub's management concentrates on strategic choices: which new relationships to build and which old ones to drop.
3. Speed. The network can seize new opportunities quickly, since partners close to the market sense changes and respond locally.
4. Teams across levels. Work is done by teams that cut across hierarchy, with participative decision making.
5. Coordination and cooperation. The structure rests on cooperation among independent firms, coordinated by the hub.

Example

Consider a home-furnishing brand based in Jaipur that sells bedsheets and cushion covers online. Its own small team does only product design, brand building and customer service. Block printing is done on contract by artisan workshops in Sanganer, stitching by a garment unit in Noida, warehousing and delivery by a logistics firm, sales through its website and two online marketplaces, and payments through a payment gateway. All of them share order and stock data through common software. If a workshop cannot meet the festive-season rush, the brand adds another; when it launches table linen, it signs up a new weaver. The brand is the hub; the others are its network.

Merits and limitations

Merits: the network adapts easily, since alliances can be formed or dropped as the environment changes; it lets small but efficient firms survive as partners of a larger network; it brings together the best capabilities of each partner, so its performance can in principle be very high; and the hub, free of vertical and horizontal boundaries, tends to have motivated staff.

Limitations: it works only with reliable partners, and no sure way of ensuring reliability exists; harmonising the partners, each with its own way of working, is difficult; and the hub cannot control their activities closely, so performance can suffer badly. Critics call it a hollow corporation.

Conclusion

The network organisation suits firms that need flexibility and speed and can rely on capable partners. It trades close control for adaptability, and its success depends on how well the hub chooses and coordinates its partners.