Network organisation

Meaning

A network organisation is built around a central or hub firm that has contracts with other firms to perform functions such as design, manufacture, marketing, distribution, finance or transport for it. The hub subcontracts these functions, coordinates the partners, who are linked to it electronically, and keeps control over the work they do; partners join and leave as its needs change. Because its working relationships reach beyond its own boundaries it is also called a boundaryless or virtual organisation. A Delhi apparel brand that designs in-house but has garments stitched by units in Tiruppur, shipped by a logistics firm and sold online through a marketplace works this way.

Features

It depends on electronic links such as computers and e-mail; it rests on coordination and cooperation among partners; its central management concentrates on strategic choices about which relationships to build or drop; it uses cross-hierarchical teams and participative decisions; and it can seize new opportunities quickly.

Merits

It adapts easily, since new alliances can be formed and old ones ended as the environment changes; it brings together the best capabilities of each partner; few status differences keep staff motivated; and it gives efficient small firms that could not survive alone a place as partners.

Limitations

It works only with reliable partners, and no method exists yet to ensure reliability; harmonising partners who each work their own way is hard; activities such as manufacturing and marketing cannot be closely controlled; and there is no standard format, which is why critics call it a hollow corporation.