Virtual or network organisation (short note)

Meaning of a virtual or network organisation

A network organisation is built around a central firm, called the hub, which has arrangements with other organisations to perform functions such as designing, manufacturing and marketing for it on a contract basis. The hub subcontracts many of its functions, links the outside firms to its central office electronically and coordinates their work; subcontractors enter and leave the network as its needs change, while the hub keeps control over the work they do. Because its relationships run far beyond its own boundaries, it is also called a boundaryless organisation; in the extreme case the hub does nothing but coordinate. It is called virtual in the sense that it is very nearly a complete organisation, and small differences from a full structure do not matter. Firms adopt it to gain both efficiency and flexibility and to stay competitive globally.

A start-up selling its own brand of sports shoes from Mumbai illustrates the form: it designs and markets the shoes itself, while a contract factory in Agra makes them, a logistics firm stores and delivers them and an online marketplace takes the orders, all linked to the brand's office by software.

Features

• Electronic links. The network runs on electronic technology such as computers and e-mail.
• Strategic role of the hub. The central firm's management is chiefly concerned with strategic decisions about forming new relationships and ending others.
• Speed. It can seize new opportunities quickly and easily.
• Teams across levels. It stresses teams that cut across the hierarchy and participative decision making.
• Coordination and cooperation. It rests on the partners coordinating their work and cooperating with one another.

Merits

• Adaptability. New alliances can be formed and old ones dropped as the environment changes.
• High performance in principle, because partners that specialise in different tasks bring their best capabilities together for the hub.
• Protection for small firms. An efficient small firm that cannot face environmental challenges alone can survive as a partner in a network.
• Motivated staff. With few vertical and horizontal boundaries and little difference of rank and status, people at the hub work with enthusiasm.

Limitations

• Weak control. The hub cannot control activities such as manufacturing and marketing closely, and performance may suffer badly as a result.
• Dependence on reliable partners. The structure works only when the partners are reliable, and no method has yet been devised to ensure that they are.
• The charge of hollowness. Critics call it a hollow corporation, one without real value of its own.
• Difficult coordination. Each partner has its own way of working, so harmonising their activities is hard.
• No standard pattern. There is no standard format for a network, and guidelines for organising and managing one are still undefined.

Even so, the form is gaining popularity because of its global advantages.