Network Structures in a Globalized World: Collaborating for Success

Image
  • Article's photo | Credit ScottMadden
  • In today's dynamic business landscape, organizations are continually seeking innovative structures to enhance efficiency and adaptability. One such structure gaining prominence is the network organizational structure, also known as the virtual network structure. This approach brings together independent entities or associates, forming alliances to produce goods or services collaboratively, thereby sharing costs and expertise.

What is a Network Organizational Structure?

A network organizational structure, also known as a virtual network structure, is a collaborative arrangement between companies. These companies can be independent or associates, and they come together to share resources and expertise to achieve a common goal. This goal could be producing a product or service, entering a new market, or developing new technologies.

The network organizational structure revolves around alliances between independent organizations within the network. Each entity focuses on its core competencies and contributes to delivering products or services collectively. This structure involves outsourcing or subcontracting significant processes to separate companies, with coordination centralized in a small headquarters organization.

Evolution of Network Structure

The concept of outsourcingOpens in new window or subcontracting gained traction in the late 1980s and 1990s, driven by the need for downsizing and the recognition of the benefits of collaborative inter-firm relationships. As highlighted by Miles & Snow (1986), the network structure is fundamental for achieving flexibility, adaptability to market changes, and swift responses in complex environments.

Key Characteristics of Network Structure

  1. Collaboration and Specialization: Network structures foster collaboration among independent entities, allowing each to focus on its core competencies. By leveraging the strengths of each participant, the network collectively delivers value-added products or services.
  2. Resource Sharing and Cost Efficiency: Through shared costs and core competencies, network structures enable organizations to optimize resource utilization. This collaborative approach often results in cost savings and enhanced competitiveness.
  3. Flexibility and Adaptability: Network structures offer flexibility to adapt to changing market demands and technological advancements. By forming temporary or permanent alliances, organizations can respond swiftly to evolving trends and customer preferences.
  4. Centralized Coordination: While activities are decentralized among network participants, coordination and management are centralized in a small headquarters organization. This central hub ensures alignment of goals, facilitates communication, and monitors overall performance.

Why Network Structures Matter

  1. The Need for Collaboration

    Today's complex products often require more knowledge and resources than a single company can possess. To overcome this limitation and gain a competitive edge, firms increasingly turn to network structures. These structures involve collaboration with other companies through various means, such as subcontracting, strategic partnerships, and joint ventures.

  2. The Power of Partnerships

    Partnerships, alliances, and other collaborative approaches are becoming a leading strategy for achieving business goals. This trend is driven by the recognition of the importance of core competencies. Many experts recommend that companies focus on their unique strengths and outsource other tasks.

  3. Core Competencies: The Key to Success

    The Core Competence Theory (Prahalad & Hamel, 1990) suggests that an organization's success hinges on its unique capabilities, resources, or assets (core competencies). These competencies create a competitive advantage by:

    • Providing access to diverse markets
    • Significantly enhancing product value
    • Being visible to customers
    • Being difficult for competitors to imitate

    A classic example is Nike. This fashion brand rarely manufactures its own clothing. Instead, they focus on building brand value through marketing and maintaining tight control over their supply chain. In a network structure, each partner contributes its best practices and core competencies, ultimately increasing the overall competitiveness of the network.

In essence, the structure of collaborative networks enables firms to leverage specialized expertise, optimize resource utilization, and foster innovation, ultimately positioning them for sustained success in an increasingly interconnected global marketplace.

How Network Structures Function

At the heart of the network organizational structure lies a central organization functioning as a hub, surrounded by a constellation of external specialists. The diagram below offers a simplified depiction of this network-based structure.

Image

Rather than consolidating all functions under a single roof, essential services such as accounting, design, manufacturing, and distribution are outsourced to separate entities, interconnected electronically with the central office. The central organization assumes the role of coordinating these diverse activities to ensure the seamless delivery of products to end consumers in a manner that is both effective and efficient.

The advent of networked computer systems, collaborative software, and the Internet has revolutionized organizational dynamics, facilitating rapid and seamless exchange of data and information. Consequently, a loosely connected network comprising suppliers, manufacturers, assemblers, and distributors can operate cohesively, resembling a unified entity.

One of the primary advantages of the network approach to organizational design is its capacity to enable companies to focus on their core competencies while outsourcing ancillary activities to specialized firms. This strategic allocation of tasks allows companies to achieve more with fewer resources, driving efficiency and competitiveness.

For instance, companies based in countries like India, Malaysia, Scotland, and Eastern Europe often manage call centers and technical support services for multinational corporations spanning various sectors such as finance, technology, and telecommunications.

Similarly, aerospace giants like Canada's Bombardier and Brazil's Embraer delegate the engineering and manufacturing of significant aircraft components to external contractors, sometimes located outside their home countries. Fiat Auto engages in intricate outsourcing arrangements with partner firms responsible for logistics, maintenance, and the production of certain automotive components.

These interorganizational relationships signify a profound shift in organizational design, reflecting the increasing viability of the network organizational structure, also known as the virtual network structure. This transformation has been made possible by advancements in information and communication technologies, empowering organizations to embrace collaborative models that enhance agility, innovation, and efficiency.

  • Share
  • References
    • Understanding Management by By Richard Daft, Dorothy Marcic
    • Organizational Behaviour in a Global Context by Albert J. Mills, Jean C. Helm Mills, John Bratton, Carolyn Forshaw
    • Organization Theory and Design, by Richard L. Daft, Jonathan Murphy, Hugh Willmott

Trending Collections

Recommended Books to Flex Your Knowledge