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Network Organizational

What Is Organization Structure?

 Organizational structure provides the guidelines for

the system of reporting that drives an organization,
dividing it into areas or departments that are
responsible for certain aspects of the organization's
purpose; it shows the relationships between areas and
individuals needed to achieve more efficient
operations while attaining the goals of the
Why Have a Structure?
 All businesses have to organise what they do

 A clear structure makes it easier to see which part

of the business does what

 There are many ways to structure a business

Network Structure

 It has been defined by Lipnack and Stamps as one: "where

independent people and groups act as independent nodes,
link across boundaries, to work together for a common
purpose; it has multiple leaders, lots of voluntary links and
interacting levels.“
 A series of strategic alliances that an organization creates
with suppliers, manufacturers, and distributors to produce
and market a product.
The network
structure is a type of organization structure
whereby a firm outsources most of its major
processes to different companies and
coordinates their activities from a small
headquarters organization.
Network Organizational Structure
Product Callcenter
development partner
partner (Philippines)
Alliance of firms
creating a product or
Supporting firms Accounting
beehived around a (U.S.A.)
“hub” or “core” firm
Network Structure

 While business giants risk becoming too clumsy to proact ,

act and react efficiently , the new network organizations
contract out any business function, that can be done better or
more cheaply. In essence, managers in network structures
spend most of their time coordinating and controlling
external relations, usually by electronic means.
 Extends the scope of horizontal co-ordination and
collaboration beyond the boundaries of the traditional
 Outsourcing – means to contract out certain corporate
functions, such as manufacturing, information technology, or
credit processing, to other companies.
What is Outsourcing?
 Outsourcing - “the strategic use of outside resources to perform activities
traditionally handled by internal staff and resources” Dave Griffiths

 Why Outsource?
Provide services that are scalable, secure, and efficient, while improving overall
service and reducing costs.
Why do Companies Outsource?
What Is Network-based
Organization Structure?

 A network-based organization structure outsources

business functions, harnesses volunteer labor,
leverages information technology services and adopts
a minimalist model. Network-based organizations
favor democratic decision making that involves most
members across the organizational structure.
Outsourcing Business Functions

 A network-based organization structure outsources a

variety of tasks and business functions for the
purposes of cutting costs, maintaining a flexible
infrastructure and aiding in the scalability of the
company. For example, outsourcing specific tasks
overseas with lower labor costs may be advantageous
for the company both in terms of efficiencies and
lowering operating expenses.
Volunteer Labor

 Volunteer labor may also lower operating expenses

with the added benefit of harnessing social capital and
proven talent for future projects. Volunteer labor can
be either professional or amateur in terms of scope and
quality. User-generated content is a form of volunteer
labor defined within a virtual environment, where
volunteers may contribute content, perform tasks
and/or improve a company's services.
Leveraging Information

 Network-based organization structures greatly benefit

from information technology services by leveraging
communication capabilities that may be largely free,
for example: email, chatting services, voice-over
Internet protocol (VoIP), a Web presence, community
forums and social media. Moreover, information
technology services provide an instant means of
communicating, ensuring a rapid exchange of vital
Adopting a Minimalist Model

 Outsourcing tasks combined with leveraging

information technologies and volunteer labor allows
for network-based organizations to significantly
reduce operating expenses to the bare minimum
required for operating. For example, minimalist
models employ just enough full-time workers to
maintain essential functions necessary for day-to-day
Democratic Decision Making

 Because network-based organization structures

usually involves volunteer labor, a democratic
decision-making environment usually follows.
Democratic decision-making environments hold votes
based on a "majority rules" process where everyone
who contributed to a task participates. The result often
enhances innovation through the robust and free
exchange of ideas.
Human Resource Advantage in the
Networked Organisation
 Knowledge intensive firms (KIFs) typically operate in
networks which include clients, suppliers, partners
and other collaborators. Their success depends vitally
on how effectively knowledge flows within the firm
and the network so that it is transformed into
innovative products and services. This competitive
advantage is built upon the human and social capital
which makes up the unique trading assets of the firm
How to become a Networked
 Despite all the BPR (Business Process Reengineering) and
management change programs taking place, shifting a
bureaucracy to a network is no easy task.
 Every knowledge worker should belong to at least two
separate teams. This helps the organization achieve cross
functional co-operation; it helps the individual gain a
broader perspective.
 Every team must have a clear purpose if it is to act as a team
and not as a collection of individuals. Its must have its own
vision, mission and goals which reinforce those of its
 Every team should develop a strong set of cultural norms
and values. Hence regular team meetings should take
 Each team should identify other teams carrying out related
or dependent activities. It should draw a network diagram
- itself (with its mission) at the centre
- an inner ring of teams (nodes) where interdependencies
are high (formal relationships)
- an outer ring of collaborative teams (mostly information
Where possible major activity sequencing should be shown
(who provides what to whom)
 Individual members of teams should be encouraged to
maintain their personal and professional networks, even
beyond the identifiable needs of the current team.
 MISCOMMUNICATION is probably the worst obstacle any
organization needs to overcome.
 Frequent communication throughout the network
(including outer ring) must be encouraged. This is
particularly valuable for half-baked ideas, tentative
Strategic Networks
A Strategic Network is a grouping of organizations
that has been formed to create value through
participation in an array of cooperative arrangements,
such as a strategic alliance

A Strategic Center Firm often manages the network

The Strategic Center Firm identifies actions that

increase the opportunity for each firm to achieve
success through its participation in the network

The Strategic Center Firm creates incentives that

reduce the probability of any single firm taking
advantage of its network partners
A Strategic Network

Network Firms Center
Strategic Center Firm’s Critical Functions
Strategic Outsourcing Center

Capability Development

Technology Sharing

Building Linkages to
Facilitate Learning
Strategic Outsourcing


Center firm coordinates outsourcing among partners,

initiates actions and coordinates problem solving
Strategic Center Firm’s Critical Functions

Strategic Outsourcing

Capability Development
Technology Sharing

Building Linkages to
Facilitate Learning
Capability and Technology


Center firm attempts to develop each partner’s core

competencies and provides incentives for network firms to
share their capabilities and competencies with partners

Strategic center firm manages the development and sharing

technology-based ideas among network partners
Strategic Center Firm’s Critical Functions

Strategic Outsourcing

Capability Development

Technology Sharing

Building Linkages to Center
Facilitate Learning Firm
Building Linkages to Facilitate Learning


Strategic center firm emphasizes to partners the need to build

linkages between value chains and networks of value chains.
The strategic network seeks to develop a competitive
advantage in primary or support activities
Partial Network Structure at TiVo
 TiVo Inc - a company develops technology that allows
users to record television program up to 80 hours and
replay it whenever they want. The unique things are
that this technology can eliminate the commercial
interruptions and track down and record favorite
shows as long as the schedule does not change.
Partial Network Structure at TiVo
 Instead of building a complex and costly companies
with various department, TiVo Inc decided to partner
with other companies such as Sony, Philips for
manufacturing and marketing. In essence, this is like
TiVo says to its partners: " I provide the technology
and you compose it into the product, manufacture and
sell it to the market".
Partial Network Structure at TiVo
Manufacturing And Public
Companies Relations

Hennes & Mauritz
 Is a Swedish clothing company, known for its fast
fashion clothing offerings for women, men, teenagers
and children. H&M has around 2,000 stores in 37
different countries and employs around 76,000 people.

 H&M is outsourcing its clothing to a network of 700

suppliers, more than two-thirds of which are based in
low-cost Asian countries. Not owning any factories,
H&M can be more flexible than many other retailers in
lowering its costs, which aligns with its low-cost
Outsourcing Risk Factors
Network Structure
Strengths Weaknesses

1. Enables even small organizations to 1. Managers do not have hands-on control

obtain talent and resources worldwide over many activities and employees

2. Gives a company immediate scale and 2. Requires a great deal of time to manage
reach without huge investments in relationships and potential conflicts with
factories, equipment or distribution facilities
contract partners
3. Enables the organization to be highly 3. There is a risk of organizational failure if
flexible and responsive to changing needsa partner fails to deliver of goes out of
4. Reduces administrative overhead costs 4. Employee loyalty and corporate culture
might be weak because employees feel
they can be replaced by contract services
 Def: The organizational structure of a company is the formal and informal framework of
organizational policies, such as hierarchical levels, lines of communication and
reporting, and the rights and responsibilities of employees.
 Facts
A network organizational structure is more complicated and complex than any other
structure because it is consists of multiple organizations that work together to produce
goods or provide services.
 Significance
An organizational structure should reflect the appropriate culture the company is trying
to instill in their workplace; this is crucial in a network structure because organizations
are accountable for the business ethics of all partners in their supply chain.
 Function
The primary function of an organizational structure is to complement and support the
business strategy used to accomplish the objectives and goals of the organization.
 Benefits
Network organizational structures are flexible and highly efficient because of the
selection and use of the best partners available that provide specific needs.
 Warning
Network structures are susceptible struggling because of the over-reliance on partners,
resulting in less managerial control on every stage of the supply chain.
When Organizing:
Always Keep Your Goals in Mind
 Business environments are in a constant state of change.
 An organization’s strategy must be adapted to changes
in its competitive environment.
 Structure follows strategy.
Strategic change creates the need for restructuring the
organization to acquire new and different knowledge,
skills and abilities.