What Is a Network Organizational Structure?

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Many types of organizational structures can help businesses thrive, but when a company has many divisional components in different geographic locations, a network organizational structure provides several distinct advantages. Learn more about what drives the success of networked organizations.


What Is the Definition of a Network Organizational Structure?

A network organizational structure is one in which organizations group together certain types of employees based on a common specialization. These employees then form alliances with other specialists from across the organization to tackle new projects and work toward a common goal. For example, a company may have a product development team and a marketing team, both of which operate as separate divisions. When new projects arise, members of those teams can collaborate to tackle them.

Networked organizations, unlike other businesses, do not have a hierarchical organizational chart with a chain of command that runs through a cascading line of middle managers. Instead, networked organizations have clusters made up of various departments, business units, or local offices that collaborate on an ad hoc basis. The organization avoids using strict templates for workflows and reporting relationships. Instead, they concentrate on utilizing all of an organization's resources to meet the needs of its customers.

In such organizations, the executive team is typically small. They are in charge of overall organizational design and strategic decision-making. However, day-to-day operations and problem solving are typically handled by the company's organizational network's individual pods.


What Is the Function of a Network Organizational Structure?

The following principles govern most network organizations.

A structure that is mostly non-hierarchical: Even large organizations that use a network model avoid using hierarchical organizational charts. Most org charts are project-specific, with worker pods reporting to a project manager or division head, who then reports to executive management.

A preference for outsourcing: Outsourcing is a natural fit for network organization structures. If a team requires a specific skill, such as customer service, public relations, or mechanical engineering, the organization may opt to outsource the work to contractors rather than full-time employees.

Specialization: A networked organization frequently has silos divided by specialty or geographic location. Different departments (such as product development or human resources), different regional offices, or different business units are examples of silos.

Empowered project managers: The majority of a networked organization's daily work and decision-making occurs when team members join together based on need. They take on projects by leveraging each other's skills. The project managers and team leaders report to the central leadership of the organization.

Lean central leadership: A networked organization's executive team is typically lean. Executives are in charge of overall organizational design and strategic decision-making. However, day-to-day operations and problem solving are typically handled by the company's organizational network's individual pods.

Overlap with divisional organizational structure: The network organizational structure and the divisional organizational structure, which divides companies into divisions based on product lines, have a lot in common. Network companies divide their workforce into silos, but these silos are usually based on specific competencies rather than product lines. As a result, employees in a network organization have more opportunities to collaborate with people from other departments, which occurs when they are assigned to new projects together.


Benefits of Network Organizational Structure

Business leaders prefer a network organizational structure for the following reasons:

Natural communication: Employees have the opportunity to interact with team members from various divisions. This encourages natural dialogue and a sense of shared purpose.

Openness to organizational change: Employees are less likely to feel emotionally tethered to hierarchies and specific workflows when they are open to organizational change. This can make the transition to organizational change easier.

Versatility and adaptability: Team members can move freely from one project to the next without being constrained by the constraints of a hierarchical org chart.


Disadvantages of a Network Organizational Structure

Network organizational structures are not appropriate for every business. Here are three reasons why some businesses oppose this organizational structure:

Redundancy potential: Multiple teams doing similar work can emerge in networked organizations. This results in inefficiencies that are uncommon in hierarchical structures (like a matrix organizational structure or a functional organizational structure).

Leadership is relatively ineffective: Networked organizations have fewer checkpoints for management to exert control over the workforce than functional or matrix organizations. While some employees may see this as a positive, it can stymie corporate executives who prefer a traditional chain of command.

Unbalanced workloads: In many networked organizations, some cohorts are overburdened while others do the bare minimum. This is especially true when the organization focuses on a specific project that only involves a subset of the overall team.

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