Network structure

Also called a virtual organization or virtual corporation, a network structure is centered around a streamlined company, with digital connections linking it to external, independent businesses.

How it works

The company at the center of the structure is stripped back to basic functions that are essential to the type of business being operated—research and development, for example, in the case of a technology company. All other functions are outsourced to external specialists. The various parties can be scattered around the globe and are connected by the internet. Together, they provide all the services needed for the network to function as one entity. This type of business structure is based on the idea of the social media network, and so is known as a network enterprise.

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Network structure in practice

27%
of networked organizations report higher profit margins than their competitors

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NEED TO KNOW

❯ Agile business Buzzword to describe a networked
organization; the opposite of a traditional bureaucracy

❯ Decentralized Organization with a wide span of control and often an upward flow of ideas

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VARIATION: MODULAR STRUCTURE

In a business with a modular structure, parts of a single product are outsourced (it is functions or processes, not products, that are outsourced in a network structure). A modular structure is especially suitable for organizations producing appliances, computers, cars, and mechanical consumer goods. Toyota is an example of a company with a modular structure, managing hundreds of external suppliers to produce its finished vehicles.

Pros

• ❯ Potential for round-the-clock work because of global locations❯ Can source the best expertise wherever it is in the world
  ❯ Low overheads because there are minimal staff in the core company
• ❯ Flexible and highly creative environment

Cons

• ❯ Extreme reliance on technology— network errors can stop effective performance of the business❯ Potential for misunderstandings because there is little face-to-face communication
• ❯ Difficult to find common time across time zones for virtual meetings