Network organizational structure: types, advantages and disadvantages

The 21st century was marked by the beginning of experiments in the management of organizations in order to optimize management and search for new forms that take into account the changing realities of doing business. So there is a network organizational structure, which is designed to overcome the shortcomings of traditional models of organizational structures. However, like any innovation, this form of management also has its own limitations and features. Let's talk about the advantages and disadvantages of the network organizational structure, its types and application practice.

Organizational structure concept

Any company means a lot of relationships: between employees, between a manager and subordinates, between suppliers and sellers. In order to make these relations effective, to establish the optimal mode of the production process, and the organizational structure of the enterprise is necessary. It streamlines communications, distributes authority, establishes a circle of decision-makers, and persons executing them. The peculiarity of the organizational structure is that it can be represented schematically. And looking at the diagram, you can immediately understand what is in front of us: a linear or, for example, a network organizational structure. These schemes are necessary in order to quickly diagnose failures and problems in the enterprise.

Thus, the organizational structure is an approved system of interaction between the structural divisions of a company among themselves in the framework of the production process. The elements of this system are the subordinate relations - the head, internal norms and instructions, the determination of the personal responsibility of each head of structural divisions and performers for the duties assigned to them to perform work on a certain segment of the production process, the distribution of powers between managers and personnel.

Types of Organizational Structures

Organizational structures depend on many factors, in particular, on the form of ownership, the specifics of the enterprise, the scale and resources of the company, the features of the product being sold, etc. In connection with this, various types of organizational structures are distinguished. In the traditional approach, the following types are distinguished:

1. Linear This is the simplest structure in which all units are subordinate to one leader, acting on the basis of unity of command. Each department has its own leader, who reports to a higher manager.
2. Functional structure. In such organizations, units are combined in blocks in accordance with the main function, block managers report to the top manager.
3. Linear-functional structure. Combines the two previous varieties in different areas.
4. Line staff structure. In such organizations, a linear structure predominates, but headquarters, in which employees from different structural divisions gather, can be created to solve special problems. For the time of the headquarters existence, these performers are in double subordination: to the head of their structural unit and to the chief of staff.
5. Design structure. It is typical for her to gather a team only to carry out a project, a project leader is appointed for the project team who loses these powers to carry out the project.
6. Divisional structure. In such organizations, a team is grouped around a specific product.
7. Matrix structure. Combines the features of functional and divisional varieties.

These are traditional types of organizational structures. However, the market today is rapidly changing, and new approaches to the functioning of enterprises are required, and therefore new types of organizational structures appear. These include: network organizational management structure, market structure, program-target and adhocratic. Also, a new variety of companies associated with functioning on the Internet, with a virtual structure is emerging.

Network Organizational Chart Concept

In the 21st century, markets undergo significant changes, this is due to the emergence of new forms of doing business and making profit: there is online commerce, cryptocurrencies, the Internet penetrates all spheres of human activity. This leads to the fact that traditional organizational structures do not give the desired labor productivity; new types of relationships are needed. In response to these challenges of the times, a network organizational structure appears. Of course, it arose in the 20th century, but it acquires special urgency precisely at the present stage of management development.

Its main difference is the decentralization of management. It is a set of organizations or centers of trade, the activities of which are coordinated in a single point of management. The network organizational structure is characterized by high multivariance; this is due to the variety of external conditions in which such organizations operate. The participants in the network structures are suppliers and manufacturers of goods, trading and financial enterprises, service companies.

Signs of network companies

The variety of this organizational structure makes it difficult to identify, it is not always clear whether this enterprise is a network enterprise. A feature of the network approach is that responsibilities and authorities are distributed between its departments. Each element of the network has a fairly large freedom in choosing actions for conducting a profitable business, and the center performs coordinating and directing functions. The network organizational structure is characterized by the following features:

1. The main initial principle of these organizations is their conformity to the market, and not to administrative approaches in the allocation of resources.
2. The participants in the structure have great freedom in making managerial decisions, and their high activity and interest in ongoing production or commercial activities are assumed.
3. Organizations participating in the structure are united on the basis of cooperation. This is manifested not only in the presence of a common coordinating center, but also in the ownership of business shares in partner companies.

Types of network organizational structures

The variety of forms of network organizational structures leads to the fact that there are several options for their classifications. Different researchers offer their own approaches. By the method of combining companies and in accordance with the principle of distribution of powers and resources, such types of network organizational structures as vertical and horizontal are allocated. By the method of distribution of functions between partner companies, there are:

1. Chain organizational structure. This is such an option when enterprises are combined at the stages of production and movement of goods. In such chains, companies producing goods, transport organizations, warehouses and wholesalers, and retail outlets are consistently cooperating. This chain is managed on the basis of a single strategy, each element of the chain contributes to the achievement of common goals. An example of such network companies are brand trading networks. For example, the Altai Skazka company consistently includes producers of grain crops, then enterprises producing cereals and flour, its own transport company, a wholesale distributor, and finally a network of retail stores. At the same time, the head office manages the entire network of organizations, which develops a marketing strategy, selects the direction of development, and allocates resources.
2. Functional organizational structures. In such companies, specialized management functions are distributed between partner enterprises. Some are engaged in planning, others in marketing, and others in information support.
3. Retail chains. This is the most common and most obvious type of network. In such organizations, companies are combined into retail enterprises, their coexistence can be built on different legal grounds, this forms various design options for retail network structures. There are many examples of retail chains: Eldorado, Sportmaster, Austin, etc.

Network company structure design

Forms of cooperation between enterprises can be varied, this leads to the fact that the most common types of establishing relationships between partner companies are formed. Network organizational structure is characterized by a hierarchy of varying degrees of rigidity. The following types of network design are distinguished:

1. Distributor. In such organizations, part of the distribution of goods is undertaken by individual distribution companies. They receive special conditions for the purchase of large quantities of goods subject to the agreed volumes of regular purchases. Also, the distributor takes part of the transportation, storage, advertising, service of goods.
2. Franchising This is a special form of relationship between a large organization and a small business in which the parent company provides a small company with the opportunity to trade in goods or provide services under the name of a franchisor. At the same time, both parties retain legal independence. But the franchisor reserves the right to control prices, terms of sale, quality of service, etc. The franchisee must pay the franchisor a certain amount of money for providing the name and for marketing support.
3. Outsourcing This is a specific form of interaction between organizations, when one external company assumes the performance of any work for another, parent company. For example, outsourcing can be given to the maintenance of information systems, accounting support, etc.

Vertical organizational structures

Traditionally, organizational structures determine the hierarchy of the parent and subordinate enterprises. The same structure is a characteristic feature of a network company. The pyramidal organizational structure assumes the existence of subordinate relations. A typical example of such structures are retail chains in which each profit point is an independent organization, but strategic management is carried out from a single, central center.

Horizontal organizational structures

In addition to the usual vertically oriented pattern, there are less orthodox varieties. The horizontal network organizational management structure is a cooperation of equal companies specializing in various functions. This system is connected by a common production process and a single development strategy. The integrating function can be performed by one enterprise or several at the same time. The main sign of horizontal networks is the lack of hierarchy, nobody obeys anyone, this is a team of equal partners. Each company retains control over its scope of work and integrates into the overall scheme without dominating other participants.

Benefits of Network Management Organizations

The advantage of the new network companies is their high adaptability to market conditions. They have a flexible structure, which can vary depending on changing external and internal conditions. If necessary, part of the stages of the production process can be given to specialists for execution. So, often outside the company consulting or marketing. The network organizational structure usually concentrates around some unique technology, on the priority areas of specialization, in which the company is considered an expert. This allows us to offer consumers the best service and best product. An important advantage of this structure is its high profitability, it allows you to reduce management costs and duplicate production processes, as well as increase production profitability.

Another advantage of these structures can be called attractiveness for highly qualified personnel and reliable partners. The main secret to the success of network companies is the focus on achieving results, profit, expressed in specific figures. Moreover, each member of the organization sees its benefit in overall success.

Disadvantages of network management organizational structures

Of course, the network form of organizational structures has several disadvantages:

1. Since the main distinguishing feature of such organizations is competence, they very much depend on the qualifications of the staff.
2. Highly qualified personnel are always the objects of “bounty hunters,” which can lead to high staff turnover.
3. The enlargement of the company can lead to increased bureaucratization and complexity of the structure of the company.

The practice of using network organizational structures

Most often, examples of the use of network organizational structures can be found in retail. We see that food retail is becoming increasingly networked. The food trade market is already more than a third conquered by networks. The secret of their success is precisely in a special organizational structure, which allows you to increase margin and reduce costs.

Another example of a networked organizational structure can be found in IT and marketing. Companies can unite on a functional basis: one enterprise is engaged in the development of software products, the other is in the filling of sites and social networks with content, the third is engaged in branding, but all of them can work for one customer.

Main models

There are two main models of network structures. The first type is characterized by the fact that small companies are united around a large company that take on the solution of specialized production problems. Satellite companies can have their own, quite traditional organizational structure. In this model, hierarchical relationships are built between the parent company and its satellites. Typically, a large company is characterized by dominant behavior, while small organizations, on the contrary, are highly flexible and adaptable.

The second type of network structures unites, from a legal point of view, companies of approximately equal size. This is a cooperation that allows companies to survive in the market, supporting each other.