Network organizational structure: Definition, best practices & examples

As the business world undergoes constant transformation, traditional hierarchical structures struggle to keep up. 

This is driving a shift towards more adaptable and fluid systems. Enter the network organizational structure. A dynamic model perfectly suited for the digital age. 

Characterized by its agility and flexibility, it empowers organizations in fast-paced markets to respond swiftly.

Network structures break from rigid hierarchies, creating a collaborative environment where teams and external partners work together. This wider network allows them to tap into diverse expertise and resources. This helps tackle complex projects with increased efficiency. 

Unlike traditional models, network structures encourage open communication and knowledge sharing. This free flow of information streamlines decision-making and fuels innovation.

This article delves into the world of network structures. We’ll clearly define and explore its key characteristics and forms. To solidify your understanding, we’ll present a real-world example. Finally, we will explore implementing a network structure within your organization.

What is a network organizational structure?

The network organizational structure groups employees according to their specialization. It promotes collaboration on different projects with specialists throughout the organization. 

For example, a company may have dedicated teams for customer service and public relations. When new projects arise, team members can collaborate on them.

Ad-hoc business units or local offices can collaborate in networked organizations. These organizations meet customer needs by leveraging the entire organization’s resources. They avoid rigid workflows and reporting relationships.

In networked organizations, the executive team streamlines operations. They concentrate on the broader organization’s structure and important decisions. The company’s network relies on individual pods to manage day-to-day operations.

What are the key characteristics of a network organizational structure?

Here are the main characteristics of a network organizational structure:

Strong employee motivation

The success of networked organizations relies on motivated employees. Each team member needs to have a strong internal motivation to get their tasks done. This is because there is little direct supervision from management. 

Incentives, such as upskilling, recognition programs, and growth opportunities, can help. Communicating their individual responsibilities also helps them understand their impact on the organization.

Outsourcing and partnerships

Networked organizations use outsourcing to gain access to skills that they lack. This strategy enables companies to stay agile and cost-effective. 

A company could, for example, delegate its customer service to a specialized firm. It could also collaborate with a marketing agency for a major campaign. This strategy empowers organizations to concentrate on their key strengths. It also helps them rely on external resources for specialized requirements.

Flexibility and task resolution

Companies can use the flexibility of the network model to organize teams. Teams can check their tasks and select the most efficient methods to achieve their goals. 

The organization’s flexibility allows it to form a team of experts for any project. This allows it to respond to market changes and evolving customer needs, keeping it competitive.

Decentralized decision-making

In a network structure, there are fewer hierarchical levels and a wider span of control. Decision-making and ideas flow from the bottom up. 

This decentralized method allows everyone to understand their responsibilities and what management expects. It promotes both faster decision-making and innovation throughout the organization.

Non-bureaucratic executives

Empowered leaders strive to reduce unnecessary bureaucracy and excessive control. This gives more autonomy to individual network entities. Adopting this approach enables a lean management structure. It also fosters a culture of trust and empowerment among employees. It also allows executives to concentrate on more high-level decisions.

Coordination and control

While networked organizations may lack standardized rules, you can establish specific objectives for every team or project. 

Regular performance monitoring is crucial for keeping teams on target. Rewarding results with leadership development or promotions helps reinforce positive behaviors and outcomes. The aim is to synchronize individual and team efforts with the organization’s goals.

Dynamic team formation

Small, specialized teams with the right skills are a key feature of this structure. The company can realign them for new goals after completing tasks. This approach ensures operational efficiency. It also provides employees with diverse and challenging work opportunities.

Specialization

The network’s different entities specialize in specific functions or tasks. This enables the organization to leverage its diverse talents to address various challenges. The organization groups employees with similar specializations when a new project comes up. 

For example, a marketing campaign might involve digital marketers, graphic designers, and content creators working together. This structure fosters cross-functional collaboration.

Collaboration and innovation

The network organizational structure boosts collaboration and innovation. This breaks down traditional silos and fosters cross-functional teamwork. Sharing unique perspectives and expertise across departments can lead to more effective solutions. The collaborative environment promotes continuous learning. It does this by exposing employees to fresh ideas from their peers.

Adaptability

Network organizations excel at adapting to change. They can adapt to new opportunities because of the network model’s flexibility. You can rearrange teams in response to regulatory or technological changes. The ability to adapt is a major competitive advantage.

Resilience

The network organizational structure also contributes to building a resilient business. This is through decentralized decision-making.

Each team in the network can make their own decisions. So, the organization remains operational even if one part does not function well. This resilience is critical in times of crisis. It allows the organization to continue delivering value to customers despite challenges.

What are the types of network organizational structures?

The different network organizational structures are:

Agile network

A key feature of a network structure is that members come together for a specific task. Then, they disband once it’s completed. A common practice is to form project teams comprising employees from different units. These units work together on a project before going back to their respective teams.

Correlated network

A correlated network refers to different departments collaborating to meet shared goals. There is a common interest in certain business aspects. For instance, motorbike manufacturers have many product lines. But, they meet to collaborate on supply chain management and technology development.

Contract network

In a contract network structure, the company has formal agreements with independent partners. These might encompass franchises, concessions, or other agreements to achieve mutual business goals. Each partner functions independently while adhering to the established agreement.

Market network

The structure of a market network organization revolves around various market segments. For example, a company might have distinct departments for men’s and women’s sportswear. Both will produce products for their specific target audiences. These divisions collaborate to meet the diverse needs of customers.

Product network

Product lines determine the organization of members in a product network organization. For instance, a company could have separate divisions for perfumes and candles. Each division has a goal of promoting products within their specific area.

Functional network

Members in a functional network organization organize themselves according to their specific roles. Departments work together to achieve the company’s goals. These could include marketing, finance, and customer service. The focus is on fostering collaboration between specialized teams.

Integrated network

An integrated network within an organization is a structure where different units collaborate. They also share information, resources, and processes. Some examples are a food chain with many store locations. It could also be an engineering company with several factories.

What is an example of a network organizational structure?

Here is one example of how you could use the network organizational structure:

A clothing company establishes many departments to meet customer needs. To reduce costs, it outsources production and processing functions to Southeast Asian countries. Maintaining relationships with suppliers in Asia can also help keep costs low.

Production teams involve various individuals working together to fulfill a shared goal. These individuals could be research and development heads, production managers, or marketing executives. Through a network organizational structure, the company can create a collaborative work environment and manage all functions and processes to meet business requirements.

Best practices for implementing a network organizational structure 

The network organization’s fluid structure leads to a larger web of relationships. The clarity of accountability lines may diminish.

This could lead to a greater dependence on external vendors. These unpredictable factors can reduce the core company’s control over its operations. Thus, it is crucial to have best practices for implementation.

These best practices could include:

Choose the right external partners

Picking the right partners is vital for an effective network structure. Ensure your partners match your organization’s values, culture, and long-term objectives. Aligning goals cultivates unity and a shared vision. 

This leads to more effective collaboration. A strong organizational culture facilitates smooth communication and mutual understanding. This results in effective cooperation and successful project outcomes.

Selecting partners well mitigates the risks of poor performance or non-compliance. Collaborate with partners who focus on quality and ethical standards. 

Performing extensive due diligence can guarantee the selection of reliable and trustworthy partners.

Diversify and balance network partners

Trusting external partners with aspects of your business can open you up to risks. These could include concerns about their performance, availability, or reliability. 

To address this, having a diverse and balanced set of network partners is crucial. Having many partners for a function reduces the risk of disruption in the event of one partner’s failure.

Identifying and building relationships with many trustworthy partners is key to achieving diversification. Assess your network regularly to maintain its balance and resilience. Avoid relying too much on one partner to maintain business continuity.

Establish clear goals, roles, and expectations

Coordinating activities among different departments is a major obstacle in a network structure. Network members may experience confusion, inconsistency, duplication, conflict, and decreased accountability and quality. 

Start by defining clear and consistent expectations for each network associate.

Well-defined goals foster a collective understanding of purpose and direction. It also reduces task overlaps that can result in inefficiencies. Detailed operational manuals and regular employee training sessions can also communicate each partner’s obligations.

Regular monitoring and evaluation of partner performance is crucial for upholding high standards. Conducting performance assessments helps identify problems early and allows for corrective action. A structured performance evaluation system enables continuous improvement and accountability network-wide.

Create effective communication and feedback mechanisms

The effectiveness of a network structure relies on strong and efficient communication systems. The presence of open communication channels fosters alignment. It also enables rapid obstacle resolution. 

It also sustains a unified vision within the organization. Effective communication mechanisms, like real-time data-sharing tools, allow interaction among network members.

Invest in advanced IT that enables real-time data sharing. This technology enables partners to access current information and make prompt, informed decisions. Nurturing a culture of openness enables partners to address concerns.

Feedback mechanisms are crucial for maintaining continuous improvement. Partners can use regular feedback sessions to share experiences and suggest improvements. Constructive feedback plays a crucial role in pinpointing areas for improvement. It also cultivates a learning culture within the network.

Establish and enforce clear contracts

Managing relationships in a network organization requires clear and fair contracts. These contracts should establish the roles, responsibilities, and expectations for each partner. They should also include performance metrics and consequences for failing to comply. Effective partnerships rely on well-drafted contracts that prevent misunderstandings and disputes.

Enforcing clear contracts is vital. Conducting routine audits and performance evaluations ensures that everyone follows the established terms. Predefined mechanisms like renegotiation or termination clauses can ensure network integrity and performance.

Protect intellectual property and confidential data

Protecting intellectual property and confidential data is crucial in a network structure. Safeguard your information by implementing robust security measures. These can include data encryption, access controls, and regular security audits.

Ensure partners protect your data by adding confidentiality clauses to your contracts. Review and address emerging threats to keep your security policies up to date. Reduce the chances of breaches and maintain network trust and integrity. Implement proactive measures to protect your intellectual property and confidential data.

Foster trust and cooperation

Trust and cooperation are vital for a successful network organizational structure. Building trust promotes open communication, minimizes conflicts, and strengthens collaboration. Develop trust by practicing transparency, upholding commitments, and encouraging partners to follow suit.

Strengthen relationships by providing opportunities for partners to interact and collaborate. These could be job rotation or other team-building activities. Compensating partners for their efforts reinforces positive actions and cultivates a collaborative environment.

Assess partner performance

Considering partner performance is crucial for ensuring quality, accountability, and continuous improvement. Develop clear metrics that align with your strategic objectives. Use these to check your partners regularly. 

Performance assessments should cover various aspects. This includes quality of work, adherence to timelines, and compliance with contractual obligations.

This ongoing monitoring enables early identification of potential issues. It also offers opportunities to provide constructive feedback or renegotiate terms if required. Regular performance reviews also help reinforce expectations and encourage continuous improvement among partners. This way, you can ensure that your network remains strong and effective.

Key takeaways of a network organizational structure

The network structure differs from traditional structures. It is less hierarchical, more decentralized, and more flexible. Managers in this structure oversee internal and external relationships within the company. 

Open communication and dependable partners are essential elements of these networks. Their decentralized nature reduces hierarchical tiers and allows decision-making from the bottom up. This flexibility allows organizations to adapt to changes and seize opportunities.

Yet, the network structure can give rise to more complex relationships. Creating an effective implementation plan demands careful attention to several crucial areas. 

The first step is to select the right partners. To prevent confusion and inefficiencies, establish clear goals and roles. You should have effective communication channels in place for alignment and information sharing.

Diversifying partners is essential for stability and reducing vulnerability. This is because it helps avoid over-reliance on any one entity. It is crucial to have strong contracts that outline responsibilities and expectations. 

Safeguarding intellectual property and sensitive information is crucial. This is particularly true when collaborating with external partners. Regular evaluations uphold high standards and contribute to ongoing growth. 

Establishing an effective organizational network promotes trust and cooperation among its members.