Network Structure A network structure is a cluster of different organizations whose actions are coordinated by contracts and agreements rather through a formal hierarchy of authority. Most major organizational functions are subcontracted to suppliers, who move into or out of the organization as needed to meet changing needs. This type of structure has become increasingly popular in fast-changing environments. It has been made possible largely by the advent of sophisticated information systems that allow real-time access to company data.
The Network Design Distribution Manufacturing Health Products, Inc. (Central Hub) Accounts Receivable Marketing Public Relations
Advantages of Network Structure • Costs are reduced by finding reliable, low-cost partners for functional activities • Avoid high-cost bureaucratic structures to provide value-creation activities • Can act in an “organic” way, for fast response to changes in the environment • Allows access to low-cost, foreign sources of inputs and functional specialties
Disadvantages of Network Structure • Close interaction is required between partners, and is not always easy to achieve • Coordination between distant partners doing parts of an overall task can be very difficult • Difficult to build “core competencies” in a dispersed organization • Little loyalty among partners, who are often replaced frequently as needs change
The Horizontal Organization The horizontal organization is the most recent approach to organizing. It organizes employees around core processes, making it similar to a matrix based upon functions and processes. Structure is created around cross-functional core processes rather than tasks, functions or geography. Self-directed teams, not individuals, are the primary organizational elements. Process owners have responsibility for each core process in its entirety. Cross-trained team members are given necessary skills, knowledge & authority to do the job. Highly customer-driven, flexible & seeks continuous improvement
An Example of a Horizontal Structure CEO Team 1 Process Owner Team 2 Team 3 Team 1 Team 2 Team 3 Process Owner
Strengths of Horizontal Structure • Promotes flexibility & rapid response to changes in customer needs • Directs the attention of everyone toward the production & delivery of value to the customer • Each employee has a broader view of organizational goals • Promotes a focus on teamwork & collaboration • Improves quality of life for employees by offering them the opportunity to share responsibility, make decisions, and be accountable for outcomes
Weaknesses of Horizontal Structure • Determining core processes is difficult & time consuming • Requires changes in culture, job design, management philosophy, and information & reward systems • Traditional managers may balk when they have to give up power and authority • Requires significant training of employees to work effectively in a horizontal team environment • Can limit in-depth skill development
Structural Forms Used for International Operations Structural forms used for international operations vary depending largely upon the degree of involvement in international business. Increasing types of involvement: 1. Importing/exporting 2. Licensing 3. Joint Ventures 4. Direct Investment Most approaches involve modification of either the Product Departmentalization form or the Conglomerate form.
Simple, International Division Example: Levi Strauss, Inc.
Extension of Geographical Departmentalization Example: Ford Motor Company, Coca Cola
Extension of Product Departmentalization Example: Unilever, NV, FedEx, H.J. Heinz
Extension of Multi-Divisional (SBU) Departmentalization Examples: General Electric, BOC, Ltd.
Global Matrix Design Example: N.V. Phillips