What is a Network Organization?

A network organization is a decentralized company structure that operates as a network of autonomous businesses or business units as opposed to a traditional centralized, hierarchical structure.

Each unit is responsible for its own profit and losses, and all units share a common goal of maximizing the value of the network as a whole. Units can share resources and collaborate where it makes sense to do so commercially.  Units can be under the same consumer brand or operate under independent brands.

This type of organizational design delivers work through a network of working relationships that can exist within the context of a market, product, project, or function. This type of design is popular in global and multi-national organizations, the FMCG sector, and telecommunications, where scale, flexibility, and localization are critical to achieving success.

Network organizations can be described as a structure in which individuals are connected through a series of relationships. These relationships can be categorized into various types:

1. Vertical: Refers to status relationships (boss/employee)
2. Horizontal: Refers to task relationships (colleague/co-worker)
3. Initiative/Assignment based: Refers to forming and adjourning teams that only exist for a specific purpose and then disbands
4. 3rd party relationships: Relationships with vendors or sub-contractors that are not permanent members of the organization
5. Partnerships: Collaborating with other organizations or sharing resources to the benefit of both parties.

Network organization theory suggests that organizations should be structured as a network of teams instead of a hierarchy of departments and individual managers to allow for more flexibility and adaptability to changing market conditions.

There are a number of benefits to this type of structure. These include improved communication, decreased bureaucracy, and increased creativity and innovation. Networks are also better able to respond to change, which is becoming an increasingly important factor in the modern business landscape.

There are two types of network organizations: Internal network organization and external network organization. 

• Internal: Within organizational design, a network organization consists of various internal working relationships operating across multiple departments, functions, and levels (as well as outside parties) to deliver the organizational goals.   
• External: Network organizations form a group of companies that share resources via formal and informal relationships to deliver on individual goals. For example, sharing of workspaces in a building or bulk ordering from a supplier to reduce logistics costs.