Network Organizational Structure: Definition, Pros and Cons

A network organizational structure is one in which organizations group certain types of employees together based around a common specialization. These employees then form partnerships with other specialists from throughout the organization to take on new projects and work toward a common goal. For instance, a company may have a product development team and a marketing team, each operating as different divisions. However, when new projects arise, members of those teams can pair up to tackle projects together.

Compared with other businesses, networked organizations do not have a hierarchical organizational chart where the chain of command runs through a cascading line of middle managers. Instead, networked organizations tend to feature clusters made up of different departments, business units, or local offices, and these clusters work together on an ad-hoc basis. The company eschews strict templates for workflows and reporting relationships. Instead they focus on using the full resources of an organization to meet customer needs.

The executive team in such organizations tends to be fairly lean. They handle overall organizational design and big picture decision-making. However, day-to-day operations and problem solving usually fall upon the individual pods of the company’s organizational network.

Most network organizations function via the following principles.

• A fairly non-hierarchical structure: Even large organizations that use a network model do not lean on hierarchical organization charts. Most org charts are project-specific, where pods of workers report to a project manager or division head, who then reports back to executive management.
• An affinity for outsourcing: Network organization structures lend themselves quite naturally to outsourcing. If a team needs a specific skill—whether that’s customer service, PR, or mechanical engineering—the organization may choose to outsource the work to contractors rather than to full-time employees.
• Concentration on specialization: A networked organization often features silos divided by specialty or by geographic locations. These silos include different departments (like product development or human resources), different regional offices, or different business units.
• Empowered project managers: Most of the daily work and decision-making of a networked organization takes place when team members join together based on need. They make use of each other’s competencies to take on projects. The project managers and team leaders report back to the organization's central leadership.
• Lean central leadership: The executive team of a networked organization tends to be fairly lean. Executives handle overall organizational design and big picture decision-making. However, day-to-day operations and problem solving usually fall upon the individual pods of the company’s organizational network.
• Overlap with divisional organizational structure: The network organizational structure shares a lot in common with the divisional organizational structure that breaks companies into divisions based on product lines. Network organizations break their workforce into silos, but these silos tend to be based on specific competencies rather than product lines. As such, employees in a network organization get more opportunities to collaborate with people from other departments, which happens when they’re paired together on new projects.

Business leaders choose a network organizational structure on account of the following advantages:

• Natural communication: Workers have opportunities to interface with team members from different divisions. This sparks natural dialogue and a sense of common purpose.
• Openness to organizational change: Employees are less likely to feel emotionally tethered to hierarchies and specific workflows. This can smooth the path to organizational change.
• Versatility and adaptability: Team members can flow freely from one project to another without having to worry about the limitations of a hierarchical org chart.

Network organizational structures do not fit the needs of every company. Here are three reasons why some companies reject this type of organizational structure:

• Potential for redundancy: Networked organizations can end up with multiple teams doing similar work. This leads to inefficiencies that rarely occur in hierarchical structures (like a matrix organizational structure or a functional organizational structure).
• Relatively weak leadership: Compared to functional organizations or matrix organizations, networked organizations have fewer checkpoints for management to exert control over the workforce. Some employees may see this as a positive thing, but it can stymie corporate executives who favor a traditional chain of command.
• Unbalanced workloads: Many networked organizations end up with some cohorts stretched to their limits and others doing the bare minimum. This particularly comes into play when the organization focuses on a particular project that only involves some members of the overall team.

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