Network organizations are in your future

Organizational networks are likely to be a part of your future. From time to time, it is important for all of us to think about such issues, so that, as managers, we can understand current trends and prepare for the future.

Those who have spent most of their working lives in hierarchical command-and-control-type organizations operating in relatively stable business environments will find it especially difficult to understand or relate to what is beginning to occur in many high-tech (and even some low-tech) industries.

High-tech industries are characterized by rapidly changing opportunities resulting from volatile customer needs in terms of product functionality, lower cost, higher quality, greater reliability and serviceability, and shorter delivery dates. These demands, in conjunction with reduced product life cycles, new waves of technological innovation, and ever-increasing global competition, are becoming the rule rather than the exception.

Adapt or die. Firms in high-tech and supporting industries can no longer adapt with just one management style or wait for long-term adjustments to enhance productivity. Now, managers must remain flexible and be ready to continually make changes to fit rapidly evolving business conditions. In short, our fast-moving, global information age demands a radically different form of business enterprise.

To accomplish this goal, a few firms are starting to experiment with new forms of network organization. For example, one approach that is being tried by vertically integrated, mature firms is to examine operations along the value-chain to determine where the firm has the competency to add the greatest value. Then managers focus improvement efforts and investment at those points. Next, the firm can begin outsourcing activities to upstream or downstream "partners," which provides greater efficiency and effectiveness than the firm had achieved on its own. Building such a network of partner firms can cut costs and provide greater innovation and flexibility, because it enables each firm to focus on its core competency and reduce its overall coordination loop. For example, a network partner may be given the responsibility for the upstream task of delivering a customized part or component, or a downstream task such as taking over distribution.

New thinking, new business. For many firms, replacing the traditional command-and-control approach with a system based on trust and accountability for contractual performance requires a complete turnaround in managerial philosophy.

For a newly created network to utilize assets effectively across the partner firms in the value-chain, managers must minimize cost and bureaucratic red tape associated with conducting business and maximize flexibility and shared responsibility.

Such restructuring requires managers to assign operating decisions to those closest to new markets; this move will test managers' views regarding the competency of organizational members and how they ought to be managed. In the end, the question of reform is not if, but when, and how firms will become involved in forging network-style forms of organization.