Network & International Designs

Network Structure

A network structure is a cluster of different organizationswhose actions are coordinated by contracts andagreements rather through a formal hierarchy ofauthority. Most major organizational functions aresubcontracted to suppliers, who move into or out of theorganization as needed to meet changingneeds.

This type of structure has become increasingly popular infast-changing environments. It has been made possiblelargely by the advent of sophisticated information systemsthat allow real-time access to company data.

The Network Design

HealthProducts, Inc.(Central Hub)

Distribution Manufacturing

AccountsReceivable

PublicRelations

Marketing

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 toorganizing. It organizes employees around core processes,making it similar to a matrix based upon functions andprocesses.

Structure is created around cross-functional core processesrather than tasks, functions or geography. Self-directedteams, not individuals, are the primary organizationalelements. Process owners have responsibility for each coreprocess in its entirety. Cross-trained team members aregiven necessary skills, knowledge & authority to do the job.Highly customer-driven, flexible & seeks continuousimprovement

An Example of a Horizontal Structure

CEO

ProcessOwner

ProcessOwner

Team 1 Team 2 Team 3

Team 1 Team 2 Team 3

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 ininternational business.

Increasing types of involvement: 1. Importing/exporting 2. Licensing 3. Joint Ventures 4. Direct Investment

Most approaches involve modification of either theProduct Departmentalization form or the Conglomerateform.

Simple, International Division

CEO

Production Marketing FinanceInternational

Division

Example: Levi Strauss, Inc.

Extension of Geographical Departmentalization

CEO

NorthAmericanoperations

Europeanoperations

Asianoperations

Example: Ford Motor Company, Coca Cola

Extension of Product Departmentalization

CEO

ProductManager A

ProductManager B

ProductManager C

Europe AsiaNorth

America

Example: Unilever, NV, FedEx, H.J. Heinz

Extension of Multi-Divisional (SBU) Departmentalization

CEO

SBU AUS

SBU BGermany

SBU CJapan

SBU DFrance

SBU ETaiwan

Examples: General Electric, BOC, Ltd.

Global Matrix Design

Example: N.V. Phillips