Network Organisation Theory

From the 1980’s there has been increasing interest in network organisation forms and theory, with a number of researchers forecasting the emergence of network organization theory in a variety of publications (Baker 1992; Eccles and Crane 1988; Galaskiewicz 1985; Miles and Snow 1986). The development of network forms in organisation stemmed from the desire to explain networks within internal processes, their open structures, flat organisations and loose forms of control. This was applied to internal networks and external networks of suppliers with growing interest in managing external networks of outsourced contractors which emerged during the 1980’s (Galaskiewicz 1985).

The contrast between the stable networks examined through sociometric techniques and the dynamic networks could not be greater. Social network theory has been criticised for treating all actors as equal, whereas in reality networks are inherently fluid structures, constantly changing and evolving as actors align themselves behind specific interests (Baker 1992). This led to problems of agreement on terminology and clarity of purpose, with a lack of credibility amongst more traditional network theorists. The simple fact is that the emerging organisational types and management styles demanded a fresh approach to understanding how these new networks operated. Firms were attempting to re-invent themselves and demonstrated an increasing capacity for self-design and flexibility to absorb heterogeneous or volatile demand by engaging in long term relationships with a range of subcontractors and suppliers (Baker 1992; Galaskiewicz 1996).

Network organisation theory was out of necessity an evolutionary phenomenon as business and organisational environments were changing at a faster rate than witnessed in the post war years. This was exemplified by Miles and Snow (1986) who identified deficiencies in traditional methods for describing business networks and sought a method better suited to the new environmental demands of the organisation in the1980’s. Baker (1992) amplified this, arguing that the new network organisation is one which can accommodate the classic horizontal differentiation and vertical integration. Unlike a bureaucracy, which has a fixed set of relationships for processing all types of problems, a network organisation is said to mould itself to each problem (Baker 1992).

Network organisations tend to evolve rather than be structurally planned in the traditional sense but are recognised for their high degree of integration, strengthening relations both horizontally and vertically throughout the network, connecting formal groups and reinforcing bonds within the wider network (Eccles and Crane 1988). Wayne Baker in (Nohria and Eccles 1992) studied a real-estate agency that was set-up as a network organisation using a variety of network analysis techniques. Baker (1992) found that the agency was moderately well integrated in the horizontal plane but that this was more than compensated for in the way it was vertically and spatially integrated. This ‘flat’

organisation made it extremely responsive to unique customer projects, bringing together suppliers within the loose network to meet customer specific demands in what is described as ‘turbulent’ environment. The economic situation and environmental conditions described by Baker (1992) which encouraged the development of the network organisation, with the consequent benefits of efficiency of scale and responsiveness to customer requirements, were close to those reported earlier by (Eccles and Crane 1988).

Once again, detailed analysis of the complex network structures and network forms which had developed to meet the needs of this fast changing sector in the 1980’s demonstrated just how effective these organisations were in creating networks with the necessary external ties to respond quickly to investment opportunities. These teams were largely self-constituted and were labeled by Eccles and Crane (1988) as being ‘self designing networks’, characterised as being flat network organisations, recognised for their flexibility in meeting complex situations in a turbulent environment, which thrived on conflict. These are typically teams of specialists whose composition may vary over time, being brought together in a network to meet a market situation and disbanded when

the task or deal is complete. These network forms are typified by the network organisation described by Birley (1985) as being entrepreneurial in nature and largely self constituted, where the network boundaries are being continually redrawn to meet changing parameters.

Whilst extolling the virtues of the network organisation and the emergent network organisation approach, these network forms also have their critics. Miles and Snow (1986) point out that ‘network organisations’ also have their ‘dark side’ where the networks themselves become self serving at the expense of the host organisation. Easton and Araujo (1994) consider network organisation theory to be problematic because all organisations can be treated as networks, with various links connecting actors, and that proponents use network theory to explain internal processes within an organisation.

Easton and Araujo (1994) conclude that network organisations generally mean the introduction of flat management structures and the use of hybrid and relatively loose forms of control, or the disaggregation of the firm by outsourcing activities to a favoured number of suppliers, rather than the lean, entrepreneurial and responsive network organisation that was originally envisaged.

The network organisation approach is typified by the Swedish retailer IKEA in a case study published by Ford et al. (1998). IKEA depended on a small number of Scandinavian suppliers for its paper products but in a drive to be more sensitive to the environment wanted to reduce the amount of chlorine used in the production of pulp for its paper. IKEA’s producers refused to comply with the demand as it would add cost to

the production of paper. IKEA felt trapped by its present network position and sought a solution outside its supplier network. By engaging with manufacturers of print presses and other paper suppliers, it was able to gain a technological and environmental advantage by creating a new network organisation based on its size and leading position in the market for chlorine free, recycled paper and print. The IKEA case clearly illustrates the influence a leading retailer has over the suppliers in its network and suggests that the network organisation may be managed, or as in this case re-positioned (Ford et al. 1998).

As with the similar approach to understanding innovation networks, or other technical collaboration networks, critics of the network organisation theory question the terminology associated with this kind of network collaboration and its lack of precision (Achrol 1997). The traditional vertically integrated, multi-divisional organisation so successful in the twentieth century, is unlikely to survive in the next but will be replaced by the network organisation, consisting of large numbers of functionally specialised firms tied together in cooperative exchange relationships (Achrol 1997; Achrol and Kotler 1999). This was the network paradigm heralded at the start of the twenty first century that recognised the earlier work of Miles and Snow (1986) as being one of the pioneers in the development of the network organisation. However, the evolvement of network organisation theory was to be superceded by network theories which better explain the nature of the network exchange and relationships in that exchange. The pace of change and the magnitude of the socioeconomic challenges facing all types of organisation has been the catalyst for the wider recognition of the network organisation as a viable strategy for survival in difficult economic times (Jiang et al. 2009). As a result,

researchers like Kalantardis (2009) are now inclined to consider a retrospective appreciation for the work done by the early pioneers of network organisation theory (Baker 1984; Eccles and Crane 1988; Miles and Snow 1986).