Virtual network of the organization #mba #management #marketing #business_adminstration

Virtual network approach
The most recent approach to departmentalization extends the idea of horizontal coordination and collaboration beyond the boundaries of the organization. In a variety of industries, vertically integrated, hierarchical organizations are giving way to loosely inter- connected groups of companies with permeable boundaries. Outsourcing, which means farming out certain activities, such as manufacturing or credit processing, has become a significant trend. British retailer J. Sainsbury, for example, lets Accenture handle its entire IT department. Ohio State University plans to outsource its parking system. And the City of Maywood, California, decided to outsource everything from street maintenance to policing and public safety. The budget for the police department used to be nearly $8 million. Now the city pays about half that to the Los Angeles County Sheriff ’s Department, and residents say that service has improved. The pharmaceuticals company Pfizer is using an innovative approach that lets some employees pass off certain parts of their jobs to an outsourcing firm in India with a click of a button. Rather than shifting entire functions to contractors, this “personal out- sourcing” approach allows people to shift only certain tedious and time-consuming tasks to be handled by the outsourcing partner while they focus on higher-value work. Some organizations take this networking approach to the extreme to create an innovative structure. The virtual network structure means that the firm subcontracts most of its major functions to separate companies and coordinates their activities from a small organization at headquarters. Philip Rosedale, the founder of Linden Labs, created and runs SendLove (formerly called LoveMachine) from his home and coffee shops around San Francisco. SendLove makes software that lets employees send Twitter-like messages to say “Thank you” or “Great job!” When the message is sent, everyone in the company gets a copy, which builds morale, and the basic software is free to companies. The firm has no full-time development staff; instead, it works with a network of freelancers who bid on jobs such as creating new features, fixing glitches, and so forth. Rosedale also contracts out payroll and other administrative tasks.
How It Works
The organization may be viewed as a central hub surrounded by a network of outside specialists, sometimes spread all over the world, as illustrated in Exhibit 10.8. Rather than being housed under one roof, services such as accounting, design, manufacturing, and distribution are outsourced to separate organizations that are connected electronically to a central office. Networked computer systems, collaborative software, and the Internet enable organizations to exchange data and information so rapidly and smoothly that a loosely connected network of suppliers, manufacturers, assemblers, and distributors can look and act as one seamless company. The idea behind networks is that a company can concentrate on what it does best and contract out other activities to companies with distinctive competence in those specific areas, which enables a company to do more with less. The “heart-healthy” food company Smart Balance has been able to innovate and expand rapidly by using a virtual network approach. With a network structure such as that used at Smart Balance, it is difficult to answer the question “Where is the organization?” in traditional terms. The different organizational parts are drawn together contractually and coordinated electronically, creating a new form of organization. Much like building blocks, parts of the network can be added or taken away to meet changing needs.
Virtual Network Advantages and Disadvantages
The biggest advantages to a virtual network approach are flexibility and competitiveness on a global scale. The extreme flexibility of a network approach is illustrated by recent antigovernment protests and the overthrow of leaders in Tunisia and Egypt, for instance. A far-flung collection of groups that share a similar mission and goals but are free to act on their own joined together to mastermind the “Arab Spring” uprisings, much in the same way that terrorist groups have masterminded attacks against the United States and other countries. “Attack any single part of it, and the rest carries on largely untouched,” wrote one journalist about the terrorist network. “It cannot be decapitated because the insurgency, for the most part, has no head. “Similarly, today’s business organizations can benefit from a flexible network approach that lets them shift resources and respond quickly. A network organization can draw on resources and expertise worldwide to achieve the best quality and price and can sell its products and services worldwide.