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Network Organizations

Network organizations are normalized for operating in volatile, uncertain and asynchronous environments due to their flexible organizational structure

Network organizations are normalized for operating in volatile, uncertain and asynchronous environments due to their flexible organizational structure

Networked Organizations are open systems of organization that connect people directly peer-to-peer through informal networks of collaboration.1 Network organizations may be seen as a product of the heightened connectivity brought about by the advent of information technology and a response to the more complex environment organizations operate within in the 21st century.2 With the rise of connectivity, we are seeing the formation of a new type of mass, networked organization within post-industrial economies, both on the institutional and physical level. Institutionally, networked organizations that harness the mass of people’s productive capacities, through on-demand networks are becoming more prevalent. On the physical level, networks are proliferating with the development of the services economy, where the function of products becomes virtualized and delivered as-a-service which again can be aggregated through networks on-demand, in a world that is centered around the end user.3 The rise of networks and hyperconnectivity is one of the most radical and powerful forces shaping our world today. The advent of information technology and the internet has resulted in a massive reduction in collaboration costs, and the possibility for people so set up their own networks of collaboration, giving presence to a mass of new networked organizations as they increasingly become the organizational structure of post-industrial economies.

Connectivity

This new economy, driven by connectivity is very different to the industrial age economy. Instead of being about the familiar products and ownership paradigm that we are so used to, it is about services and access. This is the so-called access economy also called the services economy or sharing economy. The access economy is a business model where goods and services are traded on the basis of access rather than ownership: it refers to renting things temporarily rather than selling them permanently.  As one person describes it – “The access economy is what emerges when access to (x) becomes cheap, satisfactory, convenient and reliable enough that the premium on ownership of (x) disappears.”
Instead of owning your music on CDs you have access to a music service that streams them, or instead of owning movies you have access to them on demand via an online streaming service. Instead of owning a car you have access to transportation via a car sharing service. And the list goes on ever expanding as new businesses emerge with new access based services to disrupt the existing product based incumbents. This model uses a technology platform, often accessed via a mobile device, to connect suppliers willing to rent assets, for example, apartments for rent or cars for transportation, with end users. This may reduce the need for intermediaries – for example, centrally organized businesses such as taxi companies – between the supplier and consumer. Such platforms may also be used to connect employers and workers for employment opportunities, bypassing traditional employment service firms and traditional fixed employer-employee relationships.

Organization Structure

This wave of connectivity is having an effect on all organizations, as we see production processes, business processes and organizations get unbundled from their traditional monolithic form and distributed out into networks. The classical example of this is on-demand staffing services, websites like Freelancer or Upwork, where people offer their skills in all forms of activity from accounting, to graphic design, to business consulting and you can create an organization, on demand, hiring on a project basis.  Creating a very dynamic organization that can expand to meet capacity as employees join and leave the organization in a fluid fashion, making employees available to join multiple networks at the same time or over time. Thus employees become micro-entrepreneurs broadcasting their availability and organizations become networks for aggregating them in response to demand, which is a much more agile form of organization relative to our traditional model.

The Long Tail

Networked organization offer the potential to tap into the under utilized resources of the mass of people on the long tail to turn consumers into "prosumers"

Networked organizations offer the potential to tap into the underutilized resources of the mass of people on the long tail to turn consumers into “prosumers”

This reduction in transaction cost has also enabled us to create new forms of organization that can harness the efforts of those at a much lower level of productivity than was previously possible. Traditional formal organizations with high overhead costs could only operate by ensuring their members achieved a certain level of productivity or professionalism, and this is part of what made them closed organizations. But when we reduce the transaction costs so low, then it becomes viable to create open organizations, where anyone that is able to contribute anything is of value and by getting enough people contributing only a small amount, we can create a large organization on the long tail, the mass of non-professionals that were previously not productive enough to be hired by formal organizations, can now become prosumers, both producing and consuming.4 If we step out of our traditional paradigm surrounding work and formal organizations and look outside the box, we will see quite quickly that we only utilize a small fraction of the actual resources available to us. We assume that formal organizations are the only effective means for value generation, so we use them to generate value either in the public or private sector, they are the systems that manage the various production processes within our society and we assume, tacitly that anyone that is not part of a formal organization is a passive consumer or amateur, capable of only substandard production, it is a simple linear model that creates a dichotomy where formal organizations push-out end products to passive recipients, you are either a professional producer or a consumer.

Centralized Model

Within many organizations we have a dynamic where a few people have a vision as to how that organization should be and then we have many people who are disenfranchised, simply executing on that vision, like cogs in a machine. One commentator summarized the dynamic as such: “At all levels, local, regional, national and global we have created formal and quite rigid hierarchies for governance that pacifies us, we have become pieces not players, a few people play but the vast majority that can really make a difference are sitting on the benches watching the drama play out through the media… we don’t feel like we participate, a lot of people are sitting inside of hierarchies focusing on their tiny part and then they go home, fall asleep, get up in the morning and do it all over again. Our strong talent and desire to contribute do not have a proper arena at work, we are not using the possibilities inside of our organizations.”5 The result can be a semi-zombie organization, where very few people are in any way aware or responsible for what is going on, while a very many are simply executing in a mechanical fashion the directions they are given. And this is a precarious and potentially dangerous situation, when people become disenfranchised and resort to simply acting out procedures, the organization in this mode is essentially sleepwalking, people are deferring their responsibility to the centralized organization but there are only a handful of people actually responsible within that organization. And if this is a large organization it is not possible for them to be aware of everything that is going on throughout the entire organization.

Disenfranchisement

Centralized hierarchical organizations have a constant tendency towards elitism and thus excluding the productive capabilities of the mass of people

Centralized, hierarchical organizations have a constant tendency towards elitism and thus excluding the full productive capabilities of the mass of people

Much of this traditional centralized organizational structure creates disenfranchisement, this centralized model means empowerment is concentrated within some centralized authority, which creates disengagement for the mass of members. And this is the same on the macro level of the whole of a society or economy, a few centralized organizations such as governments and corporations, have a vision about how their domain should be and they produce products and services that are pushed out to the vast majority of society.
This centralized model of course fails to capture or harness a vast amount of latent potential within society. That is the latent potential of people taking responsibility for their own lives and becoming engaged with the products they use and the maintenance of their environment. This is a vast new source of untapped potential value that we are just beginning to discover, through user generated content, co-creation, citizen engagement and so on. But formal organizations can only really tap into this by giving up the linear model, the idea that they have the right answer, they know what the consumer wants and they just have to give it to them.
For example, this was essentially the model of the media industry until very recently. After many decades of producing blockbuster films and pop music they thought they have the model perfected, producing big budget perfectly finished productions and pushing them out to passive end users, and as long as we stay within this linear paradigm it seems impossible to conceive of the end user wanting anything else. But of course along came the internet and a whole new nonlinear paradigm, it turns out what people really wanted was not just to consumer perfectly finished products, but also to connect to each other to share and create their own content. And in this, we can see this whole new value proposition of simply connecting people on the long tail. And this applies to all areas from the energy industry, to transport, to public administration etc.

Context

On its most fundamental level connectivity is changing what people really want, from things to not only access but really context, this is what artists call the “negative space”, which is the space around a sculpture, it is everything except the object itself that gives the object context and is essentially how we interpret it. The access economy is about access and when we sum up all those services we have access to, we get a context that is our quality of life. Once we have the basic material things needed for subsistence people’s values shift to wanting to be connected to the things they like. What we want is to feel connected with all the things we need and care about, whether that is our family, friends, transportation, public services, a nice clean natural environment, our local neighborhood, these things form the context to our lives and our quality of life.  This is what the access economy is about people recognizing that a big pile of products was not really what they wanted, and it is becoming clearer that what they really want is access to services that create the context for the quality of life that they desire. As a producer it is about networking all those products, simplifying the complex, to deliver the seamless services that users are increasingly demanding.

Cite this article as: Joss Colchester, "Network Organizations," in Complexity Academy, October 7, 2016, http://complexityacademy.io/network-organizations/.

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