After reading this article you will learn about the merits and demerits of network organisation.

Merits of Network Organisation:

Network organisation has the following merits:

1. It is very wide in scope. It can link subsidiaries across the world with the head office. Though subsidiaries are linked with the head office, most of the decisions are taken by subsidiaries at their respective locations. They design their structures to suit their operations. Few decisions are, however, centralised at headquarters.

2. Organisation culture cuts across traditional boundaries and shares information and resources amongst various subsidiaries. It is a dominant form of structure where domestic firms want to alliance with firms at the global level. The firms can maintain flexibility to remain competitive in the dynamic global environment.


3. In traditional forms of organisations, governance comes at a higher price as goods and services are bought in the open market. Electronic networks help to reduce the costs of governance. Use of electronic networks increases the number of possible potential suppliers of a product or service as electronic effect.

4. Network organisation provides synergy by entering into temporary alliances. Every firm may not be efficient in every business operation. Some may specialise in production while others in marketing. When they join together, they derive the benefits of both the operations and their combined strengths can result in higher output than the sum total of output achieved by them independently (synergy).

5. It reduces the overhead expenses of the principal organisation as every business unit and sub-unit performs the specialised operations which results in efficiency and, thus, economy in cost.

6. Network organisation requires comparatively less employees as work is done through e-networks. Problems related to human resource management are less in this form of organisation. Though e-networking relationships also require coordination, it is free from human sentiments, emotions, needs and perceptions.


7. It is a temporary form of organisation structure so that principal organisation has the freedom of selecting its sub-units. It can add or delete sub-units in its network depending upon the need and efficiency of sub-units. It can, thus, maintain complete control over its quality of operations.

8. Network organisation is an inter-organisational network where a large industrial house develops links with smaller firms that perform subsidiary operations for the large firm like supply of inputs, research, design, distribution etc. This promotes growth of the large organisation as it does not face any bottlenecks with respect to these operations.

Demerits of Network Organisation:

Though network organisation is a strong supplement to traditional forms of hierarchical organisations, it is not a perfect substitute for them.

There are diverse views on the effectiveness of this form of organisation:


1. Findings suggest that increased use of electronic networks is associated with less virtualization, not more. Employees get demotivated due to poor performance of some of the sub-units.

2. Head office does not have control over most of the activities of sub-units. This may result in problems regarding co-ordination.

3. The structure keeps changing with changing subsidiaries and, therefore, new relationships develop every time there is a change in subsidiary.

4. There is absence of social interaction amongst people as they do not meet personally to exchange their ideas and experiences. It does not, therefore, develop a sense of teamwork.


A strong complement to e-networks is personal relationships. They are valuable in coordinating complex business practices and help to build trust amongst members of a virtual firm.

5. There can be clashes if any sub-unit cannot perform its part of the work in time. Since the operations are mutually related, if there is delay in completion of project on the part of one sub-unit, it will delay the entire project. Though sub-units can be changed, it takes time to find and develop relationships with new units.