Virtual vs Network Organization structure

Virtual Organizations

A firm that contracts out almost all functions. The only function retained by the organization is the name and the coordination among the parties. A virtual organization might not have even have a permanent office.

The concept of virtual organization or corporation has entered the field of management very recently. It is a networked organization and its various components are linked through communication network only. Virtual Corporation is a temporary network of independent companies-suppliers, customers, even erstwhile rivals linked by information technology to share skills, costs and access to one another’s markets. It will have neither central office nor organization chart. It will have no hierarchy, no vertical integration.

Especially common in the fashion industry where you can have clothing labels that are just that. Say the label is "John Taylor". The label has a clear identity in the public eye, but when you try to track down the John Taylor company, you find there are no John Taylor designers, no John Taylor manufacturers. It's just 3 people in an office subcontracting out all functions.

It is a network of firms held together by the product of the day. An open-ended system of ideas and activities and firms.

Network Organizations

A network organization is a collection of autonomous firms or units that behave as a single larger entity, using social mechanisms for coordination and control. The entities that make up a network organization are usually legally independent entities (separate firms) but not always. Some of the entities may be wholly owned subsidiaries. They can even be divisions within the company, but treated as separate companies that sell to outside customers.

This design is the combination of different types of organizations whose actions are coordinated by contracts and agreements rather than through a formal hierarchy of authority. Usually one firm takes the lead in creating the network. This design consists of several satellite organisations clustered around a core firm.

The core firm coordinates the network process and provides services with regard to specialized areas like marketing and product development, etc.

Network designs accommodate strategic alliances among competing firms and give quick response to threats and opportunities to the satellite organisations.