Network organizations

Abstract

It is common to define a network organization as one that is fast and flexible in adapting to changes in the underlying environment. But besides the short-run advantages of adaptability, fast changes in the structure of the organization can also be detrimental in the longer run. This is due to the fact that agents need some stability in the organizational structure in order to channel appropriately (and thus speed up) search. I discuss that trade-off between adaptability and structural stability in a context where not only the environment is continuously changing over time but the organization is also adjusting to those changes. The main conclusion obtained is that, as the environmental volatility increases, the optimal functioning mode of the organization sharply switches from being totally flexible to being completely rigid, i.e. no intermediate configurations are essentially ever optimal. This has stark positive and normative implications on the dichotomy of stability versus change that is at the centre of recent organizational literature.