Network organizations

It is common to de…ne a network organization as one that is fast and ‡exible 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 happens because a widespread knowledge of the organization’s structure is important in channelling (and thus speeding up) search. I discuss the trade-o¤ between adaptability and structural stability in a changing environment where, if the structure of the organization adjusts, information on the exact nature of the change becomes known only with some lag. The main conclusion is that, as environment becomes more volatile, the optimal operational mode of the organization essentially passes from being totally ‡exible to being completely rigid, i.e. no intermediate options are ever optimal. This has important implications on the dichothomy of stability versus change that has informed recent organization literature. JEL Classi…cation nos.: D20, D83, D85.