Network vs. Hierarchy as Organizing Principles in Business and the Economy
Channel: Sam Vaknin's Musings
Date: 2015-06-20

Networks evolve from informal, diffuse structures to increasingly formal ones. Hierarchies go the other way: from formal to informal. The formal hierarchy ends up playing host to numerous informal networks (e.g. in the boardroom). The informal networks introduces terms of service, regulations, and etiquette that tend to render it less nimble and more focused.

Finally, hierarchies tend to concentrate their concerted efforts on problem-solving and on fending off challenges. They seek equilibrium and homeostasis and avoid creative destruction, disruptive technologies, and paradigm-altering innovation. Networks thrive on challenges and novelty. They benefit from disequilibrium and disruption. They foster technological instability as well as other forms of chaotic interaction. Consequently, they tend to attract mavericks and entrepreneurs, not managers and academics, for instance.

Both hierarchies and networks are homophilic (attract same-minded people) and, therefore, are threatened by the emergence of in-house monocultures which are susceptible to external shocks (“silos”). But networks are far better suited to leverage synergies: they are less rigid than hierarchies and, therefore, have the upper hand as far as response times and dissemination of new information go. They are also far better suited to optimize their social capital because they emphasize social, peer-to-peer interactions over top-down flows.