Networks, Target Markets and Company Structure

Yesterday I posted about how trusted networks should really be thought of as comfort networks.  It changes the conversation and the way people think about engagement.  Let’s delve a bit deeper into this.

Companies are networks.  Some are built on hierarchy and some are flat.  Some companies are structured on a continuum between flat and hierarchy.  Professor Ron Burt calls this setting up for brokerage or closure.  There isn’t a right or wrong way.  It all depends on your business.

Company structure depends on the target market you are going after, and the strategy you are going to use to go after it.  A lot of how you set your company up will depend on your own personality too.  Many people are not psychologically equipped for brokerage, so they opt for cloture.  The opposite occurs too.

If you want to keep a lot of control over the decision making ability of your employees, set up for closure.  In organizations like this, the edge of the company network does a lot of checking back to the center to receive instructions on how to operate.  They also carry information back and forth.  Closure will give you a very tight focused organization.

Brokerage enables employees at the edges of the network to make decisions.  It’s empowering, but the executives in the company have to be willing to tolerate both less control and potential failure. When I was touring Facebook’s office in Austin, Texas, it felt like their company was set up for brokerage.  I spoke with some employees and just touring their office made it feel that way.

Of course, this isn’t black and white.  There are degrees of closure/brokerage. One thing to pay attention to is how competitors in the space are targeting the market. If everyone is using brokerage, it might be a strategic advantage to set your company up for closure.

Of course, if you are going to set your company up as a network, structure has different implications.  There is a lot more randomness, and you need to set up support structures to deal with it.  Part of the problem is communication.  Instead of being a decision maker at the center, it should be structured more like a telephone operator that passes information from one end of the network to the other.  The more information the edges have, the more they will empower and grow the network.

The market that you are targeting will dictate structure.  If you are building a product that goes inside other products, favoring closure might be a better way to go than network.  If you are selling SaaS software, it all depends on how you want to attack your customer base.  If you are trying to grow a network, it’s probably better to set your company up in a more networked fashion.

At an early stage of the company, it’s important to think about these things. Last evening I was lucky to be part of a group that got to listen to Paul Zhang of Avant Credit.  It was interesting to hear him talk about the evolution of their organization.  They thought about these things at an early stage-although they didn’t call it “brokerage and closure”.