Concept of Virtual Organization

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Executive Summary

Virtual organizations are fast-growing with increasing globalization. Currently, extensive literature exists on virtual organizations, where most writers have tried to define, compare virtual organizations to general organizations and also explain the characteristics of virtual organizations. Others have extensively explored the different types of virtual organizations, models of management, and the success factors of virtual organizations.

As we appreciate this extensive literature, one factor remains true, that no one definition of the concept exists and that the different definitions have largely been based on the nature of the environment in which a particular virtual organization exists. Therefore, a lot will continue to be researched as far as virtual organizations continue to exist especially with the changing operating environment.

This report looks at the concept of virtual organization, the characteristics of virtual organizations, and the possible management structure that a virtual organization can adopt. The literature is not exhaustive and many need to be done in the future in terms of research.


Given the changes in where individuals work, combined with the multiplicity of those with whom they work, it is not surprising to find that the boundaries of the organization have become more spherical (Heneman and Greenberger, 2002, p. 4). Consequently, one expects individuals in contemporary organizational environments to focus less on themselves as employees of a traditional organization and more on themselves as part of, and contributing to, an entity far larger than the parent organization that employs them (Heneman and Greenberger, 2002, p. 4). This larger entity composed of federations of individuals and organizations can be termed as a “virtual organization” because in effect it is an organization, albeit not in the traditional sense (Heneman and Greenberger, 2002, p. 4).

According to Gangopadhyay (2002), established consumer business enterprises, particularly those with heavily sunk financial knowledge capital in brick-and-mortar retail outlets, are looking to formulate strategies to deal with the perceived threat of startup competition operating in virtual space. Therefore, the lowering of cost barriers to entry into the retail business over a wide geographical area that does, or is perceived to, result from the adoption of Internet technologies (Gangopadhyay, 2002, p. 215).

According to Warner and Witzel (2004), the virtual organization is the newest and potentially most important form of business organization to have emerged for decades. Enabled by, and driven by, new information and communications technologies, most importantly the Internet, the virtual organization model offers businesses a chance to reduce costs, become more flexible, and extend their market reach all at once (Warner and Witzel 2004, p. 1). He continues to say that, assets may be dispersed rather than concentrated, whereby; the importance of physical location in determining effectiveness has been greatly reduced. The swift interchange of information allows people to work together in teams even if they are thousands of miles apart (Warner and Witzel, 2004, p. 1).

Also, customers can be reached and goods and services sold to them without the selling firm ever seeing the customer or physically handling the goods. In the globalizing world and integrating market, conservative business schemes cannot guarantee economical viability anymore.

Businesses are now fast adopting new practices of enhanced collaboration and successful industries are moving away from major parts of their production to independent suppliers or sister companies best suited for such tasks and also, the companies are participating in subcontracting in major projects, which has gained a lot of support and it is becoming a common practice (Camarinha-Matos and Afsarmanesh, 2004, p. 16).

What are Virtual organizations?

Jensen, Poslad, and Dimitrakos (2004, p. 236) define the virtual organization as ‘an organization network, which is structured and managed in such a way that it operates vis a vis customers and other external stakeholders as an identifiable and complete organization’. According to Joia (2003, p. 143), he describes a virtual organization be a temporary network or loose coalition of manufacturing and/or services that comes together for a specific business purpose and then disassembles when that purpose has been met. The life cycle of a virtuous organization depends upon factors such as the intended objectives of the alliance, the type of products manufactured, or the services rendered (Joia, 2003, p. 143).

Furthermore, virtual organizations can be ad hoc or last over a longer period and, firms in many cases team up in a virtual organization to exploit an opportunity in the market before it evaporates, and immediately an objective is met, the alliance is disbanded (Joia 2003, p. 143). These alliances are short-lived, extremely focused, goal-driven, and always powered by time-based competition. They are both created and dissolved quickly, and sometimes, organizations that are partners in one instance can be rivals and competitors in the next (Joia, 2003, p. 143).

Kisielnicki (2002, p. 2) states that organizations are virtual when they are producing work deliverables across different locations, at differing work cycles, and across cultures. Another suggests that the single common theme is temporality and that, virtual organizations center on continual restructuring to capture the value of a short-term market opportunity and then dissolved to make way for restructuring to a new virtue entity.

Also, virtual organizations can be characterized by the intensity, symmetricality, reciprocity and multiplexity of the linkages in their networks (Kisielnicki, 2002, p. 2). The author concurs that, despite the difference in definition, there exists a consensus that different degrees of virtuality exist and that within this, different organizational structures can be formed (Kisielnicki 2002, p. 2), and such structures are normally inter-organizational and lie at the heart of any form of electronic commerce yet the organizational management processes which should be applied to ensure successful implementation have been greatly under researched (Kisielnicki, 2002, p. 2).

Franke (2002, p. 188) states that a virtual organization can be recognized as a new and interorganizational dynamic network, which works as an integrated supply chain to meet customers’ fast-shifting demands, supported by communication technology.

Characteristics of virtual organizations

According to Franke (2002, p. 188), many researchers have largely and differently sought to categorize virtual organizations and that, the following characteristics of virtual organizations are widely accepted. First, a company seeking to form a virtual organization with other companies is opportunism-oriented and tries to make use of core competence and to share risk with its partners (Franke, 2002, p. 188). Secondly, a virtual organization is dynamic clustering. It can be a single identity organization from the view of market, although it is made up of a group of independent companies (Franke, 2002, p. 188).

Thirdly, a virtual organization is geographically dispersed; globalization to access worldwide proper resources is its driving force and characteristic. Fourth, a virtual organization may start from a short-term contract and may or may not become a strategic alliance (Franke, 2002, p. 188). Fifth, a virtual organization’s partnership reflects partial mission overlap and no hierarchy or formal structure.

The boundary of the virtual organization is thus vague and fluid. Sixth, a virtual organization is based on communication tools such as EDI, Internet and intranet and some intelligent working tools, such as: groupware, organizational memory system (OMS), and more. Lastly, a virtue organization needs high trust between member corporations. To integrate the operation, shared loyalty and shared leadership are needed and the process of operation is also a process of distance teamwork and distance learning (Franke, 2002, pp. 188-189).

Management of Virtual organizations

With slimmed-down headquarters and dispersed operating units, the virtual organizations no longer have large managerial structures. With fewer managers, there is both less need for functional specialization and less opportunity to practice it (Warner and Witzel, 2004, p. 100). The managers have to become generalists, in outlook and practice. They have to be capable of moving from one task to another and even of managing multiple, variant tasks simultaneously (Warner and Witzel, 2004, p. 100).

Also, the ability to conceptualize and ‘imagineer’ a large network and one’s place in it, requires managers who can view the larger picture and use holistic and multi-functional models for the organization as a whole and their work (Warner and Witzel 2004, p. 100).

The suggestion is that, rather than inventing an entirely ‘new’ form of management called virtual management, it is preferable to adapt an existing management model, which is general management, to the challenges of operating in a virtual world (Warner and Witzel, 2004, p. 100). The advantages to this are that, reconfiguring the existing general management model creates a type of management that is capable of managing both convectional and virtual assets simultaneously. All virtual organizations require at least some convectional components, including technology, the artifacts that enable virtual organizations, and people who provide the imagination that drives it (Warner and Witzel, 2004, p. 100).

A mix of virtual and convectional assets, rather than a ‘pure’ virtual organization, will always be required, although the nature of that mix will depend on the situation, the organization, and its goals and strategy (Warner and Witzel, 2004, p. 100).

Furthermore, the existing general-management model has several strengths, on which virtue management can draw. Essentially, managing in virtual organizations requires the addition of new management skills to existing ones, and not the substitution of new skills for old (Warner and Witzel, 2004, p. 100). Therefore, looking at the general and virtual organizations, one discovers that, their systems exist in the same organization and they interpenetrate each other.

This result to no either choice, since real compared to virtual, is a false dichotomy (Warner and Witzel, 2004, p. 123). The ‘choice’ is not between the two extremes, but of the best mix of elements that will add value and will exploit both tangible and intangible capital to the full (Warner and Witzel, 2004, p. 123). The decisions should not be made dogmatically, believing that, one system will give the best results, but rather, the aim should be to construct hybrid systems that will give the best results in any given situation (Warner and Witzel, 2004, p. 123). Berndt (2006, p. 148) says that management of virtual organizations can be best achieved through; empowering people to assess and act on issues in their area of expertise since use of rules and procedures is limited.

According to Murray, Poole and Jones (2005), they say that, several explanations have been proffered for the complementarily of old hierarchy and the new structures. They continue to state that, fluid structures may be necessary to create the conditions for the spark of creative genius to catch alight, but hierarchy assists in the control and coordination of the subsequent exploitation of that innovation (Murray, Poole and Jones, 2005, p.29).

Centralization, allows monitoring and management of risks associated with innovation. Rules formalize new practice and the way to capture the knowledge that has been created by experimentation is to institutionalize it in new processes, formalization of new procedures also provides a disciplined, clear knowledge base for further experimentation (Murray, Poole and Jones 2005, p.29). Therefore managers need to be able to develop for themselves an organizational form that both provides corporate control and allows creative latitude for those operating at the micro level (Murray, Poole and Jones, 2005, p.29).


With the fast expanding concept of virtual organizations, and being accelerated by globalization, there will have to be some fundamental and critical success factors for the organizations to adopt to succeed: The organizations will need to largely have shared purpose that glue the partners together. The organizations also, will need to cultivate and nurture trusting relationship that both partners have confidence in. This will ensure the objectives of the organizations are not hampered by suspicions and mistrusts.

Furthermore, the partners will need to demonstrate the willingness to share risks and that mutual benefit should be derived from the virtual organizations by partners in equal measures. Management success of these organizations will depend much on the environment in which they exist in, the vision, strategic planning and ability to adapt to dynamism in the environment.

Reference List

Berndt, R., 2006. Management-Konzepte Fur Kleine und Mittlere Unternehmen, Vol. 13. Zurich, Springer.

Camarinha-Matos, L. and Afsarmanesh, H., 2004. Collaborative networked organizations: a research agenda for emerging business models. NY, Springer.

Franke, U. J., 2002. Managing virtual web organizations in the 21st century: issues and challenges. PA, Idea Group Inc (IGI).

Gangopadhyay, A., 2002. Managing business with electronic commerce: issues and trends. PA, Idea Group Inc (IGI).

Heneman, R. L. and Greenberger, D. B., 2002. Human resource management in virtual organizations. NC, IAP.

Jensen, C. D., Poslad, S. P. and Dimitrakos, T., 2004. Trust management: second international conference: proceedings. NY, Springer.

Joia, L. A., 2003. IT-based management: challenges and solutions. PA, Idea Group Inc (IGI).

Kisielnicki, J., 2002. Modern organizations in virtual communities. PA, Group Inc (IGI).

Murray, P., Poole, D. and Jones, G., 2005. Contemporary issues in management and organizational behaviour. Melbourne, Thomson Learning Nelson.

Warner, M. and Witzel, M., 2004. Managing in virtual organizations. London, Cengage Learning, EMEA.

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