Virtual Organizations Structures

Cite this


The business environment in which organizations operate today is rapidly changing. This requires new ways of doing business in line with the ever changing information technologies and the internet capability. One of the major concepts of business operation is the idea of virtual organizations. Many researchers have come up with various definitions of virtual organizations, which are mostly related to functional issues, such as the need for information technology in such organizations, legal aspects, socio-economic aspects, and many others.

According to Laudon (2006), a virtual organization consists of members distributed in various locations and often connected by computer networks while being seen as a single organization operating in a physical location. From the collaborative perspective, this form of business involves the cooperation among organizations, institutions or people offering products and services with a common business goal. This cooperation presents the units as one business entity, often operating temporarily (Stair & Reynolds, 2006). Jacobson (2004) asserts that Information and Telecommunication Technology (ICT) facilitates the virtual corporation, thus contributing to core competencies. Consequently, virtual teams constitute the virtual organizations. A virtual team is a small number of individuals with additional skills with a common goal of performance and accountability to the sustainability of the business (Simic 2007).

The major driving forces for the implementation of virtual organizations include: a need for process innovation; sharing of major competencies; globalization; mobile networks; cost reduction; and changes in worker values and the way of doing work. In this light, this report focuses on the key characteristics of virtual organizations and the various opportunities and challenges that management face from managing the virtual teams. The key characteristics of virtual companies include the lack of physical structure, dependence on communication technologies, based on core competencies, lack of hierarchy, interdependent relationships, flexibility and responsiveness , and mobile working. However, the major challenges of such organizations include security, potential abuse, loss of potential contact, defining the scope of responsibility, and the need for complementary managerial skills.

Characteristics of Virtual Organizations

Virtual organizations need an informed perspective of operating a business by those who take part in it. Thus, this section looks at the major characteristics of such organizations.

Lack of Physical Structure

As compared to the traditional business organizations, virtual organizations have minimal physical presence. Physical assets like office locations, warehouses, and meeting halls are few, and the available tangible assets are normally distributed in various locations. This implies that the organization set up relies on small offices that are decentralized. According to Warner and Witzel (2004), virtual companies are not generally characterized by physical space, but rather by distributed networks. Besides, it is believed that future companies might be structured wholesomely inline with virtual reality concept; computer networks replace the physical structures and companies will operate in cyberspace. This shows that there is existence of economies of scale in the virtual structures.

Dependence on Communication Technologies

Virtual organization is a model that embraces technology to actively connect people, assets and innovations. However, technology is not entirely seen as an important requirement for virtual organizations. Contemporary ICT play an important role, and thus being the major driving force of virtual organizations (Wendy, 2004). Information networks enable companies to link up and share relevant business information towards accomplishing business goals. Traditional firms use physical structures, like warehouses; virtual organizations rely on networks for collaborative work. Virtual office may use videoconferencing and collaborative programs to improve the communication among team members.

Based on Core Competencies

Every business member in the virtual organization contributes with some sort of core competence, like design, marketing, or product development (Jacobsen, 2004). This potential of many companies to create integrations among important functions and business processes leads to higher performance. The inventor selects that most favorable business process that is in line with the additional skills offered by the other partners in the virtual organization. This synergy concept enables the virtual organization to actively meet the demands of its customers.

No Hierarchy

The equality concept of the members in virtual company creates an organization that lacks hierarchy. This is sometimes known as egalitarian structure. The benefits of such structure include improving the effectiveness and the responsiveness of the company, and reducing the overhead. The phrase “adhocracies” describes an organization that has its management components networked. The extensive lateral communication makes this type of organization to be more coordinative (Laudon 2006).

Interdependent Relationships

Partners in the virtual company always create a system of inter-reliant linkages. These connections require companies to be reliant on one another, thus there is need for trust among the virtual teams. Such interconnections lead to organizations that are open and therefore suppliers, customers, and competitors can actively strike some sort of productive business deals. According to Pang (2001), the collection of firms and business units work collectively within a free framework to realize a mutual goal.

Flexible and Responsive

Virtual organizations can be actively created from different elements, in a view to achieve a particular business objective and then separated again. Additionally, this business model can be rapidly restructured and resources redistributed to cater for the changing tactical needs. Since the costs of performing such changes are low, the management is able to make radical changes with fewer risks. However, the potential of virtual organizations requires the effort of managers and virtual members in ensuring that desirable business changes are made. For instance, the human resource department is required to select workers who can perform their duties with a lot of flexibility.

Mobile Work

The reliance on ICT as opposed to buildings and physical resources implies that the physical framework of business processes is now less significant (Alter, 2006). Thus, departments and groups can now work from different geographical locations because the information flow is cheap and easy. The information required by the organizations is facilitated by the use of ICT which provide convenient, versatile, affordable and powerful tools which assist virtual members in information capturing, storage, retrieval, and manipulation. Availability of advanced tools, such as the e-commerce systems enable organisations to be able to deal with the information in different ways thus allowing them to survive and flourish in new economy (Feng Li, 2006).

Virtual Organizations Trends

There are several factors that encourage the implementation of virtual organizations in various business sectors. For instance, in the construction industry, teams of autonomous operators created organizations to construct buildings. This also is a concept in the movie industry when creating movies. According to Pang (2001), the trends that initiate virtual organizations have been on the rise. As cited by Jacobsen (2004), Bleeker outlined the four major trends. These are: pace, cost, personalization, and globalization.

The pace at which businesses are changing requires immediate response due to competitiveness and value chain requirements. Hierarchical firms cannot actively tackle new demands. The second trend is decreasing cost in the way businesses are conducted, such as market entry in technology-driven sectors. This implies that even small firms can have a great impact on business innovations. Third, personalization is enhanced by the computerized manufacturing, which leads to a more economical method of production. Lastly, the concept of globalization has enabled companies to compete in the global market. All these trends are enabled by Information Technology, which effectively meets the information requirements of organizations.

Furthermore, looking at the trends towards virtualization, many companies have been able to implement the concept of virtual organizations. For instance, computer companies have successfully embraced the concept of virtual organizations. The Apple Computer has been able to link its applications with the manufacturing skills of Sony Company. The Sun Microsystems is made up of independent firms with a collective objective of meeting the needs of customers (Stair & Reynolds, 2006).

Opportunities and Challenges

Managers of virtual teams can be able to realize various opportunities and benefits by embracing virtual organizations. According to the above mentioned characteristics, such organizations improve the relationship among partners who have specific competencies that contribute to the overall goal. Flexibility and responsiveness allows organizations to actively consolidate the assets and skills necessary to embrace the emerging markets. Opportunities such as globalization, internet, and mobile working enable the managers of virtual organizations to efficiently organize and control the workforce in a view of ensuring great business performance. Additionally, the concept of ICT enable virtual managers to capitalize their resources on the mobility and receptiveness of IT infrastructure. This enables virtual members from around the world to be included in the virtual web (Warner & Witzel, 2004).

However, managers in virtual companies are faced with various challenges: First, virtual organizations are established quickly and sometimes complex legal problems might arise. For example, there might be issues about the copyrights ownership of the final product. Second, strategic planning is difficult in virtual teams as there is need to combine core competencies in order to create a common vision. Such interdependencies compromise the boundaries of individual companies. This demands for efficient management of the boundaries. Third, there is potential abuse of work because the lack of physical interaction may lead to workers being involved in unassigned activities. Fourth, security in virtual organizations is a great challenge to managers. Since virtual firms depend on ICT, organizational resources such as computers, data, and information can be susceptible to threats from hackers and intrudes. Fifth, ensuring self-motivation can be quite difficult in cases where there is limited or no managerial physical supervision.


Virtual organizations connect clients with physical products from various geographically distributed firms. More so, virtual firms are able to perform other services like administration, marketing, and design. Many organizations have been able to embrace this business model which requires the consent of partners and proper management skills in the ever changing business environment. Besides, the major driving forces towards virtualizations are pace, cost, personalization, and globalization. Thus, this paper has presented the main characteristics of virtual organizations and their effects on management. Virtual organizations are characterized by lack of physical structures, dependence on IT, lack of organizational hierarchy, interdependent relationships, core competencies, mobile working, and flexibility and responsiveness. Based on these characteristics, relationships among partners can be improved and resources can be directed in the right business channel. However, managers are faced with the following challenges: legalizing business activities, strategic planning, abuse of work, security, and employee motivation. Therefore, proper management is required in virtual organizations. Managers should make certain that technology is reliable and provide training to the team members.


  1. Alter, S 2006, The Work System Method: Connecting People, Processes and IT for Business Results, 1st Ed, Work System Press, Larkspur, CA.
  2. Feng Li 2006, What is e-business?: how the internet transforms organisations, Wiley-Blackwell, New Jersey.
  3. Jacobsen, K 2004, A Study of Virtual Organizations, NTNU.
  4. Laudon, K, & Laudon, P 2006, Management information Systems: Managing the Digital Firm, 9th Ed, Pearson Prentice Hall Inc Upper Saddle River, NJ.
  5. Pang Les, 2001, Understanding Virtual Organizations, Information Systems Control Journal, Vol. 6.
  6. Simic, I 2007, The Virtual Organization.
  7. Stair, RM & Reynolds, GW, 2006, Fundamentals of information systems, 3rd Ed, Thompson Course Technology, Boston.
  8. Wendy, C 2004, Value creation from e-business models, Butterworth-Heinemann, Oxford.
  9. Warner, M & Witzel, M 2004, Managing in Virtual Organizations, Thomson Learning, London.

Cite this paper

Select style


BusinessEssay. (2022, November 11). Virtual Organizations Structures. Retrieved from


BusinessEssay. (2022, November 11). Virtual Organizations Structures.

Work Cited

"Virtual Organizations Structures." BusinessEssay, 11 Nov. 2022,


BusinessEssay. (2022) 'Virtual Organizations Structures'. 11 November.


BusinessEssay. 2022. "Virtual Organizations Structures." November 11, 2022.

1. BusinessEssay. "Virtual Organizations Structures." November 11, 2022.


BusinessEssay. "Virtual Organizations Structures." November 11, 2022.