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Virtual organizations.


Today organizations face an unprecedented number of both challenges and opportunities. New structures and processes (for instance inter-firm collaboration, flexible working, team working, knowledge management and organizational learning), characterize new organizations and ways of working (1). According to Jackson, there are three reasons for this (2):

1. the individuals' demand for more flexibility, combined with improvements in technological capabilities and cost effectiveness, will make new working arrangements viable and attractive;

2. the need for improved innovation and organizational learning demands new knowledge management systems to help an organization acquire, accumulate, exchange and exploit organizational knowledge;

3. the access to, and transfer of knowledge and expertise will be increasingly outside the borders (both organizational and spatial), internal networks, dispersed project groups and inter-firm collaborations will become more and more common.

Knowledge organization has its own special features:

1. The value of an organization is equal to, or higher than, the combined knowledge of its employees. They are highly educated, and they perform tasks that involve complex problem-solving.

2. The proportion of human capital is dominant and organizations are person intensive, so the knowledge in the organization is linked primarily to its personnel, whose experience and learned skills are even more important than their formal academic knowledge.

3. The personnel of the organization adjust the product to meet the customers' special needs.

Markets' globalization imposed a new perspective on organizations and customers. The changes in the organizational environment have caused a change in organizational perspective. The organization is viewed more as a flexible and organic system rather than a hierarchical or mechanical system.


There are a number of different terms to describe the phenomenon of novel forms of economic organizations such as virtual organization, strategic web, network organization and strategic/co-operative alliances. It is therefore important to clarify what is meant by the term "virtual organization" or "virtual enterprise".

According to Wikipedia, in business, virtual organizations can take one of the following forms:

* A business which operates primarily via electronic means. A virtual business employs electronic means to transact business as opposed to a traditional "brick and mortar business" that relies on face-to-face transactions with physical documents and physical currency or credit.

* Independent organizations that share resources to achieve their goals. A virtual enterprise is a temporary alliance of enterprises or persons that come together to share skills or core competencies and resources in order to better respond to business opportunities, and whose cooperation is supported by computer networks.

In the study "Knowledge Management in virtual organisations: Interorganisational and interproject knowledge transfer", Bosch-Sijtsema shows that more and more organizations work with a certain degree of virtualness, where virtualness is defined as the degree of geographical distribution of the workforce and the use of IT&C for communication and coordination (3). Organizations with a high degree of virtualness are often discussed in literature and are called "virtual organization".

Pursuant to Chris Kimble, "virtual organizations" are a set of organizations that rely on multiparty co-operative relationships between people across structural, temporal and geographic boundaries (4).

Odendahl and Angeli define the virtual enterprise as follows (5): "A virtual enterprise is a co-operation form of legally independent enterprises, institutions and/or individuals that produce a service on the basis of a common business understanding. The co-operating units participate in the horizontal and/or the vertical collaboration with their core competencies and appear to third parties as a homogenous enterprise. Furthermore the institutionalization of central management functions for design, management and development of the Virtual Enterprise are extensively abandoned and the necessary demand for co-ordination and harmonization is covered by appropriate information and communication systems. The Virtual Enterprise is connected to a mission and ends with that mission."

According to Hoefling, the phrase "virtual organization" stands for a task, project or permanent organization which is decentralized and independent of any spatial connection (6). The simplest form of a virtual organization is a virtual team, which is a local team utilizing technology in order to ensure better connectivity, shared knowledge and lower costs.

On the TekPlus Company website ( another definition can be found: A virtual organization consists of a group of companies, acting as one company to fulfill a need in the marketplace. These companies collaborate, share skills, information, products, services, etc. in order to meet the goal of customer fulfillment. Indeed, a company can itself be a virtual enterprise consisting of interdependent departments. These companies operate independently of each other but work together to meet a common goal of meeting a need in the market. Indeed, any company can partake in more than one virtual organization so long as this does not result in any direct conflict of interest.

Nadja Damij states that virtual organizations emerge as a result of a desire to improve market position, gain competitive advantages and of course, the will to bring in more profit (7). Companies deploy and participate in virtual partnerships in order to effectively detect market demand, develop new products and services, identify new opportunities to improve the quality of their work and lastly, find possibilities to lower organizations' costs.

Franke defined a virtual organization as an organizational construct that delivers its highest customer value through constant allocation and dynamically assigning or reassigning parts of its value creation process to satisfiers that have been selected based on identified requirements and other factors relevant to competitive advantage (8).


The characteristics of a virtual organisation are: dispersion, empowerment, restlessness and interdependence (9).

* Dispersion means that there are at least multiple locations and, moreover, multiple local cultures and languages.

* Empowerment refers to the division of responsibility across the network.

* Restlessness denotes the acceptance of change in organizational practices and customs.

* Interdependence refers to cooperation and synergy between autonomous organizations or between departments and authorized individuals within a single organization. Forms of interdependence vary; it could be forged in the shape of a strategic alliance, a partnership, value chain or outsourcing.

In his study "Virtual Organization as Process: Integrating Cognitive and Social Structure Across Time and Space", Scott Preston describe the four key characteristics of virtual organization as process (10):

1. Virtual organization entails the development of relationships with a broad range of potential partners, each having a particular competency that complements the others.

2. Virtual organizing capitalizes on the mobility and responsiveness of telecommunications to overcome problems of distance.

3. Timing is a key aspect of relationships, with actors using responsiveness and availability to decide between alternatives.

4. There must be trust between actors separated in space for virtual organization to be effective.

There are a number of phases in the life-cycle of a virtual enterprise (11):

1. Identification of the need to co-operate, the definition of the goal to be reached by co-operation and the definition of the co-operation project is the initial phase.

2. Partner Search: This process is a selection of the partner companies out of a pool of potential offerors for the different core competencies needed in the virtual enterprise.

3. Contracting: Once the most suitable partners have been selected, the modalities of the co-operation should be determined through contracting between the partners.

4. Operation: This is the performance of the co-operation.

5. Dissolution of the eirtual enterprise: This occurs once the task and goals of the virtual enterprise have been achieved.

The creation of a virtual organization creates one face that a customer can interact with and relate to. Members of the virtual organization are hidden from the customer and do not see interactions between members, customers have one point of contact. According to TekPlus, the structure of a virtual organization consists of two major formats: the core organization model and the distributed organization model (12).


A core organization/enterprise could take the lead in directing partners/alliance partners to meet the requirements of a customer or group of customers. The core organization may either be the face of the virtual organization or it may create another brand or new image to be the facade of the virtual organization.


The other organizations/enterprises that constitute the virtual organization provide a skill, resource, product, etc. that the core organization lacks and needs in order to meet the requirements of the customers. This structure can be created to meet the needs of a long-term change in customer or market dynamics or to meet shorter-term project needs and customer fulfillment. The satellite organizations/enterprises can come and go depending on the needs of the customers and those of the core organization. The core organization may even acquire organizations/enterprises and the virtual organization could become less virtualized. The core organization directs change and the partners react to this change, pulling together to meet that goal. The core organization does not manage the partners, but manages the relationship between itself and the partners and between partners where required.


The second model is different since there is no one overall organization/enterprise driving the virtual organization; all organizations/enterprises have their part to fulfill.


All members rely on each other to fulfill the needs of the market and customers. The creation of the virtual organization is the only strategy for its members to meet market needs; the sum of their parts is greater than those of the individuals. The customer sees interacts with one virtual organization but at the same time may be aware of its members but will not be able to interact with them directly?. All members have responsibility to meet the needs of the customers. Each member of the distributed core delivers a different skill, service, product, etc. in order to meet the needs of the customers. All members are involved in planning, procedures and management of delivering the demands of the market and those of the customers. Indeed, a board of management, people seconded from the members, could be created to bring better-defined management and processes to this virtual organization - this depends on the size and the complexity of the project or the virtual organization itself.

Organizations/enterprises can enter and leave the virtual organization, depending on individual goals and those of the market. This is less likely than in the core organization virtual structure, but remains a possibility and is limited by the length of a project. The shorter the length of project is, the less viability of changing a member.


(1.) (Jackson 1999), p. 1-16

(2.) (Jackson 1999), p 1-16

(3.) (Bosch-Sijtsema 2002)

(4.) (Kimble 2010)

(5.) (Odendahl, Angeli 2000)

(6.) (Hoefling 2001)

(7.) (Damij 2004)

(8.) (Franke 2001)

(9.) (Okkonen 2007)

(10.) (Preston 2008)

(11.) (Odendahl, Angeli 2000)

(12.) (TekPlus)

(13.) (TekPlus)

(14.) (TekPlus)


Bosch-Sijtsema, P.M. (2002). "Knowledge Management in virtual organisations: Interorganisational and interproject knowledge transfer," Organizational Knowledge, Learning and Capabilities conference

Damij, N. (2004). "ICT INTENSIVE VIRTUAL ORGANISATION," IADIS International Conference e-Society pp 197-202,

Franke, U. (2001). "The Concept of Virtual Web Organisations and its Implications on Changing Market Conditions," Electronic Journal of Organisational Virtualness 3(4): 43-64.

Ghilic-Micu, B., Stoica, M. (2004). Organizatia virtuala. Bucuresti: Ed. Economica.

Hindle, T. (2009). "The virtual organisation," The Economist 3/11/2009,

Hoefling, T. (2001). Working virtually. Managing People for Successful Virtual Teams and Organizations. Sterling Virginia: Stylus Publishing,

Jackson, P. J. (1999). Virtual working. Social and organisational dynamics. London: Routledge.

Kimble, C. (2010). "Virtual Organizations: A new organizational form or just 'Business as usual'?," 08/2011,

Mowshowitz, A. (2002). Virtual Organisation: toward a theory of societal transformation stimulated by information technology. Westport: Quorum Books.

Odendahl, C., Angeli, R. (2000). "Final Virtual Organisation Architecture, MARVIN, Maritime Virtual Enterprise Network," ESPRIT project 29049.

Odendahl, C., Angeli, R., Haenisch, J., Jaramillo, D., Makris, S., Weitzenboeck, E. (2000). "Web-based Virtual Enterprise Network for the Maritime Industry," Proceedings of eBusiness and eWork 2000 Madrid, October 2000, pp. 559-565.

Okkonen, J. (2007). "Performance of Virtual Organisations", BRC From Idea to Knowledge, pp267-280,

Preston, S. (2008). "Virtual Organization as Process: Integrating Cognitive and Social Structure Across Time and Space," Journal of Computer-Mediated Communication

Sink, S. (1983). "Much Ado About Productivity: Where Do We Go From Here," Industrial Engineering October 1983, pp 36-48.

Walker, H. (2006). "The virtual organisation: a new organisational form?,"

International Journal of Networking and Virtual Organisations 3(1): 25-41. Weitzenboeck, E. (2001). "Building a Legal Framework for a Virtual Organisation in the Maritime Domain: The MARVIN Experience," 7th International Conference on Concurrent Enterprising 27-29 June 2001, Bremen, pp 337-345.

"Virtual organization," 09/2011,

"The Emergence of Virtual Organisations - A white Paper," 09/2011,


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Author:Pacuraru, Raluca-Olguta
Publication:Economics, Management, and Financial Markets
Article Type:Report
Geographic Code:1USA
Date:Dec 1, 2012
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