1. INTRODUCTION
2. WHAT IS THE VIRTUAL ORGANISATION
3. CHARACTERISTICS OF THE VIRTUAL ORGANISATION
4. REASONS FOR THE EMERGENCE OF THE VIRTUAL ORGANISATION
5. OBSTACLES TO THE DEVELOPMENT OF VIRTUAL ORGANISATIONS
6. THE FACILITATING ROLE OF INFORMATION TECHNOLOGY
7. THE INTERNET
7.1 INTERNET TECHNOLOGIES
7.1.1 Communications and collaboration
7.1.2 Electronic commerce
7.1.3 Interactive marketing
7.1.4 Strategic alliances
8. THE BUSINESS VALUE OF THE INTERNET
9. CASE STUDY – ClubComputer Inc.
10. CONCLUSIONS
11. REFERENCES

1. INTRODUCTION

The Virtual Organisation (VO) has become a hotly debated issue in literature, while more and more organisations tend to follow this organisational structure in practice, by using the enabling power of the Information and Communication Technology (ICTs) and especially the Internet. Although the VO is not (yet) the dominant organisation form, it is expected to have a great effect on the future shape of business, representing a potential threat to the traditional organisation. (Whitlam and Hale, 1998).

In order to get some basic understanding of what is that makes the VO such a popular organisation form, this study will first try to define the Virtual Organisation and identify its main characteristics. Then, the reasons of the emergence of the VO and the barriers to its future expansion will be examined. The facilitating role of Information Technology and the Internet will be discussed in the following sections and a case study of ClubComputer Inc will be used to illustrate in practice some theoretical aspects of the Virtual Organisation.

2. WHAT IS THE VIRTUAL ORGANISATION?

In the literature there is some disagreement about what exactly a Virtual Organization is. Different authors mention different definitions, reflecting the novelty of the term (Dembski, 1998). It also appears that a variety of terms are used indifferently in order to refer to VO, such as virtual enterprise, virtual company and virtual corporation.

Davidov and Malone (1992), who are credited for initiating the discussion on virtual organizations (Travica, 1997), use the term virtual corporation to refer to a very broad concept encompassing any new organizational form, inter-organizational forms, etc.

Other definitions that can be found in the existing literature iclude:

“VO is a form of cooperation of legally independent companies of people contributing their core competencies to a vertical or horizontal integration and appearing as one organization to the customer.” (Rittenbruch, Kahler, Cremers, 1998)

Laudon and Laudon (1998) claim that virtual organizations are “Organizations using networks linking people, assets and ideas to create and distribute products and services without being limited by traditional organizational boundaries or physical location”.

Travicca (1997) gives a more comprehensive definition of the VO:

“Virtual organization refers to a temporary or permanent collection of geographically dispersed individuals, groups, organizational units –which do or do not belong to the same organization –or entire organizations that are dependent on electronic linking in order to complete the production process.”

The International Association of Virtual Organizations (http:// www.mnsinc.com/iavo/about.htm#anchor546359) defines the Virtual Organization as “any business, club, society, institution, governing body, or other similar entity whose existence is dependent –either partially or entirely –on the emerging telecommunications technologies associated with the Internet, cable systems, phone systems, and others”

It appears that the definition of Virtual Organisation is still evolving. However it can be concluded from the above that Virtual Organisation is an organisation that focuses on its core competencies and uses information technology to link customers, suppliers, employees and resources in order to achieve its objective.

3. CHARACTERISTICS OF THE VIRTUAL ORGANISATION

The confusion regarding how VO is actually defined has been paralleled by failure to reach a general consensus on the features of such an organisation form. Bultje and van Wijk (1998) after carrying out research on the subject, came up with 12 primary and secondary characteristics of the virtual organisation, among of which are:

• Dispersion. Virtual Organisations break the barriers of space and time, which may even lead the virtual organisation to become a 24-hour organisation, thus improve its responding to customers. (Daniels, 1998).
• Based on core competencies. Core competencies form the fundamental nucleus of Virtual Organisations. (Christie and Levary, 1998). The combination of all core competencies leads to synergy and enables a flexible way of meeting the customer demands.
• Based on Information Technology. IT is a key factor in the spread of VOs. Globally dispersed firms, individuals, material and information resources come together in a VO by becoming connected through communication and information flows. (Travica, 1998). Important for a VO are the advances in transportation, communication and computing and particularly the Internet.
• Customer based and mass customisation. A Virtual Organisation is focused on customers, who ask for individual products. VO should arise from a response to customer need and it should disintegrate with the fulfillment of that need. (Christie and Levary, 1998)
• One identity. The VO must have its own identity and although it can consist by many partners it should be recognized as one by customers.
• Interdependence. Interdependence among partners differentiates the virtual enterprise from traditional ones. Participants share accountability and responsibility for the success of the enterprise as a whole, as well as for their particular portion of its operations and they are involved more or less actively in all enterprise operations. (Goldman, 1994).
• Based on trust. There is need for trust at all levels i.e. between management and employees, management and managers, employers and employees, and customers and organisations. (Christie and Levary, 1998).

Other important features of the VO derived from the existing literature include:

• No hierarchy. There is no hierarchy within a VO, (Byrne, 1993). Each participant can offer leadership based on a specific specialism, during the process of product or service development. It is a temporary leadership lacking hierarchy as it is based on participant equality and focused on reaching the shared objective. (Jagers, Jansen and Steenbakkers, 1998).
• Vague boundaries. The VO redefines the traditional boundaries of organisations. More cooperation among competitors, customers, suppliers, designers etc. makes it difficult to determine where one organisation begins and another end. In some cases, customers and suppliers begin to spend more time in the company than some of the employees. (Davidow and Malone, 1992).

The features mentioned above are not the only that were found in the literature, however they are considered to be among the most important. In the following section the reasons, thus the benefits, of the virtual organisation structure are examined.

Goldman, Nagel and Preiss (1995) identify six strategic reasons that may lead a company to adopt a virtual organisation approach to a project instead of a more traditional collaborative approach, such as partnership or joint venture:

• Sharing infrastructure, R & D, risk, and costs, that a single company otherwise not be able to afford. This is particularly true for SMEs
• Linking complementary core completeness to serve customers that the separate companies could not serve on their own.
• Reducing concept to cash time through sharing, since companies in a virtual organisation can operate in parallel, performing many tasks concurrently.
• Increasing facilities and apparent size, which enables a small company to appear more attractive to customers and large companies to compete in the global environment.
• Gaining access to markets and sharing market or customer loyalty
• Migrating from selling products to selling solutions, which allows a clear and unambiguous perception of value, since the same product may have different value to different customers at the same time.

Bloch and Pigneur (1995) have also identified the pressure of market forces that require more agile systems, owing to the shortening product life cycle. Manchester (1997) also stresses that globalisation and competition are forcing companies to stop doing what they are not good at and focus on their core competencies.

Some of the well-known examples of virtual organisations include Amazon.com -the electronic bookstore, NIKE -the sport company, Dell computers and many others. On the other hand, barriers such as the ones that are examined in the following section could constraint the emergence of VOs.

5. OBSTACLES TO THE DEVELOPMENT OF VIRTUAL ORGANISATIONS

Norton and Smith (1996) have identified three main barriers to the development of the Virtual Organisation:

• Inadequacies in the existing hardware and software infrastructure. However, this does not seem to represent a serious constraint in the development of virtual organisations.
• Organisational and management attitudes towards people and technology. This is more likely to affect negatively the move toward virtual organisation, since most organisations retain a command and control structure, which is resulting in resistance to change due to fear of the uncertain.
• The reluctance of individuals to adopt a flexible approach to employment. This again raises the issue of resistance to change. According to Malone and Davidow (1992) employees will need to be continuously trained and come to terms with the fact that they may go to work each day not knowing what their job will be.

In general, it appears that the main barriers are no longer seen as technological, but rather as cultural (Manchester, 1997). The importance and the enabling role of Information Technology are discussed in the following section.

The use of IT is a constitutive feature of the Virtual Organisation. The VO needs to base its cooperation or rather sheer existence on the use and application of Information Technology. (Dembski, 1998). According to this view, it’s the heavy use of Information Technology that differentiates the VO from other forms of network organisations. Companies making up a virtual organisation share costs, skills and market access through IT, although this requires systems modification, at a minimum. (Remingon, Pedigo, Fox, 1998). Thanks to information technology each member of a VO can at least theoretically access the resources of the entire network. As Goldman (1994) puts it: “A virtual company achieves integration by bytes instead of bricks”. This reliance on cutting-edge IT may also explain why the virtual organisation is relatively a recent development, undergoing dramatic changes and expansion at the present. The success of the virtual organisation is contingent upon a reliable, high capacity information structure. In fact, only the recent developments in network computing and the Internet have made a truly global and efficient organisation a viable idea. (Dembski, 1998).

7. THE INTERNET

The Internet is moving from an electronic information exchange to a broad platform for complex and strategic business applications (Brien, 1999). Thus applications such as collaboration among business partners, researching competitors, providing customer and vendor support, and buying and selling products and services have become major business uses of the Internet. These applications enabled by the Internet have facilitated the emergence and spread of the Virtual Organisation. In the following section, some major Internet technologies that form the basis, upon which virtual organisations operate, are discussed.

7.1 INTERNET TECHNOLOGIES

The Internet provides a whole new range of means for doing business, coordinating activities and revolutionary ways of working.

7.1.1 Communications and collaboration

Most electronic collaboration over the last 10 years has focused on asynchronous collaboration, like e-mail. But with the realisation that the Internet is an interactive medium, synchronous (or real time) collaboration has become a reality. (Coleman and Schiller).

Now, interactive web sites, bulletin board systems, discussion groups, audio- and videoconferencing, and other Internet features provide the means for real time global communications and collaboration among employees, customers, suppliers and other business partners. (Brien, 1999). These advancements enable members of different organisations and people at different locations to work together as members of virtual teams on business projects. Such teams offer many advantages. Virtual teams can reduce costs, with companies being able to hire candidates without meeting relocation costs, and also offer a very good way for a company to enlist people it could not normally include in team activities. (Hagen, 1999).

7.1.2 Electronic commerce

Electronic commerce has been in existence and in use by business for many years. However it is the emergence of Internet technology that offers the potential to transform the nature, scope and use of e-commerce (Fisher, 1997). Jansen, Steenbakers and Jagers (1999) found that although there is a relation between the virtual organization on the one hand and electronic commerce on the other, this relation is not completely unequivocal, due to the divergent interpretations given to the concepts of VO and the e-commerce. Electronic commerce applications include interactive order processing at company web sites, electronic data interchange (EDI), and secure electronic funds transfer (EFT) payment systems (Brien, 1999). In particular, Internet based EDI can be less costly than traditionally used leased lines and Value Added Services regarding network access and data transmission. (Gebauer and Segev, 1998).

7.1.3 Interactive marketing

The World Wide Web is a cost-effective vehicle to make interactive, one-to-one marketing a reality. It allows companies to build close relationships with their customers and tailor specific behavior to individual customer needs and wants. (Ray, 1997; Jobber, 1998).

A company’s web site can now offer more than hyper-linked multimedia product catalogs and promotional material. The Internet and the web enable companies to communicate with customers through online discussion groups, bulletin boards, electronic questionnaires, mailing lists, newsletters, and e-mail. Thus, customers can be interactively involved in the development, marketing, sales, and support of products and services, along with a company’s market researchers, products designers, marketing and sales staff and support specialists. (Brien, 1999).

7.1.4 Strategic alliances

The Internet also enables companies to form strategic alliances with customers, suppliers, consultants, subcontractors, and even competitors. (Brien, 1999). Thus, the Internet and extranets are essential tools in the formation of virtual organisations. The Internet enables global alliances of business partners to be quickly formed in order to take advantage of market opportunities by interconnecting the unique strengths of each partner into an integrated network of business resources and capabilities.

8. THE BUSINESS VALUE OF THE INTERNET

Virtual Organisations, like any other organisation that already have or think of having their business applications on the Internet, seek to benefit from the major advantages the Internet offers.

The Internet, intranets and extranets offer substantial cost savings, since they are typically less expensive to develop, operate and maintain that traditional systems. (Brien, 1999).

The UK Department of Trade and Industry (DTI) suggests the business benefits of using the Internet and WWW include (DTI, 1996 in Wright and Burns, 1998):

• Fast and cheap communication - save post and courier costs in sending electronic documents and images.
• Global marketing and sales using catalogues and promotional material 24 hours per day.
• Business information resources including specific newsgroups.
• Increased exporting (using e-mail to smooth time-differences).
• Distribution of end product (e.g. electronic form of published materials).

The Internet and the Internet based networks have not only allowed traditional organisations to become “virtual”, such as Egghead Software, but also the emergence of organisations that are born virtual, e.g. Cdnow (Bell, 1998). The Internet can provide substantial benefits to large global companies with thousands of employees to smaller companies with only a dozen (or even less) employees. (Byrne, 1993). Or to put it in other words, the virtual organisation structure based on ICTs and basically the Internet, enables organisations to operate with minimum requirements in staff and other resources. The following case study of ClubComputer Inc. illustrates this case.

ClubComputer inc. is a membership-based online retailer of computer hardware and software products directed at corporate buyers.

Members are offered free shipping and discounts on over 100,000 products from over 300 manufacturers such as Compaq, 3Com and Microsoft as well as shopping discounts at 25 leading web sites and catalogs through another Member benefit, UGPV.

ClubComputer has some interesting features of the Virtual Organisation, that also reveal how powerful a tool the Internet is for organisations. ClubComputer has no warehouses of its own, which apparently means drastic cuttings on inventory and storage cost. Instead of expensive to set up, maintain and manage warehouses, ClubComputer has formed partnerships with Merisel Inc. and Ingram Micro Inc., two of the world’s largest wholesale distributors of computer products.

The company has also set up accounts that allow ClubComputer to access the distributors’ ordering systems over the web and place orders that are then directly shipped from the distributors, complete with a “ClubComputer” logo slapped on every box.

However, what is even more impressive about ClubComputer is that everything is taken care of its four-person staff, which consists of the chief financial officer, the Chief Technology Officer, the CEO and his wife. Thus, while ClubComputer operates effectively, manages at the same time to keep labour and administrative costs to a minimum.

Since the company chose that business model, had to outsource many of its business components, which is another key feature of Virtual Organisations. ClubComputer has recently launched a second web site after its partnership with Just4Biz.com, developer of the I-marketing business model. As a result of this partnership ClubComputer will be able to offer its members access to over 25,000 office products, furniture and janitorial supplies at heavily discount prices. Just4Biz.com. provides the e-storefront and customer support needed to maintain the site, as well as the enhanced product offering at no cost to the retailer.

Thus, ClubComputer expands while it keeps on doing what it does best and taking advantage of its partners core competencies and the possibilities offered by the Internet to exploit market opportunities. (Vaas, 1999; PR Newswire, 1999).

10. CONCLUSIONS

The concept of the Virtual Organisation still remains vague, despite efforts in the literature to reach some kind of consensus, partly because of the novelty of the concept. Thus, there is obvious need for further discussion and research.

One of the main features of the Virtual Organisation was found to be the reliance on Information Technology and particularly the Internet. IT and Internet technology enable the realisation of the virtual organisation structure, by providing the means for communications and collaboration, e-commerce, interactive marketing and strategic alliances.

There are already many organisations that appear to have some of the characteristics of the Virtual Organisation, although some are only claiming to.

Despite difficulties that are mostly related to cultural issues, the Virtual Organisation holds a strong potential to become the dominating organisational form of the future due to the benefits it brings to participants.

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