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Virtual Organization and Electronic Commerce
Bob Travica
Asper School of Business
University of Manitoba
Email: btravica@ms.umanitoba.ca
Abstract
The purpose of this article is to contribute to understanding the virtual organization and
its relationship with electronic commerce. The relevant literature on virtual organization
forms through which business-to-business e-commerce is organized is reviewed. A model
of the virtual organization is presented and its use in a case study demonstrated.
Implications for further research are discussed.
Key Words: Virtual organization, electronic commerce, virtual corporation, virtual
alliance, virtual interorganizational team
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1. Introduction
Since the topic of the virtual organization (VO) was introduced, a voluminous literature
has been developed. This literature discusses different organizational forms with the
prefix "virtual," including, the virtual corporation (Davidow & Malone, 1992), virtual
alliance (Strader et al., 1998), virtual teams (Lipnack & Stamps, 1997), virtual office
(Davenport & Pearlson, 1998), and virtual task (Mowshowitz, 1994, 1999, 2002). These
forms have been located in different industries and sectors – from manufacturing to
education, and from profit to non-profit organizations and government. The VO literature
addresses a number of issues, such as, the necessary conditions for VO, process aspects
of "virtualness," and the role of IT. And the preoccupation with VO is not unique to
academia; rather, it has parallels in the attention that consultants and management in the
real world organizations pay to ideas and methods from rather a liberally conceived VO
framework.
In spite of this extensive discourse, a number of issues related to VO still await
clarification. One problem is that specific forms of VO are studied independently of other
forms. This approach conceals possible common characteristics between VO forms and
complicates defining and classifying VO (cf. Igbaria & Tan, 1998; Malhotra, 2000).
Some of the forms listed above are inter-organizational (e.g., the virtual corporation and
alliance) while others are intra-organizational (e.g., virtual office and intra-organizational
team), thus invoking two different levels of analysis. It has yet to be seen if any sort of
integration between the two levels is possible and, therefore, if different virtual forms can
be explained by a common model. Another issue in the literature concerns philosophical
differences in conceptualizing VO. While some researchers maintain that VO is a
particular, innovative organizational form or design (e.g., structure, culture, and strategy;
see Davidow & Malone, 1992; Goldman et al., 1995), others posit that “virtualness” or
“virtuality” signifies a potential characteristic or capability that can reside in any
organizations, including traditional ones (e.g., Mowshowitz, 1997, 1999; Venkatraman &
Henderson, 1998). The classical controversy between structure and action is recognizable
in the background (cf. Clegg & Hardy, 1996). In addition, many researchers acknowledge
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existence of an umbilical cord between the virtual and network organization (Child &
Faulkner, 1998; Ching et al., 1996; DeSanctis & Monge, 1999; Goldman et al., 1995).
However, differentiating between the two designs has rather been challenging.
A particularly important issue concerns the relationship between VO and e-commerce.
The literatures on VO and e-commerce are for the most part developing with no reference
to each other. In contrast, this article builds on the assumption that e-commerce and VO
are related. On the one hand, e-commerce is conducted through virtualized processes that
is another way of saying that e-commerce is organized through VO forms. On the other
hand, e-commerce generates the momentum and purpose for virtualizing. If this
assumption is true, then VO cannot be understood fully without e-commerce, and vice
versa. Some leads in this direction exist in both literature camps (e.g., Choi et al., 1997;
Fingar et al., 2000; Sieber & Griese, 1999; Venkatraman & Henderson, 1998). Given the
theoretical and practical importance of e-commerce, these assumptions and leads need to
be developed into clear consequences for either side in the e-commerce-VO relationship.
This article intends to contribute to understanding the issues cited above, by providing
certain clarifications, possible bridges between different perspectives, and a research
contribution that altogether could help advance understanding the phenomena of VO and
e-commerce. The focus of the article is on inter-organizational forms of VO and on
business-to-business (B2B) e-commerce. With respect to contributing to research, the
article provides a research model of VO, illustrates its use in a case study, and provides
guidelines for further study.
2. Conceptualization of the Virtual Organization
The literature provides a great number of concepts and definitions of VO, referring to
different organizational contexts and using different terms. In a pioneering effort,
Davidow & Malone (1992) defined organization they called “virtual corporation,” which
later has become an inspiration for conceptualizing both virtual organization forms in
general and the virtual corporation in particular. In the conceptualization of these authors,
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the virtual corporation refers to a temporary association of various constituencies
(individuals, groups, and firms) that come together in order to harness swiftly a sudden
market opportunity. In the subsequent discussion, general ideas behind the concept of
virtual will be examined first and the discussion will subsequently turn to VO forms that
are interesting from the perspective of B2B e-commerce.
2.1 Concepts of the Virtual
The general idea of VO above has support in the lexical definitions that equate "virtual"
with "potential or latent," "to being such in effect or essence, although not formally
recognized or admitted" (Webster, 1988). For example, if someone gives a virtual
promise or virtually promise something, it means that the promise has been essentially or
effectively given, although not formally (contractually, legally). Therefore, the terms
"virtual" or "virtually" or "virtuality" mean that something exists in potentiality, effect,
essence, although not formally and tangibly. Analogously, VO is an effect of
organization that VO constituents create, while in fact VO is not the classical
organization we know. For instance, the concept of firm refers to a single entity with
definable physical presence, boundaries, and a considerable longevity. In contrast, VO
can be without some or all of these characteristics. For example, boundaries of a VO are
the boundaries of its constituent members. These boundaries deviate from the concept of
traditional organizational boundaries because they are flexible, permeable or fuzzy – if
they are not such, the members would not be able to collaborate across and thereby create
the effect of a VO. The fuzziness of VO boundaries makes it possible for a prompt
inclusion of new members and for the simultaneous participation of the same constituents
in different VOs. For VO boundaries, the physical aspect becomes secondary to
information and perhaps legal aspects. Therefore, in contrast to the traditional
organization, VO does not have a physical presence and have boundaries that merely on
the surface resemble traditional ones. With regard to longevity, VOs can be anywhere
along the timeline ranging from very short periods of time units to years, as the
discussion further below will demonstrate.
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Technological concepts of the virtual express similar ideas. For example, the term virtual
memory means that a part of computer secondary storage is used as if it were the primary
(main) memory. As a result, an effect of a larger main memory is created. Similarly, the
concept of virtual network refers to many individual LANs linked via the Internet that
function as if they were a single network. This can be called the effect or principle of
synergy, one-to-many, or unification (de pluribus unum) due to the fact that many entities
create one. VO exhibits this unifying effect as well, because it is constituted from
different organizational entities that create an effect of a single firm. The concept of
virtual machine can also help understand VO. With implementation of virtual machine
technology, a single physical computer system is “sliced” into many computing
machines, each of which serves a particular user and provides an appearance of a whole
system to the user. By analogy, a single physical organization can "multiply itself"
virtually, by participating in many VOs at the same time. This can be called the effect or
principle of divergence, one-to-many, or multiplication (de unum pluribus).
Taking another look at the virtual memory concept helps illustrate yet another important
characteristic of VO. With virtual memory, the secondary storage continues to perform its
main function of permanently storing data, except for the part that is allocated for
cooperation with the main memory. In contrast to the rest of the secondary storage, this
part represents a virtualized secondary storage. The same happens with organizations that
create a VO – just some parts of them may participate in the interorganizational virtual
arrangement. These parts, then, imprint the property of virtualness on respective home
organizations. The consequence is that organizational virtualness or VO is a matter of
degree rather than a categorical property. Another consequence concerns the controversy
between form and capability that exists in the VO literature. One does not need to take
either of the opposing stances because the two are combined in the assumption that the
traditional organization can be partially virtual.
Figure 1 depicts the issues discussed above. Figure 1a depicts VO as the synergistic
effect created by organizations A and B; note that the dashed line represents the idea of
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permeable organizational boundaries. Figure 1b depicts the divergence effect, since
organization B "multiplies" itself in the VOs that it creates with organizations A and C.
Figure 1c depicts the property of virtualness, where the overlap between organizations A
and B represents those parts of either organization that are virtualized.
--- Figure 1 about here---
The assumption that VO is a synergistic effect has important and interesting
consequences. On the one hand, VO is “imaginary” because it is created through
organizations’ linkages (Oravec, 1996) and it presents “extensions and modifications” of
the constitutive organizations (Hedberg et al., 1997) that “denies precise physical
denoting” (Warner & Witzel, 1999: 76). Thus, VO is intangible. On the other hand, VO is
real and tangible because it is created by tangible constituent parts, and it can act and
deliver products as tangible organizations do. This dual character of VO may be
confusing if strict formal logic, which excludes the coexistence opposite qualities is
consequently followed (A is A and not non-A). The confusion dissipates within the logic
that posits coexistence of the opposites. One may look into Hegelian philosophy or in
fuzzy logic for examples. In a fuzzy set, a member of a set A belongs both to its native
set A and to some other non-A set. In the same vein, a VO member is both a separate
organization and a member of the supra-organizational arrangement, and VO is both
tangible (physical) and intangible (an effect of interaction).
Organizations can virtualize different parts (processes, operations, groups, individuals,
etc.). Instances of these different “virtual extensions and modifications” (Hedberg et al. ,
1997) refer to sourcing, production processes, purchasing, and selling. For example, in
the purchasing domain, virtualization develops on the back or front end of the buyer and
seller. Production needs, on the other hand, pull toward virtualizing processes in the
organizational production core through methods of collaboration and subcontracting.
These different paths to VO determine specific forms of VO.
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In summary, both social and technical concepts of virtual can help understand VO.
Fundamental assumptions behind the concept of VO are instantiated in principles of
synergy (many-to-one) and divergence (one-to-many), and in the property of virtualness.
The dual character of VO – both tangible and intangible, both a separate organization and
an interorganizational arrangement – can be understood from the perspective of fuzzy
sets or some other logic that posits the coexistence of opposite qualities.
2.2 The Virtual Corporation
In an early conceptualization of VO, Davidow & Malone (1992) describe the virtual
corporation in terms of a temporary association of various constituencies (individuals,
groups, firms, etc.) that come together in order to harness swiftly a sudden market
opportunity. This organization delivers a "virtual product" that is produced
instantaneously and customized in response to customer demands, deploys "a
sophisticated information network and computer-integrated production processes," and it
exhibits "permeable and continuously changing boundaries" involving supplier and
customer, an "amorphous structure" and a need for maintaining trust among parties
lacking physical contact (pp. 4-6). This concept of VO includes processes, tasks and
operations in all key segments of an enterprise – the back end, production core, and front
end. The domain of organizational back- and front-end refers to supply chain
transactions, while the production domain refers to the interorganizational collaboration
focused on delivering a joint product. In ensuing research, these domains have been
associated with distinct paths to VO. Some authors have been focused exclusively on
VOs based on the supply chain, while others have studied interorganizational
collaboration in the production domain. The virtual corporation has been linked to both of
these paths, while the production path has been associated with the virtual alliance and
interorganizational virtual team. All these forms represent organizational models for B2B
e-commerce. Follows the discussion on these forms.
The seminal study by Goldman and colleagues (1995) worked out most extensively the
initial concept for the virtual corporation and also extended the VO framework to other
forms. They investigate the enterprise named AgileWeb, which is a “network” or “web”
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of small machine shops in northeastern Pennsylvania. This network was created in 1994
with funding from ARPA (Advanced Research Project Agency) to support pursing
defense projects and push the boundaries of "agile manufacturing." The network member
organizations would come together in different combinations to form one or more VOs in
order to carry out a new defense contract. Each organization has had its own
competencies, and the usual driver for creating VO was a need of combining the
competences in different ways. The organizations also shared infrastructure, R&D, risk,
and costs. They maintained permeable organizational boundaries toward each other and
customers. According to the Goldman and colleagues (ibid.), different interorganizational
arrangements with virtual character have come out of this network, including new
corporation, contractor-subcontractor relationships, outsourcing, and strategic alliance.
The ability to work intensively with other organizations and to be able to trust them was
enhanced by pre-qualification agreements and contracts. Deliverables and end-effects of
these virtual forms were joint products, reductions in concept-to-cash time (an aspect of
manufacturing agility) and increased access to markets (Goldman et al., 1995: 220-221).
Further research on the virtual corporation has been focused on supply chain solutions,
that is, the processes of sourcing, outsourcing, and subcontracting in the manufacturing
sector. A graphical representation of such virtual corporation is in Figure 2. Outsourcing
refers to the contract-based transferring of some of a company’s recurring internal
activities and decision rights to outside providers (Greaver II, 1999: 3). In contrast,
sourcing implies that the company does not possess certain resources and, thus, has to
procure them through market processes. Subcontracting is used in the similar sense to
refer to obtaining production activities in the marketplace, including the situation when
the company supplements its production capability in this way.
In Venkatraman and Henderson’s (1998) conceptualization of “organizational
virtualness,” one of the aspects is termed “asset configuration” or “virtual sourcing.” This
refers to effective contracting for complimentary capabilities through a network of
suppliers and subcontractors. The authors cite numerous examples of achieving
virtualness (e.g., General Electric, and Wall-Mart). Upton and McAfee (1996) described
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a “virtual factory” that was created by McDonnell Douglas Aerospace (MDA) and its
partners. MDA outsourced network services to its spin-off AeroTech Service Group, and
then used the network for sourcing purposes. Specifically, MDA created an extranet that
was opened to its suppliers of custom parts. The extranet was used for requesting and
collecting bids, data transfer, monitoring the status of production on the supplier side, etc.
On their side, suppliers could access CAD documents on the MDA premises and
download the code for running their programmable machinery. Dell Computer represents
another well-known example of virtualizing supply chain processes. Dell assembles
computers from parts produced by a number of suppliers, tests the final products, and
markets and sells them. The virtualizing on the supply side embodies Dell’s solution for
just in time inventory management (Dell & Fredman, 1999). Consistently with this
evidence, the virtual supply chain has been described as an organizational structure that
supports dynamic allocation of materials suitable for VO (Strader et al., 1998); the central
role in such chains belongs to IT connecting the chain members. Martinez and colleagues
(2001) concur, while making the distinction that the goals of optimizing global supply
chains drive organizations toward virtualizing. Nike is also a well-known example of
extensive sourcing or sub-contracting of manufacturing operations while the company
itself consists of research, marketing, and brand management functions. Indeed, Nike was
never conceived as a factory, and attempts at manufacturing were rather marginal in the
company’s history (Nike, 2004). Sourcing extensively in this domain has enabled this
firm to function as if it were a full-fledged producer.
Mowshowitz (1994, 1997, 1999) is interested in sub-contracting and sourcing issues from
the perspective of capitalizing on modern networked IT. He developed a “switching
principle” in order to define VO or organizational “virtuality” in terms of using
alternative satisfiers for production requirements at hand. The alternative satisfiers are
external partners that perform on tasks. The selection of partners and switching from one
to another is a dynamic, real-time process that in fact creates VO (one or more at a time).
This dynamic and specific task-related origin of VO is what inspires the author to call
this organizational form “virtual task.” The switching is a “meta-management” activity
rather than old-fashioned management because the pool of satisfiers is not fixed and
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analysis of requirements and satisfiers must be continuously performed, contends
Mowshowitz (1999). This concept of VO/virtualizing applies to the manufacturing and
services sector alike. The concept has had a following in the literature (e.g., the Virtual
Organization Net research community, http://www.virtual-organization.net), while
receiving criticism from Walsham (1994) for its “dehumanizing” aspects. Similarly,
Child and Faulkner (1998) point out that the VO that is based merely on switching
presupposes production efficiency to the human factor (e.g., organizational culture, and a
need for meaning and sense of identity in a person’s working life) (pp., 129-131).
Kraut and colleagues (1998) have concentrated on outsourcing as a method of invoking
VO. The authors studied a sample of firms from the apparel manufacturing,
pharmaceuticals, magazine publishing and advertising industry. Taking the transactions
costs perspective (Coase, 1937; Malone, 1987; Williamson, 1975), the authors defined
“organizational virtualization” in terms of the degree to which important production
processes are outsourced. They investigated the effects of electronic networks (EDI,
online databases, LAN, Lotus Notes, Internet) on “virtualization,” which was conceived
in terms of outsourcing. Contrary to expectations, electronic networks were not
associated with greater “virtualization.” Moreover, personal relationships proved to be a
more effective means of coordination across organizational boundaries than electronic
networks. IT has even a more limited role in the conceptual study of Warner and Witzel
(1999). The authors argue that the East India Company from the British colonial period
was an ancestor of VO because it was dispersed in space and had little physical presence.
The authors note that no electronic IT was deployed in this company and so modern IT is
not necessarily needed in a VO, although VOs today can use IT. One should note,
however, that divorcing completely VO from modern IT is rather unique in the literature.
Indeed, it may be hard to defend, as there appears to be a whole world of difference
between electronic links in today's VO and epistolary links in East India Company in
terms of speed, coordination capabilities, agency and transaction costs, use of knowledge
resources, and organizational deliverables. In addition, this conceptualization leaves the
modern phenomenon of e-commerce out of the picture. An important message for
conceptual research on VO is that simple models of VO (spatial dispersion, no physical
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presence) do not have a discriminatory power needed to differentiate between VO and
other organizational forms.
All these instances of virtualizing invoked by moving sourcing, subcontracting, and
outsourcing processes into the electronic context represent examples of B2B
e-commerce. Indeed, these VO forms can be viewed as a fundamental paradigm for
organizing e-commerce. Still, the literature on e-commerce provides only sporadic
references to VO (e.g., Choi et al., 1997; Cronin, 2000; Timmers, 1999). Connections
between the two streams of research are still weak. This fact is even more puzzling
provided that their common anchoring can be identified in the past: organizational
network extensions based on systems for electronic data interchange (EDI) were
forerunners of both virtual forms and of e-commerce. Figure 2 depicts this by showing
the virtualized delivery side of one organization and the virtualized supply side of
another.
The relationship between VO and B2B e-commerce is even more apparent in the case of
electronic marketplaces (e-markets, also called electronic or functional hubs, net market
makers, net markets, butterfly markets, and exchanges). The e-market is an important
element of B2B e-commerce, and it can be defined as an Internet-based intermediary that
uses various market-making mechanisms to mediate transactions among businesses (see
Sawhney & Kaplan, 1999). A graphical depiction of this is in Figure 3. An
e-market can be more or less balanced with regard to buyers and sellers. The former is
sometimes called "Butterfly Market," because links between buyers and the e-market
provider as well as those between suppliers and this provider resemble butterfly wings. A
less balanced e-market results from shifting the locus of control toward the buyer or
supplier side. This is sometimes called "Lopsided Butterfly" and an example is Covisint,
which links several large car manufacturers and many of their suppliers. Another
example of e-market refers to the company VerticalNet.com (also called VertMarkets).
Founded 1995, the company and its subsidiaries have been providing solutions for
electronic supply chains and hosted vertical e-markets in a number of industries (e.g.,
manufacturing of bread machinery and telecommunications equipment, and chemical
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industry). In these e-markets, sellers can present their offerings, buyers can browse
product catalogs, and both sides can complete trading transactions.
From the VO perspective, the e-market introduces new characteristics in virtual
organizing. In contrast to direct electronic linking between the front-end of the seller and
the back-end of the buyer, e-markets have extended the interorganizational network.
Indeed, the e-market builds simultaneously a number of VOs with its clients. In addition,
being in the business of enabling electronic interorganizational transactions, the e-market
is a powerful technological agent of virtualizing of the client organizations. Therefore,
technical solutions introduced by the e-market are likely to shape both the virtualizing of
the client organizations and the VOs that the e-market creates with its clients. Signals of
future developments can be seen in the area of software agents. These are applications
(usually using component-based, client-server, Internet-centric architectures) that use
e-markets to carry out automated search, communication, negotiations and other business
tasks on behalf of trading partners (see Maamar et al., 2001). E-markets can be studied in
conjunction with the switching principle that was discussed above.
2.3 Virtual Alliances and Consortia
Different inter-organizational arrangements, such as, alliances, consortia and joint
ventures have also been associated with VO. Distinctions between these are not clear in
the literature. The staple form in this discussion is the virtual alliance, and the virtual
consortium will be considered to be a very similar form. These interorganizational forms
share the strategic teleology, such as, developing a groundbreaking product and creating
and implementing a long-term marketing strategy.
A global marketing strategy could be the reason for organizing a virtual alliance (Strader
et al., 1998). An example is Rosenbluth International Alliance, one of leading corporate
travel agencies with a global reach. (Rosenbluth, 2004). In Rosenbluth International, the
partners share a strategy of service orientation, decision making is decentralized and
consensual, and mutual competition of the members is proscribed. The alliance pursues
an extensive use of database and information systems. For example, one application
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captures the details of clients' meetings spend and stores the data in a central
warehouse. This allows all the members to have access to consolidated views of
clients and suppliers. In addition, centralized data provides a common basis for
negotiations with suppliers (ibid.). Burns & Barnett (1999) propose several models
of virtual alliances differentiated on various aspects, including interdependence, shared
risks, and culture. The models are co-alliance, star alliance, value alliance, and market
alliance. Wildeman (1998) describes the virtual alliance in terms of networked
organizations and individuals with complementary skills and management philosophies,
capable of rapidly delivering a specific product, and using IT as an enabler. The author
points out that IT has a support rather than generative role and that reducing transaction
costs is not the driver for virtual alliances.
A purpose of alliances often is the need of developing innovative, groundbreaking
products. Such a fiat requires the sharing of resources, whether material ones or the social
capital. Eisenhardt & Schoonhoven (1996) argue that a match between those in
vulnerable strategic positions and those in strong positions (e.g., well-connected, top
management with reputation) gives rise to alliances in the American semiconductor
industry. An example of the alliance based on the product driver is the National
Computational Science Alliance that includes over 50 academic, government and
business organizations working on an advanced computational infrastructure called the
Grid (NCSA, 2004). Another example is Abilene, an alliance formed for developing a
high-speed backbone for Internet2 that should support research and higher education in
the United States (Abilene, 2004). The alliance members are Qwest Communications,
Nortel Networks, Juniper Networks, and Indiana University, and their strategic goals
extend into the production stage of the network. Product alliances have often driven
major developments in the IT sector. Examples include PC architectures (the Compaq-led
alliance vs. IBM), Web standards (alliances centered around Sun Microsystems vs. those
around Microsoft), and new types of information systems (e.g., the alliances that Pivotal
Corporation builds with software and hardware vendors for advancing its customer
relationships management systems (Pivotal, 2004)).
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The literature does not answer clearly the question, When does a classical alliance
become virtual? For understanding this, some principles pertinent to other VO forms may
provide a guidance. For example, one can explore the extent of electronic linking among
the partners coupled with the flexibility of their electronic space boundaries (e.g., the
degree of opening one's extranet to partners, design of supra networks and their
applications that are developed exclusively for alliance purposes, the allocation of access
authority to Internet collaboratories and other distributed applications, and so on).
However, some principles of other VO forms may not apply to virtual alliances. For
example, the switching capability may not be as important as it is for the virtual
corporation. In addition, the motivation of saving on transaction costs that can drive the
virtualizing of supply chain processes gives way to the resource sharing driver in the case
of virtual alliances.
Some researchers of virtual interorganizational forms prefer the term "virtual
consortium." For example, “consortium virtual enterprise” has been described as an
organization that rests on a network of manufactures, suppliers, customers and other
specialized functions, uses principles of distributed synchronous and asynchronous
engineering, and it emerges in response to market demand to deliver customized to semistandardized products (Martinez et al., 2001). O’Leary (1998) studied a "virtual
consortium" called Manufacturing Assembly Pilot, which was founded by ARPA and led
by large firms (e.g., General Motors, Ford, and Johnson Controls). The author was
particularly interested in issues of costs associated with IT adoption. Applying Arrow’s
impossibility theorem, the author found that it was impossible to determine IT standards
(software, hardware, networks) that could meet optimal needs of all the VO members. A
dominant member typically made these choices. This finding is agreeable with evidence
on hub-based, star shaped or dominated interorganizational networks. Child and Faulkner
(1998) have been focused on differentiating between the classical consortium and a
virtual one. While both can be considered “hybrid” organizations with characteristics of
both market and bureaucracy, they are driven by different goals. In classical consortia the
goal is inter-organizational learning, which does not hold for its virtual equivalent,
contend the authors. However, this proposition appears to be in disagreement with
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concepts and evidence on knowledge sharing, which is likely to take place in
collaborating on developing innovative products in virtual alliances, as discussed above.
2.4 Virtual Interorganizational Team
The term "virtual team" has been in used in systems literature that has proliferated in
recent yeas. In the conceptualization of virtual teams by Lipnack & Stamps (1997) that is
based on the academic and consulting perspective, teammates perform work across time,
space and organizational boundaries, while decisively relying on IT (italic – B.T.).
However, most of the subsequent literature in this area has omitted the
interorganizational condition in conceptualizing virtual teams. The level of analysis used
is typically not inter-organizational but rather intra-organizational. Another characteristic
of this literature is that spatial dispersion is tacitly or saliently considered to be a
sufficient condition for a virtual team to exist. A similar reduction can be found in
textbooks on management information systems, suggesting that any organization based
on spatially dispersed work is a VO (this reduction we have already encountered in the
study on East India Company above). To be sure, implications of spatial dispersion can
be complex, including awareness of others’ availability, activity, place and progress in a
production process and perspective in decision making (Steinfeld et al., 1999), the
synchronicity of work and conflict management (Palmer & Speier, 1998), trust ties
(Jarvenpaa et al., 1998), and so on. The issue however is, What are the other conditions
that are necessary for explaining virtual teams?
Consistently with the interorganizational perspective followed in this article, we are
interested in virtual interorganizational teams. In these teams, the members are spatially
dispersed and they belong to different organizations. The virtual interorganizational team
shares essential characteristics of teams, such as, a strong focus on project goals (task
orientation), a boundary separating teammates from outsiders, social binds keeping
insiders together (socio-emotional orientation), a division of roles, leadership,
communication, equity concerns, and so on. But since a virtual interorganizational team
is a temporary gathering of strangers, it can be considered as generally being a more
pragmatic organization. This implies that socio-emotional aspects may not play as
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important role as in classical teams. Rather, factors being in function of accomplishing
project goals, such as, articulate and competent professional behavior could be more
important (see Jarvenpaa et al., 1998). Majchrzak and colleagues (2000) have studied a
virtual interorganizational team. This team was multidisciplinary and composed of
members from three organizations. The team worked on a new product and used
specialized groupware with communication capabilities on a daily basis. The team
successfully completed the project. However, the authors found that the extent of using
the groupware was invariant of task uncertainty. Some of potentially important functions
of the groupware were never used, such as, the indexing of new knowledge that was
supposed to ease knowledge sharing. One reason for this was that the use of this
functionality would require that professionals put in extra time. Another findings is that
occasional face-to-face meetings helped in reducing challenges to effectiveness that
typically come along with weak professional and social bonds. These meetings were
performed in the beginning of a project and they resulted in clarifying mutual
understanding and expectations. Lurey and Raisinghani (2001) drew a similar conclusion
on the role of IT. In the case of the team they studied, groupware technology was a
weaker predictor of teams’ performance than the relationships between team members
and process variables. Both findings are in agreement with the literature on other VO
forms discussed here, where IT acts as a necessary but not sufficient condition for a VO
to exist.
2.5 The Virtual and the Network Organization
It is commonly accepted that VO exhibits a network character (Byrne, 1993; Child &
Faulkner, 1998; Ching et al., 1996; DeSanctis & Monge, 1999; Goldman et al., 1995;
Hedberg et al., 1997; Malone & Davidow, 1992; Snow et al., 1999; Venkatraman and
Henderson, 1998). Connections between the network and virtual organization were
conceived even before the very term “virtual organization” was introduced. Miles &
Snow (1986) argued that outsourcing of business functions, which they termed with
“vertical delayering,” led to “dynamic networks.” The dynamic network has similarities
with later concepts of VO; for example, Byrne (1993) defined VO as “a temporary
network of suppliers, customers, and rivals.” Travica (1999) pointed out to other
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similarities between these two forms as well as to their similarities with other new
organizational designs, calling these “F-characteristics.” For example, information flows
are “fluid” in both the network and virtual organization. Also, their structures can be
“flexible” as in the organic form, “fickle” as in adhocracy and “free from bureaucratic
traditions” as in a non-traditional team-based organization (Travica, 1999: 23-28). In
general, similarities between the network and virtual organization are well understood.
However, their differences are not.
Child and Faulkner (1998) took on the difficult problem of differentiating between the
virtual and network organization. Using Powel’s (1987, 1990) concept of hybrid
organizational designs that inherit characteristics of both market and hierarchy, the
authors have posited that VO may evolve from network forms, which that are closer to
the market end of the continuum – the equal-partner network and the dominated network.
Owing to this origin, VO shares advantages of the network organization, most notably
access to other’s resources and skills, provision of information and business intelligence,
reduction of uncertainty, increase of speed, and provision of resource allocation
flexibility (Child & Faulkner, 1998: 114-115). However, the authors stress that VO is
different from the network organization on several counts, including electronic means of
communication, variable boundaries, and a higher flexibility in allocating resources.
Mowshowitz’s (1994) switching principle is yet another differentiating characteristic of
VO, posit the authors. Their contribution, therefore, is in providing the argument that a
VO can come into being via an evolutionary trajectory, by descending from the network
organization and developing differentiating characteristics.
In summary, the literature discusses a number of issues related to VO. A summary is
provided Table 1. More often than not, it is not clear what are the characteristics of a
particular form beyond a singular dimension (e.g., the spatial distribution, or the use of IT
for connecting purposes). Another characteristic of the literature is that evidence on the
role of IT is inconclusive. Moreover, some authors focus on virtualized parts of physical
organizations, while others are preoccupied with the organizational effects these parts
produce through their interaction. Different positions also exist regarding the longevity of
18
virtual organizations. The next section will discuss solutions to these and other
conceptual issues.
Table 1 Characteristics of Virtual Organization
VO Characteristic
VO is the interorganizational effect
Virtualness is a property of
organization
Multiplication Effect
Unifying Effect
Different domains of virtualizing
create different VO forms used in
B2B e-commerce
Network Character
IT is a necessary but not sufficient
condition
Dynamic, Switchable membership
Flexible Boundaries
Spatial Dispersion
Variable Longevity
Non-standard product
Description
- VO results from interaction of VO members, creating a supraorganizational entity.
- In this respect, VO is intangible.
- Virtualized processes can occur on the front/back end of an
organization, and in the production core.
- Virtualness is a matter of scale not a categorical quality.
- In this respect, VO is tangible.
The same organization can be involved in different VOs simultaneously
(processes virtualized on the back end and in the production core can
create different VOs).
Different organizations create a virtual interorganizational arrangement,
thus posing as one organization.
- Either as the interorganizational effect or organizational property, VO
can take place at the front and back end of organizations, and in the
production core.
- The front/back-end virtualizing refers to supply chains, including emarkets, materializing in the virtual corporation form.
- The production core virtualizing refers to virtual alliances and virtual
interorganizational teams.
- These VO forms are models for organizing B2B e-commerce.
- This characteristic indicates a similarity between VO and the network
organization, with the stipulation that coupling in the former is looser.
- IT is used for electronic networking and in various processes as an
enabler, which works in concert with social conditions (e.g.,
outsourcing based on computer networking needs complementary social
processes).
- This characteristic helps differentiate between VO and the network
organization.
- For example, suppliers can change from project to project and even on
the task basis.
- This characteristic helps differentiate between VO and the network
organization.
- Permeable/fuzzy boundaries allow for forming supra-organizational
forms.
- This characteristic helps differentiate between VO and the network
organization.
- This is a common characteristic of VO as the supra-organizational
form.
- Every dispersed organization is not VO; additional
conditions/characteristics are needed for VO to exist.
Different virtual forms have different life spans (e.g., virtual alliance
based on long-term marketing strategy vs. virtual corporation defined by
project time).
- This is an umbrella term for product that is customized, innovative,
quick, niche etc.
- This characteristics expresses the end-goal of VO and help
differentiate it from the network organization.
19
5. Defining and Modeling VO
Based on the discussion above, VO can be defined as follows:
VO refers to both the members of a switchable interorganizational
electronic network and to the network itself that delivers non-standard
products.
It is apparent that logic of e-commerce is embedded into this definition, because
delivering non-standard products clearly implies commercial transactions between
organizations via electronic links. The model that accounts both for this definition and for
the VO characteristics discussed above is presented in Figure 4. The model is called
ISSAAC (this can be read as "Isaac") after the initials of its constitutive dimensions –
Interoperability, Switching, Special Product, Aggregation, Anchoring, and Cybernization.
The model is supposed to be used as a vehicle for explaining VO and for assessing the
degree of VO/virtualness. ISSAAC dimensions are conceptualized as follows.
--------------Figure 4 about here
---------------
Cybernization refers to an organization's existing in the space that is created by
information systems and electronic information flows (cyber space or electronic space).
Cybernization reflects the necessary role of IT in VO, accounting for both the extent of
IT usage and the involvement of an organization in creating and using computer
networks, EDI, technologies for B2B e-commerce, and various relevant information
systems. The ISSAAC model accounts for this key role of Cybernization by making it a
central variable. Cybernization is also a key for relating VO and the network
organization: a network organization that rests certain business processes on electronic
links is a VO to a certain extent; the assessment of this extent is an empirical question.
20
Aggregation refers to networking electronically with other organizations and individuals
to form a VO. This dimension reflects the electronic network character of VO. The term
aggregation is preferred over “network” because of a typically looser coupling that is
expected to exist in a VO than in a network organization. This distinction is cognate to
connotations of the term aggregation used in systems analysis for data modeling
purposes. Properties of boundaries between network members (generally, these have to
be flexible, fuzzy) should be studied as a facet of aggregation.
Switching refers to the extent to which an organization alternates its membership in VOs
over a period of time. This dimension depends on flexible boundaries. Switching is
related to the dynamics and scope of Aggregation, and it may be important for delivering
non-standard products. Switching helps differentiating between VO and the network
organization as it is not typical for the latter. Switching may vary with different forms of
VO, being more developed on the average in virtual corporations than in virtual alliances.
Another line of variation is industry. For example, strict regulations on product quality
may compel a pharmaceutical company to stay with known suppliers for longer periods
of time. In contrast, a travel service firm may be in constant search for suppliers of
transportation, accommodation and other services that come in a travel package.
Anchoring refers to the support that Cybernization meets in the management, structural,
process, cultural, political, and strategic aspects of an organization. Existing in the cyber
space through information systems and networks needs to be anchored in the organization
of work, management methods, organizational values, etc. For example, IT needs to be
integrated into tasks and processes in a virtual corporation; or, an e-commerce enterprise
has to maintain cultural values and stories centered on the business relevance of the
Internet/Web. Anchoring constitutes the organizational and management foundation of a
VO without which the potential of IT for virtualizing cannot materialize.
Interoperability refers to the extent to which an organization is synchronized with its
partners in a VO. Synchronizing means that members of VO need to be capable of both
21
communicating with each other and working together. Interoperability resembles
coordination, but it is different in implying that a more flexible coupling exists among the
constituent parts. Interoperability may vary by markets. In markets with sufficient
supplies of standard products (e.g., the plastics industry), the need for interoperability
may not be as high as in streamlined markets with the need for a tighter coupling between
buyers and suppliers of (e.g., the pharmaceutical industry). Interoperability needs to be
assessed both in the organizational/management and technological domain; these are two
sub-dimensions or measures of Interoperability. The former includes using a shared
vocabulary and values, and compatible work and management methods. For example,
variation in cultural “synchronizing” could make a difference between VO forms (Speier
et al., 1998; Staples & Rathasingham, 1998). Technological interoperability involves
using compatible IT standards and platforms. With the advent of object-based, cross
platform, Internet-centric information systems architectures, the potential for
technological interoperability has been significantly increased.
Special Product refers to the extent to which an organization delivers non-standard
products (goods and services). This dimension reflects the end purpose of a VO; sharing
competences and resources could, then, be understood as intermediary goals. Spatial
Product is related to Cybernization, Aggregation and Switching. For example, if a
business process is more rested on the cyberspace, it can be easier to
subcontract/outsource it to different partners possessing the competences for building
non-standard products. In the context of supply chain, larger supply networks are more
likely to satisfy input needs related to non-standard products than smaller networks.
The ISSAAC model is to be used for assessing organizational virtualness. For example,
taking the perspective of the model in order to understand virtual corporations that use
e-markets, one can hypothesize that the e-market would push organizations toward a
higher Cybernization while ensuring Interoperability in the technical domain. Also,
opportunities for Aggregation and Switching would be increased. All this should result in
a higher capability of delivering non-standard products. In effect, a virtual corporation
entailing an e-market is likely to exhibit positive relationships between Cybernization,
22
Interoperability, Switching, Aggregation and Special Product. This example, also
demonstrates another purpose of the ISSAAC model. The example shows that the model
is backed by the assumption on the strong relationship between e-commerce and VO.
Since e-commerce is organized through VO forms, ISSAAC model can contribute to
understanding organizational aspects of e-commerce.
The ISSAAC model is to be used in both quantitative and qualitative inquiry. The former
awaits further research; for some guidelines in this respect, please see Table A1 in
Appendix. The ISSAAC model has been used in several qualitative case studies, and one
of these is discussed in the next section.
7. A Case Study
The following is the discussion of findings from a case study on a unit of a multinational
firm, which will be called Electronics Company. In a nutshell, it was discovered that
virtualizing at Electronics Company applies to two important business processes. One
refers to the development of software for the machinery for manufacturing boards with
integrated circuits. This path of virtualizing makes Electronics Company similar to the
sourcing/outsourcing-based virtual forms – the virtual corporation. The other process
refers to developing new strategic products, and it imprints characteristics of the virtual
alliance and virtual interorganizational team on Electronics Company. The company can
be considered an early adopter of e-commerce practices, because it has used the described
organizational methods even before the surge of the Internet use gave rise to today
familiar concepts of e-commerce. These and other findings will be discussed in detail
below. For information on the study's methodology, which followed Yin's (2003)
guidelines, please see Appendix.
Electronics Company has been engaged in producing equipment for broadband networks.
The broadband network hardware and software is becoming increasingly complex given
a variety of standards, a need for bridging these, and an increasing demand for combining
different signals over the same channel (e.g., telephony, Internet, and cable TV). Control
23
modules for broadband networks are among the most complex and critical products of
Electronics Company. Physically, the product is a board with a programmed microchip
and other electronic elements. This product often has to be customized according to
customer requests. The competence for developing innovative network control modules
as well as for engineering and customizing these is critical for keeping up with the
competition in the respective business. And the requirement of customizing implies that
each instance of a product is unique, as the customers operate different brands of network
software, have to interface different network protocols, possess different equipment and
network configurations, and have different needs in terms of levels of network control.
All these conditions impart the character of Special Product onto the products of
Electronics Company. The following discussion will first address virtual corporation
characteristics of Electronics Company.
In the typical scenario, a customer places an order for a network control unit with
Electronics Company. The company assembles a project team to respond to the request.
Project engineers design the product. The new product requires that the computer-driven
machinery for producing the boards be reprogrammed, and that new code has to be
developed. This machinery cuts the boards, plants electronic elements on them, and
programs the chips. Similarly to the virtual factory described by Upton and McAfee
(1996), Electronics Company relies on a network of external software vendors for the
development of the mentioned code. These are small software shops, some in the
neighborhood, others far away. Once a vendor or vendors are identified, the cooperation
starts, even if a formal contract is not put in effect. Turnaround times can sometimes be
just days-long. Once the vendor delivers the code electronically, the engineer on duty at
Electronic Company reviews it and downloads it to the computers controlling the
machinery. A prototype board is then produced. The troubleshooting engineer puts the
board through appropriate electronic tests. Test results are then reviewed by the project
manager and responsible project members. A feedback is subsequently sent back to the
vendor, along with specifications for a revision (if any). The cycle is repeated until the
prototype board is approved for production. A variant of this process occurs when a
customer requests customizing of a product after placing the initial order.
24
One can see from the description above that Electronics Company routinely enters into
business relationships with software vendors. The result is VO – different instances of it.
The company usually runs several projects at a time, each of which can engage more
vendors. Thus, the company "multiplies" itself in several VOs at a time. The ISSAAC's
dimension of Aggregation can describe the networks developed this way. Managers in
Electronics Company consider the above process satisfactory as long as a vendor
complies with the specified quality standards and the timeline. Responsiveness to the
time requirement enables the company's staff to perform testing on schedule and to
provide a proper feedback. In effect, the cycle of revision can progress toward a closure
in a controlled manner. If the process runs this way with no apparent gaps, it may indicate
a higher Interoperability in the operational domain. In contrast, if the timeline is not
respected, idle periods creep in the process, the finish date is postponed, and sometimes
even the code has to be finalized by another vendor. This exemplifies a lower operational
Interoperability. Electronics Company has experienced it both ways.
Email, electronic file transfer, the telephone and the fax have been the most frequently
used types of IT in support to virtual extensions of Electronics Company. They have
carried out communication, collaboration, and the transfer of software between the
company and its vendors. Specifically, email, the telephone and the fax are used for
transferring product specifications. The first two are also used for negotiations and
clarifications of software requirements. Electronic file transfer supports the transfer of
code. For instance, vendors can deliver the code into a file repository with secure access.
These cost-efficient technological solutions have proved to be effective as well. Other
types of IT have also been tried but to a smaller degree. These include white boards and
screen-sharing applications for the purposes of fine-tuning design details in a
collaborative fashion.
Selecting vendors is an important process, which precedes and enables the creation of
virtual corporation involving Electronics Company. Project managers have access to a
database of software shops acting as vendors. They also strive to actively maintain
25
relationships with the vendors. Project managers have dealt with two typical scenarios. In
a scenario of open options, Electronics Company switches between different vendors on
the basis of timing, cost, expertise, quality, and social factors. Cost has had a smaller
weight than it might be expected. When deadlines are tight and/or a guaranteed level of
quality is a must, the Electronics Company may pay any fee a vendor demands. Technical
expertise is another essential criterion. Previous experience from working with vendors is
important for making assessments of technical expertise. Social factors refer to
accountability of a vendor or to trust that the vendor would deliver according to
expectations. Past experience is important again, and it helps run business even when the
standard contractual foundation is missing. As opposed to the open options scenario, a
scenario of closed options is enacted when external partners are hardly available or when
a niche expertise is needed. In these situations, project managers at Electronics Company
are compelled to compromise the above selection criteria and to partner with whoever is
available. These findings corroborate the Switching dimension of VO and indicate a
complexity of organizational/management reality behind it.
Binds keeping together the virtual corporations around Electronics Company are partially
contractual and partially social. In contrast to evidence on VO forms in a more regulated
context, law was not found to be the universal regulatory basis for VO. There was no
convenience of using pre-qualification agreements and contracts as with AgileWeb
enterprises (see Goldman et al., 1995). At times, a vendor would reject engaging in a
contractual relationship. As one of them put it, "my name guarantees for the work I'll do,
and I do not want to get my hands tied with any detail beyond the main specifications of
software and the price." Managers at Electronics Company confirmed that this sort of
approach is indeed not an exception. They have also conveyed a conviction that the
contract may not be feasible because there can simply be no time for drafting and
negotiating one. When legal regulatory basis is missing, social ties fill the gap.
Responsibility and trustworthiness of potential partners constitute the basis for
collaboration in this situation. This finding supports evidence on the relevance of trust for
virtual corporations (e.g., Kraut et al., 1998). From the perspective of the ISSAAC model,
this evidence provides insight into social aspects of Interoperability.
26
Moreover, the virtual corporations in this case vary greatly in longevity. As determined
by specific project needs, the engagement of an external vendor can last from a day-two
to weeks. Another interesting characteristic is that Electronics Company usually poses as
the hub of a star-shaped network. Vendors never get in contact directly with each other.
This centralized model resembles dimensions of the dominated network that can be an
ancestor of VO (Child and Faulkner, 1998). This model is probably responsible for
easing Interoperability in the technical domain, as already evidenced in the VO literature
(O’Leary, 1998).
Electronics Company’s experience of working in the virtual mode with small software
shops has been predominantly affirmative. But this is not the only domain of virtualizing
the company has experienced. A number of strategic development projects have been
conducted through partnering with its subsidiaries located at another continent. These are
long-term projects that move broadband network technology forward and extend over
years. Fundamental conditions for VO were materialized in these projects – spatial
dispersion, electronic networking, and the need to deliver non-standard products. The
virtual forms that Electronics Company created this way share a mix of characteristics of
the virtual alliance and virtual interorganizational teams. Some of alliance projects
succeeded, while some ended up far from target. The case study reveled that some
projects were much delayed, while one important project was killed in the third year of its
execution.
The data collected indicate that the problems could be caused by the way electronic
communication was made part of project activities. Engineers at different locations did
most of the work individually and collaboration with remote colleagues was used only
sporadically. Electronic communication was usually used when problems surfaced as an
emergency channel rather than a regular part of work processes. The IT infrastructure,
however, was much broader and more state of the art than the one used for collaborating
with small software shops. It included videoconferencing in decision rooms, custom-built
groupware tools, and project management applications. But it appears that Anchoring of
this infrastructure in work processes of the VO members was not sufficient. One engineer
27
at EC stated that “going to the decision room felt more like something you were forced to
do than you really wanted or sometimes really needed.” The use of the decision room was
scheduled and monitored by the upper management. The same respondent hinted that a
less sophisticated system, even an Internet-based desktop videoconferencing application
could have been a better option. These findings indicate that management in VO could be
a decisive factor in shaping the Anchoring dimension. Although a potential for powerful
IT support had been in place, it never materialized to the extent that business processes
become effectively virtualized with IT.
Another problem had to do with the capability of dispersed project members to
communicate in the professional domain. For example, some of these spoke a Unix lingo,
while others were NT persons; some preferred proprietary technologies, others opted for
open source software solutions; there were believers in object oriented programming
languages, and there were supporters of more traditional approaches; and so on. Several
interviewees felt that these differences at times "grew out of proportions." In such
conflicts of opinion, professional egos were hurt, and work was slowed down if not
completely halted. Rare meetings of dispersed professionals could not remove the
obstacles. Managers experienced the same challenge from their own perspective.
Although the risk was shared among alliance members, thus resembling other virtual
alliances (Burns & Barnett, 1998), it appears that the management at different levels had
insufficient experience and resources for reconciling professional conflicts. Professional
competences needed for producing the intended products – a condition for operational
virtual alliances (Wildeman, 1998) – could have been in place. However, the
competences were not coordinated effectively.
Effective interorganizational teams did not emerge in the critical projects. Although
certain projects were formally organized so that professionals from different
organizations could work as teams, an effective team organization never materialized in
the critical projects. Another indication that the interorganizational teams were deficient
is the lack of a strong goal-driven performance that is likely to signify successful virtual
interorganizational teams (Majchrzak et al., 2000). In the case of Electronics Company,
28
failures to reach agreements over certain technological solutions led to delays and
political maneuvering rather than to deliberations and resolutions that would advance the
projects.
According to the opinion of a manager who was part of a number of interorganizational
projects, one of the main problems had to do with ambiguity regarding authority and
leadership issues. He personally was often unsure with regard to what he should and
should not do. An engineer pointed out to somewhat a different but perhaps related facet.
He stated that "the willingness of the 'top brass' at partnering organizations to cut the
knots was in a short supply." From the perspective of the ISSAAC model,
Interoperability in the professional domain was rather small. In turn, it reduced the
capability of partners to move work processes to electronic space (Cybernization). All
these difficulties had a synthesis in a severely limited capability of delivering novel
strategic products (Special Product). At best, some tangent products with a
limited/altered functionality resulted from these projects, while one project was a total
failure. A corollary is that developing new products through virtual alliances and
interorganizational teams imposed serious challenges on professionals and managers. In
comparison with the virtual corporations that Electronics Company has created with
small software shops, developing a new product through virtual forms has been much
more complex and difficult. Although Aggregation and Switching were of a smaller
magnitude and usually easier to manage, the challenges of Interoperability and
Anchoring have loomed large and had a negative impact on both Cybernization and the
ability to deliver non-standard products.
In summary, this case study made a step in the process of validating the ISSAAC model
in terms of corroborating its dimensions and outlining possible relationships between
some of the dimensions. These findings have a bearing on e-commerce, since they
illuminate conditions and challenges that organizing for B2B commerce has to respond
to. In addition, comparing different experiences that Electronics Company has had with
different VO forms (the virtual corporation versus virtual alliance/virtual
interorganizational team), one can draw implications for design of VO. In virtual
29
corporations, Electronics Company has taken a hub role, which allowed for more control
over the virtual processes. This control, as the discussion showed, was not absolute but
rather significant. Contrary, in virtual alliances and virtual interorganizational teams,
Electronics Company has been much less in control. It was supposed to be a less
centralized, peer-to-peer virtual design, but it neither developed to a full potential nor it
delivered expected products. All these translate into challenges for B2B e-commerce.
8. Summary and Conclusion
This article discussed VO in terms of its fundamental assumptions, general
characteristics, different forms (virtual corporation, virtual alliance, and virtual
interorganizational team) and its relationship with e-commerce. It has been argued that
any organization may virtualized parts, and, thus, any organization can exhibit virtualness
to some degree. Virtual extensions of several organizations create an interorganizational
arrangement, which is both tangible, looking at its constituent members and deliverables,
and intangible, as the result of interorganizational interaction. In addition, while this
effect of one organization is created by actions of many organizations, it is also true that
VO results from one organization's self-multiplication through participation in different
VOs, often at the same time.
Specific VO forms discussed reflect these basic assumptions and enrich our
understanding of VO. The virtual corporation builds on subcontracting, sourcing and
outsourcing processes shifted into the electronic space. On the business side, these are
transactions that constitute the core of B2B e-commerce in the supply chain context.
Therefore, e-commerce gets organized through virtual forms. The e-market enterprise, a
newer e-commerce phenomena, can push further toward virtualizing, while increasing the
complexity of virtual corporations. The virtual alliance is organized around strategic
goals (develop a groundbreaking product, penetrate new markets), and it can have a
longer life span and less changeable membership than the virtual corporation. The virtual
interorganizational team is a virtual form motivated by pragmatic project goals, and it
shares some characteristics of team organization. An important stipulation is that socio-
30
emotional orientation of teammates in a virtual interorganizational team may not be as
important as with classical teams. Transactions between different organizations in the
domain of production represent another area of B2B e-commerce, characterized by
collaboration rather than buying and selling. Understanding nuances of these VO forms
can help deepening our understanding of e-commerce.
Analysis of fundamental assumptions behind VO and of characteristics of specific VO
forms gives rise to conceptualizing general characteristics of VO. These are the
intangible/tangible character, unifying/multiplying effect, network character, flexible
boundaries, IT as a necessary but not sufficient condition, switchable membership, spatial
dispersion, variable longevity, and non-standard product. The last characteristic
synthesizes the reasons for creating virtual organizations as these are aiming to delivering
goods or services that are characterized as customized, innovative and quick. After
discussing these characteristics, the following general definition of VO is provided in the
article: VO refers to both the members of a switchable interorganizational electronic
network and to the network itself that delivers non-standard products. A general model of
VO is subsequently introduced. It is called ISSAAC, after the initials of its dimensions –
Interoperability, Switching, Special Product, Aggregation, Anchoring, and Cybernization.
The purpose of the model to explain VO and to assess the degree of organizational
virtualness. A use of the model is demonstrated in a case study of a company producing
the equipment for broadband networks (Electronics Company). The company has built
both virtual corporations with its software vendors and hybrids of virtual alliances and
virtual interorganizational teams with other firms. There have been more and less
gratifying experiences with these different VO forms. Obstacles encountered with virtual
alliances and virtual interorganizational teams have implications for B2B e-commerce,
demonstrating the conditions and challenges it has to deal with. These challenges also
shed the light on the importance of management for developing and maintaining an
operational VO. This case study represents a step in the process of validating the
ISSAAC model.
31
The article has provided clarifications with regard to differentiating between virtual form
and virtualness property/capability. It has been argued that these two perspectives are
reconcilable by understanding that VO can be both a part of a classical organization (a
tangible entity) that is moved into electronic space and the interorganizational
arrangement that the parts from different organizations create (an intangible, interactionbased entity). This dual character is acknowledged in the proposed definition of VO as
well. Another distinction made in this article concerns VO and the network organization.
The ISSAAC model and the framework discussed imply several differences. As opposed
to the network organization, VO rests on the electronic space and is dependent on
electronic linking (these characteristics are not necessary for the network organization),
has more fuzzier boundaries, exhibits looser coupling of members, can have a switchable
membership, and delivers non-standard products. It is the accumulation of these
properties that one should look for in differentiating between the virtual and network
organization, rather than a single condition (e.g., electronic linking or a temporary
character). Mere electronic linking cannot make a network organization virtual, although
it might be a vehicle for such an evolution.
The main thrust in this article has been on joining research on VO and on
e-commerce. These two phenomena are closely related, although they have been studied
is isolation. the discussion demonstrated that B2B e-commerce is organized through
virtual forms. Consequently, theory of VO, including the ISSAAC model, explains
organizational aspects of e-commerce. Specifically, the organization of
e-commerce transpiring in electronic supply chains can be understood by looking at
virtual forms based on sourcing, subcontracting and outsourcing processes associated
with the virtual corporation. In addition, the organization of e-commerce, which is based
on collaboration in production processes, can be understood by looking at characteristics
of virtual interorganizational teams and virtual alliances. Another aspect of the
relationship between e-commerce and VO discussed here refers to the fact that the
e-commerce propels organizations toward virtualizing. It has been argued that e-markets
– a product of the evolution of e-commerce – provide economic incentives for
organizations to move business transactions into the electronic domain and virtual mode.
32
These relationships between e-commerce and VO amount to a compelling argument that
the two phenomena should be studied in conjunction..
Further research needs to advance the process of validating the ISSAAC model through
both qualitative and quantitative inquiry. The ideas on measurement presented in the
article could serve as the springboard for quantitative research. A number of research
questions can be addressed. For example, do virtual corporations typically differ from
virtual alliances and virtual interorganizational teams on dimensions of Aggregation and
Switching, as it has been indicated in this article? Does the degree of Interoperability
always vary along a continuum, with pragmatic goals on one end and strategic goals on
the other, as it has been indicated in this article? What are the other facets of the Special
Product dimension, and how can these be used to discriminate between virtual
corporations based on electronic sourcing and electronic supply chains whose only
purpose is to reduce transaction costs? How does switching work in virtual corporations
that include e-markets? What variables (as a specification of ISSAAC dimensions) can
capture management aspects that are responsible for making a VO a success or a failure?
Finally, research should also test the ISSAAC model on emerging forms of organizing
e-commerce.
Acknowledgement
I am very grateful to the three anonymous reviewers, the editor and to many colleagues in
the field and practitioners for helping me over years to improve this article.
33
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Figures (to be incorporated in text as specified or put in APPENDIX)
(a) Synergy Principle:
two physical
organizations create
one VO
A
VO
AB
B
(b) Divergence Principle:
Organization B
participates in two VOs
A
C
VO
BA
VO
BC
B
Virtual part of A
(c) Virtualness Property:
Just parts of either
organization are virtualized
A
Virtual part of B
B
Figure 1 Principles of Virtual Organization
38
VO
A
INPUT
PROCESS
B
OUTPU
T
INPUT
PROCESS
OUTPU
T
Figure 2 Virtual Corporation
Organization A has the interface with the buyer virtualized (sales processes), and
organization B has the interface with the supplier virtualized (purchasing processes).
They create a variant of the virtual corporation that characterizes B2B e-commerce..
39
VO
ELECTRONIC
MARKETPLACE
A
INPU
T
PROCESS
B
OUTPUT
INPUT
PROCESS
Figure 3 Virtual Corporation Including Electronic Market
A variant of Virtual Corporation including an electronic marketplace as the intermediary.
This model has contributed to maturation of B2B e-commerce.
OUT
PUT
40
AGGREGATION
SPECIAL PRODUCT
SWITCHING
CYBERNIZATION
ANCHORING
INTEROPERABILITY
Figure 4 The ISSAAC Model of Virtual Organization
41
APPENDIX
Table A1 The ISSAAC Model Variables – Possible Operationalization of Variables
Variable
Cybernization
Conceptualization
The extent to which an organization
exists in the space that is created by
information systems and electronic
information flows (cyber space or
electronic space).
Aggregation
The extent to which an organization
networks technologically and
organizationally with partners in order
to form a VO.
Switching
The extent to which an organization
alternates its membership in VOs over
a period of time.
Anchoring
The extent to which Cybernization has
support in the management, structural,
process, cultural, political, and strategic
aspects of an organization.
Interoperability
The extent to which an organization is
synchronized with its partners in a VO.
Possible Operationalization
- The proportion of core operations that
predominantly rest on computer-based
information systems (including electronic
networking).
- The importance of cross-organizational
electronic networking for completing key
business processes.
- The number of trading partners interacted with
electronically in a certain period of time.
- The proportion the electronic network takes in
core business processes or operations.
- Network measures describing interorganizational networks.
- The degree of flexibility (fuzziness) of
partners' boundaries.
- The number of buyers/suppliers that have
changed from one production cycle to another.
- The number of buyers/suppliers that have
changed from one project to another.
- The frequency/importance of using IT for
collaboration in VO (beyond the home
organization boundaries).
- The magnitude of adjusting old management
techniques (structure, processes, culture, etc.) to
VO, or the frequency of VO practices.
Technical Interoperability:
- The degree to which information systems can
interface in supporting cross-organizational
transactions/workflow.
Organizational Interoperability:
- The degree of sharing strategic goals (e.g.,
priorities, quality standards, and market targets).
- The degree of sharing operational objectives
(e.g., schedules)
Special Product
The extent to which an organization
delivers non-standard goods and
services.
- The number of products that are custom-built.
- The magnitude of customizing a staple product
or products.
- The turnaround time for custom products.
- The cycle time for niche products.
42
Methodology for the Electronics Company Case Study
Data Collection
The data for this case were collected on a site of a producer of broad bend network
equipment (Electronics Company) located on the East Coast in the U.S. This
organizational unit was the unit of analysis. The main research objective of the study was
to explore if the unit studied could be described in terms of the ISSAAC model of VO.
The main research question was: Are there elements of VO in operations and strategy of
Electronics company? Specific research questions addressed the match between practices
at Electronics Company and specific dimensions of the ISSAAC model - Cybernization,
Aggregation, Switching, Anchoring, Interoperability and Special Product.
The data collection period extended over 12 months and it used interviewing, on-site
observation, and document analysis. The triangulation of data sources aimed at ensuring
the construct validity (Yin, 2003: 34). Eleven subjects in total were formally interviewed,
eight of whom were the employees of the observed unit while three were owners of the
company's business partners – small software vendors. Among the company’s employees
there was one executive, two project managers, two engineers engaged in different
projects, and three employees from manufacturing operations. The sampling of subjects
was based on the snowballing method and supported by two insider informants. Project
managers pointed to external software vendors to be interviewed.
Observation included engineering quarters and the manufacturing floor. Data were
recorded by the means of tape recording and taking written notes in the study diary. A
database with notes and company's documents was created. It was also used for storing
results of social networks analysis (e.g., sociograms) and the flowcharts of work activities
and players. The data collection was driven by a case study protocol. The protocol
contained a research plan with research questions, plans of interviewing and observation
(subjects, locations, situations, and schedules, among other details), and detailed
interview questions including probes and different interviewing scenarios. All these
43
methods were in function of safeguarding the reliability of the study (Yin, 2003: 34,
67-9). Follow more important details on (A) interviewing, (B) Observation, and (C)
document analysis.
(A) Interviewing
Interviewing was conducted by using the interview protocol as follows:
1. Please tell me about the project you are working on?
Probes:
 What are the salient stages (points, parts) in the project?
 What are the typical tasks?
 What are the critical tasks?
 Where is the project right bow plan-wise and practically speaking?
 What is your part in the project?
 Has there been any change in the initial plan of the project? If yes, do you know
why? Do the customer requests have anything to do with the changes?
 IT Probes: What computer-based tools do you and others use in the project?
2. Note: If customer-initiated changes addressed directly design of the product, make a
natural drill-down to a product question. Otherwise, ask the question:
 Could you please describe the product you are building?
 What are the most striking characteristics of the product?
 How does the product compare to other products of this company?
 Is it unique in any way?
 Have you ever built precisely the same product?
 Does the customer anyhow influence the product characteristics?
 Product Probes: drill down to specific characteristics, including technical nittygritty specifications that may border with proprietary information. Remind the
subject of my abiding by non-disclosure agreement on proprietary information.
3. Please tell me about your coworkers in this project?
Probes:
 Where are your coworkers located?
 How do you relate to your coworkers in carrying out your part of work?
 What computer-based tools do you use for communicating with them?
 Are there any computer-based tools that you use for working together on parts of
the project?
 IT Probes: What are the names of software/systems? How important are the tools
for you? How do you use the tools? Can you recall any striking detail related to
the design and use of these tools?
4. Could you please describe your work with external partners? (Alternatively: From your
perspective, what is the role of external partners in this project?)
44
Probes:
 What part of work do the external partners carry?
 How important is their work for completing the project?
 Is the expertise the external partners have available within your organization?
 What is the motivation for engaging the external partners? (Probe for timing,
costs/benefits, and staff availability.)
 Are there any computer-based tools that you use for working together on parts of
the project? (Run IT Probes for question 3.)
5. Have there been any changes in the project membership – whether internally or with
regard to external partners?
Probes:
 Could you recall approximately how many have passed (changed) through the
project? External partners?
 How were the external partners selected? Were there alternative partners
considered, and if yes, how many? What selection criteria were used?
 Were the changes of external partners frequent? In the same project? In what
stage of the project?
 Were the changes of external partners frequent across projects? Why did this
happen? (Note: If the answer is "no", encourage the interviewee to speculate.)
6. You have mentioned different kinds of computer tools used in this project. Could you
please tell me more about these?
Probes:
 How would you estimate the importance of the computer tools for the project; for
example, could it be completed without the tools? What specifically could not be
completed?
 To what extent are these tools part of the tasks and the flow of work within the
company?
 To what extent are these tools part of the tasks and the flow of work between you
and your external partners?
 Has there been any need for an adjustment between you and your partners with
regard to the computer tools used? (Probe for communication applications,
security, programming languages, operating systems, and management methods.)
7. Would you like to add any more comment on the workflow between you and your
external partners?
Probes:
 How does the workflow between you and your external partners dock tail with
other internal workflows and work practices in your organization?
 Is the workflow that you and your external partners collaborate on something
alien to the rest of your firm or it fits rather smoothly in your usual work
practices? (Probe for processes of software development that involves external
software vendors.)
45
Table A2 indicates the relationship between the interviewing protocol and targeted
ISSAAC dimensions.
Table A2 Relationship Between Interview Questions and
ISSAAC Dimensions
Question
ISSAAC Dimension
2
Special Product
3
Cybernization
4
Aggregation, Cybernization
5
Switching
6
Cybernization, Anchoring, Interoperability
7
Anchoring, Interoperability
(B) Observation
Data on Anchoring was additionally collected using the observation method. Observation
sites and timing were specified in the case study protocol after some initial insight into
the organization was acquired on the basis of interviewing and document analysis.
Observation sites included: manufacturing floor where microchip boards were created,
and engineers’ cubicles.
(C) Document analysis
Document analysis included descriptions of the company and its products in public
documents (both paper and electronic), project documents, email messages, electronic
bulletin boards postings, and memos.
Data Analysis
Interview data and a relevant segment of observation data were content analyzed (both
manually and by using systems for qualitative data analysis) with the goal of identifying
instances that match concepts behind ISSAAC dimensions. Two independent coders were
used, and the eventual inter-cider reliability index initially was 0.76; after some
discussion, partial recoding was performed and it resulted in improving the index up to
0.83. The largest variation in coding occurred with regard to the dimension of Anchoring.
Network analysis and data flow diagramming was also used for understanding the
workflow and processes at Electronics Company.