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Virtual Organization and Electronic Commerce
DRAFT
Under Review for Publication
Bob Travica
Asper School of Business
University of Manitoba
Email:
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
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 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 proves to be 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 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, 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 smaller time units to years, as the discussion further below will demonstrate.
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 to collaborate 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 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 1 (a) depicts VO as the synergistic effect created by organizations A and B; note that the dashed line represents the idea of permeable organizational boundaries. Figure 1 (b) depicts the divergence effect, since organization B "multiplies" itself in the VOs that it creates with organizations A and C. Figure 1 (c) 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” (cf. 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, pulls toward virtualizing processes in the organizational production core in forms of collaboration, sourcing/outsourcing, or some other. These different paths to VO determine specific forms of VO.
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” 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).