The current business environment can be typified by continuous pressures to change and the shortening of product development times and product life cycles. Markets are fickle and strongly customer-led, with unrelenting pressures to bring down costs and to take advantage of innovative technologies. Many organisations look to new organisational structures such as the virtual organisation to enable them to cope with these changed conditions. The transformation towards a virtual organisation is a complex process which cannot be dealt with simply in terms of technological and operational issues. An appropriate organisational culture and trust among partners are essential, if a virtual organisation is to be successful in providing a context in which employees can be flexible, agile and innovative.

During the early 1990s the potential of the Internet and its implications for business became widely recognised quite suddenly. The Internet, as a global communication network, challenged the accepted rules of competition and customer-supplier relationships. For the first time had a medium to achieve effectively global penetration, and to enhance their service to customers. It also offered the opportunity for small companies to challenge multinationals directly through the new possibilities offered by electronic commerce.

These changed conditions, combined with the compelling need to bring down costs while at the same time being able to respond quickly to individual customer requirements, are driving companies to consider new forms of work and organisational structures. They have triggered a fairly urgent discussion of possible new business paradigms, and commentators have suggested various organisational models, such as the Virtual Corporation [Davidow and Malone, 1992], the Network Organisation [Snow et al, 1992], the Modular Corporation [Tully, 1993], the Virtual Organisation [Mowshowitz, 1994], and the Agile Virtual Organisation [Jordan, 1997]. Although these models differ in detail and emphasis, at a broader level they describe a similar phenomenon: a nebulous form of organisation whose existence is directly and immediately related to a specific objective. In broad terms the virtual organisation can be defined as a temporary network of companies and individuals that come together quickly to exploit fast changing opportunities for as long as that opportunity exists. It offers companies the flexibility to take advantage of often short-term, but intensive, co-operation with strategic partners. Multi-company teams or other methods of co-operative activity are realised in a distributed, virtual organisation, enabled by and co-ordinated through electronic communication.

These alliances are more than merely strategic agreements, and can have a direct influence on employee’s daily activities. Very few organisations will be able to meet the challenges of the fast-changing business environment single-handedly, and for most companies economies of scale will dictate collaboration with strategic partners. Companies and individuals share costs, skills and access to global markets, with each partner contributing its specific strength, or core competency, to the benefit of all. These dynamic, independent but integrated enterprises, operate as a single entity and moreover have the ability to reinvent themselves, regroup and adapt rapidly in response to often unexpected changes or opportunities. To achieve this agility and be effective within its partnerships, an organisation has to address a wide variety of issues, ranging from technological and operational compatibility to informational and cultural integration.

Information has often been highlighted as the core of the virtual corporation [e.g. Davidow and Malone, 1992]. In this context the Internet has again been influential in changing the rules of the game, both as a repository of information as well as an infrastructure for information exchange. Having the right information available at the right time is an absolute prerequisite for successful innovation, problem solving, and recognising and exploiting opportunities. The amount of information available now through the Internet seems infinite with more people having faster access to it than ever before. This has direct implications for people’s ability to cope with growing amounts of information. The human capacity of absorbing information is not infinite, as recent reported cases of ‘information fatigue’ and increasing concern about information overload illustrate. Rather than feeling bolstered by what information they have gathered, staff may be left confused by conflicting sources of information, or they may be more acutely aware of the amount of information they have ignored or discarded. This phenomenon is quite the opposite of what employers were expecting, which was to turn their workforce into knowledge workers, who, through empowerment, multi-skilling, teamwork skills, and agility, could make an imaginative and intelligent contribution to business processes. These problems have been intensified by the realisation that, following the widespread downsizing exercises of the late 1980’s and early 1990’s, many organisations have found themselves without crucial knowledge about the organisation and its environment.

These concerns have sparked a renewed interest in information management and knowledge management in particular, encapsulating many principles of the learning organisation. In a learning organisation it is recognised that information should flow easily, and knowledge should be shared freely. Any relevant expertise or understanding that an employee may have should also be available for the benefit of other members of the organisation. Typically such an organisation would be expected to have a flatter and more team-based structure.

Although the concept of the virtual organisation is closely associated with computing technology, getting the appropriate technology into place is not, on its own, enough to make the virtual organisation successful. Byrne has identified five factors that distinguish the virtual organisation from other organisational forms: excellence, opportunism, technology, trust, and ‘no borders’. Each partner in the virtual organisation has its particular core competence at which it excels. The virtual organisation is opportunistic in nature and may be disbanded and/or reformed relatively quickly. It relies on communications technology and information networks to identify opportunities, partners and customers, while these technologies at the same time provide the infrastructure enabling the collaboration itself. Trust between the partners is a central premise to the virtual organisation, as all partners are reliant on each other, as their success depends on mutual co-operation. Finally the concept of ‘no borders’ describes the blurring of the dividing lines between companies. [Byrne, 1993]. Successful companies such as Dell, Gateway, Nike, Reebok, Benetton, and IKEA display some or all of the characteristics discussed here.

As employees are increasingly valued as knowledge workers, they are encouraged to use their initiative and scan the environment for data, facts, trends, rumours that may be significant to the organisation. It is their responsibility to identify relevant information, discard what is not important, analyse this information and then share it with colleagues. These knowledge workers are entrusted with this responsibility as part of their empowerment. The traditional, hierarchical organisation is structured around clear lines of command and control, where tasks and objectives are clearly defined, and their achievement is closely monitored. Within the virtual organisation however these control structures are not so clearly in place, and trust between both employer and employees, and between partners is an essential prerequisite to fully enjoy the efficiencies and other benefits of the virtual organisation. Handy discusses various conditions under which a climate of trust can be allowed to develop. Trust can only exist between people who are not complete strangers to one another, and who share a culture and a vision of what is to be achieved by them. Trust has to be earned and requires some sense of mutuality, of reciprocal loyalty. When trust is lost the consequences for the organisation will be immediate. His main argument is that people need a sense of belonging if they are to commit themselves to more than the simple pursuit of self interest. In a virtual organisation this sense of belonging can no longer be bolstered by a sense of place: in the virtual organisation a sense of belonging to a community must take its place [Handy, 1995].

An organisation’s culture reflects a set of values and beliefs that are understood and shared by members of the organisation. This culture helps to shape the behaviour of employees and practices within the organisation. A virtual organisation requires a culture where teamwork between employees and business units features highly among its characteristics, and where a level of trust exists that will make these forms of collaboration successful. More importantly, employees need to have a clear understanding of the organisation’s strategic direction to contribute effectively to the achievement of its objectives. In a virtual organisation these shared values are equally significant, if even more difficult to instil. Rather than focusing too much on the structure of the virtual organisation, attention should be paid to these cultural aspects.

For many years the Internet served a community of academics and researchers, and its usage was governed by unwritten codes of behaviour. It is only now that the use for commercial and entertainment purposes has increased significantly, that a need has been felt for regulation. However, companies that wish to exploit Internet technology can learn from the conventions which have governed the Internet for many years. The underlying dynamic of Internet collaboration is rooted in voluntarism, where partners are free to withdraw from relationships which they believe are not or no longer reciprocal. Where this voluntarism is threatened, the openness and explicitness of the structure is compromised. The mutual interdependence between partners in a virtual organisation should be openly recognised, as it is only on this basis that a willingness to share information and co-operate fully can be maintained.

As it is one of the key characteristics of the virtual organisation to redefine itself continuously, it is difficult to describe the concept of the virtual organisation other than in terms of the transformation that many organisations are currently undergoing. In a rapidly changing business environment, organisations are faced with innovative technologies, growing pressures on cost and development time, and rapidly changing customer demands. A way forward for businesses to cope with these rapid changes is to create an agile organisational structure which can adapt quickly to often unexpected changes and opportunities. Various models of the virtual organisation have been presented and are briefly discussed in this paper.

Although Internet technology is a central facilitator of the virtual organisation, the main problems facing organisations in their transformation towards a virtual organisational structure are not of a technical nature. The virtual organisation can only be successful and sufficiently agile if communication between partners is effective and a necessary level of trust exists between the partners. Learning is a central and ongoing process in the creation of an appropriate cultural in which the transformation towards a virtual organisation is encouraged. Staff should have confidence in their ability to adapt to continuous change, and partners in the virtual organisation must be able to earn the trust of their collaborators. In this context businesses can look to the origins of the Internet to appreciate the importance of voluntarism and reciprocity.

Byrne, J A (1993) The Virtual Corporation, Business Week, 8 February, p36-41.

Davidow, W H and Malone, M S (1992) The Virtual Corporation: Structuring and Revitalizing the Corporation for the 21st Century, HarperBusiness.

Hale, R and Whitlam P (1997) Towards the Virtual Organization, McGraw-Hill.

Handy, C B (1995) Trust and the Virtual Organization, Harvard Business Review, May-June, p40-50.

Jordan J (1997) Enablers for Agile Virtual Enterprise Integration, Agility & Global Competition, 1(3).

Mowshowitz, A (1994) Virtual Organization: A Vision of Management in the Information Age, The Information Society, 10, p267-288.

Snow, C C and Miles, R E and Coleman, H J Jnr (1992) Managing 21st Century Network Organizations, Organizational Dynamics, Winter p5-20.

Tully, S (1993) The Modular Corporation, Fortune, 8 February, p52-56.