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Author: Vernous Guyverson
Title: Managing in Virtual Environment
Area: Science and Engineering
Available for Download: Yes
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This essay aims to analyze theoretically the virtual organization concept. In renaissance period we have traced organizational networked business forms that perfectly fit the definition of what some scholars call virtual organization. Europe in the industrial society comprises several network businesses that liken the classic virtual organization concept. In order to comprehend the concept, it is worth studying different scholarships of authors since 1990. We will note that virtual organization is a dynamic concept that shifts from an organizational form to an organizational process. The definition of “virtual” opposing “real” will of great help without having a Manichean view of the subject. Consequently we intend to revisit the Virtual Organization concept in order to liberate a balanced view...

 1. The virtual Organization----------------------------------------------------------- 4

2. Characteristics of virtual organization --------------------------------------- 6

3. Typology of virtual organization ----------------------------------------------- 8

4. Revisiting the concept ----------------------------------------------------------- 10

5. The risks of Virtual organization --------------------------------------------- 12

6. Conclusion --------------------------------------------------------------------------- 12

7. References --------------------------------------------------------------------------- 13


1. The virtual Organization

The literature of management is bundled of “new forms” of organizations theories. Queerly these “new forms” stem from business practices which are dated since the beginning of humanity. Recently the intensive use of information technologies (IT) brings too many challenges and changes within/through organizations that scholars write a great deal of papers on new forms of organization generated by IT. Nowadays the real debate relating to new forms of business is summed up to virtual organization. What is virtual organization? Is virtual organization a new organization form or a new organizational process? What is the driven force of the virtual organization? Considering the management literature of the last decade, what have been changed in the virtual organization concept?

Often virtual organization is used to describe new organizational business forms that emerge with the application of information and communication infrastructures. According to Fisher (1998) & Hoefling (2001) virtual organization stands for a task, project or permanent organization which is decentralized and independent of any spatial connection. Considering the different relevant definition of the VO in management literature, the effort to understand better the subject and changes brought through the last years will pay off. Our analysis below is not taking into account all definitions coined by authors regarding virtual organization since 1990, but the chosen definitions can actually help grasping the characteristics of VO as a result figuring out what implies a virtual organization.

The enterprises involved keep their legal and economic independence. Lawyers have very different opinions of the body corporate of virtual organizations. But it is a common rule that virtual organizations are no joint ventures. They are may be called corporations of civil society (Gesellschaft Bugerlichen Rechts, §§ 705).

The purpose of virtual organization is the optimal use of opportunities which derive from the market and/or from resources (Weber & Walsh 1994).

The Virtual organization is a cooperation of enterprises.  Members of Virtual Organization can be great trusts as well as small one person firms. It is imaginable that a self-employed consultant becomes a member of virtual organization and of a multinational corporation at the same time. This means that virtual organization will be decomposed when the object is accomplished. In most cases virtual organization will only exist for a short time. If there are no other advantageous organizational alternatives to produce a special out-put, virtual organization are also imaginable for a long-term period (Arnold & Hartling 1995).

The use of information and communication technologies is a constitutional feature of virtual organizations (Mertens 1994). Sometimes IT is called an “enabler” of virtual oganisations (Suomi/Luukinen & Al 1996)

“(…) groups of agile manufacturing enterprises.” S. L. Goldman & R. N Nagel (1993)

« Par l’utilisation intégrée d’ordinateurs et de technologies de communications, les entreprises seront de moins en moins définies par des murs concrets ou par un espace physique, mais par des réseaux de collaboration reliant des centaines, des milliers et mêmes des dizaines de milliers de personnes ensemble. » S. Bleeker (1994)

“VO refers to a temporary or permanent collection of geographically dispersed individuals, groups, organizational units – which do or belong to the same organization –or entire organizations that depend electronic linking in order to complete the production process.”  B. Travica (1997)

“We define the virtual organization as a temporary, flexible arrangement of dispersed components, contributed my multiple organizations and linked together with information technologies.” D. Robey & al.,(1998, p. 277)

“A Virtual Organization is primarily characterized as being a network of independent geographically dispersed organization with a partial mission overlap. (…) Further, a Virtual Organization is secondarily characterized by a single identity with loyalty being shared among the partners and the co-operation based on trust and information technology.” R. Bultje & J. Van Vijk (1998, p. 16)

“(…) I define a Virtual Organization as any institutionalized form of the ability to provide its products and services more time and location independent than its competitors.” P. Sieber (1998, p. 258)

“Virtual organizations are electronically networked organizations that transcend conventional organizational boundaries, with linkages witch may exist both within and between organizations.” J. Burn (1998, p. 3)

2. Characteristics of virtual Organization


What do we learn from those descriptions? We note that distance work via information technologies is the ontological trait of the virtual organization in order to coordinate economic activities. The organizational process is not restraint by space and time. Members of the virtual team or virtual organization may never meet face to face or do not have to (Drexler & Sibbet, 1988; Hofstede et al., 1997; Favier & Coat, 1997; Knoll & Jarvenpaa, 1995; Jones & Bowie, 1998). The virtual organization has an appearance of classical organization but it is certainly not. Besides the fact that geographic space of work is no more, brick and mortar are not either principal characteristics of the organization. Thus we can define VO as:

  • A network of people or organizations which are independents.
  • Those people and organizations are realizing a common project or common economic activity.
  • The communication and information processes are hold through information technologies.
  • The organization does not depend on time and space to be made up.

The figure below points up well the principal’s characteristics of the virtual organization concept.

Therefore what can motivate a group of people and organization to create a virtual organization? One of the theoretical approaches to explain the formation of organization is transaction cost approach (Williamson 1985; Schmidt, R. H 1992). A cooperation which aims to produce a certain output (like goods and services) “has to choose a specific form of coordination from a continuum of various coordination possibilities” (Arbeitpapiere, 1996). The right choice should be based on the efficient type of coordination for each type of production process. For this reason minimizing the transaction-cost is the main criteria for choosing between the different coordination forms (Arbeitpapiere, 1996). The use of information technologies not only transforms the organizational process, but due to the absence of geographic barriers and time, it becomes largely feasible to minimize the transaction cost of enterprises cooperation as of the possibility of unlimited communication.

3. Typology of virtual Organization

According to Mowshowith (1994) the virtualization may be taken at different level. Venkatraman (1995) and Saaksjarvi suggest several stratums in the process:

  • Individual level or sub-intraorganizational is regarding local tasks involving a group of people in a distinct organization via distance communication process.
  • Organizational level when information technologies is used to coordinate the activities of the organization as an integration.
  • And interoganizational level is the last layer where numerous organizations utilize the information technologies to coordinate an economic activity (see the picture below).

The virtualization process of an organization may outcome a:

  • Virtual team, which is the simplest form of a VO, is a local team using information technologies to coordinate their connectivity and share their knowledge at lower cost.
  • Virtual project can involve several people or organizations in the realization of certain task which are a beginning and designated end.
  • Temporarily virtual organization is likening a virtual project involving several organizations in a designated period of time.
  • Permanent virtual organization is created when there is no designated period in their cooperation.


The table below depicts the typology of virtual organization (Palmer, J & Speoer, C:, 1997, 2001)


Virtual Teams

Virtual Projects

Temporary Virtual Organizations

Permanent Virtual Organizations

Range of Involvement

Internal to an organizational function or departmental unit

Across functions and organizations

Across organizations

Across organizations


Small, local


Typically larger

Typically smaller, but scaleable


Teams on specific, ongoing tasks

Multiple organizational representatives working on specific projects

Multiple functions responding to a market opportunity

All functions and full functionality as a working organization

Length of project

Membership varies, but form is permanent




Uses of IT

connectivity, sharing embedded knowledge (e-mail, groupware)

Repository of shared data (databases, groupware)

shared infrastructure (groupware, WANs, remote computing)

channel for marketing and distribution, replacing physical infrastructure (Web, Intranet)

Palmer, J & Speoer, C:, (1997, 2001)


4. Revisiting the concept

Far from the idea to consider the virtual organization as new form of organization inferred by the intense use of information technology, we should see virtual organization as an explicit or implicit transformation business process. Technology (an information system) which is the core of VO must be viewed as intermediary platform and not as the virtual organization itself (March & Simon 1979; Le Moigne 1984; Avenier 1999; Vidal 2000). Henceforth it would be simplistic to regard VO as a network of actors intermediated by a communication technology platform in the perspective to decrease transaction cost in the coordination of an economic activity. The flexibility of the VO provides (no time and space constraint, independence of actors) an exploration role in order to understand its environment and adapt itself regarding changes. Though the rational goal of the VO is to exploit (exploitation) opportunities to deliver an output, exploration is an ontological factor associated to its flexibility character (March, 1991).

When created a VO must pursue two strategic goals:

Exploitation: Utilization of ICT to coordinate economic activities between organizations in order to reduce cost and increase productivity and profit. A univocal view may result that organizations see only their management routine without being able to comprehend changes in their environment and find their way to adaptation.

Exploration: the members of the network must be ready to modify their perception regarding the evolution of their economic activities. As a result new knowledge will come up, and the VO will preserve its flexibility which is very crucial to survive in a turmoil environment.

It would be a snare as well to consider univocally the technology without seeing the human factor aspects. Should this organization creates a whole virtual relationship between partners? As the technological platform is an intermediary, how information will be interpreted?

The polysemiotic trait of information may result discordance in a virtual network (Le Moigne, 1990). The definition of a sign or “information” is depending on the environment, the context and the actors. Thus information can suggest a variety of perceptions and interpretations what remove any ontological character to “information”. Consequently a virtual environment is very complex to deal with when bearing in mind the cognitive factor of human behavior.



5. The risks of virtual organization

Beyond a formal contract that inoculates trust in a relationship in regard of a VO. The absence of physical space (face to face meeting) requires informal factors to perpetuate the relationship. Besides professional norms and quality standard procedures, informal factors like reputation (Callon & Licoppe, 2000) and recommendation are a must to ensure trust. Lorenz (1999) advocates that implicit engagement is more crucial than writing contract for virtual organization. He named implicit engagement as “moral contract”.

As we can see trust is the most important success factor in the case of virtual organization since physical contacts and other traditional ways to build trust is somehow avoided. Accordingly, Handy (1995) recommends physical contact to build and maintain trust for the reason that coordination of virtual organization will be a failure if the unpersonalization process is not taken into account (Meissonier, 2000).

Control is another big issue of VO when consider the limited physical contact and the independence of VO actors suggest by virtual organization theory. In a virtual environment, traditional ways to identify individuals and their locations are inefficient. If technology taxonomically engenders this challenge, technological applications offer new possibilities to control the organizations. Trust must be associated with control to lower risk in such environment.

6. Conclusion

The virtual organization was being viewed in the technology lens what had shadowed the complexity of the subject. We have seen in this paper that information technology is an intermediate platform between the actors of the network, and this intermediary must be completed with other traditional Medias in order to establish trust and control in virtual environment. The scholar and journalists always focus on virtual forms like portal and e-business models. The productivity and transaction cost was stressed as the main goal of virtual organization. Now we know that virtual organization mainly is an organizing process where economic exploitation is twined with an exploration perspective in order to remain flexible due to changes in market environment.

7. References

Ahuja, Manju K. and Carley, Kathleen M. 1998, Network Structure in Virtual Organizations. JCMC, 3(4):1-33.

Allouche, Jose; Contrôle, coordination et régulation: les nouvelles formes organisationnelles; Finance Contrôle Stratégie – Vol 1, No 2, June 1998, p. 5-31

Appel, Wolfgang and Behr, Rainer. 1998, Towards the Theory of Virtual Organizations: A description for their formation and figure. Virtual-Organization.Net - the Newsletter;

Aris, John 1998, Sep 12, (IMPACT, London). Working Group 4 of Project Achieve. Exploiting the Wired-Up World: Best Practice in Managing Virtual Organizations. London: The Impact Programme.

Bultje, Rene and van Wijkt, Jacoliene, 1998 Taxonomy of Virtual Organizations, Based on Definitions, Characteristics and Typology. Virtual-Organization.Net - the Newsletter. 1; 2(3):7-20.

Byrne, J. 1993, A. The Virtual Corporation, Business Week, 8 Feb, pp98-102

Cule, Paul E. 1995, Business Process Reengineering: Theory and Practice - Views from the Field. Chapter 3: Varun Grover, William J Kettinger Eds. Business Process Change: Reengineering Concepts, Methods and Technologies. Harrisberg, USA: Idea Group Publishing.

Dembski, Tomasz. 1998,Future Present: The concept of Virtual Organisation Revisited the Nature of Boundedness of Virtual Organisations. Virtual-Organization.Net – the Newsletter. Jun 1; 2(2):37-58.

Franke, Ulrich. 1998, The Evolution from a Static Virtual corporation to a Virtual Web. Virtual-Organization.Net - the Newsletter. Jun 1; 2(2):59-65.

Gill, Colin. Technological change and participation in work organization: recent results from a European Community survey. The International Journal of Human Resource Management. 1993 May; 4(2):325-348.

Goldman, S; Nagel, R; and Preiss, K Agile Competitors and Virtual Organizations, Van Nostrand Reinhold, New York, 1995

Lipnack, Jessica and Stamps, Jeffrey Virtual Teams: Reaching Across Space, Time, and Organizations with Technology John 1997 New York, Wiley & Sons Inc

Marshall, Peter; McKay, Judy; Burn, Janice, and Wild, Martyn. 1999 Aug, The Essence and Logic of the Virtual Organisation. Americas Conference on Information Systems; 1999 Aug 13-1999 Aug 15; University of Milwaukee, Wisconsin. Milwaukee, Wisconsin: Association for Information Systems.

Meissier, Régis, 2000; Organisation virtuelle : conceptualisation, ingénierie et pratiques Enquête auprès des PME de la région des pays de la Loire,  Doctoral thesis, IAE Aix-en-Provence

O'Leary, Daniel,E. Virtual Organizations: Two Choice Problems in proceedings of the 19th International Conference on Information Systems (ICIS), Helsinki, Dec 13-16 pp145-154

Sor, Roger. 1999, Virtual Organizations – Not such a new idea: A case study of the Housing Construction Industry in Western Australia. Proc. 10th Australian Conference on Information Systems.

Sieber, Pascal and Franke, Ulrich. 1998, Virtual Organizations: Static and Dynamic Viewpoints. Virtual-Organization.Net - the Newsletter; 1(2):1-8.

Thompson, James D. 1967, organizations in action. St Louis: Mc Graw Hill

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