An Exploratory Study of Virtual Organization From The Viewpoint of Science And

Kang-Lin Peng Dept. of Business Administration, Nation Taipei University PO Box 27-90, Taipei 104, Taiwan ROC, (886)2-22589920, p.kLl_2_l8~.m_s9:hj.n_e_t.n_e.t

Chi-Ya Chang Dept. of Business Administration, Nation Taipei University PO Box 27-90, Taipei 104, Taiwan ROC, (886)2-26666866, [email protected]

ABSTRACT

Depending on the assistance of the highly developed information science and technology in daily operations, contemporary organizations then have the opportunities to make a tremendous breakthrough to accomplish the organizational missions without being constrained by the original physical boundaries. Therefore, the basic concept of this paper is trying to elaborate the impact of virtualization of contemporary organizations under the development of science and technology especially with an emphasis on how the variables of organizational design affect characteristics and development of internal and external organizations. Foreword Contemporary organizations have been extremely affected by rapid development of information science and technology. In early 1958, Leavitt & Whistler (1958) made their predictions on the changes of organizational boundaries under the development of information science and technology. Drucker (1988) also believed that, inevitably businesses would become the organizations based on informational technology. Recent developments in capabilities, such as the and artificial intelligence, allow the development of new implementations of virtual organizations that exploit the capabilities of those new (Daniel, 1997). In fact, the modern organizations have found the opportunities to make a tremendous breakthrough to accomplish the organizational missions without being constrained by the original physical b, ,ndaries. For example, the techniques of teleconference have made the possibility of conducting meetings without a real conference room. Hence, the applications of distance learning by have facihtated studying without coming to a real classroom. Especially for the requires employees and business partners to be geographically and temporally distant from one another, deploying information technologies with a virtual organization is an obvious choice for overcoming spatial and temporal boundaries (Marie-Claude Boudreau, etc, 1998). These facts imply that the organizational virtualization has gradually made the structure and pattern of modern organizations changed. Consequently, this paper attempts to elaborate the impact of virtualization of contemporary organizations under the development of information science and technology especially with an emphasis on how the variables of organizational design affect characteristics and development of internal and external organizations.

Definition of the virtual organization According to dictionary of Wecharlse, the definition of 'virtual organization' is 'being so in effect, although not in actual fact or name'. However, Davidow & Malone(1992)assert the meaning of

1009 'virtual' is 'The power of something comes from the others'. On the other hand, Mindrum (1995) indicates that from the meaning 'capability' of Latin root of the word, virtual means the powerfial effect of something, not the powerfial form of something. In conclusion, the concept of 'virtual' includes are at least two: one, concerning about the effect, the other, without any constraint of forms or physical boundaries. This completes the operational definition of 'virtual' in this paper.

Lucas & Baroudi(1994) are the first researchers to put the consideration of science and information into the variables of organizational design. They suggest that the traditional physical boundaries can be replaced with electronic devices. In hence, electronic connections and electronic will be the main portion of organization. The organization will then take the information techniques to monitor people and groups in distance. Furthermore, strategically, the organizations will intensively use work flow and EDI ; In addition, Bleeker (1994) indicated that virtual organizations, through the assistance of integrated computer system and telecommunication technology in linking with people, enable to be formed by co-operation net. In a word, in order to cope with the rapid change of the external environment, through a set of specific processes of information technology and arrangement, the virtual organization perform its organizational fianctions with resources which are obtained from the market with reasonable price to satisfy the internal as well as external requirement of the organization.

Though it looks like dynamic net organizations introduced by Jarvenpaa and Ives (1994), the virtual organizations emphasize more on the capability of abstraction of need and then using resource allocation processes to allocate resources. Through the mechanism of internal and external market to lower the prices, the virtual organization will enhance its competitiveness. Therefore, the operational definition of virtual organization in this paper is 'equipped with information technology as tools, taking the major consideration of effects and capabilities, breaking the physical boundaries and constraint of traditional organizational forms, the virtual organizations continuously create new organizational types and make good performances.'

The application of information science and technology in virtual organization Bleecker (1994) believes that depending on the application of integrated computer system and telecommunication technology, it can assemble thousands of people between businesses to form a cooperative net. And the purpose of this is to solve the complex problems of internal and external dynamic cooperation of organization. In another words, these are the problems of complexity of works and organizations.Smith and Wolfe (1995) believe that under the impact of globalization and computer technology, the purpose of emergence of virtual organizations is to reflect the complexity of environment and change in advance, which applies the client-server architecture to establish a new type of organization. New infrastructures mean economic transformation and growth, qoday, computers, linked by telecommunications, are creating a new infrastructure that will transform the economy and business organizations(Davis, 1996).

To effectively control the dynamic market, to grasp the key information of potential objects to be cooperated with, to master every movement of the objects cooperated with now, to freely share the internal operation information and effectively make decision on the information mentioned above are the critical points of requirements to the virtual organization on the application of information science and technology.

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~ • The*%***°°°**i Org s t~undary is distinct • Controlwith bureaucratic system r.- The dynamic of environment

Fig. 1 Traditional organization vs. Virtual organization

Effect of Information Technology (IT) on Virtual Organization I . Effect of IT on the Internal Organization To gain a better understanding of the effect, it is useful to view it from seven distinct perspectives: vertical control, horizontal coordination, organization and size of its composing units, new coupling forms, core products, communication culture, and ownership and management control. The seven perspectives are defined as follows:

Vertical control. Vertical control provides technology-based methods for coordination and control in which to reduce the amount of coordination by human beings. Heydebrand (1989) described this phenomenon as implementation of technology rationalization instead of group rationalization.

Horizontal coordination. (1)Processes in information systems: Integration of information and telecommunication technology dramatically shortens the explicit distance which is required. This even makes it a lot easier to communicate horizontally (Monge & Fulk, 1995). The installation of local storage units, located at the remote distance away from the headquarter warehousing facilities, is the internal distribution system that applies the information and telecommunication technology for horizontal coordination. On the other hand, the similar situation falls on both the sharing of coupling documents in the office and the communication systems via e-mails. It's more and more prevailing that the coordination of work processes relies on electronics not the manpower. (2)Concurrent engineering: Traditionally the product design in a company is based on a sequential "Throw-over-the-Wall" concept, which processes the design works within the functional areas of business step by step. This concept is now replaced by the one called concurrent engineering, which emphasizes the parallel processing, resulting from the integration of information and telecommunication technology. With application of the technology, when designing products, CE combines the participants including designers, engineers, and even suppliers of the company concurrently to ensure shorter time-to-market.

Organization and size of its composing units. The streamlining of organization along with the business reengineering makes it possible that the multifunctional, sequential processing be replaced

1011 by the integrated efforts from a single unit or function. IT plays a vital role in streamlining and coordinating the multifunctional environment. By doing so, virtual organizations capitalize and those traditional cumbersome ones no longer exist. Meanwhile, IT can also streamline the organization through redesign of the value chain. If the 1980s were about vertical integration in a company in which to secure the supplying resources, then the 1990s were about establishing partner relationship with the suppliers. Companies invent to help improve the IT capability of their suppliers (Cash et al., 1992) to further gain a robust business performance and a reduced need from vertical integration within the companies. Another related strategy is the miniaturization of organization with external support from value chain activities of the company. Outsourcing of non core-valued products can not only reduce the size of core structure and the scope of internal value activities, but also the streamlining of management levels, including the executives (Cash et al., 1992; Quinn, 1992).

New coupling forms. IT enables the distinct, miniaturized units in virtual organization to maintain a sound vertical and horizontal coordination. It further helps to create the combining types of organizations on a multi-organizational basis. These so-called new coupling forms emerge when innovation is seeking via internal business operations while still having the ownership and control of the organization to some extent at the same time. Under the circumstances, the procurement of resources, preparation for the core competitiveness, management of organization culture, and determination of key employees are activities faced by the core organization (Quinn, 1992). IT-based systems link the core organization and its internal business operations closely while letting the company running at its own will.

Core products. In a well-developed economic system, the focus of economic 0activities is being shifted from manufacturing to service industry. And outputs of the service industry are mainly organized around the information and symbols instead of engineered, physical products. The two major changes accompanied with this shifting are wider cooperation among the distinct networks and the changing of information other than the physical products processing by the production systems. Engineered products differentiate with their processing procedures while, if in service industry, the process itself is the core product. It is important to have a clear distinction among manufacturing and service products to avoid possible limitations on measurement of standard processing proced0ures (Heydebrand, 1989). It is found that, in addition to the other metrics, customer satisfaction now has prevailingly become a significant indicator for measuring product quality (Quinn, 1992).

Communication culture. The growing popularity in e-mails and view exchanging systems provides the weak ties support, associated with innovation as a whole, for people possibly unknown to each other in virtual organization (Granovetter, 1972; Rogers, 1983). Virtual organization has no longer been dominated by fixed standards but rather flexibility and innovation with which to bring about a flowing authority. However, obstacle from this domination is the lack of permanent expectation among the internal customers toward the company.It is obvious that the combination of flowing authority, lack ofpermanent expectation and explicit working environment characterizes the so-called virtual organization culture. It is indeed the information and telecommunication technology, especially the Internet, to carry out the changes (Nohria & Berkley, 1994). The Internet's sudden growth in popularity and the virtuality it brings about is the creation of linkage of virtual communities in the organization (Jones, 1995). These communities are working groups, which are both purpose and profit-oriented, aim at fulfilling the organization's tasks.

1012 Ownership and management control. Decentralization allows people to make the right decisions for their own local situations. In this regard, IT enables decentralization to have the monitoring capability and the power for centralization to some certain extent. It is thus not required for the organizational endeavors to strike balance between centralization and decentralization. Modern information and telecommunication technology allows the two organizational structures to co-exit (Heydebrand, 1989; Keen, 1990; Burris, 1993). Meanwhile, the creation of bureaucratic organization dictated in trading cost theory is to establish the coordinating processes with the application of internal management, rather than the application of decisions on cost control through external market mechanism (Coase, 1937; Williamson, 1975). Development of information and telecommunication technology also provides a wide spectrum of opportunities presented in the form of electronics market. In addition to the traditional bureaucratic organizations and market mechanism, Powell (1987) further presents a mixed model which combines the above-mentioned bureaucratic organizations and market mechanism as a sophisticated network. Compared to the traditional one, the new networking organization has several key issues: (1) Supplementation of workforces rather than employment ship;(2)Communication is through association rather than routine work;(3)Disputes are solved fairly through exchange and discussion of views rather than mandatory;(4)More flexible than the bureaucratic organizations but less than the market mechanism;(5)Relative similarity in commitments; (6)Based on mutual benefits rather than sticking to the formal procedures;(7)Based on mutual-reliance rather than dependence;(8)A mixed, and multifianctional type of organization.

11. Effect of IT on the External Organization

Coupling within the organizations. The value chain of a bureaucratic organization is basically changed whenever outsourcing or in adoption of IT to build relations with other companies. This new coupling form, also called as electronics integration result, is developed through IT (Malon et al., 1987; Venkatraman & Zaheer, 1994). For example, a company might demand its suppliers to develop a specific type of EDI system to ensure a close coupling relation between purchaser and suppliers.

Strategic alliance. Strategic alliance is gaining its popularity nowadays. It not only operates in the companies under the same value chain system but also prevails across different industries, which links different value chain systems as a result. Information systems play a major role in a strategic alliance effort. For example, the credit card users of a bank are offered the privilege to enjoy service from free flying mileages due to the strategic alliance between the airliner and the bank. Strategic alliance across different industries with different characteristics changes the relation among the organizations in which they are not only purchaser versus supplier, but also competitor or customer as well. While viewing the strategic alliance in terms of the current situations, a growing consensus is that the value chain might be changed as the value group in today's business climate.

Interstitial linkage. More and more organizations are capable of linking the interspaces among themselves and those with company goals similar but not in competition with each other. This can both improve the coordinating jobs which are not well prepared at the beginning, and develop new product or service able to link the common goal. A firm under the circumstances is required to meet the demand for sharing the goal and group activities along with. Examples include the international alliance on telecommunication service, suppliers' alliance on medical health, the Japanese local companies, and so on. In this regard, telecommunication and information technology provides

1013 required supports, to a great extent, for those organizations with interstitial linkage when focusing on research and development issues.

The conclusion From all of the descriptions above, we realize that the philosophy of traditional organizations and the virtual organizations is quite different. The virtual organizations are emerged in cope with the rapid changes of the external environment. Depending on the assistance of information science and technology to shorten the processes of product development, the virtual organizations are capable to quickly response the threats from competitors' and lower the cost of organizational development. At the same time, the virtual organizations set the target of pursuing higher customer satisfaction. The employees of a virtual organization should be like associates. They help, trust and cooperate with each other to pursue the success of the entire organization. With the capability of self-control, employees work together to accomplish the organizational goals and to make the survival of the virtual organization. Due to the development of information science and technology, the power of decision making within a virtual organization belongs to everyone inside the organization. In order to make quick response to the rapid change of the environment, the power is decentralized rather than centralization.

Through the assistance of information science and technology, the virtual organizations are able to quickly response to the outside environment, to reduce the risks bared. Also the technology assist the organizations in close cooperation with the up-stream and down-stream suppliers. Within the processes of cooperation, the organizational functions, such as R&D, production, marketing, customer service can be outsourced or using work force outside to accomplish the work. Therefore the virtual organizations can be existed without formal boundaries or fixed forms. For example, at the moment of truth, there are much manpower can be used in a virtual organization than a traditional organization.

The virtual organizations take the advantages of information science and technology to acquire or make connection with outside resources, such as manpower, production, equipment, etc. On the other hand, participants in the free market are trying their best to lower cost and raise quality of products. Consequently, as long as to maintain a well-organized processes of allocation arrangement, companies can obtain the most suitable resources suppliers from the market. Then, suppliers within the market will coordinate with each other well to make a optimal production of the market.

In Conclude, there are significant factors that contribute to the success of virtual corporations: focus on customer needs, the right choice of partners with necessary core competencies, win-win relationships, the need for trust and communication, up-to-date information technology, and a new breed of computer-literate managers and educated workers(Christie et al, 1998). Depending on the highly development of information science and technology, the virtual organizations are able to sustain the unique advantages. Obviously, the virtual organizations will become the main wave of organizational development while the information science and technology is continuously developed in the ~ture.

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