Virtual Corporation

By Zahra Zadegan khaje

Outline

What is virtual corporation? The Evolution of Virtual Corporations Evolutionary Stages Of Virtual Organization Dimensions of Virtualness Information and Communication Systems in

Virtual Corporations Management Implications

What is virtual corporation?

The virtual corporation is a temporary network of independent companies-suppliers, customers-linked by information technology to share skills, costs, and access to one another's markets. It will have neither central office nor organization chart. It will have no hierarchy, no vertical Integration. Instead of a physical address as registered offices, it has IP address. Instead of faxes they use email, and so on

The virtual corporation cannot therefore be viewed as an institution. Virtualness is defined as the ability of the organization to acquire and maintain critical competencies through its design of value-adding business processes and organizational structure.

The relationships between the corporations are essentially voluntary, although economic dependence may also lead to inherent pressures.

The Evolution of Virtual Corporations The term was a buzzword in the 1990s for several

reasons. The concept became popular during the dot-com era, when demand was high for new kind of services that traditionally organized companies relied on outsourcing to perform. In the day of the dot-com related businesses it seemed like everyone was so busy that they had to outsource most of their jobs to someone else.

The idea that you actually didn't need to have a large number of regular employees to be a major player caught on, and thus virtual corporation became one of the typical ways of describing this phenomenon .

The evolution of a virtual corporation is therefore not a fast process.

if the capability is there, however, then it is likely that partners will be switched increasingly rapidly as this is the only way of introducing the necessary flexibility. The change is often led by an expert, highly-influential opinion leader.

The motives for virtualization are many and varied. Often it is seen as a way of reducing complexity, thus permitting greater flexibility of response. Other reasons include basic legal conditions or an improved incentive system that hamper vertical integration.

For example, in the development of markets in new regions, virtualness can help in putting knowledge of the local culture to use. Reduction of uncertainty is common to all motives.

Virtual organization is not appropriate in a stable market at a time when there are no technological upheavals

Evolutionary Stages Of Virtual Organization

Stage 1: An individual corporation reaches the first evolutionary stage of virtual organization, for example, by concentrating production for all its sites into a single location. Through outsourcing decisions or the formation of profit centers or independent corporations from previously integrated business units, a network of companies is now formed that supplies the same goods or services to the market.

Stage 2: Intercompany information systems are already needed by the time this second evolutionary stage is reached, otherwise some of the advantages gained through the technological integration of the various business units would be lost. This outsourcing stage is often accompanied by the introduction of Electronic Data Interchange (EDI) and just-in-time delivery arrangements.

Stage 3 : The third evolutionary stage is characterized by the integration of customers and/or suppliers into the value adding process. Here, too, information systems play a significant role. This third stage is also called the company network by other authors, since it involves more than two legally independent, yet economically interdependent players in the supply of goods or services (c.f. Sydow/Windeler 1994(. If the corporation that was originally vertical integrated has learned the skills of virtual organization while working its way through the evolutionary stages, it will now be capable of using its relationships in the network selectively. It can limit its activities to the coordination function and act as an "information broker

Stage 4 : As the corporation moves toward evolutionary stage 4 there is a risk that the corporation may get rid of all its core activities, leaving a hollowed-out" form which, ultimately, will no longer be capable of proper differentiation (the "hollow corporation" risk). For this reason the corporation often retains several core competencies and acts as broker for the "marginal activities" only.

Thus Microsoft, for example, whose core competence is in the area of standard software development, has surrendered its production, sales, marketing and distribution activities to third parties.

Dimensions of Virtualness

a corporation passes through three stages of virtualness, whereby it aims to achieve efficiency in three main areas:

resource efficiency for example:out sourcing virtual storage strategic

partnership market efficiency for example :EDI ,web marketing ,etc. process efficiency for example:tele-commuting ,wireless technologies by implementing virtual organization measures

Information and Communication Systems in Virtual Corporations The demands made on information technology for supporting company networks

are characterized by attempts at integration. Electronic interoperation is supported by three pillars:

automation of information flow and the elimination of media breaks ) machine-to-machine communication: EDI( the interchange of unstructured data (human-to-human communication:

Groupware( the linking of several local area networks into wide area networks man-

machine communication both within and outside the corporation's ownsite(

At the moment these three requirements are fulfilled - at least in part- by proprietary and deduced systems, although the closed nature of these means that flexibility in the company network is greatly reduced. For progression toward the virtual corporation, these systems must satisfy new conditions: The technology must make it possible to enclose, within a network, corporations whose levels of technological development differ considerably. The PC network of a SME, the client-server application and the mainframe applications in the major corporation must be interoperable.

In virtual corporations, partners change as the markets change. This means that it must be possible to implement such changes quickly without sacrificing the necessary security. System functionality must be as broad as possible in order to support the three forms of communication mentioned above. This places very high demands on standardization. At the same time, the penetration of the technology is also an important factor. The more potential partners, suppliers, and customers that have access to the technology, the greater the flexibility - in technical terms - that can be built into the network structure. Internet technology appears to meet some of these requirements better than others, even though, at present, it is still greatly lacking in terms of functionality. All this means, however, is that corporations still have to create the applications that are missing. Current trends indicate that this is exactly what many large corporations are trying to do. IBM, McDonnell Douglas and many others are currently converting their corporate networks to intranets - therefore using Internet technology within their corporations

Management Implications

If the company network (evolutionary stage 3) already benefits from the optimization of intercompany processes (win-win situation), thus achieving external "economies of scale and scope", then an additional feature of the virtual corporation is resourcefulness, a priority requirement in volatile markets. Resourcefulness, however, is not based on having excess capacities and a supply of resources, but on the ability to reconfigure the company network quickly without incurring any increased risk by doing so. For the management, this means that greater demands will be placed in future on both the "partnering" aspect and on keeping processes under control. If managerial authority no longer exists and relationships are no longer established on a permanent basis, potential business partners must be systematically monitored.

The concept of Business Process Reengineering (BPR) has already led to new roles within the corporation (e.g. the process owner). The latest empirical studies indicate that sets of tasks can be regrouped with virtualization. Virtual corporations seem to have increased requirements for rational selection of partners, ad-hoc organization, efficient allocation of resources (e.g. using "artificial" market mechanisms) and continuous evaluation of processes and partners. It is still unclear what these new roles are to be called (e.g. network manager, contact promoter, broker, information broker). Even discussion of their exact content is relegated to the sidelines.

When we talk about virtual corporations today, we're mainlytalking about alliances and outsourcing agreements,'' says JohnSculley, chairman of Apple Computer Inc. ''Ten or 20 years fromnow, you'll see an explosion of entrepreneurial industries andcompanies that will essentially form the real virtual corporations.Tens of thousands of virtual organizations may come out of this

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