The Virtual Organization

As information and communications technologies overcome the constraints of time and distance, it becomes possible to create virtual organisations. Virtual is usually taken to be something that does not exist in reality. So a typical definition of a virtual corporation (taking the dimension of time) is:

"a temporary network of independent companies linked by IT to share skills, costs, and access to one another's markets" (Business Week)

However, another definition relates to an organisation not having a clear physical locus. Here a typical definition is:

"an organization distributed geographically and whose work is coordinated through electronic communications."

Both definitions show how information and communications technologies can be used to exploit the dimensions of time and space. And with today's technology and infrastructure - cellphones, internet, email, wifi hotspots etc. - it is technically (but not necessarily organizaitonally - easy to work virtually.

A virtual corporation is a specific example of a networked organisation. Although, as indicated by one of the above definitions, some may be 'temporary', e.g. for the duration of a project, others once established, become stable and ongoing recognisable entities. The Star Alliance is such an example from the field of air travel. As well as such large alliances, small and medium companies, in particular, can benefit by being part of a virtual corporation or network. This gives them the benefits of the resources of a large organisation while retaining the agility and independence of a small one.

levels of virtual organization

The virtual organization can exist at several levels (see diagram)

  • virtual teams within an organization that operate across different geographic locations
  • a virtual organization where many of its functions are outsourced to other companies (often referred to as a 'hollow corporation')
  • a network involving people from different organizations - these virtual forms range from formal consortia, to people working on a cross-organizational collaborative project to a professional 'community of practice'
  • a network of organizations sharing some common goals and resources - the individual organizations are independent yet inter-dependent.

What follows can apply at all these levels, although it is written mainly from the perspective of the last example (the inter-organizational network).


  • Gives access to a wide range of specialized and knowledgeable resources - wherever they reside
  • Opens up a range of business opportunities which individual participants would not have the means to address individually
  • Can present a unified face to external stakeholders, e.g. potential buyers in the case of a virtual corporation, by co-orinating the efforts of multiple suppliers
  • Individuals and member organizations retain their independence and continue to develop their niche skills
  • They can reshape and change members according to the project or task in hand
  • Using appropriate technologies they can operate effectively by overcoming the contraints to time and distance
  • Contributes to reduction of risk and adaptation to competition and market changes
  • Knowledge sharing between members helps to increase the overall knowledge of each individual member.

The development of business networks as virtual corporations was well developed in Denmark in the early 1990s (see example below), and has since evolved in other countries. David Skyrme Associates has itself been a member of several virtual corporations, including ENTOVATION International. It has combine forces with other organization to create virtual knowledge teams working on transnational projects, or in putting together bids using complementary skills for large corporations, according to the client needs at the time.

Succeeding Virtually

Working in virtual corporations comes naturally to small company entrepreneurs and managers who are effective networkers. They are difficult for those with the conventional corporate mind to fathom out. Some of the ingredients for developing a succeeding virtual corporation are:

  1. Each partner must have some distinctive added value to bring to the corporation
  2. Members must develop high degree of mutual trust and understanding. Thus, very often the same people will work together again and again.
  3. Projects should be the focus of the corporation. Usually they will be for clients, but some projects e.g. marketing, can be done by a few members on behalf of the corporation as a whole.
  4. 'Rules of engagement' need to be defined fairly broadly up-front, in terms of inputs to the corporation and rewards expected, though the momentum is lost if these are too formalised too soon
  5. Members of the corporation should recognise the need for coordination roles, and either commit time to develop and nurture these or pay one of the members to undertake them on behalf of the corporation.
  6. A clear interface needs to be developed with 'non virtual' customers - they like tidy relationships and clear contracts. Thus either one member of the virtual corporation must act on behalf of the others (using them as subcontractors) or create a joint company to act as their contracts and administration service.

In bringing together many virtual corporations, the role of a network broker can be important. However, in our experience many virtual corporations will evolve naturally out of working relationships that have developed over years.


Here are some examples of virtual organizations and business networks in practice.

  • Business Networks in Denmark - In 1988 Denmark's Department of Industry facilitated the setting up of networks comprising 3 or more small businesses. The take up was dramatic with over 25,000 small and medium enterprises participating in over 1,000 networks by the mid-1990s. The three key ingredient were 1) a regional network centre to stimulate the formation of networks; 2) a support infrastructure to provide advice, some financial support, and various marketing services; and 3) a network broker. The latter role proved crucial in helping interested members identify suitable partners and bringing them together in a cohesive way.
  • Visa - Although Visa is an internationally known brand name, it is not like a conventional organization. Its founder Dee Hock refers to it as "an invisible organization". It is really a network of independent card issuers (such as banks) across the globe, but collaborating together to provide a seamless operation for card users. There is a core of central principles and rules that members must follow (such as protecting the brand), but otherwise it is a highly decentralized network where individual members are free to develop certain products, set their own pricing and do their own marketing under the Visa banner. It is owned and controlled by its members. As its website say "we are not a bank, nor a credit card company". Dee Hock is credited with creating the term 'chaordic' organization, maning a mix of ordered and chaotic!
  • Agile Web, Pennsylvania - This was an early example of 21 smallish engineering companies coming together to bid for customer contracts. It described itself as "a new corporate entity that brings together diverse capabilities, complementary skills and entrepreneurial innovativeness from an array of well-established companies to provide a totally integrated capability for fast-response product design and manufacturing." Activites such as strategic market planning, identifying and screening business opportunities, and providing a single contact point were done centrally. A key part of its philosphy is trust (between its members) and therefore it put great emphasis on a set of ethical principles to which all participants had to subscribe.
  • The Trust Group - This is a network of some 300 IT consultants whose members are mostly individual contractors. Founded in 1995 it describes itself as an "e-business that conducts the vast majority of our day to day operations through the Internet and are therefore ideally placed to offer real-world advice and solutions." It acts mainly as a referring body and its members pay a small subscription to cover administration costs. Like other virtual networked organisations, it is run by its members for its members.

Further Reading

Interestingly, this seems a field where the most significant material was written in the 1990s, when working virtually was something of a novelty. Though often out of print, used editions are often for sale on Amazon. Although examples change, the core principles remain.

1. Going Virtual: Moving Your Organization into the 21st Century, Ray Grenier and George Metes, Prentice-Hall (1995). In this book, the emphasis is on working virtually in globally dispersed teams. It is base don the authors' experience in DEC (the writer of this briefing worked in the same organisation)

2. Virtual Teams: Reaching Across Space, Time and Organizations with Technology, Jessica Lipnack and Jeffrey Stamps, John Wiley & Sons (1997). Don't be put off by the word 'technology' in the sub-title. This explores in depth many of the key ingredients of successful virtual teams, such as purpose, participation, process and trust.

3. Virtual Organizations and Beyond, Bo Hedberg et. al., John Wiley & Sons (1997). An interesting dose of theory, but with many real examples of small business networks from the author's homeland of Sweden. Read more...

4. Agile Competitors and Virtual Organizations, Steven L. Goldman, Roger N. Nagel and Kenneth Preiss, Van Nostrand Rheinhold (1995). Read more...

5. The Virtual Corporation, W.H.Davidow and M.S.Malone, HarperBusiness (1992). Read more....

6. 'The Interprise Toolkit', Chapter 8 in Knowledge Networking: Creating the Collaborative Enterprise, David J. Skyrme, Butterworth-Heinemann (1999). Read more....

The only worthwhile recent book appears to be Encyclopedia of Networked and Virtual Organizations, by Goran Putnik and Maria Cunha. Although it has over 2,000 pages, is it really worth over £650 (US'800)?

Website Links

1. eJOV (Journal of Organizational Virtualness) - the Journal for Networks and Virtual Organizations. An open source journal and one that has more case material than academic journals which have 'networking' and/or 'virtual' in their titles.

2. StartRightTM - although primarily a website of reference site for project managers, this section has a reasonably comprehensive set of links, though with no updating since 2006, several are now broken.

3. NetAge - the website of Lipnack and Stamp's company. Useful for its ongoing blog Endless Knots on the topic of virtual teams.

Related K-Briefings

Recently updated: The Networked Organization, The Learning Organization
Archive: Teleworking for Enterprise, Knowledge Networking.

© Copyright 2011. David J. Skyrme. Based on an original Insight created in Oct 1995. This material may be copied or distributed subject to the terms of our copyright conditions (no commercial gain; complete page copying etc.)

Last updated: 24th March 2011



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