What is it?

The term virtual organization is used to describe a network of independent firms that join together, often temporarily, to produce a service or product. Virtual organization is often associated with such terms as virtual office, virtual teams, and virtual leadership. The ultimate goal of the virtual organization is to provide innovative, high-quality products or services instantaneously in response to customer demands.

The term virtual in this sense has its roots in the computer industry. When a computer appears to have more storage capacity than it really possesses it is referred to as virtual memory. Likewise, when an organization assembles resources from a variety of firms, a virtual organization seems to have more capabilities than it actually possesses.

There are two important characteristics of virtual organizations: (a) They depend on teams, and (b) they have a very fluid structure. Virtual organizations use teams to conduct most of their work. This means that employees must depend on each other to complete their work. Additionally, teams form and disperse frequently and easily. Thus, the organizational structure changes often as teams reorganize to meet the organization’s needs.

Although the concept of a virtual organization in which employees never interact face-to-face is intriguing, such purely virtual organizations are very rare. Instead, many organizations have degrees of virtuality, that is, some aspects of the organization are traditional but others are considered virtual. Virtuality can vary along four dimensions:

1. Space: The physical location of the employees—are they colocated or dispersed in different places?
2. Time: The time zone in which the employees work— are they working the same business hours or are they dispersed across time zones?
3. Culture: The employees’ culture—are employees from the same culture or country or from different ones?
4. Boundary: The organizational dispersion of work— do the organizational processes stay with the organization or are they outsourced?

Organizations vary in their virtuality. At one end of the continuum are organizations such as Amazon.com: Although Amazon.com is a very successful retail organization, there are no Amazon.com stores in which customers can buy books. Instead, customers buy books, music, and many other items through the Internet. Amazon.com’s employees rarely interact with the customers. They do, however, interact with each other face-to-face and through technology at several offices around the United States and the world.

At the other end of the continuum are traditional organizations with a worldwide presence. For example, IBM has offices across the world. It also has a significant number of telecommuters and employees located in customers’ offices. Employees work together as teams, which may interact completely face-to-face, completely through technology, or through some combination of the two. The teams may be located in the same time zone or spread around the world. Thus, IBM and other large multinational organizations may have components that are very much like traditional organizations and other components that are very much like virtual organizations.