In the name of God

Mehrdad Madhoushi, PhD, Business Management department, Mazandaran University, IRAN Email: Tel: +98(112) 5245415 Fax: +98 (112) 5242704

Measuring the effectiveness of virtual organization in Iran Electronics Industries (IEI)
Mehrdad Madhoushi Mazandaran University, IRAN Key words: Organizational effectiveness, Virtual organization, Iran Electronics Industries (IEI)
Abstract: Increasingly, the trend of agility, mass – customization, global markets and supply sources and the increasing demand by consumers, are shifting the competitive focus to complex and rapidly changing virtual organizations. In rapid technological development and increasing competition area organizations co- operate in many different ways. New ideas and concepts that emphasize the role of virtual organizations and networks have currently been introduced with changing in business environment and customers, needs. Important reasons for increasing and expanding organizational networks are mass- customization, extension of products, globalization, and agility. The paper tries to explain how the effectiveness of Fables factory as a virtual organization in Iran Electronics Industries has been measured. For measuring virtual organizations effectiveness in this research, the

stakeholders (constituencies) satisfaction approach has been used. In this paper at first virtual organization, its characteristics been explained and then the organizational effectiveness has been preceded. The employees, customers, company's owner and contractors as stakeholders have been identified, their satisfactions were measured and the results have been included in this paper.

Organizations are the main elements of the new societies and management is the most important factor in the life, growth and death of an organization. Nowadays wide changing and acquired progresses in Information technology area during last few decades require an inevitable revision in different problems, among them, the structure of future organizations. A proportional organizational shape for future space is virtual organization. Virtual organization is a temporary network of independent companies, which combine their individual core competencies to optimize the process to each other’s markets(Roland Bauer).The structure of these organization tries either to keep organizational units smaller in a way to warrant many benefits or to avoid spreading large organizations which require huge 2

targets. Clear-sighted believe that establishing virtual organization causes effectiveness in organization especially in future.

The main purpose of this research is “measuring the effectiveness of the virtual organization in Iran Electronics industries.” The main question is as follow: • Has the virtual organization in Iran Electronics industries been effective? The effectiveness measurement is characterized by a number of divergent approaches. Due to the lack of a common framework most of the available theoretical and empirical work cannot be compared, and can, for this reason, hardly contribute to general understanding of the phenomenon. It is therefore important to apply an established and empirically well assessed theoretical framework that can guide and structure this research. For measuring the effectiveness with modern method, the two following approaches used (Daft, 1998): - Stakeholder Approach (Constituency Approach). - Competing Values Approach. This research have been used the S.O.C approach (Satisfaction Of Constituencies approach)/ satisfaction of stakeholders approach for measuring the effectiveness of Fables factory as a virtual organization in Iran Electronics Industries (I.E.I). In this approach with due constituency, many different activities are integrated together. It is possible, that one of the constituencies situates in the organization or in other organizations that have some benefits in cooperating with the virtual organization. Customers, employees and companies' owner, Contractors are constituencies in this research. For determining the effectiveness, their satisfactions have been measured.


By measuring the satisfaction of each stake holder the effectiveness of virtual organization in Iran Electronics Industries (I.E.I) has been determined. The sub questions of this research are as follows:
• How much is the satisfaction of the employees? • How much is the satisfaction of the customers? • How much is the satisfaction of the contractors? • How much is the satisfaction of the company's owner?

In the company not all the constituencies have the same importance. Because of that, the importance degree of each of the strake holders has been indicated by Analytical Hierarchy process (AHP).
Figure 1- Flow Chart of Constituency approach


Transmissio n process


Satisfaction of constituencies


The owner, satisfaction were measured by the ratios of benefit and sale, and comparing them with other factories. The employee’s satisfaction was measured by Job Descriptive Index (JDI). In this model by using a standard questionnaire, the satisfaction of this constituency has been measured.


The customer’s satisfaction was measured by Service Quality Index (SQI). In this model there is a standard questionnaire by using which the degree of customer's satisfaction has been measured. The Contractors’ satisfaction was measured by a questionnaire that after interviewing the contractors has been made.

Theoretical Background
○Understanding virtual organizations Maarit Ivalo say, There were two interesting definitions of a Virtual Organization as follows: First, “A Virtual Organization is a temporary network of independent institutions, enterprises of specialized
individuals that, through the use of Information and Communication Technology, spontaneously unite to utilize an apparent competitive advantage. They integrate vertically, bring their core competencies and act to all appearances as a single organizational unit”.

Second, “a Virtual Organization is an identifiable group of people or organizations that make substantially
more use of Information and Communication Technologies than physical presence to interact, conduct business, and operate together in order to achieve their objectives”.

The aim of the Virtual Organization is to

achieve market differentiation by performing better. The corporation obtains all non-critical competencies (activities) from outside, i.e. from other corporations with which it forms a Virtual Organization. Furthermore, it aims to improve competitiveness and productivity, to enhance efficiency and responsiveness and decrease overheads. Key factors mentioned are: emphasis on a more egalitarian approach to management, the entities
involved are interdependent

and yet tied together in a loose network with some pre-defined procedures or

protocol to guide any collaborative arrangement entered into, the key to creating a Virtual Organization is “human” and not technology, a Virtual Organization must touch on (an) issue(s) that have a direct, immediate impact on the group involved, legislation on the Virtual Organization might differ from country to country, commitment from each participant to the Network Organization (spontaneous Network Organization) or to reaching the (short term) goal of the Network Organization (forced Network


Organization), all comments should be public and shared with the entire group . Learning how to think in the Information Age is the single most critical “technology skill” which you must acquire as an associated partner.

Eva Fuehrer brings her definition to the discussion: “A Virtual Organization is a temporary
network of independent institutions, enterprises or specialized individuals that, through the use of information and communication technologies spontaneously unite to utilize an apparent competitive advantage. They integrate vertically, bring their core competencies and act to all appearances as a single organizational unit. Fuehrer is aware that her definition of a Virtual Organization is an ideal type definition which needs explanation and also awareness of its limitations”.

Two reactions to the definition of Fuehrer: Louis Mousy replies that it is a problem for a Virtual Organization to quickly find the necessary and reliable organizations to cope with a new project. Gary L. Fetgatter says that if there is a definition of temporary there must also be a definition of permanent. Fuehrer answers that when she was discussing the features of a temporary Virtual organization she did not imply that a permanent organization can not have temporary structures or can not react swiftly to changing market conditions. However, she does think that Virtual Organizations have the ability to react faster than highly bureaucratic or traditional organizations. And this is their advantage. She goes on to say that temporary cooperation is not the only characteristic of a Virtual Organization. Thus one cannot generalize from one characteristic of one concept to one characteristic of another concept. Projects as well as Virtual Organizations do involve temporary cooperation of people within and/or between organizations, but a Virtual Organization is more than that. What about the notion of core competencies or value adding partnerships. That is what she sees as the difference between a project and a Virtual Organization. Guy Morrissey then comes up with another definition from Lipan, J.; Stamps, J. [1]: “A virtual team, like every team, is a group of people who interact through interdependent tasks guided by
common purpose”.

Unlike conventional teams, a virtual team works across space, time, and 6

organizational boundaries with links strengthened by webs of communication technologies. For the purpose of this discussion the word “team” could be changed into “organization” in the definition. The discussion about terms and definitions continues. Pascal Siebel quotes Arnold, O.; Faisst, W.; Hurtling, M.; Siebel [2]: “A Virtual Organization is a form of cooperation involving legally autonomous companies, institutions
and/or individuals delivering a product or service on the basis of a common business understanding. The cooperating units participate in the collaboration primarily with their core competencies and present themselves to third parties as a unified organization, when delivering the product or service. In so doing, they largely dispense with the institutionalization of central management functions for shaping, managing and developing the Virtual Organization, through the use of appropriate information and communication technologies”

(Translated from Germany by the author).

And Venkatraman, N.; Henderson, C, (1996), says: “Virtualness is the ability of an organization to consistently obtain and coordinate critical competencies
through its design of value-adding business processes and governance mechanisms involving external and internal constituencies to deliver differential, superior value in the market place.”

The Virtual Organization versus The Post-Bureaucratic Organization is: • Transformation-by means of information technology of paper into electronic records • Computer-mediated communication replacing human communications as a means of conducting the primary activities of the organization and maintaining organizational coherence • The implosion of bureaucracy with the eradication of specialized tasks replaced by cross-functionality • The networking of individuals from technically separate firms (such as suppliers, customers, and even competitors) to the extent that clear external boundaries of the organization become difficult to establish in practice Most discussions in the literature gloss over these failures with the statement that Virtual Organization is enabled by the use of new information and communication technologies.


Someone finds that the definition does not emphasize the distinguishing features of Virtual Organizations, for example, the temporal relationship, the benefits from the cooperation, the local goals of different companies. Also a “virtual company “is not the same as a Virtual Organization. For example, a university can be a virtual organization, but it is not a company. A company is in business, and its aim is to make profit. (Strausak Nicole) The following definition of the Virtual Organization basic on above dissuasions was offered:
“A Virtual Company has been defined as one where complementary resources existing in a number of cooperating companies are left in place, but are integrated to support a particular product effort for as long as it is viable to do so. Resources are selectively allocated to the virtual company if they are underutilized or they can be profitably utilized there more than in the home company”, (O’Leary, Daniel and Plant, 1997)

○Virtual Organization Lifecycle Model (Strider et al, 1998) According to Strider et al (1996) virtual organizations go through four distinct phases during their life cycle. This life cycle constitutes identification, formation; operation and termination phases (see Figure 2). Each step is accompanied by distinctive challenges and tasks. Mowshowits (1994) and Strider et al. (1998) propose tasks, decision processes and management activities that initiate and support the change process.
Figure 1- Virtual Organization Lifecycle Model Identification Opportunity Design Marketing Financial Management Manufacturing Distribution Opportunity Selection Partner Selection Asset Dispersal Identification Formation Partner Identification Operation Termination Operation Termination

Partnership Formation`

Strider et al define two or more major decision processes for each of the four stages of the lifecycle- the identification and opportunity evaluation and selection. These decisions are sequentially related.


The identification stage ends once the best available market opportunity has been selected to pursue. The most important decision in the second stage includes partner identification, partner evaluation, selection and partnership formation. The partnership formation involves the actual formation of these selected firms into the actual virtual organization. Once the organization has been formed, it can begin its operation phase. In the operation phase important decisions relate to the five functional areas of design, marketing, financial management manufacturing and distribution. When the market opportunity is fulfilled or has ceased to exist, the virtual organization will be terminated. The major decision processes in the termination phase include operation termination and asset dispersal.

Application of Constituencies Approach
As mentioned in part 3, this approach uses the satisfaction of the strategic constituencies for measuring the effectiveness. For this purpose, in this research, four stakeholders have been known: Customers, Employees, Contractors and Company owners. ○Measuring Customers Satisfaction There are many ways for measuring the customers’ satisfaction; Service quality scale, functional/ technical model of service quality and Kano model are some of them. In this research service quality scale has been applied. This approach has five variables as follows.

• Obvious factors: modern equipments, considerable physical equipments, neat and
arranged employees, regular and ordered documents.

• Trustworthiness: doing the promised work in determined time, showing specified
interest for solving clients' problems, making reforms in services, produce services in a certain time and showing correct reports.


• Answering: stating accurately the services that employees give to customers, give
services at the least time , employees’ continual interest in helping customers and employees’ reply to clients every time.

• Confidence: making confidence in customers by behaving well, making safe
customers feel, behaving respectfully and politely towards customers and employees’ enough knowledge.

• Empathy: paying attention to customers, good work time for all customers, to wish
the best benefit for customers and understand the customer's specific needs. These five variables have 22 factors that are mentioned above. Twenty-two questions have been made by these factors as a customer's satisfaction questionnaire; 86 questionnaires have been handed to customers as statistical sampling and the result of each variable and final satisfaction after making normalized are as Table 1:
Normalized Factors Obvious Factors Trust worthiness Answering Confidence Empathy Expectation Amount 4.19 4.37 4.11 4.32 4.11 Perception Amount 3.83 3.76 3.89 3.83 3.74 Satisfaction 92% 87% 95% 89% 92% Satisfaction 47% 88% 66% 47% 61%

Final Satisfaction





Table 1- Measuring and Normalizing the Customers’ Satisfaction

○Measuring Employee's Satisfaction For this purpose, Job Descriptive Index (JDI) has been used. In this standard approach five variables have been surveyed: nature of work, supervisor, coworker payment, and promotion. The averages and normalized results for all variables and final satisfaction are as Table 2:
Factors Average Normalized satisfaction

Work Nature Supervisor

4.02 2.99

73% 59%


Co-Worker Payment Promotion Final Satisfaction

3.30 3.34 2.65 3.36

67% 74% 36% 69%

Table 2- Measuring and Normalizing Employees Satisfaction

○Contractors’ Satisfaction For measuring this stake holders for variables have been known.
- Company’s good payment. - Credit accruing on working with IEI. - Benefits accruing on working with IEI. - Amount of I.E.I’s orders

The averages and normalized results for all variables and final satisfaction are as Table 3:

Factors Good Payments Credit Benefit Orders Final Satisfaction

Average 3.80 3.87 3.91 3.76 3.84

Normalized satisfaction 70.11% 77.74% 63.77% 69.02% 77.91%

Table 3- Measuring and Normalizing the Contractors’ Satisfaction

○Company Owners’ Satisfaction For measuring the satisfaction of these stake holders the profitability and activity (efficiency) ratios have been used. Profitability ratios contain: sale returns ratio and assets return ratios. Activity (efficiency) ratios contain: inventory turnover ratio, assets turnover ratio and average collection period ratio. The result of these entire five variables has been compared to five factories in IEI and the final grades have been normalized. The amounts of each ratio, the normalized grade for each variable and final satisfaction of company’s owners are as Table 4:
Factors Sales Return Assets Return Inventory Turnover Assets Turnover Average Collection Period Final Satisfaction Ratios 23.59 42.46 3.75 7.8 67 days Normalized Satisfaction 63.88% 100% 84.48% 100% 60.73% 81,73%

Table 4- Measuring and Normalizing the Companies Owner Satisfaction

Concluding Remarks

In this research, the average of each constituency's satisfaction has been measured and these averages have been normalized between 0-100. After finding these normalized averages. They were multiplied by their specific importance degrees. And totally the collection of all these numbers collection shows the effectiveness amount of virtual organization in Iran Electronics Industries (IEI). The following table shows these averages, importance degrees, total numbers of them and finally the effectiveness amount in Iran Electronics Industries (IEI) (see Table 5).
Share of Each Satisfaction’s Importance Degrees Percentage Employees Customers Contractors Company Owners Effectiveness Amount in virtual organization 0.14 0.52 0.09 0.24 1.00 69.00 70.59 71.91 81.73 72.45 Effectiveness 9.66 36.71 6.47 19.61 Constituency in

Table 5- Effectiveness of Virtual Organization

in IEI

The above table shows: The average of employees’ satisfaction is 69% and its importance degree is 0.14, the average of customers satisfaction is 70.59% and its importance degree is 0.52 .The average of contractors satisfaction is 71.91% and its importance degree is 0.09. The average of company owners’ satisfaction is 81.73% and its importance degree is 0.24%. Totally after multiplying each satisfaction percentage by importance degree, the share of each constituency in effectiveness has been gotten. And, at last, the collection of all these shares is what we call the effectiveness of the virtual organization in Iran Electronics Industries.

Due to the conclusion of the research, there are two kinds of suggestions: the applicable and the inquiring suggestions. In applicable suggestion, it should be tried to improve the employee's knowledge. This will make them capable of replying well to customers, that causes customers satisfaction and finally the effectiveness of virtual organization. The other


suggestion is, making promotion in sale office physical equipment and making the sales employees adorn and persuading them to behave well. In inquiring suggestion, it should be tried to ameliorate employee's career situation. In other words, a good program should be arranged for employee's promotion in organizational hierarchy.



Guy Morrissey comes up with another definition from Lipan, J.; Stamps, J.: Virtual Teams, Reaching across Space, Time, and Organizations with Technology, New York et al. 1997 Pascal Siebel quotes Arnold, O.; Faisst, W.; Hurtling, M.; Siebel, P.: Virtuelle Unternehmen ALS Unternehmenstyp der Zukunft? Handbuch der modernen Datenverarbeitung 32 (1995) 185, p. 8-23.

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