Virtual Organizations and Extended Enterprises

Vyshnavi R

C Batch
Reg No. 37121133
School of Management Studies
CUSAT, Kochi – 22
E-mail: vyshnavi.r@pg.cusat.ac.in

Abstract: This report explores the concept of virtual organizations and

extended enterprises and their impact on modern business practices. The
report examines the benefits and challenges of these types of organizations
and provides insight into the ways in which businesses can effectively
leverage virtual organizations and extended enterprises to create value. The
report highlights the cost savings, global reach, agility and flexibility, access
to talent, resource sharing, and improved collaboration that these
organizations can offer. The report also discusses the challenges of
communication, coordination, information sharing, trust, technology, and
culture that virtual organizations and extended enterprises may face.
Ultimately, this report provides a comprehensive overview of virtual
organizations and extended enterprises and their potential to shape the
future of business.

Key Words: Virtual Organization, Extended Enterprise, Information

Technology, Communication, Workspace

1.0 INTRODUCTION

In today's fast-paced business world, organizations are seeking new ways to increase
their flexibility, efficiency, and competitiveness. One of the most promising
approaches is the concept of virtual organizations and extended enterprises. These
innovative business models allow companies to collaborate with partners and
suppliers in a flexible and dynamic way, leveraging the power of technology to
achieve their goals. Virtual organizations are characterized by their fluid and dynamic
nature, with teams forming and dissolving as needed to respond to changing market
conditions. Extended enterprises, on the other hand, are characterized by their
network of suppliers, partners, and customers, who collaborate to achieve common
objectives. Both of these models are enabled by advances in communication and
information technology, which allow teams to work together in real-time, regardless of
their location. In this report, we will explore the concept of virtual organizations and
extended enterprises, looking at their benefits, challenges, and best practices.

1.1 Virtual Organizations

Virtual organizations are composed of people from different constituencies who come
together for a particular purpose. They do not constitute a formal organization, but
behave as one for a limited period of time. Virtual organizations and virtual teams can
be either intra- or inter-organizational.

The hallmarks of a virtual organization tend to be:

 Permeable boundaries, edgeless interfaces, “no walls”

 Short shelf life, continuous change
 Foundation of trust, rather than authority and structure
 Flexibility and variety
 Competency base

These terms and characteristics are well known, but the concept of virtuality has
expanded beyond just temporary organizations or distributed teams. Virtuality has
come to stand for communication, interaction, and the conduct of business through
technology rather than face-to-face. That broader meaning gets to the heart of the
original term, namely something that is not what it seems. Virtual teams are not really
teams, but individuals brought together through technology. Virtual work does not
have the traditional characteristics of work in an organization, surrounded by people
and the hustle and bustle of work activity; instead it takes place in a workspace that is
of one’s own configuration and time. Virtuality is now associated with activities that
can take place anytime, anywhere, and anyway one desires, with no physical,
geographical, or structural constraints. In short, the virtual organization is becoming a
strategic characteristic applicable to any organization.

The new possibilities provided by virtual workspaces in the communication web are
realized through use of communication and information technology, which includes
potential redefinition of the technology’s original purpose and even its outright
rejection. This means that workspaces are dynamic places that are continuously being
reshaped through the dual process of technology adaptation and changes in social
structures. In an electronic environment, new social structures can appear, be
modified, and experimented on with a speed and to an extent that was not possible in
traditional organizations. Connectedness and distance may be a fundamental paradox
of virtuality. We think of our world as a global village, connected through modern
technology. Television, email, and the web make information about once-distant
events available almost instantaneously.
 Fig 1: Virtual Organization

1.2 Extended Enterprises

The term "extended enterprise" represents a new concept that a company is made up
not just of its employees, its board members, and executives, but also its business
partners, its suppliers, and its customers. The notion of extended enterprise includes
many different arrangements such as virtual integration, outsourcing, distribution
agreements, collaborative marketing, R&D program partnerships, alliances, joint
ventures, preferred suppliers, and customer partnership.

Fig 2: Features of Extended Enterprise

Previously organizations have been thought of as linear entities, each with a
linear value chain that consisted of all the activities required to design, market, sell,
produce, deliver and support products and services. Suppliers and customers were
thought to be "outside" the organization's domain. And the organization was depicted
as a hierarchy of reporting relationships, primarily functionally aligned. Such depiction
implied a command and control approach to actions, decision-making and information.
The new economy, with high-tech companies rapidly evolving and "old economy"
enterprises embracing new ideas, brought tangible reality and urgency to new
organizational forms.

2.0 VIRTUALITY AND THE EXTENDED ENTERPRISE

Virtuality is a matter of degree. It blurs the boundaries between internal and external
activities of an organization, even though these remain convenient terms for defining
perspectives on virtuality. Internally, an organization might include isolated individuals
who work primarily through IT and are rarely physically present. As more individuals
begin to work that way, interpersonal relationships among virtual workers become an
issue. Virtual teams may also be used, or virtualization may be an organization-wide
phenomenon. Externally, an organization may interact via IT with suppliers and/or
customers.

2.1 Individuals and Interpersonal Focus

The practice of telecommuting seems always on the verge of exploding, but remains a
relatively minor phenomenon. The individual telecommuter is a virtual employee,
distant from the workplace interaction that remains a significant part of people’s daily
lives. The tradeoffs for such employees are well known— flexibility is purchased at the
cost of visibility. Employees are motivated by the desirability of working from home,
while employers want to save money on physical facilities. Driven by narrow views of
costs and benefits, employers who cut costs by letting employees take the job home
risk having a staff without a face. A workstation is provided to the telecommuter, but
little else is done to ensure that person’s continuing organizational presence. This
telepresence needs more presence. A richer telepresence can provide an opportunity
for individuals to present a more complex persona in their interactions, and that
persona might change for different audiences.

2.2 Teams within the Enterprise

In the late 1980s, a few leading-edge research organizations were conducting

experiments that used IT to bridge distance and encourage collaboration across
geographical boundaries of the organization. One such experiment took place at
Xerox PARC, connecting separate facilities in Oregon and California via video and
audio links that were always on. These experiments sought to make distant people
present and create a sense of connectivity at the interpersonal level. Some places
discovered an interesting phenomenon that prefigured “lurkers” in web chat rooms,
i.e., people who like to keep track of what is going on without participating in the
interaction themselves. What happened in early experiments with ubiquitous video
connections in offices and commons areas was that some people put the lens on the
camera in their own office so that their activity would not be visible, at the same time
that they were quite keen on seeing what other people were doing. This example
shows the importance of an appropriate balance between privacy and visibility. If the
technology design does not take it into account, people will find their own solutions.
Video walls and other forms of video connectivity provide a relatively rich form of
telepresence, but they remain rare for everyday interpersonal communication. Even
with the significant developments of the recent past, technology still cannot reproduce
face-to-face interaction, and we still do not have full utilization of such systems. More
common are traditional email systems, distribution lists, discussion databases, and
chat rooms. Knowledge repositories are not often associated with interpersonal
communication environments, but it is intriguing to think of them that way because
they represent the collective wisdom and thoughts of an organizational community

2.3 Global Organizations

An electronic organization effectively becomes a global village that makes it possible

to bring together (virtually) ever larger numbers of people, from a variety of cultures,
dispersed in many locations. Changes in traditional organizational structures and the
breakdown of classic authoritarian models have also occurred, at least partly because
of capabilities for instant communication across lines of authority. At the same time, IT
can be used to enhance authoritarian structures and bring about a “big brother”
syndrome whereby top management tracks employees by surreptitiously monitoring
their electronic communication. In addition, in an organization where virtuality is an
excuse to require people to participate, share knowledge and experiences, what
happens to traditional career structures and performance appraisal mechanisms? The
promise of flexible, dynamic, virtual organizations has come with hidden uncertainties
and a loss of the very knowledge and skills upon which these network structures
perform. Regardless of the approach, however, sub-cultures and sub-units within
organizations are no longer isolated. Ubiquitous email and globally available
information and knowledge have given many people a voice they did not have before.
The end result is a cacophony of perspectives, backgrounds, and values, all brought
together in the electronic organization. This rich diversity can be an opportunity in
which different resources are mobilized toward collective action as and when required.
Diversity also presents an opportunity to use the different skills and knowledge of
individual members on novel and increasingly complex problems. Used with care,
information and communication technologies may make the intelligent enterprise the
norm rather than an exception.

2.4 External Orientation

New buzzwords are invented daily to differentiate between traditional organizations

(“bricks-and-mortar”), companies that started out electronically but have expanded to
more traditional business models (“clicks-and-mortar”) and to completely electronic
organizations (“clicks”). Clicks-only organizations eschew warehouses, headquarters
building, and inventory for an electronic existence as intermediaries and service
providers over the web. Meanwhile, ecommerce keeps growing, with business-to-
business sales constituting by far its largest component. The deals keep getting
bigger, with recent examples such as Ford and General Motors moving their entire
supply operations to online transaction centers. Amazon.com continues to expand its
concept, simultaneously producing enormous red ink and huge stockholder value.
Common implementation concerns for the different models of external virtuality
include such things as security, selection of appropriate technologies, design of web
sites, integration with back-office systems, and so on. Less explicitly discussed is the
interesting issue of control, and how IT has enabled a sea change in the roles that
stakeholders play relative to one another. But the ominous underpinnings of these
changes are often ignored. Mass customization is touted as a concept that puts the
customer first by offering tailored products to a targeted individual, by the millions.
Lurking beneath this phenomenon is the little-discussed source of information about
those targeted individuals. Databases of purchasing habits grow daily, whether it be
from grocery stores, online storefronts, or even one’s own bank or credit card agency.
Information itself has become the latest valued commodity in on-line startups, with
new companies forming every day that are capitalizing on the ability to capture as
much as possible about visitors to web sites.

Fig 3: Extended Enterprise Integration

2.0 VALUE OF VIRTUAL ORGANIZATIONS AND EXTENDED

ENTERPRISES

Cost savings: Virtual organizations and extended enterprises can operate with lower
overhead costs than traditional brick-and-mortar organizations. They do not require
physical offices, and they can leverage technology to communicate and collaborate
effectively without the need for expensive travel.

Global reach: Virtual organizations and extended enterprises can reach a global
audience, allowing them to tap into new markets and customers. They can collaborate
with partners and customers from anywhere in the world, which can increase their
competitive advantage.

Agility and flexibility: Virtual organizations and extended enterprises can be more agile
and flexible than traditional organizations. They can quickly adapt to changing market
conditions and customer demands, and they can easily scale up or down as needed.
Access to talent: Virtual organizations and extended enterprises can access a wider
pool of talent, regardless of location. They can hire the best talent from anywhere in
the world, which can lead to higher levels of innovation and productivity.

Resource sharing: Virtual organizations and extended enterprises can share

resources, such as technology, expertise, and infrastructure, which can result in cost
savings and increased efficiency.

Improved collaboration: Virtual organizations and extended enterprises can

collaborate effectively, even if the partners are geographically dispersed. They can
leverage technology to communicate and share information in real-time, which can
lead to improved decision-making and better outcomes.

Improved quality: Collaboration among organizations can result in improved quality of

products and services. Each organization can focus on their specific areas of
expertise, which can lead to higher quality output.

Innovation: Collaboration can lead to innovation, as organizations can share

knowledge, resources, and expertise. This can result in the development of new
products, services, and business models.

Increased efficiency: Collaboration among organizations can result in increased

efficiency in the value chain. Each organization can focus on their core competencies
and leverage the expertise of others to achieve higher levels of productivity.

3.0 CHALLENGES OF VIRTUAL ORGANIZATIONS AND EXTENDED

ENTERPRISES

Communication: Communication is essential for virtual organizations and extended

enterprises to function effectively, but it can be challenging when partners are
geographically dispersed. Different time zones, languages, and cultural differences
can make it difficult to communicate effectively and efficiently.

Coordination: Coordination among partners in virtual organizations and extended

enterprises can be challenging, especially when partners are working on different
aspects of a project or task. It is important to establish clear roles and responsibilities
and to have a robust system in place for tracking progress and ensuring that everyone
is working together effectively.

Information sharing: Virtual organizations and extended enterprises rely on the

sharing of information to function effectively. However, it can be challenging to share
information securely and effectively, especially when partners are using different
systems and technologies.

Trust: Trust is critical in any collaborative relationship, and it can be challenging to

build and maintain trust in virtual organizations and extended enterprises. Partners
may be working with people they have never met, and there may be concerns about
security and data privacy.
Technology: Technology is a critical component of virtual organizations and extended
enterprises, but it can also be a challenge. Different partners may use different
systems and technologies, which can create compatibility issues and lead to
communication and coordination problems.

Culture: Cultural differences can create challenges in virtual organizations and

extended enterprises. Different partners may have different working styles,
communication norms, and expectations, which can create misunderstandings and
hinder collaboration.

Risk management: The extended enterprise is vulnerable to risks such as supply

chain disruptions, Cyber-attacks, and economic downturns. It is important to have a
robust risk management strategy in place to minimize these risks and ensure
business continuity.

4.0 MANAGING THE EXTENDED ENTERPRISE

We have reflected on selected characteristics of our new world of people,

organizations, and communities. We cannot overstate the importance of managing the
extended enterprise and its communication web explicitly rather than by default, even
though the organization may be fluid in form. Existing theory on organizational forms
suggests several ways to set up network structures. A large core firm may create
market-based linkages to a limited set of partners, creating a stable structure. Or, an
internal structure might be created where commonly owned business elements
allocate resources along the value chain using market mechanisms. Finally, a
dynamic structure might be formed, with independent business elements along the
value chain forming temporary alliances from among a large pool of potential partners.
On its own, IT provides the infrastructure upon which any such forms may develop.
However, with the blurring of boundaries within and among extended enterprises,
these structures may not be so clearly recognizable. Blended and fluid forms are
likely, but a number of overall recommendations for management can be made.

1. Design and manage internal and external communication environments.

Extended enterprises must explicitly design, manage, and continue to evolve their
communication environments, so that people within the organization can find who they
need, make themselves available to people who need them, retain an appropriate
measure of privacy, and have their individual contribution made visible and rewarded.

2. Test for side effects and unintended consequences.

Rather than assume that existing processes and theories can be transferred
unchanged to a virtual, extended enterprise, test for that assumption. Consider novel
ways of testing “outside the box,” such as devil’s advocates, upside down thinking,
and other techniques for creative manipulation of one’s everyday environment.

3. Include values by design.

Rather than allowing values to be embedded in system designs by default, design
them explicitly. That requires open discourse about what an organization’s values are,
and some measure of consistency and consensus. Recently, signs of increasing
attention to “spirituality” in organizations suggest that open discussion of values may
be gaining more legitimacy in heretofore rationalistic and task-focused organizations.
In a communication web, underlying values such as democracy or autocracy can be
made concrete rather vividly, hence the importance of explicit design.

4. Include and manage diversity.

Take advantage of diversity by providing an inclusive communication web that
provides structure and consistency without stifling individuality. Virtual expertise
should be leveraged and virtual encounters facilitated. Virtual data warehousing and
sophisticated data mining can support the use of codified knowledge. Distributed
decision support systems, bulletin boards, shared workspaces, and document
management systems help support the personalization of knowledge.

5. Manage relationships.
Once knowledge is captured in global repositories, it can be used to build and
manage relationships by creating and sustaining communication among individuals,
groups and customers. Web electronic commerce, customer relationship
management, collaborative work support, and electronic communication technologies
provide virtual workspaces within which work and social relationships may be forged.

6. Present a consistent interface.

Corporate as well as individual personas should be consistent across all parts of the
communication web. These personas are one’s interface to the world. With many
different forms of communication in extended enterprises, there is risk of conflicting
messages about persona.

7. Specify the “rules of engagement.”

Be clear and open with stakeholders and customers about the organization’s
communication practices. Consumer attention to privacy issues is likely to grow, and
those in the forefront of best practices will gain and retain trust from their
stakeholders. Trust is a significant phenomenon in the virtual world that does not
translate directly from traditional practices, and we have much to learn.

5.0 CONCLUSION

In conclusion, virtual organizations and extended enterprises have become

increasingly popular in the modern business world due to the numerous benefits they
offer. Virtual organizations allow companies to operate without physical limitations,
making it easier for them to expand their operations and tap into new markets.
Extended enterprises enable companies to collaborate with external partners to
achieve a common goal and share resources and expertise. However, virtual
organizations and extended enterprises also present challenges such as
communication barriers, cultural differences, and issues with trust and accountability.
It is therefore crucial for companies to develop effective strategies for managing virtual
teams and partnerships, including the use of technology and clear communication
protocols.

Overall, virtual organizations and extended enterprises are viable options for
companies looking to remain competitive in a rapidly changing business landscape.
By leveraging the benefits of these organizational models while mitigating their
challenges, companies can successfully achieve their goals and create sustainable
growth in the long run.

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