Defining the Virtual Organization (Part 1/5)

Author: Eric Torkia, MASc/Wednesday, February 2, 2011/Categories: Monte-Carlo Modeling, Analytics Articles

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IBM PC - A virtual EnterpriseTraditional definitions of the Virtual Organization have mostly taken a commodity-based, view of the interactions among partners (Kanter, 1994; Chesborough & Teece, 1996). One of the most notable examples of this type of virtual strategy to produce and deliver a product is the IBM PC. The early success of this venture was based on the same principals as those presented by Chesbrough & Teece's (1996) definition of a virtual organization:

Virtual organizations coordinate much of their business through the marketplace, where free agents come together to buy and sell one another's goods and services; thus virtual companies can harness the power of market forces to develop, manufacture, market, distribute, and support their offerings in ways that fully integrated firms cannot duplicate Chesbrough & Teece (1996)

Venkatraman and Henderson (1998) however, present the virtual organization in an IT-centered perspective (see excerpt below). They cite the critical necessity that organizations use innovative ways to create value for the customer and partners by using IT [In our case, e-business technologies] as a principal enabler. For the purposes of this study, the following excerpt will serve as our operating definition of a virtual organization.

We view virtual organizing as a strategic approach that is singularly focused on creating, nurturing, and deploying key intellectual and knowledge assets while sourcing tangible, physical assets in a complex network of relationships. […] We develop our logic of virtual organizing by placing IT at the center […] the emerging architecture of virtual organizing is not possible, or constructed effectively, without the significant power of IT.

(Venkatraman & Henderson, 1998)

Defining the virtual organization is no easy task, it can be broken down into perspectives:

  1. The first perspective, addresses the competency and resource structure, which is prevalent in most organizations deploying a virtual organizing strategy. To do this, we have sourced information on organizational competencies and resource-based theory in order to better understand what resources are necessary to realize a virtual strategy.
  2. The second perspective deals with how we can benchmark and organize for virtual organizing strategies. Here we are going to present Venkatraman & Henderson's (1998) model - one of our primary analysis tools.
  3. The third perspective deals with operational issues such as Processes. Various types of processes and strategies used to manage activities within and without the organization as well as their importance in developing and managing a virtual organization.
  4. The fourth perspective deals with the technology and inter-connectivity issues. More specifically, e-business and its technologies are defined in order to illustrate how they serve as ideal enablers for virtual organizing strategies.

These 4 perspectives will be covered in greater detail in following posts.


  1. When Is Virtual Virtuous? Organizing for Innovation – Henry W. Chesbrough, David J. Teece, Harvard Business Review January-February 1996
  2. Venkatraman N, and John C Henderson (1998) “Real strategies for virtual organizing”. Sloan Management Review. Cambridge: Fall 1998. Vol. 40, Iss. 1; pg. 33, 16 pgs
  3. Moss-Kanter, Rosabeth (1994) “Collaborative Advantage: The Art of Alliances”, Harvard Business Review, July-August 1994



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