The Virtual Organization and Strategies (Part 3/5)

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

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This article highlights and discusses Venkatraman and Henderson's take on the various vectors of Virtual Strategy.

What is a virtual strategy? What does it cover within the company? Who is affected? Who benefits? Venkatraman & Henderson (1998) reflect these questions in a 3 vector and 3 stages model (presented in Figure 5) that is aligned in spirit with Chesbrough & Teece's view that no one formally defined structure will ensure the success of a virtual organization.

That is, Venkatraman & Henderson (1998) reject a virtual organization as a distinct structure (like functional, divisional, or matrix). Instead, they consider virtualness as a strategic characteristic that is applicable to any organization including century-old companies that manufacture cement, chemicals, and autos as well as new entrants in the fast-changing high-technology marketplace.




Customer interaction / virtual encounter 

Deals with the new challenges and opportunities for company-to-customer interactions. IT now allows customers to remotely experience products and services, actively participate in dynamic customization, and create mutually reinforcing customer communities.

Asset configuration / virtual sourcing 

Focuses on firm's requirements to be virtually integrated in a business network, in sharp contrast to the vertically integrated model of the industrial economy. Firms using the Internet for business-to-business transactions can structure and manage a dynamic portfolio of relationships to assemble and coordinate the required assets for delivering value to customers.

Knowledge leverage / virtual expertise

Is concerned with the opportunities for leveraging diverse sources of expertise within and across organizational boundaries. IT now enables knowledge and expertise to become drivers of value creation and organizational effectiveness.  

Figure 5: Virtual Organizing: 3 vectors and 3 stages


Moreover the authors also delineate 3 stages for each vector. Stage one focuses on the task units (such as customer service, purchasing, or new product development). Stage two focuses at the organizational level on how to coordinate activities to create superior economic value. The third stage focuses on the inter-organizational network to design and leverage multiple interdependent communities for innovation and growth.

In Figure 5, Venkatraman and Henderson further reinforce the view that organizations need to have an integrated view of their internal and external operations through tools like ERP and E-business technologies. These technologies or applications as well as others often serve as catalysts for internal business change, most notably business process reengineering and renewed value creation. This is reminiscent of Venkatraman's (1994) business transformations model (see Figure 13 in Appendix A: Models and Frameworks ) where business process re-engineering serves as the pivot to greater business capability or enhanced utilization of internal resources. Venkatraman and Henderson (1998) re-iterate this view and suggest that organizations who have used BPR and deployed an integrated ERP solution to support the new processes can then focus on developing inter-organizational business capability.

"These three vectors have traditionally been independent: they focused on isolated functions -marketing, purchasing, and human resources, respectively, with their idiosyncratic processes and information systems. […]There was historically no common unifying platform to pull these different activities together. However, the increased adoption of enterprise systems like SAP, Oracle, Baan, and Peoplesoft, combined with the rapid acceptance of the Internet protocols, offers the possibility of a common technology platform.

 Our view of virtual organizing integrates these three hitherto separate threads into an interoperable IT platform that supports and shapes the new business model."

Venkatraman and Henderson (1998)

In order to effectively leverage IT (as described by the authors) as a value creating enabler within the virtual organization, you must a.) Benchmark your operations against those of your competitors; b.) Quantify the gap between you and your competitors or business objectives and; c.) chart a roadmap for diffusing virtual strategies within and without the organization in order to close that gap. The adopted Venkatraman and Henderson model provides a complete framework for analysis virtuality and enable us to:

  • Scope and classify virtual processes and activities based on vectors and stages
  • Benchmark organizations level of virtuality on a comparative basis.
  • Identify and understand user constituencies supported by each vector
  • Develop or enhance an organization's e-business capability vis à vis it's different user constituencies.



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