As information and communications technologies overcome the constraints of time and distance, it becomes possible to create virtual organisations. Virtual is usually taken to be something that does not exist in reality. So a typical definition of a virtual corporation (taking the dimension of time) is:

"a temporary network of independent companies linked by IT to share skills, costs, and access to one another's markets" (Business Week)

However, another definition relates to an organisation not having a clear physical locus. Here a typical definition is:

"an organization distributed geographically and whose work is coordinated through electronic communications."

Both definitions show how information and communications technologies can be used to exploit the dimensions of time and space. A virtual corporation is a specific example of a networked organisation. Many smaller companies are now realising the benefits of being part of a virtual corporation, which can give them the benefits of the resources of a large organisation while retaining the agility and independence of a small one.

• Gives access to a wide range of specialized resources
• Can present a unified face to large corporate buyers
• Individual members retain their independence and continue to develop their niche skills
• They can reshape and change members according to the project or task in hand
• There is no need to worry ponderously about "divorce settlements" as in formal joint ventures.

The development of business networks as virtual corporations is well developed in Denmark, and is now evolving in other countries. David Skyrme Associates is itself a member of several virtual corporations, including ENTOVATION International. Members of the ENTOVATION Researching and Consulting Networking combine forces to create virtual knowledge teams and virtual corporations, according to project and client needs.

Working in virtual corporations comes naturally to small company entrepreneurs and managers who are effective networkers. They are difficult for those with the conventional corporate mind to fathom out. Some of the ingredients for developing a succeeding virtual corporation are:

1. Each partner must have some distinctive added value to bring to the corporation
2. Members must develop high degree of mutual trust and understanding. Thus, very often the same people will work together again and again.
3. Projects should be the focus of the corporation. Usually they will be for clients, but some projects e.g. marketing, can be done by a few members on behalf of the corporation as a whole.
4. 'Rules of engagement' need to be defined fairly broadly up-front, in terms of inputs to the corporation and rewards expected, though the momentum is lost if these are too formalised too soon
5. Members of the corporation should recognise the need for coordination roles, and either commit time to develop and nurture these or pay one of the members to undertake them on behalf of the corporation.
6. A clear interface needs to be developed with 'non virtual' customers - they like tidy relationships and clear contracts. Thus either one member of the virtual corporation must act on behalf of the others (using them as subcontractors) or create a joint company to act as their contracts and administration service.

In bringing together many virtual corporations, the role of a network broker can be important (it is, for example, something strongly advocated in the Denmark model). However, in our experience many virtual corporations will evolve naturally out of working relationships that have developed over years.

David Skyrme, Oct 1995. Minor revisions, August 1999.

© Copyright. David J. Skyrme. 1995, 1999. This material may be copied or distributed subject to the terms of our copyright conditions (no commercial gain; complete page copying etc.)

Since this Insight was first published we have published Virtual Teaming and Virtual Organizations - 25 Principles of Proven Practice. See also the index section Virtualization.

'The Interprise Toolkit', Chapter 8 in Knowledge Networking: Creating the Collaborative Enterprise, David J. Skyrme, Butterworth-Heinemann (1999). More Details.

The Virtual Corporation, W.H.Davidow and M.S.Malone, HarperBusiness (1992). More Details.

Agile Competitors and Virtual Organizations, Steven L. Goldman, Roger N. Nagel and Kenneth Preiss, Van Nostrand Rheinhold (1995). More Details.

Virtual Organizations and Beyond, Bo Hedberg et. al., John Wiley & Sons (1997). More Details.

VONet - The Virtual Organization Network publishes a quarterly newsletter covering research in developments on the virtual organization and also the Journal of Organizational Virtualness (David Skyrme serves on the editorial board).

Related Insights on these pages include No. 1 The Networked Organization, No. 3 The Learning Organization, No. 4 Teleworking for Enterprise or see full list.

Management Insights are publications of David Skyrme Associates, who offers strategic consulting, presentations and workshops on many of these topics.

Additional coverage of these topics can be found in our free monthly briefing I³ UPDATE/ENTOVATION International News, various articles, publications and presentations.

Top of Page