The virtual organisation: meaning, advantages and disadvantages

What a virtual organisation is

A virtual organisation, also called a network organisation, is built around one central firm, the hub, which ties up with other firms on contract to carry out functions such as design, manufacture, marketing, distribution, finance and transport on its behalf. The hub subcontracts much of its work, links its partners to its own office electronically, keeps control over the work they do, and coordinates their activities; partners enter and leave the network as its needs change. Because so much of the work lies with partners outside its own walls, it is also described as boundaryless, and in an extreme case the hub does little except coordinate.

Such a structure relies on electronic links such as computers and e-mail, uses teams that cut across levels with shared decision making, and leaves the hub's managers free to decide which relationships to start and which to end.

An Indian example of the idea: a young apparel brand in Bengaluru designs its range in-house but has the garments stitched by units in Tiruppur, stores and ships them through a logistics company and collects payment through a fintech partner. Its own small staff mainly coordinates these partners.

Advantages

• Easy adjustment to change. Fresh alliances can be formed and old ones dropped as conditions shift, so the firm adapts readily and seizes new openings fast.
• Local sensing. The hub can depend on smaller partners who sit closer to the market to notice coming changes and respond locally, which saves it that burden.
• High performance in principle. Each partner contributes what it does best, so the network pools the strongest capabilities of several firms.
• Support for small firms. An efficient small firm that could not face its environment alone can survive by joining a network as a partner.
• Keen staff. With few vertical and horizontal boundaries and little gap in status and rank, people in the hub work with enthusiasm.
• Efficiency with flexibility. The web of cooperative ties with suppliers, distributors and associates gives the firm both, combining the strengths of mechanistic and organic structures.

Disadvantages

• Loose control. The hub cannot closely control activities such as marketing or manufacturing that sit with partners, and performance can fall sharply as a result.
• Dependence on reliable partners. The structure works only when the partners can be relied on, and no method has yet been found to make sure of that.
• The hollow-company charge. Critics say such a firm owns little of real value.
• Hard coordination. Each partner follows its own methods without regard to how the others work, so harmonising them is difficult.
• No settled model. There is no standard format for a network, and guidelines for organising and managing one have not yet been worked out.

Conclusion

The virtual organisation trades ownership for flexibility. It suits firms that must move fast in competitive markets, and its use keeps growing because of the advantages it offers worldwide, but it succeeds only where the hub can find dependable partners and keep their work coordinated.