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  • Last Updated : 22 Jun, 2022

A Virtual Organization is such a type of organization whose members are geographically separated and usually work by computer e-mail and software system while appearing to others to be a single, combined organization with a real physical location. 

Virtual Organization is defined as being closely integrated ambitious with its suppliers and downstream with its customers. In the virtual organization, each discrete firm keeps supremacy in major budgeting and pricing matters and functions as part of a greater organization coordinated by the central firm acting as combiner of the actions done by the various partners. Interdependent among partners differentiate the virtual organization from the conventional hierarchy. 

Companies adapt to coordinating and maximizing the capabilities of suppliers which will gain more control over key elements of time-from overall order-to-shipment lead time to product-specific cycle time. In addition, full-fledged alliances that tap the resources of multiple parties will effectively slash product or process-development time.

  • Virtual organization is an energetic collection of individuals and institutions which are required to share resources to obtain specified targets.
  • Virtual organization is a network of independent organizations that combine together for the production of a service or product.
  • Virtual organizations are also mentioned as network organizations, organic networks, hybrid arrangements and value-adding partnerships. This phenomenon has been driven by the effort to achieve greater effectiveness and responsiveness in an extremely competitive environment marked by increasing globalization, technological change and customer demands.

Virtual Organization Properties:

  1. Delocalization: Delocalization is one of the most important developments in the globalization process. It is potentially space dependent. Therefore, enterprises become independent of space and capacity. It eliminates the need for a particular space.
  2. Temporalization: This property deals with the inter-organizational connections and with the internal process organization, in the sense of the standard and pattern organization. Interdependence is described in the life cycle stages of a virtual organization as a circular process of creation, operation, evaluation, and dissolution.
  3. Dematerialization: Dematerialization has the virtual forms in products, communities, services, and so on along the development of the virtualization. With increasing virtualization, products become potential immaterial. It means that all object areas are immaterial. Existing correlative confidence for members, lack of physical credits and executives can affect system performance and flexibility.
  4. Individualization: The main reason for this property is increasing consumer demands. One of the ways to encapsulate market is to handle mass production along with personal requirements. Mass customization is one of the ways for producers to fulfill customer demands and reach new markets.
  5. Non-Institutionalization: Because operations are performed in a virtual environment without physical attributes, institutionalization of inter-organizational relationships in such environments can be waived.
  6. Asynchronization: This attribute causes members to asynchronously communicate and interact with each other via the ICT in the context of innovations with the release of time. Some companies globally plan their works in three shifts between spread locations.
  7. Integrative Atomization: This property refers to integrating all atomized core competencies of the participants to satisfy the customer.

Characteristics of a Virtual Organization:

  • Virtual organization does not have a corporeal presence but subsist electronically (virtually) on the Internet.
  • Virtual organization is not constrained by the legal definition of a company.
  • Virtual organization is formed in an informal manner as an association of independent legal entities.
  • Principal of synergy (many–to-one). Virtual organization displays a combined property because it is composed of different organizational entities that produce an effect of a single organization.
  • Principle of divergence (one-to-many). A single organization can display multiplication property by engaging in many virtual organizations at the same time.
  • Partners in virtual organizations share risks, costs and rewards in search of a global market. The common characteristics of these opportunities are worlds-class core competence, information networks, and interdependent relationships.
  • Dynamic virtual organizations have a capability to unite quickly.

Virtual Organization Life Cycle:

  1. Virtual Organization Creation
  2. Virtual Organization Operation
  3. Virtual Organization Evolution
  4. Virtual Organization Dissolution

Benefits of Virtual Organization:

  • Virtual organizations make it possible to convince repeatedly changing customer and market needs in a competitive way.
  • With the help of virtual organizations, it becomes possible to provide services exactly customized to a specific customer need.
  • Virtual organizations provide ability to participate in the total service range a company can offer to its customers.
  • Participation in virtual organization enlarges the total number of end-customers a company can extend indirectly via its partners.
  • By joining in a virtual organization the concept-to-cash time is minimized.

Drawbacks of Virtual Organization:

  • Each party has its own strategy on access control and conditions of use.
  • Virtual organization parties require to build trust between them on a peer-to-peer basis.
  • The assignment of resources is often dynamic since the structure of virtual organizations may change dynamically. This implies that the virtual organization beginner may not know a priority that additional resources may be required.
  • Members of virtual organization may be located in different countries under different authorities and, as a result, stick on to different legal and business requirements.
  • There must be mutual trust in security system by all partners involved in virtual organization. This leads to the challenge to come up with a successful and pliable security system.
  • Privacy and probity at a virtual organization level have to be assured. At the same time parties have to yield access to their services and resources as mentioned in agreements.

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