Virtual Corporation

PRESENTED BY AYUSHI SENGER

 Outline

 What is virtual corporation?

 The Evolution of Virtual Corporations
 Evolutionary Stages Of Virtual Organization
 Dimensions of Virtualness
 Information and Communication Systems in
Virtual Corporations
 Management Implications
What is virtual corporation?

The virtual corporation is a temporary network of

independent companies-suppliers, customers-linked by
information technology to share skills, costs, and access
to one another's markets. It will have neither central
office nor organization chart. It will have no hierarchy, no
vertical Integration. Instead of a physical address as
registered offices, it has IP address. Instead of faxes
they use email, and so on
 The virtual corporation cannot therefore be viewed as an
institution. Virtualness is defined as the ability of the
organization to acquire and maintain critical
competencies through its design of value-adding
business processes and organizational structure.

 The relationships between the corporations are

essentially voluntary, although economic dependence
may also lead to inherent pressures.
The Evolution of Virtual Corporations

 The term was a buzzword in the 1990s for several

reasons. The concept became popular during the dot-
com era, when demand was high for new kind of
services that traditionally organized companies relied on
outsourcing to perform. In the day of the dot-com related
businesses it seemed like everyone was so busy that
they had to outsource most of their jobs to someone
else.
 The idea that you actually didn't need to have a large
number of regular employees to be a major player
caught on, and thus virtual corporation became one of
the typical ways of describing this phenomenon .
 The evolution of a virtual corporation is therefore not a
fast process.
if the capability is there, however, then it is likely that
partners will be switched increasingly rapidly as this is
the only way of introducing the necessary flexibility. The
change is often led by an expert, highly-influential
opinion leader.
 The motives for virtualization are many and varied. Often
it is seen as a way of reducing complexity, thus
permitting greater flexibility of response. Other reasons
include basic legal conditions or an improved incentive
system that hamper vertical integration.

 For example, in the development of markets in new

regions, virtualness can help in putting knowledge of the
local culture to use. Reduction of uncertainty is common
to all motives.

 Virtual organization is not appropriate in a stable market

at a time when there are no technological upheavals
Evolutionary Stages Of Virtual
Organization
 Stage 1: An individual corporation reaches the first evolutionary
stage of virtual organization, for example, by concentrating
production for all its sites into a single location. Through
outsourcing decisions or the formation of profit centers or
independent corporations from previously integrated business
units, a network of companies is now formed that supplies the
same goods or services to the market.

 Stage 2: Intercompany information systems are already needed

by the time this second evolutionary stage is reached, otherwise
some of the advantages gained through the technological
integration of the various business units would be lost. This
outsourcing stage is often accompanied by the introduction of
Electronic Data Interchange (EDI) and just-in-time delivery
arrangements.
 Stage 3 : The third evolutionary stage is characterized by
the integration of customers and/or suppliers into the value
adding process. Here, too, information systems play a
significant role. This third stage is also called the company
network by other authors, since it involves more than two
legally independent, yet economically interdependent
players in the supply of goods or services (c.f.
Sydow/Windeler 1994(. If the corporation that was
originally vertical integrated has learned the skills of virtual
organization while working its way through the evolutionary
stages, it will now be capable of using its relationships in
the network selectively. It can limit its activities to the
coordination function and act as an "information broker
 Stage 4 : As the corporation moves toward evolutionary
stage 4 there is a risk that the corporation may get rid of all
its core activities, leaving a hollowed-out" form which,
ultimately, will no longer be capable of proper
differentiation (the "hollow corporation" risk). For this
reason the corporation often retains several core
competencies and acts as broker for the "marginal
activities" only.
 Thus Microsoft, for example, whose core competence is in
the area of standard software development, has
surrendered its production, sales, marketing and
distribution activities to third parties.
Dimensions of Virtualness

a corporation passes through three stages of virtualness,

whereby it aims to achieve efficiency in three main
areas:
 resource efficiency

for example:out sourcing virtual storage strategic

partnership
 market efficiency

for example :EDI ,web marketing ,etc.

 process efficiency

for example:tele-commuting ,wireless technologies

by implementing virtual organization measures
Information and Communication
Systems in Virtual Corporations
 The demands made on information technology for supporting company networks
are characterized by attempts at integration. Electronic interoperation is
supported by three pillars:
 automation of information flow and the elimination of media breaks
) machine-to-machine communication: EDI(
 the interchange of unstructured data (human-to-human communication:
Groupware(
 the linking of several local area networks into wide area networks man-
machine communication both within and outside the corporation's ownsite(

 At the moment these three requirements are fulfilled - at least in part- by

proprietary and deduced systems, although the closed nature of these means
that flexibility in the company network is greatly reduced. For progression toward
the virtual corporation, these systems must satisfy new conditions: The
technology must make it possible to enclose, within a network, corporations
whose levels of technological development differ considerably. The PC network
of a SME, the client-server application and the mainframe applications in the
major corporation must be interoperable.
In virtual corporations, partners change as the markets change. This means
that it must be possible to implement such changes quickly without
sacrificing the necessary security. System functionality must be as broad as
possible in order to support the three forms of communication mentioned
above. This places very high demands on standardization. At the same
time, the penetration of the technology is also an important factor. The more
potential partners, suppliers, and customers that have access to the
technology, the greater the flexibility - in technical terms - that can be built
into the network structure. Internet technology appears to meet some of
these requirements better than others, even though, at present, it is still
greatly lacking in terms of functionality. All this means, however, is that
corporations still have to create the applications that are missing. Current
trends indicate that this is exactly what many large corporations are trying to
do. IBM, McDonnell Douglas and many others are currently converting their
corporate networks to intranets - therefore using Internet technology within
their corporations
Management Implications

 If the company network (evolutionary stage 3) already benefits

from the optimization of intercompany processes (win-win
situation), thus achieving external "economies of scale and
scope", then an additional feature of the virtual corporation is
resourcefulness, a priority requirement in volatile markets.
Resourcefulness, however, is not based on having excess
capacities and a supply of resources, but on the ability to
reconfigure the company network quickly without incurring any
increased risk by doing so. For the management, this means that
greater demands will be placed in future on both the "partnering"
aspect and on keeping processes under control. If managerial
authority no longer exists and relationships are no longer
established on a permanent basis, potential business partners
must be systematically monitored.
 The concept of Business Process Reengineering (BPR) has
already led to new roles within the corporation (e.g. the process
owner). The latest empirical studies indicate that sets of tasks
can be regrouped with virtualization. Virtual corporations seem to
have increased requirements for rational selection of partners,
ad-hoc organization, efficient allocation of resources (e.g. using
"artificial" market mechanisms) and continuous evaluation of
processes and partners. It is still unclear what these new roles
are to be called (e.g. network manager, contact promoter, broker,
information broker). Even discussion of their exact content is
relegated to the sidelines.
 When we talk about virtual corporations today, we're
mainlytalking about alliances and outsourcing
agreements,'' says JohnSculley, chairman of Apple
Computer Inc. ''Ten or 20 years fromnow, you'll see an
explosion of entrepreneurial industries andcompanies
that will essentially form the real virtual
corporations.Tens of thousands of virtual organizations
may come out of this
Thank you