Virtual Organization: Resource-Based View

IDEA GROUP PUBLISHING

ITJ3490

701 E. Chocolate Avenue, Suite 200, Hershey PA 17033-1240, International Journal of E-Business Research, 3(1),USA 1-17, January-March 2007 1 Tel: 717/533-8845; Fax 717/533-8661; URL-http://www.idea-group.com This paper appears in the publication, International Journal of E-Business Research, Volume 3, Issue 1 edited by In Lee © 2007, Idea Group Inc.

Virtual Organization: Resource-Based View

Jinyoul Lee, State University of New York at Binghamton, USA Mike (Tae-In) Eom, The University of Portland, USA Bonn-Oh Kim, Seattle University, USA Pairin Katerattanakul, Western Michigan University, USA

ABStRACt Virtual organization incorporates all the revolutionary practices in the global network and provides a unique opportunity for society. This study provides a new vision of the future organization with the revolution of communication technologies. Virtual organization is analyzed with the premises of time and space. The findings of this chapter show the strategic implication of virtual organization in terms of its life cycle through various stages and interactions based on structuration. A resource-based view is employed to identify more effective and strategic ways to operate virtual organization. Keywords:

virtual organization; virtualization; resource-based view strategy; structuration theory; time, space; life-cycle

INtRODuCtION

In the modern business world, it is common to use Internet technology for e-businesses, e-commerce, etc. However, a rethinking of the concepts of time and space in virtuality is completely missing (Schultze & Orlikowski, 1992). The Internet is different from conventional communication networks, as they constraint time and space in business activities. This article introduces “virtualization,” a new premise of time and space, as an important notion in running a virtual organization. Many practices

and strategies of e-businesses are still bound to the traditional ways of doing business. In this study, time and space are conceptualized in a way that conveys strategic implications of the e-business model and shows how information technology (IT) should be aligned with virtual organization. There are two types of e-business initiatives. The first type considers e-business as a mere extension of traditional business. This originates from the idea to reduce transaction costs through cheaper Internet technology than a

Copyright © 2007, Idea Group Inc. Copying or distributing in print or electronic forms without written permission of Idea Group Inc. is prohibited.

2 International Journal of E-Business Research, 3(1), 1-17, January-March 2007

traditional private network (Khan & Motiwalla, 2002). The second type views e-business as a new way of doing business. This perspective recognizes new Internet opportunities, provides new business models and possibly enhances the existing business activities (Khan et al., 2002). The concept of virtualization adopts the second e-business initiative and investigates the strategic use of virtual organization (Atkins & Dawson, 2001). Most strategy studies posit that the goal of strategy is to gain and sustain competitive advantages for the long haul (Ginsberg & Venkatraman, 1985). Specifically, organizational strategy is concerned with how organizations utilize their resources and capabilities to achieve their business goals providing direction to properly formulate future strategies. Organizational strategy guides organizations transforming their internal and external resources and capabilities into core competencies, which enable them to implement a set of strategies and invent sustainable competitive advantages (Prahalad & Hamel, 1990). In general, organizations perform both internal and external analyses and identify particular (sets of) resources and capabilities that are essential for effective and efficient coordination and utilization of resources (Stalk, Evans, & Shulman, 1992). Then, organizations may choose to implement strategies that use their rare, valuable, and costly-to-imitate resources and capabilities. These organizations subsequently achieve extraordinary economic performance, and enjoy a period of sustained competitive advantage (Barney, 1997). In this article, we introduce a resourcebased view of strategy to gain insights into how organizations go about using virtual organization strategically to achieve and sustain competitive advantages. The purpose of this study is to find the strategic implication of virtual organization in terms of its dynamic evolution through various stages and interactions based on structuration (Giddens, 1984). We use a resource-based view to identify more effective and strategic ways to operate virtual organization. The virtual organization is defined as a socio-technical organization where the social

activities of members are accommodated by IT (socio-technical product) (Orlikowski, 1996). This article is organized as follows. In the following section, we discuss previous research on virtual organization and resourcebased view. Metaphors, life cycle, and dynamic view of virtual organization are examined in the theoretical foundations. the next section reveals the strategic use of the virtual organization on strategic IT deployment and VRIO analysis. The implication and conclusion of this study are discussed at the end.

LItERAtuRE REVIEw Virtual Organization

Current technological environment enables businesses to virtually organize. As IT improves, integration and coordination costs decline and firms are able to form partnerships with firms that have different specializations. All activities are coordinated through decentralized information systems. Virtual organizations take advantage of IT to facilitate several organizational design variables that often require electronic storage and sharing of information among firms. In the past, without these IT capabilities, firms were forced to vertically integrate to minimize their information and external coordination costs. Now, given the current capabilities of IT, it gets easier for firms to form inter-firm partnerships. However, ‘virtual organization’ is not clearly defined. In fact, there are almost as many definitions of virtual organization as there are researchers. For example, virtual organization was defined as: • •

A temporary network of companies that comes together quickly to exploit fastchanging opportunities (Byrne, 1993). The ability of the organization to consistently obtain and coordinate critical competencies through its design of value-adding business processes and governance mechanisms involving external and internal constituencies to deliver a differential, superior value in the

Copyright © 2007, Idea Group Inc. Copying or distributing in print or electronic forms without written permission of Idea Group Inc. is prohibited.

International Journal of E-Business Research, 3(1), 1-17, January-March 2007 3

•

•

•

marketplace (Venkatraman & Henderson, 1994). A network of independent, geographically dispersed organizations with different missions overlapped. Within the network, all partners provide their own core competencies and the cooperation is based on semi-stable relations (Bultje & van Wijk, 1998). A geographically distributed organization whose members are bound by a longterm common interest or goal, and who communicate and coordinate their work through IT (Ahuja & Carley, 1999). A network of organizations from which temporary alignments are formed to combine the specific core capabilities of its members in order to quickly exploit a specific product or service manufacturing opportunity, after which the temporary alignment is dissolved and the members become available for another virtual and temporary assignment (Hoogeveegen, Teunissen, Vervest, & Wagenaar, 1999).

In summation, virtual organization is a non-traditional, interconnected, and customer responsive organization. Nowadays, firms are driven more by customer demands. As product life cycles become shorter, a quicker response to market opportunities is crucial. In a virtual organization setting, each participating organizational unit functions autonomously and concurrently via integration and coordination of its own operations and processes and cooperates within a loosely-coupled structure. As a result, a firm’s adaptability, flexibility, agility, and speed to market can be obtained. Despite various definitions of virtual organization, an important characteristic involves an alliance of separate firms that bring together a set of core competencies to take advantage of a market opportunity. An ideal concept of virtual organization focuses on pulling the partners’ core competencies in order to achieve competitiveness. Since this study focuses on the strategic use and adoption of virtual orga-

nization to sustain competitive advantages, we adopt a simple definition clearly emphasizing the competitive advantages of virtual organization. We define virtual organization as “an organization comprises multiple, distributed members who are strategically linked together to achieve competitive advantages and share common value chains and business processes supported by distributed IT” (Davidow & Malone, 1992).

Resource-Based View and It

Resources used to be represented by only organization’s physical assets and capital (Barney, 1997). The notion of “resources,” however, has been broadened and now encompasses all of the organization’s assets (e.g., capabilities, competencies, organizational processes, organization attributes, information, and knowledge) that enable the organization to develop and implement strategies to enhance its efficiency and effectiveness (Daft, 1983). This study adopts the latter perspective of resources because a virtual organization’s resources are mainly focused on organizational processes, human capital, and formal and informal structures. A resource-based view of organizational strategy has two key assertions: resource heterogeneity and resource immobility (Mata, Fuerst, & Barney, 1995). An organization is said to have sustained competitive advantages if it possesses unique resources (resource heterogeneity), and places competitors at a significant cost disadvantage when they attempt to obtain, develop, and use the same resources (resource immobility). Thus, an organization has sustained competitive advantage when it executes a (set of) strategies that require unique resources and capabilities which add value and make competitors face significant disadvantages in acquiring them (Mata et al., 1995). Essentially, a resource-based strategy is derived from the internal analysis of the organization in terms of resources and capabilities. In that, value, rareness, imitability, and organization of resources (VRIO) determine resource heterogeneity and immobility. A good understanding of the organization’s internal resources and capabilities is likely to direct

Copyright © 2007, Idea Group Inc. Copying or distributing in print or electronic forms without written permission of Idea Group Inc. is prohibited.

 International Journal of E-Business Research, 3(1), 1-17, January-March 2007

organizations to implement an (set of) effective strategy (e.g., Andreu & Cibora, 1996; Duhan, Levy, & Powell, 2001; Teng, Cheon, & Grover, 1995). Hence, an organization should be able to answer the following set of questions to ensure a sustained competitive advantage: • • •

Is the resource valuable? Is it heterogeneously distributed across competitors? Is it imperfectly mobile?

As evident in previous studies, IT plays a critical role in deploying organizational resources to sustain competitive advantages. These studies find that organizations exploit IT as a valuable resource and capture sustained competitive advantages while implementing their strategies (e.g., Brown & Magill, 1994; Das, Zahra, & Warkentin, 1991; Karimi, Gupta, & Somers, 1996; Teng et al., 1995). For example, proprietary technology and technical/managerial IT skills are found to be potential sources of sustained competitive advantage for organizations (Mata et al., 1995). This is consistent with the three strategic roles (traditional, evolving, and integrated) of IT proposed by Johnston and Carrico (1988), which will be elaborated on later. In summary, a resource-based view implies that IT is a potential source of sustained competitive advantage and creates idiosyncratic capabilities and definitive core competencies.

in theory-building stemmed from a researcher’s logical thinking and insights). Our intention is to complete a picture of virtual organization’s life cycle. Specifically, we used Beer’s accounts of metaphors as well as the main coding method of grounded theory (Glaser & Strauss, 1967). We have coded previous academic and practitioners’ literature using two methods, which led us to identify the following four categories: time, space, evolution, and selection. •

•

thEOREtICAL FOuNDAtIONS Metaphors

In this section, characteristics of virtual organization from previous literature are initially reviewed, articulated, and then classified into four categories. Those categories are merged into distinct stages to illustrate a life cycle of virtual organization. To build categories, we used two methodological tools that perform metaphorical analysis: Beer’s method (1984) and grounded theory. The use of both methods compensates for their individual weaknesses and accentuates their benefits (e.g., their usefulness

•

time: The characteristics pertaining to this category includes the origin of virtual organization (Barner, 1996; Zajtchuk & Satava, 1997), the level of commitment and connection among members of a virtual entity, the degree of dependency (Mowshowitz, 1997) and temporary/permanent cooperation among members (Palmer & Speier, 1997), and the image of virtual organization due to a conscious acts of members (Barner, 1996). Space: The characteristics related to this category include a usage of information and communication technology (ICT) to connect its business data and members to function in conjunction with each other (Bleecker, 1994). A usage of manpower and information in geographically distributed locations and the way to put these scattered resources together and create continuous functionality (Rayport & Sviokla, 1995), and the value-added activities of virtual organization (Anonymous, 1997a; Gunn & Burroughs, 1996; Weiner, Nohria, Hickman, & Smith, 1997). Evolution: The characteristics pertaining to this category include virtual organization’s birth from the concept of (virtual) team (Mowshowitz, 1997; O’Leary, Kuokka, & Plant, 1997; Storey, Straub, Stewart, & Welke, 2000) and formal and traditional work settings (Anonymous, 1997a), its focus on the actions and relationships among members on a timely manner (Mowshowitz, 1997; Rayport et al., 1995; Storey et al., 2000), its capa-

Copyright © 2007, Idea Group Inc. Copying or distributing in print or electronic forms without written permission of Idea Group Inc. is prohibited.

International Journal of E-Business Research, 3(1), 1-17, January-March 2007 

•

bility to accommodate specific rules and business processes due to advanced IT (Chesbrough & Teece, 1995; Werther, 1999), its fluid transformation as business environment changes (Faucheux, 1997; Hardwick & Bolton, 1997), and its creation of particular culture based on the needs and evolving relationships among members (Barner, 1996; Davenport & Pearlson, 1998; Hardwick et al., 1997; Mowshowitz, 1997). Selection: The characteristics related to this category include virtual organization’s higher-level goals (Anonymous, 1997a; Nosek & Shephard, 1995; Rayport et al., 1995) and members working together in distant locations (Davenport et al., 1998; Faucheux, 1997; Voss, 1996), members’ loyalty due to its higher-level goal, a flexible structure that constantly changes to deal with changing offices, projects, fellow co-workers, time zones, etc. (Bleecker, 1994; Boudreau, Loch, Robey, & Straub, 1998; Weiner et al., 1997), and its flexible standards, schedules, and autonomy invested in members (Storey et al., 2000; Werther, 1999).

Life Cycle of Virtual Organization Perception

Based on the previous categories derived from the aforementioned literature, three stages of life cycle in virtual organization emerge (see Figure 1). The first stage is the establishment of virtual organization (conceptualization). In this stage, the organization comes into existence as a formal organization. Members of virtual organization initiate its use, and identify its properties and processes. After the initial es-

tablishment, members go through a process of institutionalization developing new social mechanisms. They build culture and trust by creating foundations and practices through the change of management. Finally, virtual organization undergoes virtualization becoming streamlined in terms of fluidity, flexibility, and virtuality. Members understand the values of virtual organization and try to expand the power of its boundaries. The metaphors of time and space become the basic attributes of virtual organization, establishment. Virtual organization becomes a possibility because of the technical backbone. After virtual organization is formed, the next step is to embellish it as a meaningful organization with the metaphors of evolution, institutionalization. Subsequently, virtual organization emerges as a whole entity. Finally, conflicts occur within the organization to compete and survive among members that leads to the metaphor of selection—virtualization. As a society, we possess enough IT capabilities to convert our imagination into a possible form—virtual organization--as discussed in the previous section. IT capabilities make the establishment of virtual organizations both practical and feasible. Although IT plays a crucial role in the formation of virtual organization, there are other factors that affect the formation through IT (i.e., those factors are conceptualized as institutionalization and virtualization). We propose a dynamic view of virtual organization (Figure 1), which illustrates relationships between each component of virtual organization. In Figure 2, lines represent structuration between each component (Giddens, 1984). This view focuses on members’ interactions in virtual organization. Structuration is divided into three types: signification, legitimation, and

Figure 1. Life cycle of virtual organization perception Stage Category

Establishment

Time Space

Institutionalization

Virtualization

Evolution

Selection

Copyright © 2007, Idea Group Inc. Copying or distributing in print or electronic forms without written permission of Idea Group Inc. is prohibited.

 International Journal of E-Business Research, 3(1), 1-17, January-March 2007

domination (Barley & Tolbert, 1997). Line a) is signification because members of the virtual organization begin to use virtual organization’s properties and processes. Business processes and procedures are established in a virtual organization setting, as those are embedded in information systems (Lee & Lee, 2000). Members’ commitment is high in this interaction because they start learning the virtual organization and its functions. Lines b) and c) are legitimation because these are structured by the interactions between members and institutions (Giddens, 1984). Once members understand how to operate the virtual organization, they start building trust and developing culture, norms, and relationships. Line (d) is domination. It represents the special forms of exchanging human interests, which explains why members of virtual organization compete or cooperate for their values and power through virtualization. This also explains why virtual organization is not simply a collection of IT but a socio-technical product, which facilitates both businesses and societal values (e.g., culture, norms, and values). Virtual organization is not simply a technical foundation to substitute for a real-world business counterpart, but an entity that exists

in our ontological and epistemological recognitions. Its ontological meaning encourages membership in associated organizations and its epistemology enhances the social realization of being a member of virtual organization. For example, trust among members explains a new phenomenon of virtual organization. Members of virtual organizations build trust based on impersonal information and communications such as a person’s background, exchanges of e-mails, faxes, postings, etc. This is an alternative way of compensating for the lack of a traditional communication channel. Virtual organization is likely to apply virtualization differently to replace any channels of traditional communication, because virtualization implies that virtual organization determines the most appropriate way of facilitating a ‘virtualization’ process. Dissemination and sharing of information and knowledge (e.g., knowledge management) within virtual organization can be a good example. Another example of ‘virtualization’ is virtual organization’s ability to leverage each member’s expertise. In the next section, we emphasize how effectively and efficiently virtual organization can be operated in terms of utilizing or deploying resources to create a sustainable competitive advantage.

Figure 2. Dynamic view of virtual organization Time b) Legitimation c) Domination a) Signification

Evolution

Selection

c) Legitimation

Space

Copyright © 2007, Idea Group Inc. Copying or distributing in print or electronic forms without written permission of Idea Group Inc. is prohibited.

International Journal of E-Business Research, 3(1), 1-17, January-March 2007 7

Figure 3. Strategic IT deployment and VO life cycle Stage Category

Establishment

Time Space

Strategic IT Deployment

Traditional

StRAtEGIC uSE OF thE VIRtuAL ORGANIzAtION Strategy and Life Cycle of the Virtual Organization

As mentioned earlier, IT can be deployed strategically in three different roles: traditional, evolving, or integrated (Johnston et al., 1988). In a traditional role, IT performs back office functions in a way that automates, maintains, and supports office routines, inventory control, and cost-saving administrative operations. IT has evolved to support organizational strategy. Its competitive potential, however, is not explicitly incorporated. Once a strategy is established, IT is deployed to champion that strategy to achieve an organizational goal. In an integrated role, IT is indispensable to organizational strategy. IT enables the organization to seek opportunities by creating new products and services, and to alter linkages with suppliers and customers. Organizational strategy is driven by IT and IT should be capable of changing the structure, processes, and scope of the organization in a way that generates competitive advantages. Figure 3 shows the relationship between strategic deployment of IT and virtual organization’s life cycle. Establishment is a stage in which a virtual organization is formulated and structured to accomplish the shared goal of participating members (properties). Organizations in virtual space become possible due to advanced information and communication technologies (processes). At this stage, virtual organization deploys IT

Institutionalization

Virtualization

Evolution

Selection

Evolved

Integrated

in a traditional way that supports and improves administration of members’ activities, assigned tasks and roles, and decision-making processes. Virtual organization’s deployment of IT then focuses on the establishment of linkages and operations between functions and members (Johnston et al., 1988). Goals and technologies cannot be the source of sustained competitive advantages because competitors will catch up by accessing the necessary resources such as capital and technology. At best, a virtual organization can achieve (temporary) competitive parity being the first to use technology (firstmover advantage). Institutionalization is a stage and process in which social mechanisms develop. The virtual organization flourishes by establishing its own culture (e.g., shared belief and value system), norms, and standard operating procedures (SOP), etc. Culture, norms, and SOPs are institutionalized within the virtual organization through relationships. In other words, virtual organization establishes its strategy and accordingly develops business plans. At this point, IT needs to evolve appropriately to facilitate, support, and (or) capitalize on the strategies (Johnston et al., 1988). This is accomplished by establishing guidelines (directions) that build relationships among members and produce a collaborative and cooperative working environment. These are socially complex, uniquely embedded, and result in knowledge embedded in processes and culture, which in turn lead to sustainable competitive advantages. Virtualization is a stage in which the virtual organization grows into the next level. Virtual

Copyright © 2007, Idea Group Inc. Copying or distributing in print or electronic forms without written permission of Idea Group Inc. is prohibited.

 International Journal of E-Business Research, 3(1), 1-17, January-March 2007

organization fosters conflict and cooperation among members, which is instituted as a part of organizational norms in an attempt to form a complete organization. In doing so, virtual organization deploys IT in more proactive and integrated ways to manage conflict and encourage cooperation. Integrated IT can provide improved communication channels and linkages among members, and ultimately establish new relationships and SOPs in its newly defined boundary. In this regard, virtual organization continues to ensure the competitive use of IT to achieve benefits in managing conflict and cooperation (Johnston et al., 1988). For instance, conflict imposes two opposite effects, depending on how it is managed. Managed well, conflict creates a productive discussion and stimulates creative thinking (e.g., cognitive c-type conflict) (Amason, Thomson, Hochwarter, & Harrison, 1995). Managed poorly, conflict becomes detrimental to the virtual organization by fostering cynicism and distrust among members (i.e., affective a-type conflict) (Amason et al., 1995). Well-managed c-type conflict (while minimizing the effect of a-type conflict) is a key to a successful expansion of virtual organization. This c-type conflict is achieved by facilitating frank communication and open consideration of different alternatives and opinions. The way of managing and resolving conflict (c-type conflict) can be a heterogeneous and hard-toimitate asset.

Strategy and Dynamic View of the Virtual Organization

A virtual organization evolves into a complete entity through a series of interactions that convey a strategic implication. A virtual organization coordinates each interaction in ways that exploit its resources and create competitive advantages. Thus, we examine the dynamic view of the virtual organization in terms of VRIO analysis to articulate strategic implications of virtual organization: •

Value: Refers to the ability of the organization’s resources and its capabilities to respond to external competition.

•

•

•

Rareness: Refers to the discrepancy between the organization and the others with regard to the possession of valuable resources. Imitability: Assesses if other organizations face significant cost disadvantages in obtaining a particular resource compared to organizations that already possess it. Organization: Measures if the organization is “organized” to fully exploit the competitive potential of its resources (Barney, 1997).

The following discussion is summarized in Table 1.

Signification

In order to be of value, resources must enable the organization to seize opportunities or neutralize external threats. Signification, which happens between the goal of virtual organization and the instrument, is either technology-driven (by advanced communication technology processes) or goal-driven (by organizations in need of formulating the virtual organization properties) (Lee & Jayatilaka, 2002). For example, an organization whose strategy is to practice the concept of “work-at-home” in a virtual setting, can find certain communication systems suitable (goal-driven). In contrast, the availability and affordability of a network platform with security, management information systems (MIS), computer-based information systems (CBIS), decision support systems (DSS), or enterprise systems (ES) may compel the organization to establish virtual organization, so that it may leverage employees’ expertise through the exchange and sharing of information and knowledge (technology-driven). A selection and implementation of any technologies that enable an organization to pursue new opportunities and/or fit the goal of the organization is clearly of great value in a virtual setting. In addition, establishment of norms and SOPs coupled with the systems requirements in ways that accelerate the process of accomplishing a common goal and relationship building among members adds significant value.

Copyright © 2007, Idea Group Inc. Copying or distributing in print or electronic forms without written permission of Idea Group Inc. is prohibited.

International Journal of E-Business Research, 3(1), 1-17, January-March 2007 

Table 1.VRIO analysis of virtual organization Institutionaliza-

Organization Setting

Establishment

Strategic IT Deployment

Traditional

Evolved

Integrated

Structuration

Signification

Legitimation

Domination

Members reach congruence in shared goal, institutionalized norms & SOP. VO is in active use of systems (e.g., Networks with security, MIS, CBIS, DSS, ES). VO performs assessment of ease of use and upgrading of systems. VO has become an organization with accumulated knowledge & expertise.

VO realizes the emergence of better communication channel. It also expands its organizational boundaries. Simultaneously, VO is equipped with emergent trust-based interpersonal relationship among members. It is also embedded with emergent culture based on newly established norms, and SOPs. Leadership and a better way of managing conflict and empowerment are emerged in VO.

Resources/capabilities

VO is initiated either as a technologyimperative VO or goaldriven VO. VO performs systems analysis and design. VO implements the systems (e.g., Networks with security, MIS, CBIS, DSS, ES). Members attempt to reach a shared goal; formation of norms, SOPs, etc.

tion

Virtualization

Value

Yes

Yes

Yes

Rareness

No

Yes

Yes

Imitability

N/A

Yes

No

Organization

Questionable

Questionable

Yes

Heterogeneity/Immobility

Signification can be valuable. However, it is not rare and is questionable whether VO is well organized to exploit without testing/operating; therefore, signification is not heterogeneous and mobile.

Legitimation is heterogeneous but it is not necessarily immobile. It can be a strength and distinctive competence. However, unplanned outcomes may occur, disrupt the organizational components, and diminish the VO’s distinctive competence.

Domination is heterogeneous and immobile. It can be both a strength and sustainable distinctive competence.

Competitive Advantages

No sustained competitive advantages; temporary competitive parity at best.

Temporary competitive advantages (firstmover advantage).

Sustained competitive advantages.

Copyright © 2007, Idea Group Inc. Copying or distributing in print or electronic forms without written permission of Idea Group Inc. is prohibited.

10 International Journal of E-Business Research, 3(1), 1-17, January-March 2007

It is important to note that signification can easily be imitated (i.e., it is homogeneous and mobile) because it is merely an interaction between the goal and the instrument that excludes members of the virtual organization. Intentions of systems designers and developers reflected on the spirit of the technology manifests this interaction (Avolio, Kahai, & Dodge, 2000). Furthermore, the opportunity is open to any willing or committed organization with financial resources. Services and technologies provided by vendors, systems designers, and developers are available in a variety of formats, designs, modules, and features (e.g., KMS, DSS, etc.). Therefore, this interaction cannot be a rare resource, which makes it easy-to-imitate. Since signification clearly ignores the interaction between members and technology, it is questionable whether assessing signification provides a virtual organization with wellorganized resources. At the end of the initial systems analysis and design processes, a virtual organization needs to be tested for its operability and adequacy in terms of usability, user interface and user interaction. The intentions of systems designers and developers may not completely reflect the virtual organization’s needs and expectations. To summarize, signification can be valuable, but not necessarily rare, as it is often easily imitated. It gives the virtual organization a first-mover advantage at best, which leads to a temporary advantage. ES, for example, enables different organizations to shape virtual organization. This extends their value chains to handle specific portions of a process that change as business opportunities arise (e.g.., virtual organization which contains multi company e-commerce purchasing and sales networks), reduce cost and expedite bundling and unbundling (Davenport, 2000). Forming a virtual relationship in the form of a joint venture between giant companies with faster, less-encumbered, start-up companies (e.g., U.S. West and Time Warner, AT&T and startups such as GO Corporation) increase agility and extend market and customer bases. This is a good example of goal-driven virtual organization (Bleecker, 1994). These

interactions are valuable but not rare, because it is not clearly proven if virtual organization is organized well enough to exploit IT without rigorous testing. Thus, signification is not heterogeneous and mobile.

Legitimation

Institutionalization is structured by a series of interactions between members and institution as they become familiar with the systems (Lee et al., 2002). As business processes and practices are routinized in signification, members start to engage in the exchange of information to complement their colleagues and share congruent goals of the virtual organization. Norms and SOPs of the virtual organization are developed and internalized as guidelines such that members become conscious of institution (Lee et al., 2002). Culture and working environments of virtual organization are formed in an open, innovative, decentralized, or relationship (person) oriented manner. As such, legitimation enhances the value of resources through structuration in terms of the use of systems, ease of use, and accumulation of information and knowledge. All these can be factors leading to competitive advantages (Kettinger, Grover, Guha, & Segars, 1994). At this stage, it is common to upgrade the systems to fine-tune business operations and processes (this is a proof of structuration). For example, networked MIS, CBIS, and DSS systems with enabled security facilitate the virtualization process. Without proper use of networked systems, institutionalization is meaningless as there is no way to sustain core competencies. As members use systems, their expertise and knowledge of the systems are developed and accumulated through a series of personal apprehension of the systems. Each member builds relationship with colleagues and information systems while performing tasks. This implies the rareness of the resources created through legitimation. Those expertise and knowledge become embedded in the virtual organization’s infrastructure and may lead to uniqueness of resources (e.g., improved learning curve) (Kettinger et al., 1994).

Copyright © 2007, Idea Group Inc. Copying or distributing in print or electronic forms without written permission of Idea Group Inc. is prohibited.

International Journal of E-Business Research, 3(1), 1-17, January-March 2007 11

Legitimation may be imitated but it cannot be reproduced with full values. For example, other virtual organizations can imitate how to reach congruence in shared goals, institutionalize norms and SOPs, and upgrade the systems, as members engage in active use of these systems. Or they can recruit experienced human resources. It costs virtual competitors tremendous time for trial and errors to accumulate their own knowledge and expertise. One may consider legitimation as an indication of good ‘organization’. For example, critical success factors of virtual organization lie in appropriate use of networked MIS, CBIS, and DSS. Numerous organizational components are relevant, including organizational structure and policies (e.g., a reporting system, a management control system, and bonus/compensation policies). When combined, these components enable the organization to realize its full potential for competitive advantages (Amit & Shoemaker, 1993). Though organizational components (e.g., norms and SOPs) are institutionalized, one cannot consider it as a stable (optimum) stage. Members still communicate and interact, which in turn leads to emergent (not planned) outcomes (a special form of interactions which members can trust, willingly cooperate, and share mutual accountability) that the virtual organization confronts. Therefore, legitimation alone cannot assure “organization.” While legitimation can be valuable and rare, it can be imitated to assure its organization. Hence, it can be a strength and a distinctive competency, but may not produce sustainable competitive advantage. A good example can be CSTaR’s Prarie, a prototype virtual organization designed for Acccenture (formerly known as Andersen Consulting) to help geographically dispersed workers collaborate, share information, brainstorm, and work toward goals with KMS, videoconferencing, and high-bandwidth networking (Anonymous, 1997b). As a virtual organization engages in socially complex interactions to convey its plans for the future (e.g., corporate and business strategies), it utilizes IT to facilitate uniquely embedded and socially ambiguous processes to capitalize on the strategies (e.g.,

guidelines for relationships among members, a collaborative and cooperative working environment). As evident in Prarie, however, CSTaR confronted a problem of assessing and facilitating how workers develop informal networks, explore common interests via brainstorming, build rapport, or solve problems together (Anonymous, 1997b). Thus, these interactions can be heterogeneous but unplanned outcomes (e.g., unresolved conflict, distrust among members) may occur and be detrimental to creating distinctive competencies.

Domination

Virtual organizations must be capable of sustaining competitive advantages because legitimation only provides transient strategic value when matched by a superior response by competitors (Kettinger et al., 1994). As discussed, domination enables virtual organizations to realize long-term gains. It also explains how virtual organizations mature to the next level, while explaining why members compete or cooperate (Lee et al., 2002). It manifests a special form of interaction based on individual interests and priorities pertaining to underlying reasons why members of a virtual organization compete or cooperate to resolve the balance of power among them. They examine the questions of why members trust one another, and why members are gradually empowered and given autonomy in decision-making. Virtual organization makes use of the networked systems in proactive and integrated ways that direct conflict and cooperation. Along the way, leaders emerge to direct appropriate conflict management and resolution of diverse individual stakes to facilitate cooperation and discourage competition among members (Avolio et al., 2000). Virtual organization ultimately establishes new relationships and SOPs in its newly defined boundary. Hence, management of conflict and cooperation becomes a part of organizational norms. Through domination, members generate tacit and situation-specific knowledge (e.g., how to manage unintended conflicts and facilitate cooperation). Members eventually acknowl-

Copyright © 2007, Idea Group Inc. Copying or distributing in print or electronic forms without written permission of Idea Group Inc. is prohibited.

12 International Journal of E-Business Research, 3(1), 1-17, January-March 2007

edge the relevance of the systems and attach symbolic meanings to the systems (e.g., how valuable the systems are in building relationship among members) (Kettinger et al., 1994; Mata et al., 1995). Domination also leads to the empowerment and autonomy of each member in decision-making due to frequent, fluid exchanges of accumulated and shared knowledge and information. Consequently, the emergence of trust-based interpersonal relationships and cultures that value openness, cooperation, and mutual accountability are developed (Kettinger et al., 1994; Mata et al., 1995; Schein, 1994). These emergent concepts are commonly constructed through a large number of small decisions and interactions among members. This adds a complexity to any systematic analysis, leading to substantive response lag or lead time for virtual competitors, which gives a virtual organization a longer period of sustainability (Kettinger et al., 1994). Thus, domination is unique due to its contexuality and its difficulty in identification. Simultaneously, a better communication channel is developed to accommodate the emerging norms and SOPs, and provides a new forum through, which members can interact. The emergence of better-suited communication channels becomes the backbone of the virtual organization, allowing it to mature and expand its boundary. All the components should be in the right places to instigate domination to sustain competitive advantages (Kettinger et al., 1994). Domination enables the virtual organization to practice a set of definitive actions, including emergence of strong leadership, so that it can leverage its infrastructure, accumulated knowledge, and information to create sustainability (Kettinger et al., 1994). This implies that a virtual organization reaches the point at which it is organized to exploit the competitive potential of its resources (e.g., a strong leadership in conflict management and autonomy, better-suited networked systems, improved human capital, accumulated knowledge and expertise). Thus, domination is valuable, rare, hard to imitate, and well organized, which leads to sustained competitive advantages.

A good example can be found in VIRTEC case (Bremer, Michilini, Siqueira, & Ortega, 2001). VIRTEC, a form of virtual organization formed for several Brazilian high-tech small enterprises, was established to maintain competitive position. It successfully creates, coordinates members’ competencies, and facilitates cooperation among members in exploiting future business opportunities. Cavendish Management Resources (CMR) uses virtual organization (with a help of a database on the Intranet, and video and audio conferencing) to consult small businesses with less business and managerial skills. CMR consults on now to run their businesses in various highly customized services to locations far from home office, or improbable to add branch offices. It also trains clients’ employees in better managerial and business skills with classes in leadership, accounting, investing, and financing through its virtual network encouraging people to collaborate, communicate freely, and share ideas and perspectives (Barnatt, 1997). These strategies ultimately establish a new flow of relationships, work practices, and SOPs, which can be heterogeneous and hardly imitated. This, in turn, leads to virtual organization’s strength and sustainable distinctive competence.

IMPLICAtIONS

The e-business model has been widely accepted by modern business organizations. Some companies initiated this model hoping to reduce transaction costs; others are running it for its future value. Many cases show that e-business is now a necessity because Internet technology revolutionized communications. Only a few years ago many researchers and practitioners perceived e-business as an extension of conventional business practices for doing business at a lower cost. However, Internet technology changed our life styles and affected the way of doing business. The e-business model is no longer a short-term strategy and needs a thorough and systematic investigation. Virtual organization incorporates all the revolutionary practices in the global network (e.g., e-business, e-commerce, virtual com-

Copyright © 2007, Idea Group Inc. Copying or distributing in print or electronic forms without written permission of Idea Group Inc. is prohibited.

International Journal of E-Business Research, 3(1), 1-17, January-March 2007 13

munity, virtual company, etc.) and provides a unique opportunity for society. The foremost contribution of this study is to provide a new vision of the future organization with the revolution of communication technologies. The first step we identified is a “virtualization” of timelessness and spacelessness. Many researchers have already acknowledged these two aspects of virtual organization. But, none have recognized how these factors would impact business organizations. “Virtualization” is virtual socialization, but means the new socialization process in revolutionary communication technology--the Internet. With timelessness and spacelessness of virtuality, members of virtual organizations form and contact other members in a new way. For instance, if appropriately practiced, “virtualization” alleviates biases in relationships among members or business partners. In a traditional environment, relationships between members and partners are based on individual affections and emotions, which often lead to organizational inefficiency. With “virtualization,” traditional business relationships are converted into more virtualized business relationships, which result in more efficient business operations and processes. IT is not simply a technological product of communication networks, it is a vehicle whereby “virtualization” occurs in ways to reconstruct what has been eliminated from the traditional socialization process undergoing establishment, institutionalization, and virtualization with engineering, institutionalizing, and dominations. As discussed through examples, virtual organization is established either to achieve the shared goal of participants or to take advantage of the availability of advanced IT and communication networks (establishment). When social mechanisms are developed in virtual organization, it flourishes as an entity with its own norms, culture, and SOP (institutionalization). As IT is integrated further into virtual organization to manage conflict and encourage cooperation, it grows into a complete organization (virtualization). IT becomes extended linkages among members

with which they simulate frank communication and open consideration of different alternatives and opinions. The proactive members seek a productive discussion and creative thinking (human interfering). Virtual organization aims at not only setting a long-term plan for a business organization, but also carefully implementing IT and communication networks. To be successful, it must consider the socio-technical aspect of restructuring multi-directional communication and relationship building among members. This will direct organizations to develop proper IT and communication networks and champion effective strategies as they manage those technologies in the context of virtual organization.

CONCLuSION

IT can be a critical resource to attain competitive advantages by providing information for better decision-making and implementation of innovative processes to create products and services (Teng et al., 1995). IT can also be deployed in a way that transforms internal resources and capabilities into an organization’s core competency. For instance, IT can improve work practices. The improvement is shared and embedded across the organization via communication, which in turn develops into core competencies (i.e., organizations can be leveraged by making capabilities rare, valuable, difficult to imitate, and with no strategically equivalent substitutes). In doing so, IT evolves from being a key resource to an enabler that achieves competitive advantages stemming from core capabilities (Andreu et al., 1996; Bharadwaj, 2000; Duhan et al., 2001; Prahalad et al., 1990). Consistent with prior strategy literature, Table 1 summarizes the strategic use of virtual organization. In the stage of signification, virtual organization barely creates competitive advantages. However, resource heterogeneity is added in institutionalization interaction and resource immobility is achieved during domination. This article explores how virtual organization utilizes IT to attain competitive advantages based on its structuration. Three major contribu-

Copyright © 2007, Idea Group Inc. Copying or distributing in print or electronic forms without written permission of Idea Group Inc. is prohibited.

1 International Journal of E-Business Research, 3(1), 1-17, January-March 2007

tions are identified. First, the new meaning of “virtualization” illuminates the meaning of the ontological existence of virtual organization. It resets the full potential of virtual organization in its benefits, values, strategies, cultures, etc., which provides virtual organization an edge against other virtual competitors. Second, a proposed framework of virtual organization gives a sense of current positioning of virtual organization. Understanding life cycle (Figure 3) helps top executives recognize their current and desired position. The dynamic view of virtual organization (Figure 2) shows the process of its institutionalization. With its three different types of structuration—signification, legitimation, and domination, top executives can organize their organizational structure and use IT efficiently and effectively to achieve their strategic goals. Finally, by identifying each stage and dynamic interaction, top executives can be involved in the creation, development, and operation of the virtual organization. Top executives, who consider deploying IT to create a virtual organization, should devote their managerial endeavors on the stages (establishment, institutionalization, and/or virtualization) or a particular set of dynamic interactions (signification, legitimation, and/or domination), in which the full potential of virtual organization can be realized. In doing so, top executives can lead the virtual organization to use IT to attain sustainable competitive advantages, which in turn enhances the performance of virtual organization (Khan et al., 2002).

REFERENCES

Ahuja, M., & Carley, K. (1999). Network structure in virtual organizations. Organization Science, 10(6), 741-757. Amason, A., Thomson, K., Hochwarter, W., & Harrison, A. (1995). Conflict: An important dimension in successful management teams. Organizational Dynamics, 24(2), 20-35. Amit, R., & Shoemaker, P. (1993). Strategic asset and organizational rent. Strategic Management Journal, 14(1), 33-45.

Andreu, R., & Cibora, C. (1996). Organizational learning and core capabilities development: The role of IT. Journal of Strategic Information Systems, 5(2), 111-127. Anonymous. (1997a). Applicable in social as well as in information systems. Communications of the ACM, 40(9), 32. Anonymous. (1997b, May). A virtual prototype. Training & Development, 51, 33. Atkins, M., & Dawson, P. (2001). The virtual organization: Emerging forms of ICTbased work arrangements. Journal of General Management, 26(3), 41-52. Avolio, B. J., Kahai, S. S., & Dodge, E. (2000). E-leadership: Implications for theory, research, and practice. The Leadership Quarterly, 11(4), 615-668. Barley, S. R., & Tolbert, P. S. (1997). Institutionalization and structuration: Studying the links between action and institution. Organizational Studies, 18(1), 93-117. Barnatt, C. (1997). Virtual organisation in the small business sector: The case of Cavendish Management Resources. International Small Business Journal, 15(4), 36-47. Barner, R. (1996, Mar/Apr). The new millennium workplace: Seven changes that challenge managers-workers. The Futurist, 2(1),14-18. Barney, J. B. (1997). Gaining and sustaining competitive advantage. Boston: AddisonWesley Publishing Company, Inc. Beer, S. (1984). The viable system model: Its provenance, development, methodology and pathology. Journal of the Operational Research Society, 35(1), 7-25. Bharadwaj, A. S. (2000). A resource-based perspective on information technology capability and firm performance: an empirical investigation. MIS Quarterly, 24(1), 169-196. Bleecker, S. E. (1994, Mar/Apr). The virtual organization. The Futurist, 28, 9-14. Boudreau, M., Loch, K., Robey, D., & Straub, D. (1998). Going global: Using information technology to advance the competitive-

Copyright © 2007, Idea Group Inc. Copying or distributing in print or electronic forms without written permission of Idea Group Inc. is prohibited.

International Journal of E-Business Research, 3(1), 1-17, January-March 2007 1

ness of the virtual transitional organization. Academy of Management Executive, 12(4), 120-128. Bremer, C. F., Michilini, F. V. S., Siqueira, J. E. M., & Ortega, L. M. (2001). VIRTEC: An example of a Brazilian virtual organization. Journal of Intelligent Manufacturing, 12(2), 213-221. Brown, C. V., & Magill, S. (1994). Alignment of the IS function with the enterprise: Toward a model of antecedents. MIS Quarterly, 18(4), 371-403. Bultje, R., & van Wijk, J. (1998). Typology of virtual organizations, based on definitions, characteristics, and typology. Virtual Organization.net Newsletter, 2(3), 7-21. Byrne, A. (1993, February). The virtual cooperation. Business Week, February 8, 1993, 3302, pp. 36-41. Chesbrough, H., & Teece, D. (1995). When is virtual virtuous? Organizing for innovation. Harvard Business Review, 74(1), 65-72. Daft, R. (1983). Organization theory and design. New York: West. Das, S. R., Zahra, S. A., & Warkentin, M. E. (1991). Integrating the content and process of strategic MIS planning with competitive strategy. Decision Sciences, 22, 953-984. Davenport, D., & Pearlson, K. (1998). Two cheers for the virtual office. Sloan Management Review, 39(4), 51-68. Davenport, T. H. (2000). The future of enterprise system-enabled organizations. Information Systems Frontiers, 2(2), 163-180. Davidow, W., & Malone, M. (1992). The virtual corporation: Structuring and revitalizing the corporation for the 21st century. New York: Edward Burlingame Books/Harper Business Press. Duhan, S., Levy, M., & Powell, P. (2001). Information systems strategies in knowledgebased SMEs: The role of core competencies. European Journal of Information Systems, 10, 25-40.

Faucheux, C. (1997). How virtual organizing is transforming management science. Communications of the ACM, 40(9), 50-55. Giddens, A. (1984). The constitution of society. Berkely, CA: University of California Press. Ginsberg, A., & Venkatraman, N. (1985). Contingency perspective of organizational strategy: A critical review of the empirical research. Academy of Management Review, 10(3), 421-434. Glaser, B. G., & Strauss, A. L. (1967). The discovery of grounded theory: Strategies for qualitative research. New York: Aldine Publishing Company. Gunn, R., & Burroughs, M. (1996). Work spaces that work: Designing high-performance offices. The Futurist, 30(2), 19-24. Hardwick, M., & Bolton, R. (1997). The industrial virtual enterprise. Communications of the ACM, 40(9), 59-60. Hoogeveegen, M., Teunissen, W., Vervest, P., & Wagenaar, R. (1999). Modular network design. Decision Sciences, 30(4), 1073-1103. Johnston, H. R., & Carrico, S. R. (1988). Developing capabilities to use information strategically. MIS Quarterly, 12(1), 37-47. Karimi, J., Gupta, Y. P., & Somers, T. M. (1996). The congruence between a firm’s competitive strategy and information technology leader’s rank and role. Journal of management Information Systems, 13(1), 63-88. Kettinger, W. J., Grover, V., Guha, S., & Segars, A. (1994). Strategic information systems revisited: A study in sustainability and performance. MIS Quarterly, 18(1), 31-58. Khan, M. R., & Motiwalla, L. (2002). The influence of e-commerce initiatives on corporate performance: An empirical investigation in the United States. International Journal of Management, 19(3), 503-510. Lee, J., & Jayatilaka, B. (2002). Virtual orga-

Copyright © 2007, Idea Group Inc. Copying or distributing in print or electronic forms without written permission of Idea Group Inc. is prohibited.

1 International Journal of E-Business Research, 3(1), 1-17, January-March 2007

nization: Duality of human identities in consciousness and entity. Paper presented at the Information Resources Management Association International Conference, Seattle, WA. Lee, Z., & Lee, J. (2000). An ERP implementation case study from a knowledge transfer perspective. The Journal of Information Technology, 15(4), 281-288. Mata, F. J., Fuerst, W. L., & Barney, J. B. (1995). Information technology and sustained competitive advantage: A resource-based analysis. MIS Quarterly, 19(4), 487-505. Mowshowitz, A. (1997). Virtual organization. Communications of ACM, 40(9), 30-37. Nosek, J., & Shephard, G. (1995). View point: Making groupware payoff-British model. Communications of the ACM, 38(6), 11-13. O’Leary, D., Kuokka, D., & Plant, R. (1997). Artificial intelligence and virtual organizations. Communications of the ACM, 40(1), 52-69. Orlikowski, W. J. (1996). Improvising organizational transformation over time: A situated change perspective. Information Systems Research, 7(1), 63-92. Palmer, J. W., & Speier, C. (1997). A typology of virtual organizations: An empirical study. Retrieved from http://hsb.baylor. edu/ramsower/ais.ac.97/papers/palm_ spe.htm Prahalad, C. K., & Hamel, G. (1990). The core competence of the corporation. Harvard Business Review, 68(3), 79-91. Rayport, J., & Sviokla, J. (1995). Exploiting virtual value chain. Harvard Business Review, 73(6), 75-85. Schein, E. (1994). Innovative cultures and or-

ganizations. In T. Allen & M. S. Morton (Eds.), Information technology and the corporate of the 1990s. New York: Oxford University Press. Schultze, U., & Orlikowski, W. J. (1992). Metaphors of virtuality: Shaping an emergent reality. Information and Organization, 11(1), 45-77. Stalk, G., Evans, P., & Shulman, L. (1992). Competing on capabilities: The new rules of corporate strategy. Harvard Business Review, 70(2), 57-69. Storey, V., Straub, D., Stewart, K., & Welke, R. (2000). A conceptual investigation of the e-commerce industry. Communications of the ACM, 43(7), 117-124. Teng, J. T. C., Cheon, M. J., & Grover, V. (1995). Decisions to outsource information systems functions: Testing a strategytheoretic discrepancy model. Decision Sciences, 26(1), 75-103. Venkatraman, N., & Henderson, C. (1994). Avoid the hollow: Virtual organizing and the role of information technology. Retrieved from http://web/bu/edu/SMGSRC/projects/virtual.html Voss, H. (1996). Virtual organizations: The future is now. Strategy & Leadership, 24(4), 12-16. Weiner, M., Nohria, N. A. E., Hickman, A., & Smith, H. (1997). Value networks: The future of the U.S. electric utility industry. Sloan Management Review, 38(4), 21-34. Werther, W. (1999). Structure-driven strategy and virtual organization design. Business Horizon, Mar/Apr, 42(2), 13-18. Zajtchuk, R., & Satava, R. (1997). Medical application of virtual reality. Communications of the ACM, 40(9), 63-64.

Copyright © 2007, Idea Group Inc. Copying or distributing in print or electronic forms without written permission of Idea Group Inc. is prohibited.

International Journal of E-Business Research, 3(1), 1-17, January-March 2007 17

Jinyoul Lee received his PhD from the University of Nebraska - Lincoln and has been an assistant professor of MIS at State University of New York at Binghamton. His research interests include virtual organization, knowledge management, and enterprise integration. His most recent research is focusing on virtualization in the Internet environment on social structuration process. Mike (Tae-In) Eom is a PhD candidate in MIS at State University of New York - Binghamton and is currenty an assistant professor of business, The University of Portland. His research interests are: IS leadership, strategic alignment, strategic use of IS, virtual organization, performances of IS unit and personnel. Bonn-Oh Kim is an associate professor in the Department of Management and director of the Center for Electronic Commerce and Information Systems at Seattle University. Before joining Seattle University, he taught at the University of Nebraska - Lincoln for 10 years. He holds a PhD, MBA and BA from the University of Minnesota, University of Washington and Seoul National University, respectively. His teaching and research interests include strategic and technical issues in corporate information systems. Pairin Katerattanakul is an assistant professor in the Department of Business Information Systems at Western Michigan University. He received his PhD in MIS and a Master of Arts in marketing from the University of Nebraska - Lincoln. His research and teaching interests are in electronic business, marketing aspects of electronic commerce, and information systems discipline.

Copyright © 2007, Idea Group Inc. Copying or distributing in print or electronic forms without written permission of Idea Group Inc. is prohibited.

Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.