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1

Virtual Organization and Electronic
Commerce



Bob Travica

Asper School of Business

University of Manitoba

Winnipeg, MB, Canada


Email: btravica@ms.umanitoba.ca



Acknowledgement

I am very grateful to the three anonymous reviewers, the editor and to many c
olleagues in the
field and practitioners for helping me to improve this article.




The DATA BASE for Advances in Information Systems, 36(3), 2005. ©



Disclaimer:

This article is provided online exclusively for study, non
-
commercial purposes,

under the

conditions of Fair Use.




2

Abstract


The purpose of this article is to contribute to understanding the virtual organization and its relationship with
electronic commerce. The relevant literature on virtual organization forms through which business
-
to
-
busi
ness e
-
commerce is organized is reviewed. A model of the virtual organization is presented and its use in a case study
demonstrated. Implications for further research are discussed.


ACM Categories:
Information Systems, Information System Applications


Ke
ywords:

Virtual Organization, Electronic Commerce, Virtual Corporation, Virtual Alliance, Virtual
Interorganizational Team



3

Introduction


Since the topic of the virtual organization (VO) was introduced, a voluminous literature has been developed. This
lit
erature discusses different organizational forms with the prefix "virtual," including, the virtual corporation
(Davidow & Malone, 1992), virtual alliance (Strader et al., 1998), virtual teams (Lipnack & Stamps, 1997), virtual
office (Davenport & Pearlson,
1998), and virtual task (Mowshowitz, 1994; 1999; 2002). These forms have been
located in different industries and sectors


from manufacturing to education, and from profit to non
-
profit
organizations and government. The VO literature addresses a number of

issues, such as, the necessary
conditions for VO, process aspects of "virtualness," and the role of IT. And the preoccupation with VO is not
unique to academia; rather, it has parallels in the attention that consultants and management in the real world
or
ganizations pay to ideas and methods from rather a liberally conceived VO framework.


In spite of this extensive discourse, a number of issues related to VO still await clarification. One problem is that
specific forms of VO are studied independently of o
ther forms. This approach conceals possible common
characteristics between VO forms and complicates defining and classifying VO (Igbaria & Tan, 1998; Malhotra,

2000). Some of the forms listed above are inter
-
organizational (e.g., the virtual corporation an
d alliance) while
others are intra
-
organizational (e.g., virtual office and intra
-
organizational team), thus invoking two different levels
of analysis. It has yet to be seen if any sort of integration between the two levels is possible and, therefore, if
d
ifferent virtual forms can be explained by a common model. Another issue in the literature concerns
philosophical differences in conceptualizing VO. While some researchers maintain that VO is a particular,
innovative organizational form or design (e.g., st
ructure, culture, and strategy; see Davidow & Malone, 1992;
Goldman et al., 1995), others posit that “virtualness” or “virtuality” signifies a potential characteristic or capability
that can reside in any organizations, including traditional ones (Mowshowi
tz, 1997; 1999; Venkatraman &
Henderson, 1998). The classical controversy between structure and action is recognizable in the background
(Clegg & Hardy, 1996). In addition, many researchers acknowledge existence of an umbilical cord between the
virtual and

network organization (Child & Faulkner, 1998; Ching et al., 1996; DeSanctis et al., 1999; Goldman et
al., 1995). However, differentiating between the two designs has rather been challenging.


A particularly important issue concerns the relationship betwe
en VO and e
-
commerce. The literatures on VO and
e
-
commerce are for the most part developing with no reference to each other. In contrast, this article builds on the
assumption that e
-
commerce and VO are related. On the one hand, e
-
commerce is conducted thr
ough virtualized
processes that is another way of saying that e
-
commerce is organized through VO forms. On the other hand, e
-
commerce generates the momentum and purpose for virtualizing. If this assumption is true, then VO cannot be
understood fully withou
t e
-
commerce, and
vice versa
. Some leads in this direction exist in both literature camps
(Choi et al., 1997; Fingar et al., 2000; Sieber & Griese, 1999; Venkatraman & Henderson, 1998). Given the
theoretical and practical importance of e
-
commerce, these as
sumptions and leads need to be developed into
clear consequences for either side in the e
-
commerce
-
VO relationship. Yet another issue concerns IT. Different
types of IT and of information systems have been seen by many researchers as a necessary condition
for VO to
exist. While early conceptualizations of VO pointed to communication and data transfer technologies (e.g.,
electronic file transfer, email, EDI), current emphases are being placed on distributed N
-
tier Internet
-
centric
systems, grid computing, an
d semantic Web. However, the technological argument has been challenged and
disputed through evidence and conceptual studies.


This article intends to contribute to understanding the issues cited above, by providing certain clarifications,
possible bridge
s between different perspectives, and a research contribution that altogether could help advance
understanding the phenomena of VO and e
-
commerce. The focus of the article is on inter
-
organizational forms of
VO and on business
-
to
-
business (B2B) e
-
commerce.

With respect to contributing to research, the article provides
a research model of VO, illustrates its use in a case study, and provides guidelines for further study.


Conceptualization of the Virtual Organization


The literature provides a great number
of concepts and definitions of VO, referring to different organizational
contexts and using different terms. In a pioneering effort, Davidow and Malone (1992) defined organization they
called “virtual corporation,” which later has become an inspiration for

conceptualizing both virtual organization
forms in general and the virtual corporation in particular. In the conceptualization of these authors, the virtual
corporation refers to a temporary association of various constituencies (individuals, groups, and
firms) that come

4

together in order to harness swiftly a sudden market opportunity. In the subsequent discussion, general ideas
behind the concept of virtual will be examined first and the discussion will subsequently turn to VO forms that are
interesting f
rom the perspective of B2B e
-
commerce.



Concepts of the Virtual


The general idea of VO above has support in the lexical definitions that equate "virtual" with "potential or latent,"
to being such in effect or essence, although not formally recognized or
admitted (Webster, 1988). For example, if
someone gives a virtual promise or virtually promise something, it means that the promise has been essentially or
effectively given, although not formally (contractually, legally). Therefore, the terms "virtual" or

"virtually" or
"virtuality" mean that something exists in potentiality, effect, essence, although not formally and tangibly.
Analogously, VO is an effect of organization that VO constituents create, while in fact VO is not the classical
organization we kn
ow. For instance, the concept of firm refers to a single entity with definable physical presence,
boundaries, and a considerable longevity. In contrast, VO can be without some or all of these characteristics. For
example, boundaries of a VO are the boundar
ies of its constituent members. These boundaries deviate from the
concept of traditional organizational boundaries because they are flexible, permeable or fuzzy


if they are not
such, the members would not be able to collaborate across and thereby create
the effect of a VO. The fuzziness
of VO boundaries makes it possible for a prompt inclusion of new members and for the simultaneous participation
of the same constituents in different VOs. For VO boundaries, the physical aspect becomes secondary to
informa
tion and perhaps legal aspects. Therefore, in contrast to the traditional organization, VO does not have a
physical presence and have boundaries that merely on the surface resemble traditional ones. With regard to
longevity, VOs can be anywhere along the t
imeline ranging from very short periods of time units to years, as the
discussion further below will demonstrate.



Technological concepts of the virtual express similar ideas. For example, the term virtual memory means that a
part of computer secondary s
torage is used as if it were the primary (main) memory. As a result, an effect of a
larger main memory is created. Similarly, the concept of virtual network refers to many individual LANs linked via
the Internet that function as if they were a single netwo
rk. This can be called the effect or principle of synergy,
many
-
to
-
one, or unification (
de pluribus unum
) due to the fact that many entities create one. VO exhibits this
unifying effect as well, because it is constituted from different organizational entit
ies that create an effect of a
single firm. The concept of virtual machine can also help understand VO. With implementation of virtual machine
technology, a single physical computer system is “sliced” into many computing machines, each of which serves a
pa
rticular user and provides an appearance of a whole system to the user. By analogy, a single physical
organization can "multiply itself" virtually, by participating in many VOs at the same time. This can be called the
effect or principle of divergence, one
-
to
-
many, or multiplication (
de unum pluribus
).


Taking another look at the virtual memory concept helps illustrate yet another important characteristic of VO. With
virtual memory, the secondary storage continues to perform its main function of permanentl
y storing data, except
for the part that is allocated for cooperation with the main memory. In contrast to the rest of the secondary
storage, this part represents a virtualized secondary storage. The same happens with organizations that create a
VO


just
some parts of them may participate in the interorganizational virtual arrangement. These parts, then,
imprint the property of virtualness on respective home organizations. The consequence is that organizational
virtualness or VO is a matter of degree rathe
r than a categorical property. Another consequence concerns the
controversy between form and capability that exists in the VO literature. One does not need to take either of the
opposing stances because the two are combined in the assumption that the tradi
tional organization can be
partially virtual.


Figure 1 depicts the issues discussed above. Figure 1a depicts VO as the synergistic effect created by
organizations A and B; note that the dashed line represents the idea of permeable organizational boundar
ies.
Figure 1b depicts the divergence effect, since organization B "multiplies" itself in the VOs that it creates with
organizations A and C. Figure 1c depicts the property of virtualness, where the overlap between organizations A
and B represents those pa
rts of either organization that are virtualized.


---

Figure

1

about here
---



5

The assumption that VO is a synergistic effect has important and interesting consequences. On the one hand, VO
is “imaginary” because it is created through organizations’ linka
ges (Hedberg, 1997), and it presents “extensions
and modifications” of the constitutive organizations (Oravec, 1996), thus “denying precise physical denoting”
(Warner & Witzel, 1999, p. 76). Thus, VO is intangible. On the other hand, VO is real and tangibl
e because it is
created by tangible constituent parts, and it can act and deliver products as tangible organizations do. This dual
character of VO may be confusing if strict formal logic, which excludes the coexistence of opposite qualities, is
consequentl
y followed (A is A and not non
-
A). The confusion dissipates within the logic that posits coexistence of
the opposites. One may look into Hegelian philosophy or in fuzzy logic for examples. In a fuzzy set, a member of
a set A belongs both to its native set
A and to some other non
-
A set. In the same vein, a VO member is both a
separate organization and a member of the supra
-
organizational arrangement, and VO is both tangible (physical)
and intangible (an effect of interaction).


Organizations can virtualize
different parts (processes, operations, groups, individuals, etc.). Instances of these
different virtual extensions and modifications refer to sourcing, production processes, purchasing, and selling. For
example, in the purchasing domain, virtualization d
evelops on the back or front end of the buyer and seller.
Production needs, on the other hand, pull toward virtualizing processes in the organizational production core
through methods of collaboration and subcontracting. These different paths to VO determi
ne specific forms of VO.


In summary, both social and technical concepts of virtual can help understand VO. Fundamental assumptions
behind the concept of VO are instantiated in principles of synergy (many
-
to
-
one) and divergence (one
-
to
-
many),
and in the pr
operty of virtualness. The dual character of VO


both tangible and intangible, both a separate
organization and an interorganizational arrangement


can be understood from the perspective of fuzzy sets or
some other logic that posits the coexistence of op
posite qualities.


The Virtual Corporation


In an early conceptualization of VO, Davidow and Malone (1992) describe the virtual corporation in terms of a
temporary association of various constituencies (individuals, groups, firms, etc.) that come togethe
r in order to
harness swiftly a sudden market opportunity. This organization delivers a "virtual product" that is produced
instantaneously and customized in response to customer demands, deploys "a sophisticated information network
and computer
-
integrated
production processes," and it exhibits "permeable and continuously changing
boundaries" involving supplier and customer, an "amorphous structure" and a need for maintaining trust among
parties lacking physical contact (pp. 4
-
6). This concept of VO includes

processes, tasks and operations in all key
segments of an enterprise


the back end, production core, and front end. The domain of organizational back
-

and front
-
end refers to supply chain transactions, while the production domain refers to the interorgan
izational
collaboration focused on delivering a joint product. In ensuing research, these domains have been associated
with distinct paths to VO. Some authors have been focused exclusively on VOs based on the supply chain, while
others have studied interor
ganizational collaboration in the production domain. The virtual corporation has been
linked to both of these paths, while the production path has been associated with the virtual alliance and
interorganizational virtual team. All these forms represent org
anizational models for B2B e
-
commerce. Follows the
discussion on these forms.


The seminal study by Goldman et al. (1995) worked out most extensively the initial concept for the virtual
corporation and also extended the VO framework to other forms. The a
uthors investigated the enterprise named
AgileWeb, a network of small machine shops in northeastern Pennsylvania. This network was created in 1994
with funding from ARPA (Advanced Research Project Agency) to support pursing defense projects and push the
bo
undaries of "agile manufacturing." The network member organizations would come together in different
combinations to form one or more VOs in order to carry out a new defense contract. Each organization has had
its own competencies, and the usual driver for

creating VO was a need of combining the competences in different
ways. The organizations also shared infrastructure, R&D, risk, and costs. They maintained permeable
organizational boundaries toward each other and customers. According to the Goldman and co
lleagues (ibid.),
different interorganizational arrangements with virtual character have come out of this network, including new
corporations, strategic alliances, contractor
-
subcontractor relationships, and outsourcing. The ability to work
intensively wit
h other organizations and to be able to trust them was enhanced by pre
-
qualification agreements
and contracts. Deliverables and end
-
effects of these virtual forms were joint products, reductions in concept
-
to
-
cash time (an aspect of manufacturing agility)
and increased access to markets (Goldman et al., 1995).



6

Further research on the virtual corporation has been focused on supply chains, sourcing, outsourcing, and
subcontracting in the manufacturing sector. A graphical representation of such virtual corpo
ration is in Figure 2.
Outsourcing refers to the contract
-
based transferring of some of a company’s recurring internal activities and
decision rights to outside providers (Greaver II, 1999). In contrast, sourcing implies that the company does not
possess c
ertain resources and, thus, has to procure them in the market. Subcontracting is used in the similar
sense to refer to obtaining production activities in the marketplace, including the situation when the company
supplements its production capability in thi
s way.


In Venkatraman and Henderson’s (1998) conceptualization of “organizational virtualness,” one of the aspects is
termed “asset configuration” or “virtual sourcing.” This refers to effective contracting for complimentary capabilities
through a networ
k of suppliers and subcontractors. The authors cite numerous examples of achieving virtualness
(e.g., General Electric, and Wall
-
Mart). Upton and McAfee (1996) described a “virtual factory” that was created by
McDonnell Douglas Aerospace (MDA) and its part
ners. MDA outsourced network services to its spin
-
off AeroTech
Service Group, and then used the network for sourcing purposes. Specifically, MDA created an extranet that was
opened to its suppliers of custom parts. The extranet was used for requesting and
collecting bids, data transfer,
monitoring the status of production on the supplier side, etc. On their side, suppliers could access CAD
documents on the MDA premises and download the code for running their programmable machinery. Dell
Computer represents
another well
-
known example of virtualizing supply chain processes. Dell assembles
computers from parts produced by a number of suppliers, tests the final products, markets them, and sells them.
The virtualizing on the supply side embodies Dell’s solution f
or just in time inventory management (Dell &
Fredman, 1999). Consistently with this evidence, the virtual supply chain has been described as an organizational
structure that supports dynamic allocation of materials suitable for VO (Strader et al., 1998); t
he central role in
such chains belongs to IT connecting the chain members. Nike is also a well
-
known example of extensive
sourcing or sub
-
contracting of manufacturing operations while the company itself consists of research, marketing,
and brand management

functions. Indeed, Nike was never conceived as a factory, and attempts at manufacturing
were rather marginal in the company’s history (Nike, 2004). Sourcing extensively in this domain has enabled this
firm to function as if it were a full
-
fledged producer
.


Mowshowitz (1994; 1997; 1999) is interested in sub
-
contracting and sourcing issues from the perspective of
capitalizing on modern networked IT. He developed a “switching principle” in order to define VO or organizational
“virtuality” in terms of using
alternative satisfiers for production requirements at hand. The alternative satisfiers are
external partners that perform on tasks. The selection of partners and switching from one to another is a dynamic,
real
-
time process that in fact creates VO (one or
more at a time). This dynamic and specific task
-
related origin of
VO is what inspires the author to call this organizational form “virtual task.” The switching is a “meta
-
management” activity rather than old
-
fashioned management because the pool of satisfi
ers is not fixed and
analysis of requirements and satisfiers must be continuously performed, contends Mowshowitz (1999). This
concept of VO/virtualizing applies to the manufacturing and services sector alike. The concept has had a following
in the literatu
re (e.g., the Virtual Organization Net research community, http://www.virtual
-
organization.net), while
receiving criticism from Walsham (1994) for its “dehumanizing” aspects. Similarly, Child and Faulkner (1998) point
out that the VO that is based merely o
n switching presupposes production efficiency to the human factor (e.g.,
organizational culture, and a need for meaning and sense of identity in a person’s working life).


Kraut et al. (1998) have concentrated on outsourcing as a method of invoking VO. The

authors studied a sample
of firms from the apparel manufacturing, pharmaceuticals, magazine publishing and advertising industry. Taking
the transactions costs perspective (Coase, 1937; Malone, 1987; Williamson, 1975), the authors defined
“organizational v
irtualization” in terms of the degree to which important production processes are outsourced.
They investigated the effects of electronic networks (EDI, online databases, LAN, Lotus Notes, Internet) on
“virtualization,” which was conceived in terms of outs
ourcing. Contrary to expectations, electronic networks were
not associated with greater “virtualization.” Moreover, personal relationships proved to be a more effective means
of coordination across organizational boundaries than electronic networks. Theref
ore, the contribution of IT to
outsourcing business processes was limited. IT plays even a more limited role in the conceptual study of Warner
and Witzel (1999). The authors argue that the East India Company from the British colonial period was an
ancestor

of VO because it was dispersed in space and had little physical presence. The authors note that no
electronic IT was deployed in this company. Based on this fact, they infer that modern electronic IT is not
necessarily needed in a VO. Although thought pro
voking, this unorthodox argument may be hard to defend. There
appears to be a whole world of difference between electronic links in today's VO and epistolary links in East India
Company in terms of speed, coordination capabilities, agency and transaction c
osts, use of knowledge resources,

7

and organizational deliverables. Also, neglecting the factor of history results in a failure to acknowledge that
today’s VOs carry e
-
commerce, which presents an entirely different institutional context than was the busines
s of
East India Company’s time. An important message for conceptual research on VO is that simple models of VO
(spatial dispersion, no physical presence) do not have a discriminatory power needed to differentiate between VO
and other organizational forms.


All these instances of virtualizing invoked by the moving of sourcing, subcontracting, and outsourcing processes
into the electronic context represent examples of B2B e
-
commerce. Indeed, these VO forms can be viewed as a
fundamental paradigm for organizi
ng e
-
commerce. Still, the literature on e
-
commerce provides only sporadic
references to VO (Choi et al., 1997; Cronin, 2000; Timmers, 1999). Connections between the two streams of
research remain weak. This fact is even more puzzling provided that their co
mmon anchoring can be identified in
the past: organizational network extensions based on systems for electronic data interchange (EDI) were
forerunners of both virtual forms and of e
-
commerce. Figure 2 depicts this by showing the virtualized delivery side
of one organization and the virtualized supply side of another.


The relationship between VO and B2B e
-
commerce is even more apparent in the case of electronic marketplaces
(e
-
markets, also called electronic or functional hubs, net market makers, net mark
ets, butterfly markets, and
exchanges). The e
-
market is an important element of B2B e
-
commerce, and it can be defined as an Internet
-
based intermediary that uses various market
-
making mechanisms to mediate transactions among businesses
(Sawhney & Kaplan, 1
999). A graphical depiction of this is in Figure 3. An e
-
market can be more or less balanced
with regard to buyers and sellers. The former is sometimes called "Butterfly Market," because links between
buyers and the e
-
market provider as well as those betwe
en suppliers and this provider resemble butterfly wings.
A less balanced e
-
market results from shifting the locus of control toward the buyer or supplier side. This is
sometimes called "Lopsided Butterfly" and an example is Covisint, which links several la
rge car manufacturers
and many of their suppliers. Another example of e
-
market refers to the company VerticalNet.com (also called
VertMarkets). Founded 1995, the company and its subsidiaries have been providing solutions for electronic
supply chains and ho
sted vertical e
-
markets in a number of industries (e.g., manufacturing of bread machinery
and telecommunications equipment, and chemical industry). In these e
-
markets, sellers can present their
offerings, buyers can browse product catalogs, and both sides
can complete trading transactions.


From the VO perspective, the e
-
market introduces new characteristics in virtual organizing. In contrast to direct
electronic linking between the front
-
end of the seller and the back
-
end of the buyer, e
-
markets have exte
nded the
interorganizational network. Indeed, the e
-
market creates simultaneously a number of VOs with its clients. In
addition, being in the business of enabling electronic interorganizational transactions, the e
-
market is a powerful
technological agent o
f virtualizing the client organizations. Therefore, technical solutions introduced by the e
-
market are likely to shape both the virtualizing of the client organizations and the VOs that the e
-
market creates
with its clients. Developments in this area are l
ikely to be shaped by the software agents technology. These are
applications (usually using component
-
based, client
-
server, Internet
-
centric architectures) that use e
-
markets to
carry out automated search, communication, negotiations and other business tas
ks on behalf of trading partners
(Maamar et al., 2001). E
-
markets can be studied in conjunction with the switching principle that was discussed
above.


Virtual Alliances and Consortia


Different inter
-
organizational arrangements, such as, alliances, consor
tia and joint ventures have also been
associated with VO. Distinctions between these are not clear in the literature. The staple form in this discussion is
the virtual alliance, and the virtual consortium will be considered to be a very similar form. These

interorganizational forms share the strategic teleology, such as, developing a groundbreaking product and
creating and implementing a long
-
term marketing strategy.


A global marketing strategy could be the reason for organizing a virtual alliance (Strade
r et al., 1998). An example
is Rosenbluth International Alliance, one of leading corporate travel agencies with a global reach. (Rosenbluth,
2004). In Rosenbluth International, the partners share a strategy of service orientation, decision making is
decent
ralized and consensual, and mutual competition of the members is proscribed. The alliance pursues an
extensive use of database and information systems. For example, one
application captures the details of
clients' meetings spend and stores the data in a ce
ntral warehouse. This allows all the members to
have access to consolidated views of clients and suppliers. In addition, centralized data provides a

8

common basis for negotiations with suppliers.
Burns and Barnett (1999) propose several models of virtual
al
liances differentiated on various aspects, including interdependence, shared risks, and culture. The models are
co
-
alliance, star alliance, value alliance, and market alliance. Wildeman (1998) describes the virtual alliance in
terms of networked organizati
ons and individuals with complementary skills and management philosophies,
capable of rapidly delivering a specific product, and using IT as an enabler. The author points out that IT has a
support rather than generative role and that reducing transaction c
osts is not the driver for virtual alliances.


A purpose of alliances often is the need of developing innovative, groundbreaking products. Such a fiat requires
the sharing of resources, whether material ones or the social capital. Eisenhardt and Schoonhov
en (1996) argue
that a match between those in vulnerable strategic positions and those in strong positions (e.g., well
-
connected,
top management with reputation) gives rise to alliances in the American semiconductor industry. An example of
the alliance bas
ed on the product driver is
the National Computational Science Alliance, which includes over 50
academic, government and business organizations working on an advanced computational infrastructure called
the Grid (NCSA, 2004). Another example is

Abilene, an

alliance formed for developing a high
-
speed backbone for
the Internet2 that should support research and higher education in the United States (Abilene, 2004). The alliance
members are Qwest Communications, Nortel Networks, Juniper Networks, and Indiana Un
iversity. Strategic goals
of these partners extend into the production stage of the network. Product alliances have often driven major
developments in the IT sector. Examples include PC architectures (the Compaq
-
led alliance vs. IBM), Web
standards (allian
ces centered around Sun Microsystems vs. those around Microsoft), and new types of
information systems (e.g., the alliances that Pivotal Corporation builds with software and hardware vendors for
advancing its customer relationships management systems (Pivo
tal, 2004))
.


The literature does not answer clearly the question: When does a classical alliance become virtual? For
understanding this, some principles pertinent to other VO forms may provide a guidance. For example, one can
explore the extent of electr
onic linking among the partners coupled with the flexibility of their electronic space
boundaries (e.g., the degree of opening one's extranet to partners, design of supra networks and applications
developed exclusively for an alliance’s purposes, the alloc
ation of access authority to Internet collaboratories and
other distributed applications, and so on). However, some principles of other VO forms may not apply to virtual
alliances. For example, the switching capability may not be as important as it is for
the virtual corporation. In
addition, the motivation of saving on transaction costs that can drive the virtualizing of supply chain processes
gives way to the resource sharing driver in the case of virtual alliances.


Some researchers of virtual interorga
nizational forms prefer the term virtual consortium. This form has been
associated with the networking between manufactures, suppliers, and customers, distributed engineering, product
customizing capability, and so on. O’Leary (1998) studied a "virtual con
sortium" called Manufacturing Assembly
Pilot, which was founded by ARPA and led by large firms (e.g., General Motors, Ford, and Johnson Controls).
The author was particularly interested in issues of costs associated with IT adoption. Applying Arrow’s
impos
sibility theorem, the author found that it was impossible to determine IT standards (software, hardware,
networks) that could meet optimal needs of all the VO members. A dominant member typically made these
choices. This finding is agreeable with evidence
on hub
-
based, star shaped, dominated interorganizational
networks. Child and Faulkner (1998) have been focused on differentiating between the classical consortium and a
virtual one. While both can be considered “hybrid” organizations with characteristics o
f both market and
bureaucracy, they are driven by different goals. In classical consortia the goal is inter
-
organizational learning,
which does not hold for its virtual equivalent, contend the authors. However, this proposition appears to be in
disagreemen
t with resource sharing, where knowledge is the shared resource. As discussed above, knowledge
sharing drives indeed the creation of virtual alliances.


Virtual Interorganizational Team


The term "virtual team" has been profusely used in the recent system
s literature. According to Lipnack and
Stamps (1997) that blend academic and consulting perspectives, virtual team is the group whose members
perform work across time, space
and organizational boundaries
, while decisively relying on IT (italic added).
Howe
ver, most of the literature on virtual teams has omitted the interorganizational condition in conceptualizing
virtual teams, focusing on the intra
-
organizational level of analysis. Another characteristic of this literature is that
spatial dispersion is con
sidered a sufficient condition for a virtual team to exist. A similar reduction can be found in
textbooks on management information systems, suggesting that any organization based on spatially dispersed
work is a VO (this reductionism we have already encou
ntered in the study on East India Company above). To be

9

sure, implications of spatial dispersion can be complex, including awareness of others’ availability, activity, place
and progress in a production process and perspective in decision making (Steinfeld

et al., 1999), the synchronicity
of work and conflict management (Palmer & Speier, 1998), trust ties (Jarvenpaa et al., 1998), and so on.
However, the real issue is: What are the conditions that are necessary for explaining virtual team beyond spatial
dis
persion?


Consistently with the interorganizational perspective followed in this article, we are interested in virtual
interorganizational

teams. In these teams, the members are spatially dispersed and they belong to different
organizations. The virtual i
nterorganizational team shares essential characteristics of teams, such as, a strong
focus on project goals (task orientation), a boundary separating teammates from outsiders, social binds keeping
insiders together (socio
-
emotional orientation), a division

of roles, leadership, communication, equity concerns,
and so on. But since a virtual interorganizational team is a temporary gathering of strangers, it can be considered
as generally being a more pragmatic organization. This implies that socio
-
emotional a
spects may not play as
important role as in classical teams. Rather, factors being in function of accomplishing project goals, such as,
articulate and competent professional behavior could be more important (Jarvenpaa et al., 1998). Majchrzak et al.
(2000)

have studied a virtual interorganizational team. This team was multidisciplinary and composed of members
from three organizations. The team worked on a new product and used specialized groupware with
communication capabilities on a daily basis. The team s
uccessfully completed the project. However, the authors
found that the extent of using the groupware was invariant of task uncertainty. Some of potentially important
functions of the groupware were never used, such as, the indexing of new knowledge that wa
s supposed to ease
knowledge sharing. One reason for this was that the use of this functionality would require that professionals put
in extra time. Another findings is that occasional face
-
to
-
face meetings helped in reducing challenges to
effectiveness th
at typically come along with weak professional and social bonds. These meetings were performed
in the beginning of a project and they resulted in clarifying mutual understanding and expectations. Lurey and
Raisinghani (2001) drew a similar conclusion on th
e role of IT. In the case of the team they studied, groupware
technology was a weaker predictor of teams’ performance than the relationships between team members and
process variables. Both findings are in agreement with the literature on other VO forms di
scussed here, where IT
acts as a necessary but not sufficient condition for a VO to exist.


The Virtual and the Network Organization


It is commonly accepted that VO exhibits a network character (Byrne, 1993; Child & Faulkner, 1998; Ching et al.,
1996; De
Sanctis et al., 1999; Goldman et al., 1995; Hedberg, 1997; Davidow & Malone, 1992; Snow et al., 1999;
Venkatraman and Henderson, 1998). Connections between the network and virtual organization were conceived
even before the very term “virtual organization”

was introduced. Miles and Snow (1986) argued that outsourcing
of business functions, which they termed with “vertical delayering,” led to “dynamic networks.” The dynamic
network has similarities with later concepts of VO; for example, Byrne (1993) defined

VO as a temporary network
of suppliers, customers, and rivals. Travica (1999) pointed out to other similarities between these two forms as
well as to their similarities with other new organizational designs, calling these “F
-
characteristics.” For example,

information flows are “fluid” in both the network and virtual organization. Their structures can be “flexible” as in the
organic form, “fickle” as in adhocracy and “free from bureaucratic traditions” as in a team
-
based organization
(ibid., pp. 23
-
28). In
general, similarities between the network and virtual organization are well understood.
However, their differences are not.


Child and Faulkner (1998) took on the difficult problem of differentiating between the virtual and network
organization. Using Pow
el’s (1987, 1990) concept of hybrid organizational designs that inherit characteristics of
both market and hierarchy, the authors have posited that VO may evolve from network forms, which are closer to
the market end of the continuum


the equal
-
partner ne
twork and the dominated network. Owing to this origin, VO
shares advantages of the network organization, most notably access to other’s resources and skills, provision of
information and business intelligence, reduction of uncertainty, increase of speed, a
nd provision of resource
allocation flexibility (Child & Faulkner, 1998). However, the authors stress that VO is different from the network
organization on several counts, including electronic means of communication, variable boundaries, and a higher
flexi
bility in allocating resources. Note that the authors’ assumption on electronic character of VO links seconds
the equivalent premise put forward by researchers who did not compare VO and the network organization, as
discussed above. Child and Faulkner (ibi
d.) adopt Mowshowitz’s (1994) switching principle as yet another
differentiating characteristic of VO; again IT support to the switching processes is implied. In conclusion, the

10

argument of Child and Faulkner is based on ideas of inheritance and evolution,

and it can assist in differentiating
between the virtual and network organization.


Table 1. Characteristics of Virtual Organization


VO Characteristic

Description


VO is the interorganizational
effect

VO results from interaction of VO members, creatin
g a supra
-
organizational entity. In this respect, VO is intangible.

Virtualness is a property of
organization

Virtualness of processes is a matter of scale and it can occur on
the front/back end of an organization, and in the production core.

In this res
pect, VO is tangible.

Multiplication Effect

The same organization can be involved in different VOs
simultaneously (processes virtualized on the back end and in the
production core can create different VOs).

Unifying Effect

Different organizations crea
te a virtual interorganizational
arrangement, thus posing as one organization.

Different domains of virtualizing
create different VO forms used in
B2B e
-
commerce

-

Either as the interorganizational effect or organizational
property, VO can take place at t
he front and back end of
organizations, and in the production core.

-

The front/back
-
end virtualizing refers to supply chains, including
e
-
markets, materializing in the virtual corporation form.

-

The production core virtualizing refers to virtual allian
ces and
virtual interorganizational teams.

-

These VO forms are models for organizing B2B e
-
commerce.

Network Character

This characteristic indicates a similarity between VO and the
network organization. In contrast to its counterpart, coupling in
VO is l
ooser and electronic links are necessary (but not
sufficient).

IT is a necessary but not sufficient
condition


-

IT is used for electronic networking and in various processes as
an enabler complementing social conditions.

-

This characteristic differenti
ates between VO and the network
organization.

Dynamic, Switchable membership

-

VO members can change from project to project and even on
the task basis.

-

This characteristic is a consequence of looser coupling and it
helps differentiate between VO and
the network organization.

Flexible Boundaries

-

Permeable/fuzzy boundaries allow for forming supra
-
organizational forms.

-

This characteristic helps differentiate between VO and the
network organization.

Spatial Dispersion

-

This is a common characteri
stic of VO as the supra
-
organizational form.

-

Every dispersed organization is not VO; additional
conditions/characteristics are needed for VO to exist.

Variable Longevity

Different virtual forms have different life spans (e.g., virtual
alliance based
on long
-
term marketing strategy vs. virtual
corporation defined by project time).

Non
-
standard product

-

This is an umbrella term for product that is customized,
innovative, quick, niche, and it expresses the end
-
goal of VO.


In summary, we discussed te
chnical and social concepts of virtual and showed how these concepts complement
each other. Virtual corporation was discussed as an organizational design that comes into being through
virtualizing the sourcing and other inter
-
organizational processes. In a
ddition, we discussed
virtual alliance and
virtual interorganizational team as forms
that result from
virtualizing the production core
. The challenging issue of
differentiating between the network and virtual organization was addressed. We established that
, in contrast to

11

the network organization, VO necessitates electronic links and, thus, modern electronic IT, couples its members
in a looser manner, and switches between different members. A summary of VO characteristics is provided in
Table 1. We also poi
nted out that differences in conceptualizing VO are extant in the literature and that
reductionism is not rare (e.g., equating VO with spatially distributed organization). Another emblematic
characteristic of the literature is inconclusive evidence on the
role of IT in VO. This fact precipitates the
proposition that IT is a necessary but not sufficient condition for VO. We have also drawn relationships between
e
-
commerce and VO by arguing that B2B e
-
commerce is organized through virtual corporations and tha
t both VO
and e
-
commerce are impossible without modern electronic IT.


Defining and Modeling VO


Based on the discussion above, we propose the following defintion of VO:
VO refers to both the members of a
switchable interorganizational electronic network

and to the network itself that delivers non
-
standard products.




It is apparent that logic of e
-
commerce is embedded in this definition, because delivering non
-
standard products
clearly implies commercial transactions between organizations via electronic

links. The model that accounts both
for this definition and for the VO characteristics discussed above is presented in Figure 4. The model is called
ISSAAC (read as "Isaac") after the initials of its constitutive dimensions


I
nteroperability,
S
witching,
S
pecial
Product,
A
ggregation,
A
nchoring, and
Cy
bernization. The model is supposed to be used as a vehicle for
explaining VO and for assessing the degree of virtualness. ISSAAC dimensions are conceptualized as follows.


-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

Figure

4 about here

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-


Cybernization

refers to an organization's existing in the space that is created by information systems and
electronic information flows (cyber space or electronic space). Cybernization reflects the necessary rol
e of IT in
VO, accounting for both the extent of IT usage and the involvement of an organization in creating and using
computer networks, EDI, technologies for B2B e
-
commerce, and various relevant information systems. The
ISSAAC model accounts for this key

role of Cybernization by making it a central variable. Cybernization is also a
key for relating VO and the network organization. As discussed above, the network organization exists with no
electronic links. By obtaining these, it can evolve into a VO. Fin
ally, Cybernization indicates the common
technological foundations of VO and e
-
commerce.


Aggregation

refers to networking electronically with other organizations and individuals to form a VO. This
dimension reflects the electronic network (or networking)
character of VO. The term aggregation is intended to
connote a typically looser coupling that is expected to exist in a VO. This notion is cognate to meanings of
aggregation in data modeling practiced in the domain of systems analysis and design: the data
engaged in the
aggregation relationship are more loosely coupled than the data engaged in the composition relationship.
Properties of boundaries between network members, which are expected to be more flexible or fuzzy, should be
studied as a facet of aggre
gation.


Switching

refers to the extent to which an organization alternates its membership in VOs over a period of time.
This dimension depends importantly on flexible boundaries and electronic linking. Also, Switching is related to the
dynamics and scope

of Aggregation, and it may be important for delivering non
-
standard products. Switching
helps differentiating between VO and the network organization, as it is not typical for the latter. Variation in the
extent of Switching could be expected with respect

to different forms of VO; e.g., virtual corporations may use
switching more than virtual alliances. Another line of variation runs by industry differences. For example, strict
regulations on product quality may compel a pharmaceutical company to stay with

known suppliers for longer
periods of time. In contrast, firms in the e
-
travel industry may be in constant search for suppliers.


Anchoring

refers to the support that Cybernization meets in the management, structural, process, cultural,
political, and str
ategic aspects of an organization. Existing in the cyber space through information systems and
networks needs to be anchored in the organization of work, management methods, organizational values, etc. For
example, IT needs to be integrated into tasks and
processes in a virtual corporation; or, an e
-
commerce
enterprise has to maintain cultural values and stories centered on the business relevance of the Internet/Web.

12

Anchoring constitutes the organizational and management foundation of a VO without which th
e potential of IT for
virtualizing cannot materialize.


Interoperability

refers to the extent to which an organization is synchronized with its partners in a VO.
Synchronizing means that members of VO need to be capable of both communicating with each oth
er and
working together. Interoperability resembles coordination, but it is different in implying that a more flexible
coupling exists among the constituent parts. Interoperability may vary by markets. In markets with sufficient
supplies of standard produc
ts (e.g., the plastics industry), the need for interoperability may not be as high as in
streamlined markets with the need for a tighter coupling between buyers and suppliers of (e.g., the
pharmaceutical industry). Interoperability needs to be assessed bot
h in the organizational/management and
technological domain; these are two facets of Interoperability. The former includes using a shared vocabulary,
values, and compatible work and management methods. For example, variation in cultural “synchronizing” cou
ld
make a difference between VO forms (Speier et al., 1998; Staples & Rathasingham, 1998). Technological
interoperability involves using compatible IT standards and platforms. With the advent of object
-
based, cross
platform, Internet
-
centric information sy
stems architectures, the potential for technological interoperability has
been significantly increased.


Special Product
refers to the extent to which an organization delivers non
-
standard products (goods and
services). This dimension reflects the end purp
ose of a VO; sharing competences and resources could, then, be
understood as intermediary goals. This principle of defining the character of organization by its deliverable we
borrow from general systems theory, while acknowledging that such an idea may be

alien to organization theory.
Special Product is related to Cybernization, Aggregation and Switching. For example, if a business process is
more rested on the cyberspace, it can be easier to subcontract/outsource it to different partners possessing the
co
mpetences for building non
-
standard products. In the context of supply chain, larger supply networks are more
likely to satisfy input needs related to non
-
standard products than smaller networks.


The ISSAAC model is to be used for assessing organizationa
l virtualness. The model awaits both validation and
defining of certain properties. In its present version, ISSAAC does not explicate cause
-
effect relationships,
although some of possible propositions have been indicated in the discussion above. We maintai
n that this
property should be defined by validating the model through empirical research. The model is not definitive in
terms of the positive/negative direction of relationships either. Again, empirical validation is the key. Still, ISSAAC
and the concep
tual background discussed in this article allow for hypothesizing. For example, in the context of
virtual corporations extended by e
-
markets, one might expect that a higher degree of Cybernization, which in turn
would cause a higher technical Interoperabil
ity of VO members. Positive relationships between these and
Aggregation and Switching may also be expected. A higher Special Product capability should come out as a
result. This example also indicates that the ISSAAC model is supposed to be used for resea
rch in B2B e
-
commerce. Finally, the ISSAAC model is tailored for both quantitative and qualitative inquiry. The former awaits
further research; for some guidelines in this respect, please see Table A1 in Appendix. So far, we have used
ISSAAC in several qua
litative case studies, and we discuss one of these in the next section.


A Case Study


The following is the discussion of findings from a case study on a unit of a multinational firm, which will be called
Electronics Company. In a nutshell, we discovered
that virtualizing at Electronics Company applies to two
important business processes. One refers to the development of software for the machinery for manufacturing
boards with integrated circuits. This path of virtualizing makes Electronics Company similar

to the
sourcing/outsourcing
-
based virtual forms


the virtual corporation. The other process refers to developing new
strategic products, and it imprints characteristics of the virtual alliance and virtual interorganizational team on
Electronics Company.
The company can be considered an early adopter of e
-
commerce practices, because it has
used virtualization methods to conduct business with its partners even before the surge of the Internet use gave
rise to today familiar concepts of e
-
commerce. These and

other findings will be discussed in detail below. For
information on the study's methodology based on Yin's (2003) case study guidelines, please see Appendix.


Real Achievements of the Virtual


Electronics Company has been engaged in producing equipment f
or broadband networks. The broadband
network hardware and software is becoming increasingly complex given a variety of standards, a need for

13

bridging these, and an increasing demand for combining different signals over the same channel (e.g., telephony,
In
ternet, and cable TV). Control modules for broadband networks are among the most complex and critical
products of Electronics Company. At the core of a control module is a board with a programmed microchip and
other electronic elements. Programming the mac
hinery to make these boards is the process by which Electronics
Company has engaged in VO relationships: instead of developing the software on its own, the company has
found it to be more efficient and cost
-
effective to commit the development to external s
oftware vendors. The major
challenge is that control units vary customer requests. Almost each instance of this product is unique, as the
customers operate different brands of network software, have to interface different network protocols, possess
differe
nt equipment and network configurations, and have different needs in terms of levels of network control.
Developing internally the capability to respond to this market need could be costly. Instead, Electronics Company
found a solution by sourcing/contrac
ting out the development of software for programmable machinery


Special

Product

in the terminology of our ISSAAC model. This aspect, along with electronic linking, flexible organizational
boundaries, methods of synchronizing/binding with suppliers, and
short turnaround times imprint the character of
virtual corporation on Electronics Company.


In the typical scenario, a customer places an order for a network control unit with Electronics Company. The
company assembles a project team to respond to the req
uest. Project engineers design the product. The new
product requires that the computer
-
driven machinery for producing the boards be reprogrammed, and that new
code has to be developed. This machinery cuts the boards, plants electronic elements on them, and

programs the
chips. Similarly to the virtual factory described by Upton and McAfee (1996), Electronics Company relies on a
network of external software vendors for the development of the mentioned code. These are small software
shops, some in the neighbor
hood, others far away. Once engineers at Electronics Company determine software
specification, the other part of the development process continues on the partners’ side. A software vendor is
selected, and the cooperation starts, even if a formal contract i
s not put in effect. Turnaround times can
sometimes be just days long. The vendor, then, delivers the code electronically. The engineer on duty at
Electronic Company reviews the code and downloads it to the computers controlling the machinery. A prototype
board is then produced. The troubleshooting engineer puts the board through appropriate electronic tests. Next,
the results are reviewed by the project manager and engineers engaged in the project. A feedback is
subsequently sent back to the vendor, along
with specifications for a revision (if any). The cycle is repeated until
the prototype board is approved for production. A variant of this process occurs when a customer requests
additional customizing of a product after placing the initial order.


One ca
n see from the description above that Electronics Company has routinely engaged multiple software
vendors. The result has been virtualizing, creating multiple instances of corporation simultaneously and over time.

The company has usually run several projec
ts at a time, each of which engaging one or more vendors. Thus, the
company has "multiplied" itself in several VOs at a time. These virtual corporations have varied greatly in
longevity. Depending on specific project needs, the engagement of an external ve
ndor has extended from days to
weeks. The technological foundation of the virtual corporations has been diverse albeit less sophisticated, as well
as cost
-
efficient and effective. Email, electronic file transfer, the telephone and the fax have been the mos
t
frequently used types of IT in support to virtual extensions of Electronics Company. They have carried out
communication, collaboration, and the transfer of software between the company and its vendors. Specifically,
email, the telephone and the fax were

used for transferring product specifications. The first two were also used for
negotiations and clarifications of software requirements. Electronic file transfer has supported the transfer of
code. For instance, vendors could deliver the code into a file

repository with secure access. These cost
-
efficient
technological solutions have proved to be effective as well. Other types of IT have also been tried but to a smaller
degree. These include white boards and screen
-
sharing applications for the purposes of

fine
-
tuning design details
in a collaborative fashion.


The ISSAAC's dimension of
Aggregation

can describe networking that underpins virtual corporations in which
Electronics Company has participated. Managers in Electronics Company consider the sourcin
g process
satisfactory as long as a vendor complies with the specified quality standards and the timeline. Responsiveness
to the time requirement enables the company's staff to perform testing on schedule and to provide a proper
feedback. In effect, the cy
cle of revision can progress toward a closure in a controlled manner. If the process runs
this way with no apparent gaps, it indicates a higher
Interoperability
in the operational domain.

In contrast, if the
timeline is not respected, idle periods creep in

the process, the finish date is postponed, and sometimes even the
code has to be finalized by another vendor. This exemplifies a lower operational
Interoperability
. Electronics
Company has experienced it both ways.


14


Selecting vendors is an important pro
cess, which precedes and enables the creation of virtual corporations
involving Electronics Company. Project managers have access to a database of software shops acting as
vendors. They also strive to actively maintain relationships with the vendors. Proje
ct managers have dealt with
two typical scenarios. In a scenario of open options, Electronics Company switches between different vendors on
the basis of timing, cost, expertise, quality, and social factors. Cost has had a smaller weight than it might be
ex
pected. When deadlines are tight and/or a guaranteed level of quality is a must, the Electronics Company may
pay any fee a vendor demands. Technical expertise is another essential criterion. Previous experience from
working with vendors is important for ma
king assessments of technical expertise. Social factors refer to
accountability of a vendor or to trust that the vendor would deliver according to expectations. Past experience is
important again, and it helps run business even when the standard contractua
l foundation is missing. As opposed
to the open options scenario, a scenario of closed options is enacted when external partners are hardly available
or when a niche expertise is needed. In these situations, project managers at Electronics Company are comp
elled
to compromise the above selection criteria and to partner with whoever is available. These findings corroborate
the
Switching

dimension in the ISSAAC model and indicate how complex
Interoperability

aspects can be.


Social

Interoperability

can also b
e thought of in terms of binds that support coupling of VO members. In our case,
these binds have been professional, contractual and social. The professional binds were already indicated above:
expertise of a software vendor is one of the criteria for enga
ging the vendor into a VO. As for contractual binds,
they deviate from evidence on VO forms in a more regulated context (Goldman et al., 1995). Namely, law was not
found to be a continuously available regulatory basis for VOs formed by Electronics Company.

At times, a vendor
would reject engaging in a contractual relationship. As one of them put it, "my name guarantees for the work I'll
do, and I do not want to get my hands tied with any detail beyond the main specifications of software and the
price." Mana
gers at Electronics Company confirmed that this sort of approach is indeed not an exception. They
have also conveyed a conviction that the contract may not be feasible because there can simply be no time for
drafting and negotiating one. Thus, transactiona
l costs were prohibitive, pushing Electronics Company and its
partners away from purely market transactions, as predicted in the literature discussed above (Child & Faulkner,
1998). When legal regulatory basis is missing, social ties fill the gap. Responsi
bility and trustworthiness of
potential partners constitute the basis for collaboration in this situation. This finding supports evidence on the
relevance of trust for inter
-
organizational processes that lead to virtualizing (Kraut et al., 1998). Trust is
an aspect
of
Social

Interoperability
. We found some indications that this trust is cognitive rather than affective (Staples &
Rathasingham, 1998), thus based on rational calculations of the partner’s dependability.


Relying on trust is another characteris
tics that contrasts the discovered model of virtual corporation from the
market. Still, the virtual corporation is not a hierarchy but rather a hybrid design (Child & Faulkner, 1998). A lack
of the control or coordination capabilities pertinent to hierarch
y appears to be compensated by the mode of
Aggregation (see Ouchi, 1980, 1981). In creating virtual corporations, Electronics Company has typically made
itself the hub of a star
-
shaped network. Vendors can never get in contact directly with each other. In
addition to
achieving a certain level of control in its VOs, centralizing the underlying network has enabled Electronics
Company to respond to needs of
Technical

Interoperability
, as already evidenced in the VO literature (O’Leary,
1998).


When Virtual is

Not Virtuous


Electronics Company’s experience of working in the virtual mode with small software shops has been
predominantly affirmative. But this is not the only domain of virtualizing the company has experienced. Electronics
Company conducted a number

of strategic development projects where partners were companies from the same
conglomerate located at other continents. These have been long
-
term projects that were supposed to move
broadband network technology forward. Fundamental conditions for VO were
materialized in these projects


spatial dispersion, electronic networking, and the need to deliver non
-
standard products. The virtual forms that
Electronics Company has created this way share a mix of characteristics of the virtual alliance and virtual
in
terorganizational teams. Whereas some projects succeeded, others were delayed, modified, or abandoned.


The data collected indicate that some problems could be caused by the way electronic communication was made
part of project activities. Engineers at di
fferent locations did most of the work individually and collaboration with
remote colleagues was used only sporadically. Electronic communication was usually used when problems
surfaced as an emergency channel rather than a regular part of work processes.
The IT infrastructure, however,

15

was much broader and more state of the art than the one used for building virtual corporations with small software
vendors discussed in the previous section. It included videoconferencing in rooms designated for decision
mak
ing, custom
-
built groupware tools, and project management applications. But it appears that
Anchoring

of this
infrastructure in work processes of the VO members was not sufficient. One engineer at EC stated that “going to
the decision room felt more like s
omething you were forced to do than you really wanted or sometimes really
needed.” The use of the decision room was scheduled and monitored by the upper management. The same
respondent hinted that a less sophisticated system, even an Internet
-
based desktop

videoconferencing
application, could have been a better option. These findings indicate that management in VO could be a decisive
factor in shaping the
Anchoring

dimension. Although a potential for powerful IT support had been in place, it never
materiali
zed to the extent that business processes became effectively virtualized with IT. From the perspective of
the ISSAAC model,
Anchoring

suppressed (exerted a negative effect on)
Cybernization

and
Interoperability
, and
Cybernization
, in turn, negatively affec
ted the
Special Product

capability. These are interesting effects that merit
more testing in further research.


Another problem had to do with the incapability of dispersed project members to communicate in the professional
domain. For example, some of th
ese preferred open standard technologies, while others opted for proprietary
technologies. And followers of object oriented
approaches were juxtaposed to proponents of various more
traditional methodologies. Confrontational lines were dug in so much that e
ven occasional face
-
to
-
face could not
help relax professional egos. Several interviewees felt that these differences at times "grew out of proportions." In
such conflicts of opinion, project work apparently suffered. Managers experienced these challenges f
rom their
own perspective. Although the risk was shared among alliance members, thus resembling other virtual alliances
(Burns & Barnett, 1999), it appears that the management at different levels had insufficient experience and
resources for reconciling pr
ofessional conflicts. Professional competences needed for producing the intended
products


a condition for operational virtual alliances (Wildeman, 1998)


could have been in place indeed.
However, the competences were not coordinated effectively.


Effec
tive interorganizational teams did not emerge in the troubled projects. Although certain projects were
formally organized so that professionals from different organizations could work as teams, an effective team
organization never materialized in some proj
ects. Another indication that the interorganizational teams were
deficient is the lack of a strong goal
-
driven performance that is likely to signify successful virtual
interorganizational teams (Majchrzak et al., 2000). In the case of Electronics Company,

failures to reach
agreements over certain technological solutions led to delays and political maneuvering rather than to
deliberations and resolutions that would advance the projects.


According to the opinion of a manager who was part of a number of int
erorganizational projects, one of the main
problems had to do with ambiguity regarding authority and leadership issues. He personally was often unsure with
regard to what he should and should not do. An engineer pointed out to somewhat a different but perh
aps related
facet. He stated that "the willingness of the 'top brass' at partnering organizations to cut the knots was in a short
supply." From the perspective of the ISSAAC model,
Interoperability

in the professional domain was rather small.
In turn, it r
educed the capability of partners to move work processes to electronic space (
Cybernization
). All these
difficulties had a synthesis in a severely limited capability of delivering novel strategic products (
Special Product
).
At best, some tangent products w
ith limited/altered functionality resulted from these projects, while one project
was a total failure, as it was abandoned in the third year of execution. A corollary is that developing new products
through virtual alliances and interorganizational teams i
mposed serious challenges on professionals and
managers. In comparison with the virtual corporations Electronics Company has had success with, developing a
new product through virtual alliances and virtual interorganizational teams has been more challengin
g. Although
Aggregation

and
Switching

in these forms were of a smaller magnitude than in the virtual corporations, the
challenges of
Interoperability

and
Anchoring

have loomed large and had a negative impact on both
Cybernization

and Special Product.


In s
ummary, this case study made a step toward validating the ISSAAC model in terms of corroborating its
dimensions and outlining possible relationships between some of the dimensions. These findings have a direct
bearing on e
-
commerce, since they explain the
conditions and challenges that organizing for B2B commerce has
to respond to. In addition, the ISSAAC model elucidates issues surrounding organizing and managing of VO by
explaining the background of contrasting experiences Electronics Company has had with

different forms of VO.
The first point to the explanation is that the effective virtual corporations were easier to build than virtual alliances
and virtual interorganizational teams because the former involved a simpler organizational process and

16

technol
ogical basis, and clearly defined expectations regarding
Special Product

and
Interoperability.
These
conditions engendered a path to effective VOs. In contrast, when business processes were complex, IT loosely
anchored, and expectations regarding
Special P
roduct

and
Interoperability

ambiguous, the virtual forms fell short
of being virtuous. The second point to the ISSAAC
-
based explanation of successes and failures of VO concerns
control and coordination. In virtual corporations, Electronics Company has tak
en a hub role, which allowed for
more control over the virtual processes. Contrary, in virtual alliances and virtual interorganizational teams,
Electronics Company has been much less in control, acting as part of a peer
-
to
-
peer network. Achieving an
effec
tive level of
Social Interoperability

was the major obstacle experienced, which had ripple effects on the
deployment of IT and on organizational deliverables.


Summary and Conclusion


This article discussed VO in terms of its fundamental assumptions, gene
ral characteristics, different forms (virtual
corporation, virtual alliance, and virtual interorganizational team) and its relationship with e
-
commerce. It has been
argued that any organization may have virtualized parts, and, thus, any organization can ex
hibit virtualness to
some degree. Virtual extensions of several organizations create an interorganizational arrangement, which is both
tangible, looking at its constituent members and deliverables, and intangible, as the result of interorganizational
inter
action. In addition, while this effect of one organization is created by actions of many organizations, it is also
true that VO results from one organization's self
-
multiplication through participation in different VOs, often at the
same time.


Specific V
O forms discussed reflect these basic assumptions and enrich our understanding of VO. The virtual
corporation builds on subcontracting, sourcing and outsourcing processes shifted into the electronic space. On
the business side, these are transactions that
constitute the core of B2B e
-
commerce in the supply chain context.
Therefore, e
-
commerce gets organized through virtual forms. The e
-
market enterprise, a newer e
-
commerce
phenomena, can push further toward virtualizing, while increasing the complexity of v
irtual corporations. We also
discussed the virtual alliance, which is organized around strategic goals (develop a groundbreaking product,
penetrate new markets) and can have a longer life span and less changeable membership than the virtual
corporation. Th
e last organizational design examined is the virtual interorganizational team, which is motivated by
pragmatic project goals. This design shares some characteristics of team organization, with an important
stipulation that socio
-
emotional orientation of te
ammates in a virtual interorganizational team may not be as
important as with classical teams. Transactions between different organizations in the domain of production
represent another area of B2B e
-
commerce, characterized by collaboration rather than buy
ing and selling.
Understanding nuances of these VO forms can help deepening our understanding of e
-
commerce.


Analysis of fundamental assumptions behind VO and of characteristics of specific VO forms gives rise to
conceptualizing general characteristics o
f VO. These are the intangible/tangible character, unifying/multiplying
effect, network character, flexible boundaries, IT as a necessary but not sufficient condition, switchable
membership, spatial dispersion, variable longevity, and non
-
standard product.

The last characteristic synthesizes
the reasons for creating virtual organizations as these are aiming to delivering goods or services that are
characterized as customized, innovative and quick. After discussing these characteristics, we proposed the
foll
owing definition: VO refers to both the members of a switchable interorganizational electronic network and to
the network itself that delivers non
-
standard products.

We also proposed a general

model of VO that draws on the
discussed literature, the ISSAAC
model, named after the initials of its dimensions


Interoperability, Switching,
Special Product, Aggregation, Anchoring, and Cybernization. The purpose of the model is to explain VO and to
assess the degree of organizational virtualness. A use of the mode
l is demonstrated in a case study of a company
producing the equipment for broadband networks


Electronics Company. The company has built both virtual
corporations with its software vendors and virtual alliances and virtual interorganizational teams with
other firms.
There have been more and less gratifying experiences with these different VO forms. We demonstrated how the
ISSAAC model could help understanding both. Obstacles encountered with the VO forms have implications for
B2B e
-
commerce, demonstrating

the conditions and challenges it has to deal with. These challenges also shed
the light on the importance of management for developing and maintaining an operational VO. This case study
represents a step in the process of validating the ISSAAC model.


Th
e article has provided clarifications with regard to differentiating between virtual form and virtualness
property/capability. It has been argued that these two perspectives are reconcilable by understanding that VO can
be both a part of a classical organi
zation (a tangible entity) that is moved into electronic space and the

17

interorganizational arrangement that the parts from different organizations create (an intangible, interaction
-
based
entity). This dual character is acknowledged in the proposed definit
ion of VO as well. Another distinction made in
this article concerns VO and the network organization. The ISSAAC model and the framework discussed imply
several differences. As opposed to the network organization, VO rests on the electronic space and is de
pendent
on electronic linking (these characteristics are not necessary for the network organization), has fuzzier
boundaries, exhibits looser coupling of members, can have a switchable membership, and delivers non
-
standard
products. It is the accumulation

of these properties that one should look for in differentiating between the virtual
and network organization, rather than a single condition (e.g., electronic linking or a temporary character). Mere
electronic linking cannot make a network organization vi
rtual, although it might be a vehicle for an evolution in that
direction.


The main thrust in this article has been on joining research on VO and on e
-
commerce. These two phenomena
are closely related, although they have been studied is isolation. The dis
cussion demonstrated that B2B e
-
commerce is organized through virtual forms. Consequently, theory of VO, including the ISSAAC model, explains
organizational aspects of e
-
commerce. Specifically, the organization of e
-
commerce transpiring in electronic
suppl
y chains can be understood by looking at virtual forms based on sourcing, subcontracting and outsourcing
processes associated with the virtual corporation. In addition, the organization of e
-
commerce, which is based on
collaboration in production processes
, can be understood by looking at characteristics of virtual
interorganizational teams and virtual alliances. Another aspect of the relationship between e
-
commerce and VO
discussed here refers to the fact that the e
-
commerce propels organizations toward vi
rtualizing. It has been
argued that e
-
markets


a product of the evolution of e
-
commerce


provide economic incentives for
organizations to move business transactions into the electronic domain and virtual mode. These relationships
between e
-
commerce and V
O amount to a compelling argument that the two phenomena should be studied in
conjunction.


Further research needs to advance validation of the ISSAAC model through both qualitative and quantitative
inquiry. The ideas on measurement presented in the articl
e could serve as the springboard for quantitative
research. A number of research questions can be addressed. For example, do virtual corporations typically differ
from virtual alliances and virtual interorganizational teams on dimensions of Aggregation and

Switching, as it has
been indicated in this article? Does the degree of Interoperability always vary along a continuum, with pragmatic
goals on one end and strategic goals on the other, as it has been indicated in this article? What are the other
facets o
f the Special Product dimension, and how can these be used to discriminate between virtual corporations
based on electronic sourcing and electronic supply chains whose only purpose is to reduce transaction costs?
How does the switching principle work in vi
rtual corporations that include e
-
markets? What variables (as a
specification of ISSAAC dimensions) can capture management aspects that are responsible for making a VO a
success or a failure? Finally, research should also test the ISSAAC model on emerging
forms of organizing

e
-
commerce.



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20





































A

B

C

VO=
BA

VO=
BC

(b) Divergence Principle:

Organization

B
participates in two VOs

A

B

VO=
AB

(a) Synergy Principle:

Two physical
organizations create

one VO

Figure 1. Principles of Virtual Organization

(c) Virtualness Property:

Just parts of either
organization are virtualized

A

B



Virtual part of A

Virtual part of B


21











































INPUT

OUTPUT

PROCESS

INPUT

OUTPUT

PROCESS

A

B

Figure 2. Virtual Corporati
on


Organization A has the interface with the buyer virtualized (sales processes), and

organization B has the interface with the supplier virtualized (purchasing processes).

They create a variant of the virtual corporation that characterizes B2B e
-
commerc
e.

VO



22







Figure 3. Virtual Corporation Including Electronic Market


A variant of Virtual Corporation including an electronic marketplace as the intermediary. This model
has
contributed to maturation of B2B e
-
commerce.


INPUT

OUTPUT

PROCESS

INPUT

OUTPUT

PROCESS

A

B

VO

ELECTRONIC

MARKETPLAC
E


23



AGGREGATION

SWITCHING

SPECIAL PRODUCT

CYBERNIZATION

ANCHORING

INTEROPERABILITY

Figure 4. The ISSAAC Model of Virtual Organization


24

Appendix


Table A1. The ISSAAC Model Variables


Possible Operationalization of Variables


Variable

Conceptualization

Possible O
perationalization

Cybernization

The extent to which an organization
exists in the space that is created
by information systems and
electronic information flows (cyber
space or electronic space).

-

The proportion of core operations that
predominantly rest
on computer
-
based
information systems (including electronic
networking).

-

The importance of cross
-
organizational
electronic networking for completing key
business processes.

Aggregation

The extent to which an organization
networks technologically and
org
anizationally with partners in
order to form a VO.

-

The number of trading partners interacted
with electronically in a certain period of
time.

-

The proportion the electronic network
takes in core business processes or
operations.

-

Network measures desc
ribing inter
-
organizational networks.

-

The degree of flexibility (fuzziness) of
partners' boundaries.

Switching

The extent to which an organization
alternates its membership in VOs
over a period of time.

-

The number of buyers/suppliers that have
changed

from one production cycle to
another.

-

The number of buyers/suppliers that have
changed from one project to another.

Anchoring

The extent to which Cybernization
has support in the management,
structural, process, cultural,
political, and strategic aspec
ts of an
organization.

-

The frequency/importance of using IT for
collaboration in VO (beyond the home
organization boundaries).

-

The magnitude of adjusting old
management techniques (structure,
processes, culture, etc.) to VO, or the
frequency of VO prac
tices.

Interoperability

The extent to which an organization
is synchronized with its partners in
a VO.

Technical Interoperability:

-

The degree to which information systems
can interface in supporting cross
-
organizational transactions/workflow.


Social In
teroperability:

-

The degree of sharing strategic goals
(e.g., priorities, quality standards, and
market targets).

-

The degree of sharing operational
objectives (e.g., schedules)


Special Product

The extent to which an organization
delivers non
-
standard
goods and
services.

-

The number of products that are custom
-
built.

-

The magnitude of customizing a staple
product or products.

-

The turnaround time for custom products.

-

The cycle time for niche products.




25


Methodology for the Electronics Company Ca
se Study


Data Collection

The data for this case were collected on a site of a producer of broad bend network equipment (Electronics
Company) located on the East Coast in the U.S. This organizational unit was the unit of analysis. The main
research objecti
ve of the study was to explore if the unit studied could be described in terms of the ISSAAC model
of VO. The main research question was: Are there elements of VO in operations and strategy of Electronics
company? Specific research questions addressed the
match between practices at Electronics Company and
specific dimensions of the ISSAAC model


Cybernization, Aggregation, Switching, Anchoring, Interoperability
and Special Product.


The data collection period extended over 12 months and it used interviewi
ng, on
-
site observation, and document
analysis. The triangulation of data sources aimed at ensuring the construct validity (Yin, 2003: 34). Eleven
subjects in total were formally interviewed, eight of whom were the employees of the observed unit while thre
e
were owners of the company's business partners


small software vendors. Among the company’s employees
there was one executive, two project managers, two engineers engaged in different projects, and three
employees from manufacturing operations. The samp
ling of subjects was based on the snowballing method and
supported by two insider informants. Project managers pointed to external software vendors to be interviewed.


Observation included engineering quarters and the manufacturing floor. Data were recor
ded by the means of tape
recording and taking written notes in the study diary. A database with notes and company's documents was
created. It was also used for storing results of social networks analysis (e.g., sociograms) and the flowcharts of
work activi
ties and players. The data collection was driven by a case study protocol. The protocol contained a
research plan with research questions, plans of interviewing and observation (subjects, locations, situations, and
schedules, among other details), and deta
iled interview questions including probes and different interviewing
scenarios. All these methods were in function of safeguarding the reliability of the study (Yin, 2003: 34,

67
-
9). Follow more important details on (A) interviewing, (B) Observation, and
(C) document analysis.


(A)

Interviewing

Interviewing was conducted by using the interview protocol as follows:

1. Please tell me about the
project

you are working on?

Probes:



What are the salient stages (points, parts) in the project?



What are the typi
cal tasks?



What are the critical tasks?



Where is the project right bow plan
-
wise and practically speaking?



What is your part in the project?



Has there been any change in the initial plan of the project? If yes, do you know why? Do the customer
requests

have anything to do with the changes?



IT Probes
: What computer
-
based tools do you and others use in the project?


2. Note: If customer
-
initiated changes addressed directly affect design of the product, make a natural drill
-
down to
a
product
question. Oth
erwise, ask the question:



Could you please describe the product you are building?



What are the most striking characteristics of the product?



How does the product compare to other products of this company?



Is it unique in any way?



Have you ever built pr
ecisely the same product?



Does the customer anyhow influence the product characteristics?



Product Probes
: drill down to specific characteristics, including technical nitty
-
gritty specifications that may
border with proprietary information. Remind the sub
ject of my abiding by non
-
disclosure agreement on
proprietary information.


3. Please tell me about your
coworkers

in this project?

Probes:


26



Where are your coworkers located?



How do you relate to your coworkers in carrying out your part of work?



What co
mputer
-
based tools do you use for communicating with them?



Are there any computer
-
based tools that you use for working together on parts of the project?



IT Probes
: What are the names of software/systems? How important are the tools for you? How do you
u
se the tools? Can you recall any striking detail related to the design and use of these tools?


4. Could you please describe your work with
external partners
? (Alternatively: From your perspective, what is the
role of external partners in this project?)

P
robes:



What part of work do the external partners carry?



How important is their work for completing the project?



Is the expertise the external partners have available within your organization?



What is the motivation for engaging the external partners?
(
Probe

for timing, costs/benefits, and staff
availability.)



Are there any computer
-
based tools that you use for working together on parts of the project? (Run
IT
Probes for question #3
.)


5. Have there been any changes in the
project membership



whether
internally or with regard to external
partners?

Probes:



Could you recall approximately how many have passed (changed) through the project? External
partners?



How were the external partners selected? Were there alternative partners considered, and if yes,

how
many? What selection criteria were used?



Were the changes of external partners frequent? In the same project? In what stage of the project?



Were the changes of external partners frequent across projects? Why did this happen? (Note: If the
answer is "
no", encourage the interviewee to speculate.)


6. You have mentioned different kinds of
computer tools

used in this project. Could you please tell me more about
these?

Probes:



How would you estimate the importance of the computer tools for the project;
for example, could it be
completed without the tools? What specifically could not be completed?



To what extent are these tools part of the tasks and the flow of work within the company?



To what extent are these tools part of the tasks and the flow of wor
k between you and your external
partners?



Has there been any need for an adjustment between you and your partners with regard to the computer
tools used? (
Probe

for communication applications, security, programming languages, operating systems,
and manage
ment methods.)


7. Would you like to add any more comment on
the workflow between you and your external partners
?

Probes:



How does the workflow between you and your external partners dock tail with other internal workflows
and work practices in your orga
nization?



Is the workflow that you and your external partners collaborate on something alien to the rest of your firm
or it fits rather smoothly in your usual work practices? (
Probe

for processes of software development that
involves external software ven
dors.)


Table A2 indicates the relationship between the interviewing protocol and targeted ISSAAC dimensions.


27


Table A2. Relationship Between Interview Questions and ISSAAC Dimensions


Question

ISSAAC Dimension

2

Special Product

3

Cybernization

4

Aggre
gation, Cybernization

5

Switching

6

Cybernization, Anchoring, Interoperability

7

Anchoring, Interoperability


(B) Observation

Data on Anchoring was additionally collected using the observation method. Observation sites and timing were
specified in the
case study protocol after some initial insight into the organization was acquired on the basis of
interviewing and document analysis. Observation sites included manufacturing floor where microchip boards were
created, and engineers’ cubicles.


(C) Documen
t analysis

Document analysis included descriptions of the company and its products in public documents (both paper and
electronic), project documents, email messages, electronic bulletin boards postings, and memos.


Data Analysis

Interview data and a rele
vant segment of observation data were content analyzed (both manually and by using
software for qualitative data analysis) with the goal of identifying instances that match concepts behind ISSAAC
dimensions. Two independent coders were used, and the eventu
al inter
-
coder reliability index initially was 0.76;
after some discussion, partial recoding was performed and it resulted in improving the index to 0.83. The largest
variation in coding occurred with regard to the dimension of Anchoring. Network analysis
and data flow
diagramming was also used for understanding the workflow and processes at Electronics Company.