Besides the more specific horizontal, hollow, and modular contemporary designs, another more all-encompassing design besides the network organization is the so-called virtual organization. This term virtual organization has emerged not so much because it describes something distinct from network organizations but because the term itself represents the new environment and the partnering, alliances, and outsourcing arrangements found in an increasing number of global companies. Anand and Daft note that “collaboration or joint ventures with competitors usually takes the form of a virtual organization—a company out-side a company created to specifically respond to an exceptional market opportunity that is often temporary.”38Interestingly, the word virtual as used here comes not from the popular virtual reality but from virtual memory, which has been used to describe a way of making a computer’s memory capacity appear to be greater than it really is but does require a strong information technology platform.
FIGURE 3.2 Miles and Snow Summary of Hierarchical versus Network
Organizations
Source: Raymond E. Miles and Charles C. Snow, “The New Network Firm: A Spherical Structure Built on a Human Investment Philosophy,”
Organizational Dynamics, Spring 1995, p. 6. Used with permission of the publisher © 1995, American Management Association, New York. All
rights reserved. Rather than the old inflexible hierarchical pyramid, network organizations demand a flexible, spherical structure that can rotate competent, self-managing teams and other resources around a common knowledge base. Such teams, capable of quick action on the firm’s behalf both externally and internally, provide a distinct competitive advantage.
69
Different from traditional mergers and acquisitions, the partners in the virtual organiza-tion share costs, skills, and access to internaorganiza-tional markets. Each partner contributes to the virtual organization what it is best at—its core capabilities. Briefly summarized, here are some of the key attributes of the virtual organization:
1. Technology. Informational networks will help far-flung companies and entrepreneurs link up and work together from start to finish. The partnerships will be based on elec-tronic contracts to keep the lawyers away and speed the linkups.
2. Opportunism. Partnerships will be less permanent, less formal, and more opportunis-tic. Companies will band together to meet all specific market opportunities and, more often than not, fall apart once the need evaporates.
OB in Action: One Size Doesn’t Fit All
There are some things in the world that seem to be the same regardless of geographic location. Whether a pilot is flying into Kennedy International in New York or Heathrow in the U.K., one would assume the procedures for taking off and landing to be identical. The truth is, however, cultural differences may violate such assump-tions. For example, most countries of the world have indeed agreed that English should be the universal lan-guage when pilots from anywhere are talking to air traf-fic controllers. On the other hand, French unions have encouraged their pilots to continue talking in French when landing at Charles de Gaulle airport. These cultur-ally generated differences are not restricted to the air-line industry.
Many multinational companies are finding that it is extremely difficult to take a product that sells well in the home country and achieve equal success in a foreign market. The customs, culture, and behaviors of people in these markets are often quite different from those in the home country. For example, when Office Depot and Office Max entered the Japanese market, they were con-vinced that their wide variety of products, convenient store layout, and low prices would help them attain a significant market share. They were wrong. One of their major Japanese competitors realized something that the big American multinationals did not—small business firms account for a significant percentage of the office supply market, and these firms were anxious to get the same big discounts on their purchases as did large firms.
So the Japanese company created a catalogue business that was geared specifically to small firms. In these com-panies clerks did much of the purchasing of business equipment, and they were happy to be able to look through a catalog and place orders from their desk rather than traveling to the store.
Although chagrined by their efforts to compete effec-tively with their smaller Japanese rival, Office Depot
and Office Max believed that they would be able to cap-ture a large percentage of the remaining market—the walk-in customer. Again, they were foiled by their Japanese competitors. Unlike American customers, Japanese buyers do not mind shopping at small stores where the merchandise is crammed together. As a result, Office Depot and Office Max built large stores with wide aisles and ended up paying twice as much as their smaller competitors for rent and personnel salaries and were eventually forced to admit defeat. Their experi-ence is not unique.
When Bob’s Big Boy, the Michigan-based restau-rant minichain, opened a series of units in Thailand, management was surprised to learn that local cus-tomers really did not care for the firm’s hamburgers.
Local customers would rather buy a sweet satay, noo-dle bowl, or grilled squid from a street vendor at one-fifth the cost. In fact, the owner of the Thai franchise system did not start making money until he began closely studying the potential customers who were walking past his restaurants. He then realized that these potential customers fell into two broad cate-gories: European tourists and young Thai people. This resulted in his changing the menu of his restaurants.
For German customers he began offering specialties such as spatzle, beef, and chocolate cake. For local Thais there were country-style specialties such as fried rice and pork omelets. The owner also added sugar and chile powder to Big Boy’s burgers to better match Thai taste buds. Commenting on his eventual success, the adaptable owner recently noted, “We thought we were bringing American food to the masses. But now we’re bringing Thai and European food to the tourists. It’s strange, but you know what? It’s work-ing.” And the reason is that the owner realizes market offerings have to be tailored to local demand. One size does not fit all.
70 Part One Environmental and Organizational Context
3. No borders. This new organizational model redefines the traditional boundaries of the company. More cooperation among competitors, suppliers, and customers makes it harder to determine where one company ends and another begins.
4. Trust. These relationships make companies far more reliant on each other and require far more trust than ever before. They share a sense of “codestiny,” meaning that the fate of each partner is dependent on the other.
5. Excellence. Because each partner brings its “core competence” to the effort, it may be possible to create a “best-of-everything” organization. Every function and process could be world class—something that no single company could achieve.39
Importantly, virtual organizations can help competitiveness in the global economy. The alliances and partnerships with other organizations can extend worldwide, the spatial and tem-poral interdependence easily transcend boundaries, and the flexibility allows easy reassign-ment and reallocation to take quick advantage of shifting opportunities in global markets.40To avoid disintegration and attain effective needed focus, the lead virtual organization must have a shared vision, a strong brand, and, most important, a high-trust culture.41For instance, com-petitors P&G and Clorox recently collaborated in forming a new generation of plastic wrap called GLAD Press’n Seal in order to effectively compete with market leader Saran.
Other examples of firms that have formed virtual collaborations include Harley-Davidson and ABB—and also, on a smaller scale, firms such as Clark Equipment, a manufacturer of forklifts and other industrial equipment; Semco, a Brazilian firm producing pumps, valves, and other industrial products; Sweden’s Skandia Insurance Group (with 91,000 partners worldwide); and the Australian firm Technical and Computer Graphics (TCG). In the infor-mation technology industry, Sun Microsystems views itself as an intellectual holding com-pany that designs computers and does all other functions (product ordering, manufacturing, distribution, marketing, and customer service) through contractual arrangements with part-ners located throughout the world, and Intel uses virtual teams with members from Ireland, Israel, England, France, and Asia working on a wide variety of projects. As with the net-work organization, it is not really possible to show a virtual organization, but Figure 3.3
An Internal
Alliance An
External Alliance
Principal Customer
(e.g., Telecom Australia) A typical TCG firm of 5–10 professionals
Joint Venture Partner (e.g., Toshiba) A TCG Project Leader
FIGURE 3.3 Miles and Snow’s Example of a Virtual Organization:
Technical and Computer Graphics (TCG), an
Australian-Based Multinational Firm.
Source: Raymond E. Miles and Charles C. Snow, “The New Network Firm: A Spherical Structure Built on a Human Investment Philosophy,”
Organizational Dynamics, Spring 1995, p. 8. Used with permission of the publisher © 1995, American Management Association, New York. All rights reserved.
Chapter 3 Organizational Context: Design and Culture 71
depicts graphically how TCG would look as a virtual organization. Because networks and virtual organizations both represent such radically different ways to structure firms, there are many challenges ahead, especially on the human side of these contemporary structural forms.