Let's Get Virtual

By Dr. Shay Hershkovitz
Chief Strategy Officer, Wikistrat

I work at a virtual organization which operates a virtual community of professionals. This means that I work at a virtual entity whose employees are in different offices, cities and countries (and even on different continents), and with a network of experts who collaborate remotely. And I love it!

It's not that I don't like working with people. Quite the contrary - I have an in-house team of almost 50 employees spread over four continents, and I manage a group of over 2,000 top-notch experts from all across the world which are part of my firm's professional community. This is indeed a complex management challenge - but it is also fun. The fact that we are not sitting in the same office (or city, etc.), is usually a pro rather than a con. In order to understand why it is not only great but also a major conceptual change, we need to embark on a short travel backwards in time.

The 1886 Supreme Court ruling in Santa Clara County v. Southern Pacific Railroad Company set corporations on the track towards effective legal personhood and protections under the 14th Amendment to the United States Constitution. For the first time, corporations were entitled to the some of the same rights as human individuals. This ruling had a tremendous effect on society, politics and the economy - and it had much to do with shaping corporations to what they are today, for better or worse. It ultimately also shaped our perceptions about organizations and has been fertile soil for theories which attribute to organizations cultures, behaviors and even languages different from those characterizing the individuals who make them up.

But what really is a corporation? A corporation is a legal entity of one person or more which legally operates separately from its owners and workers. A multinational corporation (MNC) is a corporation that operates in two or more countries. MNCs are becoming increasingly important on the global scene. Some even believe that MNCs have grown to be more powerful and influential than the nation-state; this is certainly the case when taking into account that some of the prominent MNCs possess larger economic power than small or even medium-sized countries.

Why are they so powerful? The MNC's power lies in its size. MNCs have the ability to coordinate and control large-scale operations which spread globally, even if their physical presence in each geographical region is limited or doesn't even exist. They also operate in a vast array of economic, political, social and cultural environments. It is estimated that there are about 61,000 MNCs in the world today carrying out business by way of over 9,000,000 affiliates. They account for about a tenth of global GNP and about a third of total world export. Yet only a relatively small number of global corporations (e.g., Samsung, Microsoft) predominate, and the vast majority are headquartered in developed countries - at least for now.

How are they able to operate on such a wide scale? Compression of time and space - or in other words, technology. The fact that people have succeeded in altering the world into a "global village" in which virtually any action can be performed from any place on Earth within seconds gives corporations tremendous power. To that we add the fact that due to its size and power, the corporation has the ability to invest in advanced IT infrastructure on a scale which is out of reach for individuals or even ordinary companies. A corporation is in fact an entity with unprecedented strength.

Essentially, the corporation's strength lies in its size and ability to communicate with and among its components. But what if a mass of individuals were also able to communicate and coordinate their actions? We can use the term "virtual organization" to define such a large group of people able to easily coordinate their operations. Such a group can use its size not only for internal communication (e.g., in-house staff) but also with respect to external elements (in my case, a group of 2,000 high-level experts). Yet it is still virtual, since it is not a firm legal entity but a flexible and fluid network of experts which can be constantly altered. Information technology provides inexhaustible potential for the creation of such "virtual collaboration."

Can people remain independent in such a virtual organization? Certainly. This is another important aspect of the virtual organization: Indeed, it is based on a mass of people, but it is a dynamic and voluntary mass which does not enslave the individual for the sake of the collective. At the end of the day, each individual promotes his or her own interests, ensuring a vivid and dynamic business from which everybody benefits.

The concept of the "virtual corporation" goes back to the 1990s. Then, dot-com businesses came to the understanding that one doesn't need to keep all business operations in-house, and thereby became almost obsessed with outsourcing. Having had a part in the burst of the dot-com bubble, many companies then realized that sharing or outsourcing certain business operations could lead to competitive advantage in the market. John Sculley, former chairman of Apple, predicted in 1993 that the outsourcing movement in the 1990s would develop into today's virtual corporation. He knew that technological advancement would lead to "an explosion of entrepreneurial industries and companies that [would] essentially form the real virtual corporations."

Today, even entrepreneurs and subject-matter experts are using the power of the virtual organization because it allows them to be both small and large at the same time. While they are still considered small businesses in the eyes of the law and the market, they gain some of the benefits which large corporations enjoy. The synergy within businesses created by the formation of virtual corporations allows them to combine their efforts to increase and improve their performance and achieve economies of scale and scope. Furthermore, the virtual organization enables businesses to reduce complexity and achieve greater flexibility of response to changing market situations. Last but not least, the virtual organization supports resourcefulness, a priority requirement in unstable markets based on the ability to reconfigure the network of the business quickly without incurring any increased risk by doing so.

As technology develops more and more potential partners, it seems that suppliers and customers from across the world will enter this vibrant network. As it builds, the power of the network and its members will increase - but I believe it will aspire to empower rather than control.