Virtual Organizations and Innovation Outcomes

Seminar Paper, 2011

8 Pages, Grade: 1,3


Virtual Organizations and Innovation Outcomes


The global business world experiences dramatic developments, shifts and challenges since the end of the last century. Factors such as international competition, knowledge-based production, technological changes, advances in IT, and deregulation play an increasingly important role. Hence, conventional organizational concepts and structures of the ‘old economy’ come under growing pressure due to insufficient capabilities to deal with these landslide changes. Traditional organizational structrues, most prominently the classical bureaucracy with its conventional formalized and hierarchical form, are displaced by new organizational forms. More horizontal relationships, with partners (internal or external) being only focused on core competencies, take the place of old vertically structured hierarchies. More interactive communication approaches, both vertically and horizontally, can be observed. More decentralized management concepts lead to incentive-based and increasingly autonomous project teams (Clegg, Kornberger, & Pitsis, 2005, p. 96-97).

According to one of the most renowned management theorists Henry Mintzberg (1981), for every specific configuration of an organization’s environment and its tasks, particular organizational structures fit best. Therefore, one could expect that new organizational forms are best capable of dealing with prevailling challenges such as innovation. This essay aims to analyse the case of virtual organizations and the way they might shape, and/or derail the processes and outcomes of innovation.


Since the first appearance in the academic literature in 1986, the term ‘virtual organization’ has been defined and used in many different ways (Franke, 1999). Up to now, there are various interpretations that differ from one author to another. Ahuja and Carley (1999, p. 742) see a virtual organization (VO) as a geographically distributed organization whose members are bound by a long-term common interest or goal, and who communicate and coordinate their work through information technology. Others authors such as Byrne (1993) define a virtual organization as a temporary network of independent companies - suppliers, customers, even rivals - linked by information technology to share skills, costs, and access to one another's markets, having neither central office nor organization chart nor hierarchy nor vertical integration. These two definitions illustrate the main differences that persist in the literature when dealing with the problem of capturing and narrowing the term ‘virtual organization’ futher down. Questions arise whether they are more temporary or rather long- term, whether it is an informal network or rather a single enterprise, whether they have clear structures or rather intransparent arrangements. I will use the following meaning of Iskoujina (2010) who defines virtual organizations as a networking of independent companies/individuals who work together temporarily but geographically/organizationally dispersed for one business aim linked by Internet-based technologies. It represents the state- of-the-art most precisely and does include every author’s interpretation that will be refered to further on. Concurrent with the variety of differences in interpretation of the term ‘virtual organization’, it has to be mentioned that there are numerous terms being used besides this one, such as ‘virtual enterprise’ or ‘collaborative networked organization’ (Camarinha-Matos & Afsarmanesh, 2004, p. 8-10). For the sake of clarity, the term ‘virtual organization’ (VO) will be used in this essay to include all these and other similar emerging forms.

Reasons for emergence

VOs are perceived as solutions for the necessity of more flexible, adaptable, and decentralized structures in the modern business environment (Jaeger, 2003). In this way, several advantages of VOs have led to their emergence since the 1990s. Firstly, a network of several enterprises, specialized on different core competencies, can react faster and more flexible to occuring changes in the environment. Due to synergistic effects, as a consequence of division of labor, VOs can offer more complex and complete product portfolios. Secondly, they have the potential to decrease costs significantly compared to rather traditional competitors because costs for the development and implementaion of new products can be shared among the network members. Skills, which are required for product development tasks, can be accessed from other partners and do not need to be obtained independently. Furthermore, being member of such a network opens gates to international markets where collaborating enterprises already have access to. Typical barriers for entering international markets are much lower and thus it offers new sales potentials (Camarinha-Matos & Afsarmanesh, 2004, p. 20-22). To sum it up, VOs have great potential due to their chance of providing quick access, using Information and Communication Technology (ICT), to diverse and flexible pools of resources which can lead to competitive advantages in a highly changing and demanding business environment.

Impact of organizational form on innovation outcomes

As it was shown, VOs represent a dynamic organizational form, trying to meet the challenges of growing future competition. Their temporary, flexible and dynamic nature can make them an ideal instrument to catch upcoming business opportunities. Network members and infrastructure are selected, reconfigurated, and integrated in order to develop, produce and/or sale new products or services.


Excerpt out of 8 pages


Virtual Organizations and Innovation Outcomes
University of Auckland  (Management and International Business)
Contemporary Issues in Organizations
Catalog Number
ISBN (eBook)
File size
404 KB
Virtual Organizations, Innovation, VO, network organization, virtual enterprise, collaborative networked organization, new organizational forms, Mintzberg, collaboration, Breeding Environment, Virtual Breeding Environment, Distributed Innovation Management, Knowledge Management
Quote paper
Ronny Röwert (Author), 2011, Virtual Organizations and Innovation Outcomes, Munich, GRIN Verlag,


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