The New Virtual Business Organisation

by JJ Murphy

Learn how the new virtual sciences have impacted the new management organisational paradigm. Discover how online technology has necessitated a re-think of traditional business strategy and how to meet these changes.

The premise of this article contends conventional management methodology and infrastructure has neglected to sufficiently address an intricate global view which is especially subject to rapid change, fierce competition and the spiraling impact of information technology. Whilst current organisational systems developed by such researchers as Weber, Fayol, Taylor and Drucker in the 19th and 20th centuries created a management paradigm which has persisted to the end of the second millennium, these "basic" systems were more appropriate to an age when competition was slower, less aggressive, and were typified by extended episodes of relative tranquility. During this same period, the development of information technology was in its infancy. Obviously, the heralding of the 21st Century necessitates a reconsideration of these basic tenets, and, the creation of a management paradigm that can with stall the forces imposed by evolutionary change in a border less, connected and wired world.

Innovative information systems have given way to a new information/ knowledge-based economy resulting in the increasingly complexity of today's organizations. A 'virtual' environment has emerged from this new technology and has led to the development of new organizational structures and work practices. The consequences of this change now poses several management and leadership challenges for the conventional twentieth century management paradigm.

The technologic materialisation of e-mail, the Internet, telecommuting, and voice mail has generated such products as the virtual office, the virtual company and virtual teams. In order for these products to be used properly they must be carefully observed to understand the organizational code involved which means the discovered order of the organization.

Management scientists are increasingly becoming interested in what is now often referred to as the so-called "New Sciences". These New Sciences reject the trinity of reductionism, determinism and causality, and have been substituted with probabilities. Examining the theories of Quantum Mechanics, Complex Adaptive Systems, Chaos and Game Theory, among others, offers a deep conceptual insight into issues such as leadership, organizational design, management control, the structuring of relationships in the post-bureaucratic era, including more obscure precepts such as Culture, Vision and Adaptation. The New Sciences approach to management necessitates altering the traditional management paradigm to a new paradigm more favourable to the effective and efficient operation of "Virtual Management".

The Changing 'Management Paradigm': Virtual Management


This article will strive to explain the relatively new concept of the virtual organization. This concept has frequently been covered by the media (Bennett, 1999; Stewart, 1999; Bidoli, 1999), but it has only been cursorarily examined as a holistic concept. Particular sectors of industry have researched portions of the virtual organization/ workplace (Rockart, 1998), but this research is limited to their unique area of interest.

The article will expand the definition of a virtual organization, and will consider the repercussions for key areas within the organization. At the outset, the discussion will focus on the drivers of change towards the virtual organization, and especially how it is affected by the economy and technology. Afterwards, we will examine the changes occurring in organization structures, skills and competencies. Regard will also be given to the social elements, and especially the human element.

The function of the"New Sciences" in the management of organizations in the age of hypercompetition will also be examined to see if it could enhance our understanding and insight into the modern business organization. Because this is a new and exciting manner of managing a business, the amount of current research literature is scant. As expected this exploration into the unknown will raise more questions than there are answers. However, this is indicative of a new concept. It provides more opportunity for more thorough research which will allow a deeper understanding of the value added by this management paradigm.

The Traditional Management Paradigm

The Industrial Revolution gave rise to much of the most widely taught and applied management tools of modern times. These include such tools such as Porter's five forces framework, cost curves, and the concept of sustainable competitive advantage (Beinhocker, 1997:26). Binedell (1994:4) adds to this list Harvard Business School's SWOT model; General Electric's Competitiveness/ Attractiveness market model; the Boston Consulting Group's Growth Share Matrix; the Experience Curve; PIMS/ Regression Analysis; the Merger and Acquisition/ Shareholder Value model of the 1980's; Porter's updated Industry and Competitor Analysis model; strategic intent and core competence, and, most recently, the organizational transformation and learning organization models.

Beinhocker (1997) contends that industrial organization theory is premised upon neoclassical, micro-economic theory, which was developed in the 1870's, and was originated on the concepts of energy physics popularized some twenty years earlier. The neoclassical micro-economists then "copied the mathematics of mid-nineteenth century energy physics (Newtonian science), equation by equation, translating it metaphorically into economic concepts" (Beinhocker, 1997:26). These views were developed into a sound economic theory at the start of the 20th Century, and is the foundation for what he refers to as the "management's family tree" ( Descended from early thermodynamics through micro-economics, to Porter and his five forces model of strategy and a host of other management theories).

In harmony with this, Cook, Hunsaker and Coffey (1997: 568-575) contend that the First twenty years of the 20th Century produced several modems of thought which believed that management could be systematically learned and codified. Pellegrini (1995) proposes that Newtonian science, which became the prototype for most of the other sciences and social sciences, was responsible for this belief because it formed the way Western civilization considered "the nature of the universe, of man, and of God." Consequently, it became impossible to separate thinking about management from this all inclusive paradigm, which rationalised that the universe operated in harmonious order, which, if not readily apparent to man, was due only to his limitations. Pellegrini postulates that, in the end, every field of human endeavour adopted the Newtonian principles of causality and reductionism as the keys "to unlock virtually all aspects of man's existence".

This scholarly legacy is the foundation of today's management paradigm. The essential principles forming th basis of this paradigm are that: industry structure can be accurately determined; the law of diminishing return is pertinent; the parts comprise the whole; the law of causality is relevant; determinism is a fact of life, and companies are absolutely rational.

With this backdrop in mind, it is no surprise that Taylor's "scientific management" movement of the early 1900s believed that to scientifically observe people at work would illustrate the absolute best means to perform any task; or that Henri Fayol's "administrative management principles" raised the study of management from the shop-floor to the total organization; or that Max Weber's bureaucratic theory permitted a structure to coordinate specialized functions and to standardize procedures to attain optimum efficiency. It is true these beliefs were adapted to behavioural approaches and systems theories but, regardless, what should be emphasized is the persisting influence these early theorists have on management thinking right up to current times.

A New Reality

The techniques, concepts and structures expressed by Taylor, Fayol and Weber have been shown to be less relevant in the modern and increasingly connected/ wired world. Organizations have discovered that conventional management methods and structures were formed in a period that was characterized by "closed equilibrium system" thinking. It was an era when businesses were stable, competitors were rare, clients loyal, and financial results predictable but now fails to sufficiently address the realities of a complexity-based view of the world in a new age defined by D'Aveni (1994) as one of "discontinuous change and hypercompetition".

D'Aveni, (1994), Ohmae (1995 ), Beatty and Ulrich (1993), contend that several trends arose in conjunction during the 1980's, and arose mainly because of the convergence of existing and new technologies. Globalization, reduced technology cycles, shifting demographics, changing expectations among workers and clients, the restructuring of capital markets, the exponential expansion of information technology and computer networks, the rapid advances of information science, as well as the dismantling of hierarchy, are all examples of these trends.

From this foundation that Toffler (1999) distinguishes a Third Wave which he labeled the Information or Knowledge Age, premised by a new economic reality. This differs from the standardization ethic, which lead the Second Wave, in terms of the degree of "individualization and diversity" that technology has made possible.

Stewart (1993:32) has noted several of the results of these trends The frenzied tempo of change in technology, geopolitics and markets has left many organizations susceptible. Computerized information systems have resulted in lower unit costs and higher productivity; size is no longer sufficient for big organisations to rule in a market of fast-moving, flexible smaller organizations; ever evolving technology has made the notion of the experience curve irrelevant as a strategic competitive tool, and the client and consumer are both better educated and want more. Additionally, emerging around these trends is the total new information economy, identified by Toffler. Here, the basic sources of wealth are knowledge and communication, rather than natural resources and physical labour.

In summary, these authors contend that the current/ conventional viewpoints on management are insufficient to adapt to a hypercompetitive and fast changing environment. These conventional methods are more appropriate to slower and less aggressive competition, featured by extended periods of stability between disruptions. New methods and management systems are needed by the intricate, rapidly evolving business environment of today. As economies and organizations become increasingly intricate, as the environment alters more swiftly, and as acceptable response times lessen, the old management structures simply fail to provide gratification. Finally, as a result of the technologically induced changes to work practices, new leadership and management challenges are continuously emerging.

One of the impacts that technology - as defined by Beatty and Ulrich (1993), D'Aveni (1994), Toffler (1999) and Hardison (1989) - has had on society, particularly technology that permits individuals to communicate across intra- organizational and inter-organizational boundaries, is the development of what Noble (1996) refers to as the "boundaryless organization in a borderless global marketplace". Robbins states that (1996:565), the boundaryless organization "seeks to eliminate the chain of command, have limitless spans of control, and replace departments with empowered teams". In this organizational form, vertical boundaries are eliminated to smooth out the hierarchy, and horizontal boundaries are eliminated to substitute functional departments with cross-functional teams and to organize activities around processes.

When fully operational, boundaryless organizations get rid of the obstacle of geographic distance from outside constituencies. These organizations can be characterized by a diminished need for a command-and-control style of leadership; a breakdown of hierarchies; an mounting obligation to virtual technologies; dependence on teamwork; greater flexibility; and knowledge centres that interact mainly through mutual interest and electronic - rather than authority - systems.

In reply, new organizational structures have materialised, including virtual enterprises (defined as small, core organizations that outsource major business functions), imaginary corporations, dynamic networks, and flexible work teams (Raghuram, Garud and Wiesenfeld, 1998). The materialisation of these so-called virtual companies, and the increase of outsourcing and telecommuting, will obviously lead to the expansion of of freelance and temporary workers. On the other hand, large corporations will become dominated by ad hoc project teams and independent business units. All trends point to the decentralization of huge, permanent corporations into manageable, temporary networks of individuals, connected by personal computers and electronic networks, who form together to produce and sell goods and services, and who, when the job is done, again become independent agents.

More relevant, these organizations are welcoming new technologies and work practices. Some of these include:

  • Telecommuting: defined as professionals working distantly, not only at home, but while on the move, in cars, hotels, branch offices, and any other off-site locations.
  • Group teleconferences or tele-meetings: employed instead of on-site meetings.
  • Group tele-classes: used to perform training over the telephone, rather than on-site.
  • Just-in-time training modules: these will be offered via website, e-mail, fax-on-demand, or by teleconference to allow immediate training and solutions for staff that encounter technical challenges.
  • E-mail: electronic mail replacing the slow land, sea and air based mail systems.
  • Voice mail: practical system for people in the field to call in their results.
  • Paging: used to transmit messages during the day to keep everyone updated " And motivated". Website/ Intranet: capable of becoming data collection and gathering facilities to lower the number of e-mails. " Project management software: enables team members to keep in touch with all aspects of a project. " Groupware software: defined as collaboration and tracking software - such as Lotus Notes - that permits any team individual to communicate directly with other members without physically having to speak to them or to visit them (Leonard, 1997).


Naturally, these developments raise several questions around the issue of management in this virtual landscape, particularly around the management of human resource issues such as productivity, job satisfaction, organizational commitment and company identification. Other issues, such as skills, empowerment, motivation, relationships, leadership, responsibilities, authority, accountability, status and power, all present their own unique challenges.

Additionally, Virtual Management (with its applicable technologies and information systems) as a potential remedy to the noted trends and developments, cannot be effectively and efficiently realized unless we go beyond the insights given by Newtonian science. Comprehending this new organization as an intricate adaptive system, its architecture, its dynamics, and its organizational code, suggest a level of understanding beyond what is taught in most business schools today.

Fortunately, the so-called New Sciences promises a great deal in the promotion of our understanding of the intricacies of the business organization and its environment.

Whereas the current theoretical concepts are controlled by the increasingly less relevant Newtonian Science, the New Sciences of Quantum Mechanics, Complex Adaptive Systems, Chaos Theory, Game Theory, Field Theory and others, will prove the most vital from the present viewpoint.

Emerging New Approaches to Leadership and Management and their Interface with Virtual Management

Margaret Wheatley (1994) uses the New Sciences to illustrate how several of the issues previously considered might be accommodated. Wheatley reveals how the New Sciences - including Quantum Physics, Chaos Theory, Chemistry, and Molecular Biology - offer insights into changing how organizations organize "work, people and life", so they can meet the strategic imperatives defined by D'Aveni. Wheatley especially uses the New Sciences to apply scientific concepts to the difficulties of order/ change; autonomy/ control; structure/ flexibility; and planning/ innovation within organizations, and in so doing, calls, respectively, for free-flowing information, individual empowerment, relationship networks, and organizational change that evolves organically.

Other primary points that arose from her work that relate to previous discussions include:

  • To exist in a world of change and chaos (hypercompetition), companies will need to: accept chaos as an indispensable means by which natural systems, including companies themselves, renew and rejuvenate; share information as the main organizing force in an organization; create a variety/diversity of relationships to invigorate workplace teams; and adopt vision as an invisible field that will provide assistance to recreate workplaces.
  • In natural systems, order is not imposed from without (control systems), but develops naturally from within.
  • Chaos Theory teaches that organizations must agree on what they are attempting to achieve, and the values by which they operate.
  • Quantum Physics teaches that particles do not exist independently of their relationship to each other, and neither do people, who are the "waves of potential" moving through the space of organizations. Relationships are the substance of self-organizing teams, while information is the foundation of all change and the "life blood" of the organization (Kane, 1998).

Wheatley (1997) maintains that the primary ramifications which arise from these central points are:

  • To achieve access of the self-organizing capacity of people in organizations, managers do not need to just get out of the way, but have to actively set the conditions that support self-organization. Realistically, this means embracing the understanding that structures, plans, designs and accountabilities can materialize from the organization, and need not be imposed from above, as in previous times. People need a deep sense of connection to the purpose of the organization, and what it is attempting to accomplish, for the organization to have meaningful direction and to be optimum influential. Leaders must provide succinct, consistent and honest attention to the identity of the organization, which is revealed in actions, visions and relationships both from within and from without the organization. When employees fully understand these issues, and there is real agreement at the hub of the organization, people are free to react beneficially clients, solve unexpected problems, and to be creative and innovative. This is precisely the sort of dilemma discussed previously. Management must discover a means to solve this paradox.
  • By developing the conditions that support self-organization, a leader also creates an organization in which people trust and believe in each other. They do not need to get into regulating and coercing behaviours. This will develop employees with enormous commitment and creativity.

This new approach to organizations is a dramatic shift away from thinking of organizations in mechanistic terms, as collections of replaceable parts, where leadership looks for prediction and control. A paradigm shift like this can only occur successfully if the required tools and mechanisms are available to support the application of the fundamental insights, offered by the New Sciences, to the complex adaptive system, i.e. the " Organization ".

We are especially referring to the surfacing of virtual technologies such as e-mail, fax, voice mail, teleconferencing etc...

An Example of the Interface between the 'New Sciences' and Virtual Management

Field Theory

The foundation of Wheatley's New Science thinking is Field Theory, which has developed to the point where Fields are considered to be the "the substance of the universe" (Wheatley: 1994:50).

Wheatley (1994: 50-57) believes that Field Theory presents insights into successful organizations, where organizational space is defined in terms of fields, "with employees as waves of energy, spreading out in the organization, growing in potential". She asserts that concepts such as values, vision and ethics can be defined as fields which stretch to all areas of the organization and can permit a more subtle and effective form of order and control than conventional authority structures. This can occur so long as the "space" in an organization is filled with concise and coherent information that employees face daily.

Murphy (1998) discusses the concept of Vision and concludes that Vision can be equated with a force field that permeates the whole organization:

"In practical terms, this means that the newly formed business will rapidly create and construct a language, a culture, and a belief and value system that are a derivative of the environment: "

  1. as defined by the leader or founder,
  2. the social and ethical values of the society (the business environment), and
  3. any other force fields that interface or interact with the infant organisation.

It not only pervades the organization, but, represents the Paradigm Box, the Organizational Code of the Organization. It is the single most controlling factor in the organization.

Wheatley's "new science" thinking summarizes the very core of the Third Wave Institute's definition of management in virtual organizations. Here, processes, not people, are managed. Vision is central to the achievement of organizational objectives. Finally, by acquiring suitable human resources, and by allowing them to function under conditions that maintain self-organization ( telecommuting, e-mail, voice mail etc. ) will result in a devoted and creative team better suited to realizing the flexibility needed to reply to external change in a post-bureaucratic era.

Equally, the self-organizing nature of Wheatley's concepts dovetails nicely into the modern technological environment, where people work largely independently of each other, and without the manipulating features of either the central corporate head office or traditional hierarchy. Again, to attain the flexibility necessary for ongoing innovation, greater decentralization, less specialization, and looser controls will be required.

Simply put, the organizational structure, control systems, management style, and interpersonal relationships conducive to the efficiencies necessitated by the "Second Wave" will mostly obstruct the creativity and flexibility required by organizations in the "Third Wave". Effective management in this increasingly virtual environment means that the principles of chaos, self-organization, Field Theory, and Quantum Physics must be both understood and endorsed to achieve goals and to facilitate decentralized decision-making; team participation in strategy formulation; increased responsiveness to customer requirements; and more flexibility in reacting to marketplace disruptions.

Characteristics of the New Management Paradigm

Hanswerner Voss (1998), an independent management consultant who resides in Germany, wrote 'Virtual Organisations, the future is now'. In this article he described the features of virtual organisations. He declared that these organisations have five overarching characteristics in common:

  • They possess a common vision and objective, or, a common protocol of operation.
  • They group activities around their primary competencies.
  • They work together in teams of core competence groups to execute their activities in one holistic approach throughout the value chain.
  • They process and distribute information in real time throughout the entire network, which permits them to reach decisions and coordinate actions rapidly.
  • They tend to delegate from the bottom up whenever economies of scale can be attained, new conditions occur or explicit aptitude is needed to serve the requirements of the entire group.

This emphasizes the fact that the golden threads that run through a virtual organization revolve around vision, core competencies and speed of delivery.

A profound feature of the new management paradigm is the virtual workplace. Marc Wallace defines the virtual workplace as a space that is not tied to a visual or physical location. It exists as a platform to conceive, produce, and deliver a virtual product or service. In this regard Mr. Wallace has identified three unique approaches telecommuting, frontline and cyber link.

Anthony M Townsend (1998) adds another dimension to the discussion with the concept of the virtual team.

Townsend (1998) argues for virtual teams by proposing that despite how modern organizations are confronted by a variety of challenges in a competitive environment, the primary need is to move from conventional one-on-one teams to virtual teams stems mainly from five specific factors, namely:

  1. The increased dominance of flat or horizontal organizational structures.
  2. The appearance of environments that must have inter-organizational co-operation.
  3. Alterations in worker expectations of organizational participation.
  4. A perpetual shift from production to service/ knowledge work environments.
  5. The mounting globalization of trade and corporate activity.


The era of the virtual organization is rapidly becoming a reality. The ramifications of this must be dealt with urgently in this modern era, as the adoption of ever newer technologies and the emerging trends discussed previously will persist in manifesting at an exponential rate. What is also obvious is that the traditional management framework is increasingly showing itself to be inadequate in managing the new market reality.

Traditional theories and practices don not provide the required guidance and support for decision-making in a world of change, complexity and uncertainty. This is what is steering the move towards a new management paradigm where the purpose of management will be radically redefined to consider the emerging realities. If companies are to prosper - to be drivers of their industries - they must proactively embrace a new management philosophy that recognizes the dynamics of information science, accelerating change, a borderless world, the holistic approach, the New Sciences, as well as the growth of technology, and, in the words of Vernor Vinge,"the dawn of the Technological Singularity." (1993)


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