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Virtual organization
toward a theory of societal transformation stimulated by information technology

Ubiquity, Volume 2003 Issue May, May 1 - May 31, 2003 | BY Abbe Mowshowitz 


Full citation in the ACM Digital Library

Mowshowitz, Abbe. Virtual Organization: Toward a Theory of Societal Transformation Stimulated by Information Technology. Westport, CT: Quorum Books (Greenwood Publishing Group), 2002.

Mowshowitz, Abbe. Virtual Organization: Toward a Theory of Societal Transformation Stimulated by Information Technology. Westport, CT: Quorum Books (Greenwood Publishing Group), 2002.

Virtual Organization

An electronic helpdesk designed to serve as an access point and gateway to a variety of customer services illustrates the central features of virtual organization. The success of helpdesk services hinges on the match between the requirements and offerings of the vehicles employed to deliver the services, on the one hand, and the abilities and desires of potential users, on the other. For a helpdesk to be useful, it must be easy to use and serve as gateway to a mix of services relevant to the needs of its intended public. Therefore, the design of a helpdesk must account for the demand side, or the needs and concerns of the potential client, as well as the supply side, or the services and delivery mechanisms available. One way to ensure a balance between supply and demand is to model delivery of helpdesk services as a management problem involving the dynamic assignment of available resources to requests.

The management problem can be formulated as: requests for service (e.g., information, advice, or transactions) via a helpdesk must be satisfied through available services (e.g., databases, human experts, expert systems, or other computer-based services). Note that both the requests and the set of available services vary dynamically over time. Requests vary because the public has rather diverse information needs, and service variations occur for organizational or technical reasons. For example, on the organizational side, a human expert might be serving another client or be unavailable due to illness; on the technical side, a system may be temporarily out of service or a communication link may be nonfunctional. Moreover, requests, taken collectively, may change over time, and the family of services may also change.

To accommodate the dynamic character of the problem, the organization of the process of assigning services to requests must itself be dynamic. This condition can be satisfied by means of virtual organization, an approach to management that explicitly recognizes the conceptual distinction between functional requirements on the one hand and the means for their realization in practice on the other, as well as providing a framework for accounting for the dynamic changes in both requirements and available services.

The virtual organization approach makes explicit the need for dedicated management activities that explore and track the abstract requirements needed to realize some objective while simultaneously, but independently, investigate and specify the concrete means for satisfying the abstract requirements. These complementary but distinct activities are essential in a dynamically changing organizational and technological environment. By logically separating requirements from the means for their satisfaction, management -- human or machine -- creates an environment in which the means for reaching a goal are continually and routinely evaluated in relation to explicit criteria. This management structure ensures that requirements are satisfied as appropriately as possible at all times.

The logical separation of requirements from satisfiers allows management to switch the assignment of satisfiers to requirements so as to optimize on the basis of explicit criteria.

Advantages of Switching

Switching contributes to improved organizational performance in three ways, namely, it facilitates efficient use of resources, enhances organizational responsiveness, and promotes organizational reflection.

Switching facilitates efficient use of resources by permitting the allocation of the same satisfier to different requirements at different times. The assignment of satisfiers to requirements is time varying, so satisfier x might be used for requirement a at time t and for b at time u. This is the case in virtual memory. At any given moment only a subset of the active users' programs are stored in the computer's primary memory. The correspondence table showing the assignment of primary cells to virtual cells changes as information is shifted between primary and secondary storage.

Switching enhances organizational responsiveness by allowing for the allocation of different satisfiers to the same requirement at different times. In this case, satisfiers x and y might be used for requirement a at times t and u, respectively. For example, at time t, company x supplies some component to meet requirement a; at time u, company y is the supplier.

Switching promotes organizational reflection because allocation procedures demand the explicit specification of the criteria for satisfying particular requirements. It is not possible to build an allocation procedure without clearly defined objectives. The logical separation of requirements from satisfiers -- the structural foundation of switching in virtual organization -- requires a dedicated activity dealing with optimality criteria or strategy. In conventional organizations, goals are scrutinized, if at all, on an ad hoc basis, typically in times of crisis; whereas, in a virtual organization, the examination and re-examination of goals is a regular activity of metamanagement (Faucheux, 1997).

In short, virtual organization promises greater flexibility and responsiveness. In particular, it can be used to improve resource utilization, achieve better quality products and services, strengthen managerial control, and lower costs. These potential advantages derive from two main sources: systemic use of switching as a management principle and explicit formulation of goals.

Enabling Virtual Organization

Systemic use of switching in virtual organization affects the management of a company's operations and its relations with employees, external organizations, clients, and the community. Switching calls for flexibility, favoring temporary relationships based on explicit rather than implicit agreements. To enable such temporary relationships, the parties (individuals, machines, departments, or organizations) to a transaction must be able to couple and decouple with ease. Coupling refers to the establishment of a relationship; decoupling, to its termination. The advantage of temporary relationships may be compromised if either coupling or decoupling costs too much.

Outsourcing (i.e., contracting with external organizations or individuals to perform functions that are or could be done internally) exemplifies the need for simplified coupling and decoupling. This practice, which has come into widespread use in recent years, is a precursor of metamanagement. It relies on competition in the marketplace to provide alternative possibilities for satisfying an organization's requirements. Outsourcing can be viewed as a component of switching, enabling a company to obtain the best products or services at the lowest cost or to realize strategic objectives. This is a natural extension of designating activities as cost or profit centers and treating transactions within a firm as exchange in an internal marketplace (Turoff, 1985). Management experience in identifying functions and contracting with external firms to perform them is a first step in creating the structure of virtual organization.

Outsourcing, as a particular instance of coupling and decoupling, exemplifies the 'cut and paste' operations described in chapter 2. With outsourcing a department or unit is identified and usually "cleared" from the company and a new department belonging to an outside firm in effect is "pasted" in its place. In organizations the trick is to identify a candidate unit or function for outsourcing and to make sure it can be replaced without unduly disrupting upstream or downstream activities. As yet there are no simple "highlighting," "cut" and "paste" operations in the realm of social organizations, but the standardization of interfaces will make it easier to perform such operations.

Virtuality and Globalization

Since the end of the Second World War, legions of economists, political scientists, and others have pointed to the growing influence of multinational firms. This influence signifies an increased independence of global business from governmental control and an accompanying diminution of government's effective sovereignty.

A global marketplace, featuring worldwide production and distribution systems, has come into being. Products and components may be made and assembled in dozens of locations in different countries, so that it is rarely possible to identify a product as American or Japanese or German.

Global businesses, which have come into being as associations within nation states and subject to their laws, are not supra-national entities like the United Nations. Nevertheless, multinational companies, as exemplars of virtual enterprises, are more likely than supra-national bodies to assume governmental functions and political power in the international arena. Indeed, virtual organizations are likely to inherit the mantle of nation states in all areas of governance, local as well as international.

Fundamental changes in socio-political organization occur only gradually, so even if these observations are correct, it should surprise no one that the nation state has not yet disappeared. The consolidation of power in the nation state itself required centuries to accomplish, and the process has not yet played itself out on the world stage. With these caveats, we may assert confidently that the nation state's primacy is indeed being challenged by global enterprises. The central issue here is the extent to which global, information infrastructure may facilitate activities -- especially commercial transactions -- that cannot effectively be controlled by government. Changes in the effectiveness of governmental control are exhibited in the internal structure and modes of operation of multinational firms, and in sectoral shifts in the economy.

Effective sovereignty is diminishing because multinational corporations are placing more and more revenue beyond government's reach. This development will continue for many years before it becomes generally recognized. In the United States, domestic changes will be most pronounced, but these will be masked by America's military presence in world affairs. The tables are turning. Once upon a time, adventurers conquered new territory on behalf of sovereign states; now the sovereign state is becoming the military arm of multinational adventurers. Money will be available to maintain the military forces required to secure the interests of American-based multinationals, but not enough to permit an independent foreign policy. Spending on domestic programs will shrink proportionately. Privatization of erstwhile public functions signals the beginning of long-term reductions in government spending on domestic, social programs.

Politics and Economics on a Collision Course

Whether by default or by design, the shift in public functions to private organizations signals the rise of virtual feudalism. This is a system that has all the earmarks of classical feudalism except that it is based on globally distributed resources rather than land. Power in virtual feudalism will be wielded by those adept at switching. Giant multinational companies have been the first organizations to use this principle effectively. However, enterprises of varying size -- regional as well as international -- may very well play a prominent role in the future. These entities will gradually become political as well as economic units.

It remains for future historians to find the "smoking guns" that could be compared to the measures adopted by Imperial Rome to stem the losses to its treasury. Stringent bankruptcy laws may be part of a package of such measures. Ready availability of credit in recent decades has stimulated the accumulation of massive amounts of consumer debt. Excluding home mortgages, the average American has debts amounting to 90 percent of annual income. In a protracted depression, a large number of people would be unable to repay their debts. If bankruptcy laws made it difficult to clear the slate, these debts would not be forgiven, so people would have the obligation but not the means to repay. Under these conditions it is likely that banks and other creditors would look for ways to recover some of the money owed to them. Experience with the marketing of revenue streams from debt instruments might inspire creditors to offer forgiveness of debt in exchange for a contract to provide labor or services for a specified period. Practiced widely, this would create an army of latter-day indentured servants, that is, virtual serfs to be employed as their owners see fit.

The lords of classical feudalism have counterparts in virtual feudalism. Some corporate executives will fall into this category. Heads of foundations may also play the role of lords in the new political economy. Wealthy industrialists may wield power and authority in the names of foundations they control. The role of military caste in classical feudalism (Bloch, 1961) could be played by hard-nosed business people in virtual feudalism. From our vantage point, the multinational company, for example, is a private entity that is chartered by public authority. Slowly, the definition of private and public will shift, so that what is now deemed to be political power will eventually come to be exercised by entities that are currently defined as private. This transformation is inevitable because the nation state will not be able to provide an adequate system of justice and defense. The resources needed to maintain public order and to prosecute breaches of the law by large corporations will simply be unavailable. National governments will not disappear, but their functions will be drastically curtailed.

Getting along in the Virtual Manor

Consumption has pushed work off center stage in the post-modern economy, but has yet to mount the stage itself. When it does, the audience will quickly realize that a new power has made its debut.

Consumption is inherently more universal than work. The conditions, if not the context, of consumption are largely controlled by the consumer. He who pays the piper calls the tune. At home, one controls the environment. Outside the home, the consumer can exercise considerable control since he pays directly or indirectly for the privilege of being there to consume. Conditions of work bear some resemblance to those of consumption in the case of individuals working under contract to an organization, but here too the organization usually calls the shots.

Virtual organization of consumption reinforces its universality. The attitude acquired through the practice of switching between different alternatives for a given need tends to obliterate differences in local conditions. Since the specific satisfier options are often available everywhere and requirements are increasingly conditioned or defined by global marketing, the experience of consumption is becoming a common denominator worldwide.

A new mechanism will have to be found to replace work as the key to personal fulfillment. As we have argued above, that key is consumption. However, it will take many decades before consumption takes on the function of work in the distribution of wealth and income. In the meanwhile, those who are chronically unemployed will suffer deprivation.

The New Face of Big Brother

Powerful new mechanisms of endogenous social control become possible with computer networks. These mechanisms evolving within virtual communities in cyberspace are analogous to the other directed social control or peer pressure operating within Riesman's "lonely crowd." These are internal rather than external controls. The electronic marketplace, through its facilities for automatic capture of client data, consumer profiles and lists, and targeted advertising enhances the possibility of endogenous control. Networks supporting the formation and transformation of groups, making it easy for individuals to enter and leave such groups, create opportunities for this form of social control to take hold.

Virtual individualism, unlike police and bureaucratic surveillance, does not directly confer power on political or managerial elites. Nevertheless, it may become Big Brother's most powerful ally, as Big Brother is transformed into a virtual presence in an electronic market oligopoly.

Reprinted with permission.


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