VIRTUAL CORPORATION

What is Virtual Corporation?

The term virtual corporation is used to describe a network of
independent firms that join together, often temporarily, to
produce a service or product. The ultimate goal of the virtual
organization is to provide innovative, high-quality products or
services instantaneously in response to customer demands.

The term virtual in this sense has its roots in the computer
industry. When a computer appears to have more storage
capacity than it really possesses it is referred to as virtual
memory. Likewise, when an organization assembles resources
from a variety of firms, a virtual organization seems to have more
capabilities than it actually possesses.

Background
The concept became popular during the dot-com era, when
demand was high for new kind of services that traditionally
organized companies relied on outsourcing to perform. In the day
of the dot-com related businesses it seemed like everyone was so
busy that they had to outsource most of their jobs to someone
else.

Virtual organization is not appropriate in a stable market at a time

when there are no technological upheavals.

In such corporations, partners change as the markets change.

This means that it must be possible to implement such changes
quickly without sacrificing the necessary security. System
functionality must be as broad as possible in order to support the
three forms of communication mentioned above. This places very
high demands on standardization. At the same time, the
penetration of the technology is also an important factor. The
more potential partners, suppliers, and customers that have
access to the technology, the greater the flexibility - in technical
terms - that can be built into the network structure. Internet
technology appears to meet some of these requirements better
than others, even though, at present, it is still greatly lacking in
terms of functionality. All this means, however, is that
corporations still have to create the applications that are missing.
Current trends indicate that this is exactly what many large
corporations are trying to do. IBM, McDonnell Douglas and many
others are currently converting their corporate networks to
intranets - therefore using Internet technology within their
corporations.

Beneficiaries
Beneficiaries are people who are the ultimate customers as
the best quality products, the government as it can outsource to
private companies, the companies themselves as they make
profits, employees as they have exposure to outer companies.

SWOT analysis
Strengths:
Virtual corporations have an advantage of outsourcing, so the
process is in rapid action thus the companies are able to bring out
creative ideas by brain storming activities.
Weakness:

The differences in corporate culture of participating companies

can be an obstacle.

Opportunities:
All products are outsourced in virtual companies, so the overhead
costs are much reduced, because of cost cutting measures, the
company will be able to serve the customers better.

Threats:

Virtual companies are in fact balancing on a tight rope. So the

participating company has to do their best to create an identity in
corporation. Power and Authority that play an important role in an
organization do not have the same place in virtual corporation.

Examples
Computer organizations that have successfully implemented
forms of this new structure include Apple Computer and Sun
Microsystems. When Apple Computer linked its easy-to-use
software with Sony's manufacturing skills in miniaturization, Apple
was able to get its product to market quickly and gain a market
share in the notebook segment of the PC industry.

In the retail industry, Wal-Mart’s point-of-sale information

system was directly linked to West Bond manufacturing operation
so that West Bond could provide Wal-Mart with 100 percent fill
rates on all product lines.

Challenges
• Faster cooperation, trust and empowerment.
• Ensure each partner contributes and identifiable strength or
asset.
• Ensure skills and competencies are complementary, not
overlapping.
• Ensure partners are adaptable.
• Ensure contractual agreements are clear and specific on
roles and deliverables.
• If possible, do not replace face-to-face interaction entirely.
• Provide training that is critical to team success.
 • Recognize that it takes time to develop the team.
• Ensure that technology is compatible and reliable.
• Provide technical assistance that is competent and available.

Advantages of Virtual corporation

Virtual corporations require less individual investment in
human resources, manufacturing space, investment in tools, and
development time. Participating companies need not invest
heavily in fixed assets and thus can use scarce resources to
better advantage.

They focus on the core competencies of each participating

organization. Virtual corporations are beneficial to all partners
involved, as only win-win alliances are made. They offer power
and manufacturing flexibility Virtual corporations make it possible
to quickly respond to changes in the manufacturing environment
and to turn out new products in a short time.

Virtual corporations increase responsiveness to customer

needs and allow customers to participate in the design and
production process. This leads to increased customer satisfaction
and profits. Given this new capability and motivation, Japanese
car companies are trying to produce customized cars within 72
hours. They provide operation flexibility, since partners can be
changed readily Partnerships are not long-lasting; alliances come
to an end as soon as the intended objectives are attained. For this
reason, organizations can be involved in many alliances that
would be otherwise impossible.
 They make it possible to create the best product or service
since the core competencies of participating firms are integrated.

Disadvantages of Virtual Corporation

First, participating partners have access to each other's
trade secrets, technology, and data.

Second, virtual organizations need a new breed of managers and

workers.

Power and authority that play an important role in classic

organizations do not have the same place in virtual organizations.

Differences in the corporate cultures of participating companies

can be an obstacle. Because of the serious limitations and
complexity of the partnership, not all virtual corporations are
successful.

Virtual Corporation Success

What exactly differentiates virtual corporations that succeed
from those that fail? What is the recipe for success? Analysis of
successful and unsuccessful virtual organizations has resulted in
the identification of nine factors that may contribute significantly
to the success of virtual corporations. They are outlined below.

Focus on customer needs:

Virtual Corporation is a temporary network of organizations

coming together for the specific purpose of meeting customer
needs. The virtual corporation should be highly focused on the
customer. It should arise from a response to customer need and it
should disintegrate with the fulfillment of that need. In successful
virtual organizations, the "pull" strategy, which draws from the
market/customers, replaces the "push" strategy. In today's fast-
paced economy, organizations that intelligently forecast or
discern customer needs and meet them in a timely fashion reap
success.

Choice of right partners with right core competency:

The structure of virtual corporations is predicated on

competency needs rather than on convenience of location, cost,
etc. Core competencies form the fundamental nucleus of virtual
corporations and represent the most important factor in success
or failure. Virtual corporations should focus only on those core
competencies that create value and give competitive advantage.
Ideally, core competencies should be "those things that are
difficult for the competitors to replicate," according to Heather
Ogilvie. Each core competency brought into the alliance should
complement other competencies in the virtual corporation. A
synergy should develop that helps the alliance reach its goal
quickly, efficiently, and effectively. Partners who are trustworthy,
open, and cooperative and who enjoy certain competitive
advantages in the marketplace are vital to the success of virtual
corporations. It demands effort and scrutiny to find honest
organizations that have the necessary core competencies and
that are reliable.

Win-win outcome for all participating organizations:

The goal of the virtual corporation must merge the interests

of all partners, as the success of a virtual corporation depends on
the degree of collaboration and cooperation between each of the
allied partners. All participating companies rely on the
competencies and support of everyone to achieve the goal.
Exploitation or bullying will derail the alliance.

The role and function of each participating company should be

clarified. A balance of power among all involved must be
established for the success of virtual corporations.

Trust:
 As the virtual corporation moves beyond the traditional
boundaries of the office or manufacturing plant, trust becomes
essential. A virtual corporation is built on core competencies but it
is cemented with trust. Participating organizations must have
total trust in each other's ability to contribute successfully to the
virtual corporation. While component companies may be
competitors or archrivals in other areas of business, there must
be collaboration within the venture. The cooperative relationship
is strengthened by constant and open two-way communication.

Conclusion
The virtual corporation is fast becoming the new standard in
business. The business environment will no doubt require firms to
become even more flexible, more agile, and to bring products and
services to market at an increasing rapid pace. Traditional
organization forms are no longer capable of sustaining the needs
of this relentless pace.

New forms of organizing, such as the virtual organization,

hold promise as organizational leaders experiment and learn new
strategies for managing in the twenty-first century and beyond.
These new structures, however, will require managers and
leaders to face exciting challenges as they move into an
environment of increased uncertainty and volatility.

By Group 4

Nidhi
Raju
Sujith
Sreejith
Surender
Chakradhar